Helping you achieve your personal vision based upon your individual needs, goals and risk tolerance..

Volatility is Our Friend

The Merriam-Webster Dictionary defines volatility as “a tendency to change quickly and unpredictably.” Investopedia defines volatility as “a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security.”

Many people think volatility is when markets or portfolio values go down. But volatility can also refer to when those go up. The market will always fluctuate, and history tells us that it can recover. For example, after the S&P 500 bottomed out in March 2020 following the “Corona Crash,” it then went up nearly 80 percent. And other than a brief downturn in September, the rise went on more or less unabated in terms of corrections.

No matter how we define it, though, volatility can be our friend — something investors can welcome instead of fearing.

With a properly managed, monitored and implemented financial plan, volatility can enhance returns, reduce income tax and ultimately provide more stability to the portfolio. This sounds counterintuitive, right? But it’s true!

Here are three ways we can benefit from volatility.

1. Consider tax swaps

Volatility with individual investments can provide the opportunity for tax swaps. A tax swap is when you sell one investment with capital losses and replace it with a similar, but not identical, investment. You can move out of an investment to try to book a tax loss while immediately reinvesting into the same underlying group of or type of investments. This can be true of either equities (stocks) or fixed income (bonds).

People who simply buy and hold bonds are missing out on the potential benefits of tax swaps. Because of volatility, a buy-and-hold strategy often results in lower returns than a strategically managed portfolio. An experienced advisor can guide you in optimizing your returns.

Does this sound illegal to you? If so, you might be thinking of a wash sale,” which is illegal. A wash sale occurs when an investor sells a security at a loss but then purchases the same or a substantially similar security within 30 days of the sale. The IRS prohibits this! You cannot sell securities at a loss so you can get a tax benefit and then buy the same stock or bond back right away. But a tax swap is legal. That means you invest in a company that’s in the same sector as the investment you sold and use many of the same trading methods.

2. Rebalance from equity to fixed income, or vice versa

Volatility also can provide you with the opportunity to rebalance from equity to fixed income, or vice versa. Although it is impossible to time markets, rebalancing is a way to buy low and sell high without actually doing so. We take a systematic approach to rebalancing, which helps you maintain an asset allocation for your financial needs, so you can achieve a better rate of return over time for any given level of risk. This can provide more stability in your portfolio.

3. Stay focused on your long-term vision

The key is to avoid trying to predict the future or time the market. When the markets go up or down, stay focused on your long-term vision and plan. Take advantage of what’s happening in the market within the context of your overall goals and plan. Ultimately, the only return that is important is the net return — the return on your investment after fees, expenses and income tax.

Our team has developed and refined our Personal Vision Planning ® process over the past 30 years for uncertain times like today. This process provides you with a customized wealth-management plan based on you and your long-term vision.

The pace of change with technology, and ultimately the markets, continues to accelerate. Our team uses cutting-edge technology to monitor and rebalance portfolios. We believe technology should not be a replacement for an experienced advisor who understands what you are trying to accomplish. Instead, technology is a tool and is just one part of the arsenal an advisor or team brings to the table.

Please contact me personally, or any member of our team, if you would like to discuss your portfolio, if you have questions or if we can otherwise be of service. As always, your vision is our priority.

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Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2 billion in assets for clients globally, as of February 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement, or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

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This information does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Pandemic Relief Measures and Your Tax Return

Two emergency relief bills passed in 2020 in response to the COVID-19 pandemic will make this an unusual tax season for many taxpayers. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March, and a second relief package was attached to the Consolidated Appropriations Act, 2021, in December.

The federal government relied on the tax system to deliver financial lifelines to struggling households, boost consumer spending, and help speed the economic recovery.

The following provisions may affect many households when they file their personal tax returns for 2020. You might consult a tax professional who can further explain the relevant changes and recommend strategies to help reduce your tax liability for 2021.

Recovery Rebate Credit

Most U.S. households received two Economic Impact Payments (EIPs) from the federal government in 2020. They are not taxable because technically they are advances on a refundable credit against 2020 income taxes.

The CARES Act provided a Recovery Rebate Credit of $1,200 ($2,400 for married joint filers) plus $500 for each qualifying child under age 17. The second bill provided another $600 per eligible family member.

