There’s Still Time to Contribute to an IRA

If you haven’t already contributed to an IRA (Individual Retirement Account), there’s still time to do so.  Many people don’t know that the 2018 contribution deadline is actually the 15th of April.  However, if you do decide to contribute, you must designate the year you are contributing for.  Your tax preparer should be able to help you fill out the necessary forms.

For 2018, the maximum amount you can contribute is $5500 or $6500 if you’re over the age of 50.  This applies to both traditional and Roth IRAs. If you’re unsure whether to contribute or not, remember:

  • Contributions to traditional IRAs are often tax-deductible. While distributions from IRAs are taxed as income, your tax-rate after retirement could possibly be lower than it is now, lessening the
  • Contributions to a Roth IRA, on the other hand, are made with after-tax However, the advantage of a Roth IRA is that withdrawals are usually tax-free.
  • Whichever type you use, IRAs provide a great, tax-advantaged way to save for

If you have yet to set up an IRA for 2018, you can still do that. The deadline to establish an IRA is April 15th as well.  In other words, if you want to take advantage of the benefits an IRA has to offer, there’s still time to do so, either by contributing to an existing account or by establishing a new one.

If you have any questions about IRAs—whether it’s the right decision for you, how your IRA should be managed, or anything else—please give us a call at 301-294-7500. We would be happy to speak with you.

Market Commentary – March 25, 2019

Wonder what the Federal Reserve’s 40-yard dash time is?
On Wednesday, the Fed juked like an NFL running back and left investors wondering whether they should buy or sell. Heather Long of The Washington Post reported the U.S. central bank:

  1. Lowered its 2019 estimate for U.S. economic growth to 2.1 percent
  2. Announced its intention not to raise rates in 2019
  3. Indicated it will stop shrinking its balance sheet in September

Fed Chair Jerome Powell explained, “My colleagues and I have one overarching goal: to sustain the economic expansion with a strong job market and stable prices for the benefit of the American people. The U.S. economy is in a good place and we will continue to use our monetary policy tools to keep it there…We continue to expect that the American economy will grow at solid pace in 2019, although slower than the very strong pace of 2018.”

The Fed’s decision to adopt a looser monetary policy was informed by a variety of factors, including slower economic growth in the United States, China, and Europe, as well as unresolved policy issues like Brexit and ongoing trade negotiations.

Investors weren’t sure what to make of the Fed’s moves. Initially, major U.S. stock indices trended higher as investors celebrated the benefits of accommodative monetary policy. By the end of the week, though, many investors had changed their minds and fled to ‘safe haven’ investments, pushing long-term Treasury rates lower. Alexandra Scaggs of Barron’s reported:  “When short-term yields rise above long-term yields, it’s known as an inverted yield curve, which is seen even by central bankers as a sign that an economic contraction could be on the way…Benchmark 10-year Treasuries rallied Friday morning, driving their yields below those of the three-month U.S. Treasury.”

So, is recession imminent in the United States? It’s possible but unlikely. According to a source cited by Barron’s, the last six times the yield curve inverted for 10 days or longer, recession occurred within the next two years.

No matter how the economy and/or markets perform, it may not be a good idea to make sudden portfolio changes. If you’re feeling uncertain, give us a call. We can discuss changes you may want to make to your portfolio.

Scandinavia sweeps again. The 2019 United Nation’s World Happiness Report was published last week. The Finns remain the happiest people in the world. In fact, happiness in Finland has been trending higher since 2014.

People in Denmark and Norway also are happier than they were previously. The average score for the Danes increased by more than the average score for the Norwegians, so Denmark is now second and Norway third.

The report’s authors explained, “…the top countries tend to have high values for most of the key variables that have been found to support well-being: income, healthy life expectancy, social support, freedom, trust, and generosity.”

The 10 happiest countries in the world, according to the report, which aggregated data on 156 countries from Gallup World Polls, are:

  1. Finland (7.769)
  2. Denmark (7.600)
  3. Norway (7.554)
  4. Iceland (7.494)
  5. Netherlands (7.488)
  6. Switzerland (7.480)
  7. Sweden (7.343)
  8. New Zealand (7.307)
  9. Canada (7.278)
  10. Austria (7.246)

Since the report began, happiness has increased most dramatically in Benin (#102), Nicaragua (#45), Bulgaria (#97), Latvia (#53), and Togo (#139).

