TCJA Tax Update

Corenna Roozeboom Comments, Life with Money

If the words “tax code” immediately make your eyes glaze over … well, you wouldn’t be alone.

Jeff Sommer of The New York Times recently wrote that, unfortunately, “navigating the byzantine U.S. tax rules … may be enough of a headache. But you can count on fresh tax stress coming from Washington not far down the road.”
TCJA Tax Update
That’s because significant parts of the Federal 2017 Tax Cuts and Jobs Act (TCJA) are scheduled to expire at the end of 2025. If Congress doesn’t address the expiration, the tax rules will revert back to what they would’ve been if the TCJA had never been passed.

The reversion would “effectively generate trillions of dollars in extra liabilities for taxpayers and an equal amount of revenue for the federal government.”

On the other hand, if the current tax code is extended, it would be “staggeringly expensive… In no small part because of the 2017 tax cuts, the deficit reached $1.7 trillion in the 2023 fiscal year.”

But we’re talking about 2026 – why is the press discussing the TCJA now?

It’s a presidential election year, with potential major differences in tax policy depending on who wins the election.

Congress will need to reach some sort of deal in 2025 – and as Sommer points out, whoever is in office then “will try to avoid tax increases and probably also try to avoid increasing the budget deficit much.” That’s a difficult balance to strike, because, as mentioned above, further tax cuts (or maintaining the cuts from the original TCJA) typically do increase the deficit.

As Sommer writes, “In an ideal world, you wouldn’t run a tax system this way, but this is what we’re stuck with.”

Park Piedmont advisor and CPA George Gotthold agrees: “Tax policy was never meant to be a political tool. You should be able to have a long-term tax plan and not be concerned that your plan is irrelevant every four years.”

What do the potential tax code changes mean for you?

We’d like to highlight some changes currently scheduled to take place in 2026 that may be relevant to our clients:

  • Standard Deductions: The standard tax deduction (when a taxpayer chooses to deduct a fixed amount versus itemized amount) increased significantly with the TCJA. A change back to the old law would decrease the standard deduction from $14,600 to $6,500 for a single person and from $29,200 to $13,000 for those married filing jointly.
  • Gifting and Estate Taxes: Currently, estates and lifetime gifts valued up to $13.6 million are exempt from Federal Estate tax (some states also have Estate and/or Inheritance Taxes that differ from the federal rules). If the Tax Cuts and Jobs Act expires, those exemption amounts would decrease to “$5 million plus an inflation adjustment,” meaning smaller estates would again be subject to taxation. Estate tax rates have recently been in the 40% range, but could be higher or lower in the future.
  • The SALT (“State and Local Tax”) Deduction: The TCJA capped deductions for real estate taxes and state and local taxes at $10,000, which has had the greatest impact on taxpayers living in high-tax states, such as New York, California, New Jersey, and Illinois. However, for some taxpayers in high income brackets, these deductions weren’t relevant anyway due to the Alternative Minimum Tax, which disallowed them. If the SALT caps are eliminated, some taxpayers could be eligible for additional deductions.
  • Child Tax Credit: The maximum tax credit would be reduced from $2,000 to $1,000 per qualifying child.
  • Marginal Tax Rate: The highest tax rate (i.e., the tax rate for the highest income tax bracket) would increase from 37% to 39.6%.

Are there any steps you should take now?

Though a change isn’t imminent – or even guaranteed – talk about a potential change in the tax code is a good reminder that planning ahead is never a bad idea.

For example, now is a great time to revisit your estate plan if you have one, or establish a plan if you don’t. Meeting with your estate planning attorney can help determine whether any of the potential changes will impact you, and if so, what you might want to do in response.

Park Piedmont advisors can’t provide legal advice, but we can help spot issues in advance of you working with your attorney. We’re always happy to assist with your financial life planning needs.

Your Best Investment

Tom Levinson Life with Money

What’s the best investment you’ve ever made?

Reflexively, some might point to a particular stock in their portfolio – maybe they took a flier on Berkshire Hathaway a few decades ago or bought Amazon when it was primarily an online book seller.

