DIGEST - Wealth Planning Strategies for 2021 CONFIDENCE, RESILIENCE AND CONTROL - Baird
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DIGEST
NEWS AND PERSPECTIVE FOR
GROWING AND PRESERVING YOUR WEALTH
WINTER 2021
Wealth Planning
Strategies for 2021
CONFIDENCE, RESILIENCE
AND CONTROL
Letter From Mike Schroeder
IN THIS ISSUE...
A year ago, none of us had heard a commitment to staying in touch, 1 MARKET MAILBAG
we’ve been able to maintain the
the phrase “social distancing,” personal touch that Baird’s PWM 2 WOMEN AT BAIRD
but now it’s become a normal clients have come to appreciate.
part of our lives. Anything we can do to keep the
4 COVER STORY
dialogue flowing is beneficial for
For those of us who pride ourselves STRATEGAS’
both of us.
on personal service, social distancing ECONOMIC
has forced us to be creative in the Now we’re taking this even further. OUTLOOK FOR 2021
ways we interact with our clients. The cover story for this issue of
Digest was derived from retirement 7 WHAT YOU NEED
Baird’s Financial Advisors have
questions that clients have been TO KNOW ABOUT
been more than up to the task. TAX AND ESTATE
asking us in the tumult of the recent
Through the use of careful safety PLANNING CHANGES
months. If there are questions
procedures, video conferences, and FOR 2021
you’d like to see Baird’s wealth
management experts answer, post
them on Twitter with the hashtag 8 PLANNING
#BairdDigest. We’ll try to answer CALENDAR
your questions here in Digest or at
bairdwealth.com.
For the past century, Baird has
remained strong for our clients by
keeping their interests first – always.
The current environment has made
it important for us to reinforce that
commitment to you, no matter how
socially distanced we are.
Want More?
Additional information
is available at
MIKE SCHROEDER bairddigest.com,
PRESIDENT or contact a Baird
PRIVATE WEALTH MANAGEMENT
Financial Advisor at
800-79-BAIRD.
WEALTH STRATEGIES
Market Mailbag
YOU’VE ASKED, WE’VE ANSWERED. BAIRD’S MARKET
EXPERTS WEIGH IN ON CLIENTS’ QUESTIONS.
New message
To: Baird
Subject: Stimulus
New message
Do you expect runaway inflation due to government
stimulus?
To: Baird
Subject: 2020 Economy
Probably not near-term. The Fed’s own research has
found fiscal spending has little effect on inflation,1
Why didn’t financial professionals predict the 2020
and though prices may spike when pent-up demand is
economic upheaval?
unleashed post-vaccine, short-term price volatility isn’t
inflation. Rather, inflation occurs when prices on the
whole basket of goods and services are perpetually rising. If there’s one thing I want you to remember about
One-time cash injections (e.g., stimulus checks) aren’t investing, it’s this: The only certainty you’ll have is
likely to create an inflationary trend. uncertainty. If someone tells you they can predict the
And while aggressive monetary easing needs an exit future, you should run away, quickly.
strategy at some point, that’s likely years away given the No, no one predicted what would happen to the stock
economic damage done. This is particularly true in labor market in 2020, just like they didn’t predict previous
markets, where high unemployment should limit wage selloffs. Are there people who claim the market is about
hikes that can lead to price inflation. Structural factors to sell off and then declare they were “right” when it
like technology / productivity improvements, aging does? Sure – but that’s called a guess, and they are
demographics and globalization can also rein in inflation. wrong 99% of the time.
Let me tell you a secret: You don’t have to know the
Ross Mayfield
Investment Strategy Analyst
future to be a good investor. You just have to wield
your most powerful advantage – patience. Your edge is
surviving the unpredictable scary moments so you can
grow your wealth over the long run.
Mike Antonelli
Market Strategist
••
Send A •
••
Send A •
For more responses to actual client questions, check out
our mailbag features on bairdwealth.com/insights.
bairddigest.com 1
Federal Reserve Bank of St. Louis: How Does Government Spending Affect Inflation?
