How Could Your Taxes Change in 2021?

How Could Your Taxes Change in 2021?

How could your income taxes change in 2021? We’re still waiting on election results. But we can look ahead to the potential changes to your taxes if Joe Biden wins the election.

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Here’s what we know about Mr. Biden’s tax plan.

Improving and Adding Certain Tax Credits

He wants to improve and add tax credits.  His plan calls for:

  • increasing the Child and Dependent Care tax credit. (this is for daycare costs)
  • expanding the earned income tax credit for people over 65.
  • renewable energy credits for electric vehicles and solar panels.
  • restoring the first-time homebuyers tax credit.
  • for 2021—and as long as economic conditions dictate—increasing the child tax credit.

Tax Credits for Retirement Savings

His plan also wants to equalize the tax benefits of retirement plan contributions. Right now, people get a deduction for some of those retirement plan contributions. He wants to change this to a tax credit.

What is the difference between a tax deduction and a tax credit? Which is better?

A Tax Deduction is something which reduces your income. If you earned $1,000, and have a $200 deduction, your adjusted income is $800. You compute your tax using the reduced amount. If your tax rate is 15%, your $200 deduction will lower your taxes by $30.
A Tax Credit is a direct reduction of your income tax liability. If your tax liability is $1,000, and you have a $200 credit, your tax bill is $800.
In most cases tax credits are better than tax deductions.

Tax Increases for High Earners and Corporations

Mr. Biden also wants to increase taxes for those people who make a lot of money. If you make over $400,000, you can expect a significant tax increase.

  • your social security taxes will go up.
  • The maximum tax rate that you pay on your income will also increase.
  • If you are a business owner, you will lose the qualified business deduction.
  • It will also tax capital gains and qualified dividends as ordinary income for those making over $1 million.
  • It will also limit the benefits of itemized deductions.

He also wants to increase the taxes on businesses. The corporate tax rate under Mr. Biden’s proposal goes from 21% to 28%.

Lastly, he wants to restore federal estate taxes back to 2009 levels.

The Most Concerning Tax Change

There is something in Mr. Biden’s tax plan that will impact a lot of people. It involves how your cost basis is treated at a person’s death.

What is cost basis? 

Your “cost basis” is what you pay for an asset. Whether you buy a house, a stock, a rental property or a bond, whatever you pay for that asset is your cost basis. If you add money to it, it increases your cost basis.

The cost basis is important when you sell that asset. You pay capital gains tax on the difference between the sale price and your cost basis. Let’s look at an example. Let’s say you buy a stock for $10,000. After several years, the value has grown to $50,000. If you sell that stock, you pay capital gains on the difference between the sale proceeds of $50,000 and your cost basis ($10,000). You would owe taxes on $40,000.

How Could Your Taxes Change in 2021

If you had reinvested the dividends from that stock, your cost basis increased. Let’s say you reinvested $5,000 of dividends, the cost basis increases to $15,000. If you sell the stock, you pay capital gains taxes on the difference between the $50,000 and $15,000.

Current Law vs What Could Change

Under current law, your cost basis steps up or steps down when you die. What Mr. Biden wants to do is eliminate the step-up in basis. Consider this. You paid $10,000 for your stock. It’s worth $50,000 at your death. Under current law, your heirs have a cost basis of $50,000.

Likewise, let’s say your parents bought a house several years ago for $50,000. When they die, the house is worth $200,000. Under current law, the basis increases to $200,000.

Under Mr. Biden’s proposal, there would be no step-up in basis.  This means you would have a capital gain of $150,000 when you sold your parents house.

The other disturbing thing about Mr. Biden’s tax plan is the deemed sale at death. This means the tax code would treat a person’s assets as being sold at the date of death (rather than sold when the heirs want to sell them). It would make that capital gains tax due immediately.

Right now, most of those assets pass to others with little to no tax bill. Eliminating the step-up in basis will hit the wallets of many Americans.

Don't Worry Yet

None of this has happened yet. We still do not know who the President-elect is, and we do not know who is going to control the Senate or the House. But this is something to monitor. If you have a question about how any of this could impact you, talk to a financial advisor or a tax professional.
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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Can Stocks Predict The Election Outcome?

Can Stocks Predict The Election Outcome?

Can stocks predict the election outcome? What about back-to-back bear markets? How big was the stock market drop in dollar terms?  We’ll cover these tidbits and more.

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Do you want to hear the full show?

The full episode is over 25 minutes long.  And we’ve found that not everyone wants to spend that much time listening to things.  But if you want to listen to the entire episode, it is below.

We answer:

A select few...

The stock market was down 34% earlier this year and it made a complete recovery. The recovery was led by a small handful of companies.

As of August 28, almost one-third of the stocks in the S&P 500 are still down at least 20% for the year.

That's a lot of money...

On February 19, the total value of the US stock market was $36.1 trillion. On March 23, at the bear market low, the US stock market was worth $23.4 trillion. $12.7 trillion evaporated into thin air over that timeframe. Most of that has come back, and we’re all glad for it.

can stocks predict election
Can stocks predict the election

Back-to-back bears?

We’re still dealing with this COVID-19 pandemic, and the economy isn’t back to full strength yet. There are some concerns that there will be some lingering effects. One of those concerns is a double-dip recession. The other is another significant drop in the stock market.

Over the last 75 years, the shortest time between the end of one bear market and the beginning of the next is two years and two months. The S&P 500 fell 22% during a bear market which ended on October 7, 1966. The next bear market, an 18 month long tumble of 36%, began on November 29, 1968.

It can happen quickly. Two years is the record. We may or may not see that record tested.

Can the Stock Market Predict The Election?

The S&P 500 was up 7.19% in August. It was the best August ever.

We found this interesting tidbit on the website MarketWatch. This is from Julian Emanuel of institutional investment management firm BTIG. “At first glance, August strength plays well into Donald Trump’s reelection. In the three months prior to November elections, positive S&P 500 returns have accompanied incumbent party presidential victories 85.7% of the time.”