Some lucky few might shine their light on something more tangible: a garage sale masterpiece or a rookie baseball card of a long-ago hero; for others, maybe it’s a highly appreciated piece of real estate.
For Park Piedmont clients, and those philosophically aligned with our approach to investing, maybe you’d look not to an individual stock, but instead to a low-cost, broadly diversified, indexed investment – like Vanguard’s Total Stock Market Index Fund ETF (symbol: VTI). We can just picture it now: it’s been invested in over the years, with a disciplined focus on the long-term, avoiding any inclination at market-timing or attempts to outsmart the market.

OK, well done.

But what if, in considering our “best investments,” we widen the lens?

A book I recently read makes the point that doing so may benefit our life’s bottom line.

The Good Life, by Robert Waldinger and Marc Schulz, distills the research findings of the Harvard Study of Adult Development (the “Study”), a remarkable research project that began in 1938 – and is still going strong. The study was initially designed to try and figure out what makes people healthy, and – more than that – what makes people thrive.

Over eighty-plus years, the Study has tracked several hundred of the same individuals, and many of their offspring, recording the granular details of each subject’s life experience: memories of when they were little kids; their first loves; raising a family; work life; leaving the workforce; aging; health ups-and-downs; and the end-of-life – not to mention routine blood work and other medical tests.

Here’s an excerpt from the book’s first chapter:

“Through all the years of studying these lives, one crucial factor stands out for the consistency and power of its ties to physical health, mental health, and longevity. Contrary to what people might think, it’s not career achievement, or exercise, or a healthy diet. Don’t get us wrong: these things matter (a lot). But one thing continuously demonstrates its broad and enduring importance:

Good relationships.
your best investment
In fact, good relationships are significant enough that if we had to take all eighty-[plus] years of the Harvard Study and boil it down to a single principle for living, one life investment that is supported by similar findings across a wide variety of other studies, it would be this:

Good relationships keep us healthier and happier. Period.” (10)

At some level, this just sounds intuitively right. And yet, the authors note, it can be hard – very hard – to put this knowledge into practice in our everyday lives. They cite two main reasons: first, while “the good life may be a central concern for most people… it is not the central concern of most modern societies… The modern world prioritizes many things ahead of the lived experience of human beings.” (30)

Second, at a more elemental, biological level, our brains, as extraordinarily sophisticated as they are, “often mislead us in our quest for lasting pleasure and satisfaction.” (30) It turns out, we humans are just not consistently good decision-makers at knowing what’s best for us. As a result, we tend to prioritize what’s measurable – wealth accumulation, status, achievement, to name a few – when those markers, while no doubt important, are not as lastingly important as we, or the broader culture, might assume.

This is an important point that Dr. Waldinger, the co-author, makes in an accompanying lecture. In balancing work, money, and relationships, the emphasis should be “both-and,” not “either-or.” Having sufficient financial resources is crucial for helping people feel, and be, secure. As Dr. Waldinger reports, the trouble arises when people place too much weight on work, wealth accumulation, and social status, leaving too little time and energy for the relationships in their lives.
your best investment
So, let’s return to our opening question: when we think about our best investments – and what gives us the best bang for our “whole-life” buck – what if we turn the spotlight onto our relationships? As The Good Life informs us, after eight decades of scientific research, it’s time spent on our relationships – with family, friends, community members – that offers among the highest, most predictable returns on investment.

Black Swans & The Certainty of Uncertainty

Corenna Roozeboom Life with Money

Rarely but inevitably, a single event will flip the world upside down – the kind of improbable, unexpected thing that occurs on a day just like any other, but then alters life as we know it.

Sometimes that thing is devastating, such as a freak accident or the sudden death of a loved one. Sometimes it’s delightful – a newfound opportunity, a chance encounter, or a lucky break.

• • •

I first learned about Nassim Nicholas Taleb’s “black swan theory” in February 2020. Little did I know that a black swan event was about to alter my world – and everyone else’s as well.

I was reading a review of Taleb’s The Black Swan: The Impact of the Highly Improbable, written by our late cofounder Victor Levinson in 2007. Taleb defines a black swan as an event with the following attributes:
black swan event
“First, it is an outlier … because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

Vic explained the metaphor: “The Black Swan references the idea that there was a time in the past when only white swans appeared, to the point where people thought only white swans existed. It took the appearance of one black swan to change that ‘certainty.’”

• • •

Had I known the pandemic was just around the corner, I would have predicted that the markets would tank. And they did – for about a month.