Any individual who has a Social Security number and is not a dependent generally qualifies for the payments, up to certain income limits. The amounts are reduced for those with adjusted gross incomes (AGIs) exceeding $75,000 ($150,000 for joint filers and $112,500 for heads of household) and phase out completely at AGIs of $99,000 ($198,000 for joint filers and $112,500 for heads of household).

In order for the money to be delivered quickly, eligibility was based on 2019 income tax returns (or 2018 if a 2019 return had not been filed). Eligible taxpayers who did not receive two full payments, possibly due to errors or processing delays, may claim the money as a Recovery Rebate Credit on their 2020 tax return. Households that reported a lower AGI in 2020 (or added a dependent) might be eligible for additional funds. To calculate the credit, filers will need to know the amounts of any payments they already received. The credit amount will increase the refund or decrease the tax owed, dollar for dollar.

Taxpayers who received two full payments don’t need to fill out any additional information on their tax returns. The IRS will begin accepting 2020 tax returns on February 12, 2021; filing electronically usually results in a faster refund.

Coronavirus-related distributions

Another measure in the CARES Act allowed IRA owners and employer-plan participants who were adversely affected by COVID-19 to withdraw up to $100,000 of their vested account balance in 2020 without having to pay the 10% tax penalty (25% for SIMPLE IRAs) that normally applies prior to age 59½.

Still, withdrawals from tax-deferred retirement accounts are typically taxed as ordinary income in the year of the distribution. To help manage the tax liability, qualified individuals can choose to spread the income from a coronavirus-related distribution (CRD) equally over three years or report it in full for the 2020 tax year, with up to three years to reinvest the money in an eligible employer plan or an IRA.

Taxpayers who elect to report income over three years and then recontribute amounts greater than the amount reported in a given year may “carry forward” the excess contributions to next year’s tax return. Taxpayers who recontribute amounts after paying taxes on reported CRD income can file amended returns to recoup the payments.

Qualified individuals whose plans did not adopt CRD provisions may choose to categorize other types of distributions — including those normally considered required minimum distributions — as CRDs on their tax returns (up to the $100,000 limit).

Other notable changes

The special rules for charitable gift deductions enacted for 2020 have been extended through 2021. For those who itemize deductions, the limit on the charitable gift deduction increased to 100% of AGI for direct cash gifts to public charities. For nonitemizers, a new $300 charitable deduction for 2020 and 2021 direct cash gifts to public charities is available. For joint filers, this deduction increases to $600 for 2021 cash gifts to charitable organizations.

The floor for deducting medical expenses has been permanently lowered to 7.5% of AGI. (It was scheduled to increase to 10% in 2021.) And starting in 2021, there is no deduction for qualified tuition and related expenses. Instead, the modified adjusted gross income (MAGI) phaseout range for the Lifetime Learning credit was increased to be the same as the phaseout range for the American Opportunity credit ($80,000 to $90,000 for single filers; $160,000 to 180,000 for joint filers).

A temporary provision that allows taxpayers to exclude discharged debt for a qualified principal residence from gross income was extended through 2025, though the limit has been reduced from $2 million to $750,000. Also, through 2025, employers can pay up to $5,250 annually toward employees’ student loans as a tax-free employee benefit.

Yes, unemployment aid is taxable

The number of unemployed workers spiked above 22 million in March 2020, and more than 9 million people were still out of work at the end of the year.1 Both relief bills expanded unemployment benefits and provided them to many workers who normally are not eligible (including the self-employed, independent contractors, and part-time workers).

Unemployment benefits, which sustained many families impacted by the pandemic, are considered taxable income, and many recipients may not have correctly withheld taxes from their 2020 payments. Avoiding a surprise tax bill typically requires opting into a 10% withholding rate and, in some cases, paying additional quarterly taxes during the year.

Last year was unpredictable, and your financial situation may have been far from normal. You should file your 2020 tax return by the April 15 deadline, even if you are worried that it’s going to show a balance due.

Being up-to-date on filing is generally required to pursue a payment agreement with the IRS. If you owe $50,000 or less, you may even be able to apply online for a short-term extension (up to 120 days) or a longer payment agreement. Paying as much as you can afford can help limit penalties and interest that accrue on unpaid amounts.

