Investors Fear Possibility of War

StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. markets began the new year (and decade) by setting records on positive China-related news, only to suffer a setback when the killing of a notorious Iranian general by the U.S. military escalated investor concerns around the globe.

The U.S. airstrike Thursday evening sent oil prices surging and took some wind from Wall Street’s optimistic sails, putting downward pressure on stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. prices. That said, for all the drumbeats of the potential for war, traders’ response was muted, with the markets opening down about 1.2% before regaining some ground by mid-afternoon.

The conflict between the U.S. and Iran demands close attention; further escalation may well create economic and market ripples. If, for instance, oil prices go significantly higher, inflationary pressures might ensue. At the same time, higher oil prices would benefit those companies that produce, transport and refine crude, while harming those that are heavily reliant on fuel prices, like airlines.

As you know, our portfolios are designed with these risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. in mind. The fund managers we have partnered with diligently analyze the impacts of any change in the economic or geopolitical winds. Likewise, our in-house investment team has the ability to become more defensive if conditions warrant doing so—but we make such decisions based on the facts we know rather than the fears we’re sold. Our tactical strategies are designed to become more defensive if conditions warrant doing so—but we move based on the market’s price signals, not at the drop of a fearsome headline. Traders’ relative lack of alarm (so far) at the news out of Iraq suggests that it will take more than the heat from a single global hotspot to upset what has been a long bull marketA period during which stock prices rise significantly from recent lows for weeks, months or years. for stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company..

In sum, we’ve got your back and will always do our level best to help you secure your financial future.

As noted, the year started strong and markets were up on Thursday, the first trading day of 2020, with the Dow Jones Industrial Average increasing 1.2% and the broader S&P 500 index jumping 0.9%—both to new records. In closing out 2019, the Dow Jones Industrial Average and the S&P 500 index returned 25.3% and 31.5%, respectively. The MSCI EAFE index, a measure of developed international stock markets, was up 22.0%. The yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. on the Bloomberg Barclays U.S. Aggregate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. index has declined to 2.30%, down from 2.34% last week. It was 3.28% at 2018’s end. On a total return basis, the U.S. bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market gained 8.7% in 2019.

Looking Back at a ‘Record’ Decade

The end of the decade has flooded us with retrospectives covering those who died, those who tried and everything in between. On the investment front, it was a solid 10 years of gains by any measure, but contrary to market pundits’ beliefs, it was not a record-setting decade.

To give you just one example, while the S&P 500’s annual total return of 13.6% over the 10-year period starting in 2010 is a far sight better than the 0.9% annual decline we suffered through in the 2000s, it falls well short of the pace of gains achieved in the 1980s (17.5%) and 1990s (18.2%).

At Adviser Investments, we take each day, month and year as it comes rather than trying to predict the unpredictable. What we know is that the investment markets can be fickle, but ultimately, they are a wealth-generating engine that is hard to beat—so long as you remain calm, disciplined and diversified.

Keeping an Eye on BondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates.

Speaking of diversificationA strategy for managing investment risk by investing in a mixture of different investments. Since different asset classes face different risks, even if one type of asset declines in value, others may not., while the bull market in stocks garners most of the headlines, don’t ignore the bond market. We know it pays to be prudent. Bond yieldsYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. are an extremely good predictor of returns in the fixed-income markets and the long bond bull market has brought yields to uncharacteristically low levels. To give you a sense of what we’re talking about, 10 years ago, the bond market’s yield was 3.3% and over the ensuing decade, bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. returned an annualized 3.6%. Today, the bond market’s yield is about 2.3%. History suggests that we can expect returns over the next decade to run between 1.3% and 3.3%.

Bonds will continue to provide some shock absorption in our portfolios—particularly during periods when we’ll need it the most.

While the returns look to be parsimonious, bonds will continue to provide some shock absorption in our portfolios—particularly during periods when we’ll need it the most—but we would not count on them to make us rich. That’s why we’ll continue to build diversified portfolios of bonds and stocks to meet your specific needs and objectives.

