THE MARKETS

Halfway through 2019 and both equity and bond markets have delivered outsized returns. As illustrated in the chart below based on data gathered by Raymond James, US stocks continue to lead, followed by international stocks. In fixed income, bonds – as measured by the Barclays Agg Index – posted their best quarter since 3Q of 2011 (up 3.1%)* which was due to a general decline in interest rates (the price of bonds increase as rates fall).

 

While we regularly review portfolios and check-in with Clients, this month I am reviewing our current list of investments and mutual fund/etf managers to determine their relative performance and overall success. Doing so on a regular basis allows us to continue working with those who are performing while placing other managers on watch lists, or if appropriate, removing them from portfolios altogether.

*Source: Raymond James Quarterly Market Review Q2 2019

 

THE ECONOMY

Hard to believe that the 2020 Election season is already underway with more than 20 candidates jockeying for the democratic ticket. With election season comes questions about the impact on the markets and the economy. It seems reasonable to assume that, given the potential for a change in the White House, investors might be better off waiting until post-election night to make changes to their investment strategy. I’ve heard the following statement countless times in my career: “I think I’ll pull some funds out and sit tight until after the election.” History tells us that when it comes to market returns, it really doesn’t matter who is in the White House.

What does seem to matter is that our capitalist market system continues to work – meaning – companies continue to build widgets and provide services for consumers to consume. And with interest rates at these historically low levels, it’s hard to believe that businesses could struggle to create new technologies or build new factories, buildings, etc. It’s also hard to fathom that current rates are preventing folks from buying homes or cars or other goods. At last check, unemployment is at 3.6% – the lowest level since 1969*, inflation is tame, and wage growth is starting to increase. Despite this, many of the smart minds in finance anticipate the Federal Reserve will cut rates in the near future – a tool they could use to try to maintain and even possibly increase growth. Only time will tell, but it seems to me that a recession, while certainly possible, isn’t imminent.

*Source: Raymond James Quarterly Market Review Q2 2019

 

FINANCIAL PLANNING

With summer comes the middle of the year, and a great opportunity to look back on your multiple to-do lists to track your progress. Our team at Raymond James recently published a few timely ideas for you to consider during the summer as we turn toward the second half of 2019:

Planning To-Do’s

Conduct a midyear checkup: Look back on your to-do list progress, make sure your retirement plan is on track, determine if your emergency fund is adequate, and establish a regular savings plan you can stick to each month.

Register with SSA.gov: Check your earnings history for accuracy and review your expected benefits. If you’re close to retirement age, discuss with your advisor when and how you should file to maximize your benefits.

Update your estate plan: Check the beneficiaries of your IRAs, insurance policies, trusts and any other accounts, and update information that is no longer relevant. Ensure your plan protects you and your family in the case of an unexpected event.

Assess insurance needs: Periodically review and update coverage to help ensure proper protection.

Adjust as life changes: Speak with your advisor about major life changes you’ve experienced and how your financial plan could be affected. These changes include marriages, births, deaths, divorces, a sudden windfall and more.

Plan a family meeting: Use the opportunity to talk about “big” things, like your philanthropic legacy, as well as simpler things – like the menu for the next holiday dinner.

Never stop learning: Websites like EdX and Coursera offer free online classes in a range of topics.

 

 

The opinions expressed above are those of Jeff DeLarme and are subject to change. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past Performance is no guarantee of future results. This wealth briefing has been written for educational purposes and is not a solicitation to invest or buy securities and does not constitute investment advice. Any data included or referenced has been sourced from what are believed to be reliable sources, but should not be relied upon. There is no assurance any of the trends mentioned will continue or forecasts will occur. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. It is not possible to invest directly in an index. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2007 the MSCI ACWI consisted of 48 country indices comprising 23 developed and 25 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

THE MARKETS

With the first quarter of 2019 in the books, equity and fixed income markets have delivered one of their strongest starts in decades – a welcome start to the year given the way 2018 ended. So, what explains the strong start? A few thoughts: encouraging trade talks between China and the U.S., increased U.S. wage growth, positive corporate earnings, but perhaps most of all is the Federal Reserve’s cautious tone regarding future interest rate increases.

