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Good Planning Can Change Perceptions

You might remember the first trading day of 2021. It was a sell-off. The Dow Jones Industrial Average dropped more than 300 points amid concerns about global coronavirus cases and the Georgia runoff elections. It closed 382.59 points lower, or 1.3%, at 30,223.89.

Fast forward to November 2021. The Dow jumped above 36,000, a record high. The S&P 500 and Nasdaq also hit new highs as corporate earnings fueled optimism about economic recovery. Of course, past performance is no guarantee of future results, and we understand that. But thus far, it is safe to say it has been a good year for investors. And it isn’t over yet.

“Falling Out of Favor?” Really?

So some people were wondering about these headlines: “Stocks are falling out of favor with investors,” and “Americans prefer cash to stocks for long-term investing.” Think of your own portfolio and recall where its value was 10 years ago? Is it fair to say that at least some part of your portfolio was invested in stocks or mutual funds and responsible for some of that growth?

Now, equally surprising, a July 2021 survey from Bankrate asked more than 1,000 Americans what they consider the best way to invest money they won’t need for 10 or more years, according to Acorns+CNBC.

For the first time since 2017, investing in the stock market came in a distant third, chosen by only 16 percent of respondents. Cash investments, like CDs or savings accounts, were second, chosen by 24 percent of the respondents, and what actually topped the survey was real estate, chosen by 28 percent of the respondents.

“The strong preference for cash is ironic, given record low interest rates and renewed concerns about inflation, and could be particularly damaging the longer inflation exceeds returns on cash investments,” said Bankrate Chief Financial Analyst Greg McBride. “While the pandemic has underscored the need to have sufficient short-term savings, cash investments do not pay off over long time periods.”

In a previous 2020 Bankrate survey, investing in the stock market came in first place, with 28 percent of respondents, who chose it as the best way to invest long-term.

Erosion of Wealth Prevention

Cash is not an investment. Holding cash or moving to cash is not always a wise move because you could miss out and lose out on gains simply due to bad timing being out of the market when it decided to roar back, so to speak.

While it is sometimes typical for some clients to have more liquidity than they really need, the truth is, if three percent of their money is not earmarked for an emergency fund, then it should probably be invested in some way, likely for growth. There is no return on cash sitting somewhere on the sidelines doing nothing and vulnerable to a loss of buying power from inflation eating it up at 5.4 percent. And that’s where perception comes in. Is it still “emergency money,” even though it is not in an emergency fund per se, or is it just plain old cash protected in some account insured by FDIC?  There is a difference between safe money and money earning more than zero percent. So, having cash is only valuable up to a certain point. And then it’s not.

Regardless of Stock Market Swings or Sentiment

Your Hefren-Tillotson financial advisor conducts ongoing reviews with you throughout the year, which aids in his or her year-end formal review using a checklist in your meeting.

It is here that they can reassess and reinforce your asset allocation and risk tolerance; they can evaluate what has worked and what needs tweaking, what should change now or in the future, and if charitable contributions or new investments need to be made from life events, like inheritances, home sales, college planning or additional estate planning.

It is all part of how your financial advisor works for you, while also staying on top of managing and monitoring your portfolio, setting new goals, and re-evaluating your current tax strategies to keep your tax bill to a minimum. With Hefren-Tillotson, it is a collaborative effort to help define where you’ve been, where you want to go and how you want to get there. It is what we do on a daily basis with absolutely no guesswork involved.

By design, financial planning is increasingly tax-driven. Your advisor thinks about things in a tax-efficient manner. Most tax tips, strategies and suggestions are worthless without an understanding of your current tax situation, aren’t they? Sure, taxes must be paid; we want to make sure you only pay your fair share

Your Hefren-Tillotson advisor understands your current tax situation and how basic investment management issues like rebalancing, bond swaps, or how tax loss harvesting can help minimize taxes and make the best use of your investment losses when you have them. Using income and deduction strategies for year-end tax planning can prevent you from being pushed into a higher or lower tax bracket. Clearly, there are some financial advisors who do not want to get involved in tax planning, so they integrate with a CPA.

You probably know by now Hefren-Tillotson financial advisors are not tax advisors and do not give tax advice. If you would like some unbiased clarity, or even a second opinion about your year-end situation, please give us a call today. We would happy to help.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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