Market Commentary – March 18, 2019

by | Mar 18, 2019 | Weekly Stock Market Commentary

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?

by | Mar 14, 2019 | Learning

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.

Sources:

1 https://www.ebri.org/pdf/surveys/rcs/2017/RCS_17.FS-3_Preps.Final.pdf
2 https://www08.wellsfargomedia.com/assets/pdf/commercial/retirement-employee-benefits/perspectives/2017-retirement-study.pdf
3 https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html
4 http://www.morganstanley.com/ideas/healthcare-costs?subscribed=true&et_mid=27146&et_mkid=05dcda3fc149857c3a3cc45c1c6dc98b
5 https://www3.troweprice.com/usis/personal-investing/planning-and-research/t-rowe-price-insights/retirement-and-planning/retirement-savings/are-you-on-track-for-a-successful-retirement-.html
6 https://longtermcare.acl.gov/the-basics/who-needs-care.html

Market Commentary – March 11, 2019

by | Mar 11, 2019 | Weekly Stock Market Commentary

Markets were rattled last week.
The market hates surprises, especially when the surprise comes from a central bank. Last week, the European Central Bank (ECB) unexpectedly reversed course and took a more accommodative stance on monetary policy in an effort to encourage stronger European economic growth. Tom Fairless of Barron’s explained:

“Officials are seeking to shore up an economy that has been rattled by shocks ranging from a slowdown in China to mass protests in France and bottlenecks in Germany’s crucial auto industry. They are threading a careful path between providing sufficient support for the region’s softening economy while avoiding any appearance of panic, which could ricochet through financial markets.”

The Eurozone isn’t the only region feeling the pinch of weaker economic growth. China’s exports were down more than 20 percent in February, reported Investing.com. Analysts had expected a decline of about 5 percent. Concerns about the health of China’s economy have been growing since the publication of ‘A Forensic Examination of China’s National Accounts’ by the Brookings Institute. The authors concluded:

“First, nominal GDP [gross domestic product*] growth after 2008 and particularly after 2013 is lower than suggested by the official statistics. Second, the savings rate has declined by 10 percentage points between 2008 and 2016. The official statistics suggest the savings rate only declined by 3 percentage points between these two years. Third, our statistics suggest that the investment rate has [fallen] by about 3 percent of GDP between 2008 and 2016. Official statistics suggest that the investment rate has increased over this period.”

*Gross domestic product is the monetary measure of the market value of all goods and services produced annually in the country.

As if that weren’t enough, the U.S. jobs report for February reported far fewer jobs had been created than was expected. It will come as little surprise to learn that major U.S. stock indices moved lower last week.

How do you reconcile the beige book and the labor report?
If you have never heard of the Beige Book, it’s a scintillating tale of business and economics published by the Federal Reserve. Okay, maybe it’s not scintillating, but it has some pretty interesting stories.

The March 2019 installation – it’s published eight times a year – includes real world stories about businesses and workers gathered by Federal Reserve Banks across the nation. For instance, the St. Louis Federal Reserve reported their contacts in higher education reported falling enrollment. It seems more potential college and post-graduate students have been choosing to go straight into the workforce.

The Beige Book reported, across the nation, “Labor markets remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants, and construction. Contacts reported labor shortages were restricting employment growth in some areas.”

Of course, labor is easier to come by in some districts than in others. The Boston Federal Reserve reported contacts in its district have a hard time finding skilled workers in fields like information technology, but retail businesses are having no trouble filling jobs.

Wages have been going up in the Cleveland Federal Reserve’s district. “Bankers raised wages both for low-wage and for high-wage positions, citing competitive labor markets. A couple of construction companies granted large retention-focused merit increases to office staff, but other companies mentioned that they tended to grant raises during busier seasons.”

Hiring was up in the San Francisco Federal Reserve’s territory. “Employment at a large San Francisco software and consulting company grew notably as demand for its services increased. A cattle ranching company in Arizona also increased employment to meet growing demand. In the Mountain West, a regional bank noted that its hiring was limited only by a shortage of qualified labor.”

In light of last week’s incredibly weak jobs report, the Beige Book’s findings seem odd that companies are having trouble hiring enough workers and are raising wages to attract them. How can so few jobs have been created when there is high demand for labor? (Economists’ rule of thumb is 100,000 jobs are needed to accommodate people entering the labor force each month, according to MarketWatch.)

An economist cited by MarketWatch commented, “One poor report should not set off alarm bells, but given that the labor market is the linchpin for the entire economy, it does add to existing concerns and raises the stakes for next month’s report.”