“Going back to 1928, when stocks rose 5% or more in August, and the June to August return was in the top quartile, the market often struggled in September and October. When the S&P 500 was down from the end of August through the election, the incumbent party lost the White House on all six occasions.”

Could the stock market performance over the next couple of months predict the outcome of the election? It will be interesting to see if that comes true or not.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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How Will the 2020 Presidential Election Affect the Stock Market?

How Will the 2020 Presidential Election Affect the Stock Market?

How will the 2020 presidential election affect the stock market? That’s a big question on the minds of many. Today, we’ll dig into some numbers. We’ll show you what happened to the stock market in the three months before and after previous presidential elections.

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2020 election affect the stock market

This year is off to a crazy start. It started with the Coronavirus. That caused the stock market to drop by about 34%. From the bottom of the bear market to today, we’re now close to all-time highs. The stock market has increased by almost 50%.

The virus is still a factor in our lives. Now we get to add a presidential election to the mix. How will the campaign season influence the market?

Elections and the Stock Market: Historical Data

We are focusing on the three months before a presidential election. This means August, September and October. And we are looking at the three months after. This includes November, December, and January. We have nine election years going back to 1980.

The 3 Months Before

The average gain of the stock market for the three months before an election was about 0.75%. Stocks improved six out of the nine years.

The 3 Months After

For the three months after an election, the stocks gained 2.36%, on average. It was positive in seven of the nine years.

The Outlier: 2008

There was an outlier. 2008 was a really bad year. From August to October 2008, the stock market dropped by about 23%. Following the election, the stock market continued to decline. It fell another 22.5%.

If you remove this outlier from the data set, the results look much different. 

Leading up to the election, the gain improves to about 3.5%. After the election, if you take out this outlier, the stock market improved 5%.

Will this year be more like 2008?

The election didn’t have the type of impact on the stock market that one might think. But you might be wondering right now, “Will this year be more like 2008?”

But there are also reasons to expect this rally to continue. Some data points to better things ahead.

Vaccine Progress

Companies are making progress on a vaccine. A lot of the optimism in the stock market relates to the optimism of a vaccine coming to market sometime next year. There are a number of companies now entering second and third stage trials.

The Big Question: Do Your Long Term Plans Depend on the 2020 Election?

It is hard to make big allocation decisions based on short term events. Most of the historical data points to the election not being a significant factor to stock market performance.

Your long term plans aren’t likely to change based on the outcome of this election. This makes it very difficult to make a decision based on that outcome.  .

The election concerns many people. There’s a very big divide between the two sides. It’s very contentious and very emotional. This creates a desire do something. Some think if “Candidate A” wins, things are going to go downhill. And if “Candidate B” wins, things are going to be great. But we don’t know what that outcome will be.

Making big decisions based on short-term events, creates more chances to make mistakes. That’s not a real good way to do things.

You need to base your asset allocation decisions on your long term plans. You shouldn’t base them on what happens in a presidential election.

Have Questions?

If you have questions about your situation or would like to discuss how the pandemic and bear market have affected you, click the button to arrange a call.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Today on our show, we offer a simple, low-cost estate planning tip to help you avoid probate.  We talk about the current bear market, and share some expert predictions.  And we answer three questions.  The big one: do I need Medicare supplement insurance?

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Episode Transcript: Do I Need Medicare Supplement Insurance?

Estate Planning Tip: Transfer On Death Provisions

One of the things we’re going to talk about today is a basic estate planning tip. Oftentimes people ask us what happens to their accounts when they die. A lot of times, they’re trying to avoid the probate process. The probate process can be somewhat inefficient. So let’s talk today about it. Let’s talk about what happens when an account owner dies? What happens to their account.

Standard Individual Accounts

If a person has an individual account.  What happens when they die? we have to open an estate account. In order to do that, we will need:

  • A tax ID number for the Estate (normally the attorney applies for it)
  • A copy of the owner’s death certificate,
  • And a court-certified letter of testamentary. Sometime this is called a court appointment, which names the executor of the estate.

When we do that the original account is frozen. We can’t do any transactions in that account, and we can’t send out any money.

Once we get all the paperwork together, the assets transfer into the estate account. 

How long does it take to transfer an estate account to the beneficiaries?

That’s completely up to the executor. We need a letter signed by them to distribute those assets from the estate account. It can be pretty quick. They can also leave it there for an extended period of time. It’s completely up to them and how quickly they want to get that settled.

Some take as few as 30 days. Some take six months or more.

Transfer on Death Provisions

One thing you can do to improve the efficiency of this process is to use a transfer on death registration. What do we need to do to create a TOD account? And, what happens when we have a TOD provision on the account? What happens when the original owner passes away?

The form that the original owner would need to sign is actually called a non-probate TOD agreement. That form names beneficiaries for that individual account. And it specifies how they want the assets in that individual account to be divided.

We need

  • the name of the beneficiary,
  • the social security number and date of birth.
  • We also need the percentage of the assets that will go to each of them.

When the owner passes, the account is frozen. Individual accounts are opened for each beneficiary. We need a copy of the death certificate and a form called a transfer on death affidavit. Each beneficiary signs this form. This allows them to accept the assets from the decedent’s account.

Once we get the forms, the assets can transfer in two to three days.

It’s a lot more efficient than having an estate account. Plus, you don’t have to go through a lot of the probate stuff. It’s not going to completely avoid probate, there still may be some loose ends. But, it’s going to be a whole lot more efficient.

Once those accounts are open, each beneficiary has the option to do whatever they wish. They can liquidate it. They can continue the relationship with our firm. Or they can transfer it to another firm. It’s a much faster and more efficient way to get assets from the original owner to their heirs.

Joint Accounts

Can you add TOD provisions to a joint account?

