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Democrats on the House Ways and Means Committee released their tax proposals on September 13, 2021. The measures are very different from what many expected.

Consider Present and Future Tax Liabilities When Making Investment Decisions Making investment decisions can be overwhelming because there is so much to consider; especially when you’re working toward meeting specific short- and long-term financial goals. This is certainly true of your investment strategy’s tax implications, as taxes can reduce your investment returns from year to year and jeopardize your ability to achieve your goals. This is especially true if you fall into a higher federal income tax bracket, making it even more important to consider the impact of taxes when making any changes to your investments. While you should always consult with a tax professional regarding your unique investment and tax scenarios, the following six tax-efficient investing strategies can serve as a guideline to help you benefit from your finances. Strategy #1: Identify and Contribute to Tax-Efficient Accounts If you’re eligible to contribute to tax-efficient retirement accounts, like traditional IRAs, Roth IRAs, and 401(k) accounts, you can help to reduce your current and future taxes. In the present, for instance, your traditional IRA contributions are tax-deductible depending on your income (subject to a dollar limit), and your 401(k) contributions are pre-tax and will reduce your current taxable income (subject to contribution limits). For the future, traditional IRAs and 401(k)s offer you the potential for tax-deferred growth, while Roth accounts give you tax-free growth potential. Strategy #2: Diversify Your Accounts Mixing and matching your income sources in retirement through a combination of investment account types can help you minimize your tax burden. Doing so is beneficial because different types of accounts offer disparate tax treatments. For instance, brokerage accounts offer you taxable growth potential. In contrast, traditional IRAs offer you tax-deferred growth potential, and Roth IRAs offer growth potential that won’t be taxed as long as you meet the requirements for qualified distributions. Here’s an example of how using a combination of accounts can benefit you: If you are eligible to take tax deductions in retirement, you won’t be able to do so unless you have taxable income. Withdrawals from a traditional IRA count as taxable income, so your strategy could be to withdraw just enough to offset your eligible deductions. You could draw the remainder of the income you need from your Roth IRA account. Those qualified distributions from your Roth IRA are income-tax-free, therefore do not increase your tax bills during retirement. This is just one example of how splitting up your contributions to different account types now can help you reduce your future tax burden. This type of planning can be advantageous. However, it is only possible to enjoy these tax benefits in retirement if you start taking steps to diversify your contributions right now. Strategy #3: Make Tax-Efficient Investments Did you know that specific investments can carry tax benefits? One example is income earned from municipal bonds, which is always federally tax-free (and even state and local tax-free if you buy municipal bonds in your resident state). Other examples of tax-smart investment choices include tax-managed mutual funds, where the fund managers work purposefully for tax-efficiency. You can also choose to invest in index funds and exchange-traded funds (ETFs) that passively track a target index. Because the securities in the index funds are not traded as frequently as the actively managed mutual funds, they generate lower short-term capital gains distributions. Strategy #4: Hold Your Investments in the Right Account Type You can’t take full advantage of tax-efficient investments unless you’re also holding them in accounts matched to the appropriate tax treatment. This way, you can truly realize the full potential of the tax benefits you’re seeking – without accidentally increasing your tax liability. Here are two examples: Investments that generate taxable income are often better held in tax-deferred or tax-free accounts (401(k) plan, traditional IRA, Roth IRA, and Health Savings Account). So, you may want to utilize a traditional IRA for things like taxable corporate bonds or stock funds with high turnover to maximize your potential tax benefit. You do not need to report realized gains, dividends, and interest income from tax-deferred accounts each year on tax returns until distributions. The tax-efficient investments such as municipal bonds, ETFs, or tax-managed mutual funds are often best suited in taxable brokerage accounts (individual account, joint account, or trust account). ETFs are more tax-efficient because of the structure that is different than mutual funds. You can use ETFs in both retirement accounts and taxable accounts for their liquidity and low-cost benefits. Holding ETFs in taxable accounts provides an additional tax benefit. You also have easy access to your taxable accounts before age 59.5 without penalties. When you’re using this Asset Location strategy, ensure your decisions about where to hold various investments are consistent with your overall asset allocation strategy. Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. Strategy #5: Avoid Short-term Capital Gains Taxes by Holding Investments Longer First, it’s important to note that it is usually not worth holding onto a stock you feel ready to sell to avoid taxes, but there’s one notable exception. Consider this: Gains on stocks held for a year or less are short-term capital gains and are taxed at ordinary income rates, but gains on stocks held longer than one year are taxed at the long-term capital gains rate. So, it could make sense to delay selling appreciated stocks until they qualify for capital gains treatment if your stock’s holding period is nearly one year. For 2021, a single filer pays 0% on long-term capital gains if you have an income of $40,400 or less; 15% if you have an income of $445,850 or less, and 20% if your income is greater than $445,850. Work with your tax advisor to ensure you use this strategy appropriately.

