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April 2019: - In This Issue:
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MYTHBUSTING: WOMEN INVESTORS
HARD TO PREDICT
ESTATE AND GIFT TAX BY THE NUMBERS
ARTICLES OF INTEREST
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As far back as I can remember I have had a dog in my life and this has remained true to this very day with our own dog, Jack. I can remember each and every dog's name, Tuffer, King, Princess, Dinky, I can go on and on. Unfortunately, this means I also know the heartache of losing these beloved members of the family. What we forget sometimes is that they can also outlive us, so what happens if you outlive your Dinky? Our April Blog speaks to this question and the ways that we can protect and take care of our pets if we are no longer around.
In our Blog,
What Will Happen to Rover?, we talk about who will become the caregiver of your pet should you die or become incapacitated. One example is a trust created for their cost and care allowing you to designate a family member or friend as the caretaker while providing funds through the trust. Just consider who you are choosing and whether or not they will have the time and ability to take care of your pet. Make sure you leave detailed instructions as to eating habits and any special needs they have. The Blog also suggests sharing this with your chosen caretaker or multiple potential caretakers.
Finally, studies have shown that between 12% and 27% of pet owners utilize their will to provide care instructions for their pets but issues can arise if your estate gets caught up with probate issues. Making plans earlier and outside of the will may be less complicated.
Over the years, we have had experience serving as Trustee for the benefit of a client's pet. I must add that the Trust for the pet was part of an overall larger Trust relationship.
Whatever your family circumstances, and whatever your age, make sure you leave a plan for your furry family member.
Wishing you, your family and friends a Happy Passover and a Happy Easter!
Sincerely,
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MYTHBUSTING: WOMEN INVESTORS
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Stereotypes are a lazy way of thinking, but they are all too easy to fall into. Some common stereotypes about women as investors is that they have less investment knowledge than men do, that they lack confidence in their decisions, and that they are more risk averse than the men.
The impact of such traits on investment habits, even if true, are unknown. However, it has been possible to compare the relative investment performance of men and women. In general, women have been better investors. An early example of this observation was made in 2001 by two finance professors, Brad M. Barber and Terrance Odean, in their article, "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investments."
The professors were granted access to the trading records of a large discount brokerage firm. Over a six-year period, they discovered that:
- Men trade 45% more than women do.
- Excessive trading leads to excessive costs, which are not offset by higher returns. Trading reduced net return for the men by 2.65 percentage points, and their lesser trading volume reduced women's net returns by only 1.72 percentage points.
- Single men trade 67% more than single women do, reducing their returns by 1.44 percentage points more than the returns of the ladies.
What accounted for the relatively poorer showing of the men? Overconfidence is the most likely culprit, the professors theorized. Overconfidence leads to both excessive trading volume and poor stock selection. A second fact may be fear of regret, which causes investors to hold on to their losers longer than they should.
New study
Now a new study of the trading records of 2,800 investors over 36 months at Barclay's in England has been done, and it has essentially similar conclusions, 17 years on. For example:
- Women traded an average of nine times per year, while the men traded 13 times--put another way, men's traded 44% more than women did, on average.
- Men tended to choose speculative, lower-priced shares, which the researchers dubbed "lottery style" investing. Women avoided such stocks, focusing instead on companies with strong track records.
- Men were more likely to keep their losers and sell their winners--that old fear of regret that comes when a loss is finalized.
- Researchers concluded that men seem to invest for the thrill of investing, while women seem to invest for the long term to meet financial goals.
Bottom line, the women's portfolios outperformed the men's. The benchmark was the FTSE 100, the British equivalent of our S&P 500 stock index. The men beat the benchmark by a scant 0.14 percentage points, and the women beat it by 1.94 percentage points. Thus the women outperformed the men by 1.8 percentage points.
That may not sound like much, but over a period of years the compounding effect of an extra 1.8% return really adds up. Given that women live, on average, five years longer than do men, the additional return will be vital to financial security.
(April 2019)
© 2019 M.A. Co. All rights reserved.
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"Predictions are hard, especially about the future" is a saying that has been variously credited to Mark Twain, Samuel Goldwyn, Yogi Berra, and Neils Bohr (Danish politician Karl Kristian Steincke was the first to use it, in 1948, according to an online Quote Investigator). In no field is the saying more true than in economics. Economists have a poor record in calling the turning points in the economy.
This phenomenon was explored in a recent article in
Bloomberg Businessweek ("Why Are Economists So Bad at Predicting Recessions?"). The International Monetary Fund does economic forecasting. Of the 469 downturns that have occurred in various countries around the world since 1988, only four were predicted by the spring of the year before recession began. Only 111 were predicted in the spring of the year in which they occurred--that's less than a 25% success rate. Private economists have done no better. A second study found that of 153 recessions from 1992 to 2014, only five had been predicted by private prognosticators the year before.
Several factors may account for the difficulty of making predictions. Economic data collected by governments inherently comes with a lag, and often get revised. Making a good prediction is a hard job. Studies have shown that warning about a recession that never happens is relatively rare, while failing to forecast a recession is a far more common mistake. There may be an element of herd instinct involved here--the reward that comes from standing out from the crowd may be seen by some and not enough to offset the risk of being wrong. In any event, forecast failures are so routine that they are almost never career ending for an economist.
The current economic expansion in the U.S. began in June 2009, and is quite long by historical standards. There have been some worrying signs that the economy could be slowing. However, there is no consensus building as yet. According to the National Association for Business Economics, 10% of its members expect a recession to start this year, and 25% expect one in 2021. The largest group is taking the safest position, projecting a recession to begin in 2020.
A lot can happen between now and then.
(April 2019)
© 2019 M.A. Co. All rights reserved.
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ESTATE AND GIFT TAX BY THE NUMBERS
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In March the Congressional Joint Committee on Taxation released a summary of the current state of federal taxation. The sources of federal revenue were identified and ranked. As has been true for many years, the federal estate, gift and generation-skipping transfer taxes were bringing up the rear. The report included appendices that put revenue sources into historical context.
The income tax has long been the primary driver, at 45% to 50% of total collections over the years. Social insurance taxes come next, at 30% to 35%. The share of each of these has been fairly consistent despite the many tax law changes that have occurred over the years. The corporate tax collections have been more volatile, as they are more sensitive to the economy generally. In 2006, for example, corporations paid 14.7% of total federal taxes. This fell by roughly a third, to 9.0% by 2017, the year before the reforms of the Tax Cuts and Jobs Act of 2017. The estimate for 2018 is 6.2%--the same as it was in 1983.
The federal estate and gift taxes provide a scant 0.7% of total federal revenue. Its share was over 2% in 1971-1973, and has hovered near 1% since 1990. The relative insignificance of estate and gift taxes will likely worsen, as this report covers periods before the doubling of the amount exempt from such taxes.
Shares are one thing, dollars are another. Some $22.9 billion in federal estate and gift taxes were estimated to have been collected in 2018. That sounds like a lot. But to put it into perspective, the federal excise tax on gasoline raised $22.5 billion that year, the excise tax on tobacco brought in $13.0 billion, and the excise on alcohol was worth $10.6 billion.
(April 2019)
© 2019 M.A. Co. All rights reserved.
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856-251-1300
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2017. All rights reserved.
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