And yet, as we noted at the end of 2020, “the stock market recovered surprisingly (in many cases, stunningly) well after bottoming out in late March … The Vanguard U.S. Stock Index Fund, which represents all the public traded companies in the U.S., rose 21%. The stock indices are at or near all-time highs.”

It turns out, the markets are so unpredictable that even knowing ahead of time about a black swan event does not guarantee how markets will react to it.

To quote ourselves again in late 2020:

“As compiled by Bloomberg and reported by Jeff Sommer, ‘[In late 2019] the median consensus on Wall Street was that the S&P 500 would rise 2.7 percent in the 2020 calendar year.’ That, of course, turned out to be dramatically low.

“A few months later, in April 2020, as the coronavirus stopped the global economy in its tracks, forecasters hit reset and issued another set of predictions. Per Sommer:

“‘They said the market would fall 11 percent. But the market had begun climbing on March 23, the day the Fed intervened to stem panic. The strategists failed to register the change in direction. If you had invested, based on their predictions, you would have missed a great bull market.’”

Jason Zweig of The Wall Street Journal had a similar conclusion:

“To me, the lesson of 2020 isn’t that a giant, unpredictable ‘black swan’ can wreak havoc with the best forecasts. Instead, the lesson is that whatever seems most obvious is least likely to happen.”

Zweig continues: “The only incontrovertible evidence that the past offers about the financial markets is that they will surprise us in the future. The corollary to this historical law is that the future will most brutally surprise those who are the most certain they understand it.”

• • •

“Uncertainty is the only certainty there is,” according to mathematician John Allen Paulos. “Knowing how to live with insecurity is the only security.”

We agree, at least about the certainty of it. As Vic wrote in response to the wildly unpredictable markets in Spring 2020: “Since no one can predict the future, uncertainty must be considered…”

We all experience life-altering black swans, whether personal or widely shared. So how, then, might we “live with insecurity,” at least from an investment perspective?

Our recommendation is the same now as it was in 2020:

“Review your portfolio to ensure that your asset allocation remains consistent with your goals, risk tolerance, and time horizon. If they’re aligned, stay the course. If they’re not – or if you fear they may not be – we can help you make thoughtful, deliberate modifications.”

In short, an appropriate asset allocation can and should offer you peace of mind – even in the event of a black swan.

The Random Quilt of Wall Street

Nick Levinson Comments, Life with Money

A picture is worth a thousand words, as the old saying goes.

The “quilt” chart below, prepared by JP Morgan Asset Management, colorfully demonstrates many of the points Park Piedmont Advisors has made over the years. Several of them derive from Burton Malkiel’s 1973 classic, A Random Walk Down Wall Street:

  • While the stock and bond markets have produced positive returns over many decades, the year-to-year variability can be large, and is impossible to predict
  • Different parts of the stock and bond markets produce returns with wide variability over short time periods
  • A broadly diversified portfolio has less extreme ups and downs while producing competitive long-term returns

JP Morgan's Asset Allocation Quilt Chart
The “quilt” chart details returns from 2008 through 2023 for nine components of the stock and bond markets, plus an “asset allocation” benchmark comprised of varying percentages of all nine. More precisely, we would characterize seven of the nine components as “riskier” investments, which are often associated with stocks.

These seven include:
 US large company stocks (green on the chart)
 US small company stocks (orange)
 international developed company stocks (grey)
 emerging market company stocks (light purple)
 real estate related stocks, referred to as REITs, or real estate investment trusts (light blue)
 commodities, including gas, oil, precious metals, and agriculture (dark green)
high-yield income, a hybrid of stocks and bonds that often performs more like stocks in declining markets (blue)

The two “less risky” categories include:
 intermediate-term bonds, often also referred to as “fixed income” (dark blue)
short-term cash (purple)

Based on these characterizations, asset allocation (white on the chart) consists of 65-70% riskier assets and 30-35% of less risky assets.

Here are a few of our more specific observations:

Risk-Return Tradeoff

  • As expected, the 15-year return figures (far left of the chart) show all the riskier assets at the top, with the less risky assets at the bottom.
  • Similarly, the riskier assets have the highest measures of volatility (second column from left on the chart), which generally indicates the extent of the highs and lows generated by these assets. Bonds and cash have the lowest volatility measures.
  • In general, higher expected returns go hand in hand with high levels of risk.

