Closing the Black Wealth Gap

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Black families have one-eighth the wealth of white families as a result of economic discrimination and institutionalized racism.

This year marks the 100th anniversary of the Tulsa Race Massacres. Over two days, a white mob in the city’s Black district of Greenwood killed an estimated 300 Black Americans and left nearly 10,000 destitute and homeless. The Greenwood area was known as Black Wall Street, an epicenter of Black business and culture.

The Tulsa Race Massacres is just one many thousands of violent and economic incidents throughout American history that created the wealth gap. As such, the Black wealth gap was created through centuries of institutional racism and economic discrimination that limited opportunities for African-Americans.

Wealth was taken from these communities before it had the opportunity to grow. This history matters for contemporary inequality in part because its legacy is passed down generation-to-generation through unequal monetary inheritances which make up a great deal of current wealth.

The racial wealth gap is a chasm with Black families owning one-eighth the wealth of white families. According to the Survey of Consumer Finances, in 2019, the median net worth of Black households was $24,000 as opposed to $189,000 for white households. This shortfall in financial wealth creates a cascade of inequalities in education, homeownership, and simply saving for emergencies.

Historically, Blacks were limited to certain neighborhoods and had more trouble borrowing to buy a home than white home buyers. Additionally, Black workers don’t advance to the top positions in companies at a proportional rate as other groups.

Moreover, African American families have had fewer opportunities to build generational wealth through home ownership, investments and inheritance. In this century, many Black families were stripped of their wealth and financial security by by both public and private institutionalized racism whether called Jim Crow or redline policies.

There are other factors: Many African-Americans, particularly older ones, are too conservative as investors. Only 34% of Black families own stocks, while more than half of white families do, according to a Federal Reserve. It is important to help African American investors get more comfortable with owning risk assets such as equity stocks, ETF and mutual funds that build wealth over the long term.

Do not seek shortcuts to build wealth

You must build wealth over time. If you’re saving 15% or 20% of your income over 30 years, there’s a good chance you will be wealthy. These methods truly work whether you’re making $50,000 or making $500,000 a year.

‘We just had an 11-year bull market. If you didn’t take the appropriate amount of risk, you’re significantly behind,” says Malik Lee, an Atlanta financial advisor whose clientele is more than 90% African-American.

American Dream for Black families

The heart of the American Dream for Black families is financial wellness, independence and freedom. There are many ways to express the American Dream, including owning their home, not living paycheck to paycheck, and being able to travel. Today, 69% of African American families are confident the American Dream is still attainable, according to MassMutual’s ‘State of the American Family’ survey.

Financial wellness for most families is the heart of the American Dream. American families tend to view financial wellness in terms of five common financial priorities:

  • Having an emergency fund
  • Feeling confident in both short-term and long-term financial decision making
  • Not carrying a lot of debt
  • Being financially prepared for the unexpected
  • Not living paycheck to paycheck

Black families are taking steps to secure their financial future and dreams, but more needs to be done to keep the American Dream alive. The top financial regret across all consumer groups surveyed is “not starting early enough.”

References:

  1. https://www.barrons.com/articles/this-advisor-wants-to-close-the-black-wealth-gap-accepting-risk-is-key-51625077456
  2. https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Net_Worth;demographic:racecl4;population:1,2,3,4;units:median;range:1989,2019
  3. https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/
  4. https://www.massmutual.com/static/path/media/files/mc1133aa_09248mr-final.pdf
  5. https://www.forbes.com/sites/brianthompson1/2021/06/17/the-key-to-closing-the-racial-wealth-gap-black-entrepreneurship/

A Wealth of Wisdom

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“By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.” Warren Buffet

Warren E. Buffett, Chairman and CEO of Berkshire Hathaway Inc., and Charlie T. Munger, Vice Chairman of Berkshire Hathaway Inc., provide “A Wealth of Wisdom” in this CNBC video:

Berkshire owns American-based property, plant and equipment – the sort of assets that make up the “business infrastructure” of the U.S. – with a GAAP valuation exceeding the amount owned by any other U.S. company. Berkshire’s depreciated cost of these domestic “fixed assets” is $154 billion.

 

References:

  1. https://berkshirehathaway.com/2020ar/2020ar.pdf

Option Trading Principles: High Implied Volatility

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Implied volatility is a measure of what the options markets think volatility will be over a given period of time (until the option’s expiration), while historical volatility (also known as realized volatility) is a recording of how the underlying actually moved over a specified past period.