Many in the financial media sounded alarms that 2019 would be a dismal year, but for patient investors, the opposite has occurred thus far. US Stocks and Bonds are up nearly 14% and 3% respectively, according to data from Dimensional Fund Advisors (Source: DFA 1ST Quarter 2019 Review).  And with many portfolios having recovered from much of the 2018 year-end rout, this may be a good time to review your overall asset allocation to ensure it’s aligned to your goals.

This is also an opportune time to reevaluate which of your dollars should be in the market (and susceptible to market fluctuation), and which dollars should be set aside in low-risk, capital preservation vehicles.

Lastly, many investors are worried about the next recession and what that could mean for their portfolios. To that end, we continue to engage with industry experts and research analysts who have a pulse on the global economy. While we should expect volatility to occur at any time in the financial markets, for now, let’s enjoy one of the best first quarters in nearly 30 years.

 

THE ECONOMY

Some big economic news since our last writing as the Federal Reserve recently provided guidance that indicates they plan to hold rates steady between now and the remainder of the year.  This was a positive sign for the equity markets as it signals that the Fed does not want to stunt economic growth – which is what raising rates could likely do at this point. Important to note that while the Fed is not raising rates, they are not reducing rates either, which would typically signal concerns that the economy is in trouble. Instead, the Federal Reserve seems poised to hold rates where they are—what some economists refer to as the “Goldilocks” level.

In other positive news, wage growth for the period of February 2018 to February 2019 increased 3.4% according to data tracked by the U.S. Department of Labor. Accordingly, this represents the highest increase since 2009.

Also interesting to note is that one aspect of the yield curve has inverted (the 2 month treasury bill rate recently traded higher than 10 year treasury yield), drawing concerns that a recession could be imminent. However, research we’ve read indicates that we should be looking at the 2-year treasury vs. the 10-year treasury—which so far, has yet to invert. We’ll continue to keep an eye on the yield curve as it could foreshadow darker times ahead for the economy.

 

FINANCIAL PLANNING

If you’re like most investors, you’ve probably already filed your 2018 taxes. Hopefully you weathered the new tax reform changes with a positive outcome. Based on conversations we’ve had with our network of CPA professionals, many clients are feeling the impact of lower paycheck withholding rates, whereas other clients are benefiting from the higher standard deduction and the larger child tax credits and the new qualified business income deduction.

Regardless of your experience, now is a great time to review your portfolio for potential changes you can implement for the rest of 2019 so as to be well-positioned for a favorable tax year.

We’ve also noted a significant increase in the number of IRA to Roth IRA conversions and qualified charitable contributions. If you’re unsure of these strategies and want to learn more, please reach out to us for more information.

 

ADDITIONAL SPRING PLANNING INFORMATION

  • 2019 IRA/Roth IRA contribution limits have increased to $6,000 year ($7,000 if age 50 or older) and 401k limits have increased to $19,000 ($25,000 if over age 50)
  • Consider pulling your Credit Report and reviewing for accuracy
  • Review and update your estate plan. Also, review and update your various beneficiary designations – and don’t forget to check your life insurance policy beneficiaries as well
  • Plan your charitable giving for the rest of the year—and if you’re over the age of 70, consider if making these charitable contributions from your retirement account makes tax sense

 

Disclosures:  The opinions expressed above are those of Jeff DeLarme and are subject to change.  Investing involves risk. Past Performance is no guarantee of future results. This wealth briefing has been written for educational purposes and is not a solicitation to invest or buy securities and does not constitute investment advice. Any data included or referenced has been sourced from what are believed to be reliable sources, but should not be relied upon.

Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

THE MARKETS

With 2018 almost at a close, many investors are flat-out exhausted and frustrated with the results – or lack of results for that matter – delivered by the markets. And it’s easy to understand why as at this point in the year, many stock (equity) and bond (fixed income) indices are flat or negative. What’s more is that for the first time in many years, we’ve experienced multiple 10% corrections in the equity markets. On average, we tend to see just one of these 10% corrections per year, with the operative word being “average.”

There are many reasons for much of this volatility we’ve seen – the mid-term elections, the ongoing trade war with China, and perhaps most importantly, rising interest rates. As counterintuitive as it may seem, rising interest rates can negatively impact stock prices and bond prices at the same time. This is because when interest rates rise, bond prices fall. And stocks tend to fall when interest rates rise because investors seemingly have less incentive to take risk in stocks if other saving vehicles offer higher interest rates. The silver lining here is that rising rates typically means higher income generation within the fixed income portion of portfolios and higher yields on savings accounts.