Benefits of Diversification

  • The asset allocation benchmark is in the top half of the 15-year returns and the bottom half of the volatility measure. This doesn’t mean that a diversified portfolio eliminates risk, but it does show that owning some of all of the categories appears to reduce risk.

Stocks Can Generate Outsized Returns, both Positive and Negative

  • Note the strong performance of various segments, especially after the down years of 2008, 2018, and 2022. These upswings after downturns demonstrate one of our favorite concepts, “reversion to the mean.”
  • Also note that largecap US, smallcap US, emerging markets, and REITs have all been the top performers in various years.
  • Different stock segments have also been the worst performers during market declines.
  • Correct predictions from year to year involve more luck than skill, and are invariably unsustainable.

Bonds Have Offset Stock Declines in the Past, but not in 2022

  • Fixed income and cash were top performers in 2008 and 2018, and to a lesser extent in 2011 and 2015, when stocks also declined. And bond results were actually positive in those years, as opposed to simply less negative than stocks.
  • This relationship collapsed in 2022, as interest rate increases led to significant bond price declines. According to the Barclay’s U.S. Aggregate Bond Index, 2022 was the worst year for bonds since they started recording in 1976.

Why Invest in Commodities at all?

  • The 15-year returns are flat, and commodities have been at the bottom of the chart for the majority of the time.
  • But when inflation spikes, as it did in 2022, commodities often serve as a hedge against broad price increases in the economy. This is another example of the potential benefits of broad diversification.

We encourage you to review this fascinating asset class quilt chart in detail. Please let us know if you have any questions or comments.

2023 Year-End Market Update

Corenna Roozeboom Life with Money

We had no idea what the 2023 year-end market update would look like a year ago.

As it turns out, the year ended with US stocks up 26 percent, as measured by the US Total Stock Market index fund. The total bond market was up 6.8 percent. Inflation cooled in late 2023 to a 3.4 percent annual inflation rate – the Fed’s goal being a “slow and steady” two percent.

We didn’t see that coming – but fortunately, we didn’t try to.

Many others did though. “All across Wall Street … the mood was glum. It was the end of 2022 and everyone, it seemed, was game-planning for the recession they were convinced was coming.”
2023 Year-End Market Update
If you remember, the US Total Stock Market index fund was down 19.5% at the end of 2022. By and large, investors were indeed feeling pessimistic. Those who created new “game plans” based on feelings or guesses, however, may be regretting it.

According to “Everything Wall Street Got Wrong in 2023,” a recent article from Bloomberg News, the consensus view on Wall Street a year ago was to “sell US stocks, buy Treasuries, [and] buy Chinese stocks.” The consensus, however, was “dead wrong.”

At the end of 2023, stocks were up, the 10-year treasury yield was the same as it was a year ago, and Chinese stocks were down.

“’I’ve never seen the consensus as wrong as it was in 2023,’ said the chief investment strategist at Russell Investments,” the Bloomberg article reports.

One strategist from TD Securities admitted that “he and his colleagues ‘did some soul searching’ as the year wound down … ‘It’s important to learn from what you got wrong.’”

The reporter somewhat dryly notes: “What did he learn? That the economy is far stronger and far better positioned to cope with higher interest rates than he had thought. And yet, he remains convinced that a recession looms. It will hit in 2024, he says, and when it does, bonds will rally.”

The point here is not to gloat that investment strategists got it all wrong. After all: we didn’t see 2023 coming either.

The point is that nobody could have predicted how the markets would shake out in 2023 – and if they did, it was simply a lucky guess. And who’s to say that their next guess will be equally lucky in 2024?

With an appropriate asset allocation, there’s no need to make lucky guesses or new game plans based on market performance – regardless of whether you think a recession looms. Instead, a diversified, personalized portfolio is designed around your particular risk tolerance, time horizons, and goals.

But importantly: if any of those have changed, please don’t hesitate to reach out to your advisor for guidance. We’re here and always happy to fine-tune your portfolio.

Temporal Landmarks & Fresh Starts

Sam Ngooi Life with Money

Recently, I asked other Park Piedmont team members whether they had resolutions for 2024. Since our last new year’s article on intentions for life and money, I’ve been curious about the various ways people ring in each new year, and why – despite our differences – so many of us decide that January 1 is the perfect day to plan how we hope to live out the year.