Volatility measures the rate at which a security moves up and down. If a security is moving up and down quickly, volatility will be high. Conversely, if a security is moving up or down slowly, volatility will be low.

Implied volatility (IV) shows how much movement the market is expecting in the future.

Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other.

High implied volatility could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

Generally, option traders look to buy options when implied volatility is low since premiums are lower, in hopes of seeing the underlying stock move in a favorable direction along with an increase in volatility which will make premiums increase.

And traders look to write options when implied volatility is high as option premiums tend to be higher, in hopes of seeing the underlying stock move in a favorable direction to his/her position along with a decrease in volatility which would make premiums decrease.

This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

The general idea that options with high IVs are expensive and options with low IVs are cheap.

References:

  1. https://www.nasdaq.com/articles/is-the-options-market-predicting-a-spike-in-invesco-mortgage-capital-ivr-stock-2021-06-11
  2. https://www.nasdaq.com/articles/what-does-implied-volatility-really-mean-2020-10-29

Positive Financial Mindset

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A person cannot achieve financial freedom and save by paying themselves first, invest for the long-term and accumulate wealth until they believe they can be financially free and successful.

Carol S. Dweck, Ph.D., a Stanford University Professor of Psychology, who is considered by many the leading expert on mindset and human behaviors, and who wrote the book, ‘Mindset: The New Psychology of Success‘, says people have two core mindsets: a growth mindset and a fixed mindset.

A growth mindset is the belief that our skills and qualities can be cultivated through effort and perseverance: Our abilities are due to our actions. So many people do not obtain financial freedom because they do not have one thing: the right mindset. Everything starts with how you think about money, wealth and success.

Embracing a Positive Mindset

When you begin to embrace a growth mindset, you start to think differently about how you talk to yourself and think about financial success. This leads individuals to focus on saving by paying yourself first, investing for the long-term and accumulating wealth, rather than focusing on expenses, paying bills and paying off debt. Consider this, if you focus solely on paying bills or paying off debt, you’re limiting your ability to save, invest and accumulating wealth; effectively, you’re not focusing on growth.

One common financial myth held by many Americans is that to achieve financial success through saving, investing and accumulating wealth, a person must sacrifice their happiness, their families and often their health for a large paycheck. People must realized that no matter how successful and happy a person masked themselves to look outwardly, it means nothing if he or she wasn’t happy with themselves on the inside. Portraying an outward image of success no matter how one felt on the inside does not equate to wealth. Instead represents a path to misery and unhappiness.

Most people are never able to achieve financial freedom because, for one, either they don’t know it exists or believe it’s possible for them; normally they’re never taught anything about it.

It begins with Mindset

“If you think the amount of money you have (or rather, don’t have) is due to someone else, you need to change your financial mindset.”

The key to saving, investing and accumulating wealth and achieving financial freedom isn’t starting off with a lot of money, it starts with one’s mindset…embracing a positive financial mindset. It all begins with the belief that you can realize and achieve it. Once you believe in your mind that you can, then you need to find a reason to keep this belief as strong as possible; this reason is your “Why?” Without it, at the first sign of adversity or when things begin to get challenging, you will quit.

Deciding to change your attitude regarding personal finance is one of the first steps in shifting your mindset and changing the of your outcome. A growth mindset means that you think with abundance and you believe that resources are not finite and that you can create more. With a growth mindset, you know that resources are infinite and that if you invest wisely, you’ll be able to achieve higher returns.

For example, people who focus on prosperity tend to look at their finances as an opportunity for growth — they focus on the opportunities for growing their income and net worth. But, in order to achieve this growth, you have to be willing to learn new things and step outside your comfort zone. Having a growth mindset with your finances empowers you to want to learn more about investing and ask a lot of questions about money; it helps you think like an investor.

A growth mindset is especially important with personal finances because it lets you accurately assess risk. A growth mindset knows that there’s always more to be made. It’s a prudent approach to savings as well as personal investing.

A person can find evidence of the Law of Attraction in the Bible in several places.  For instance:

“As a man thinks, so is he”-Proverbs 23:7

“A good man, out of the good treasure of his heart, brings forth that which is good; and an evil man out of the evil treasure of his heart brings forth that which is evil: for of the abundance of his heart his mouth speaketh.”- Luke 6:45

“What you decide on shall be done, and light will shine on your ways”- Job 22:28

“Ask, and it will be given to you; seek, and you will find; knock, and it will be opened to you. “For everyone who asks receives, and he who seeks finds, and to him who knocks it will be opened.…”Matthew 7:7-8

“…whoever shall say unto this mountain, be removed, and be cast into the sea; and shall not doubt in his heart, but shall believe that those things that he says shall come to pass, he shall have whatsoever he says”- Mark 11:23

Mindset is the key to changing your financial habits and building wealth. By changing your money mindset, you will be able to achieve your long term financial goals. Essentially, financial success–saving, investing and accumulatin wealth–is a mindset. A perso can’t truly be wealthy until they believe they can be wealthy.

