Without a doubt, 2020 was a difficult year for the stock market. In March 2020, the Dow sank by over 2,000 points, its worst index since the financial crisis of 2008. The S&P 500 shrunk by over 7%. The oil prices plummeted. And even though the Coronavirus Crash ended in April following the 65% surge of the S&P 500, many investors are still unsure whether the stock market will continue to grow at such a fast rate. How will the stock market recovery change the landscape of charitable giving? Here at Overflow, we studied the stock-market forecast for 2021 to investigate whether stock donations can become the hottest trend in the fundraising world and what this will mean for charities and nonprofits.
- In 2021, the S&P 500 index is expected to increase by at least 6%.
- The rise of the stock market will lead to investors paying more capital gains taxes on their appreciated securities.
- Since donating stock is one of the few ways to avoid capital gains tax, charities and nonprofits will receive even more stock donations, as investors will be looking to donate their appreciated stock shares to offset their gains.
What will happen to the stock market in 2021?
According to Wall Street experts, 2021 will be a great year for the stock market. Many investors are hoping that the vaccine rollout coupled with generous stimulus packages will help stabilize the world economy, encourage the opening of borders, and accelerate economic recovery.
Analysts at Goldman Sachs believe that the S&P 500 index will by over 15% due to increased corporate profits and a low-interest rate, highly favorable for the US corporations. The experts at Morgan Stanley and Wells Fargo are less optimistic in their claims: they believe that the S&P will only rise by around 6% — however, this is still a great upward trend for the stock market considering the tumultuous year caused by the COVID-19 pandemic.
The overall earnings of the S&P 500 companies are expected to grow by about 23% in 2021 compared with 2020. The oil prices are estimated to increase as well: the countries all around the world will begin to rebound from COVID-19 leading to the oil demand to rise. 2021 is also likely to be as some traders and analysts believe that Bitcoin could potentially hit a high of $318,000 by December 2021.
So, what does the rise of the stock market mean for donors?
What is the number one downside of appreciated stock shares and securities?
Capital gains taxes that can cut your investment income by as much as 37%.
If some of these predictions are true, at the end of this year, many investors will have to rebalance their stock portfolios to offset their capital gains.
There are two main ways to do this. To realize their losses, investors can sell their assets at a loss — however, if the said stock shares increase in value later on, investors will be missing out on potential growth stocks by selling them in order to decrease their capital gains.
This is why the best way to offset one's capital gains is to donate stock to a charity of their choosing. When investors donate appreciated stock to charity, they will avoid paying the capital gains tax and receive a tax deduction for the fair market value of the shares.
What will growing stocks mean for charitable giving?
Donating stock to charity is becoming the new normal of the philanthropy world.
Since donating stock is one of the few ways to avoid capital gains tax, 2021 will bring even more stock donations to charities and nonprofits, as more investors will be looking to offset their capital gains.
Around 80% of all U.S. donors own appreciated stock or securities, which makes stock donations a lucrative opportunity for charities to maximize their fundraising potential. However, even though more than half of Americans now own stock, over 1 million charities and nonprofits in the US still can't access non-cash donations, such as appreciated stock.
How can Overflow help?
Overflow is a frictionless solution to help charities accept online donations of publicly-traded stock. Our platform has automated the transfer of shares to help your nonprofit organization directly accept stock donations. When your donors donate stock through Overflow, all they need to do is to visit your nonprofit's donate page, connect to their brokerage account and select the shares they want to give. Overflow will take care of the rest!
Our onboarding process is easy. To accept your nonprofit's first online stock donation, all you need is to add a 2-lines of code to your nonprofit's website!
Book a meeting with us to maximize your year-end giving appeal today!
*The information provided on this website does not constitute professional tax advice; instead, all information and materials available on this site are for general informational purposes only.