The United States came in at #19. Overall, happiness levels in the U.S. have declined by almost 0.5 since the report was first issued. The report stated:  “Several credible explanations have been posited to explain the decline in happiness among adult Americans, including declines in social capital and social support (Sachs, 2017) and increases in obesity and substance abuse (Sachs, 2018)…I suggest another, complementary explanation: that Americans are less happy due to fundamental shifts in how they spend their leisure time…the way adolescents socialize has fundamentally shifted, moving toward online activities and away from face-to-face social interaction.”

Weekly Focus – Think About It
“The human race has only one really effective weapon and that is laughter.”
–Mark Twain, American author

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Sources:
https://www.washingtonpost.com/business/2019/03/20/federal-reserve-cuts-growth-forecast-predicts-no-more-rate-hikes/?utm_term=.3ead92852b27
https://www.federalreserve.gov/newsevents.htm (Video timestamp 0:15 to 3:00 minutes)
https://finance.yahoo.com/quote/^DJI?p=^DJI&.tsrc=fin-srch (5-day chart or historical pricing)
https://finance.yahoo.com/quote/^IXIC?p=^IXIC (5-day chart or historical pricing)
https://finance.yahoo.com/quote/%5EGSPC?p=%5EGSPC (5-day chart or historical pricing)
https://www.barrons.com/articles/the-yield-curve-just-inverted-that-doesnt-mean-sell-stocks-51553267161?mod=hp_BRIEF&mod=article_inline (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-25-19_Barrons-The_Yield_Curve_Just_Inverterted-Thats_Not_as_Scary_as_You_Think-Footnote_6.pdf)
https://s3.amazonaws.com/happiness-report/2019/WHR19.pdf (Pages 22-27, 34-37, and 88-89)
https://www.goodreads.com/search?page=5&q=twain&search%5Bsource%5D=goodreads&search_type=quotes&tab=quotes

The 7 Rules of Investing

From someone who is considered one of the greatest investors of all time

During the past century, many of the world’s leading economists have studied the science – or art – of investing. A large number of investing systems, models, and theories have been created, most of them requiring a PhD to understand. But when it comes to learning how to invest, sometimes it’s best to turn to the people who actually do it for a living.

Case in point, take Peter Lynch.

From 1977 through 1990, Lynch ran one of the most successful mutual funds ever, posting an average annual return of 29%. Over his career, Lynch espoused many investing principles, but there are seven in particular that I think all investors should keep in mind.1 So without further ado, here are:

Peter Lynch’s 7 Rules of Investing
1. KNOW WHAT YOU OWN. Invest in companies, industries, and funds you understand well. What do they do? Who uses their goods or services? Is it a company you would want to do business with yourself?
2. PREDICTION IS FUTILE. No one can predict where the markets will go or what the economy will do, so don’t even try. Instead, focus on what you can control, like the types of companies or funds you invest in, how much you save, etc.
3. BEFORE YOU BUY, BE ABLE TO EXPLAIN. Before investing, can you explain to a family member what you’re buying and why? Can you describe how that company or fund works? If not, take your time and do more research.
4. AVOID LONG SHOTS. Investing isn’t gambling, either. While we have no control over the markets, we do have control over how much risk we take on. Your portfolio isn’t the place for speculation or bets. For that, head to Vegas.
5. BUY GOOD COMPANIES. Invest in companies that have proven management, a strong business model, and that sell things people actually use. Otherwise, you’re investing in companies you guess might prove popular…and that’s just another form of gambling.
6. LEARN FROM YOUR MISTAKES. Even the greatest investors sometimes get things wrong. When that happens, accept it humbly and try to determine how you can improve.
7. TAKE YOUR TIME. Investing isn’t a race. You have plenty of time to do your research and find outstanding companies to invest in. Follow the tortoise’s example, not the hare’s.

Ultimately, all investing comes with risk, and there is no strategy or rule that guarantees success. But there are solid “rules of thumb” you can follow to make smart, simple investment decisions. And best of all, you don’t need a PhD to understand them!