References:

  1. https://theweek.com/articles/728758/how-growth-mindset-revolutionize-finances
  2. https://investmentu.com/how-to-beef-up-your-financial-mindset-for-2021/

June 2021 U.S. Monthly Jobs Report

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Missing 6.8 million jobs.

  • Nonfarm payrolls increased by 850,000 in June versus the estimate for 706,000.
  • The unemployment rate unexpectedly rose to 5.9% versus the 5.6% estimate.
  • Wages were up 0.3% for the month and 3.6% year over year, both in line with expectations.

Job growth leaped higher in June 2021, the U.S. Labor Department reported. Nonfarm payrolls increased 850,000 for the month, compared with the estimate of 706,000 and better than the upwardly revised 583,000 in May. The unemployment rate rose to 5.9% against the 5.6% expectation.

Currently, 6.8 million fewer jobs exist than before the pandemic. Millions of Americans have dropped out of the labor force.

Aside from ever-present concerns about pay and benefits, workers are particularly interested in jobs that allow them to work remotely at least some of the time. According to a Randstad survey of more than 1,200 people, 54 percent say they prefer a flexible work arrangement that doesn’t require them to be on-site full time.

Health and safety concerns are also very much on the minds of workers whose jobs require face-to-face interactions, the survey found.

The portion of the unemployed who have been out of work for six months or more rose.

Governors in 26 states have moved to end distribution of federal pandemic-related jobless benefits even though they are funded until September, arguing that the assistance — including a $300 weekly supplement — was discouraging people from returning to work.

References:

  1. https://www.cnbc.com/2021/07/02/jobs-report-june-2021.html
  2. https://www.nytimes.com/2021/07/02/business/economy/june-2021-jobs-report.html

Health, Financial and Emotional Well-Being

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“We don’t see the world as it is, we see it as we are.” Anaïs Nin

Recent survey shows Americans are the unhappiest they have been in 50 years. Pandemic and health concerns, social unrest and economic distress have left Americans feeling tired, and living with a constant state of “brain fog” which are just a few symptoms of stress, anxiety, lack of sleep, and poor overall mental health.

People will exercise to help their bodies become fit, but when it comes to mental health, most people do nothing. Let’s be frank, the coronavirus has changed many Americans emotional, financial, and physical health circumstances dramatically and quickly. It’s important to take a holistic approach to your health, financial and emotional well-being. We know that planning for your future is about so much more than your finances – you and your family’s physical and emotional wellness are also a priority.

Time and time again, research has shown that “money cannot buy happiness” and that not only do you need a finite amount of money to be happy, but that prioritizing things like expressing gratitude, friendships, hobbies and family may actually lead to long-term well-being.

Keep physical, emotional and financial health a priority and in the center of your thoughts and daily life.

Overall emotional, physical and financial well-being are what your attempting to holistically achieve. It helps you feel more secure and less stressed in all areas. Sometimes the best thing you can do for your health – and your long-term financial security – is to tune it out the constant negative news. Here are some ways to tune out negativity during uncertain times.

  1. Put down the smart phone and turn off the news. Allow yourself just one hour of news time each day, preferably in the middle of the day. This ensures you don’t start or end your day anxious. It’s important to stay informed, but once a day should suffice.
  2. Stay positive and focus on an attitude of gratitude. List the top five (or more) things you’re grateful for each day. Your list may be the same from day to day or it could change based on the past day’s experience. It could be as simple as being thankful for the roof over your head or a smile from a stranger as you walk your neighborhood.
  3. Get physical and eat healthy. You’ve probably heard it before, and that’s because it’s true – physical activity is just as healthy for your mind as it is for your body. This doesn’t mean you have to participate in high intensity interval training. Start small. Simply going for a walk or doing basic stretches can help keep your mind and body at their best. Additionally, eliminate process foods, refined sugars and saturated fats from your diet. Eat more plant based foods and whole grains.
  4. Connect with family and friends. Having a strong support system is important during good times, but even more so during challenging ones. Reach out to someone you haven’t talked to in a while to see how they’re doing. Send a text or card or give them a call. If your family is spread out across the country, use digital apps to connect and play games.
  5. Stick to a schedule. When you’re stressed, it often takes a toll on your sleep schedule. Keeping a consistent routine can help. Get up and go to bed at the same times each day, even on weekends. Know your stress triggers and pay attention when you notice them flaring up.