On a joint account, when the first owner dies all the assets immediately go to the surviving owner. When the second owner dies, you would do it the same as if it was an individual account,

Typically, it goes to the surviving spouse (most of the time). In those cases, the TOD provision on a joint account comes into play if there’s a simultaneous death. Once the account goes to the survivor, they have to do the TOD paperwork all over again.

IRA’s, Retirement Plans, and Insurance Contracts

These provisions don’t apply to IRAs or retirement plans. IRAs and retirement plans have their own beneficiary designations. They are non-probate assets. It also doesn’t apply to insurance contracts like annuities or life insurance. Those also are non-probate assets that have beneficiary designations. It only applies to individual and joint accounts.

Still need a will…

This does not replace the need to have a will or a trust. You should involve your estate planning attorney (if you have one). They may have other ideas that are better suited for you.

This is a simple and easy way for you to do some basic estate planning. And it costs nothing.


The account owner must sign the TOD application. Powers of attorney cannot sign this form. Even if the power of attorney document says that the agent can name beneficiaries, we require a signature from the account owner.

Let's Talk Stocks...

Medicare Supplement insurance - Bear market

It’s been crazy.

Every time I speak to someone, they say that they can’t believe that the stock market keeps going up like it has. Here’s where we are in the current bear market.

We had a 35% drop in the first quarter. Since then, we’ve seen stock prices increase by about 44%. Year to date, prices are at a breakeven point. We started the year with the S&P 500 at 3,230. On price basis, the S&P 500 is breakeven for the year.

Prices have to go up another 5.5% percent to set a new high. The high point is 3,386. We still have a little bit to go to completely erase the bear.

Given the amount of bad news we’ve had, the increase doesn’t make sense. There is still a lot of potential bad news out there too. It doesn’t seem possible that we’ve erased that big of a drop this fast.

The virus isn’t going away either. Many states are trying to avoid another shutdown. I know we have mask requirements now in Ohio and West Virginia. I saw where Kentucky closed bars and limited restaurant capacity to 25%. States are trying to avoid shutting down, but there are some potential ugly things out there. You can make the case for why this market is going to correct again, but you can also find some rays of sunshine.

Expert Predictions

Medicare Supplement Insurance

It’s interesting to see what some of the experts think. Bloomberg released a recent survey of their equity market experts. They asked 17 analysts for their forecast for the year end value of the S&P 500. The average of the 17 predictions for the year end value is 3100. That’s about a 4% drop from current levels. On average, they think that stocks are a bit ahead of themselves and we’re due for a reset.

Five of these people have predicted that the S&P index will fall below 3000, which would be a 7%% drop from current levels. The lowest prediction is 2,750. That is a significant drop. The highest prediction was 3,500, which would be a new all-time high. That would be about a 7% increase from where we are right now.

How good are these predictions? We’ve talked about this in the past. Crystal balls aren’t always in working order. We really don’t know how accurate these forecasts will be.

If someone were to press me on it, I predict 3,150. I also believe we’ve gone a little bit too far, and we’ll see a small pullback.

Insurance Medicare Supplement
Medicare Supplement Insurance Do I Need

Question 1: Do I Need to Keep My Medicare Supplement Insurance?

If a person has Medicare A and B, plus prescription insurance, what is the benefit of Medicare supplementinsurance? Ours runs around $500 a month and there is no way we come close to that in paid claim benefits. I’m not a healthcare guru. But it seems to me there could be better ways to invest my $6,000 a year.

What does Medicare Cover?

To answer this question, we need to dig into what Medicare covers. Traditional Medicare has two parts. Part A is hospitalization. This covers hospital stays, skilled nursing home visits and hospice care.

Part B covers medical expenses. This includes doctor visits, surgeries and procedures. It also covers preventative care, durable medical equipment, clinical trials, and ambulance services.

Part A

Medicare doesn’t pay 100% of your expenses. Part A, has a $1,408 deductible for your first 60 days in a hospital. That is per benefit period.

A new benefit period starts if you haven’t been in the hospital for 60 days. Here’s an example. If you went into the hospital today, and you were there five days, you’d pay $1408. If you go back to the hospital later this year, say November. You would start a new benefit period. That means you have to pay another $1,408 deductible.

Days 61 through 90 cost you $352 per day, this is your out of pocket cost. And if you’re in a hospital more than 90 days, days 91 plus can cost you up to $704 per day. That’s your risk on the hospitalization side.

Part B

Part B is your medical expenses and is your doctor visits. So you have a $198 deductible. And then Medicare pays 80% of the Medicare approved amount. You pay the other 20% and any of the excess non-approved amounts.

Let’s say you have a joint replacement, and your total bill is $50,000. You pay the first $200. And then you pay 20% of the remaining bill. That’s $10,000! That’s your risk exposure in this case.

What do Medicare Supplements cover?

Medicare supplement insurance policies cover these out of pocket expenses. Most of them cover the Part A deductible. And they cover the Part A coinsurance—which are the costs beyond day 60. They also pay the Part B coinsurance.

Some Medicare supplement insurance policies will pay the Part B deductible. In our experience, you usually pay more in premium than the Part B deductible. We usually don’t recommend policies that cover the Part B deductible. Many will also cover the Part B excess charges. If a doctor bills $1,000 for a procedure and Medicare only approves $800, many of those plans will cover that extra $200. They cover some other things as well.

Is it worth it?

Is $6,000 per year worth it? When you’re healthy, and you don’t have claims, it doesn’t seem like it. But remember, you may not be in good health in the future, and you could have a claim at any time. Your risk exposure to not have that coverage is significant.

In many respects, this is like your homeowner’s policy or your car insurance. You pay premiums for years. If you never have a claim, you start to wonder, “Why do I do this?” But one car accident and you have a $3,500 repair. Suddenly, you’re glad you have that car insurance.

