by MSE Staff | Published 15 Feb 2022 

As the 2021 tax filing deadline rapidly approaches, individuals and families alike are starting to think about their taxes. In this blog post, we will explore four major areas of taxes for personal finances: tax liability, taxable income, tax credits, and tax deductions. Each of these concepts is important to understand in order to make the most of your short-term and long-term financial planning. Keep in mind that this information is specific to individuals living in the United States; other countries may have different rules and regulations when it comes to taxation.

Tax Liability:

Your tax liability is the amount of money you actually owe in taxes for a given year. It's calculated by taking your taxable income and subtracting any applicable credits or deductions. If this number ends up being less than zero, then you will receive a refund from the IRS instead of paying more in taxes.

Taxable Income:

This is the amount of income that is subject to taxation. It's calculated by adding up all of your taxable sources of income and then subtracting any applicable exemptions or deductions.

Tax Credits:

Tax credits are a dollar-for-dollar reduction in your tax liability, and they can be claimed for a variety of reasons such as having children under the age of 18 or paying someone to take care of them while you're at work. There are three types: refundable, non-refundable, and partially refundable credits which we'll discuss below.

Refundable Credits - If your tax liability is less than $0 because these credits exceed your taxable income, then some portion (or all) will be paid to you as a refund.

Non-Refundable Credits - These credits can only be used to reduce your tax liability down to $0; any excess amount is not refunded to you.

Partially Refundable Credits - If your tax liability is less than $0 before because a portion of these credits exceeds your taxable income, that portion may be refunded up to a specified amount of the remaining credit.

Tax Deductions:

Tax deductions are expenses that you can subtract from your taxable income in order to lower your tax bill. There are two types of deductions: standard and itemized.

Standard Deduction - This is a fixed amount that everyone gets by default without having to provide any additional documentation or information about their finances/spending habits.

Itemized Deductions - These are expenses you have incurred over the course of the year which may be deducted from taxable income if they meet certain criteria. These expenses include things like mortgage interest payments or charitable donations, among others. Sometimes the total amount of itemized deductions doesn't exceed the standard deduction. It's important to hire a tax preparer you can trust to avoid overpaying taxes.

Final Thoughts

In sum, it's important to understand these four major concepts of taxes in order to make the most informed financial decisions for your future. Consult with a tax preparer if you have any questions about how these concepts apply to your unique situation; they can help you save money and avoid penalties from the IRS. Thanks for reading!

by MSE Staff | Published 30 Jan 2022 

Inflation is a serious threat to any investment portfolio. Over time, inflation can erode the purchasing power of your assets and cause you to lose money. That's why it's important to include inflation hedges in your investment strategy. There are many different ways to hedge against inflation, but here are five of the most common asset classes:

Real Estate

Real estate is a classic inflation hedge. It tends to do well when inflation is high and does poorly when inflation is low. Real estate investments can be made through direct ownership, REITs, or private equity funds. There are, however, several risks involved with real estate investing, including poor locations, low cash flow, high vacancies, and difficult tenants.

Commodities

Commodities are physical goods or resources that are used for trade. They can be divided into two categories: hard commodities and soft commodities. Hard commodities include metals, energy products, and agriculture products. Soft commodities include livestock, grains, and precious metals. Commodities are inflation hedges because they tend to do well when inflation is high and do poorly when inflation is low. However, there are some risks associated with investing in commodities, including inflation, weather, political upheaval, international situations, new technologies, and even rumors.

Treasury Inflation-Protected Securities (TIPS)

TIPS are inflation-indexed bonds issued by the United States government. They are designed to protect investors from inflation by adjusting the principal and interest payments according to changes in the Consumer Price Index (CPI). TIPS is a low-risk investment, but it also yields low returns.

Gold

Gold is an inflation hedge because it tends to do well when inflation is high and does poorly when inflation is low. Gold is a physical asset that can be stored in a safe place or sold on the market. Gold, on the other hand, has risks such as price fluctuations, theft, storage cost, and other fees.

International Bonds

International bonds are bonds issued by governments or companies in other countries. They are a good inflation hedge because they tend to do well when inflation is high and do poorly when inflation is low. However, other factors, such as interest rates, bond call options, and default risk, must be considered when purchasing international bonds.

Each of these asset classes can help you protect your portfolio from inflation. However, it's important to remember that no single asset class is guaranteed to protect you from inflation. You should always consult with a financial advisor before making any changes to your investment portfolio.

Final Thoughts

Including inflation hedges in your investment portfolio is not a one-size-fits-all solution. Different investors will have different needs and preferences. That's why it's important to speak with a financial advisor before making any changes to your investment strategy. They can help you determine which inflation hedges are right for you and create a plan that best suits your needs. Thanks for reading!

by MSE Staff | Published 30 Jan 2022 

When it comes to investing, there are a lot of options out there. You can invest in stocks, bonds, real estate, and a variety of other assets. But for new or busy investors who don't have the time or skills to perform fundamental analysis or technical analysis; mutual funds, ETFs, and Robo advisors may be the best option. In this blog post, we will discuss the value of simplicity when it comes to investing and why mutual funds, ETFs, and Robo advisors may be the best choice for you!

What Is a Fundamental Stock Analysis?

Fundamentals are the underlying factors that influence a company's stock price. These include things like earnings, dividends, book value, cash flow etc. Fundamental analysts attempt to understand these factors in order to predict a company's future performance and stock price.

What Is a Technical Stock Analysis?

Technical analysts look at a company's stock price and chart patterns to try and predict future movements. They use things like moving averages, volume indicators, and Fibonacci retracements to make their predictions.