In 2013, behavioral scientists Katy Milkman, Hengchen Dai, and Jason Riis analyzed the frequency with which Americans searched the term “diet” on Google over the span of eight and a half years. They found that “diet” searches soared on January 1 – by about 80% more than the typical day. “Diet” searches also spiked at the start of calendar cycles (i.e., the start of a new month or week) and after national holidays.
temporal landmarks
Essentially, New Year’s Day is known as a “temporal landmark.” Just as landmarks help orient us on a map, temporal landmarks indicate where we are along the timeline of life (especially when it feels monotonous). Most people recognize the social landmarks we share: holidays, the start of the year, the first day of Spring. We also have personal ones that are unique: anniversaries, new jobs, birthdays.

Whether social or personal, temporal landmarks can serve as transition points as we move from one chapter or season of life to the next. Turning to a crisp, blank calendar page can make us feel refreshed and excited about future possibilities. Behavioral scientists refer to this as the “fresh start effect,” where the perception of a clean slate can increase a person’s likelihood to pursue ambitious goals with increased motivation and vigor.

A fresh start might prompt us to start and maintain new routines. The researchers mentioned above also examined attendance at a university gym over the course of a year. They found that gym visits increased at the start of each new week, month, and year, but also at the start of a new semester or right after a student’s birthday (with the glaring exception of turning 21, which decreased attendance).

Why does the perception of a fresh start work? For one, they offer an opportunity to disassociate the “old you” from the “new you.” The old me spent a fortune on takeout, but starting Monday the new me is focused on saving for a new car. By avoiding dwelling on past failures and optimistically focusing on future successes, a fresh start gives us the confidence to “behave better than we have in the past and strive with enhanced fervor to achieve our aspirations.”

A temporal landmark can also help us to see the forest through the trees. By distinguishing a specific moment in time, such as the job anniversary or the start of a season, we’re able to separate it from the day-to-day minutiae and reflect on long-term goals. Daniel Pink writes in his book When, “Temporal landmarks slow our thinking, allowing us to deliberate at a higher level and make better decisions.”
In our work, it’s also a reason life transitions and milestones can nudge people to review their financial lives and goals. As a matter of fact, studies have found that framing savings against an upcoming birthday can prompt individuals to reflect on getting older and encourage higher retirement savings rates.

It’s worth noting that, while fresh starts can nudge us to start on a goal, we also require tools and strategies to stay committed as our enthusiasm wanes (case in point: New Year’s resolutions). One way to do this is by using dates with personal significance as opportunities throughout the year to check-in and recommit to previously set goals. Even the anticipation of a big life milestone (like turning 30, 40, or 50) can help sustain motivation. As Pink explains, this is one reason why the most common age of first-time marathoners is twenty-nine.

As it turns out, the Park Piedmont team leans lukewarm on the idea of New Year’s resolutions, but we’re looking forward to plenty of landmarks in 2024: growing families, weddings, “firsts” in a new city, other new year celebrations, bucket-list vacations. Money, of course, will factor into all these milestones.

Whatever meaningful moments and fresh starts lie ahead for you (and whenever they may be), we’re excited to hear more and are grateful to be a part of some of them.

Happy new year!

An Unflashy Yet Proven Investment Approach

Corenna Roozeboom Life with Money

November was a great month for stocks.

The S&P 500 – a stock market index that tracks the performance of 500 of the biggest companies in the US – performed better in November than it has all year. By December 1, it had risen over 10 percent from its late-October low, gaining all the ground it had lost earlier this year.

Much of that growth was fueled by the “Magnificent 7”:  Amazon, Alphabet, Apple, Meta, Microsoft, NVIDIA and Tesla are up around 70% since the beginning of the year.

Other assets had a good month too.

As the Wall Street Journal points out, November brought a “simultaneous surge” across stocks, bonds, cryptocurrencies, and gold. Bond prices (as measured by Vanguard’s Total Bond Market fund) rose more than four percent for the month, which is a very large move for the typically less volatile bond market.

Even “beleaguered” sector indexes – such as home builder and regional banking stocks – saw significant gains last month.

