The 2019 bull marketA period during which stock prices rise significantly from recent lows for weeks, months or years. continued charging into year-end, hitting a series of record highs despite the drama of President Trump’s impeachment.
Because impeachment felt inevitable, we’ve been focused on whether and how the process might impact the broader economy or the investment markets. So far, it’s been a non-event. And if the party-line vote in the House to impeach is followed by a party-line vote in the Senate to acquit, we expect the market reaction to be negligible. (The Senate voting to convict the president is not priced in to current levels, however.)
Similarly, last week’s U.K. elections delivered an expected result both politically and market-wise. And while Britain’s FTSE 100 stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market index remains 4% below its May 2018 peak, the broader European Stoxx 600 index rallied to new highs.
Recent events have yielded one significant change with regard to both impeachment and Brexit: We now have probable ends in sight. The removal of one or both uncertainties in the coming weeks will be welcome news given the host of other 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. we’ll have to contend with along 2020’s course.
For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 index have returned 24.6% and 30.4%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 21.1%. As of Thursday, 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 2.35% from 2.38% last week, and from 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 has gained 8.6% for the year.
2019’s Volatile Headlines Haven’t Translated Into Market VolatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in.
While 2019 has felt wildly volatile, actual market volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. was low. Case in point: The political news this week may have been momentous, but looking at the stock market you wouldn’t have guessed anything historic had occurred. The S&P 500 index closed at a record high on Tuesday night and only declined 0.04% on the day of the impeachment vote. It then rallied to yet another record high on Thursday.
Despite all the headline risks—from impeachment to Brexit to trade wars—it has been a remarkably calm year for the stock market. We’ve only seen 37 days when the S&P moved up or down by 1% or more from the prior day. And there have only been seven 2%-plus-move days. Those are some pretty low numbers.
Maybe more importantly, the stock market’s largest drawdown this year was just 6.8% in June. The average intra-year decline over the last 35 years has been about 13%.
Beneath Bouncy Headlines, Economy’s Steady
Not only have markets been relatively quiescent this year, the economy has also been chugging along at a steady pace. Revised GDP figures released this morning by the Bureau of Economic Analysis show no change from prior estimates: The U.S. economy grew at a 2.1% rate in the third quarter.
While a resolution to or escalation of the U.S.-China trade dispute retains the power to jolt both the economy and markets, the fundamentals of low interest rates, a strong job market and a financially steady consumer suggests the economy is still firmly on slow-growth rails.
New Podcast: The Taxman Cometh
We spend our working years growing our tax-deferred investment accounts like 401(k)s, 403(b)s and IRAs. But once we reach age 70½, the IRS requires that we start withdrawing our savings (thus giving Uncle Sam his annual income-tax cut) through what’s known as required minimum distributionsA 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). (RMDs). Understanding how RMDs work so you can both avoid costly penalties and account for your tax liabilityLiabilities are calculated by adding up your existing debts (mortgage, car loans, student loans, credit cards, etc.). is a critical element of every investor’s spending and saving strategy in retirement.
In our latest podcast, Dina Milne and Alec Rosen, two of Adviser Investments’ experienced wealth managers, focus on RMDs by using real-world examples and sharing some tips and tactics we employ for our clients that can benefit anyone in or nearing retirement. Among the discussion topics:
How 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). amounts are calculated
The tax and legacy implications
The IRS penalties you need to avoid
How you can use RMDs for charitable purposes
It’s never too soon to become more informed about financial planning in retirement. To learn more, click here to listen to this critical podcast today!
Financial Planning Focus
Year-End Financial Planning Tips
The last few weeks of the year can be joyful, but also hectic and disorganized. From a financial point of view, there are a few steps you can take now that can help you start 2020 off on sound footing and pay great dividendsA cash payment to investors who own stock in the company. over the next 12 months:
Top off your rainy-day stash of cash. It’s been a bountiful ride for the markets in 2019, and many investors are fortunate to find themselves in a stronger financial position at the end of this year than last. So now may be the perfect time to hedge against future uncertainty in the markets. One of the best ways to prepare for future dips is to make sure you have enough cash to cover living expenses—that way, you can avoid drawing on investments in a falling market. We usually recommend holding at least a year’s worth of expenses in savings, preferably in a money market fund, which provides instant liquidityThe ease with which an asset can be bought or sold. Assets for which there are many buyers and sellers at any given time are highly liquid (for example, a stock which trades on a public exchange). Assets which trade rarely are illiquid (for example, a Picasso painting or a high-end home)..
Reread your estate plan. Our general advice is to closely go over and revise as necessary your will, trusts, powers-of-attorney, health care proxies and living will with your estate attorney every five to seven years. But doing a year-end check-in yourself doesn’t hurt—give your plans a once-over to make sure they’re still fully in line with your wishes and circumstances. (For example, if you’ve begun to see a new doctor, make sure he or she is included in health care-related documents.)
Make sure to check in on your financial plan and be sure that your savings, investment and other goals are still on track.
Compile year-end financial documents. Amongst the flurry of holiday cards and credit card bills, you’re likely to receive a number of important financial documents this time of year. Tax season will be here before you know it, and by compiling your account statements, tax documents, charitable gift receipts and other financial papers in one place now, you can make your life considerably easier when it comes time to file your taxes. Our Adviser Insights portal provides a handy and secure document Vault to make it easier to keep track of all your most crucial documents electronically—and save a few trees. If you’re not already using Adviser Insights, talk to your relationship team about getting set up.
Check your insurance coverage. Now is also a good time to make sure any big changes you’ve made this year haven’t led to you taking on risks that aren’t covered by insurance. For example, if you’ve completed home renovations this year, your newly spiffy digs may have increased your home’s value, meaning your current home insurance policy might not cover as much as it should. Take a look at your disability, life, long-term care, home and auto, and umbrella policies to confirm that you’ve left no flank exposed.
Go over your accounts’ named beneficiaries. It’s a good practice to periodically examine who you have listed as your beneficiaries on your retirement savings plans and other accounts to be sure that they are accurate and reflect your wishes. We can lend a hand for any accounts we manage for you.
Review your financial plan. Finally, make sure to check in on your financial plan and confirm that your savings, investment and other goals are still on track. Don’t have a financial plan? Reach out to our team here at Adviser Investments—we’d be happy to help you organize, review and plot your strategy for 2020. It’s one of the best gifts you can give yourself and your loved ones.
In a slow news week punctuated by the Christmas holiday and market close on Wednesday, you can fit all of the upcoming economic reports on one small holiday card—new home sales and durable goods orders are the only substantive reads on tap.
Speaking of the holidays, our offices will close at 1 p.m. next Tuesday and remain closed Wednesday, Christmas Day. It’s been a busy year for us at Adviser Investments, one made memorable and meaningful by our work with our clients. We wish you and your families a joyous and prosperous holiday season. Happy holidays!
Please note: This update was prepared on Friday, December 20, 2019, prior to the market’s close.
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.
The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. Registration pending.