1) U.S. Bureau of Labor Statistics, 2021
Securities offered through Raymond James Financial Services Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Advisers, Inc. Carver Financial Services, Inc. is not a registered broker dealer and is independent of Raymond James. The information contained in this Client Memo does not purport to be a complete description of securities, markets, or developments referred to in this material. The information developed by an independent third party has been obtained from sources considered reliable, but we do not guarantee that the foregoing is accurate or complete. No tax or legal advice is given or intended, you should discuss any tax or legal matter with the appropriate professional.

Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision. You should discuss any tax or legal matters with the appropriate professional. Past performance does not guarantee future results. Carver Financial Services is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc., member FINRA/SIPC.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021.

Randy Carver named to Forbes’ 2021 Best-in-State List of Top Wealth Advisors

February 11, 2021 – Randy Carver, RJFS Financial Advisor was recognized on Forbes‘ list of Best-In-State Wealth Advisors, as one of the top advisors in Ohio. Out of approximately 32,725 nominations, more than 5,000 advisors received the award nationwide. Randy Carver was ranked #5 out of the 161 recognized in Ohio. This is the fifth year in a row that Randy has been included on this prestigious list of top wealth advisors from national, regional, and independent firms.

Click here to view the profile on the Forbes list.

The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research is based on an algorithm of qualitative criteria and quantitative data. Those advisors that are considered have a minimum of seven years of experience, and the algorithm weighs factors like revenue trends, AUM, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of approximately 32,725 nominations, more than 5,000 advisors received the award. This ranking is not indicative of an advisor’s future performance, is not an endorsement, and may not be representative of individual clients’ experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC.

 

The Five Biggest Mistakes Investors are Making (They are the Same as Always)

As we begin 2021, and people speculate on the impact of the new Presidential Administration, could the broader equity markets correct (or, according to the media, crash)? Yes!

Will there be uncertainty in the markets? Yes!

It’s really not a question of if the markets will drop, but when. The real question is, to what extent may the next downturn affect you? Market drops are a regular part of the longer-term investment cycle, and we expect they always will be. The real question is not ‘what will happen’ but ‘will it impact me’? With proper planning volatility can be helpful.

Some people are not hurt by market drops, some are negatively impacted, and others actually benefit from them. The choice is largely yours. What makes the difference in how market fluctuations will affect you is generally how well you plan, rebalance your portfolio and react calmly to those fluctuations. Market drops can provide an opportunity for tax-swaps, shifting from tax deferred funds to tax-exempt and for rebalancing your portfolio.

Market corrections, uncertainty and media hype is nothing new. Neither are the five biggest mistakes many investors make. Here they are, along with our recommendations for steering clear of them.

Mistake #1: Trying to time the markets

It is difficult, if not impossible, to time markets. You have to be right about when to get out and when to get back in. The basic principle of investing says you should buy low and sell high. You want to sell when stocks are dropping and buy when the market begins an upswing. The problem is, unless you have some kind of crystal ball or illegal insider information, you won’t know exactly when to buy or sell.

According to research from Fidelity, the cost of poor market timing could be hundreds of thousands of dollars over your investing career. According to Fidelity’s data, if you invested $10,000 in an S&P 500 index from Jan. 1, 1980, through Dec. 31, 2018, you’d have a whopping $659,515 by the end of that period, assuming you were invested for all of the days in that time frame.*

But if you missed just a few key days, your portfolio would be at least 35 percent smaller — and potentially much smaller than that. And if you missed the 50 best days, you’d have 91 percent less than if you’d just left your money alone the whole time.

Pulling your money out of the stock market and putting it in based on economic forecasts and news is never a good idea. Doing so makes it likely that you’ll miss out on most, if not all of the key days that drive your profits. Again, keep your eyes on your long-term vision. Resist the temptation to react to fluctuations in the market.

Mistake #2: Failing to understand that building wealth over time is not about picking winners or capturing upside, but about minimizing volatility

Investors tend to focus on investment returns, but returns do not tell the entire story. Consider one investment that has averaged 25 percent per year over the past two years and another that has averaged 5 percent. Which one made more? We don’t know; it depends on several factors.

So how do you minimize volatility? By staying your course over the long-term. Instead of focusing on returns and stock prices, focus on how well you’re doing according to the long-term goal you’ve set.