1 “The Greatest Investors: Peter Lynch” https://www.investopedia.com/university/greatest/peterlynch.asp

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Market Commentary – March 18, 2019

Stock and bond markets rallied.
Last week, major U.S. stock indices finished higher for the 10th time in 12 weeks. Bond markets moved higher, too, with the yield on 10-year Treasuries dropping just below 2.6 percent, reported Randall Forsyth of Barron’s. Yields on 10-year Treasuries haven’t been this low since January 2018.

The simultaneous rallies are curious because improving share prices are often an indication of a strong or strengthening economy. Improving bond prices tend to be a sign of weakening economic growth, reported Michael Santoli of CNBC.

Why are U.S. stock and bond markets telling different stories?
It may have something to do with investor uncertainty. A lot of important issues remain unsettled. The British government appears incapable of resolving Brexit issues, the United States and China have not yet reached a trade agreement, and recent economic reports have caused investors to take a hard look at the U.S. economy.

Barron’s pointed out investors appear to be hedging their bets by favoring in utilities and other stocks that have bond-like characteristics and participate in the stock market’s gains. An investment strategist cited by Barron’s explained:  “The strength in utilities reflects the attitude of investors who ‘don’t really buy the rally’…While they’re skittish, they still want to participate in the stock market rally but opt for its most conservative sector.”

We’ve seen this before with stocks and bonds, according to a financial strategist cited by Patti Domm of CNBC. “It’s a little bit of a funky correlation. We’ve had both things rallying, which is strange. This is what happened in 2017, when all asset classes did well. In 2018, nothing did well…I would suspect it goes away soon.”

Times like these illustrate the importance of having a well-diversified portfolio.

Gen Xers and millennials: what are your priorities? The 2018 Insights on Wealth and Worth survey provided some startling information about the priorities of high net worth (HNW) investors. More than one-half (54 percent) indicated long-term capital appreciation was a higher priority than income generation. The other 46 percent were looking for steady income.

Let’s look at the percentages by age group:

  • Millennials: 56 percent capital appreciation / 44 percent steady income
  • Gen X: 56 percent capital appreciation / 44 percent steady income
  • Baby Boomers: 56 percent capital appreciation / 44 percent steady income
  • Silent Generation: 46 percent capital appreciation / 54 percent steady income

Millennials (ages 21 to 37), Gen Xers (ages 38 to 53), and Baby Boomers (ages 54 to 72) prioritize steady long-term income to the same extent.

Older investors, who are near or are in retirement, tend to emphasize steady long-term income because they need to maintain their standard of living in retirement. However, one of the advantages of youth is these investors have the time and flexibility to take on higher levels of risk and recover from any market downturns. In other words, younger investors prioritize capital appreciation (i.e., growth) while older investors prioritize income.

It’s important for younger investors to consider their life goals and how their finances may support the pursuit of those goals.

Weekly Focus – Think About It
“There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.”
–John F. Kennedy, 35th President of the United States

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.barrons.com/articles/why-investors-are-rushing-into-stocks-that-act-like-bonds-51552700368?mod=hp_DAY_4
https://www.cnbc.com/2019/03/14/stock-investors-wonder-whether-the-bond-market-knows-something-they-dont.html
https://www.bls.gov/news.release/empsit.nr0.htm
https://www.barrons.com/articles/why-utility-stocks-are-worth-a-second-look-1531344310
https://www.cnbc.com/2019/02/06/bonds-and-stocks-going-up-together-could-be-signaling-market-at-an-inflection-point.html
https://ustrustaem.fs.ml.com/content/dam/ust/articles/pdf/insights-on-wealth-and-worth-2018/Detailed_Findings.pdf (Pages 3 and 39)
https://www.moneyunder30.com/asset-allocation-for-investors-under-thirty
https://www.brainyquote.com/quotes/john_f_kennedy_109216?src=t_risks

Are You Ready to Retire?

In the United States, we have a potential crisis on the horizon.  The majority of Americans are not financially prepared for their retirement.