So, what do we make of this volatile year and what can we do going forward? For one, we need to understand that most all markets tend to deliver negative returns on occasion. We would submit that these negative years are the price we pay for the positive years, which have historically occurred far more often than negative years do. Secondly, we need to be mindful of which markets we’re invested in and, consequently, exposed to. As an example, in most accounts, we’ve reduced the duration of our fixed income portfolios – favoring shorter-term bonds over longer-term bonds because quite frankly, we don’t see much value right now in long-term bonds. In line with our expectations, shorter-term bonds are slightly positive on the year, while longer-term bonds have lost nearly 6% this year. (Source: Morningsar Index Returns November 28, 2018).

With regard to stocks, we’ve tended to favor U.S. stocks over international companies, and as a result, we’ve largely been able to avoid the extended sell-off in international and emerging markets that has taken place this year. Looking ahead, we believe that quality international companies may now be more attractive given their recent declines.

We’ve also finally seen a pullback in technology stocks which we suspected might occur as noted in our July Wealth Briefing.  And with many market indices like the S&P 500 being heavily weighted towards technology companies, we’re not surprised to see some of these recent declines in the market. It’s also important to note over the last few weeks – and as we suggested could occur, value-oriented companies have begun to outperform relative to growth-oriented companies (Source: Morningstar Index Returns November 28, 2018). We’ll be watching closely to see if this rotation towards value-oriented companies continues.

Lastly, in a year like this we are reminded that investing may seem simple, but it’s typically not easy.

 

THE ECONOMY

The U.S. economy continues to appear very healthy with near full-employment, improving wage growth, tame inflation, and strong GDP figures.  The Federal Reserve Chair, Jerome Powell, recently announced that interest rates are near “neutral” and this was encouraging news for the market. We’ll continue to keep an eye on the Fed’s interest rate policy as it could certainly impact portfolios. As for where the economy is headed – it’s hard to say. If we had to venture a guess, we would anticipate continued positive growth, albeit at a slightly lower rate than in the recent past. Experience tells us that trees don’t grow to the sky forever and that we will eventually see some hiccups ahead.

 

YEAR-END PLANNING

Each year, around this time, we consult with our team of CPAs and Estate Attorneys to learn what steps investors can take to best position themselves for success. Here are some thoughts for you to consider and as always, be sure to discuss with your tax professional before implementing.

  • Consider any tax-loss harvesting opportunities within your portfolio
  • Review your payroll withholding rates with your employer to limit the potential for surprises come tax time
  • Review opportunities for charitable contributions as a way to give to causes you care about, while also potentially reducing your tax obligation. And if you’re over 70, ask about qualified charitable distributions.
  • Determine how much you are eligible to contribute to retirement accounts, and if possible, maximize those contributions
  • For business owners, review your retirement plan options and also consider pre-paying expenses for 2019
  • Consider possibly converting part of your pre-tax accounts to a Roth IRA

As always, we are here for you to answer questions, review your portfolio and your important goals, and work consultatively with your other professionals.

 

Disclosure: The S&P 500 index is owned by the Standard & Poors company and cannot be invested in directly. The Nasdaq Composite Index is owned by Nasdaq and cannot be invested in directly. The Dow Jones Industrial Average is owned by Dow Jones (News Corp) and cannot be invested in directly. The opinions expressed above are those of Jeff DeLarme and are subject to change.  Investing involves risk. Past Performance is no guarantee of future results. This wealth briefing has been written for educational purposes and is not a solicitation to invest or buy securities and does not constitute investment advice. Any data included or referenced has been sourced from what are believed to be reliable sources, but should not be relied upon.

The companies engaged in the technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence.

International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Which “market?”

