Posts By Scott Weiss, CFP®

How Might the Coronavirus Impact the Global Economy and Markets?

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The spread of the new coronavirus has taken over the headlines and hijacked market sentiment in recent weeks. Thus far, through available medical data, it appears that while the virus appears more contagious than the similar SARS epidemic in 2003, it is less lethal. The fatality rate for the coronavirus has been 3% or so thus far, relative to 9% for SARS at its peak.

Current Impact

The idiosyncratic elements included in such events—such as the World Health Organization declaring China’s surging infections a global public health emergency, the Russians closing their land border, and drastically reduced air travel—all added to market worries. The week ended with more questions about the level of contagion, and lethality, as a few hundred travelers from the Wuhan epicenter were quarantined in California, which is the first such domestic action in decades.

From an economic standpoint, it appears that the global economic growth pace could be reduced by as much as 0.5-1.5% for Q1, based on best estimates, if conditions peak and recover similar to past experience. In the worst case, this may lengthen the period of global growth slowdown experienced and defer a recovery into mid-year or a bit beyond, as opposed to earlier 2020. This growth impact mostly impacts China, due to reduced travel, but also a slowdown or stoppage of domestic consumption, including entertainment, such as restaurants and consumer goods. This could affect large multi-national brands, but also any company sensitive to general business conditions, as well as energy commodities.

Previous Epidemics

In reviewing several previous episodes of epidemics, including SARS (2003), Swine flu (2009), Avian flu (2013), and Ebola (2014), financial markets reacted negatively in a similar way. On average, equities troughed about four weeks after the initial panic. In each of these cases, they recovered back to around where they started before the panic in the subsequent few weeks (and moved higher than that in several cases) by two months after the initial event. History doesn’t always repeat, and every contagion is a bit different, but such similar epidemics were proven to have been short-lived blips on the financial radar screen.

Sources

  1. LSA PortfolioAnalytics
  2. FocusPoint Solutions calculations, based on index returns from Yahoo Finance. Epidemic start dates: SARS (1/21/03), Swine flu (6/11/09), Avian flu (3/31/13), Ebola (9/30/14), as defined by Goldman Sachs Investment Research. Coronavirus start date set as 1/17/20, with returns through 1/31/20.

Why it’s Important to Review Your Estate Plan and Some Common Errors To Avoid

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Many people plan their estates diligently, with input from legal, tax, and financial professionals. Others plan earnestly but make mistakes that can potentially affect both the transfer and destiny of family wealth. Here are some common and not-so-common errors to avoid.

1) Doing it All Yourself

While you could write your own will or create a will, it can be risky to do so. Sometimes simplicity has a price. Look at the example of Aretha Franklin. The “Queen of Soul’s” estate, valued at $80 million, may be divided under a handwritten or “holographic” will. Her wills were discovered among her personal effects. Provided that the will can be authenticated, it will be probated under Michigan law, but such unwitnessed documents are not necessarily legally binding. (1)

2) Failing to Update Your Will or Trust After a Life Event

Relatively few estate plans are reviewed over time. Any major life event should prompt you to review your will, trust, or other estate planning documents. So should a major life event that affects one of your beneficiaries.

3) Appointing a Co-Trustee

Trust administration is not for everyone. Some people lack the interest, the time, or the understanding it requires, and others balk at the responsibility and potential liability involved. A co-trustee also introduces the potential for conflict.

4) Being too Vague With Your Heirs About Your Estate Plan

While you may not want to explicitly reveal who will get what prior to your passing, your heirs should understand the purpose and intentions at the heart of your estate planning. If you want to distribute more of your wealth to one child than another, write a letter to be presented after your death that explains your reasoning. Make a list of which heirs will receive collectibles or heirlooms. If your family has some issues, this may go a long way toward reducing squabbles as well as the possibility of legal costs eating up some of this-or-that heir’s inheritance.

5) Leaving a Trust Unfunded (or Underfunded)

Through a simple, one-sentence title change, a married couple can fund a revocable trust with their primary residence. As an example, if a couple retitles their home from “Heather and Michael Smith, Joint Tenants with Rights of Survivorship” to “Heather and Michael Smith, Trustees of the Smith Revocable Trust dated (month)(day), (year).” They are free to retitle myriad other assets in the trust’s name. (1)

6) Ignoring a Caregiver With Ulterior Motives

Very few people consider this possibility when creating a will or trust, but it does happen. A caregiver harboring a hidden agenda may exploit a loved one to the point where they revise estate planning documents for the caregiver’s financial benefit.

The best estate plans are clear in their language, clear in their intentions, and updated as life events demand. They are overseen through the years with care and scrutiny, reflecting the magnitude of the transfer of significant wealth.

▼ Download “Nine Important Estate Planning Steps”

Sources

  1. detroitnews.com/story/news/local/oakland-county/2019/05/20/lawyer-says-3-handwritten-wills-found-aretha-franklin-home/3747674002/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

The Major Retirement Planning Mistakes and How to Avoid Them

Much is out there about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Aside from these blunders, some classic financial missteps plague retirees.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.

1) Leaving Work Too Early

As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for higher retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. Meanwhile, if you can delay claiming Social Security, that positions you for more significant monthly benefits. (1)

2) Underestimating Medical Bills

In its latest estimate of retiree health care costs, the Center for Retirement Research at Boston College says that the average retiree will need at least $4,300 per year to pay for future health care costs. Medicare will not pay for everything. That $4,300 represents out-of-pocket costs, which includes dental, vision, and long-term care. (2)

3) Taking the Potential For Longevity Too Lightly

Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents. (3)

4) Withdrawing Too Much Each Year

You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. Many cautious retirees try to abide by it.

So, why do others withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures and an inclination to live a bit more lavishly.

5) Ignoring Tax Efficiency & Fees

It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its “preferred domain.” What does that mean? It means the taxable or tax-advantaged account that may be most appropriate for it as you pursue a better after-tax return for the whole portfolio.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – something you might regret in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

6) Avoiding Market Risk

Equity investment does invite risk, but the reward may be worth it. In contrast, many fixed-rate investments offer comparatively small yields these days.

7) Retiring With Heavier Debts.

It is hard to preserve (or accumulate) wealth when you are handing portions of it to creditors.

8) Putting College Costs Before Retirement Costs

There is no “financial aid” program for retirement. There are no “retirement loans.” Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.

9) Retiring With No Plan or Investment Strategy

An unplanned retirement may bring terrible financial surprises; the absence of a strategy can leave people prone to market timing and day trading.

These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.

▲ The retirement equation

Planning for retirement can be overwhelming as individuals navigate various retirement factors over which we have varying levels of control. There are challenges in retirement planning over which we have no control, like the future of tax policy and market returns, and factors over which we have limited control, like longevity and how long we plan to work. The best way to achieve a secure retirement is to develop a comprehensive retirement plan and to focus on the factors we can control: maximize savings, understand and manage spending and adhere to a disciplined approach to investing. (4)

Sources

  1. forbes.com/sites/bobcarlson/2019/01/25/5-ways-to-maximize-social-security-benefits
  2. fool.com/retirement/2019/12/11/4-steps-to-making-sure-youre-ready-to-retire.aspx
  3. ssa.gov/planners/lifeexpectancy.html
  4. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

2019 IRA Deadlines Are Approaching: Here’s What You Need to Know

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Financially, many of us associate April with taxes – but we should also associate April with important IRA deadlines.

April 1, 2020

The deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts.

A New Federal Law

The Setting Every Community Up for Retirement Enhancement (SECURE) ACT, passed late in 2019, changed the age for the initial RMD for traditional IRAs and traditional workplace retirement plans. It lifted this age from 70½ to 72, effective as of 2020.1

So, if you were not 70½ or older when 2019 ended, you can wait to take your first RMD until age 72. If you were 70½ at the end of 2019, the old rules still apply, and your initial RMD deadline is April 1, 2020. Your second RMD will be due on December 31, 2020.1,2

Keep in mind that withdrawals from traditional, SIMPLE, and SEP-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

To qualify for the tax-free and penalty-free withdrawal of earnings from a Roth IRA, your Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

April 15, 2020

The deadline for making annual contributions to a traditional IRA, Roth IRA, and certain other retirement accounts. (3)

The earlier you make your annual IRA contribution, the better. You can make a yearly IRA contribution any time between January 1 of the current year and April 15 of the next year. So, the contribution window for 2019 started on January 1, 2019 and ends on April 15, 2020. Accordingly, you can make your IRA contribution for 2020 any time from January 1, 2020 to April 15, 2021. (4)

You may help manage your income tax bill if you are eligible to contribute to a traditional IRA. To get the full tax deduction for your 2019 traditional IRA contribution, you have to meet one or more of these financial conditions:

  • You aren’t eligible to participate in a workplace retirement plan.
  • You are eligible to participate in a workplace retirement plan, but you are a single filer or head of household with Modified Adjusted Gross Income (MAGI) of $64,000 or less. (Or if you file jointly with your spouse, your combined MAGI is $103,000 or less.) (5)
  • You aren’t eligible to participate in a workplace retirement plan, but your spouse is eligible and your combined 2019 gross income is $193,000 or less. (6)

Thanks to the SECURE Act, both traditional and Roth IRA owners now have the chance to contribute to their IRAs as long as they have taxable compensation (and in the case of Roth IRAs, MAGI below a certain level; see below). (1,4)

If you are making a 2019 IRA contribution in early 2020, you must tell the investment company hosting the IRA account which year the contribution is for. If you fail to indicate the tax year that the contribution applies to, the custodian firm may make a default assumption that the contribution is for the current year (and note exactly that to the I.R.S.).

So, write “2020 IRA contribution” or “2019 IRA contribution,” as applicable, in the memo area of your check, plainly and simply. Be sure to write your account number on the check. If you make your contribution electronically, double-check that these details are communicated.

How Much Can You Put Into an IRA This Year?

You can contribute up to $6,000 to a Roth or traditional IRA for the 2020 tax year; $7,000, if you will be 50 or older this year. (The same applies for the 2019 tax year). Should you make an IRA contribution exceeding these limits, you have until the following April 15 to correct the contribution with the help of an I.R.S. form. If you don’t, the amount of the excess contribution will be taxed at 6% each year the correction is avoided.3,4

The maximum contribution to a Roth IRA may be reduced because of Modified Adjusted Gross Income (MAGI) phaseouts, which kick in as follows.

2019 Tax Year

  • Single/head of household: $122,000 – $137,000
  • Married filing jointly: $193,000 – $203,000 (7)

2020 Tax Year

  • Single/head of household: $124,000 – $139,000
  • Married filing jointly: $196,000 – $206,000 (8)

The I.R.S. has other rules for other income brackets. If your MAGI falls within the applicable phase-out range, you may be eligible to make a partial contribution. (7,8)

A last reminder for those who turned 70½ in 2019: you need to take your first traditional IRA RMD by April 1, 2020 at the latest. The investment company that serves as custodian (host) of your IRA should have alerted you to this deadline; in fact, they have probably calculated the RMD amount for you. Your subsequent RMD deadlines will all fall on December 31. (2)

Sources

  1. marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21
  2. kiplinger.com/article/retirement/T045-C000-S001-the-deadline-for-your-first-rmd-is-april-1.html
  3. irs.gov/retirement-plans/ira-year-end-reminders
  4. irs.gov/retirement-plans/traditional-and-roth-iras
  5. irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work
  6. irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work
  7. irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019
  8. irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

The SECURE Act Explained: Changes to Long-Established Retirement Account Rules

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is now law. With it, comes some of the biggest changes to retirement savings law in recent years. While the new rules don’t appear to amount to a massive upheaval, the SECURE Act will require a change in strategy for many Americans. For others, it may reveal new opportunities.

Limits on Stretch IRAs

The legislation “modifies” the required minimum distribution rules in regard to defined contribution plans and Individual Retirement Account (IRA) balances upon the death of the account owner. Under the new rules, distributions to individuals are generally required to be distributed by the end of the 10th calendar year following the year of the account owner’s death. (1)

Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.

Let’s say that a person has a hypothetical $1 million IRA. Under the new law, your beneficiary should consider taking at least $100,000 a year for 10 years regardless of their age. For example, say you are leaving your IRA to a 50-year-old child. They must take all the money from the IRA by the time they reach age 61. Prior to the rule change, a 50-year-old child could “stretch” the money over their expected lifetime, or roughly 30 more years.

The new limits on IRAs may force account owners to reconsider inheritance strategies and review how the accelerated income may affect a beneficiary’s tax situation.

IRA Contributions and Distributions.

Another major change is the removal of the age limit for traditional IRA contributions. Before the SECURE Act, you were required to stop making contributions at age 70½. Now, you can continue to make contributions as long as you meet the earned-income requirement.2

Also, as part of the Act, you are mandated to begin taking required minimum distributions (RMDs) from a traditional IRA at age 72, an increase from the prior 70½. Allowing money to remain in a tax-deferred account for an additional 18 months (before needing to take an RMD) may alter some previous projections of your retirement income.2
The SECURE Act’s rule change for RMDs only affects Americans turning 70½ in 2020. For these taxpayers, RMDs will become mandatory at age 72. If you meet this criterion, your first RMD won’t be necessary until April 1 of the year you turn 72. (2)

Multiple Employer Retirement Plans for Small Business.

In terms of wide-ranging potential, the SECURE Act may offer its biggest change in the realm of multi-employer retirement plans. Previously, multiple employer plans were only open to employers within the same field or sharing some other “common characteristics.” Now, small businesses have the opportunity to buy into larger plans alongside other small businesses, without the prior limitations. This opens small businesses to a much wider field of options. (1)

Another big change for small business employer plans comes for part-time employees. Before the SECURE Act, these retirement plans were not offered to employees who worked fewer than 1,000 hours in a year. Now, the door is open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for three consecutive years. (2)

While the SECURE Act represents some of the most significant changes we have seen to the laws governing financial saving for retirement, it’s important to remember that these changes have been anticipated for a while now. If you have questions or concerns, reach out to your trusted financial professional.

Sources

  1. waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf
  2. marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

8 Key Issues Facing Investors in 2020

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The term ‘outlook’ can be misleading, as most forecasts tend to be partially to very off-base in hindsight. So, this question is best answered as a summary of whatever is currently top of mind going into the New Year. Some of these change from year-to-year, while others have been ongoing.

1) Presidential Impeachment Proceedings

Now that this has escalated to a full trial in the Senate, expectations for an acquittal or lighter ‘censure’ appear the highest-probability outcome. Of course, anything that throws these expectations off track could affect financial markets, as would any implications for the upcoming Presidential race (see below). Despite all this, polls have shown Americans are relatively steadfast in their support one way or the other following the high-profile and contentious proceedings so far.

2) Trade Between the U.S. and China

While ‘phase one’ of a deal has technically been agreed to, it remains under legal review and has yet to be finalized. While the process of achieving further agreement remains likely a long one, the hope is that further tariffs can be paused and/or coupled with an easing of existing restrictions. Following the various announcements, which financial markets have tended to view optimistically, follow-through is also an issue, as details have been vague and implementation has been spotty historically.

3) Trade Between the U.S. and Other Countries

While the issues between the U.S. and China have taken most of the headlines, increasingly protectionist policies affect other relationships around the globe. This has been highlighted (and possibly solved) by the U.S.-Mexico-Canada trade agreement (USMCA) replacement for NAFTA, assuming final approval is just a formality. Also, there are a variety of other skirmishes with Europe, notably with France over their imposition of a ‘digital tax’, which affects a disproportionate number of U.S. tech firms, and was countered with a symbolic severe 100% tariff on items of French cultural significance, such as Champagne, cheese, etc. Other export-heavy nations, such as Germany (especially with autos and industrial equipment), are also sensitive to these protectionist pressures.

4) The Presidential Election

This is potentially volatility-inducing, based on polling results and sentiment. Politics aside, the key financial market issues here are:

  1. A Republican administration (Trump) would retain the current pro-corporate policies, such as a low tax regime and reduced regulatory burdens.
  2. A Democratic regime (especially Warren or Sanders) could raise fears of anti-competitive review of certain behemoth companies, such as in technology, attempt a rollback in tax cuts or reestablish a more restrictive regulatory environment.

There are sector concerns here as well, which we’ve discussed previously. Overall, an incumbent president has a lot to lose by the economy going into recession just prior to an election—it’s almost a sure-fire formula for a regime change.

5) Economic Growth/Stage of the Business Cycle

How long will this already-long cycle continue? That is the key question, and may continue to be so until we eventually have a recession. A decade of recovery since the financial crisis is already a record in the modern era (last 100+ years, at least), but we have experienced several mid-cycle slowdowns over that time (which can look like a recession is beginning, even when it doesn’t end up unfolding). Growth has been slow throughout, though, which has reduced the amount of ‘excess’ in the economy, and possibly, the damage from a recession, if one were to occur in the near-term.

6) Yields and Fed Policy

The U.S. Federal Reserve has effectively announced that the three rate cuts in 2019 are it for the time being, the certainty about which the market seems to appreciate. However, the bar for raising rates has been raised, due to concerns over a lack of broad inflation. The Fed’s predictions for the future, though, similar to other economists, have shown mixed accuracy. Other central banks around the globe, such as the ECB and Bank of Japan, have remained steadfastly accommodative, keeping interest rates at negative levels, in addition to other stimulus, in response to very low inflation and economic growth. Looking at the long-term drivers of demographics/labor force growth and productivity, such meager conditions do not appear likely to abate soon.

7) Equity Earnings and Valuations

One concern is about U.S. markets, following a strong period of above-average absolute returns and relative out-performance over foreign equities—how long can it go on? Valuation has tended to be a poor predictor of near-term performance, but can be useful in looking at upcoming multi-year performance. In this framework, a period of lower returns following a decade of high returns compared to historical norms wouldn’t be surprising. But markets continue to surprise in the meantime, so those who have moved to more defensive positioning too early can miss out on continued strength. Earnings growth has tended to be the primary driver of long-term equity results, however, which is a reason stocks often decline prior to recessions and perform well during periods of economic expansion. At the same time, the world has become more convoluted, with U.S. companies earning increasing amounts of revenue from abroad, and vice versa, so, aside from currency impacts, company domicile outright is less useful in broad brush equity market evaluations than in the past.

8) The Wildcards

They are always there, whether it be geopolitical flare-ups, weather disasters, political regime changes, or other surprises. As always, portfolio diversification can help ease the volatility of these.

▲Consumer confidence by political affiliation

This chart looks at consumer confidence by political affiliation. The grey line shows the percentage of all individuals polled who feel that economic conditions are good or excellent while the blue and red lines show how Democrats and Republicans feel about economic conditions, respectively. While there has been a large surge in consumer confidence for Republicans and a decrease in confidence for Democrats more recently, the bottom line is investors should not let politics dictate their investment strategies.

Sources

  1. LSA Portfolio Analytics
  2. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets/viewer

The 2020 Contribution Limit Increases for your IRA, 401(k) and 403(b) accounts

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The I.R.S. increased the annual contribution limits on IRAs, 401(k)s, and other widely used retirement plan accounts for 2020. Here’s a quick look at the changes.

IRAs

Next year, you can put up to $6,000 in any type of IRA. The limit is $7,000 if you will be 50 or older at any time in 2020. (1,2)

401(k)s, 403(b)s, 457s, and Thrift Savings Plans

Annual contribution limits for 401(k)s, 403(b)s, the federal Thrift Savings Plan, and most 457 plans also get a $500 boost for 2020. The new annual limit on contributions is $19,500. If you are 50 or older at any time in 2020, your yearly contribution limit for one of these accounts is $26,000. (1,2)

Solo 401(k)s and SEP IRAs

Are you self-employed, or do you own a small business? You may have a solo 401(k) or a SEP IRA, which allows you to make both an employer and employee contribution. The ceiling on total solo 401(k) and SEP IRA contributions rises $1,000 in 2020, reaching $57,000. (3)

SIMPLE IRA

If you have a SIMPLE retirement account, next year’s contribution limit is $13,500, up $500 from the 2019 level. If you are 50 or older in 2020, your annual SIMPLE plan contribution cap is $16,500. (3)