Some future retirees are completely unprepared. The Employee Benefits Research Institute (EBRI)’s 2017 Retirement Confidence Survey found almost half (47 percent) of workers have less than $25,000 in personal investments and savings, and about one-quarter has less than $1,000.1

But many are better prepared. Slightly more than half of survey participants were actively saving for retirement. However, not many had taken other steps to prepare such as:1

  • Gauging monthly retirement income needs (38 percent)
  • Preparing a formal, written financial plan for retirement (11 percent)
  • Estimating Social Security benefits at a planned retirement age (38 percent)
  • Thinking about moving or downsizing (38 percent)
  • Determining expenses in retirement (34 percent)
  • Talking with a financial advisor about retirement planning (23 percent)

It is relatively unsurprising to learn people who are most confident about retiring have spoken with a professional financial advisor about retirement planning.1

While working with financial advisors may improve retirement outcomes, saving is critical for anyone who wants to retire from working full-time. In fact, the majority of workers and retirees participating in a recent Wells Fargo survey wish they had begun saving for retirement sooner than they did.2

Factoring in the healthcare variable
No matter when individuals begin to save or how much they’re setting aside, even sound retirement plans can be disrupted by rising healthcare costs and catastrophic illness. There is evidence Americans are concerned about healthcare issues. However, few have factored healthcare expenses into their retirement plans.2

According to a recent Wells Fargo survey, “Nearly half of workers (45 percent) have not actively considered health care expenses for retirement planning, and even among workers age 60+ nearly a quarter (23 percent) have failed to take healthcare expenses into account.”2

It’s daunting to consider health expenses have increased faster than inflation in recent years. In addition, patients are being asked to pay a larger share of the expense. U.S. government figures show spending on healthcare rose by 5.8 percent in 2015. From 2016 through 2025, spending was expected to grow by 5.6 percent a year, on average.3

Retirees feel the effects of higher healthcare costs more than younger Americans do. The Centers for Medicare and Medicaid Services reported, “Per person, personal healthcare spending for the 65 and older population was $18,988 in 2012, over 5 times higher than spending per child ($3,552) and approximately 3 times the spending per working-age person ($6,632).”3

So, how much is healthcare likely to cost during retirement? An expert cited by Morgan Stanley suggested the average retired couple “will spend somewhere between $259,000 and $395,000 over the course of their retirement, depending on their lifespan and health conditions.”4

The news may shock people who believe they’ll need less than $500,000 to retire comfortably (about one-third of those participating in the EBRI RCS).1 Even for people who plan to save more, adding healthcare expenses to retirement calculations may significantly increase savings goals.

Moving toward a comfortable retirement
If thinking about retirement makes you a bit queasy, it’s likely you haven’t prepared as well as you should. The good news is developing and implementing a retirement plan is fairly straightforward. Here are a few steps that can help boost retirement confidence:

  • Create a retirement budget. A retirement budget is no different than a current household budget. Write down (item by item, line by line) how much you expect to spend in retirement. Obviously these estimates will become more accurate as retirement nears.
  • Save for retirement. For many people, a successful retirement strategy means saving at least 15 percent of their income.5 Those who have the good fortune to participate in an employer’s retirement plan may benefit from employer-matching contributions. If you don’t have a retirement plan at work, open an IRA and set-up automatic contributions each pay period.
  • Choose an asset allocation strategy. Asset allocation is dividing your savings among different investments, such as stocks, bonds, and other options. The way people invest their savings is often determined by their age, risk tolerance, and retirement goals.5
  • Prepare for long-term care. Three-of-four retirees will need extended long-term care. If you haven’t planned for it, the cost can really put a dent in your retirement savings. Medicare Part A covers skilled nursing care in a skilled nursing facility for a specific period of time after hospitalization. It does not pay for custodial care for Alzheimer’s or other cognitive illnesses. Consequently, it may be wise to purchase long-term care insurance or add a long-term care rider to a life insurance policy.6
  • Review your plan every year. Retirement planning is not a static activity. Retirement goals may change significantly over a lifetime. As a result, it’s important to review retirement plans often and make any changes needed.

Will you be able to retire comfortably?  It’s a complicated question.  The answer can be equally complicated. If you would like help figuring it out, or want to review your current plan, contact us for a no-obligation consultation.

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