1
W OMEN’S WEALTH
Women at Baird
OUR STORY IS YOUR STORY
For more than 100 years, we’ve focused on getting to know each of our clients
personally so we can help them make smart, informed financial decisions.
With that guidance comes an firm, women have been integral That’s why we’ve launched
understanding that women often to the success of our clients womenatbaird.com, with sage
face different challenges and have and the growth of our business. financial advice focused on
different priorities than their male With diverse perspectives and women, profiles of women who
counterparts. experiences and a personal have built strong careers with
commitment to your best interests, Baird, and stories about some of
Whether they are Financial all of us at Baird are dedicated to the community organizations
Advisors serving individuals and helping you achieve success in all our associates support. Some
families or executives leading the areas of your life. highlights include:
Kathy Carey, Baird’s PWM Director Planning for Your Future A Passion for Giving Back
of Research and Planning, discusses Baird is proud to honor Kim Haws
Whether you’re paying off student
Baird’s approach to wealth Falasco, Baird Private Wealth
loans, saving for retirement or just
management. Management Director and Branch
thinking about what you want from
life, planning is essential – and it Manager for the Haws Falasco
begins with making sure your Group, with our 2020 Rupple
money is working for you today. Citizenship Award.
Preparing for the Unexpected
Planning ahead is important, but Our commitment to addressing
the greatest value a Financial gender issues and promoting Baird’s Associate Resource Groups
Advisor can offer is peace of mind inclusion for all our associates support women in our business
when the markets aren’t doing well are among the reasons Baird is and in our communities.
and life isn’t going according to recognized as one of the 2020
your plans. Be prepared with the Best Workplaces for Women™ by
right financial partner. Fortune®.
2 DIGEST | WINTER 2021
Building a Future at Baird
ONE WOMAN’S STORY
For decades, women have been building rewarding careers at Baird, with no
limits on their ability to advance in the organization. Katie Jackson, an Associate
Branch Manager in Milwaukee, talks about her career at Baird, the advice she
got from Mike Ditka, and the time she shared a stage with Willie Nelson.
WHY DID YOU CHOOSE A CAREER
IN FINANCIAL SERVICES?
The financial services industry
combines the opportunity to
connect with people on the
most human, emotional level and
make a difference in their lives
by helping them maximize their
impact and legacy. By providing
the best financial advice, service
and solutions, our teams deliver
meaning beyond money.
WHAT IS YOUR FAVORITE PART OF
YOUR JOB?
Every day, I get to work with
From left: Victoria Ferguson, Katie Jackson, Kayji Arai
exceptional people, who work hard,
are kind and intelligent, and do the
right things for each other and for a lot: It is up to all of us to give the concert, and at one point, I got
our clients. I am challenged in the our best effort and strive toward onstage and Willie Nelson held me
right ways to connect with and excellence, every day. Every up, in the middle of the show. D
motivate people to give their best. moment is an opportunity.
WHAT’S THE BEST ADVICE YOU’VE TELL ME SOMETHING ABOUT YOU For more profiles, see womenatbaird.com
EVER GOTTEN? THAT HAS SURPRISED PEOPLE.
I once heard Mike Ditka say in his I grew up in Champaign, Illinois,
big, booming voice, “Shame on home of the original Farm Aid
you if you don’t use your God- Concert in 1985. I was just a
given talents.” I think about that toddler, but my dad worked at
bairddigest.com 3COVER STORY
A Year of Division
and Promise
STRATEGAS’ ECONOMIC OUTLOOK
FOR 2021
Many of us are happy to leave 2020 in the Intertwined with the pandemic, ECONOMIC OUTLOOK
politics affected nearly everything The economic impact of the
rearview mirror. Last year, the COVID-19 related to investing and the COVID-19 recession was severe
pandemic touched nearly every facet of our economy in 2020. Not only did in 2020, and the ramifications
the year feature one of the more will linger for years to come. As
lives, roiling societies across the globe, contentious elections in modern we reflect on the past year and
devastating economies, and challenging history, but Congress passed one the months ahead, we’ve found it
useful to key in on three themes
us in ways we have not experienced before. of the most important pieces of
by which to examine the state of
legislation in recent memory
(the CARES Act), which was both our economy:
historic in size and scope and
Growth Rates vs. Levels
will have ripple effects for years
Given the fast and dramatic
to come.