Medicare Supplement Insurance is the same thing. You could use that $6,000 a year to make money. But what would the net cost be if something major happened? And as you get older, you have an increased possibility of that happening.

You have to make that decision on your own. But in many respects, we find that the Medicare Supplement insurance premiums can be worth it.

Insurance Medicare Supplement
Supplement Medicare

Question 2: What is Your Opinion of Gold and Silver as an Investment Option?

With all the advertising promoting gold and silver as a safer investment. What is your opinion of that, and what is your advice to someone weighing that as an option?

Safer? Really?

Safer is an interesting way to put that. I’m not sure I would call gold and silver “safer.”

Gold and silver are fear assets. When things around us are going poorly, precious metals tend to do a lot better.

Right now, we are in a pandemic. We have a situation where the government is spending a lot of money to help people. They’re printing the money. And there’s some questions about whether they can sustain this long-term.

When a country does this, they’re trying to create some type of inflation. If we have hyperinflation—like Venezuela, they’re the most recent high profile case. In Venezuela, inflation has been some 3,000%. They’ve printed all this money. A loaf of bread costs $200. The price of gold also goes much higher.

When you look at what’s happening in America right now, some believe gold might be a really good asset. We keep pumping out trillions of dollars of stimulus money. The Fed continues to buy assets, and the money’s coming out of thin air. There’s a good reason to think gold could go much higher.

Consider all the alternatives

You have to consider a couple of other things as well. What other investments can you use? Stocks are one choice. we’re big believers in stocks. Equities have a lot of volatility. As we’ve talked about, we could see the stock market fall more in the coming months. Gold and silver may do a better job of holding their value over the next few months.

Bonds don’t look attractive right now. Yields are extremely low. And the only way bonds can generate any significant gains is if yields go even lower. Gold and silver may do a better job of holding their value than bonds right now.

Current prices matter

The other thing you need to consider are current prices. Gold recently set all-time highs. So you’re buying an asset at its highest price—ever. You are buying now and hoping it goes higher. Much of the gain from Gold has already happened.

If the US economy continues to rebound, gold prices could fall. Silver isn’t near an all time high. It has some room to run, but there are similar concerns.

Volatility in Gold and Silver

Medicare Supplement Insurance Gold Silver Stocks

Remember, gold and silver have a lot of volatility. All three investments have times when they perform extremely well. And, all three have times when they deliver gut wrenching drops.

Gold and silver can do well when stocks don’t. But the opposite can also be true. You have to be careful when you’re buying any type of asset when prices are at all-time highs. A lot of the gains have already happened.

There was an interesting stat from that chart. From 2007 through June of this year, stocks and gold have a very similar average annual return. I would have thought that stocks would have performed better. But the recent events had a significant impact on these numbers.

Question 3: Is the Media Moving the Market?

Is the market today being influenced by the media, especially the liberal left agenda?

This is an interesting question. When you’re in an election year, politics tends to dominate the headlines.

Both sides are trying to make themselves look good, and make the other side look bad. So both sides are pushing their agenda. It depends on which channel you turn to on a given night. as to which one you’ll hear.

You can argue the market has improved because the conservative agenda has shined. You can also make a case that the market has improved because of the liberal agenda. I’m not sure either argument is valid.

It depends on your perspective. You can create a reason for the moves in your own mind. You might believe the stock market is pricing in a Joe Biden victory in November. You can argue the stock market has benefited more from policies put forth by republicans.

When stocks go up, there are more buyers than sellers. When stocks go down, there are more sellers than buyers.

A lot of what we’ve seen to this point from the government has had a lot of bipartisan support. A lot of it has been driven by actions of the Federal Reserve—who is supposed to be politically neutral. You can’t really say that one party’s agenda is responsible for what is happening in the market.

Constant themes in the stock market…

As we get closer to the election, politics will play a bigger role in the day to day volatility. But you have to remember something with stocks: companies still find ways to make money. When we’re investing in stocks, we are buying those future profits. It doesn’t matter who’s in charge, Businesses will find a way to make money and grow their earnings.

The other thing to remember is volatility.  It’s always part of the stock market, no matter who’s in charge. We will always see stock prices have wild swings up and down.

In the big picture, the reasons why the market does what it does really don’t matter that much. Over time, stocks go up. It’s what they do. Politics don’t matter as much as some people want to believe.

What’s moving the market?

So my answer to the question. Nobody’s agenda is affecting the stock market. Stocks have gone up for these three reasons:

  • Anticipation of economic recovery
  • Optimism for a vaccine coming to market quickly
  • Earnings news hasn’t been as bad as anticipated

That’s why the stock market has gone up. In my opinion, it has nothing to do with right vs left or conservative vs liberal.

Medciare Insurance Supplement
Medicare Supplement
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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask a CFP Pro: What Happens to Stocks if President Trump Loses?

Ask a CFP® Pro: What Happens to Stocks if Trump Loses the Election?

What happens to stocks if President Trump loses the election?  We’ll tackle that one and six others on this week’s Ask a CFP® Pro show.  Scroll down for a timeline of this episode, some useful graphs, and the full transcript of today’s show.

Listen Now: Ask a CFP® Pro: What Happens to Stocks if Trump Loses the Election? (29:20)

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Episode Timeline

Today we talk about:
Here are the questions:
  • The money in my checking account isn’t earning anything, and I probably have too much in that account anyhow.  What can I do to earn a better return on my cash? (5:02) Click here to read

  • How will the Charles Schwab – TD Ameritrade Merger affect me? (9:31) Click here to read
  • If we are setting up a college account for a grandchild, do we have to open the account in the state in which they live? Can we set it up in Ohio even though they live in North Carolina? (11:28) Click here to read and for links

  • What are some of the things people with lower income, who are just getting started invest in? (13:41) Click here to read
  • How do you select dividend producing stocks? (17:03) Click here to read and for links

  • What happens to stocks if Trump loses the election? (20:45) Click here for pictures!