In a two-parent household, raising children can be quite the task. Raising children as a single parent brings additional challenges, stressors, and responsibilities - many of which are financial. Though financially stressful, it’s important to remember that it’s possible to raise a child on your own and have a stable financial life. It merely requires discipline and planning. So, if you’re a single parent and feeling a bit overwhelmed, use these steps as a guide to help you achieve financial security. 1. Prepare Your Estate Planning Documents It’s hard to think about, but nobody knows for sure what the future holds or how much time we have left. So, unless you feel confident in leaving your personal and financial decisions to next of kin or to state officials, it’s essential to make time to sit down with an attorney to discuss your wishes should anything unexpected happen. People tend to procrastinate when it comes to getting their estate paperwork in place, but it’s important to be proactive so you can be sure that your wishes will be followed when you’re gone, especially about who will raise your children in your absence. Since children under the age of 18 cannot take control of inheritance money or make any legal decisions, listing them as beneficiaries won’t be enough. You’ll want to choose a guardian in your will that determine who will take over responsibility for your kids should you be incapacitated or pass away. 2. Purchase Life Insurance When it comes to life insurance, the general guideline is that if someone is dependent on your income, you should probably have life insurance. So, if you’re raising children by yourself, you’ll want the security of a life insurance policy to ensure you’re covering your family’s needs. Sitting down with a financial advisor will help determine how much insurance you’ll need in your unique situation. You should estimate how much raising your children will cost, which includes paying for college, assets you want to protect, or debt you wish to pay off. You’ll also want to speak to an attorney about how you can properly name a beneficiary for your life insurance policy. There is an abundance of options to choose from when it comes to life insurance, so be sure to do your research and talk to those who are experts in the area and who you can trust. Though it may seem superfluous or extreme, life insurance policies can be an affordable and efficient way to protect your family. 3. Fund an Emergency Savings Account While no one wants to live life considering every worst-case scenario, single parents must be prepared. Doing so can give you peace of mind, knowing that your children will be protected no matter what may happen. One of the best ways to be sure that you provide for your family is to have a fully-funded cash reserve on hand for emergencies – such as a worldwide pandemic, for instance. For a one-income household with children, you should aim to have at least six months’ worth of monthly bills and expenses saved. This may seem like a lot of money, but you don’t have to save it all at once. Start small, with just a small percentage of your paycheck going away into savings each month. Slowly, you’ll see your safety net grows over time, giving you and your family added protection from unexpected expenses. 4. Contribute to a Retirement Account It’s natural as a parent to want to put your children’s needs and wants before your own. However, you can’t forget about taking care of yourself either, especially if it’s just you. After you’ve put the proper risk management documents and saving practices into place, it’s time to focus on saving for your retirement. Your early working years are critical to your retirement savings goals, and the longer you wait, the more money you will need to save to have a secure retirement. With the right planning, you can incorporate your retirement plan into your other wealth management plans. If you have access to a retirement plan at work, such as a 401(k), strive to save around 15% of your total income. Or, if money is tight, see if your employer offers to match your contributions and put in just enough to qualify for a full match. As you grow in your position and begin feeling more financially stable, you can increase your contributions. If you don’t have a 401(k) available to you at work, look into opening an IRA . Both the Roth IRA and the traditional IRA can be great retirement savings tools. To decide which one is the best for you, you can listen to my recent interview on the Marriage, Kids and Money podcast h ere . 