While it’s important to be aware of what’s going on in the world, focusing on the bad news won’t help your financial strategy, your emotional well-being or your physical health. Remember, you’re in it for the long term.

During the current coronavirus pandemic, instead of ‘social distancing,’ our focus should be on ‘physical distancing’ and ‘social connection.'”

Maintain mental health and emotional well-being

Focus on the now. Worrying about the past or the future isn’t productive. When you start chastising yourself for past mistakes, or seeing disaster around every corner, you’re only creating more stress and anxiety in your life.

It’s important to stop and to take a breath and ask yourself what you can do right now to succeed. Find something to distract you from destructive thoughts and reset your attitude.

Achieving a healthy frame of mind can seem more challenging than in years past.

Having a daily moment of intentional quiet can go a long way toward a better outlook.

Try this five-minute meditation routine that combines both yoga and balance to steady the mind, utilize the breath to become more mindful, and reduce stress.

Mindfulness meditation does, in fact, decreases anxiety and improves self-esteem, studies have shown.

As you move through Mindfulness meditation, focus on deep breathing. Inhale and exhale through the nose, and start by filling up your lungs with air. Then feel the air rise up into the chest. As you exhale, empty the chest first and then feel the stomach deflate like a balloon. This slow, conscious and specific breath pattern aids in focusing the mind to the present moment.

Finally, if your mind wanders easily during this sequence, you can focus on a one-word mantra to recite silently to yourself. Choosing a word like “serenity” or “peace” or “confidence” and syncing your movement with your breath can help transport you to a different world that quiets distractions from the past and future.

References:

  1. https://www.synchronybank.com/blog/millie/money-and-happiness/https://www.synchronybank.com/blog/millie/money-and-happiness/
  2. https://apple.news/Am_LnLhs1Q22oltXhOLcRLg
  1. https://www.edwardjones.com/market-news-guidance/client-perspective/your-health-your-finances.html
  2. https://www.edwardjones.com/market-news-guidance/guidance/tune-out-stressful-times.html

Bobby Bonilla Day: The perfect example of the power of compounding

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Bobby Bonilla’s contract with the Mets is a brilliant example of the power of compound interest

For former baseball player Bobby Bonilla, July 1 and every July 1, from 2011 through 2035, marks his annual payday, when the New York Mets send him a a check for $1,193,248.20 as part of a deal set up 20 years ago.

In 2000, the Mets cut Bonilla from the team and terminated his contract early. The ball club owed him $5.9 million for that season. Bonilla and his agent chose to defer collecting what was owed and instead agreed to spread the payments out over 24 years, starting in 2011, with an 8% annual interest rate.

When all is said and done, the total payout will be $29.8 million on a $5.9 million initial investment.

Bonilla’s contract with the Mets is a brilliant example of the power of compounding. Compounding is when you earn interest on your earned interest and it can have a powerful impact on growing your money over time.

You and anyone can defer spending your cash by saving and investing it now, giving it ample time to grow. “When you are young, time is your best friend,” says Certified Financial Planner Vid Ponnapalli. “And the magic of compounding is your best resource.”

Putting away money now and combined with the power of compound interest helps you bank some flexibility for later.

Reference:

  1. https://www.marketwatch.com/story/this-retired-baseball-players-contract-is-the-perfect-example-of-the-power-of-compounding-2018-07-16
  2. https://www.marketwatch.com/story/what-is-bobby-bonilla-day-it-is-the-beauty-of-compound-interest-11625145948

Successful Investing Requires Mastering the Inner Game

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“When you learn how to control your emotions, you can derive more positive, productive meanings, even from seemingly negative events.” Tony Robbins

Inner game helps you improve yourself as you learn from your past life experiences. Learning to work on your inner game helps you develop a better outlook in life and this helps you develop your confidence as well. This new sense of self worth allows you be more successful personally and professionally, and with your over all interaction with other people.

To find your inner game, you have to know who you truly are, what you really want and how you want things to be done. This step is not easy. It takes a lot of self-reflection and looking back to your past mistakes and learning from them. It requires you to open your eyes and see yourself for who you really are now. Then try to look to the future and visualize how you want to see yourself after a couple of years.