  • What is the best way to invest for retirement about 10 years before you retire?  Is it best to pay off your house before retirement? (23:59) Click here to read
What Happens to Stocks if Trump Loses the Election
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Transcript: What Happens if Trump Loses the Election?

The Stock Market in the first half (0:46)

The first half of the year has been absolutely crazy. It’s as crazy as we’ve seen in our careers. And we’ve been doing this for a couple days. We’ve been through the dot com bust. We went through the Great Recession and now we’re doing the whole coronavirus thing. And that was the big story that affected the economy, our lives and the stock market in the first half of the year.

A big drop…

The S&P 500 experienced a near 34% drop in 33 days, mid cap stocks dropped 42% and small cap stocks dropped 43%. And you would expect that for the year the stock market would be in a deep hole. Here are total returns through June 29th. The S&P 500, which are large-cap stocks, were only down about five and a half percent. Mid cap stocks, represented by the S&P 400, were down about 8% and the small cap stocks were down about 12.5%. 

A big bounce…

We’ve had a stunning rebound. The prices for the S&P 500 have rebounded over 36% in a little over three months. It’s not something that I can ever recall seeing by memory. But when I look back at some things, I found something somewhat interesting.

Stock market trump loses
Click to enlarge
Prior Recoveries at 98 Days

The dot com bust which happened In 2000-2003, lasted about two years to go from top to bottom, Prices dropped 50%. And if you look at the same 98 days following the bottom that we’ve done now, prices rebounded about 18% back in 2003. In order for that bear market to completely recover, it took about 56 months.

During the great recession in 2007 to 2009, the stock market dropped 57%. And it took about 18 months to get there. If you look at the 98 days that followed the bottom in 2009, stock prices recovered 36.5%—like they have this time. I found that interesting. The Great Recession did take about four years to recover from the bottom to a new high.

We’re not quite to a new high yet—we’re getting close. But, to me, it’s been amazing how quickly things have recovered in the stock market.

Trump loses election stock market
Click to enlarge

Relief for Required Minimum Distributions (3:07)

We’ve talked in the past about required minimum distributions. Those were waived for 2020. If you had taken your distribution in January, you were unable to return that money to your IRA as a rollover. Rollover rules state you must return any withdrawal within 60 days.

Last week, the IRS issued a ruling. It said any distribution taken in January or February can now be returned by the 31st of August.

A New Tax Deduction (3:44)

The next thing we want to talk about is something we missed in the CARES act. It wasn’t a real prominent thing. The act allows an “above the line” tax deduction for charitable contributions up to $300.

A few years ago when they passed the tax law, there was a new standard deduction. For couples, it’s $24,800, and for individuals, it’s $12,400. It made it nearly impossible for folks to itemize. If you can’t itemize your deductions, you cannot deduct your charitable contributions.

It’s estimated by the IRS that 90% of filers now claim the standard deduction. So you didn’t get any tax benefit for some of those contributions to charity.

Part of the CARES act creates this above the line deduction. This means it comes off the front page of your tax return. You don’t have to worry about itemizing.

You can take a tax deduction of up to $300. It’s not a lot, but something you find beneficial as we go forward.

What happens to stocks if trump loses the election

Question 1: How Can I Earn More on My Cash? (5:02)

The Question:  The money in my checking account isn’t earning anything. I probably have too much in that account anyhow. What can I do to earn a better return on my cash?

How much cash?

We have two issues here. The first is how much cash do you need to have on hand? And how can you improve the returns on the cash you do hold?

So “the how much cash” question to us comes down to time frames? What are you going to need cash wise in the next 24 months? Any significant expenses need to be in those safe cash-type assets. Because those accounts aren’t going to decrease in value.

This would include:

  • your emergency fund, which is three to six months of expenses,
  • any planned major expenses you have over the next two years. Things like a vacation. If you know you’re going to have major home repairs, or a car purchase.
  • Anything over $1,000 like insurance deductibles

Then after you cover those first two years, you can start looking at the next two to five years. That’s an area where you can reach for more return. But, you still want to have some stability in the value of those funds. You want to cover any planned expenses and some cushion for any unplanned costs you might incur.

Anything beyond five years, you can start investing for growth. And we talked about the five-year threshold. The reason for this is the last two bear markets. We talked about the dot com bust and the Great Recession. Both took between four to five years to completely recover. If we have a another significant pullback in stocks, you can expect to recover in that time frame.

Where should You invest?


Where should you hold your cash? That’s the second question. A bank account is the obvious place. One of the problems we’ve seen is interest rates were cut to near zero. Most of the local banks aren’t paying anything at all.

One of the things that we’ve done over the last several years is use some of the online banks. We’ve used Capital One for a long time.   But they’re not as competitive. Right now they’re paying about a half a percent on their savings account.

We’ve moved most of our accounts to Synchrony Bank, and they’re paying about 1.05%.  heir big competitor is Ally Bank who’s paying about 1.1%.

The interesting thing about these banks is all three of them are big credit card companies. They’re loaning money out at 18 plus percent. This allows them to pay you a little bit more. You would think they would pay you more than 1.1%.

You link those online banks to your local bank account. You’re able to transfer money back and forth via their website. But you have to be aware, there’s a two to three day lead time for most transfers. You’ll need to think ahead a little bit.

Intermediate Term Money (2-5 Years)

When you start talking about that two to five-year bucket, you could consider CD’s. But there’s not much with any returns out there. Many times we’re using short term bond funds. They can help push your yields towards 2%.

If you’re using an exchange traded fund, there are typically no transaction fees to buy or sell those. You can also use mutual funds, but we’ve run into some issues with some of those. Some funds have short term trading fees. This means if you need the money inside of 30 or 60 days, you may have to pay an extra to sell them. You have to be aware of that before you use them.

You could look at some bonds with longer maturities or even preferred stocks to boost yields. But that comes with a trade-off. That trade-off is price movement. Anything you do to reach for more return, you introduce more market value risk.