Mistake #3: Focusing on perceived risks and missing the real risks

For example, many people are concerned about market fluctuation, while they should be more concerned about being exposed to inflation risk. They keep money in cash or bonds because it seems safe, but cash and bonds might not keep up with inflation. Another mistake investors often make in this regard is that they often fail to consider interest rates — the risk that bonds will go down in value if interest rates rise.

Work with your financial advisor to determine what real risks you should focus on.

Mistake #4: Having unrealistic or simply wrong expectations

This is true for both withdrawals and returns.

Many times, investors base their expectations on the market’s past performance. In the past 10 years, the S&P 500 returned more than 13 percent on an annualized basis. That’s higher than normal, and it could change at any moment. In 2020, markets were coming off a strong 2019, when stocks and bonds around the world climbed. But for the next year — and decade, in fact — Wall Street is telling investors to set their expectations considerably lower.

Instead of basing your expectations on what the market has done in the past, again, slow and steady wins the race. Consider how your portfolio performs over 10, 20, or 30 years, not year to year.

Mistake #5: Picking the wrong advisor

And that advisor might be you! Some people have the time, knowledge and information to do their own financial planning. What’s tougher, though, is having an impartial view. This is why lawyers do not represent themselves in court, and doctors do not treat themselves. For that same reason, it’s not a wise idea for most people to do their own financial planning. You don’t know what you don’t know! Overlooking the tax consequences of a single decision or investing money in a less-than-ideal way during a particular life stage can cost you dearly. A trusted advisor can help you avoid the first four mistakes and create a plan that meets your needs, risk tolerance and overall vision.

A mistake that’s almost as risky as choosing the wrong financial advisor is having no advisor at all. Why leave something this important up to chance?

Vanguard, one of the world’s largest investment companies, has reported for the past 15 years that there is a quantifiable increase in return from working with a financial advisor. Vanguard calls this advantage the “Advisor’s Alpha.” The company notes that when investors follow certain best practices, the result can be an Alpha in the 3 percent range per year. And a study by Russell Investments, a large money management firm, came to a similar conclusion. Russell estimates that a good financial advisor can increase investor returns by 3.75 percent net of expense annually.

Establishing your financial plan with the help of a trusted financial advisor and sticking to it is the best way to avoid these common mistakes. Financial mistakes are typically costly, and in some cases, they are irreversible. An adage says, “A stitch in time saves nine.” Preventing a mistake is much easier than trying to do damage control once it’s been made!

Our firm has more than 30 years of experience in helping clients. While markets, the economy and investments continue to evolve, we see that people often make the same mistakes without the help of a trusted advisor. Please contact us with questions, for a second opinion, or if we can otherwise be of service. We are here for you. Your vision is our priority.  

Randy Carver is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $1.94 billion in assets for clients globally, as of January 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You can reach Randy at randy.carver@raymondjames.com.

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The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

The S&P 500 index is comprised of approximately 500 widely held stocks that is generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.

* This is a hypothetical example for illustration purpose only and does not represent an actual investment. Actual investor results will vary.

Tax Time and Delayed Reporting – What You Can Expect and When Will You Get It?

Over the last few years, there has been a pattern of delayed tax reporting due in part to delayed clarification from the IRS and legislation. We expect this to be the case for the 2020 documents. With this in mind, we recommend that while you work on your returns as soon as possible that you wait until April to file your tax return and consider filing for an extension if you anticipate needing the extra time. Please note that even if you file an extension, your full tax payment is due by April 15th. 

Expect Reporting Delays

If you file your taxes and then delayed documents come in, you may need to file an amended return. Raymond James does everything they can get information out in a timely and accurate fashion. The following will give you an idea of when you can expect forms.    

Because there are often last-minute corrections and delays, many companies will not mail the first round of 1099s until February this year. The first round of 1099s is expected to be sent between February 15th and 28th, 2021.  What the IRS terms “delayed 1099s” will not be sent until March 14th. Raymond James has told us they will be mailing 1099s as soon as they receive information from investment companies, however, they expect delays just like in 2020.

All tax documents are available via the Client Access online portal as soon as they are generated. You may also give your CPA access to these electronic documents by setting up Third-Party Investor Access. Our client concierge team can help you set up Client Access and third-party access if you wish to do so. 