Choosing an Heir for Your Estate Being prepared sets you up for success. Estate planning is all about your assets’ disposition and, for many people, this involves determining how to divide assets among heirs. What happens, though, when you don’t have a spouse or children or other obvious heirs to your estate? Unfortunately, many people in this situation don’t feel it’s necessary to plan where their assets will go, making it more likely that their money will end up somewhere they wouldn’t choose—specifically, the state. For this reason, it’s always wise to have a strategy in place and to plan for various outcomes. Understanding Inheritance Law While regulations differ a bit by state, the standard inheritance hierarchy looks something like this: surviving spouse, children, grandchildren. If none of those relatives cannot be identified, assets can go to parents, grandparents, siblings, and nieces and nephews. In instances where no such relatives exist, assets are escheated back to the state. Essentially, in the absence of a next-of-kin, the escheat process allows the state to lay claim to your assets and utilize your money for the public good. Choosing Alternate Heirs It’s not ideal to let the state decide the disposition of your hard-earned assets. So, you may want to consider choosing an alternative heir instead. Alternative heirs can be relatives, friends, or legally recognized non-profit organizations. Anyone can inherit your assets, so be thoughtful about who you designate as a beneficiary in the absence of obvious heirs. Of note: Some states will levy an inheritance tax, and it could be higher for a non-relative beneficiary. If you choose a charitable organization to inherit your assets, you may also consider beginning your philanthropy while you’re still alive and able to witness your impact. If you’d like to go this route, you have several options open to you: Charitable Remainder Trusts. With this irrevocable trust, you receive an immediate charitable deduction based on the present value of the cash or other property that you transfer. You also receive a reliable income stream from the trust, which could be for a set number of years or the remainder of your life. Upon your death, the non-profit receives the remaining assets. Donor-Advised Funds. Here, you make an irrevocable, tax-deductible contribution of cash, securities, or appreciated non cash assets. You can then invest the funds for future potential growth and recommend grants to qualified 501(c)(3) charities you’d like to support. It’s relatively simple to set up a donor-advised fund and you can do it with a small amount, such as $50,000. You can learn more by visiting American Endowment Foundation , the one I’ve used for over a decade. Private Foundations. A family or an individual often founds this type of non-profit organization. It begins with an initial tax-deductible gift, managed by a board of directors or trustees. Sometimes, these trustees are paid for their efforts in controlling the disposition of your assets. With a private foundation, you may grant funds to qualified 501(c)(3) charities, as with a donor-advised fund, but you’re not limited to just qualified charities. As you consider the above options, think through how much control and supervision you wish to have. All three charitable options are suitable ways to plan your estate, so base your choice on personal preference, as well as guidance from your financial advisor. It may even be possible to combine several of the approaches described above to accomplish your estate planning goals. It would be best to work with a tax professional who has experience in charitable giving before you implement any plans. This will ensure you’re meeting your goals in the most tax-efficient manner possible. Non-Monetary Considerations While your financial assets’ disposition is a critical decision point, it’s not the only consideration in your estate plan. Beyond money matters, you’ll also want to designate a person who can make decisions on your behalf, should you become unable to do so yourself due to injury or illness. You’ll want to plan for each of the following: Durable Power of Attorney for Finances. This legal document authorizes a person of your designation to handle financial and legal matters if you become incapacitated. Durable Power of Attorney for Healthcare. This document is like the above but authorizes your designated person to make medical decisions, rather than financial, on your behalf when you are unable to do so yourself. Living Will. This document details the medical interventions you would and, importantly, would not choose to undergo to keep yourself alive. In Minnesota, a Health Care Directive form combines Durable Power of Attorney for Healthcare and Living Will in one legal document. To learn more about Minnesota Health Care Directives, visit here: https://www.health.state.mn.us/facilities/regulation/infobulletins/advdir.html Preparing the above legal documents ahead of time allows you to make your own, brassbound decisions. If you fail to take these steps, the state will determine your next of kin—possibly a very distant relation you had no contact with—to make decisions for you.