Long Term Money (5+ Years)

Beyond five years, you’re looking for growth assets. This means common stocks, preferred stocks, or even high yield or junk bonds. Because there’s more growth involved, and there’s also a lot more price volatility.

Question 2: The Schwab-TD Merger (9:31)

Will the Charles Schwab merger with TD Ameritrade affect me?

In the financial industry, this was big news. Schwab is the largest custodian and it is buying the second largest custodian. A custodian is a company who holds your investment positions and hold your accounts. They also execute trades. It’s an important relationship in the grand scheme of things.

At Fleming Watson, we do not have custody of our clients assets. We selected TD Ameritrade to do that when we did this back in 2016.

The deal will be closing later this year. The government did not object to the merger. And shareholders of both companies approved it. We’re being told it’s going to take somewhere between 18 and 36 months for most of the accounts to be transferred. We understand that there won’t be any new paperwork required.

How will this impact you? If your account is at TD Ameritrade, your statements will look different. If you check your account balances online, you’ll go to a different website. And if you have a retail account, you’ll have a whole new interface to get used to.

If your account is at Schwab, it probably won’t change much at all.

It will have a bigger impact on the advisors who use TD Ameritrade. We considered Charles Schwab and TD Ameritrade along with Fidelity in 2016. We settled on TD Ameritrade because we felt they were the best fit for us.

Now, we’re going to be moving to Schwab, who was our second choice at the time. We have to get used to something completely different. It will impact how we do trades and other things with our custodian. But for our clients, it’s really not going to have a big impact.

Question 3: Which State's 529 Plan Do I Use? (11:28)

I’m setting up a college account for one of my grandchildren. Do I need to open the account in the state where they live? Or can I set it up in Ohio even though they live in North Carolina?

This refers to 529 savings plans. Those accounts have some tax benefits when the funds are used for education expenses. There are some tax benefits when you’re making contributions as well. That comes in the form of a state income tax deduction.

If you live in Ohio, you can deduct up to $4,000 of your contribution per beneficiary. And if you live in West Virginia, that amount is up to $15,000 per beneficiary per spouse. This means a couple can deduct up to $30,000 from their state income.

For more information on Ohio’s 529 Plan, Click Here

For more information on West Virginia’s 529 plan, Click Here.

If you would like information about another state’s 529 plan, please contact us.

You can use any state’s plan you want. It’s not like the old prepaid tuition plans. With those, you were buying the cost of a credit-hour at an Ohio institution. You would then redeem them as a credit hour going forward. Whatever you put in the account has cash value and whatever the value is, it is. That’s what you use to pay for those qualified educational expenses.

When you use those 529 accounts for qualified educational expenses, the distributions are not taxed.

Get your deduction

But here’s the deal. If you use another state’s plan, you don’t get to take the state income tax deduction—if you live in Ohio or West Virginia. If you live in Ohio and you use North Carolina’s plan, you miss out on the state income tax deduction. If you live in West Virginia and use Nebraska’s plan, you miss out on that current tax benefit as well.

But if you live in Ohio and use Ohio’s plan, you get to deduct your contribution against your state income. And if you live in West Virginia, and you use West Virginia’s plan, you get to deduct even more.

If you can get the current income tax deduction, use your state’s plan. If your kids want to set up their plan in another state and make contributions that’s fine, too. They’re not limited to how many 529 accounts you can have for a single beneficiary. But it makes sense that you get the tax benefit for making the contributions if you can.

Question 4: Getting started as an investor (13:41)

How can someone with a smaller income get started with investing?

Low Costs

This is an excellent question. I’m glad you’re thinking about doing something for your future. The good news is the costs to invest have come down a lot. We now live in a world where there are no commissions on stocks or ETFs. That means you can buy one share of a company and it won’t cost you any transaction fees.

Years ago, the cost to buy stocks was significant, maybe $200-$300 to buy 100 shares of stock. And when I started in 1996, I think we were charging probably somewhere between $75 and $150 for a stock trade. If you didn’t have a lot of money, it was difficult to start buying individual stocks. And if you wanted to buy an odd lot, which is something that is not divisible by 100, there were additional fees.

This is before a lot of things got highly computerized. Now everything is computerized. Now buying and selling a single share is no big deal. If you want to buy one share of something like Southwest Airlines, for example, it will cost you around $30 to $35.

The Challenges of Buying Individual Stocks or ETFs

Now, the downside to buying stocks and exchange traded funds is having enough to at least buy one share. If you were looking at something like Amazon, it’s trading over $2,600. To buy one share of Amazon, you still have to have $2,600. Netflix is over $450. Google is $1400. And even something like the exchange traded fund which tracks the S&P 500(SPY) trades for over $300 a share. You have to watch what you want to buy. If you only have $50, you’re not going to be able to buy shares of Amazon. You’re not even going to be able to buy a share of the SPY ETF.

Buying fractional shares is something that’s coming. And there are a few startups who are diving into this. But it isn’t mainstream yet. I’ve read where Schwab is investigating fractional shares. When that happens, you’ll be able to then buy fractional shares of something like Amazon. If you have $200, you’ll be able to buy a tenth of a share. 

Mutual Funds

This means you turn to the old handy-dandy mutual funds. You have no-load funds from Fidelity or Vanguard. If you have $50 a month, you can put that into an ultra-low cost fund. You can buy fractional shares with a mutual fund. You may only buy .526 shares this month.

There’s other online services like Robinhood and Betterment. They make it very easy to get started for very little cost. The good news is it’s never been easier or cheaper to invest in stocks and get started in investing for your future.

Question 5: Picking Dividend Payers (17:03)

How do you select dividend producing stocks?

Generally where I start is I look at the dividend aristocrats list. Their criteria comes down to two things. It’s got to be in the S&P 500. So that means it’s a very large company. And the company has grown their dividend for 25 consecutive years. Right now there are 66 companies who qualify.