So why the sudden “simultaneous surge”?

Proven Investment ApproachThe Wall Street Journal suggests “growing confidence that the Fed will be able to achieve a ‘soft landing.’” In other words, investors finally feel confident that the Fed’s interest rate hikes will successfully rein in inflation – without also causing a significant economic slowdown or recession.

The question now is whether the recent market rallies will last – or whether they’re just a short-lived celebration of an anticipated soft landing.

“Skeptical investors and strategists … point to concerns that inflation could tick higher once again, or the long-feared recession could finally materialize” (WSJ).

Wouldn’t it be nice if we knew?

It sure would be. “Selling all of your stock just before the market falls, and buying shares just before the market rises, is a brilliant strategy,” says Jeff Sommer of The New York Times.

“And if you could repeat the feat over and over again, you would be fabulously rich – a true stock market wizard. But the ability to trade like that is rare, if it exists at all. Without question, it’s so hard that the vast majority of professional traders can’t do it, as countless studies have shown.”

Fair enough: nobody can predict the future.

But surely there are winning buy-and-sell strategies … aren’t there?

Hint: Nope. There are none.

Interestingly, a recent study examined 720 (yes, 720!) market timing strategies, using a “broad range of rigorously applied timing signals.” The results: there was a flaw in every approach.

A better recipe for success is what Sommers calls a “simple, unspectacular strategy.”

As Sommer notes, the study’s results support “simply accepting that you can’t beat the overall market and focusing instead on minimizing your costs [our Italics] so you can get as much market return as possible.”

He continues:

“Broad, diversified, low-fee index funds … will do this for you. But you need to be willing and able to withstand substantial losses, sometimes for extended periods, because while the stock market has risen over the long haul, it often declines.”

And indeed, we saw market declines most recently in August through October, and in 2022. Anyone who wasn’t willing or able to withstand losses would have missed out on last month’s – and the overall year-to-date – recovery.

Sommer’s unspectacular strategy sounds an awful lot like Park Piedmont’s longstanding investment principles.

Keep costs low. Invest in broadly diversified index funds. Take only the risk you can manage. Focus on the long-term.

And then? Ignore the financial media noise.

Because while today we’re discussing recent large gains, there will be declines again – whether next week or next month or next year. And then, just as now, the key will be to trust your personalized asset allocation. It’s a remarkably unflashy yet proven investment approach.

The Benefits of Tax-Loss Harvesting

Nate Levinson Life with Money

One of Park Piedmont’s primary goals as a firm is to focus on thoughtful long-term planning for our clients’ financial lives. One important but often overlooked example of this planning involves tax-loss harvesting (TLH). As described in more detail below, tax-loss harvesting opportunities aren’t necessarily available every year. But when they are, as in 2022 and possibly this year as well, we want to make you aware of the potential benefits.

In years when market prices decline, selling certain investments for a loss can provide a silver lining by reducing taxes owed (hence the term “tax-loss harvesting”). Park Piedmont completed TLH for many clients in 2022, a year in which both stock and bond indexes had significant price declines. So far in 2023, stock and bond indexes have appreciated in value, but there still may have been declines this year for certain funds, as well as remaining declines from last year’s poor performance. Park Piedmont will be in contact later this month if your portfolio presents any TLH opportunities that could lower your tax bills going forward.
tax loss harvesting
To understand how the TLH process works, it is important to know how different types of income are taxed. “Ordinary” income comes from wages, salaries, and self-employment income, and is taxed at Federal rates ranging from 10% to 37% depending on one’s tax bracket. “Capital gain” income comes from the sale of capital assets (e.g., stocks, bonds, and personal residences). Federal rates on capital gain income from assets held for a year or more (also known as “long-term” capital gains) range from 0% to 23.8%, which are significantly lower than those that apply to ordinary income. (Income from capital assets held for less than a year are referred to as “short-term” capital gains, and taxed at the higher ordinary income tax rates.) Most states also have ordinary income and capital gains tax systems.

Within a taxable, or non-retirement, investment account, the sale of an asset for more than what you paid for it results in a “realized” capital gain, while the sale of an asset for less than what you paid results in a realized capital loss. (Assets held in retirement accounts do not qualify for capital gains tax treatment.) Investments that have changed in value since they were purchased but haven’t yet been sold are said to have “unrealized” capital gains or declines. TLH is the process of realizing the capital losses that exist within a portfolio, which generate tax benefits described below.

