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The RFG Weekly Wealth Report

February 13, 2017
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The political world has presented many topics of conversation lately. But one discussion has been relatively quiet: tax reform. Last week, however, the president announced that a "phenomenal" tax plan is forthcoming, and domestic markets responded by reaching record highs. In fact, we saw positive market performance even before the announcement, as the S&P 500 and Dow posted new records two days in a row, while the NASDAQ reached record highs every day except Monday.

In today's highly politicized market environment, we understand that you seek insight on how changes could affect your financial life. While we could focus on potential policy or tax adjustments, many of these details are still unclear. Rather than addressing speculation, we prefer to analyze and share key data that we do have details on from last week: the trade deficit.

What happened? The most recent trade deficit numbers came in last week, showing that in December 2016 the following occurred:

  • The trade deficit fell to $44.3 billion.
  • Trade volume grew more than it has in over a year and half.
  • The trade deficit was higher than in December 2015.

Why should you care? As we discussed a few weeks ago, trade is integral to our economy - and we saw a decrease in net exports slow GDP growth in the fourth quarter of 2016. Essentially, when the U.S. imports more goods than we export, the economy may not perform as well.

However, analyzing the trade deficit is not a simple "lower is better, higher is worse" circumstance. In a healthy economy, the trade deficit can increase, as Americans' incomes grow and they buy more imported goods. Understanding what signs are positive and which are negative can help you better know where we stand.

What can we learn from this week's findings? The trade deficit is larger than a year ago, but the increases are less dramatic than what some headlines may imply. For instance, a MarketWatch article shared that "U.S. trade deficit hits highest level in four years." But when you look at the changes, the difference may seem less extreme than the headline implies.

Ultimately, while the balance between imports and exports is meaningful, the volume of trade matters greatly as well. December's increasing trade volume - both imports and exports - can show us that both U.S. and global economies are improving.

Looking ahead, changes to trade deals and corporate tax rates could have significant effects on the trade balance and volume. We will continue to evaluate this monthly metric to look for insight into our economy's fundamental strength. As always, we will work to keep you informed so you know what is happening and how we are pursuing your goals in an evolving world.

Quote of the Week

"Knowing is not enough; we must apply. Being willing is not enough; we must do."

--Leonardo da Vinci

Golf Tip of the Week

Ripping Your Irons

Hitting solid iron shots that stick close to the hole requires an ability to tear off the turf without compromising your stance or losing control of your swing. Master this skill and your score is bound to improve. These three tips can help you rip your irons with the correct stance and swing every time.

  1. Keep your footing. Firmly planting your feet is important for not spinning out the shot. To do so, when swinging down, you need to ground your back foot until after you've connected with the ball.
  2. Shift forward. Does "stay behind the ball" sound familiar to you? Well, here, you actually need to shift your weight forward in the downswing to avoid hitting behind the ball or thinning it on the upswing. Roll your front foot toward the target so your body shifts in the same direction. Remember, you need to keep your back foot grounded during this move.
  3. Extend the club. Fully extending your dominant arm is crucial. Rather than losing the extension before you hit the ball - and risking poor, inaccurate contact - you need to maintain your swing arc through impact. When practicing, reach toward the green with your club and see how much farther and straighter your iron shots go.

Financial Question of the Week

What should I do if I have negative taxable income on my individual income tax return?

Unlike a business with a Net Operating Loss, individuals cannot use negative taxable income amounts to offset past or future income tax payments. In addition, the IRS views any negative taxable income as zero, so you will not receive any benefit from reporting taxable income below zero.

If you suspect your taxable income may be negative in a given year, talk to your CPA and Financial Advisor immediately. Possible solutions may include:

  • Taking more tax credits (which are refundable) - opposed to deductions.
  • Moving planned deductions such as retirement or charitable contributions forward to future years.
  • Selling appreciated assets to realize capital gains.
  • Distributing funds from a 401(k) or IRA
  • Converting 401(k) or IRA funds to a Roth account.