Here’s the reason I like starting here. When companies who pay a good dividend reduce their payout, the impact on their share price is bad. In our experience, we’ve seen what happens when some of the drug companies cut their dividend. Their share price will drop a lot. People’s Bank is another example. Their dividend has been up and down through the years. And if they reduce their dividend, their price value has dropped significantly.

We like companies who at least have been able to maintain their dividends. We prefer companies who’ve been able to grow their dividends over time. From there, we generally start looking at the ones that pay a 2.5% to 3% yield or more. Owning that dividend that pays 1% isn’t quite as attractive. So we’ll trim that list of 66 down to those companies that are paying a little bit more.

The Next Step

Next, we look at the payout ratio. The payout ratio is how much is the dividend of that company’s profits. If a company is earning $2 per share in profit and they’re paying out $2.10 per share in dividends, that’s a real problem. It’s not something that you can maintain. If something happens that reduces earnings, they may not be able to maintain their dividend.

We generally like when the payout ratio is two-thirds of its earnings (or less). So if a company has $1 in earnings, we prefer they pay $.66 per share (or less) in dividends.

The other factors

Then we’ll look at some other subjective factors. How expensive is the stock relative to its earnings? What does the company do? Do we understand what the company’s doing and what’s happening in their industry? We want to understand what we own and we also want to make sure that we’re not paying too much for that stock.

We don’t exclude companies that are on that list. But if I’m asked to find some, that’s where I’m going to start.

Snow or rain, it’s all water. 

There’s one saying that, that stuck with me for a while, “Snow or rain, it’s all water.” Increases in value, are as good as dividends. It all benefits you in some way, shape or form. There are some good companies out there who have generated a lot of wealth, and they don’t pay a dividend. (Or if they do, the dividend is small.) We talked about Amazon earlier. Amazon is a perfect example of that. The return for Amazon over the last 30 years is astounding, and they’ve never paid a dividend.

You can generate income from your investments without dividend or interest payments. Systematic withdrawals have been around for years. We’ve used them for our clients for years.

Dividend paying stocks aren’t the end all-be all of investing. Some people like them. Sometimes dividend stocks, at least the reliable dividend payers, don’t have as much volatility. But you shouldn’t make that the only thing you want to do with your investment portfolio. Growth of principal is a good thing too.

Question 6: What Will Happen to Stocks if Trump Loses? (20:45)

If President Trump loses the upcoming election? What effect will this have on the stock market?

We like to steer clear of politics. We don’t want to get into who will win or lose. The election will happen this year, and you can’t hide from it. Depending on who you support, you’re going to feel differently about any answer we give to this question.

In general terms, most people would view republicans as more pro-business. They are a party that prefers less regulation and prefers lower taxes. And most people would categorize democrats as not as business-friendly. They prefer more regulation, and they’re not afraid to tax corporations.

You would think that the stock market would do better when a republican controls the White House. But there’s something interesting and surprising. The opposite of that is true.

Click to enlarge
Looking at the numbers…

We went back to 1949— or 70 years—and started with Truman’s second term as President. We went through the end of last year. Here’s what we found. Using calendar years, the average total return for the stock market when a democrat was in the White House is 14.4% per year. The average total return for the stock market when a Republican was in the White House is 8.8% per year.

Click to enlarge

Does that mean the stock market will do better under Joe Biden than it will for Donald Trump? Nobody knows. Whoever takes over in January 2021 is going to be dealing with a lot of interesting things. We still have this Coronavirus thing hanging over our heads. The economy is a long, long way from recovering. It could be a difficult situation for whoever’s in charge.

There’s nothing that says if Biden wins, the stock market’s going to do great. And nothing says if Trump wins, the stock market’s going to do great. Nothing in these numbers should be taken as a forecast for the future.

I don’t know if the stock market cares who occupies the White House. It does well under both parties. Companies find ways to make money no matter who’s in charge. I wouldn’t sell because Joe Biden wins. And, I wouldn’t sell if Trump wins reelection either. Find good companies, have a long term outlook when you buy stocks, and things will have a tendency to work out over time.

Question 7: 10 Years Until Retirement. What should we do? (23:59)

We want to retire in about 10 years. What’s the best way to prepare for that. And is it best or is it a smart move to go ahead and pay off our house before retiring?

Still in growth mode

If you’re 10 years away from retirement, you still should be in growth mode. This means you’re more heavily invested in stocks. You’re looking to pursue higher returns.

Over the next decade, bonds aren’t going to help you a whole lot. You’re looking at 1% to 2% returns going forward based on current yields.

If there is a major downturn in the stock market, you have some time to recover from that. Even though we’re not out of this bear market yet, there could be another one in the future. You’re still going to be able to recover. If we do have that downturn again, it becomes a great buying opportunity. You may never find prices that low again.

Volatility shouldn’t be a significant concern at this point. As you get closer, when you’re five years away, that story may change. But, right now, you still have the ability to enjoy those compounded returns. If you can save and invest for higher returns, it should pay off for you in the long term.

I wouldn’t have any problems being 100% invested in stocks for the next four or five years, if I were you. I think the benefits will outweigh the long term risk. It could be tough to do. When you have those volatile times, nobody likes to see their balances go down. But again, I think the growth will be significant for you.

Eliminate Debt

Should you pay off your house before you retire? If you can do so in a reasonable fashion? Absolutely—yes! In fact, you should try to have all your debts paid off by the time you retire. That means car payments, your mortgage, and credit card debts. The fewer expenses you have, the better your retirement is going to be.

Retirement is all about cash flow. In our experience, the biggest reason people run out of money is because they spend too much. And debt payments are a form of spending. So the more you spend to pay debts, the less you have to do other things. Or it could mean you have to take more money from your nest egg than you should.