Weekly Focus – Think About It
“Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don’t turn up at all.”
–Sam Ewing, Professional baseball player

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/european-central-bank-stimulus-51551967979 (or go to https://drive.google.com/file/d/1jDwICeYbsalcb3ZVb5CKf7mVjlvC-N97/view?usp=sharing)
https://www.investing.com/news/economic-indicators/china-exports-tumble-in-february-1801611
https://www.brookings.edu/wp-content/uploads/2019/03/BPEA-2019-Forensic-Analysis-China.pdf (Page 25)
https://www.marketwatch.com/story/us-stock-futures-drop-as-gloomy-china-trade-report-adds-to-global-growth-fears-2019-03-08
https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm
https://www.federalreserve.gov/monetarypolicy/beigebook201903.htm
https://www.marketwatch.com/story/us-adds-meager-20000-jobs-in-february-to-mark-smallest-increase-in-17-months-2019-03-08
https://www.brainyquote.com/quotes/sam_ewing_104937

Market Commentary – March 4, 2019

by | Mar 4, 2019 | Weekly Stock Market Commentary

Is it a soft landing?
Economists use aviation metaphors to describe the results of central banks’ efforts to manage rapidly growing economies. If the Federal Reserve lifts rates enough to prevent the economy from overheating without jolting it into recession, then it has engineered a soft landing, according to Investopedia. (Rate increases that drop a country into recession are hard landings.)

Ben Levisohn of Barron’s thinks recent Fed actions may have produced the second soft landing in the history of the United States:
“…the Federal Reserve might have engineered a soft landing for the U.S. economy…When Chairman Jerome Powell abruptly decided that he would hold off on further rate hikes, the market responded as if a recession was no longer in the offing. And it probably isn’t…There are also signs that the Fed, simply by taking a breather, has eased monetary conditions. The evidence: The yield curve is steepening. The difference between 30-year and two-year Treasury yields – the spread most correlated to money supply – has risen to about 0.6 percentage point, the highest since June…”

Not everyone agrees.  Last week, Economist Robert Shiller told Bloomberg, “The economy has been growing pretty smoothly…There are some signs there might be things amiss. The housing market is soaring and the stock market is high. It’s been a long time that we’ve been in this recovery period and it wouldn’t surprise me at all if there was a recession.”

The Standard & Poor’s 500 Index and Nasdaq Composite delivered slight gains last week, while the Dow Jones Industrial Average was flat.

here’s a blast from the past. Depending on your age, the 1980s may be a nostalgic chapter in your life or the wellspring of amusing photos of your Miami-Vice clad, lace-gloved parents. The 80s are known for more than MTV, yuppies, sci-fi movies, and cell phones the size of shoeboxes, though. The decade marked the start of a new era in geopolitics as the Cold War ended and the Berlin Wall was dismantled.

The 1980s also brought a wealth of innovative new products that disrupted markets and changed the way people perform everyday tasks. Entrepreneur Magazine recently identified some of the decade’s notable inventions, including:

  • The First Artificial Human Heart. Dr. Robert Jarvik’s invention was used as a temporary solution for many people who were waiting for a human heart to become available for transplant.
  • Compact Disc (CD) Players. The first compact disc ever pressed was ABBA’s ‘The Visitors’ reported Time Magazine. Not many people listened to CDs early on because of the cost. However, CDs eventually disrupted the market for vinyl records.
  • DNA Fingerprinting. This discovery enabled a person to be identified from just a few hair, skin, or blood cells which revolutionized forensic investigation.
  • Personal Computers and Software. At the start of the decade, technology visionaries Bill Gates and Steve Jobs – still in their twenties – were figuring out how to make computing accessible. Personal computers became more prevalent, along with floppy disks and CD-ROMs.

While the fashions have become obsolete, along with camcorders and CD players, many of the decade’s inventions have proven more durable – and some have completely changed the way people interact with the world.

Which of this decade’s inventions do you think could have a similar impact?

Weekly Focus – Think About It
“Don’t let anyone rob you of your imagination, your creativity, or your curiosity. It’s your place in the world; it’s your life. Go on and do all you can with it, and make it the life you want to live.”
–-Mae Jemison, American engineer, physician, and NASA astronaut

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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The Big Guys Move InOn September 13, 2022, the biggest of the big guys on Wall Street came out with a rather earth-shaking announcement. None other than Fidelity, Citadel Securities, and Charles Schwab have launched a new cryptocurrency exchange. In the words of the...

