Year-End Market Review & 5 Things to Address Before 2022

Maura Schauss |

The CFP® Team at Washington Wealth Advisors

As the end of the year approaches, we reflect on all that 2021 has brought, so that we can properly plan for the new year.

Our goal is to keep your financially organized and on track towards achieving your unique goals. As you take a much-needed break during this holiday season, we encourage you to also take some time to reset and prepare for the new year.

Along with our 2021 year-end market review and expectations for 2022, we’ve put together a guide for you to address any outstanding financial actions to take before ringing in the new year.

Year-End Market Update

Mid-Year we discussed the economy, labor market, and stock market as the country continued to recover from the COVID-19 pandemic.  Let’s look at how far we’ve come since then.

Economy

The last couple months have been very eventful in terms of legislation. After much back and forth, the $1.2 trillion Infrastructure Investment and Jobs Act passed the House via budget reconciliation and was signed into law on November 15th.[1] Together with the Build Back Better Act, these bills are expected to stimulate the economy and create an average of 1.5 million jobs per year over the next 10 years.[2]

President Biden’s social spending and climate bill, which passed the House on November 19th,[3] will involve many tax changes and is expected to hit the Senate in the coming months. The bill is still evolving, and we will keep you updated as the process unfolds.

Inflation hit a whopping 6.2% at the end of October,[4] and concerns are growing that it will be a longer-term issue than previously predicted.[5] Supply chains are also facing continued pressure as holiday spending is projected to hit a record high of $4.4 trillion,[6] with 57% of Americans buying gifts online.[7]

Labor Market

We’re also seeing sustained labor shortages across many industries, including food services, hospitality, and wholesale trade. In what is being called “The Great Resignation,” record numbers of workers across America have quit their jobs as they reevaluate the role that work plays in their lives.[8] In August alone, the quit rate reached 4.3 million.[9]

Combined with increasing minimum wage thresholds, many companies are forced to pay higher wages in order to attract and retain employees. These increased costs often get passed through to the customer in the form of increased prices for goods and services.

Stock Market and The Fed

The stock market continued to reach record highs throughout October and November, though it has started to fall, due in part to the new Omicron COVID-19 variant that has continued to spread after emerging in South Africa.[10] This variant has caused renewed travel restrictions and has increased volatility in the stock market as investors continue to navigate its risks.

In early November, the Fed announced the end of their bond-buying program which was instituted during the pandemic in order to increase the money supply. This was good news for investors, as stock and bond yields increased after the announcement.[11] More recently, the Fed has alluded to the potential for this to happen sooner, along with an increase in rates, especially if inflation continues to be a problem. This is something to keep track of as we approach the new year.

What to Expect in 2022

Based on the trends over the past year, it’s clear that the COVID-19 pandemic is not over in terms of its effects on the economy. It continues to influence legislation, supply chains, labor shortages, inflation, and investor behavior in the market. As we enter the new year, we are hopeful that these moving pieces will start to settle down and create a more stable picture of what to expect in the coming years.

Five Actions to Set Yourself Up for Success in 2022

  1. Review Your Tax Strategy

The end of the year is the best time to review your tax strategy and plan for the upcoming tax season. This is especially important given the potential tax changes that could be passed with the Build Back Better Act. A great way to enhance your tax strategy is to incorporate tax-loss harvesting if you aren’t already.

This occurs when an investment loss is used to offset an investment gain, which helps to minimize your tax liability. If you have a losing investment, now might be the time to sell it and use the loss as a way to offset a gain. Losses above and beyond your gains can then be used to offset up to $3,000 of ordinary income.

  1. Consider a Roth Conversion

If your income in 2021 has been lower than normal, then it may make sense to convert some or all of your traditional IRA to a Roth IRA before the end of the year. In doing so, you would pay the income taxes on the money now, at your 2021 rates, so that you could take all withdrawals tax-free in retirement. The great thing is there are no limitations to this conversion.

Another benefit of having your money in a Roth account is that it is not subject to required minimum distributions, meaning the funds can be left in the account to grow as long as you’d like.

  1. Education Funding Through 529 Plans

529 plans are a great way to save for college, since the money contributed will grow tax-deferred and future withdrawals will be tax-free as long as they are used for qualified education expenses.

If you’re still working on saving for your children’s college education, then you may benefit from putting some money into a 529 plan before the year’s end. This won’t help with your federal tax bill, but it might lower your state taxes.[12]

  1. Maximize 401(k) Contributions

Maximizing contributions to a qualified retirement account is another great way to reduce your tax bill before the end of the year. In 2021, you can contribute up to $19,500 ($26,000 if over the age of 50).[13] Money that is contributed to qualified retirement accounts, including 401(k)s and 403(b)s, is removed from your current taxable income, which in turn reduces your tax bill.

If you aren’t participating in an employer-sponsored plan, you can contribute $6,000 ($7,000 if over age 50) to a traditional IRA instead.[14] This option also removes the money from your taxable income and reduces your tax liability.

  1. Rebalance Your Investment Portfolio

The last step you should consider taking before year’s end is to review and rebalance your investment portfolio so that it aligns with your unique goals for 2022. It’s a great way to start the year off on the right foot by making sure you are not exposing your finances to unnecessary risk. Rebalancing also allows you to check in with yourself and make sure your money is working in your favor to advance your most important goals, objectives, and priorities.

Plan Ahead for 2022

As we continue to monitor the long-term effects of the COVID-19 pandemic, it’s more important than ever to make sure you’re financially prepared. If you’re looking to review your financial plan and get a head start in 2022, reach out to us today.

Our Washington Wealth Advisors team is here to help our clients implement these strategies and more, so that you can get back to enjoying the holiday season. Call our office at 703.584.2700, email clientservices@washingtonwealthadv.com, or schedule time with us.

 

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.

 

Important WASHINGTON WEALTH ADVISORS DISCLOSURES Information

 

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Washington Wealth account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Washington Wealth Advisors accounts; and (3) a description of each comparative benchmark/index is available upon request.

 

[1]https://www.investopedia.com/here-s-what-s-in-the-usd1-trillion-infrastructure-bill-passed-by-the-senate-5196817

[2]https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/06/fact-sheet-the-bipartisan-infrastructure-deal/

[3]https://www.cnbc.com/2021/11/19/house-passes-build-back-better-act-what-happens-next-in-the-senate.html

[5] https://www.cbsnews.com/news/inflation-transitory-issue-federal-reserve/

[6] https://www.npr.org/2021/11/26/1058920023/black-friday-shopping-record

[7] https://www.statista.com/statistics/1186198/in-store-vs-online-holiday-shopping-in-the-united-states/

[9] https://www.cnbc.com/2021/10/20/global-shortage-of-workers-whats-going-on-experts-explain.html

[10] https://www.schwab.com/resource-center/insights/content/schwab-market-update

[11]https://www.cnbc.com/2021/11/03/follow-the-feds-market-moving-decision-on-interest-rates-and-bond-buying-here.html

[12]https://www.thebalance.com/best-states-for-college-savers-3193238#:~:text=Arizona%2C%20Kansas%2C%20Minnesota%2C%20Missouri,plan%2C%20not%20just%20their%20own.

[13]https://money.usnews.com/money/retirement/401ks/articles/how-to-take-advantage-of-401-k-catch-up-contributions

[14] https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits