Home Guides & Resources chevron_right Weekly Update Investors Rise Above Uncertainty December 21, 2020 Table of Contents Fed Projects Cautious Optimism Consumers, Companies Continue to Adapt Podcast: Discovering International Small-Caps Five Medicare Mistakes to Avoid Strategy Activity Update Adviser Investments’ Market Takeaways Looking Ahead Please note: This update was prepared on Friday, December 18, 2020, before the market’s close. After seesawing most of the week, the Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite and the Russell 2000 all closed at record highs on Thursday despite mixed economic, pandemic and political news. Digital trading and digital currencies were also in the news this week and both offer cautionary tales for investors. With a second viable vaccine likely to receive FDA approval as early as today and a second stimulus package, however small, looking likely, our focus remains fixed on effectiveness, availability and distribution: How effective will the vaccine be, when will it be broadly available and who will get it? The same goes for fiscal stimulus—how effective will the bill be in propping up the worsening labor market and how soon will it bring relief to households and small businesses? Through Thursday, the Dow Jones Industrial Average has returned 8.6% for the year, while the broader S&P 500 has gained 17.3%. The MSCI EAFE index, a measure of developed international stock markets, has returned 7.5%. As of Thursday, the Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.16%, down from 2.31% at the end of 2019. On a total return basis, the U.S. bond market has generated a 7.2% return this year. Fed Projects Cautious Optimism The Federal Reserve convened for its final 2020 meeting this week with Chair Jerome Powell reiterating his familiar stance: The Fed will continue to provide support—by keeping interest rates low and buying government bonds—until its policymakers see the economy making “substantial further progress.” The central bank raised its projections for economic expansion, forecasting GDP growth of 4.2% by the end of 2021 (up from 4.0% previously) and saying unemployment would fall to 5.0% next year from 6.7% today. The catalyst: Expanding vaccinations, Powell said, predicting “the economy should be performing strongly” by the second half of 2021. Of course, the second half of 2021 is still six months away. This week, another 885,000 people filed for unemployment benefits, the most since early September, and the poverty level jumped at the fastest rate in at least 60 years. We agree with Chair Powell, who has repeatedly said that Congress needs to act fast to prevent further economic dysfunction. Consumers, Companies Continue to Adapt Consumers reined in spending in November, with sales down 1.1% from the previous month as holiday buying got off to a slow start. Yet, compared to the same time last year, retail sales are up 4.1%, a better rise than we saw in November 2019. Consumers haven’t stopped consuming, they’ve simply adapted to the pandemic reality, trading spending on travel for, say, household improvements and computer gear—online sales in particular are expected to be up 20% this holiday season compared to last year. How do we account for the relatively robust retail sales fueling this recovery? One factor: Total monthly wages and salaries have nearly returned to where they were in January, signaling a much faster recovery than in the last recession. The recovery has also been driven by success at some of the biggest businesses. A recent Washington Post analysis found that 45 of the 50 most valuable publicly traded companies in the U.S. turned a profit during the economy’s rocky April to September stretch. From ad revenue at Google and Facebook to home improvement sales at Lowe’s and Home Depot, the big got bigger as they stepped up to serve consumers in the early stages of the pandemic. The flip side of that coin is that it has become much more difficult for small and local businesses to remain afloat. Many local eateries, bars, hardware stores and gyms are being pushed to the brink and may be unable to survive shutdowns, however lax or draconian. As we noted earlier, the federal government needs to step in and help small merchants and struggling households stay afloat until the pandemic’s pain has passed. We hope that from their perches on Capitol Hill, lawmakers can see clearly enough that the economy needs further stimulus. Podcast: Discovering International Small-Caps With the U.S. stock market hitting new records in 2020, does an investor even need to look beyond our borders to find opportunities for profit? We think so. Simply put, smaller foreign companies aren’t on most investors’ radars, and therein lies an opportunity. In our latest podcast, Director of Research Jeff DeMaso and Research Analyst Liz Laprade cover some of the hidden upside of small-cap stocks, including: The expansive investment universe of small-cap foreign stocks Increased capacity for outperformance under the right manager The surprising risk profile of small-cap foreign stocks—they haven’t been as risky as you might’ve guessed We think there’s more to foreign small-caps than meets the eye—click here to learn about the potential benefits of this under-explored sector. ***** Financial Planning Focus: 5 Medicare Enrollment Mistakes to Avoid Since its 1965 inception, Medicare has been an essential component of a successful retirement. Yet, as we’ve noted, navigating its complexities can be frustrating. Here are a few common mistakes to avoid: Opting for COBRA after retiring at age 65 or older. COBRA—the Continuing Budget Reconciliation Act—gives you the option to pay to keep your existing health care plan for up to 18 months after you retire. It’s tempting—to a point. But once you celebrate your 65th birthday, you must enroll in Medicare, or other qualifying coverage like Medicare Advantage, to avoid future penalties. COBRA plans, which don’t qualify, trigger up to a 10% increase in your Medicare premiums for every 12-month period you fail to enroll. As a rule of thumb, we usually ask our 65+ clients to enroll in Medicare about a month before they retire to sidestep this issue. Contributing to an HSA after enrolling in Medicare. If you have a health savings account (HSA) option through your employer, be sure you take advantage—it’s one of the best and most tax-efficient ways to save for future health care costs. After you enroll in Medicare, however, contributing to your HSA is a no-go. That’s considered an “excess” contribution by the IRS and comes with a 6% penalty. You can, of course, continue to draw from your remaining HSA savings to cover prescriptions, vision costs and co-pays even when you’re on Medicare. Not filing a Form SSA-44. Your annual Medicare premium is based on your adjusted gross income (AGI) from two years ago. (If you enroll in 2022, your premium is based on your 2020 AGI plus any interest received from municipal bonds.) So if you were a big earner pre-retirement, you might end up paying a high premium based on an income amount that no longer applies. Fortunately, filing Form SSA-44 resets the income clock to your post-retirement date. The SSA-44 can also be filed to request an adjustment based on loss of income from life events such as divorce or the loss of a pension. Visiting out-of-network providers on Medicare Advantage. Choosing the right Medicare policy is one of your most important decisions as each policy has pros and cons. Medicare Advantage, for instance, can offer significant savings on your monthly premiums. Those savings evaporate, though, when you visit out-of-network providers. If traveling around the country (or the world) is part of your retirement journey, you may want to consider selecting a traditional Medicare policy along with additional Medigap coverage. Missing Medicare open enrollment. Medicare’s Annual Election Period (also known as open enrollment) runs from October 15 to December 7, and is the time to make changes to your existing prescription coverage or Medicare advantage plan. Missing that window may leave you stuck with surprises like increased premiums, drug list changes or out-of-pocket cost increases. Set a calendar reminder now for next year to ensure that you’re on top of any updates to your coverage: New plans and potential savings enter the marketplace every year! For more information on Medicare, check out our reference guide or podcast episode, Medicare Made Simple. ***** Strategy Activity Update Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations. Dividend Income Increased American Tower (AMT). Added Automatic Data Processing (ADP) and Linde (LIN). Reduced cash. AIQ Tactical Global Growth Sold iShares MSCI EAFE Small-Cap ETF (SCZ). Bought iShares Core S&P 600 Small-Cap ETF (IJR). AIQ Tactical Defensive Growth No trades this week. AIQ Tactical High Income No trades this week. AIQ Tactical Multi-Asset Income No trades this week. Adviser Investments’ Market Takeaways You can find two new Market Takeaways videos on our website. Liz Laprade explores what’s behind China’s recent market slump and Vice President Steve Johnson reflected on his wishes for 2021. Looking Ahead Next week, markets (and Adviser Investments’ offices) will close at 1 p.m. on Thursday and remain closed Friday for Christmas. So remember to check your inbox Thursday for our regular Week in Review commentary! Despite in the shortened week, we’ll have plenty of data to pore over, including reads on consumer confidence and sentiment, personal income and consumer spending, durable goods, new and existing home sales, and a final estimate of third-quarter economic growth (GDP). As always, you can 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 Investments 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, trusts, 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, ETFs, 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. Please note: This update was prepared on Friday, December 18, 2020, before 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. 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