It may take a lot of self-reflection, emotional intelligence and psychological understanding of your personal issues and how to deal with them. But the bottom line to becoming confident being the real you, is that you will have to overcome your insecurities, angsts, worries, and fears. If you fail to do so, these negative factors will reveal themselves in your personal and professional life and can cause problems.

When you get the real picture of who you truly are, you also have to learn to appreciate the traits that you have. Don’t focus on the things that you dislike about yourself. Real attractiveness come from within. Before anyone else appreciates your looks, you should be the one to appreciate it first. Know your strongest feature and use it to your advantage. If you believe that you look good then you will feel good about yourself too. Your self confidence will improve and this makes you more.

Inner Personal Scorecard

Warren Buffett frequently relates an interesting way to frame this topic:

Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover? 

Or. If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?

Buffett’s getting at a rather fundamental model he’s used most of his life: The Inner Scorecard. When you have an internal scorecard, no one can define success for you but you.

What Buffett and a lot of other people who have been successful in life — true success, not measured by money — have in common is that they’re able to remember what we all set out to do: live a fulfilling life! Not get rich. Not get famous. Not even get admiration, necessarily. But to live a satisfying existence and help others around them do the same.

It’s not that getting rich or famous or admired can’t be deeply satisfying. It can be! I’m positive Buffett deeply enjoys his wealth and status. He’s got more “admiration tokens” than almost anyone in the world.

But all of that can be ruined very, very easily along the way by making too many compromises, by living according to an external scorecard rather than an internal one.

Controlling your emotions

According to James J. Gross, a psychologist and professor at Stanford University and best known for his research in emotion and emotion regulation, the inability to control, or regulate, your emotions is at the root of some psychological disorders including depression, social anxiety and borderline personality. And, no matter how psychologically healthy you think you are, you can benefit from learning how to better manage your emotions in investing and everyday life.

References:

  1. https://www.tonyrobbins.com/ask-tony/cycle-of-meaning/
  2. https://www.essentiallifeskills.net/5-effective-ways-to-control-your-emotions.html

Swing Trading

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Swing Trading attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks.

Swing trading is a short-term stock trading style. You take smaller profits, cut losses quicker, and hold stocks for less time. To make it work, your rules for trading need to be specific to the shorter time frame. Though the gains might be smaller, the shorter holding period means you can compound your gains into big profits over time

Gains have more than made up for the losses. That’s the benefit of keeping losses small and admitting early that your timing might be off.

The first key to successful swing trading is picking the right stocks.

Swing traders should select their candidates from the most actively traded stocks and ETFs that show a tendency to swing within broad, well-defined channels. It’s necessary to keep a list of stocks and ETFs to monitor daily and become familiar with the price action of selected candidates. The best candidates are large-cap stocks, which are among the most actively traded stocks on the major exchanges. In an active market, these stocks will swing between broadly defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks only to switch to the opposite side of the trade when the stock reverses direction.

Swing Trading Strategy

Swing Trading is a strategy that focuses on taking smaller gains in short term trends and cutting losses quicker. The gains might be smaller, but done consistently over time they can compound into excellent annual returns. Swing Trading positions are usually held a few days to a couple of weeks, but can be held longer.

The basics of a swing trading strategy. targeting profit goal is a more modest 10%, or even just 5% in tougher markets.

Those types of gains might not seem to be the life-changing rewards typically sought in the stock market, but this is where the time factor comes in.

The swing trader’s focus is an average length of a trade is more like 5 to 10 days. In this way, you can make a lot of small wins, which will add up to big overall returns. If you are happy with a 20% gain over a month or more, 5% to 10% gains every week or two can add up to significant profits.

Smaller gains can only produce growth in your portfolio if losses are kept small. Rather than the normal 7% to 8% stop loss, take losses quicker at a maximum of 2% to 3%. This will keep you at a 3-to-1 profit-to-loss ratio, a sound portfolio management rule for success. It’s a critical component of the whole system since an outsized loss can quickly wipe away a lot of progress made with smaller gains.

Swing trading can still deliver larger gains on individual trades. A stock may exhibit enough initial strength that it can be held for a bigger gain, or partial profits can be taken while giving the remaining position room to run.

Swing Trading vs. Day Trading

Swing trading and day trading may seem like similar practices, but the major differences between the two have a common theme: time.

First, the time frames for holding a trade are different. Day traders are in and out of trades within minutes or hours. Swing trading is generally over days or weeks.

