Here are my 5 most compelling stock movements for 2022


A New Year is a wonderful time for making financial plans. As the timeline changes, new opportunities open up for urgent investments like qualified pension plans. Now that the old fiscal year is also largely over, investors can put aside short-term targeted practices such as harvesting tax losses and instead focus on longer-term financial goals for their money.

With all of the possibilities now available in the New Year, these are my five most compelling stock moves for 2022. I believe in each one so much that I commit to putting my own money where my mouth is to make it. reality for me and my family.

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# 1: I’ll contribute a Roth IRA backdoor

In 2022, people under 50 with earned income can contribute up to $ 6,000 to a Roth IRA to help them save for retirement (the limit is $ 7,000 for those 50 and over. ). The challenge with Roth IRAs is that if your total income becomes high enough, your ability to contribute begins to gradually decline. In 2022, elimination ranges start at $ 129,000 for those who are single or heads of households, $ 204,000 for those married filing jointly, and $ 0 for those who are married filing separately.

In my household, our salaries are low enough that we can potentially make direct contributions to the Roth IRA, but we do not fully control our not won Income. This unearned income also counts towards these phase-out ranges. For example, when Warren Buffett bought out a power generation company in which I owned, the forced sale resulted in a capital gain that increased our household income for the year.

Doing Roth IRA backdoor contributions instead of direct Roth IRA contributions, our household can avoid the risk of unearned income pushing us past the limit. This way, we can make contributions early in the year and not have to worry about having to withdraw them later if something happens to push our income too high.

N ° 2: I will contribute to the 529 accounts of my children

529 accounts can be used to fund eligible educational expenses. The money is paid after-tax at the federal level, but states can offer deductions to people who contribute to the plans. Once in the plan, the money can accumulate tax-deferred, and it can come out tax-free if it is used to pay for these eligible educational expenses.

In the state I currently live in (Ohio), parents can deduct $ 4,000 per child per year for contributing to an account that child is the beneficiary of. Different states have different deduction rules, so check with your state when considering a contribution.

I intend to contribute up to the state deductibility limit, but I do not intend to exceed this amount. The main reason is that college costs are extremely unpredictable up front. The price depends on whether children choose to go to university, or they go to university, and What (if applicable) the aid to which they are entitled and which does not need to be repaid.

Because these costs are so unknowable and because 529 plans can alone being used in a tax efficient manner to pay for education expenses, I have no desire to save too much in these accounts. My state’s tax-deductible amount provides an opportunity to build a decent balance over time without risking too much if the expenses for educating the child turn out to be cheaper than expected. This is why it serves as the upper limit to which I intend to contribute.

N ° 3: I will maintain my bond scale between six and seven years

Bond ladders can be a reasonable place for the money you think you need to spend out of your portfolio over the next five years or so. With two kids approaching college age and two more not too far behind them, I’m looking down for about a dozen consecutive years of potential. very high expenses. While the 529 plans are a big help, the bond ladder gives us the ability to contribute beyond if needed and if we choose to do so. If this money weren’t needed for university, I’m sure we could easily use it elsewhere.

My goal for the bond ladder is five years of potential expenses that the ladder might have to cover, but due to the recent surge in the stock market I was able to increase it to seven. The big challenge with bonds is that they mature and expire, so if you want to maintain a bond ladder, you have to replenish it over time.

Due to low interest rates, investment grade bonds are not keeping pace with inflation at this time. As a result, I don’t want to increase my bond ladder beyond seven years even though stocks continue to soar. On the other hand, it usually doesn’t make a lot of sense in the long run to sell stocks when they’re down to invest more in bonds. So if stocks continue to do well I will keep my bond ladder at seven years, but if they go down I can afford to let the bond ladder narrow as bonds mature and still be at- above a five-year goal.

# 4: I will contribute my Roth 401 (k)

One of the best parts of 401 (k) style plans is that they offer an automatic investment for your retirement right from your paycheck. And the main advantage of Roth-style plans over traditional-style plans is that once the money is in a Roth, it can be compounded in a completely tax-free manner (as opposed to just carrying over money). tax) for your retirement.

Since I have a Roth style 401 (k) at my disposal, this is where I direct my automatic paycheck contributions. I’m leading the investment in an equity-focused mutual fund that I hope can grow over the decades by the time I expect to take advantage of the money in retirement. Hopefully the combination of automatic investing, tax-free growth, and long-term capitalization can build a decent nest egg out there when I need it.

N ° 5: I will contribute to my health savings account

Because I am on a high deductible health insurance plan, I have the option of contributing to a health savings account. Since my health insurance plan has a high deductible, I To do contribute to this health savings account because I have to pay almost all of the medical expenses that my family regularly faces. Putting money in that account gives me the money to pay those doctor bills when they come in.

Due to the costs of using braces for four children, I spent most of the money that I managed to contribute to my health savings account over the years that it m ‘has been accessible. Still, if all goes well and we stay healthy, 2022 could be the year we reach the point where our health savings account balance peaks at one year for network costs.

If we reach this point, then I’ll be ready to start investing in the long-term growth-oriented investment choices in the plan, as opposed to just building up cash. Since a health savings account can be used at any time for medical expenses Where As a supplemental pension plan once you reach age 65, long term targeted investments could be of great help in this account.

If our balance doesn’t increase enough, then I’m still very grateful for the tax benefits that come with contributing (and then using) a health savings account. The tax-deductible contribution and tax-free use of that money to pay for health care costs makes it much cheaper than using after-tax cash to pay the same bill.

I’m here for the long haul

Four of my five most compelling steps for 2022 involve pouring new money into investment accounts. Only one – the bond ladder – depends on what the stock market does throughout the year. Even so, if the stock market falls, my plan is one that becomes relatively more bullish on stocks by not selling those stocks while they are down (thus letting the bond ladder narrow as the bonds mature).

It works because I follow an asset allocation strategy that differentiates between short term money and long term money and invests differently in each fund. This way, even if the market dips, I don’t have to sell stocks when they are depleted to cover short-term costs and instead can keep that money invested in the hope of a longer recovery. term.

When the market is soaring, this strategy tends to dampen my overall returns. In times of greater uncertainty where the market can crash at any time, this is what keeps me invested even if the fear sets in.

Start now

If it’s a strategy that sounds compelling to you, maybe now is a great time to put the pieces in place for yourself. With the market nearing an all-time high and the New Year bringing with it the Annual Capital Gains Reset, your flexibility and your assets may very well be in a better position than ever to make this a reality.

So make today the day you start building a stronger end-to-end financial strategy. Doing so will give yourself a great chance to navigate 2022 profitably, virtually no matter what the market is doing.


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