Let's consider a common – but overlooked – problem in estate planning. Someone becomes incapacitated and has essential personal and financial information stored in an online account. The password is secured in a note on their phone, and the phone is locked with a passcode. Even if they gain access, the note itself requires two-factor authorization that goes to an email account with its own password. Suddenly, what seemed like a simple matter of accessing important information has suddenly become a complex, digital maze!
This scenario isn't unrealistic. As our lives become increasingly digitized, often behind multiple layers of security, the ability to access this information easily also becomes increasingly important. Yet, many people don't think about what will happen to these digital assets if they pass away or become incapacitated, especially when many people don't realize how much we rely on them.
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This month marks five years since the covid market downturn.
Though the initial downturn on March 9, 2020, was dramatic—the US stock market lost nearly 8% in one day—the US stock market ultimately recovered from that crash in just four months, making it the fastest recovery of any market crash over the past 150 years.
Not even two years later, the stock market experienced a worse downturn: The market took 4 times as long (18 months) to recover from the crash of December 2021, spurred by the Russia-Ukraine war, intense inflation, and supply shortages.
So, with these recent market crashes behind us, what have we learned?
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Snagging a lunch date with the financial economist Eugene Fama proved almost as hard as beating the stock market. My first attempt in 2021 foundered because of long-lasting Covid-19 lockdowns. A suggestion that we instead do it by video was forcefully shot down. “On Zoom, watching people eat and talk comes across as gross,” Fama emails. It’s hard to disagree.
Another try is scuppered by the University of Chicago professor spending winters on the West Coast. We finally find a time to eat in Chicago, but when I ask for some possible venues we hit another snag. In his terse email style Fama informs me that“I never eat lunch out”. As a compromise, I turn up at his office at the University of Chicago with two brown paper bags containing a dubious selection of sandwiches, wraps, salads, sushi and soft drinks acquired from a downstairs bodega.
Thankfully, the 85-year old Fama is no fussy eater, and happily grabs a chicken Caesar wrap. Feeling brave, I take the 12-pack of indeterminate sushi. It’s an underwhelming meal, but very efficient, which feels appropriate given what I want to talk about.
Fama is arguably the world’s most famous and influential finance professor, thanks to his revolutionary efficient market hypothesis — that stock market prices at anytime incorporate all available information, thanks to the cumulative and unending efforts of millions of investors constantly trying to outfox it. The paradox is that as a result of their efforts, the stock market is in practice almost impossible to beat.
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We have said many times that tax planning should be a year-round sport, and not consigned to December or the fourth quarter. With that in mind, let’s review six key tax planning strategies for every investor.
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