It is important to note that certain investment types are prone to income reallocation. It is also important to note how some distributions are reported so that you avoid paying unnecessary tax. This is one reason we recommend working with a CPA. We are happy to provide a referral, if needed.

For example, if you took a Qualified Charitable Distribution (QCD) from your IRA, you do not need to pay tax on this amount. The full distribution is reported on the 1099R – there is no reporting that this is tax exempt. It is suggested that the full distribution is reported on line 15a of the 1040 that on 15b your write, $0 for the taxable amount (if you have no other taxable distributions). It is also suggested that you write ‘QCD’ next to the line to explain why the distribution is tax-exempt. Failure to do this can result in paying taxes that you do not owe.

The other place that we see clients sometimes overpaying tax is by missing the cost basis information and reporting on all proceeds versus just realized capital gains. This is another reason to use an experienced tax preparer or CPA.

Forms You Might Receive

The types of tax forms you receive will depend on the types of investments and income you have. Please note the following:

  • Widely Held Fixed Investment Trusts (WHFITs) — Under the IRS definition, the affected market segments include Unit Investment Trusts (UITs), Royalty Trusts, Commodity Trusts and Mortgage Pools such as Fannie Mae. Trustees of WHFITs are required to report all items of gross income and proceeds on the appropriate Form 1099. The reporting deadline for these items is March 16th, so you may receive a delayed 1099 (early April) if you own these types of investments. We generally do not work with these types of investments.
  • 1099-B — If you receive a 1099-B (“Proceeds from Broker and Barter Exchange Transactions”), please keep in mind that you are responsible for reporting the gain or loss on what you sold, not the entire amount. This means that you are responsible for the difference between what you originally paid for an asset and what you sold it for. We will provide cost-basis information on holdings that we have the data for. If you have transferred an asset or cost basis and it is not showing on your statement, please call our office.
  • W-9 — You might receive a W-9 form from your mutual fund and/or annuity companies. These are used to confirm and/or update your Social Security number. These are mailed as a matter of routine every few years.
  • Nontaxable transactions — You might receive a 1099 for nontaxable transactions such as an IRA rollover or 1035 exchange of an annuity. A 1035 exchange is reported as Code 6 in box 7, a direct rollover to an IRA is reported as Code G in box 7, and a direct rollover to a qualified plan or TSA is reported as Code H in box 7. Receiving one of these 1099s does not necessarily mean you owe taxes, but you should follow the IRS instructions carefully for reporting this type of transaction. You will also receive a 1099 for QCDs, as noted above.
  • K-1 forms — Schedule K-1 forms (Partner’s Share of Income, Deductions, Credits, etc.) are issued by partnerships, S-corporations, trusts and estates to report a taxpayer’s prorated share of net income or loss from the entity, along with various separately stated income and deduction items. By law, these forms must be sent by March 15th following the close of the partnership’s tax year. Therefore, you might not receive your K-1 until late March or even the first week of April.

If you have a question about your tax documents, please give us a call. Tax laws are very complex. Both our office and the Raymond James 1099 Tax Reporting Department can answer many of your questions; however, we are not accountants and cannot provide specific tax or legal advice. We can recommend a qualified Certified Public Account (CPA) if you need assistance in preparing your taxes. We are happy to provide a referral if you need a CPA.

You can also get answers to many of your questions by reading free IRS Publications. You can obtain copies by calling 1-800-TAX-FORM (1-800-829-3676) or by visiting the IRS website at www.irs.gov, where you can also print tax forms.

Important to Note Regarding Scams

The IRS never demands payment or personal information over the phone or via email. The IRS never asks for a credit card. If you receive such a phone call, it is most likely a scam. The IRS will only contact you in writing via postal mail if there are any questions or issues.

The IRS will never threaten to bring in local police, immigration officers or other law enforcement to have you arrested for not paying. The IRS also cannot revoke your driver’s license or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

25th Annual Resource Event

Learn about Carver Financial Services’ perspective on the year ahead, a frank discussion about Raymond James, as well as a wealth of information on resources, and much more, including a unique opportunity to hear from Raymond James Chairman and CEO Paul Reilly.