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Look! Have You Noticed? Listen to any politician or any news commentator these days, and they always begin a discussion or answer a question like this: Look, when I served in the Senate …. Look, as I wrote in my last column …. Look, if the Republicans won’t …. Look,...

read more

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Inflation is proving to be far more tenacious than financial markets had hoped.The idea that inflation peaked in March was put to rest last week when the Consumer Price Index (CPI) showed that inflation accelerated in May. Overall, prices were up 8.6...

read more

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All,You undoubtedly have heard reports that the world’s supply of wheat and corn are in jeopardy due to Ukraine and Russia both missing this season’s planting window for obvious reasons (click the link above to read more details). Did you know that Russia...

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* 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.
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Sources:
https://www.investopedia.com/terms/s/softlanding.asp
https://www.investopedia.com/terms/h/hardlanding.asp
https://www.barrons.com/articles/the-dow-just-had-its-best-two-months-in-years-and-there-could-be-more-to-come-51551493199?refsec=the-trader
https://www.bloomberg.com/news/videos/2019-02-26/yale-s-shiller-says-u-s-due-for-recession-sees-housing-market-slowing-video (Time stamp 0:21 seconds)
https://money.cnn.com/data/markets/sandp/
https://money.cnn.com/data/markets/nasdaq/
https://money.cnn.com/data/markets/dow/
https://www.history.com/topics/1980s/1980s
https://www.retrowaste.com/1980s/
https://www.thoughtco.com/michael-jackson-videos-3245489
https://www.entrepreneur.com/slideshow/294171#2
https://www.entrepreneur.com/slideshow/294171#3
http://time.com/3971914/cd-history-music/
https://www.entrepreneur.com/slideshow/294171#5
https://www.entrepreneur.com/slideshow/294171#6
https://www.entrepreneur.com/slideshow/294171#7
https://www.computerhistory.org/timeline/ (See 1980, 1981, and 1984)
https://interestingengineering.com/25-quotes-from-powerful-women-in-stem-who-will-inspire-you

The New Tax Law – A Year Later

by | Feb 28, 2019 | Noteworthy

Tax season is the time between January 1 and April 15. It is when most people prepare and file their taxes.  This year’s tax season is special.  It has been just a little over a year since the Tax Cuts and Jobs Act went into effect. It is the largest overhaul of the tax code since 1986 and the still-relatively-new law could have a major impact on your taxes, including your refund.  Just for that reason, I thought it would be good to review what the law changed, as well as what you can do to minimize headaches as you file your taxes ahead of the April 15 deadline.

Quick disclaimer: The tax law is a politically charged subject, but you will not find any politics here.  While some experts may argue whether the tax law has been good or bad for the country, this letter is only about how the law may affect you. So, without further do, let’s discuss:

Major Changes to Remember as You File
The most obvious major change to remember is that most tax rates have been reduced. That means there’s a good chance you paid less in taxes over the past year. Here’s how the various tax brackets look now: 1

If you receive a paycheck every month, you should pay special attention to your federal income tax withholding this year. This is the amount of federal income tax withheld from your paycheck. Because of the new tax brackets, most people started seeing withholding changes around February or March of last year. And while it’s likely that less of your paycheck went to federal income taxes, you should still scrutinize your withholding carefully to make sure it’s correct. The last thing you want is to find that not enough tax was withheld by your employer! That could require you to pay a penalty when you file your return.

According to the IRS1, people who meet any of the following criteria should be especially careful when checking their withholding:
• Belong to a two-income family.
• Work two more jobs, or only work for part of the year.
• Have children and claim credits such as the Child Tax Credit.
• Have older dependents, including children age 17 or older.
• Claimed itemized deductions on their prior year’s tax returns.
• Earn high incomes and have more complex tax returns.
• Received large tax refunds or had large tax bills for the prior year.

Ensuring the accuracy of your withholding is always important, of course, but because of all the changes to the tax code, it’s more critical than ever that you be thorough!  Speaking of changes, let’s now turn to:

Changes to Deductions
There are two basic kinds of deductions – standard and itemized. As the IRS puts it, “The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status.” 1 The new tax law nearly doubled standard deductions. Here’s what the new standard deduction looks like:1

But all this comes with a catch: You can’t take the standard deduction if you also itemize deductions. And for married couples filing separately, both spouses must take the same type of deduction. So if one spouse chooses to itemize, the other spouse must as well. So, here’s what you need to determine: Will you enjoy a larger tax cut by taking the standard deduction, or itemized?

