Are you getting a tax refund this year? Plenty of folks are. Much like trivia, running through the IRS data is always interesting…at least for those who love diving into the minutiae. So here are some tax facts for the 2022 season:

• Through March 25, 2022, the IRS has received over 81 million returns and processed just under 79 million returns.
• Roughly half the returns were delivered by tax professionals and the remainder were self-prepared.
• So far, the IRS has sent out almost 58 million refunds checks totaling $188.7 billion. The average tax refund is $3,263, which is 12.4% above a year ago. It’s a pretty good chunk of change for the average person.

While I generally counsel against an interest-free loan to the federal government, some folks like what might be called “forced savings.”

But, getting back to our title, how might you best “spend” your lump sum. Maybe a better question we can ask is how might you best “invest” your cash windfall?

Not everyone will receive a refund or a large check from the IRS. But ideas I’ll put forth can be used when receiving any gift, bonus, or unexpected cash windfall.

Before we dive in, I want to quickly add: If your children, a relative or close friend has talked about their refund, feel free to forward these suggestions to them.

7 smart ways to invest your tax refund

1. Do you have a rainy-day fund? Is if fully funded? You understand the importance of reserves. Whether it’s a home repair, auto repair, a layoff or unexpected bill, having cash set aside will ease the financial burden.

I recommend three to six months of readily accessible savings in the event of an emergency. If you don’t have a rainy-day fund, don’t procrastinate; get started today. 

2. Get out of debt. Years ago, I saw a quote that went something like this. “The road to poverty is paved by high interest rates.” I don’t know who coined the phrase, but too many people run up high-rate debts and struggle to pay them off. 

Pay down or pay off high-rate credit cards or unsecured loans. You might start off with the card with the lowest balance first. Wiping the slate clean on a card or cards is a big psychological win and will encourage you to stay in the battle until you are out of debt.
 
3. Tackle your student loans. Can the president simply wave his hand and forgive your student loans? If he could (and maybe he can; the jury’s still out on this one), would you receive a 1099 for debt that’s forgiven (the devil is always in the details)? Or, for that matter, should you wait for the bureaucracy to solve your problem? 

If you have an emergency fund and credit card debts are low, consider tackling your student loans. Sure, they helped you get through college, but they are a burden hanging over your financial future.
 
4. We reap what we sow. If you don’t sow into a retirement plan, there will be no harvest come retirement. For example, if you take the hypothetical $3,263 tax refund and stash it in a Roth IRA, you’ll have $32,834 in 30 years, assuming an 8% annual return. Plus, you’ll pay no federal income tax when you take a qualified withdrawal from a Roth IRA. 

At 10%, you’ll have $56,937, and at 6%, you’ll have $18,741. Of course, returns aren’t guaranteed and may vary, but trading one’s natural inclination for instant gratification for a future payoff can pay you a handsome reward.

5. Invest in the future of your child, grandchild or yourself. There are various options, and we can point you in the right direction to help get your started. 

You might consider an education savings account of a 529 plan for your kids. While you won’t get a tax deduction for contributions into the accounts, these vehicles allow you to grow the nest egg tax-free, and they can be withdrawn for qualified expenses without a tax liability.
 
Have you decided that you would like to invest in yourself? Do you want to ascend to the next level? Certifications and college classes can help sharpen your skills. Even if you are not career-oriented, investing in your hobbies can bring added enjoyment.

6. Gifting your refund. You may decide that you don’t need the money. I know folks who gave away their stimulus checks to their kids or charity. What puts a smile on your face? That may be the appropriate strategy for your refund. 

7. Have some fun. As we said, the average refund check so far has been $3,263. You may take one of my ideas to heart and earmark the lion’s share toward that goal. But don’t be afraid to save some for yourself. 

Whether it’s a nearby weekend trip, a day trip to the spa, or that expensive restaurant you have always wanted to try, it’s OK to take care of yourself.

These suggestions are just food for thought. But be strategic. Think long-term. And take some time to consider what you might do with your refund or any windfall you may receive. A lack of planning and impulsive decisions can be costly. And remember, I’m always here to assist you.

The year 2021 was a banner year for investors. The broad-based S&P 500 Index, which is made up of 500 larger U.S. companies, finished the year up 26.9%. If we included reinvested dividends, the index advanced 28.7%, according to S&P Dow Jones Indices

Much better-than-expected corporate profits (Refinitiv), which were powered by an expanding economy, plus a super easy monetary policy compliments of the Federal Reserve, deserve much of the credit.

Low interest rates, low bond yields, and rising profits easily offset worries about the lingering pandemic and much higher-than-expected inflation.

But we are now looking ahead into 2022. What might the new year bring? After last year’s strong advance, what might be in store for this year?