HSAs

Yearly contribution limits have also been set a bit higher for Health Savings Accounts (which may be used to save for retirement medical expenses). The 2020 limits: $3,550 for individuals with single medical coverage and $7,100 for those covered under qualifying family plans. If you are 55 or older next year, those respective limits are $1,000 higher. (4)

Sources

  1. irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500
  3. forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/
  4. cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.html

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

5 Popular Options for Charitable Giving: The Gifts That Keep on Giving

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According to Giving USA 2018, Americans gave an estimated $410.02 billion to charity in 2017. That’s the first time that the amount has totaled more that $400 billion in the history of the report. (1) Americans give to charity for two main reasons: to support a cause or organization they care about or to leave a legacy through their support.

When giving to charitable organizations, some people elect to support through cash donations. Others, however, understand that supporting an organization may generate tax benefits. They may opt to follow techniques that can maximize both the gift and the potential tax benefit. Here’s a quick review of a few charitable choices:

Remember, the information in this article is not a replacement for real-life advice. It may not be used for the purpose of avoiding any federal tax penalties. Make sure to consult your tax, legal, or accounting professional before modifying your charitable giving strategy.

Direct Gifts

Direct gifts are just that: contributions made directly to charitable organizations. Direct gifts may be deductible from income taxes depending on your individual situation.

Charitable Gift Annuities

Charitable gift annuities are not related to annuities offered by insurance companies. Under this arrangement, the donor gives money, securities, or real estate, and in return, the charitable organization agrees to pay the donor a fixed income. Upon the death of the donor, the assets pass to the charitable organization. Charitable gift annuities enable donors to receive consistent income and potentially manage taxes.

Pooled-Income Funds

Pooled-income funds pool contributions from various donors into a fund, which is invested by the charitable organization. Income from the fund is distributed to the donors according to their share of the fund. Pooled-income funds enable donors to receive income, potentially manage taxes, and make a future gift to charity.

Gifts in Trust

Gifts in trust enable donors to contribute to a charity and leave assets to beneficiaries. Generally, these irrevocable trusts take one of two forms. With a charitable remainder trust, the donor can receive lifetime income from the assets in the trust, which then pass to the charity when the donor dies; in the case of a charitable lead trust, the charity receives the income from the assets in the trust, which then pass to the donor’s beneficiaries when the donor dies.

Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Donor-Advised Funds

Donor-advised funds are funds administered by a charity to which a donor can make irrevocable contributions. This gift may have tax considerations, which is another benefit. The donor also can recommend that the fund make distributions to qualified charitable organizations.

Some people are comfortable with their current gifting strategies. Others, however, may want a more advanced strategy that can maximize their gift and generate potential tax benefits. A financial professional can help you assess which approach may work best for you.

Sources

  1. givingusa.org/giving-usa-2018-americans-gave-410-02-billion-to-charity-in-2017-crossing-the-400-billion-mark-for-the-first-time/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Retirement Planning: What it is and How it Can Help You Increase Retirement Success

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Across the country, people are saving for that “someday” called retirement. Someday, their careers will end. Someday, they may live off their savings or investments, plus Social Security. They know this, but many of them do not know when, or how, it will happen. What is missing is a strategy – and a good strategy might make a great difference.

A retirement strategy directly addresses the “when, why, and how” of retiring.

It can even address the “where.” It breaks the whole process of getting ready for retirement into actionable steps.

This is so important. Too many people retire with doubts, unsure if they have enough retirement money and uncertain of what their tomorrows will look like. Year after year, many workers also retire earlier than they had planned, and according to a 2019 study by the Employee Benefit Research Institute, about 43% do. In contrast, you can save, invest, and act on your vision of retirement now to chart a path toward your goals and the future you want to create for yourself. (1)

Some people dismiss having a long-range retirement strategy, since no one can predict the future.

Indeed, there are things about the future you cannot control: how the stock market will perform, how the economy might do. That said, you have partial or full control over other things: the way you save and invest, your spending and your borrowing, the length and arc of your career, and your health. You also have the chance to be proactive and to prepare for the future.

A good retirement strategy has many elements.

