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Financial Planning > Tax Planning

Personal Financial Satisfaction Hits 24-Year High: AICPA

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The American Society of CPAs reported Thursday that its index of Americans’ personal financial satisfaction reached its highest level since the measure was introduced 24 years ago.

Stock market gains and a decline in underemployment overcame rising inflation to push the PFSi to 26.9, up 1.2 points from the record-setting third quarter, according to the report. The index has now advanced for seven consecutive quarters.

The PFSi is calculated as the Personal Financial Pleasure Index minus the Personal Financial Pain Index, with readings above zero indicating that Americans are feeling more financial pleasure than pain. 

The fourth quarter increase was due to a 1.3-point gain in the pleasure index that outweighed a 0.1-point increase in the pain index.

“Americans should continue to reassess their personal risk tolerance, and work with their financial advisors to determine how best to approach investment decisions in 2018,” David Cherill, a member of the AICPA personal financial planning executive committee, said in a statement.

A recent study showed that U.S. consumers who work with a financial advisor are more confident in their financial future as a result of the relationship.

“Many of my clients have more confidence than ever in the market, while others are scared to death and have already taken considerable gains off the table,” Cherill said. “The potential for volatility remains, but this market has thus far been immune to many of the factors that have resulted in large swings in the past.”

Goldman Sachs’ chief U.S. equity strategist recently predicted that the bull market would run another three years.

Pleasure Index Record

The pleasure index, which comprises four equally weighted factors, each of which measures the growth of assets and opportunities, rose 1.3 points to 69.2 in the fourth quarter, a new record.

The component PFS 750 Market Index, at 88, continued to be the biggest contributor to the pleasure index, a trend that began in 2009, according to the report. The index consists of the 750 largest companies by market capitalization trading on the U.S. market. It rose 5.2% over the third quarter, and was 15.7% ahead of the 2016 fourth quarter.

The strongest market performers in the October-to-December quarter were the consumer discretionary sector, which gained just over 11%, followed closely by technology, which advanced almost 10%.

The report noted that technology was the market’s big story in 2017, the sector as a whole rising by 34%. In addition, Amazon, Apple and Netflix, all of which were influenced by their use of tech, each gained more than 50%.

Of the other three factors that make up the pleasure index, job openings per capita, at 68, declined by 3%, while the real home equity per capita, at 66, and the AICPA CPA Outlook Index, at 55, both increased slightly.

Pain Index Edges Up

The fourth-quarter pain index, whose four equally weighted factors measure the erosion of assets and opportunities, was 12.1% lower than a year ago at 42.3, but 0.2% higher than the preceding quarter.

The slight increase in the pain index was largely due to a 14.1% increase in the inflation component, to 39, which overcame the combined declines of the three other factors that make up the pain index.

The underemployment component, at 36, fell by 8%, while the delinquency on loans component, at 39, was down by 1.9%.

Personal taxes, at 55 the leading contributing factor to financial pain, decreased by 0.9% from the previous quarter; it was up 1.5% from a year ago.

According to the report, this factor uses information from the Bureau of Labor Statistics on income tax, tax on realized net capital gains and taxes on personal property, among other statistics.

The current personal tax reading did not reflect the recently signed tax bill. Any effect from the new tax law would be seen in future quarters, the report said.

“The impact of the new tax law on individuals remains to be seen,” Lisa Featherngill, a member of the AICPA personal financial planning executive committee, said in the statement. “Americans should monitor their tax situation closely this year as the withholding tables are changing and could result in underwithholding of taxes.

“I suggest meeting with your CPA financial planner in the second quarter and fourth quarter of 2018 to ensure your financial plan is maximizing the opportunities under the new law.”

— Check out 5 Reasons New Tax Law Won’t Boost Stocks in Long Term: JPMorgan’s Kelly on ThinkAdvisor.


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