Happy campaign season!  I hope everyone is as tired of political ads as I am, and if you are not, good news, there’s one more week!

I rarely and with good reason, discuss politics in these letters. However, I recently wrote a piece comparing the two tax plans from the major presidential nominees and the effects it MAY have on your financial plan.  Please give it a read and send me your questions.

But today, we are discussing the third quarter of 2020.  Considering we have been stuck in our homes for the last 8 months, it is a wonder more people are not running for the hills.  But they aren’t.  After a miserable first quarter and a record-breaking second, the third quarter felt like it was either confirming our 2nd qtr bias towards economic growth or shifting to a more bearish sentiment with continued business closures.  In fact, the third quarter saw all three major domestic indexes rise, with the Nasdaq up 7.63% for the quarter and 30.63% for the year, followed by quarterly returns the S&P 500 and DJIA at 8.7% and 7.63%, respectively, for the quarter.  While these gains are impressive and always great to see in your brokerage statement, history repeats itself every time, and markets do not always go straight up.  See the S&P Historical composite graph: 1871-Present from our friends at www.advisorperspectives.com

If you have read my previous letters, you know that I have referenced December 2018 as a possible inflection point signaling a change in the equity markets.  While I remain bullish on the long-term prospects of the capital markets and their ability to produce returns for clients, I am also keenly aware of the value of planning and diversification in times of heightened volatility.


One question I have gotten consistently this quarter is, “how can I protect my investments from a downturn?”  Historically, this pushed clients into fixed income investments to limit their exposure to more volatile stocks.  However, with the government’s amount of stimulus and the corresponding historically low-interest rates, clients may be underwhelmed with the growth or income options afforded them in the bond markets.  Fixed income alternatives are not without their risks. Many may have a longer holding period or be more complex than simply holding treasury bonds.  You may consider revisiting asset allocation strategy and understand your risk tolerance and explore some lower volatility options.


Considering the amount of stimulus injected into the market, it is reasonable to assume the government will have to increase tax revenues to pay for these stimulus checks.  That means it is time to revisit your financial plan and discuss ways to limit your tax liability in relation to your retirement savings, investments, and charitable intentions.

We have recently discussed with clients the idea of a Charitable Remainder Trust (CRAT).  For charitably inclined clients, a CRAT is a way to gift assets to your favorite charity and still get income during retirement (or other periods).  This is a win-win for many clients as the charity in question will receive donations while the client receives the current tax deduction in the year the gift was made into the charitable trust.  The trust then distributes a portion of the gift back to the donor for a set period of time or the life of the donor.  If using appreciated stocks as the gift, clients can also avoid paying capital gains on those appreciated positions, so win-win-win, I guess.

As always, please contact my office if we can help you further understand your investments or your financial plan and strategies to help you meet your family’s long-term goals.

Stay safe, wear a mask, and be kind.  And try not to overdo the politics.

Philip Clark, CFP® | Director – Wealth Management
Direct: 626.788.3947

Past performance is no indication of future results.  This information should not be construed as tax advice, nor should be taken as financial planning advice.  Please consult your tax professional.

These opinions are based on Philip Clark’s observations and research and are not intended to predict or depict performance of any investment. These views are as of the close of business on 10/21/20 and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Past performance does not guarantee future results.

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