Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with news about the latest IRS regulations that definitively close the door on the potential for individuals in high-tax-rate states to preserve their SALT deductions by converting them into charitable deductions to state-run charities instead, as the Service declares that donating to a state-run charity in exchange for a state tax credit amounts to a quid-pro-quo transaction that would reduce the deductible amount of the charitable contribution all the way to $0. Also in the news this week, though, was a look at what kinds of tax policy changes the Democrats might take up and propose in 2019, including repealing the SALT cap, if they are in fact able to retake control of Congress in the mid-term elections this fall.
Also in the news this week were a number of interesting articles about the economy and markets, including a major revision from the Bureau of Economic Analysis to the personal savings rate data that reveals the U.S. consumer is actually saving at a whopping 7.2% rate that is well above 30-year averages (despite the fact that the so-called “wealth effect” normally decreases personal savings rates late in the economic growth cycle), the revelation that labor markets are becoming so tight that the mid-summer unemployment rate for 16-24-year-olds has dropped to a 52-year low, and a look at the recent buzz and President Trump’s proposal around changing quarterly earnings reports and guidance to become semi-annual (twice-per-year) instead and why if we really want to reduce the focus on earnings and market volatility the key is not to report earnings less often to instead to make the guidance more often (e.g., monthly or even daily through technology) so no one data point is ever so impactful anymore.
We also have several behavioral finance articles this week, from a look at what to do when clients don’t follow our advice (and why oftentimes clients aren’t actually looking for advice from their financial advisor about a major decision anyway, and really just want support for the decision they already made instead), to the importance of culture in determining whether advice is appropriate (or even relevant) for a client, why trying to imagine yourself in someone else’s shoes is actually a terrible way to understand their perspective (and how it’s far more effective to just ask them to share their perspective), and how managing clients so they don’t panic in a bear market isn’t just about dialing down the volatility in their portfolios so it doesn’t trigger any emotional fear in the first place but also looking at how we as advisors can create ‘circuit-breakers’ that help to prevent a volatile market event from translating all the way into an actual hasty and ill-timed action.
We wrap up with three interesting articles, all around the theme of balancing financial wealth and time: the first looks at how one the greatest challenges in wealth accumulation is that we think of wealth in terms of the outwardly expensive things that people own (fancy homes, cars, and jewelry) when in reality it’s the decision not to buy those things that are the greatest driver of wealth (which means wealth is best created by what we don’t see, not by what we do see!); the second explores the trade-offs between time and money, and how sometimes the best advice we can give is not about how to prudently save money, but how to prudently spend money in order to save time instead; and the last explores the reasons why very affluent individuals sometimes choose to remain anonymous and unseen with their wealth, preferring instead to be rich but not famous (an important mindset for advisors to understand about their clients)!
Enjoy the “light” reading!
source https://www.kitces.com/blog/weekend-reading-for-financial-planners-august-25-26-2/
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