changes in economic activity this
What awaits us in 2021? Here’s year as the economy shut down
how we expect the economy and and reopened, the rates of change
the political scene to unfold in the for key data series have become
year ahead: warped. To get a better sense of
4 DIGEST | WINTER 2021the economy, we need to look inventory build-ups in times of reinforce these disinflationary and
at the actual levels for the data, expansion and drawdown in anti-growth forces. As the virus
particularly GDP, which broadly contractions. On occasion, this continues to challenge our society,
measures the country’s output. weakness spreads and generates these factors are likely to remain
In the second quarter, GDP fell at a financial crisis, like the spread the dominant players, even with
an annual pace of 31%, a record of the housing crash into a full- multiple vaccines imminent.
for any quarter since these figures blown economic crisis in 2008.
The longer run, however, paints
have been kept. But it went on to
This cycle was different because a much different picture. First,
rally 33% the very next quarter,
the weakness in the economy though there may be lingering
another record-setting number.
has been from the usually stable scars from the recession, the
However, though the growth rate services sector. Though this is vaccine rollout should return
recovered, the levels of nominal no surprise given the nature of us to pre-pandemic levels of
GDP were still well off pre- the pandemic and recession, it growth, bolstered by pent-up
pandemic figures. GDP declined by goes to show that we needed demand in service sectors and
$2.0 trillion in the second quarter, a medical solution to begin
continued policy boost from both
but rebounded to add only $1.7 economic healing. Now that
Congress and the Fed. Though
trillion in the third quarter. several highly effective vaccine
this would seem inflationary (and
candidates have us on a path to
The same can be said of many still may be over time), we think
widespread inoculation in 2021,
labor market data sets. Growth the inflation discussion remains a
we expect the services sector to
rates have been strong, but we little premature – we need to see
rebound strongly on the back of
need to continue on that pace for a strong recovery in labor markets
pent-up demand (particularly
several more months to return us first, where wage inflation may
from higher income households,
to pre-COVID trend (or better). This which felt less pain from the lead to some price inflation down
seems likely, as we are forecasting COVID-19 recession and also the road. That will be difficult with
strong GDP growth in both 2021 represent a higher percentage of unemployment still quite high
and 2022, based on pent-up discretionary spending). Because and the output gap so large.
demand and the progression of this cycle was unique, the recovery Additionally, the monetary policy
the vaccine rollout. will likely be as well. tailwind should, in theory, pull
Manufacturing vs. Services Short Run vs. Long Run back as the recovery strengthens.
This has been a unique recession. As with anything in investing, Monetary policy is meant to be
Business cycles are usually driven time horizon matters greatly. In symmetrical – easing now to
by volatility in goods sectors the short run, the pandemic has battle a recession should lead
(cars, home appliances, factory been deflationary, forcing prices to tightening later. Though the
equipment, etc.). These areas tend down as demand dried up. High Fed does not seem to be in any
to be more cyclical, featuring unemployment and falling output hurry to raise rates (and recently
bairddigest.com 5STRATEGAS’ ECONOMIC OUTLOOK FOR 2021
Continued from page 5
changed their mandate with Narrow Majority Will Limit Policy seats in January’s Georgia special
regards to inflation), an exit ramp Options election boosts the odds of some
is still required. Though these are Though Joe Biden won the near-term spending initiatives,
longer-term concerns, we must election, the Blue Wave did particularly on coronavirus relief,
manage for both the short- and not materialize in the way that additional income support, and
long-term time horizons. polling had suggested it might, infrastructure. The Democrats’
POLITICAL OUTLOOK limiting the gains for Democrats majority in the Senate also
Economic Volatility Begets in the House and Senate races. increases the probability of
Political Volatility In fact, Democrats lost 12 seats some tax changes to individual
One theme we’ve noticed since in the House and will hold their and corporate income, though
the financial crisis began is that smallest House majority over that’s likely not to be debated until
economic volatility tends to the past 140 years. Similarly, the later this year. We further expect
lead to political volatility. With Democrats to push for new health
Democrats will hold their smallest
an uneven recovery following care legislation later in 2021 and
Senate majority with a new
2008’s financial crisis, the U.S. is into 2022.