Since 1950, there have been 26 years in which the total annual return of the S&P 500 Index exceeded 20%, according to data provided by the NYU Stern School of Business. In the following year, the S&P 500 Index advanced 20 times, or 77% of the time, in line with the long-term average.

The average up year was 18.1%, while the average down year was 6.4%.

It’s an interesting exercise, but let’s always remember that past performance is no guarantee of future performance. Each year will have its own distinctions.

We could add one more wrinkle. The total return of the index has doubled over the last three years, according to Dow Jones Indices.

What dictates the market’s direction will likely be the economic fundamentals and whatever impacts those fundamentals.

For example, what might the Federal Reserve do with interest rates? At the beginning of 2021, the Fed expected no rate hikes in 2022. However, it failed to anticipate last year’s surge in inflation.

As the year ended, the Fed’s new projections, which it released after its December meeting, reflected a forecast of three quarter-percentage-point rate hikes this year.

Are those potential rate hikes already being discounted by investors? If inflation fails to ease--or worse, accelerates--could the Fed take a more aggressive posture?

Let’s take this point one step further. Longer-term bond yields have remained very low in the face of a less dovish Fed, high inflation, and robust economic growth.

Will we get a reset in 2022? Or have there been fundamental changes in the bond market that are holding yields low? Or do bond investors simply believe inflation and economic growth will slow?

Corporate profits are also a key driver of stock prices. Consider this: If you were to purchase or sell a small business, wouldn’t recent and projected profitability play a big role in the sales price? It absolutely would. The same principle holds for publicly traded companies.

How will the pandemic play out? We’ve seen Delta and we’re now seeing a surge in cases tied to Omicron. The economic impact of Delta was limited, and thus far, investors have side-stepped economic worries about Omicron. But what does 2022 hold?

We’ve posed several important questions that don’t offer easy answers. We may see a pullback in 2022, and we recognize that downturns are a part of investing.
Based on your goals, circumstances, and risk tolerance, we craft portfolios that help manage risk, but we can’t eliminate risk.

If we trade the fear of a sell-off for the so called safety of a savings account, we won’t participate in the long-term upside that stocks have historically offered. Conversely, take on too much risk when the market has been strong, and you may experience sleepless nights in a swift downturn.

If life events have forced you to rethink your goals, let’s talk. Financial plans are not set in stone.

Yet, adherence to one’s financial plan and a long-term focus have historically been the straightest path to reaching your financial goals. We may see volatility this year. But predictions are simply educated guesses. As we’ve seen in the past, sell-offs, when they occur, are followed by rebounds. Keep this in mind as we navigate the New Year together.

I trust you’ve found this review to be educational and helpful. If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

The economy hit a peak in February 2020 and bottomed out in April of the same year, according to ​the National Bureau of Economic Research (NBER), which is viewed as the arbiter of recessions and economic recoveries.

In determining the peak and trough of the economy, the NBER considers several indicators of employment and production. “All of those indicators point clearly to April 2020 as the month of the trough,” the NBER said.

While the NBER made its determination last month, it simply confirmed what investors and economists have known for a long time: ​the two-month recession was the shortest on record.

When lockdowns and shelter-in-place orders eased in May 2020, activity began to rebound, according to U.S. government reports. In some cases, the rebound was sharp.

On a historical note, the third-shortest recession was tied to the Spanish flu in 1918 (seven months), while the 1957 recession, which lasted eight months, came in fourth place and was centered around the Asian flu pandemic.

However, the end of a recession doesn’t mean that the economy has returned to its prior peak. It simply means that the economy stopped contracting in April and activity turned up in May.

While the shortest on record, the Covid recession was also the fastest decline on record, and pandemic-related distortions have yet to abate. They may never completely abate. Some industries have performed incredibly well over the last year, and others continue to struggle.

During the first quarter and second quarter of 2021, Gross Domestic Product (GDP), which is the broadest measure of goods and services in the economy, expanded at an annual rate of 6.3% and 6.5%, respectively, according to the U.S Bureau of Economic Analysis.

While Q2 missed analyst forecasts of 8.4% (Wall Street Journal), it was enough to push GDP above Q4 2019’s peak.

Notably, spending in Q2 was particularly strong for service-related businesses tied to activities outside the home. However, spending on the broad category of services has yet to regain its former peak.

Stocks reach new heights

Major averages, such as the Dow Jones Industrials, the NASDAQ Composite, and the S&P 500 Index all touched new highs last month, building on impressive gains over the last year.

The robust economic recovery, which few analysts had predicted during the lockdowns and shelter-in-place orders last year, has driven corporate profits higher, and in turn, fueled the rally in stocks.

While rising profits have been a big tailwind for stocks, the Federal Reserve has played a role, too, by pushing interest rates to rock bottom levels.

