Review your portfolio
Equity markets continued to soar in 2021 and interest rates have risen. Our outlook is positive. Still, it’s important to review the risk you’re taking in each pool of capital on your balance sheet and reaffirm its purpose: Do you want it to meet your lifestyle needs? Earmarked for the next generation? Aligned to a large near-term purchase? Such considerations will inform the tweaks you may need to make to your portfolio.
Check your “liquidity bucket”
In major economies across the world, household savings are historically elevated, and many high-net-worth individuals are holding more cash than they probably need. Yes, it is wise to have cash on hand for near-term expenses and as a psychological safety net to weather volatility. But “strategic cash”—cash as an investment—is our least favorite asset class because interest rates are low and inflation is rising.
How much cash should you have, then, in your “liquidity bucket?” We generally suggest holding enough for one to two years’ worth of living expenses plus any near-term large expenditures. Of course, add more if you need it to feel secure. Any amount over this number can be invested for your longer-term goals.
We’ve identified some significant multi-year, overarching trends that investors may find especially attractive: digital transformation, healthcare innovation and sustainability.
We believe megatrend investments are generally best suited for longer-term goals.
Take advantage of low rates while you can
Some central banks have already started raising rates, and we expect US policy rates will begin to rise this year.
Consider refinancing and restructuring your debt while interest rates are still low. Also explore whether your family might benefit from any of the estate planning strategies that are potentially more lucrative when interest rates are low, such as grantor-retained annuity trusts (GRATs), charitable lead trusts (CLATs) and intra-family loans.
Do your annual “to do’s” ASAP
There is some planning we all should do every year, and this year is no exception. Moreover, it may be more tax-efficient to take care of these items as early in the year as possible.
No matter how young or old we may be, we should fund our retirement accounts, including 401(k)s, 403(b)s and IRAs.1
Once we’ve put that oxygen mask on ourselves, we can turn to help others: Decide if you want to make annual exclusion gifts. The annual exclusion is the amount that most US taxpayers are allowed to give every year, free of any gift taxes, to as many individuals and for whatever use. In 2022, it’s $16,000, which means married couples can give up to $32,000.
Set up the year’s charitable giving
Look at the donations you made last year to help you organize your giving this year, and take a moment, with a family member or on your own, to learn more about causes you may want to support and the ways you might make a real difference.
Whatever amount you choose to give, taking a proactive approach can help your charitable dollars have a greater impact. So prioritize your charitable goals for the year. Assess how the timing of your donation might affect your tax situation. And identify which gifting vehicle(s) might best support your strategy.
Consider using your full lifetime transfer tax exemption
The lifetime exemption, or amount that any individual can give to anyone other than a US citizen spouse without paying gift tax, is at record highs at $12.06m per person ($24.12m for a married couple).2 Under current law, it is scheduled to be reduced by 50% starting in 2026.
If you have both the capacity and the desire to give to your loved ones during life, now may be an excellent time to do so.
Make sure you and your family are cyber safe
As more of our life is handled online, the dangers of cyber theft and fraud grow. But there’s a lot you can do to protect your financial life and personal data.
Start the year by changing all your passwords, being sure to set a calendar reminder to change these passwords at least two more times in the coming year. Also: Remove all the apps from your devices that you do not use, add anti-virus and ad-blocking software on all your devices, and remember to use multi-factor authentication whenever you can.
Explore ways to increase tax efficiency
Now is a good time to do a quick overview to make sure you are making the most of your financial resources with tax-savvy planning strategies.
For example, if you’re spending from your portfolio, are you sure you are pulling from the most efficient place? Is your mortgage structured so that you might deduct all of the interest? If you have a concentrated position, are you aware of the various opportunities (depending on whether you’ve earmarked the asset to support your lifestyle, your family or your philanthropic interests)? If you plan to sell a business in coming years, have you started your pre-transaction planning?
Plan a family meeting
Two key reasons wealth diminishes across generations are (i) a lack of communication and trust, and (ii) beneficiaries’ unpreparedness. Both can be avoided simply by holding a thoughtfully structured gathering of all your financially connected family members at least once a year. This forum is your opportunity to educate the rising generation on the purpose of family resources or any of the topics listed in this article, and to discover what they would like to learn more about.
J.P. Morgan Private Bank in Orange County can help
As you look to make the most of 2022, let’s discuss which of these and other moves might be right for you. Connect with us today.
1 The 2022 contribution limit to retirement accounts such 401(k)s and 403(b)s is $20,500 ($27,000 if you are age 50 or older); for IRAs, it’s $6,000 ($7,000 if you are age 50 or older). The employee contribution limit is $20,500 ($27,000 if you are age 50 or older); the aggregate employee and employer contribution limit is $61,000 ($67,500).
2 This represents a $360,000 increase from 2021 levels ($720,000 increase for a married couple).
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