People often talk to me about the market and what it’s doing – or in some cases – not doing. I regularly receive unsolicited comments such as: “the market is on fire” or “the market is way too high –  it’s about to crash” or “my friend told me to just buy an index fund that tracks the market.” When I hear these comments, I typically reply with, “which market are you referring to, exactly?” Here’s what I’m really asking – are we talking about the U.S. equity (stock) markets and if so, are we talking about Large U.S. equities, or Small U.S. equities? Value or Growth equities? Or perhaps global equities? My guess is that in most cases, people are referring to the U.S. equity markets – and they’re probably getting their information by looking at the S&P 500 Index, the Dow Jones Industrial Average Index, or the Nasdaq Composite Index. But the trouble with using these indices for purposes of evaluating the  “market” is that they often tell very different stories. Hopefully the table below will help explain what I mean:

Source: Morningstar, as of July 5, 2018

 

The table above highlights three of the more commonly referenced equity (stock) indices as well as the number of stocks included in the index, their respective year-to-date return, and interestingly, the amount that each index is allocated to technology stocks.

 

The first takeaway you’ll likely notice is the difference in returns across these three “markets.” Someone looking at the Dow might be disappointed with the market this year, while someone paying attention to the Nasdaq Composite would likely be pleased. But as you probably figured out on your own, one of the drivers behind the disparity of the above returns is the amount that each index is allocated to – or tracks – technology companies. It should be no surprise then that technology stocks in general have been performing well in 2018, as evidenced by the strong year-to-date return in the technology-heavy Nasdaq Composite Index.

 

The second takeaway is while the “market” may be hitting new highs – and yes that may be a scary time to invest money or stay invested  – there are likely segments of the market that are not hitting highs, and those segments may present attractive investment opportunities.

 

The following table shows that not all aspects of the “market” have performed the same for 2018:

Source: Morningstar, as of 7/5/2018

 

What this means for investors

I believe there are a few considerations that investors can take away from this information. The first is to consider if owning an investment that simply tracks an index – without concern for its underlying composition – is appropriate for their goals and risk tolerance. This form of investing, referred to as passive investing or index investing, has become very popular over the past few years, but I’m concerned that the potential downsides of this approach haven’t been discussed to the same extent as their purported benefits.

 

Another consideration is that investing in the “market” via a fund that tracks an index – such as the Nasdaq Composite referenced earlier – may actually result in a lack of diversification despite, being invested in thousands of stocks. Why? Because as illustrated in the table above, more than 40% of the index is invested in the technology sector alone. This may be great news while tech stocks are on the rise, but when they decline, it’ll be a different story.

 

In addition, looking at the “market” can often be misleading for investors. The reality is that many companies and sectors have actually performed quite poorly as of late, and in some cases may present attractive investment opportunities. But to someone who sees that the “market” just hit another high, they may feel that all prices are too rich (when, in reality, perhaps just one or two sectors appear to be overpriced). Instead, investors should consider evaluating their personal progress relative to a blended index better matched to their unique portfolio.

 

I’ll close by saying that I’m not looking to pick on technology companies, but rather to understand and call-out when any one industry or sector appears to be the dominant source of returns in an index – and therefore, a potential risk to investors.

 

So the next time someone says, “the market is really hot right now” or “the market is tanking” – you may pause to ask, “which market?”

 

 

The S&P 500 index is owned by the Standard & Poors company and cannot be invested in directly. The Nasdaq Composite Index is owned by Nasdaq and cannot be invested in directly. The Dow Jones Industrial Average is owned by Dow Jones (News Corp) and cannot be invested in directly. Investing involves risk. Past Performance is no guarantee of future results. This wealth briefing has been written for educational purposes and is not a solicitation to invest or buy securities and does not constitute investment advice.. Any data included or referenced has been sourced from what are believed to be reliable sources, but should not be relied upon.

MARKET MALAISE?

The first four months of the year are in the books, and the equity markets are mostly flat in terms of returns. What we have seen in this first trimester is the return of volatility, and our first 10% correction in well over a year. Understandably, many investors are wondering if the markets are primed to run up from here, fall, or zig and zag but stay relatively flat. History may be a useful guide here…according to the chart below, declines of 10% have historically been better buying opportunities than reasons to sell.

Average Annualized Returns after Market Decline of more than 10%

*Source: Dimensional Fund Advisors. Market decline of 10% is defined as a month in which cumulative return from peak is -10% or lower. Annualized compound returns are computed for the 1-, 3- and 5-year periods subsequent to a market decline of at least 10%. 1,093 observations for 1-year look-ahead. 1,069 observations for 3-year look-ahead, and 1,045 for 5-year look-ahead. 1-year, 3-year, and 5-year periods are overlapping periods. The bar chart shows the average returns for the 1-, 3-, and 5-year period following a market decline of at least 10%. January 1990–Present: S&P 500 Total Returns Index. S&P data © 2016 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926-December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. There is always a risk that an investor may lose money.

Rising rates

We continue to keep an eye on interest rates and the potential of an inverted yield curve, which research suggests may foreshadow a recession (see our March Wealth Briefing). So far, rates have increased in the short-term but also in the intermediate-term, with the 10-year U.S. Treasury Bond recently hitting 3.0% for the first time since January 2014. This is seemingly good news for fixed-income investors and savers who may notice higher rates on their bank and money-market accounts. For borrowers of student loans, cars, or home mortgages, rising rates may become a more prominent headwind. For now, we’ll keep rising rates in perspective as according to data compiled by Raymond James and Freddie Mac, the 30 year mortgage rate was just 4.62%, up from 4.10% a year ago, but still well below the long-term average of 8.16%. (Source- Raymond James, Freddie Mac, May 4, 2018.)

When the markets are volatile, and there seem to be more headlines supporting an imminent decline in the markets or economy, I think it’s important to remember that, as investors, we are often rewarded for our discipline, as highlighted below.

Markets have rewarded discipline

*Source: Dimensional Fund Advisors

 

Summer months

I’m excited to share that on May 7th, one of our clients – someone I’ve worked with since 2008 – turned 100 years young! Every time I visit with Thelma and her granddaughter, I’m reminded of why I’m in this business. I’m also reminded to save and invest for the long-haul because, if we’re lucky and prepared, you might be spending more years retired than you did working.

Later this month, I’ll be heading to Washington, D.C. for the Raymond James National Conference for Professional Development – an annual conference where many advisors from across the U.S. gather to share ideas, resources, and meet thought leaders in our industry. I’ll also be in New York for a 5-day workshop, preparing for Level 2 of the Chartered Financial Analyst exam. Michelle will be holding down the office, and I will be available via email or phone should you need to reach me while I’m away. In June and July, we’ll be reaching out to schedule annual reviews should you like to sit down and discuss your personal situation.

Thank you for reading these Wealth Briefings. I hope you find them to be insightful, informative, and….brief. Michelle and I are here for you with any questions you may have about your portfolio, the progress toward your important financial goals, or anything else related to your finances.

We appreciate your trust, confidence, and friendship.

The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI World Index is designed to measure the equity market performance of developed markets. The 10-year Treasury Note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. Bank accounts offer FDIC insurance and a fixed rate of return whereas the return and principal value of investment securities fluctuate with changes in market conditions. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. No investment strategy can guarantee success.

TARIFFS

Recent headlines have focused much on the Trump administration’s decision to place tariffs on steel and aluminum imports into the United States. While only time will tell what the true impact will be, we thought we’d share our thoughts on how these new tariffs may impact the markets. But first, let’s review what a tariff is. A tariff is effectively a tax placed on imports into the United States. They serve a few purposes, including; to punish the exporting country, to protect U.S. based industry, and to generate tax revenue. So, what’s with this new tariff on steel and aluminum of 25% and 10%, respectively? Well, it’s a movie we’ve seen before – but this time with a different cast of characters. In 2002, President George W. Bush enacted the U.S. Steel Tariff of 2002 which he subsequently dropped in late 2003 due to fears of retaliatory action from the European Union. Later, in 2009, President Obama placed a 35% tariff on tires imported from China – but as a result, Americans ended up importing tires from countries other than China, resulting in higher prices for tires. We suspect that now, much as in 2002 and 2009, the current tariffs may negatively impact the economy but to a limited extent and not to the point of triggering a wide-reaching economic downturn. As we move forward, we will be keeping a close eye on the NAFTA negotiations – but an even closer eye on the reactions of our trade partners who are
impacted by the newly placed tariffs.

PREDICTING A RECESSION?

On March 5th, the Federal Reserve Bank of San Francisco published their economic outlook. In reading through the document, I was struck by something they observed and documented in their report: every U.S. recession over the past 60 years was preceded by an inverted yield curve. An inverted yield curve (chart 3), occurs when short-term interest rates are higher than longer-term rates. A year ago, the yield curve was upward sloping (chart 1), which is considered normal. Currently, the yield curve is flattening (chart 2) but it hasn’t yet inverted.

[need image]

Source: YCharts

So, will the yield curve invert in the near future? And if so, will it lead to the next recession? The answer is: maybe. It’s possible that the Federal Reserve may hold off on raising rates due to fears that the curve will flatten and ultimately invert. It’s also possible that long-term rates could tick higher and maintain the upward sloping shape that a normal curve exhibits. While we don’t have a crystal ball, we are preparing for this potential event by suggesting that investors reduce their exposure to longer term bond investments and instead, consider bonds with shorter-maturities. We also think this is an opportune time for investors to review the risk they’re exposed to across their entire portfolio. and consider rebalancing to an appropriate allocation. I’ll close this section with a saying I’ve heard countless times over my career in wealth management which hopefully underscores the need to stay on top of your portfolio allocation…. “if you don’t rebalance your account – the market will do it for you.”

TAXES

By now, you are likely in the midst of filing your taxes – or working with your tax professional to do so. Listed below are a few questions we recommend asking your CPA/tax professional as you wrap up your 2017 returns:

  • Am I eligible to contribute to a Traditional IRA, Roth IRA, or SEP IRA? If not, does it make sense to convert a part of my Traditional IRA to a Roth?
  • What else could I be doing to help mitigate the impact of taxes?
  • Do you recommend that I explore a Donor Advised Fund?
  • What impact do you see the new tax reform having on my taxes for 2018 and beyond?

We are here to talk if you have any questions or concerns. As always, thank you for your trust, confidence, and friendship.

Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. Contributions to a Donor Advised Fund are irrevocable. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Past performance may not be indicative of future results. Investing involves risk and investors may incur a profit or loss. No investment strategy can guarantee success.

THE MARKETS TAKE A BREATHER

For over a year, we’ve cautioned that the equity markets are due for a correction – the problem is that we just couldn’t tell you when that correction would occur. Well, this may be it. Despite a strong start to 2018, stock markets have pulled back recently based on fears of rising interest rates. The markets appear to be concerned that the Federal Reserve may raise interest rates multiple times over the coming year – a strategy similar to tapping the brakes on a speeding car. If the Federal Reserve does raise rates, the questions will be: by how much will they rise – and how frequently will they be raised? Bottom line – the market doesn’t like uncertainty, and as a result, uncertainty often leads to volatility. The good news is that volatility can lead to opportunity for investors to buy investments at lower prices. Also, higher interest rates typically translates to more interest on your savings accounts, money-market accounts, certificates of deposit (CDs), and other fixed-income investments.

So while it’s never enjoyable to watch the markets decline – we think it’s worth noting that that corrections are normal events, and they are part of long-term investing success. We would also point out that generally speaking, diversification appears to be helping as many quality fixed income investments have zigged when equities have zagged.

Lastly, let’s keep things in perspective: a rise or fall of 700 points in the Dow Jones Industrial Average today may seem like a big number – but it is a move of roughly 3%. Compare that to Fall of 2008, when a 700 point drop represented a 7% move in the market.

A FEW NOTES FOR TAX SEASON

We’ve spent a great deal of time reading about the new tax law – and we’ve been talking with our network of CPAs and tax professionals on the impact, nuances, and potential benefits it may have for investors. While I anticipate that new tax strategies will develop from the tax law changes, I thought the following items were worth sharing as you prepare to file:

  • 529 College Savings accounts can now be used for qualified expenses for K-12 education as opposed to higher education under the previous tax law
  • Home equity loan interest is no longer deductible, and new home mortgage interest is only deductible up to $750,000 of a mortgage
  • 60% of adjusted gross income is the new limit with regards to deductible, charitable contributions – up from 50%
  • The estate tax exemption has been increased to $11.2 million per person or $22.4 million per married couple

As in past years, we are available this tax season to collaborate and consult with your tax professional as you work to achieve all that is important to you.*

FINAL THOUGHTS

Please do not hesitate to contact us if you have any questions, concerns, or would like to review your portfolio and the progress toward your important financial goals. Also, we are available for you and those you care most about should a friend or family member want a second-opinion on their approach given the market environment we are in.

Thank you for your trust, confidence, and friendship.