Things to do before year end + 2019 investment highlights

December 23, 2019

Issue #19. 

Happy holidays, and welcome to our issue #19! As we’re wrapping up this year, we’ll discuss the key developments in the investment world in 2019, momentum stocks at the peak of the market, and things to do before the end of the year.

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So here are the questions for today’s edition: 

  1. What are the best things that happened to investors in 2019?

  2. The market is at an all-time high… what underappreciated, momentum stocks should I consider?

  3. What things should I do before the end of the year to optimize my taxes and end up in a financially better position?

Let’s give you the summary first.

Summary

  1. Some wonderful things happened to investors in 2019—most brokerages and money managers gave up on trading fees—and some of them (e.g., Schwab, Robinhood, M1 Finance, Betterment, Stash, Public, and Stockpile) have introduced fractional shares, which allow you to invest with essentially very little money. Both of these moves are great for first-time investors.

  2. We screened for stocks that have exceeded analyst forecasts over the past four quarters, raising EPS estimates, and that have had solid price performance recently—so we came up with a few momentum stocks to consider. Take a look at the chart below and use the momentum stock tool for weekly updates.

  3. To help reduce taxable income, consider increasing your contributions to tax-deferred retirement accounts and a health savings account (if you have one). Also, consider bunching donations or medical expenses to help deduct more income. To help reduce capital gains, find out if tax-loss harvesting makes sense for you (it offsets realized capital gains on your investments with realized capital losses). Take a look at the Deep Dive below for our year-end checklist.

Deep Dive

  1. Robinhood, which launched only six years ago, ‘invented’ free trading. Now its no-commission ethos turned the online brokerage industry on its head. So this year, most established players rewrote their revenue models by abandoning trading fees. The disruption even prompted the blockbuster merger of industry Charles Schwab (SCHW) and TD Ameritrade (AMTD).

    Fractional shares implies investors are now able to buy half-shares of costly exchange-traded funds. This is a great innovation for Millennial and Gen Z investors, who may not have a lot of money to invest—fractional shares make balancing a portfolio easier at smaller asset levels.

    In the past, 401k retirement accounts didn’t typically include ETFs because account managers couldn’t purchase fractional shares via dollar-cost averaging. Now fractional shares could open up the market for ETF investing in retirement accounts.

  2. Momentum stocks involve a lot of turnover: what's hot today, may not be hot tomorrow. Investing in momentum stocks can produce market-beating returns over the years, but also big drawdowns and above-average volatility from time to time. 

    Here are a couple of stocks that passed our momentum screen and caught our attention:

    • Amicus Therapeutics (FOLD)

    • Farfetch (FTCH)

    • Sage Therapeutics (SAGE)

    As always, do your own thorough due diligence before investing in these risky momentum stocks.

  3. Want to save on taxes by acting before the end of the year? Here is the checklist of things to consider doing before 2019 end:

    • Bunch your deductions—medical expenses and donations. If you're considering a bunching strategy, a donor-advised fund may be a good choice for you. That way you can contribute several years of charitable contributions this year, but spread your givings over multiple years.

    • Consider the 529 plan for kids’ education (not just college!). In 2018 a law was passed that allows 529 accounts to also be used for primary and secondary school tuition expenses (limit is $10,000).

    • Don’t forget municipal bonds! For most people, the new tax rules lowered their tax rates and bills. However, for higher income taxpayers in high tax states, tax bills are going up. For anyone concerned about taxes, now may be a good time to reconsider the role of tax-exempt municipal bonds in their portfolio.

    • Remember the basics: retirement, HSA, tax-loss harvesting and RMD. Max out retirement and health savings accounts (HSA). Take required minimum distributions (RMD) and consider a qualified charitable distribution if you are retired.

    Tax-loss harvesting is particularly important: a loss on the sale of a security can be used to offset any realized investment gains, and then up to $3,000 in taxable ordinary income annually. You may sell for a loss to offset gains, and then reinvest the proceeds to maintain your investment strategy, but be sure to comply with the IRS “wash sale” rules. Tax-loss harvesting needs to be completed by December 31.

    • Below is an example from Fidelity how tax-loss harvesting can impact your after-tax return.

That's it for this edition. As always, ask us anything on our site.

May your holidays be filled with lots of happiness, peace and love!

The AskFinny Team

Disclaimer: Nothing in this communication should be construed as a solicitation or offer, or recommendation, to buy or sell any security or product. The Gist reflects the opinions of only the authors who are associated persons of Finstead Inc. The Gist is meant to be used for informational purposes only. Past performance is no guarantee of future results, and any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in some loss. AskFinny does not provide personal financial planning services to individual investors.

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