Democratic president since 1884.
experiencing the most political Currently, the Senate is divided With legislation restricted to
volatility we can find over the past
50-50 between Republicans and largely fiscal policy issues, we
100 years. November’s election
Democrats with Vice President expect President Biden to lean
marked the eighth federal election
Harris breaking any tie, giving more heavily on areas where
since that financial crisis began
Democrats the slimmest of executive authority can be
unfolding, and voters have now
majorities. The 2020 election wielded – trade and tariff policy,
removed the party in power in
continues the trend since the climate change, global relations,
seven of those eight elections.
2000 election of a narrowly and geopolitics, to name a few.
This instability has led to more
contentious rhetoric and more divided country that swings Overall, the introduction of
bifurcated party platforms. slightly center left or center right the coronavirus vaccine is
Heading into the 2020s, this depending on the dynamics of exactly the shot in the arm our
theme should remain dominant. the current election. economy needed and limits the
The recovery from the COVID-19 need for the most aggressive
This outcome will limit the actions
recession has been choppy, with Congressional actions in 2021.
some sectors recovering quickly that President Biden can take on
With the acknowledgment that
and others still in the depths of a key policy initiatives, particularly
the economy is still suffering
recession. Should the COVID-19 since there does not seem to
from serious problems that will
recession amplify the trend of be much appetite to eliminate
take a long time to heal, we are
economic inequality across the the filibuster in the Senate.
optimistic about the prospects for
country, we expect political However, the Democrats do
2021 - and beyond. D
volatility to persist. hold a majority and winning two
6 DIGEST | WINTER 2021WEALTH STRATEGIES
What You Need to Know
About Tax and Estate
Planning Changes for 2021
A LEGISLATIVE OUTLOOK
The results of the 2020 elections have left the federal government in the hands
of the Democratic Party, albeit by very slim margins. That means Americans
should expect some of the Democrats’ core financial proposals to be enacted,
but the party’s more ambitious plans will likely be tabled for the time being.
Given what new president Joe 39.6% for taxpayers with total Limits to Itemized Deductions:
Biden and Democratic congressional income of more than $1 million. Biden has proposed a 28% cap on
leaders have proposed, here are In other words, the capital gains for itemized deductions and to restore
some changes you might expect these taxpayers would be treated the Pease limitation on itemized
in 2021 that could affect your tax as ordinary income. deductions for taxpayers with
and estate planning: taxable income over $400,000.
Payroll Taxes: FICA or Social
TAX PLANNING Security taxes are levied on the Expiring Tax Deductions: There
Income Tax Rates: There are now first $142,800 of an employee’s are also over 30 tax provisions
seven tax brackets: 10, 12, 22, 24, 32, wages, and any additional that automatically expired at the
35, and 37 percent. The Democrats income is not subject to Social end of 2020, such as the tuition
have proposed increasing the top Securit y taxes. Biden has and fees deduction, the mortgage
marginal bracket to 39.6 percent proposed levying additional insurance premium deduction,
for taxpayers earning more than payroll taxes on earnings of more the exclusion for mortgage debt
$400,000 per year. than $400,000, thus creating a forgiveness, and other deductions
Capital Gains and Dividends: “donut hole” between $142,800 and credits. These are generally
Democrats have proposed to and $400,000, where that income expected to be rubber-stamped
increase the top capital rate for would not be subject to Social into renewal by Congress, but they
individuals, currently at 20%, to Security taxes. are worth keeping an eye on.