Getting the Most Out of Your Inheritance There was a time when if you inherited a Roth IRA, you would be able to stretch any withdrawals out over your lifetime, letting the money grow over the years. Unfortunately, the rules have changed. The SECURE Act was signed into law in December of 2019, and it imposes a new rule on inherited IRAs for any account whose owner died after December 31, 2019. This now requires that beneficiaries must empty the account within ten years of the owner’s death (unless they qualify for an exception). While this new law limits what you can do with an inherited IRA, there is still some flexibility in how you reap the benefits if you stay within the 10-year time limit. I would like to offer you five tips to guide you as you plan your strategy. 1. Make the switch to an inherited Roth IRA account. Before you begin making plans for your newfound wealth, there are some administrative steps that you have to get out of the way first. Most importantly, you will have to move the funds from the inherited IRA into a new IRA account. If you inherited the Roth IRA from your spouse, then you can transfer the inherited funds directly into your Roth IRA account if you have one. If not, then you’ll have to open a Roth IRA and transfer the funds. If you are inheriting the Roth IRA from someone who isn’t your spouse, you need to open a new inherited Roth IRA account to transfer the assets into that account. When it comes to IRAs, the two main types are taxed differently while similar. If you inherit a traditional IRA, you will be taxed when you withdraw from the account. If you were fortunate enough to inherit a Roth IRA, you would most likely be able to make withdrawals tax-free. Regardless of what type of IRA you inherited, you must open the same kind of account when you are getting ready to transfer over. 2. Check if you qualify for exemptions. As mentioned above, there are exceptions to the new 10-year rule. You might qualify for a different distribution timeline if: You’re a minor child. Though you have to begin receiving distributions from your inheritance immediately, they will be determined by life expectancy instead of on a time limit. So, any months or years you have as a beneficiary of an IRA before turning 18 won’t count towards the 10-year requirement. Once you are of age, however, the clock will begin ticking on your 10-year requirement. The inherited IRA came from a spouse. Should the unfortunate event occur in which you are widowed and left the beneficiary of your spouse’s IRA, you can treat this account as if it is your own. That means for a Roth IRA, you never have to take distributions out, and if it’s a traditional IRA, you don’t have to take out any distributions until you are 72. You’re chronically ill or disabled. If this is the case, you can receive your IRA distributions at your own pace and allow them to stretch out over your lifetime. You’re less than 10 years younger than the account owner. Typically, this exemption is for siblings or unmarried couples who inherit an IRA from one another. However, no matter who the IRA comes from, if you were close in age with the account owner, then you qualify to stretch your IRA distributions out over your lifetime. 3. Boost Retirement Savings. Should you not meet any of the above exceptions and find yourself with only 10 years to empty the inherited IRA account, it could be an excellent opportunity to ramp up your retirement savings. If you are financially stable enough to not need the inherited money immediately, consider using the distributions to cover your living expenses and contribute more of your earned income to your retirement plan. If you inherited a Roth IRA, this is easier to do, as your withdrawals are not counted as income and are therefore tax-free. Traditional IRAs will push you into a higher tax bracket. Make sure to prepare your cash flow projection for the next ten years to take more distributions in the years when your income is lower to avoid causing a very high-income year in the tenth year. Note: you must have earned income from work to contribute to an IRA, and your contribution to a Roth IRA is affected by the amount of your modified AGI .