Realized capital losses can be used to offset an unlimited amount of realized capital gains. In other words, if the amount of capital gains equals the amount of capital losses in a given year, no capital gains tax will be owed on the sales. Furthermore, if the amount of capital losses exceeds capital gains, then the capital gains will be fully offset and up to $3k of those losses can be deducted from ordinary income for that tax year. Additionally, any realized losses that exceed the amount of capital gains plus the extra $3k can be “carried forward” indefinitely and used to offset future capital gains and/or ordinary income based on these same rules.

Because of this carry-forward rule, TLH doesn’t just provide tax benefits in the current year; it can be a long-term planning strategy to minimize taxes. For example, if you plan to sell a home or concentrated stock position for a large gain, realizing capital losses in the present can provide offsets for these future gains. Gathering this kind of information is an important part of Park Piedmont’s planning work with clients.

There are additional details involved in TLH, and you should feel free to discuss these with your Park Piedmont advisor at any time. For now, we hope this general information gives you a sense of the planning opportunities that might be available.

Gratitude and Its Benefits

Tom Levinson Life with Money

We’ve reached another Thanksgiving. A national moment for giving thanks and feeling grateful.

In this installment of Life with Money, we’d like to home in on gratitude. Before we discuss it, we would like first to express it.

First, we want to say: we’re grateful for you, our clients. We’re grateful for the depth and length of our relationships with you. Likewise, we’re grateful for the many ways our work enables us to learn from you, and about you, and to provide you and your loved ones with guidance, support, and care. This is meaningful work for all of us at Park Piedmont, and we thank you for giving us the opportunity.

Second: we’re grateful for our Park Piedmont team. We are fortunate to have outstanding individuals as colleagues. As you may well have observed from your interactions with them, the members of our team are thoughtful, collaborative and hard-working – and, even though we all work remotely, the group remains close-knit.

• • •

The Anglican priest and New York Times columnist Tish Harrison-Warren recounts a game her then 11-year-old daughter concocted. It was called “the beautiful game,” and the rules were simple: they’d walk around their neighborhood, pointing out all the beautiful things they saw. For Harrison-Warren, the game helped her “see how much goodness [she] regularly overlooks.”

One interesting thing about gratitude: it actually feels good to be grateful. There’s a great deal of research science that explains why.
Gratitude and Its Benefits
Gratitude does indeed make us feel good. Expressing gratitude generates positive emotions – among them, happiness, pleasure and contentment. “When we express gratitude and receive the same, our brain releases dopamine and serotonin, the two crucial neurotransmitters responsible for our emotions, and they make us feel ‘good’. They enhance our mood immediately, making us feel happy from the inside.”

Gratitude improves our relationships. It’s a pro-social set of behaviors that bolsters feelings of connection and closeness. On our weekly team Zoom calls, we always open our discussion by having each person express something they feel grateful for from the previous week. Maybe it’s a call with one of our clients. Maybe it’s the help they received from a colleague. Maybe it’s both. Regardless, the practice is an important way we stay connected and appreciative.

Gratitude makes us healthier. It is “positively correlated to more vitality, energy, and enthusiasm” … “Feeling grateful and appreciating others when they do something good for us triggers the ‘good’ hormones and regulates effective functioning of the immune system. Scientists have suggested that by activating the reward center of the brain, gratitude exchange alters the way we see the world and ourselves.”

Gratitude re-focuses us on what we have, not what we lack.Psychologists Shai Davidai and Thomas Gilovich, in one of their papers called the ‘Headwinds/Tailwinds Asymmetry: An Availability Bias in Assessments of Barriers and Blessings,’ mentioned that we tend to focus more on the obstacles and difficulties of life because they demand some action. We have to fight and overcome them to get back the normal flow of life. On the flip-side, we forget to attend to the better things in life because they are ‘already there’ and we don’t have to do anything to make them stay with us. Practicing gratitude, according to Gilovich, is the best way to remind ourselves of the things that give us the courage to move on in life.”

