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When investing, don’t think about the patriots

This past weekend, the New England Patriots did it again. Down 10 in the 4th, star quarterback Tom Brady orchestrated two scoring drives to pull off another comeback victory. In two weekends, the Pats will try to win their 3rd Super Bowl in 4 years – headlining a host of impressive statistics dating back to 2001.

But as loyal CNYers, we know this run will come to an end. Brady, already 40 years old, will age, coach Belichik will retire, and the Bills and Giants will once again meet in the Super Bowl.

We’ve seen it in other sports: The UCLA Bruins under Wooden, the Celtics with Bill Russell, and the Yankees in the 1950s. Teams have great runs, but sooner or later they have losing records. This pattern transcends most facets of life. When we perceive something to be at a peak, we say it’s only a matter of time before it’s worse than it is today.

The stock market doesn’t play by these rules. It’s normal to think because the market is at an all-time high it must go down, but it mustn’t. The stock market and the Patriots have enjoyed similar recent success, but they will have different futures.

Markets go up over time. Since 1978, we’ve had 40 “year-ends.” Money invested in the S&P 500 has hit a new end-of-year-high in 27 of those 40 years. Having the stock market trading at or near an all-time high isn’t cause for panic; it’s common!

We just hit our sixth consecutive year of a new high. This is a great stretch, but in the 80s and 90s we saw runs of eight and nine years respectively. The current run could last for 12 years, or it could end this next year.

No one knows for sure what the market will do, but cash is a poor long-term investment and the stock market has rewarded those who stuck with it through the ups and downs. $1 invested 40 years ago is worth $80 today.

While markets go up over time, they do have temporary periods of declines. As investors, we need to determine the right diversified mix of stocks and bonds that allows us to benefit from being invested while protecting us when times are bad.

And when the stock market inevitably performs poorly, Tom Brady will be jealous. For unlike Mr. Brady, the stock market’s best days are still to come, but Brady is better now than he will be at 45. Well it’s Tom Brady, let’s say 50 to be safe.

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Market commentary – january 2018

Stock Markets

Returns from various stock market indices over several periods ending December 31, 2017 are shown below. The past quarter was good for stocks – REITs lagged. Over the past year, returns from stock indices, especially emerging markets, were well above longer- term averages.  Over longer periods, domestic market indices were well above those of non-domestic markets, which tells us nothing about what we’ll see over the next ten years.

 

Bond Markets

Yields are up at the short end in response to the Fed increasing interest rates; yields at the longer end are down a bit.  Yields and bond prices are inversely related (when yields go up, prices come down and vice versa).  These changing yields explain negative bond returns for short-term bonds; positive returns for bonds of longer maturities.

Today’s Yield Curve is flatter.  The Fed can control only short-term rates; long-term yields generally reflect market expectations for future interest rates and inflation.  Falling yields are consistent with the expectation that the Fed will have difficulty increasing interest rates down the road or reduce inflation – a precursor for a difficult economic environment, which seems inconsistent with today’s economy.

 

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Ten best financial practices to jump-start your new year

Happy New Year! Now that 2017 is a wrap, one of the best presents you can bestow on yourself and your loved ones is the gift of proper preparation for the rest of the year. Want to get a jump-start on it? Here are 10 financial best practices to energize your wealth management efforts.

 