It sets financial objectives. It addresses your retirement income: how much you may need, the sequence of account withdrawals, and the age at which you claim Social Security. It establishes (or refines) an investment approach. It examines tax implications and potential tax advantages. It takes possible health care costs into consideration and even the transfer of assets to heirs.

A prudent retirement strategy also entertains different consequences.

Financial advisors often use multiple-probability simulations to try and assess the degree of financial risk to a retirement strategy, in case of an unexpected outcome. These simulations can help to inform the advisor and the retiree or pre-retiree about the “what ifs” that may affect a strategy. They also consider sequence of returns risk, which refers to the uncertainty of the order of returns an investor may receive over an extended period of time. (2)

Let a retirement strategy guide you. Ask a financial professional to collaborate with you to create one, personalized for your goals and dreams. When you have such a strategy, you know what steps to take in pursuit of the future you want.

▲ The retirement equation

Planning for retirement can be overwhelming as individuals navigate various retirement factors over which we have varying levels of control. There are challenges in retirement planning over which we have no control, like the future of tax policy and market returns, and factors over which we have limited control, like longevity and how long we plan to work. The best way to achieve a secure retirement is to develop a comprehensive retirement plan and to focus on the factors we can control: maximize savings, understand and manage spending and adhere to a disciplined approach to investing. (3)

Sources

  1. ebri.org/docs/default-source/rcs/2019-rcs/rcs_19-fs-2_expect.pdf?sfvrsn=2a553f2f_4
  2. investopedia.com/terms/m/montecarlosimulation.asp
  3. https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What’s the Difference Between Value Investing and Growth Investing?

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You might be initially confused by these terms or even suspect they aren’t that different in terms of what each model offers you as an investor, but they are very distinct approaches, and it’s good to understand these two schools of thought as you invest. This understanding could help you make important investment decisions, both now and in the future. (1)

At first glance, some of the advantages to each approach may not be immediately obvious, depending on what sort of market you are facing. There is an element of timing to both value and growth investing, and that concept may be helpful in understanding the differences between the two. (1)

Investing for Value

Value investors look for bargains. That is, they attempt to find stocks that are trading below the value of the companies they represent. If they consider a stock to be underpriced, it’s an opportunity to buy; if they consider it overpriced, it’s an opportunity to sell. Once they purchase a stock, value investors seek to ride the price upward as the security returns to its “fair market” price – selling it when this price objective is reached.

Most value investors use detailed analysis to identify stocks that may be undervalued. They’ll examine the company’s balance sheet, financial statements, and cash flow statements to get a clear picture of its assets, liabilities, revenues, and expenses.

One of the key tools value investors use is financial ratios. For example, to determine a company’s book value, a value analyst would subtract the company’s liabilities from its assets. This book value can then be divided by the number of shares outstanding to determine the book-value-per-share – a ratio that would then be compared to the book-value-per-share ratios of other companies in the same industry or to the market overall.

Investing for Growth

Growth investors use today’s information to identify tomorrow’s strongest stocks. They’re looking for “winners” – stocks of companies within industries expected to experience substantial growth. They seek companies positioned to generate revenues or earnings that exceed market expectations. When growth investors find a promising stock, they buy it – even if it has already experienced rapid price appreciation – in the hope that its price will continue to rise as the company grows and attracts more investors.

Where value investors use analysis, growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrow’s leaders; they are less focused on the value of the underlying company.

For example, growth investors may favor companies with a sustainable competitive advantage that are expected to experience rapid revenue growth, effective at containing cost, and staffed with an experienced management team.

Value and growth investing are opposing strategies

A stock prized by a value investor might be considered worthless by a growth investor and vice versa. So, which is right? A close review of your personal situation can help determine which strategy may be right for you.

▲ Returns and valuations by style

This page shows returns and valuations by investment style for the U.S. equity market, and leverages the “style box” framework pioneered by Morningstar. Return periods include the most recent quarter, year-to-date returns, returns since the 2007 peak and returns since the 2009 low. To the right, valuations depict which areas of the U.S. equity markets are trading at a deeper discount or premium, relative to their own 20-year average. (2)

Sources

  1. https://kiplinger.com/article/investing/T052-C000-S002-value-vs-growth-stocks-which-will-come-out-on-top.html
  2. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets/viewer

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.