For most people, the standard deduction is probably the way to go. But if you still choose to take itemized deductions, there are changes to those you need to be aware of as well. For instance:

Medical expenses: For your 2018 taxes, you can deduct out-of-pocket medical and dental expenses that exceed 7.5% of your “adjusted gross income”. (This is your total gross income minus specific deductions.) This is down from the previous 10%, although the level returns to normal next year.1
State and local taxes: One of the biggest changes to itemized deductions is that you can now deduct no more than $10,000 of any combination of state and local income taxes, sales taxes, and property taxes. For people living in high-tax states, this is perhaps the single biggest reason why it now makes more sense to take the standard deduction. 1
Mortgage interest: If you took out a mortgage or home equity loan before December 15, 2017, you can deduct up to $1,000,000 in interest. However, the new tax law caps the deduction at $750,000 for loans taken out after that date. 1
Charitable contributions: The limit on charitable contributions in cash is now 60% of your adjusted gross income, up from 50% before the new tax law. That means you may be able to deduct more of any charitable cash contributions you made in 2018. 1

Changes to Child Tax Credits and the AMT
Due to the new law, more families with children under 17 now qualify for a larger child tax credit. For your 2018 return, the maximum credit is now $2,000 per child for individuals earning up to $200,000 and married couples earning up to $400,000, so long as they file jointly. 1

Another major change to this tax season is that fewer people now pay the Alternative Minimum Tax, or AMT. Long considered one of the most complex aspects of the tax code, the AMT was originally designed to prevent using a dizzying array of credits, deductions, and loopholes to avoid taxes altogether. Over the decades, however, the AMT began hitting those who were already paying a host of other taxes.

Calculating what amount people actually pay is a complex process, and that has not changed. What has changed, however, is the threshold at which people are exempt from paying the AMT. For individuals, the exemption level has increased to $70,300, up from $54,300. For married couples who file jointly, the exemption has risen to $109,400, up from $84,500. 1

A few more things to be aware of this tax season
It’s impossible to cover all the ways the new tax law will affect your filing this year. But there are a few more things to be aware of.

Tax Refunds
First, your tax refund could be smaller than in years past. As of this writing, the IRS has reported the average refund to be 8.4% less than last year.2
This shouldn’t come as a surprise. Since many people received a tax cut in 2018, refunds will also go down. That’s especially true for people who previously used itemized deductions on their property and local income taxes. The changes in federal tax withholding also play a major role. It’s possible, too, that many people will end owing money to the government this year.

For that reason, taxpayers should hold off on planning any major purchases until they know exactly what their refund will be.

The IRS is playing catch-up
As you probably know, Washington was paralyzed by the longest government shutdown in history earlier this year. During the shutdown, the IRS operated with only 12% of its staff.3 That means the IRS has a lot to catch up on, including answering questions, preparing reports, processing returns, and distributing refunds. And because the tax code is so different now, you may need to wait longer than normal to get your questions answered or get your refund.

Ways to de-stress your tax filing
Preparing your taxes is never fun, but there are ways to minimize stress. For example:
1. Work with a qualified professional. While there is software aplenty to help you file, nothing beats working with an experienced Certified Public Accountant. I would be happy to put you in touch with a good one if you need assistance with this.
2. File electronically. If you’re doing it on your own, it’s better – and faster – to file electronically than on paper. You can learn more at www.irs.gov/filing/free-file-do-yourfederal-taxes-for-free.
3. Do a “paycheck checkup.” This is a resource the IRS provides to determine if you need to adjust your withholding or make additional tax payments. Visit www.irs.gov/paycheck-checkup to learn more.
4. Start now. If you’ve already finished your tax return, great! But if not, don’t delay. Start gathering documents, writing down questions, and examining your options. The easiest way to ensure tax-related headaches – and make mistakes on your return – is to wait until the last minute.

I hope you found this letter helpful. Of course, if you have any questions, please don’t hesitate to contact us!   Finally, remember that we at Research Financial Strategies are here to help you work toward your financial goals. Please let us know if there’s ever anything we can do.

1 “Tax Reform: Basics for Individuals and Families,” Internal Revenue Service,   https://www.irs.gov/pub/irs-pdf/p5307.pdf%20
2 “Filing Season Statistics for Week Ending February 1, 2019.” Internal Revenue Service,   https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-february-1-2019
3 “Federal shutdown means tax refunds may be delayed,” CNBC,   https://www.cnbc.com/2019/01/04/what-the-federal-shutdown-could-mean-for-tax-season.html

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