Timing is everything. Utilizing the proper timing can help maximize the benefits of converting your traditional IRA to a Roth IRA . A traditional IRA is a beautiful retirement savings tool. It allows you to minimize your current tax burden and pay taxes on your contributions later. However, there are some instances when you may want to take care of what you owe the government now so that you can avoid subsequent taxes later. If the latter is your goal, you’ll want to convert some of your traditional IRA balance to a Roth as Roth IRA distributions in the future, including all the gains will be income tax-free. How do you know if a Roth conversion is right for you? Although you should always consider your unique financial planning needs, there are four scenarios in which it makes sense to consider a Roth conversion. Scenario #1: When Youth is on Your Side When you’re younger and not yet as established in your career, chances are you’re earning less than you will be in the future. This means you’re likely in a lower tax bracket than you will be in years to come. If you convert to a Roth now, you can pay taxes at what is likely to be a lower rate than when you reach a higher tax bracket later. Plus, converting to a Roth when you’re younger means you can take advantage of the magic of compounding to grow your savings further. For example, if you have a 401(k) plan balance with your last employer, you can rollover to a traditional IRA account without paying income taxes. Then you can decide if you want to convert some or all of the IRA balance to a Roth IRA by paying income taxes on the conversion amount. Suppose you have non-deductible contributions in your IRA before you rollover the pre-tax 401(k) balance to it. In that case, you use pro-rata rule to determine the taxable percentage to apply for the conversion amount. Before 2010, only taxpayers who earned an adjusted gross income of less than $100,000 were allowed to convert any IRA balance to a Roth IRA. Since 2010, the IRS has allowed many individuals to convert their traditional IRA to Roth IRA regardless of income level. Scenario #2: During a Market Correction All investors know the market will take a dive from time to time and, while it can be painful to see the value of your investments decrease, it also presents an opportunity. If your traditional IRA was valued at $50,000 and a dip in the market causes it to fall to $40,000, converting to a Roth means only paying taxes on $40,000. When the market recovers and your investment value rises to $50,000 again inside your Roth IRA, you won’t owe any additional tax on those investment gains. Scenario #3: Before Tax Brackets Increase The Tax Cuts and Jobs Act (TCJA) of 2017 lowered tax brackets for nearly everyone, but these lower rates are set to expire at the end of 2025. This month the Congressional Budget Office (CBO) released its updated budget outlook—the first to incorporate the effects of the COVID-19 public health and economic crisis. CBO’s baseline, which is based on its July economic forecast, shows that the current crisis has substantially worsened an already unsustainable budget outlook. All major trust funds will exhaust their reserves in the next 11 years. CBO estimates that under current law, budget deficits will more than triple, rising from $984 billion (4.6 percent of GDP) in 2019 to $3.3 trillion (16 percent of GDP) this year. In my opinion, it's possible to see major tax law changes in the year 2021 or 2022 because of the huge projected deficit. So, if you have concerns about your tax burden rising in the next few years, you can mitigate that risk by converting to a Roth now and saving in taxes before that happens. For a more affluent married couple who are projected to be in a 32+ percent marginal tax bracket in the future when RMDs (required minimum distribution based on life expectancy and IRA balance) begin at age 72, it is a good idea to convert some IRA money to Roth IRA money for the next few years in order to fill up in the low tax brackets by paying no more than 24 percent federal marginal tax rate (staying below the taxable income of $326,600 for married filing jointly). Thus, the decision to pay taxes at today’s rates can generate potential tax benefits in the long term. See the tax brackets and other deductions for the year 2020 published by Tax Foundation .