In addition, the Fed continues to buy about $120 billion in Treasury bonds and mortgage-backed securities each month, which pumps additional cash into the financial system.

As the economy expands and creates new jobs, Fed Chief Jerome Powell suggested last month the Fed is getting closer to announcing a plan to reduce its monthly bond purchases, but he did not provide specifics.

Nevertheless, he continues to insist that it’s too early to start talking about raising interest rates.

Ultimately, the path of the economy and the pace of economic growth, coupled with what happens to inflation, will have the biggest influence on when and how quickly interest rates might rise.

I trust you’ve found this review to be educational and informative.  

Let me emphasize that it is my job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

Are you on track to retire comfortably? What are your financial goals? How much income will you need to generate each month when you've retired? What might be some of your longer-term goals that take a large pool of savings to accomplish? 

Our regular check-ins are designed to measure progress toward your goals, making adjustments as life’s journey unfolds.  Saving for retirement is a long game; It’s a marathon. You could compare it to the fable The Tortoise and the Hare. A sprint won’t get you to your destination. Slow and steady wins the race. 

Unfortunately, ​75% of Americans receive no professional assistance for this long haul. In my view, that’s unacceptable. It leaves far too many folks exposed to the many financial pitfalls that are lurking around the corner. As Ben Franklin said, “If you fail to plan, you are planning to fail!” 

Fortunately, you do have professional support and a plan in place. Following are seven ideas that I encourage on a regular basis. You have already implemented many of these concepts; others you may want to do more with as we move into fall.  And they are all excellent reminders of what keeps  you on the path toward financial independence.

1. Set goals. Too many people simply guess what they will need in retirement, and many don’t have a written plan to reach what goals they have set. Others simply don’t have any goals. If you don’t have goals, you’ll drift, financially speaking. 

2. A comprehensive and holistic financial plan is a must. While regular savings is important, a roadmap that takes you to your goals is critical. 

Did you know that if you start saving $600 per month at age 30, you will have $1 million when you turn 65, assuming an average return of 7% per year.

If you start saving at 20, $300 per month will allow you to hit the same goal.

I'm not saying that $1 million is the magic number, but the example highlights that consistency, starting early, and the magic of compounding can help you reap big rewards.

I assist you by using a diversified portfolio that generally includes safe and risk assets. While much work goes into the individually crafted plans I recommend, no small part of what I recommend is based on the evidence that long-term exposure to stocks has outperformed simple savings accounts. 

3. Never stop saving. After paying for housing, food, and other expenses, are you able to consistently save money? A survey by Bankrate suggests that one in five Americans aren’t saving anything, and only one in six save over 15% of their income. 

Why aren’t we saving? According to the survey, 38%  of working Americans have too many expenses. For example, on average Americans shell out more than $2,900 a year on restaurants, prepared drinks, and lottery tickets.

I'm not saying that a spartan existence that eliminates fun and entertainment is the path to take. Instead, examine your expenditures closely. You might quickly find ways to cutback while still enjoying life’s pleasures. And consider paying yourself first when you receive your check by setting up an automatic payment into savings.

4. Retirement savings is a key component. If you want to stay on track for retirement, the importance of regular contributions to a retirement fund is critical ​Employee 401(k) contributions for 2021 top out at $19,500, with an additional $6,500 catch-up contribution allowed for those that are 50 years or older. At a minimum, don’t leave any free money with your employer. Be sure to contribute what you need to receive your employer’s full match.

For 2021, you may contribute up to $6,000 to an IRA or Roth IRA ($7,000 if you are 50 or older). Just be aware that the IRS imposes various limits based on your income. I'd be happy to share additional details, or you may check with your tax preparer.

5. Did you get a new job? Congratulations. As you look at benefits, how quickly can you start contributing to your company’s retirement plan? 

Plus, don’t forget about your prior 401(k) plan. Roll it into an IRA or into your new 401(k). Unless there is an extraordinary circumstance (and we’re not talking about a new TV or a vacation), don’t fritter away your retirement assets. Withdrawals from these tax-deferred plans will probably be subject to taxes and penalties if taken early.

6. Get out of debt today. Some debt can be productive. For example, a mortgage allows you to purchase a home and build equity instead of renting. But in many cases, debt can be a burden. 

Your student loans helped you pay for college. Although the situation with student loan debt is fluid, this is debt that’s best paid off. Credit card debt also falls under the unproductive category. Besides, many come with high interest rates.

7. Check in with Social Security. www.ssa.gov has a decent amount of resources. It’s a good idea to check in online and make sure there has been an accurate accounting of your annual income. If your income is understated, your benefits will be shortchanged.

Our goal is to help you replace a substantial portion of your income when you leave the workforce. How much will depend on your goals and what you may want to do in retirement.

These ideas are a great place to start, putting you and keeping you on track for your retirement.