The Value of Mutual Funds:

Mutual funds are a great way for new or busy investors to get exposure to a variety of stocks without having to do any research. All you need to do is choose the fund that best suits your risk profile and investment goals. And best of all, most mutual funds have low fees!

The Value of ETFs:

ETFs are similar to mutual funds, but they trade on an exchange like stocks. This allows investors to buy and sell shares throughout the day. ETFs also offer a wide variety of investment options, including stocks, bonds, and real estate. And like mutual funds, ETFs have low fees!

The Value of Robo Advisors:

Robo advisors are a relatively new investment option that uses artificial intelligence to manage your portfolio. They offer a wide variety of investment options and usually have lower fees than traditional investment advisors. Robo advisors can be a great option for new or busy investors who don't have the time or skills to invest on their own.

Why Mutual Funds, ETFs, and Robo Advisors?

There are a few reasons why these options may be the best choice for new or busy investors:

Mutual funds and ETFs offer simplicity and diversification. With just one purchase, you can own a piece of dozens or even hundreds of different companies. This reduces your risk since you are not invested in just one company. And because they are passively managed, you don't have to worry about doing any research or making any decisions.

Robo advisors are a great option for those who want to take the guesswork out of investing. They use algorithms to create and manage your portfolio, so you don't have to worry about making any investment choices.

Both mutual funds, ETFs, and Robo advisors offer a lot of value when it comes to simplicity and ease of use. If you are new to investing or just don't have the time to do all the research yourself; these may be the best options for you!

Final Thoughts

It’s important to remember that there are many different types of investments out there, and not every type is right for everyone. Whether you prefer stocks or bonds, mutual funds or ETFs, Robo advisors or do-it-yourself investing; we can help! As the saying goes “too much of a good thing isn't always better." Why don't you take some time to see what's best for your needs? Book a free wealth discovery session with Curtis Banks today!

by MSE Staff | Published 9 Aug 2021 (Updated 2 Nov 2021)

The IRS’s 2018 data for Individual Retirement Arrangement (IRA) plan contributions reveals a major gap in wealth accumulation. Although 77.3% of taxpayers were eligible to make contributions to their IRA plan(s), only 8.7% of eligible taxpayers contributed to their IRA plan(s) in tax year 2018. It’s clear that people are not actively investing in their retirement. Three barriers to active IRA plan contribution include unplanned expenses, credit card debt, and needing money for basic monthly expenses (1). People are not investing in their future due to a lack of financial stability and economic security. These are two challenges that financial education specializes in. Learning financial behaviors that create financial stability and economic security add up to your financial success.

Retirement Contributions by the Numbers

A closer look shows that 161,266,301 out of 208,537,968 taxpayers were eligible to make IRA contributions in tax year 2018. Shockingly, only 8.7% of eligible taxpayers made contributions to their IRA for tax year 2018. Women were less likely to invest in their retirement except for those who filed jointly by 0.5%; in which case, 12.1% of those eligible made contributions to their IRA plan(s). 11.5% of eligible men who filed jointly made contributions to their IRA plan(s). The impact of financial instability and lack of economic security is far reaching.

Those with a higher Adjusted Gross Income (AGI) were more likely to contribute to their IRA plan(s) in 2018. The difference was so vast that 10% of those eligible in the 50^th to 75^th percentile contributed to their IRA plan(s) while 26.6% of those in the 99^th and above percentile contributed to their IRA plan(s). It’s clear that financial stability and economic security are the key to increasing the likelihood to investing in your retirement.

On average 10.8% of eligible taxpayers between the ages of 25 and 65 contributed to their IRA plan(s) in 2018. Contributions were significantly lower for all other age groups. This is also an economically productive time for most adults. However, an average of 10.8% participation among eligible taxpayers between the ages of 25 and 65 is a cause for concern.

Obstacles to Retirement

Schwab Retirement Plan Services released a study in 2019 that highlights the top obstacles preventing 401(k) account holders from contributing to their IRA plan along with top sources of financial stress. The survey of 401(k) participants in the U.S. was conducted by Logica Research on behalf of Schwab Retirement Plan Services. The biggest obstacles included unplanned expenses, credit card debt, and needing money for basic monthly expenses. The biggest sources of financial stress were having enough money for retirement, paying off credit card debt, and having enough cash flow each month (1). No matter how you slice it, financial stability and economic security are a big obstacle to retirement.

Achieving Financial Success

Learning behaviors that create financial security and economic stability are essential to achieving financial success. Financial education focuses on getting you to take action. Only 8.7% of eligible taxpayers were able to take action and contribute to their retirement in 2018. I think we can do better. I teach people how to manage their money so that they can build wealth. If you’ve been experiencing the symptoms of financial instability and lack of economic security, chances are that you haven’t been consistently investing in your retirement. There is a path forward for you to have financial stability and economic security so that you can build wealth.

I’ve found that Money Smart Transformation works well for people who have careers and Money Smart Pivot supports entrepreneurs in their journey. Both programs include financial education, implementation and mentor forum to guide you from financial recovery to building generational wealth. Money Smart Pivot includes private mentoring sessions where you can focus on topics unique to your business. No matter where you’re starting from, Money Smart Transformation and Money Smart Pivot can meet your needs for achieving financial success. Schedule a discovery call to learn if one of these programs is right for you.

References

1. Schwab Retirement Plan Services. 401(k) Participants' Investing Behavior May Leave Them Short. Schwab. [Online] 2019. https://www.aboutschwab.com/schwab-401k-participant-study-2019.