Monthly Archives: January 2017

Thoughts from Willis: Podcast Episode 2 – When Should You Rebalance a Portfolio

January 30, 2017

When Should You Rebalance a Portfolio?


To rebalance or not to rebalance, that is the question. 

In today’s podcast, I will discuss what it means to rebalance a portfolio, three reasons as to why you should rebalance, when is the right time to rebalance, and the best practices for portfolio rebalancing.


Please click the player to listen to the podcast.

Please click here to read a transcript of the podcast.

At Willis Johnson & Associates, we take the time to understand you by combining employee benefits expertise and financial planning wisdom with the emotional elements of your life. 

Willis Johnson, CFP®

President and CEO

Investing involves risk including the potential loss of principal. No investment strategy, including diversification, asset allocation, and rebalancing, can guarantee a profit or protect against loss. Past performance is not indicative of future results. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. An issuer may default on payment of the principal or interest of a bond. Bonds are also subject to other types of risks such as call, credit, liquidity, interest-rate, and general market risks. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. 
This material may contain forward-looking statements and projections. There are no guarantees that these results will be achieved. The S&P 500 is an unmanaged index generally representative of the U.S. stock market and cannot be invested in directly.

Financial Fact | Non-Existent Wage Growth

Published: January 2017

Did you know that wage growth for many working middle-class Americans was essentially non-existent for over 30 years?


During the recent election, many voters were surprised by President Trump’s popularity with the working middle-class and his ultimate win over Hillary Clinton. While candidates often target a niche of voters they want on their side, President Trump sought out a huge voter base in a largely overlooked and underserved segment of our population: middle-class factory workers. 


President Trump addressed a couple of points that are incredibly important to these voters. These voters had very little wage growth over the past 30 years and they were either steadily unemployed or losing jobs.  Also, considering that “production and non-supervisory” workers make up approximately 83% of the U.S. labor force, this became a huge political issue during the 2016 election.  


From 1965 to 1980, wage growth for production and non-supervisory workers was progressively increasing, but then we saw a huge drop between 1980 and 1985. Since 1985, wage growth for these workers has scarcely covered inflation.* 


Additionally, unemployment is much higher for those workers who are not able to attain a college education.  As a matter of fact, even of those employed, college graduates are able to make substantially higher income over time.  Many production and non-supervisory workers have little to no college education, which results in higher unemployment levels and about a 1/3 of the income than those with advanced degrees. ** 


These reasons combined are contributing to an increasingly unhappy, working middle-class population who are looking for change and representation. President Trump was able to obtain a majority of the votes from the working middle-class, in part due to his discussions of increasing wages and increasing jobs here in the U.S. It remains a question as to how these discussions will be put into action, but it is interesting to reflect on how the economy can play into our political elections. 


*Source: BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of December 31, 2016.
**Source: J.P. Morgan Asset Management; (Left) BLS, FactSet; (Right) Census Bureau. Unemployment rates shown are for civilians aged 25 and older. Earnings by educational attainment come from the Current Population Survey and are published under historical income tables by the person by the Census Bureau. Guide to the Markets – U.S. Data is as of December 31, 2016.


alexisAlexis Long, MBA, CFP®



Alexis Long is a Wealth Manager at Willis Johnson & Associates. For Alexis, financial planning combines an interest in producing detail-oriented financial plans with a desire to help people obtain their goals, ranging from retiring early, paying for their grandchildren’s educations, buying a second home or leaving a legacy for their children. Understanding what is truly important to a client is key to good financial planning, along with providing solid technical advice. 


Alexis earned her undergraduate degree in International Business from Texas Tech University and her Finance M.B.A. from the University of St. Thomas.

What Nick’s Reading | 2017 Tax Reform: An In-Depth Look

January 13, 2017

Understanding the 2017 Income Tax Reform: An In-Depth Look at the President-Elect’s and Paul Ryan’s Proposals and How They Affect You

The Republicans swept the polling stations in 2016 by taking control of the House, Senate, and the presidency. One of the primary items on the agenda is tax reform. Despite the Republicans taking control of Congress, tax reform may be no easy feat as the Democrats may still cause problems for them through a filibuster in the Senate. In spite of this, we believe there is a high likelihood of tax reform. The Democrats may come across the aisle to negotiate or individual tax reform can also pass through the use of budget reconciliation. According to the Byrd Rule, this might mean that the tax reform could sunset after 10 years. Speaker Paul Ryan (R-Wis.) wants a “leaner, meaner” tax code while Donald Trump promises “the biggest tax revolution since Reagan”. They disagree on some of the details, but they both want to take us down to three tax brackets, keep preferential tax treatment of capital gains and dividends, reduce or eliminate tax deductions, and get rid of the dreaded alternative minimum tax, which potentially is the most exciting piece. In my last post, I broke down some of our year-end tax strategies with the expectations of tax reform. Today, I’m going to take a deep dive into the Trump and Ryan proposals to understand how they can affect you.


Income Tax Brackets

Both Paul Ryan and President-elect Donald Trump emphasize that simplicity is one of the main goals of tax reform. One of the first steps includes decreasing the number of marginal brackets from seven to three. Trump’s current proposal is mostly in line with the House GOP plan.


The marginal bracket for married couples is proposed to be 12% for incomes of up to $75,000, 25% for incomes between $75,000 and $225, 000, and 33% thereafter. For married filers, the thresholds for the beginning of the 25% and 33% brackets are projected to be very similar to the 2017 tax brackets. This gives most filers an overall reduction in total tax no matter where their income ends up. See the charts below from Michael Kites’ blog post on Understanding The 2017 Income Tax Reform.


