Happy New Year! I hope everyone had a great end of the year and are geared up for a new decade! Every year I like to reflect on the past to appreciate where I am and gain clarity on what I want for the year ahead. This past year for us has been very similar to the markets: few bumpy roads but a consistent push forward.
Coming off an awful 2018 quarter 4 decline in the market, US domestic indices came back quickly in Q1 2019. We had spoken about the irrational decline in the market at the end of 2018 and the rebound showed us that staying the course was the right move. Stock market fundamentals have improved significantly over the past year. We’ve received clarity on the biggest market uncertainties: U.S.-China trade relations, the Federal Reserve (Fed) pivoting from rate hikes to rate cuts, and the United Kingdom’s exit from the European Union (Brexit). We’ve also seen a leadership transition at the European Central Bank and more production cuts by Saudi Arabia-led OPEC to help stabilize oil prices. These actions plus reduced trade tensions in other key international economies could be viewed as evidence that economic growth outside the United States has stabilized and may even be starting to pick up a bit, although it is not assured.
Our shift toward some defensive positions have helped, as well as keeping an eye on the market for value opportunities.
Retirement and How Things Have Changed in 2019:
December of 2019 brough us the official passing of a bill named The Secure Act. This bill has changed the retirement rules a bit. Key takeaways from the act are:
- Repeals the maximum age for traditional IRA contributions, which is currently 70½.
- Increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).
- Allows long-term, part-time workers to participate in 401(k) plans.
- Offers more options for lifetime income strategies.
- Permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.
- Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.
The biggest change of all – loss of the Stretch IRA. What does that mean? In the past, if you died with money in your retirement account and left that money to your children, they would have the option to take the required minimum distributions over a lifetime, exhaust the account in 5 years, or take it out in one lump sum (paying taxes when every dollar comes out). Now, if you pass away 2020 or later, your children will have to take over 10 years, which is a major tax issue for a lot of families.
What should we do to plan that our family’s get more money than the IRS? We have discussed tax planning all along and now my argument is even stronger. We are in the lowest tax brackets in history, so planning the way we have been planning is proving to be the right course of action. Working the tax environment at any point in time to our benefit, and planning for what we deem may happen, will keep us ahead of the curve the whole way!
Investors have priced in a lot of this good news, and it’s possible that some potential 2020 gains have been pulled forward into late 2019. Stocks may need to be repriced over the next several months as investors wait for the economy and corporations to deliver against pricing, and that wait could be uncomfortable at times. Corporate earnings growth will likely be the driver of stock market gains, but that still may depend on more progress in trade negotiations. Negotiations on “phase two” of the U.S.-China trade talks could become bumpy, and that could lead to additional turbulence in the stock markets. Inflation could also pick up and trigger renewed fears of Fed rate hikes, although a slight increase in inflation is a sign of a healthy economy. Fallout from the impeachment, international economic data in decline, and the potential for a highly charged U.S. election also could lead to increased market uncertainty this year. We will continue to look for value as we invest your money into 2020. Most importantly, we will follow the plan we have put in place to invest the money according to the timing of your need for that money.
We are constantly monitoring market conditions so that we remain good stewards of your money. Although there may be volatility in the short term, we need to continue to keep our eye on the future. Timing the market is an impossible task. The best of the best have failed. There are two things we can do to take advantage of changing markets:
1.) Monthly contributions
2.) The “time” component of our investment philosophy.
Contributions on a monthly basis allow us to deploy cash to buy in down markets. Having your Short, mid and long-term allocations set up will give you the comfort of knowing that the capita
l you may need in the short term will be minimally affected in the case of a downturn.
Planning for 2020:
Tax Season – As your tax forms start coming in, keep a folder to retain all the needed information for you accountant. Start gearing up early, and don’t push it of until April. If you need help with your taxes, please let us know so we can guide you toward the best solutions for you and your situation. While you are collecting mail – keep an eye out of all your insurance documentation that will be coming in as well.
Which leads me to the next topic for Q1,
Insurance - Every year, insurance policies change, as do your family’s needs for asset protection. If you are like me, you are constantly receiving mail regarding your homeowners, auto, life insurance, disability, business insurance, etc. There are 2 components that we need to be aware of: Are we sufficiently protecting our assets and are we getting the best service/price for that protection? More often then not, people just pay the insurance bill and don’t revisit their coverage, policy changes, and how changes of life should evolve with a lot of your policies.
Although we do not sell policies, we can help with the advising. We also have partners in the field that can help do the legwork to find the best coverage options.
We had a few successful mortgage refinancing stories from last quarter to help people save money. Let’s build the momentum with insurances as well.
Robert J Mascia, CFBS
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