bairddigest.com 7Planning Calendar WHAT YOU NEED TO KNOW ABOUT TAX AND
ESTATE PLANNING CHANGES FOR 2021
Continued from page 7
JANUARY 1 – MARCH 31
General enrollment period for Medicare for those
who missed their initial enrollment period
Your Move: Keep in mind that tax Business Transfer Regulations:
FEBRUARY 15 hikes can be made retroactive to the The Obama administration had
first of the year. With those increases proposed several regulations that
The New York Stock Exchange is closed in in the offing, consider converting a would have restricted the ability
observance of Presidents Day. traditional IRA to a Roth. Paying the to take valuation discounts on
taxes now may be more beneficial intrafamily transfers of business
than having the IRA be subject to interests, such as a discount for
FEBRUARY 16 income taxes later. lack of marketability. This would
increase the tax burden for
The first wave of 1099s will be issued by Baird for those ESTATE PLANNING
family businesses in the midst
accounts holding individual equities, bonds or mutual Estate Tax Rates: Biden’s plan of a succession plan. The Trump
funds whose final tax information has been provided. would reduce the gift and estate administration withdrew these
tax exemption to $3.5 million from proposed regulations, but a Biden
the current $11.58 million level. This administration may be interested
MARCH 1 limit applies to generation-skipping in bringing them back to life.
trusts (GST) as well, so if you have
The second wave of 1099s will be issued by Baird included one of those as part of Your Move: Wherever you are
for accounts holding mutual funds, ETFs and REITs your estate planning, you should in your estate planning, it’s not
whose final tax information was provided after the consult with your estate attorney on too early to consider whether
previous update. how to proceed. In addition, Biden the reduction in the estate tax
has proposed increasing the top tax exemption will affect you in the
rate from 40% to 45% for estate, gift long term. If you’re worried that
MARCH 15 a change in step-up basis might
and GST taxes.
result in a sizable tax bill for your
The final wave of 1099s will be issued by Baird for the Step-Up Basis: Biden has also heirs, talk to your Baird Financial
remaining accounts holding mutual funds, as well as proposed eliminating the step- Advisor team about ways to get
for any accounts holding REMICs or WHMTs. up basis at the taxpayer’s date in front of that.
of death, which values assets at
the time they get passed on to All of these items remain just
APRIL 2 proposals, but there is generally
the heirs rather than at the time
the decedent acquired them. a flurry of activity when control of
The New York Stock Exchange is closed in observance
Under current law, the tax basis the government switches parties.
of Good Friday.
of property transferred to an heir All of these could take effect in
is its current market value, and if 2021, alongside even further
the heir sells the asset, any gain legislation. To keep on top of how
APRIL 15
would be assessed on the new all this affects your tax and estate
2020 tax returns and 2021 first-quarter federal basis. The appreciation of the asset planning, reach out to your team
estimated tax payments are due. during the decedent’s lifetime goes of Baird Financial Advisors. D
Contributions to 2020 IRAs, Roth IRAs and Coverdell untaxed. If this rule is repealed, it
Education Savings Accounts are due. could leave some heirs owing
significant capital gains taxes on
inherited property.
8 DIGEST | WINTER 2021Doing Well by Doing Good At Baird, our commitment to the communities we serve is what drives our business. Through our Public Finance division, Baird supports charter schools in 20 different states, providing financing or refinancing for much-needed capital expenditure projects at more than 100 schools. Since 2009, Baird has been the No.1 underwriter of charter school financings nationwide, according to Refinitiv. For more on how Baird makes a difference, see bairddifference.com
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DIGEST
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security. The opinions expressed here reflect our judgment at this date and are subject to change. Information in Digest has been obtained Want More?
from sources we consider to be reliable, but we cannot guarantee its accuracy. All investments carry some level of risk, including loss of
principal. Past performance is not a guarantee of future results. Additional information is
©2021 Robert W. Baird & Co. Incorporated. 777 East Wisconsin Avenue, Milwaukee, WI 53202. 800-79-BAIRD. rwbaird.com. Member New available at bairddigest.com,
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or contact a Baird Financial
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