Eliminating debt can be a huge boost to your retirement plans as a whole.

Here are some other things that you want to do

Know your Social Security numbers…

Get your Social Security earnings record and benefit estimates. This is going to be a key component in helping you plan for retirement. It will help you make good decisions about when to start your Social Security benefits. And for most of us, it’s still a key part of our income.

Get organized

Get things organized. Understand where all your accounts are and how they’re invested. This allows you to create a better plan.

What does retirement look like?

It’s too soon to do detailed budgeting. But at the same time, you can start thinking about what your retirement is going to look like. You can think about what you want to do in retirement. Then you can see how much it will cost.

Health insurance

Have a good idea of what your health insurance is going to be if you’re going to retire before age 65. This is huge. If you have to go out and buy your own health insurance, that’s a big expense that you’re going to incur. You want to know what that’s going to be because it will have an impact on the numbers.

Work on your current cash flow:

The last thing that I would suggest is get your current cash flow situation in order. Know where your money’s going. Know how you’re spending it. If you can rearrange things to focus more on saving and eliminating debt, you’ll be glad you did. You have to make those things a priority. When you do that, you’ll have some flexibility and freedom in your retirement.

what happens to stocks if trump loses the election
what happens to stocks if trump loses the election


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Financial Planning

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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What Happens to the Stock Market in Election Years

In case you hadn’t heard, 2020 is a big election year. In fact, it is maybe one of the most polarized and heated presidential elections in quite some time.  And we don’t even know who’s running yet. It will likely have an impact on the investment world too. What happens to the stock market in election years?

We’ll take a look back at election years since 1948 and see if that offers any insight into what we could expect in 2020.

Watch: What Happens to the Stock Market in Election Years?

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History doesn’t always repeat itself, but it often rhymes. You can look at certain historical trends and form some fairly realistic expectations. For example, a year ago we looked at what happens the year after a down year in stocks.  In this case, the trend proved to be a solid guide for this year.

2020 is an election year. We thought it would be interesting to look at all the election years after World War II. What happens to the stock market in election years? We found a couple of interesting trends.

Trend 1: Incumbents Are Tough to Beat

The first one has nothing to do with stocks and investing. There have been 18 presidential elections since the end of World War II. It started with Truman’s win over Thomas Dewey in 1948. Ten of those elections featured an incumbent president running against a challenger. In seven of those 10, the incumbent won.

The losers:

  • Gerald Ford lost to Jimmy Carter in 1976.
  • Jimmy Carter lost to Ronald Reagan in 1980, and
  • George H. W. Bush lost to Bill Clinton in 1992.

Trend 2: Stocks Have Done Well in Presidential Election Years

What did the stock market do in all those election years?

  • The stock market posted gains in 16 of those 18 years. 
  • It also saw declines in two of those years.
  • The best election year was 1980 when the S&P 500 improved by more than 32%. And this includes the return from dividends. 
  • 11 of the 16 positive years, the stock market posted double-digit gains.
  • In 2008, the stock market was down 37%.  It was the worst return in an election year.
  • The other negative year was in 2000. That year the stock market decreased 9.1%
  • On average, the compounded annual return for these 18 election years is 8.8%
Click to Enlarge the Chart.

Forming Expectations

What does this mean for 2020? History tells us we should expect a positive year.  In addition, we currently have low unemployment, projected earnings growth, and a growing economy.  All of which would support the expectation for a positive year.

But things don’t always follow historical trends and the supporting data can change without notice.  The added drama of politics will make things a bit more turbulent and interesting in 2020. 

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Stocks Climb A Wall of Worry

Stocks climb a wall of worry.

What does this mean? 

Today, we talk about:

  • The news always seems bad
  • Recessions, trade wars and now impeachment dominate the headlines.
  • But the stock market? What has it done.

We’ll talk about it on this episode of Monday Morning Money.

Watch: Stocks Climb A Wall Of Worry

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Do you have a question about money or personal finance? Submit your question using the form below or send an email to

Stocks climb a wall of worry.

What does this mean? Think about all the stuff which has circulated in the headlines over the past year.

A Looming Recession

We continue to deal with the threat of a recession. A major economic slow down can lead to higher unemployment. It can also impact businesses big and small. In some cases, a recession can mean a bear market.

The talk of a recession tends to darken the mood though, and people’s attitudes tend to sour on things like stocks.

Trade Wars

We are still in the midst of a trade war with China. Something many experts feel could contribute to our economic woes. Both countries are taxing goods imported from the other. This serves to drive prices higher for the consumer.

Officials from both countries continue to talk. Unfortunately, nothing has happened, yet.


And now we can add the possibility of impeachment to the list of big things affecting the mindset of the American public. Regardless of where you stand on this issue, it casts a dark cloud over the future.

What the impact will be? Nobody really knows. Since the 1920’s this has only happened twice, with presidents Nixon and Clinton. Nixon’s problems started in late 1972.  The stock market in 1973 and 74 declined nearly 50%.

Clinton’s problems happened in 1997 and 1998.  In both years, the stock market was up over 20%.

So we don’t have a lot of data to help guide us on what to expect.

Wall of Worry
Stocks Climb A Wall

With all the uncertainty, the dismal news cycle, and overwhelming pessimism, what has the stock market done?

Last Monday – the 28th –  the S&P 500 set a new all-time high.

Stocks Climb a Wall of Worry

At that time the popular large-cap index was up over 23% on a total return basis for the year.

Climb a Wall

On the same day, The Dow Jones Industrial Average closed to within less than 1% of it’s all-time high.  


This is what it means when people say, “Stocks climb a wall of worry.” The doom and gloom surrounds us. In fact, it is hard to imagine there is anything good happening in the world.  But yet, the stock market just quietly marches higher.

Beneath the noise are great businesses. Companies who find ways to improve profits and deliver value to their shareholders. And sometimes it leads to a pleasant surprise waiting for us when the dust settles.

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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