Who doesn’t love second chances? Second marriages often bring with them a renewed optimism for the future. After all, you’re getting a second chance at a “happily ever after.” The best part is now you have the benefit of more life experience and wisdom. On the other hand, you’re likely to have a significantly more complex financial life than you did going into your first marriage. This means you and your partner must be thoughtful and savvy about how you will manage your finances. The following seven steps can help cover your bases and ensure you remain on firm financial footing as you enter this new phase of life together. 1. Honesty is the Best Policy – The healthiest relationships are those based on transparent communication on both sides. To make a solid start together and avoid any surprises down the road—you should each disclose where you stand financially. This means sharing details on assets, debts, credit history, and any financial support you provide or receive based on a prior divorce decree. 2. Update Paperwork – If you are changing your name or updating accounts you plan to hold jointly, you’ll need to dot all your Is and cross all your Ts. Notify the Social Security Administration and any financial institutions of name changes, update all your car titles, mortgages, and financial accounts, and update beneficiary information for insurance and retirement accounts. 3. Discuss Family Obligations – Since you will each bring personal financial goals and obligations into the marriage, be sure you understand one another’s plans. For instance, your spouse may intend to fund their children’s college educations, while you might feel strongly about helping to support your aging parents. Decisions like this can help determine to what extent you will combine finances or divvy up expenses. 4. Revisit Your Estate Plan – Estate planning is essential for everyone, but it can be particularly crucial for blended families. Suppose you and your spouse are bringing significant assets into the marriage and either or both of you have children from previous relationships. In that case, you’ll need to take extra care in ensuring your wishes will be met. This is because probate laws aren’t usually written with blended families in mind, meaning you and your spouse may have considerations that aren’t adequately addressed. Having your up-to-date estate plan will make sure your assets are divided as you intend. 5. Discuss Merging Finances – While there is no right or wrong answer here, all new couples must have the “yours, mine, and ours” discussion. Some couples merge all of their expenses, cash, and debts, while others keep everything separate. Many choose to keep most things separate but set up a joint checking account for joint household expenses. Regardless of which will work best for you, it’s important to discuss things upfront and set expectations and ground rules that work for both spouses.

Have you begun to save for retirement? It is never too early to start planning for your retirement, and in a perfect world, we would all start saving for retirement at age 25, and life would never throw any curveballs to send us off track. Of course, this is far from a perfect world, and that’s why so many Americans find themselves playing catch-up and carrying anxiety about never achieving their retirement savings goals. In my last blog, I weighed the options of using stocks or bonds to save for retirement [HA1] . Today, I want to offer you some powerful techniques you can use to accelerate your savings right now—even if you’ve waited longer than you had hoped to begin saving. Below, we’ll look at seven tactics to help you get serious—and successful—about your retirement nest egg. Maximizing Employer Contributions Do you have an employer-sponsored retirement plan, like a 401(k) or a 403(b)? If so, you may just have a secret weapon available to you for retirement savings: the employer match. Many companies will match their employees’ retirement contributions up to a certain amount, meaning you can access free money just by contributing a certain amount from your paycheck each month. The key to maximizing this “second contributor” to your account is making sure you understand what your employer’s max contribution is – then do everything you can to make sure you get it. For example, if your employer matches 50 cents to a dollar up to 6% of your pay, you must contribute at least 6% of your pay in order to receive the maximum matching amount. This may mean setting aside more from each paycheck than you typically do, but the payoff in retirement will be well worth your trouble. Tax-Advantaged Accounts If you’re contributing to a retirement plan (such as 401(k) plan) through your job, or you have a traditional IRA, you can receive favorable tax treatment from the IRS, too. With these accounts, you won’t pay any federal income taxes on your contributions, leaving you with a greater ability to build your savings in the present. Then, you’ll pay taxes on your contributions and earnings when you begin taking distributions in retirement. These accounts do have contribution limits in place, which you can check out here for 401(k)s and here for IRAs . Some 401(k) plans offer Roth contributions in addition to pre-tax 401(k). That means you can use after-tax dollars to contribute and the distributions including earnings