Courtesy Legacy Planning Partners
By Jill Nagy
“Keep calm. Stay the course,” advised financial advisor Dan Hazewski Sr. of Legacy Planning Partners in Glens Falls regarding investment in the stock market as the end of 2018 draws near.
“There is nothing abnormal going on,” he said on a day when late October’s falling stock market was recovering. “Volatility is a constant.”
“When the market was down, I went out and bought things for my clients. If you make good investment choices and you leave them alone, they’re going to grow,” he advised.
He said the economy is fundamentally sound.
“I don’t give credit to either Obama or Trump,” Hazewski said, “but to American ingenuity and creativity. Developments like technology, artificial intelligence, and robotics are driving our economy.”
He noted, however, that Obama did not get enough credit for “riding us through the storm” after the 2008 recession.
“The economy is as strong as it has ever been and the best thing to do at this point in time is nothing,” Hazewski urged. Where he sees the normal gyrations of the investment market, “pundits like to find reasons” for concern.
As for year-end planning, he said “harvest your losses” and use them to reduce income tax liabilities.
He also urged people to fund their retirement accounts in 2018 and arrange for their mandatory withdrawals. It is also a good time to review and “rebalance” an investment portfolio.
“It will be an interesting tax year,” Hazewski said. “No one knows how it will all pan out.”
“Leave it the heck alone,” said Jeff Vahanian of Vahanian & Associates in Saratoga Springs.
The worst thing an investor can do is to sell when the market drops and then miss the upswing that is likely to follow, he said.
Tim Pehl of Luther Forest Wealth Advisors agreed. “We try to keep our clients on the straight and narrow,” Pehl said. His advice to nervous clients: “Stick to your plan.”
There is not much new in the way of new laws and regulations this year. However, Pehl did highlight a possible source of tax savings that, after being temporary, is now permanent: the ability to make charitable contributions from an IRA account, thereby avoiding taxation of the funds.
Where it really comes into play, he said, is with taxpayers unable to itemize deductions under the new tax law. “This is one of the biggest pieces of advice that we are giving out this year,” he said.
Hazewski also thought that was a good idea. An IRA or other tax-deferred savings plan is an “income tax trap,” he said, with the taxes avoided earlier coming due when the funds are withdrawn. “If you don’t need the money and you’re charitably inclined, it’s a wonderful thing to do.”
Pehl was skeptical about some New York state innovations intended to ease the effect of new ceilings on the deduction of local taxes. New York state allows employees to reduce their payroll and withholding and receive a tax credit in exchange. There is also the scheme to allow taxpayers to make charitable contributions to local taxing authorities instead of paying taxes. In both cases, the IRS opposes the scheme. “I’m not sure exactly where it stands,” he said of the payroll-reduction scheme. “You don’t want to be a guinea pig on this. Wait until the dust settles.”
While urging steadiness, Vahanian acknowledged that it is a “great challenge” for him to get clients to focus on the long term during this time of political divisiveness, social unrest, and global trade tensions. “In the short term, the market is a voting machine,” he said, “In the long term, the stock market is a weighing machine, weighing the value of a company.”
Hazewski, who has a small family-run business with long-term clients, finds that his clients have learned to be, like him, fairly unflappable. “My clients have been with me a long time,” he observed, “so there was little reaction to the market correction.” They seemed to realize that there was noting abnormal going on, he felt.
As a corollary to advice to try to ride out the ups and downs of the market, Vahanian advised people not to put money into the stock market that they will need in the short term, but to match investments to when money will be needed.
While the timeworn advice to diversify and not put all of one’s money into stocks is still good, both Pehl and Vahanian acknowledged that alternatives that yield good income are limited. Pehl thought that short-term bonds could make sense as interest rates increase. Vahanian pointed to real estate as another investment vehicle that can protect buying power.
Most portfolios recovered from the 2008-09 recession, Pehl pointed out, and he expects them to recover from the recent downfall as well. So, to repeat, investors should just hold on.