Interested in incorporating more expressions of gratitude in your own day-to-day? Here are some well-researched ways to do so:

  • Gratitude exercises: Try a thoughtful thank-you note. “Dr. Amit Kumar revealed an interesting fact in his recent research on gratitude exercises (Kumar & Epley, 2018). In the study, participants were asked to leave notes to people who meant a lot in their lives – for example, teachers, spouse, or friends. And these notes were not small papers saying ‘thank you’. They had to be detailed and more in-depth. Surprisingly, participants could finish writing lengthy gratitude notes in less than five minutes and reported feelings of contentment after doing so.”
  • Gratitude journal: “Keeping a gratitude journal causes less stress, improves the quality of sleep, and builds emotional awareness” (Seligman, Steen, Park & Peterson, 2005).
  • Invent your own “beautiful game”: Take a walk around your own neighborhood, or visit another – and take a look around. What are you seeing now that you haven’t seen before?
  • Reframe your expectations: Here’s another thought around gratitude, emphasized by financial writer Morgan Housel. There is counterintuitively great value in what Housel calls setting “purposely low expectations.” This might sound like a Larry David bit – and actually, there’s something to that. Here’s Housel’s suggestions:

“Don’t expect a lot of economic growth …
Don’t expect a ton of innovation.
Don’t expect politics to improve.
Expect occasional catastrophes.”

He continues: “Then any little improvements that happen to come along feel incredible. You appreciate them more. Low expectations don’t make you depressed – they do the opposite, making little gains feel amazing while bad news feels normal.”

• • •

What are your preferred practices for expressing gratitude?

Is expressing gratitude something you do at set times in a day or week or year? Or is it more spontaneous? Do you tend to say it to yourself, or are you more apt to share the feeling with family, friends, and coworkers?

However you feel it, however you express it, we hope a helping of gratitude is on your menu this holiday season. We wish you a happy and healthy Thanksgiving.

A Humble and Balanced Investment Approach

Corenna Roozeboom Life with Money

When the world – or the market – feels unstable, unpredictable, and perhaps even unnerving, people often draw comfort from simple narratives.

Our lack of control drives us to search for some sort of explanation that we can understand – a storyline we can wrap our minds around that provides answers and creates meaning.

Maybe this desire for a tidy narrative explains why a former editor of the Economist described the job of a journalist as being to “simplify, then exaggerate.” Stick to a simple explanation, then amplify its impact.
Simplify, then exaggerate
As an article in the Wall Street Journal recently contended, however – and we would agree – this strategy isn’t adequate for last week’s stock market “correction,” typically defined as a price decline of at least 10% from a recent high.

As the author points out, a variety of causes could be offered as explanations for the drop in the stock market: the Fed keeping rates high, fears of an impending recession, war in the Middle East, or a natural correction for stocks that were previously valued too high.

Yet offering any one of these explanations as the sole cause for the correction – and then exaggerating its impact – would be inaccurate and, in our opinion, a disservice.

Park Piedmont has been telling a different story for over two decades.

Rather than emulating much of the financial media’s inclination to simplify and exaggerate, we prefer to lean into a couple of our firm’s values: humility and balance.

First, humility.

One of the core principles of our investment philosophy is that the future is unpredictable and uncertain.

Nobody – including us – can predict future events, and even if we could, we would then also need to predict how the market would respond to those events. As we’ve pointed out before, it simply cannot be done. The market reacts to events in baffling ways at times.

So we can’t predict the future, but what about the past? Can’t we assign a simple and exaggerated narrative to something like a past market correction?

This brings us to another firm value: balance.
Humble and balanced investment approach
Perhaps it’s easier to look back on history and point to a definitive cause-and-effect. But as with much of life, a simple and exaggerated explanation doesn’t offer a balanced, full picture of the innumerable and sometimes conflicting variables involved:

Wars. Investor unease. Low unemployment. Inflation. Higher interest rates. Union strikes…

So rather than attempting to predict the future or assuredly explain the past, Park Piedmont takes another approach:

Remain humble about what we can’t explain or control, and instead take a balanced and measured approach to what we can.

What does this look like in practice? Keeping fees low and having a solid understanding of our clients’ unique goals, time horizons, and risk tolerance.

This understanding translates into personalized, appropriately-balanced asset allocations that we hope eliminate your need for a tidy narrative, even when the world – and the market – feels unstable, unpredictable, and perhaps even unnerving.