will be tax-free. If you believe your future income is higher, then Roth 401(k) is more beneficial than the pre-tax 401(k). You are allowed to split between the Roth and pre-tax as long as the total doesn’t exceed the contribution limits. Roth IRA is similar to Roth 401(k) in tax treatment. You can learn more about Roth IRA by reading this recent blog post . Increase Contributions Gradually As you learn about a potential company match and the IRS’ contribution limits for certain types of accounts, you can better goal-set for how much to set aside each month – especially if you’re not yet maximizing your savings. However, it can be daunting to learn that you need to save, say, an additional $600 every month. Rather than make such a big change all at once, use the “One Percent Trick” instead. Gradually increase your retirement contributions by just one percent each month or quarter, and soon you’ll be saving a lot more without feeling a big hit to your paycheck all at once. Make the Most of Your Health Savings Account (HSA) If you’ve heard lots of buzz in recent years about Health Savings Accounts, it’s for good reason. HSAs offer a triple tax benefit you simply can’t get with other types of savings accounts. You can max out contributions free from federal and state income tax and invest the money with no tax on your earnings either. You can also withdraw funds tax-free for qualified medical expenses. This particular detail makes HSAs ideal for retirees because studies show that the average retiree’s medical costs are 15 percent higher than their annual expenses. So, check to see whether your employer offers an HSA plan and if you’re already using one then consider upping your contributions. If you are self-employed and do not pay yourself a salary, you can set up a HSA account on your own and deduct the contributions on your income tax returns. Be sure to check out contribution limits . Set Yourself Up for Growth Over Time You know what they say, “With risk comes reward.” No, no one wants to take too much risk with their hard-saved dollars, but it makes sense to dedicate at least some of your savings to stocks because, historically, they offer the most potential for your money to grow over time. Every person’s risk tolerance is different, so aim for an investment mix that you feel comfortable with, while also positioning yourself for growth over the long-term.

If you are planning for your future, then hopefully, you have put some thought into saving for retirement. When planning for retirement, there are many important factors to consider, such as how much investment risk is appropriate for your financial goals—and your comfort level. If what I have mentioned so far resonates with you, then the next question is, should you invest in stocks or bonds for your retirement savings? There is a lot to unpack here because every investment has risks. When the stock market goes up, the usual pattern is that the bond market goes down (usually due to the Federal Reserve Bank increasing interest rates), but market cycles can be very strange indeed. In 2018, both the stock and bond markets lost money. In 2019, both the stock and bond markets had a great return. In 2020, the stock market had a sharp decline in the Spring and recovered, while the bond market has had a steady positive return as our country is in recession and dealing with the COVID-19 pandemic. This is precisely why everyone needs a solid education in investment planning, whether working alone or with an advisor, to determine risk tolerance and, on that basis, the right asset allocation to maximize after-tax risk-adjusted return. Many investors fear volatility in the market because they worry a market downturn would erase their hard-earned savings, but there is no need to fear volatility. Yes, it represents risk in the short-term, but it also creates opportunities for investors with a long-term horizon to get into the market at attractive price levels. I want to offer you a few sample investments and what they have returned over time: U.S. Treasury Bills - Treasury bills are seen as an efficient proxy for money market accounts. According to Ibbotson Associates, from 1926-2018, these bills’ compound annual return is approximately 3.3 percent. Since inflation was nearly non-existent until 1960, this was quite an attractive return. Consider this: if you had invested just $1 into Treasury bills in 1926, your investment would be worth $21 in 2018. Long-Term Government Bonds - In the same time period from 1926-2018, long-term government bonds returned about 5.5 percent annually. This means a $1 investment in 1926 would have produced $142 in 2008. Stocks - Stocks have yielded solid returns for investors since 1926, as well. Large-cap stocks’ compound annual return is 10.0 percent from that time to 2018. Clearly, this is a much higher return than bills or bonds. To illustrate: that same $1 investment in 1926 would have become $7,030 in 2018. What’s the Bottom Line? It may come as a surprise that the long-term extremes for stocks and bonds are quite close, but both have shown 10-year periods of weakness and annual losses balanced against periods of double-digit gains. At the end of the day, though, stocks have produced higher average returns. For this reason, stocks are often identified as a superior investment vehicle for your retirement portfolio.