However, this is not the case for individual filers. Income thresholds for individual filers are proposed to be half of the thresholds set for married filers. The current individual threshold for the 33% bracket is expected to be around $191,500 in 2017. The 33% bracket for individuals would begin at $112,500 under the new proposal. For single filers who earn between $113K and $191K, this would notably increase the aggregate tax they must pay. This tax rate increase for individuals may be an attempt to fix the marriage penalty, which affects married couples that both make similar income earnings and end up paying taxes that exceed the amount of taxes they would have paid had they remained single.


Investment Income Tax Rates

Unlike the tax brackets, there is a bigger difference for the investment income tax proposals between the Trump and House GOP plans. Trump’s strategy is to keep the three current rates of 0%, 15%, and 20%, and correspond the rates to the three marginal tax brackets of 12%, 25%, and 33%. He would also like to repeal the 3.8% Medicare surtax. With Trump’s plan, many filers will not see a difference on their investment income tax. The problem is for married filers who earn between $233K and $416K, and single filers who earn between $116,500 and $418K. For these filers, capital gains and qualified dividend tax rates will go up 1.2%, but there is a flipside.  Married couples who earn more than $470,000 will see a decrease in capital gains and qualified dividend tax rates of 3.8% as the Medicare surtax is removed, which will also apply to single filers who earn $418,000 or more.


In comparison, Paul Ryan’s plan allows individuals to exclude 50% of their investment income, but it will tax their investment income at ordinary rates. This includes capital gains, qualified dividends, and even interest income! If interest income is taxed at preferential rates, it can be a huge savings for many investors. Potentially, it can make taxable bonds more attractive. By taxing only 50% of investment income, this effectively means that investment income will be taxed at half the ordinary income tax rates, which will give us rates of 6.5%, 12.5%, and 16.5%. Like Trump’s proposal, the House GOP plan would also repeal the 3.8% Medicare surtax. With the House GOP plan, the tax on investment income would generally go down for all income earners, except for income earners with aggregate income under$75,000. Previously, individuals who earn less than $75,000 could realize capital gains and dividends at a 0% tax rate, now they will pay a 6.5% tax rate.


Future Tax Deductions 

Trump and Ryan disagree even more on how they want to handle tax deductions. Trump’s original proposal would keep all itemized deductions but create caps much similar to the Pease limitation. Trump’s current proposal caps itemized deductions at $200,000 for married couples or $100,000 for individuals. Trump is also planning on consolidating the standard deduction and exemption to one single large deduction of $15,000 for individuals and $30,000 for married couples.


In comparison, the House GOP plan would keep the mortgage, charity, retirement, and education savings deductions, but practically eliminate all other deductions. The plan is in line with Ryan’s goal to simplify the tax code and allow filers to file their tax return on a postcard. Like Trump, the House GOP plan is proposing to consolidate the standard deduction and exemption to one single larger deduction. In this case, $12,000 for individuals, $18,000 for individuals with a child, and $24,000 for married couples.


Both plans would repeal the alternative minimum tax, which would also dramatically simplify tax filings for many high-income earners.


Feasibility of Reform

To reiterate my statement earlier, we believe there is a high likelihood of some type of tax reform that will pass in 2017. One problem with Trump’s proposal is it is projected to substantially increase the deficit, even with “dynamic scoring.” However, Trump’s proposal lowers the amount of marginal rates from seven to three, but it keeps most deductions and exemptions. It even adds deductions like childcare tax credit, all while adjusting the cap on deductions. It is a fair argument when critics point out that Trump’s plan does not truly simplify personal income tax. On the flipside, the House GOP plan proposes to remove the vast majority of deductions and exemptions and allow filers to file their taxes on a postcard. This could dramatically reform and simply the tax code. The House Republicans’ goal is to keep tax reforms revenue neutral. Of course, there is a lot up in the air about how the two proposals will come together.


In future posts, we will update you as tax reform progresses and keep you in the loop about what tax planning strategies are worth considering.  


Willis Johnson & Associates is a registered investment advisor. Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed. This material is intended for informational purposes only and should not be construed or acted upon as individualized investment advice. Willis Johnson & Associates nor its investment advisor registered representatives, offer tax or legal advice. Federal tax laws are complex and subject to change. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice. This material may contain forward looking statements and projections. There are no guarantees that these outcomes will come to pass.



Nick Johnson, CFA®, CFP®


Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.


As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


Market Update: Annual Market Review 2016

January 9, 2017

Annual Market Review for 2016

Market Update 2016Overview

The year 2016 likely will be remembered for the election of Donald Trump as the 45th president of the United States and the Brexit vote. This year also saw the Fed raise interest rates for the first time since last December, noting that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since midyear. While inflation remains below the Fed’s target of 2.0%, the Committee expects inflation to rise to its target level over the medium term on the heels of anticipated improvements in energy and import prices and continued labor strengthening. Equities began the year hitting the skids as receding oil prices and a plummeting Chinese stock market pushed stock prices down and bond prices up. By midyear, equities had recovered, despite Great Britain’s decision to exit the European Union. Following the results of the presidential election, stocks surged to new highs. Whether this trend continues in 2017 remains to be seen following President-elect Trump’s first few months in office.


Click for the Full Update.

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