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Financial Planning Focus

SECURE Act Impacts

In the flurry of holiday merry-making, you may well have missed some important news for your retirement savings: Late last month, Congress passed the SECURE Act, which includes some significant new rules affecting how we all save and plan for retirement. Here are five of the biggest changes that may impact your bottom line—and your tax bill.

1. Invest Longer, Take Distributions Later. Under the SECURE Act, the required age for taking minimum withdrawals from your qualified retirement accounts has been pushed back from 70½ to 72, effective January 1, 2020. This allows additional time to grow your tax-deferred retirement money (and using a whole-number age makes it easier to figure out when you need to start). The change, however, is no help for those under age 72 already taking required minimum distributions (RMDs): The clock has not reset and you must stick with the old schedule. Additionally, those who reached age 70½ in 2019 must take their first RMDA required minimum distribution is the amount of money that must be withdrawn each year from tax-deferred retirement accounts once the beneficiary reaches retirement age (72, according to IRS rules). by April 1, 2020.
2. More Time to Contribute to Traditional IRAs. Under previous law, you were unable to contribute to a tax-deductible IRAA type of account in which funds can be saved and invested without being subject to tax until the account holder reaches retirement age. after age 70½. Now, if you continue to have “earned income” (a.k.a. a paycheck) in your 70s, you and your spouse can keep making those contributions. (It’s not covered by the SECURE Act, but it’s worth knowing that employee-sponsored 401(k) plansA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn. also have no upper age limit on contributions while you are still working.)
3. AnnuitiesA financial instrument that pays the holder a guaranteed stream of payments. The annuity is funded by either a lump sum (one-time) or a series of deposits. Once funded, the sum is invested by the insurance company who sold the annuity (the accumulations phase). After a certain trigger (for example, the holder’s retirement or reaching a certain age) payments begin to be issued to the holder (annuitization phase). Annuity payments may be fixed or variable in both amount and in length (some pay out for a designated span of years, others until the holder’s death). in 401(k)s. Don’t be surprised to see more annuities popping up as investment options in your 401(k) planA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn.. Currently, fewer than 10% of 401(k) plans offer annuitiesA financial instrument that pays the holder a guaranteed stream of payments. The annuity is funded by either a lump sum (one-time) or a series of deposits. Once funded, the sum is invested by the insurance company who sold the annuity (the accumulations phase). After a certain trigger (for example, the holder’s retirement or reaching a certain age) payments begin to be issued to the holder (annuitization phase). Annuity payments may be fixed or variable in both amount and in length (some pay out for a designated span of years, others until the holder’s death).; the SECURE Act includes provisions incentivizing their addition. Note that while annuities can be a useful tool for some retirees, we don’t consider them well-suited to all by any means. If you are considering making any changes to your 401(k) investment strategy and would like our advice, please give us a call.
4. Inherited IRAs Must Be Wound Down. The government wants inheritors of IRAs to pay their taxes sooner rather than later. Previously, people who inherited traditional IRAs could withdraw money throughout their lifetime (this is still the case for IRAs inherited by year-end 2019). Under the new SECURE Act, inheritors will need to drain an inherited IRA within 10 years.
5. Charitable Distributions Remain. Many retirees opt to make charitable distributions from their IRAs to help reduce taxes. Even though the SECURE Act bumps the RMD age threshold to 72, qualified charitable distributions (QCDs) are unaffected. After hitting 70½, you can still make charitable distributions from your IRA of up to $100,000 per year. However, if you’re still working and adding money to your IRA accounts after 70½, those additions will reduce your annual QCD limit dollar for dollar.

The changes we’ve mentioned will affect many retirees, but there is much more to this sweeping new law, including many wrinkles that may bear on your specific situation. We recommend consulting with us to see what the SECURE Act means for you. Please don’t hesitate to contact your portfolio team here at Adviser Investments. We’re happy to help!

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Looking Ahead

After the holiday interruptions, next week returns to a more regular schedule of economic reports, and we’ll be getting a read on the current state of the jobs market, factory orders, consumer credit and service sector gauges.

As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.