  1. Save today for a better retirement tomorrow. Are you maxing out pre-tax contributions to your company retirement plan? Taking full advantage of your and your spouse’s company retirement plans is an important, tax-advantaged way to save for retirement, especially if your employer matches some of your contributions with “extra” money. And, by the way, if you are 50 or older, you may be able to make additional “catch-up contributions” to your plan, to further accelerate your retirement-ready investing.
  2. Verify your valuables are still covered. Most households have insurance: home, auto, life … maybe disability and/or umbrella. But when is the last time you’ve checked to see if these policies remain right for you? Over time, it’s easy to end up with gaps or overlaps, like too much or not enough coverage, deductibles that warrant a fresh take, or beneficiaries who need to be added or removed. If you’ve not performed an insurance “audit” recently, there’s no time like the present to cross this one off your list.
  3. Get a grip on your debt load. Investment returns will only take you so far if excessive debt is weighing you down. Prioritize paying down high-interest credit cards and similar high-cost debt first, and at least meeting minimums on the rest. You may also want to revisit whether you still hold the best credit cards for your circumstances. Do the interest rates, incentives, protections and other perks still reflect your needs? Ditto on that for your home loan.
  4. Check up on your credit reports. Speaking of those credit cards, have you been periodically requesting your free annual credit report from each of the three primary credit reporting agencies? Be sure to use AnnualCreditReport.com for this purpose, as it’s the only federally authorized source for doing so. By staggering your requests – submitting to one agency every fourth months – you can keep an ongoing eye on your credit, which seems especially important in the wake of last summer’s Equifax breach.
  5. Get a bead on your budget. How much did you spend in 2017? How much do you intend to spend in the year ahead? After current spending, can you still afford to fund your future plans? Do you have enough set aside in a rainy day fund to cover the inevitable emergencies? These days, there are apps available to help you answer these important questions. Mint.com is one such popular app.
  6. Get ready for tax time … with a twist. While income tax reform looms large in the U.S., the changes won’t apply to 2017 taxes (due by April 17, 2018). Still, there are the usual tax-planning activities to tackle: gathering receipts and reports, making prior-year contributions, wrapping up business revenue and expenses if you’re a business owner, funding or drawing down retirement accounts, and more. Plus, there now may be tax planning opportunities or challenges to consider as the new laws take effect in 2018. You may want to fire up those tax-planning engines on the early side this time around.
  7. Give your investments a good inspection. Where do you stand with your personal wealth? Do you have an investment strategy to see you through? Does your portfolio reflect your personal goals and risk tolerances? If you experienced strong growth in 2017, is it time to lock in some of those gains by rebalancing your portfolio to its original mix? While investment management is a marathon of patient perspective rather than a short-sighted sprint of mad dashes, a new year makes this as good a time as any to review the terrain.
  8. Ensure your estate plans are current. Do you have wills and/or trusts in place for you and your loved ones? If so, when is the last time you took a look at them? Your family may have experienced births, deaths, marriages or divorces. Dependents may have matured. You may have acquired or sold business interests, and added new assets or let go of old ones. Your original intentions may have changed, or government regulations may have changed them for you. For all these reasons and more, it’s worth revisiting your estate plans annually.
  9. Have a look at your healthcare directives. As healthcare becomes increasingly complex, advance directives (living wills) play an increasingly vital role in ensuring your healthcare wishes are met should you be unable to express them when the need arises. Don’t leave your loved ones unaware of and/or unable to act on your critical-care or end-of-life preferences. If you don’t already have a strong living will in place, Aging with Dignity’s Five Wishes is one helpful place to learn more.
  10. Give your newly adult children the gift of continued care. Have any of your children turned 18 recently? You may send them off to college or a career, assuming you can still be there for them should an emergency arise. Be forewarned! If you don’t have the legal paperwork in place, healthcare providers and others may be unable to respond to your requests or even discuss your adult child’s personal information with you. To remain involved in their healthcare interests, you’ll want to have a healthcare power of attorney, durable power of attorney and HIPAA authorization in place. It may also be prudent to establish education record release authorizations while you’re at it.

 

NEXT STEPS IN THE NEW YEAR

We get it. Life never stops. The holiday season can be a busy time that often spills right into the New Year. Don’t despair if you can’t get to all ten of these tidbits at once. Take on one each month, and you’ll still have a couple of months to spare before we’re ringing in 2019.

Better yet, don’t go it alone. Let us know if we can help you turn your financial planning jump-start into a mighty wealth management leap. It begins with an exploratory conversation.

 

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A look at the new U.S. tax law

As you are likely aware, Congress has recently passed significant changes to the tax law. These changes are effective beginning in tax year 2018, with many of the changes for individuals set to sunset after 2025. The summary below is a high-level overview of many of the most relevant changes that will impact people’s taxes. If you have questions relating to your specific situation, please contact your Rockbridge advisor. Also, keep an eye out on our blog for upcoming articles discussing our income tax planning process, and for more in-depth reviews of these new changes to the tax law.

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