Day traders’ shorter time frame means they don’t generally hold positions overnight. As a result, they avoid the risk of gaps from news announcements coming in after hours and causing a big move against them. Meanwhile, swing traders have to be wary that a stock could open significantly different from how it closed the day before.

But there is an added risk with the shorter time frame. A wide spread between the bid, the ask and commissions can eat too large a portion of your profits. Swing traders can struggle with this too, but the effect is amplified for the day trader. Day traders can find themselves doing all the work, and the market makers and brokers reap the benefits.

For a swing trader, a string of losses or a big loss can still have a dramatic effect, but the lower leverage reduces the likelihood that the results wipe out your portfolio.

That leads to another time related difference: the time commitment. Proper day trading requires focus and attention on numerous positions and constantly looking for new potential opportunities throughout the day to replace exited positions. That means it isn’t a side job; day trading is your only job.

The extra time commitment of day trading comes with its own risk. Not having a steady paycheck makes a day trader’s income reliant on trading success. That can add an extra level of stress and emotions to trading, and more emotions in trading lead to poor decisions.

A swing trading style, by contrast, may have a few transactions some days and nothing on others. Positions can be checked periodically or handled with alerts when critical price points are reached rather than the need for constant monitoring. This allows swing traders to diversify their investments and keep a level head while investing.

References:

  1. https://www.investors.com/ibd-university/swing-trading/
  2. https://www.investors.com/research/swing-trading/swing-trading-strategy-basics/
  1. https://www.investopedia.com/terms/s/swingtrading.asp
  2. https://www.fidelity.com/learning-center/trading-investing/trading/swing-trading-setups

Strategies to Reduce Taxes

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Taxes are one thing retirees tend to have a little control over, as long as they do deliberate tax planning.

Accumulating sufficient assets for retirement is a critical part of retirement income planning, according to Bill Thomas, Financial Adviser, Thomas Financial Services. However, it’s just as important to preserve what you’ve saved over the 25 or 30 years that you may live in retirement. That’s where deliberate tax planning comes in.

It is likely that taxes will increase during your retirement, potentially reducing your income and cash flow. Instead of fretting over increasing taxes, now is the time to figure out how to create a tax-efficient retirement where you can maximize deductions and credits while minimizing taxes.

Getting into the 0% tax bracket may be possible and easier than you think. All it takes is a smart tax strategy that allows combining tax credits and deductions, accumulating more long-term capital gains, or benefiting from qualified dividends.

You can legally decrease or completely eliminate your tax bill by taking advantage of some of the perks in the tax code.

Qualified dividends follow three rules:

  1. The dividend must have been paid by a U.S. corporation or a qualifying foreign company. The dividends must be deemed as qualified in the eyes of the IRS and cannot be listed as a non- qualified dividend.
  2. You’ve held the stock paying the dividend for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.
  3. Use the long-term capital gains rates shown above to see the taxable income and filing status for the 0% tax brackets.

Being an investor requires a strategy to reduce your taxes. For many, it’s tempting to buy stocks and sell them as soon as the price shoots up. But if you hold on to your investments for an over a year — you’ll be eligible for long-term capital gains tax rates.

Simply put, it pays to be patient in the stock market. If you sell a stock that you’ve owned for a year or less, you’ll have to pay a short-term capital gains tax, which can be as high as 37%. Once you’ve held an investment over the one-year mark, you’ve hit the long-term capital gains threshold.

Getting into the 0% tax bracket may be easier than you think. All it takes is a smart strategy that allows you to combine tax credits and deductions, accumulate more long-term capital gains, or benefit from qualified dividends.

Make tax-smart investing part of your tax planning

The potential impact of tax-smart investing techniques over time. As the accompanying graphic shows, employing tax-smart investing techniques over time may have a significant impact on your long-term returns. The longer you apply these techniques, the greater the potential impact.

Each line represents a client’s hypothetical value from tax-smart investing techniques at various starting dates, based on a starting portfolio value of $1 million.

Though taxes might not be the first thing you think of when it comes to how you want to spend money in retirement, planning strategically can mean more income and cash flow for the things you love.

References:

  1. https://www.kiplinger.com/retirement/retirement-planning/602880/4-strategies-to-reduce-taxes-in-retirement
  2. https://www.msn.com/en-us/money/retirement/these-strategies-can-reduce-the-taxes-you-will-pay-on-retirement-accounts/ar-AAKcd4U
  3. https://www.fidelity.com/wealth-management/tax-smart-investing-planning