Market Update

We hope that all the charts over the past few months have caught your interest.  In all honesty, we believe that technical analysis is a critical component that must be used when developing an investment thesis whether you are buying a stock or allocating an entire portfolio.

That being said, we feel compelled to once again talk about the 200 day moving average on the S&P 500.  

Over the past couple of months, we mentioned that the 200 day may act as an area of resistance (where an upward move in the market may stop and reverse).  We specifically said, "we would not be surprised to see the S&P 500 have a hard time getting back above the 200-day moving average unless we get some really good news. That news could be in the form of positive corporate earnings, strong economic data, indication that the Fed will cease interest rate increases or an effective resolution to the Trade Wars with China".

Well, although earnings have been a mixed bag and economic data has been pretty non-eventful (nothing in the recent economic data raised the recession flag), the Fed certainly did make it pretty clear that they are on hold.  A Trade War resolution has not been reached.  However, the market has been acting like it has by pricing it in over the past few weeks assuming that a positive agreement is imminent.  Based on all that, the market had success in testing and then moving through and above the 200 day in a modest rally.  Important to note, however, is the fact that the market did not rally to new highs.  The rally has fizzled over the past week or so.  Today, as I type this midday on Thursday, we are at a tipping point that I want to highlight.  As you can see on this month's chart in the black circle, we are currently testing and holding the 200 day as a level of support (the downward move may stop and reverse).  What I find interesting and positive is that the 50 day (purple line) is rising as we are testing the 200 day to the downside.  That is typically bullish...but the jury is still out.    

We still think that Mr. Market smells uncertainty in the air.  That is leading us to continue our cautious and income oriented approach.  We recently took some profits in a few of our trades from December.  We did so by reducing the size of 3 investments in our portfolios from what we would consider a maximum position of 5-10% to more neutral one of 3-7%.  In general, our portfolios are performing well so far this year.

Taxes, Taxes, Taxes !!!

Now that 2018 has come and gone and you are preparing your taxes, you may want to consider 2018 as a template for what 2019 should look like because not a lot has changed. 

We will be using last year‘s tax returns with clients to determine what important decisions we can make in 2019 to put you in a better tax situation for the future.

Items to be discussed will be as follows: Roth Conversions, charitable planning including the donating of securities and the Qualified Charitable Distribution (QCD) from IRAs.

If anyone currently owns or aspires to create a small business, this may be an opportune time to take advantage of recent tax changes. The most obvious change to potentially take advantage of is the Qualified Business Income deduction.(QBI)

If any or all of the above strategies are of interest to you, please contact us to discuss.  It is important to make sure that the strategy or transaction fits your personal financial situation and gets you closer to achieving your goals.

All tax forms are now available

Please keep in mind that we live in a world of many different types of investments and thousands of individual investment options.  It is common for investment providers to be slow to send information or to report incorrect information that needs to be updated.  Therefore, it is not uncommon for tax forms to corrected.  If you have a non-retirement account, it is possible that you may receive a corrected Consolidated 1099.  If you are using an accountant, he/she should be very familiar with this. 

As you Financial Advisor and a CFP®, we have a vested interest in discussing your taxes.  Please do not hesitate to use us as a resource.  However, we fully understand that there are certainly many reasons to use an accountant or a CPA.

As we mentioned last month, if your tax situation is pretty simple and you will likely be using a standard deduction, you might be well served by filing your taxes on your own.  

If you have any questions, please contact us.

Financial Planning Tip of the Month

 Long Term Care

In the December issue of RAA Monthly, we talked about Life Insurance in Retirement.  In that issue, we reviewed a couple of examples of how we were helping clients with a solution for Long Term Care.  This month, we want to dig deeper...  

Last week, we hosted a very successful educational event.  Over 2 nights, we presented to 60 retirees and pre-retirees.  We spent about 2 hours discussing Long Term Care (LTC).  It became very obvious to us that people are concerned about the potential costs of LTC and want to learn more about how they can protect themselves.

This is a topic area that dovetails nicely into our methodology of creating holistic financial plans. 

As with anything we do at RAA, we spent many hours researching and preparing for this event.  We wanted to ensure that the topic was not only going to present a good local marketing opportunity for RAA, but more importantly, was something that the public can benefit from.  There has been an extraordinary amount of discussion about the risks we face if we do not properly insure against the possibility of significant costs for healthcare in retirement.  On top of that, we have seen several announcements from the some of the largest providers of traditional LTC regarding rising costs of insurance...a double whammy!

As Financial Planners, we often show clients a projection of their retirement readiness using what is called a Monte Carlo simulation.  When doing so, we stress the importance of a 90% confidence level.  That means that we run simulations to ensure that the plan will be successful and have the money needed in retirement in 9 out of 10 hypothetical scenarios.  In other words, if we run 1,000 scenarios, the plan would only fail (not have enough money) in 100 of the results.  The scenarios include assumptions to plan for longevity, inflation and market risk.  A confidence level of 90% may seem extreme to some but we have very seldom faced opposition from clients when explaining the importance of planning for a near worst case scenario.  Sounds good right?

Well, recently we started to wonder if it really is because we (and the majority of the financial planning world) may be forgetting one critical element.  I am talking about LTC.  According to a 2017 U.S. Department of Health and Human Services study, nearly 70% of us will require some level of LTC in our life.  That is 7 out of 10 of us!  If we go back to the Monte Carlo mindset for a minute, that means we would only have a 30% confidence level that we would NOT need LTC.  We would never let a client out of our conference room with a 30% confidence level for retirement.  Why the heck would we want to do that for LTC?  This is why we spent considerable time and resources learning about the topic and ways to help clients protect themselves.  First, to be fair, there are some people that can afford to "self-insure".  In other words, they can afford to simply pay for the potential cost out of pocket or from their assets.  The Certified Financial Planners Board of Standards recommends that those with assets between $200,000 and $2,000,000 consider some sort of LTC coverage.  That more or less is telling us that those with less than $200,000 may not be able to afford coverage those with more than $2,000,000 may be able to self-insure. 

Contrary to what you may read or be hearing at the water cooler, there ARE options that ARE affordable. 

Here is an extremely quick and simple overview of some options that are available today. 

Life Insurance with a LTC rider (often referred to as the "new insurance". very much the same as traditional life insurance policies (term or permanent) but with a provision to allow access to the death benefit in the event of a LTC claim)

Linked Benefit Products (basically a life insurance policy designed with a large LTC benefit and smaller but still substantial death benefit.  many include a return of principal option)

Annuities with a Chronic and/or Terminal Illness rider (a fixed annuity with a option to have your balance paid out on an accelerated schedule penalty-free in the event of a LTC claim).

Long Term Care is something that is near and dear to a lot of people.  I would argue that all of us have a story about someone we care about that needed care.  Inevitably, that care costs money...a lot of money! 

The chart below show the cost of care in GA from Genworth, the largest provider of Long Term Care insurance. 

We included today's cost as well as an inflation adjusted cost for 2028. 

As you can see, these are not small numbers. 

Further, according to a study from Genworth spanning from 1974 through 2016, the average length of a claim for long term care is 4.2 years.  You do the math.  

We would like to commit to being a resource to discuss LTC with all of you.  There may or may not be something we can do.  However, it is a step we need to take.  A recent article from Financial Planning magazine in June of last year really struck a nerve with me.  About half way through the article was this quote:  "It’s no wonder avoidance is the planning default — which is exactly why advisors need to sit down with clients and have a talk about long-term care, experts say.  It’s critical that financial advisors have a conversation about long-term care with clients, with documentation, says New York-based elder care attorney Bernard Krooks.  Not only are you providing a necessary service for the client, you are protecting yourself from being sued by the client’s adult children, who, if things turn out badly, may say, ‘You should have talked to Mom and Dad.” 

Here is the link to the entire article >>>

https://www.financial-planning.com/news/long-term-care-issues-facing-financial-advisors

In addition, leaders in our industry have made it clear that we need to be having conversations about LTC.  The American College if Financial Services and the Certified Financial Planners Board have stressed the importance of addressing the risks of LTC.  

In closing, we would like to ask you to please be open to having these conversations and prepare yourself for the potential risks you face. 

Please let us know if you have any feedback or questions. 

We would love to hear from you !