Market Update

Last month we mentioned that we saw a strong possibility that "What once was support, now could be resistance". 

We were referring to the 200-day moving average and the S&P 500 (red line). 

That 200-day moving average is currently 2,742.08. 

The S&P 500 closed yesterday at 2.737.70. 

We are clearly at an inflection point. 

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.

So, let's recap some of the recent news.  More than 50% of the companies in the S&P 500 have reported Q4 2018 earnings so far.  Results have been sort of a mixed bag.  Although, on average, the results have not been horrible.  Some notable positive influences were Boeing, Apple, Facebook and Ralph Lauren.  Some disappointing reports came from a trio of video game makers; Take Two Interactive, Activision Blizzard and Electronic Arts (all getting whooped by Fortnite!), as well as from AT&T and Caterpillar.  

Economic data has been fairly positive...exemplified by a decent jobs report last week.  After nine interest rate hikes since 2015, the Fed met last week and decided not to raise interest rates again, leaving Fed Funds at 2.25%.  Further, the fed changed their hawkish stance and told us that they will be patient going forward and gave us reason to believe that the chances of the next move being down may be as likely as up. 

President Trump addressed the nation last night.  He seems steadfast on building the wall and wasted no time jumping into a series of accolades.  He reminded us that the USA is the strongest economy in the world as he saw no reason not to take credit for it.  He led us to believe that we should be optimistic that a resolution to the Trade War with China is forthcoming.  

All that being said, Mr. Market still smells uncertainty in the air.  As such, we are being cautious.  We are close to fully invested.  However, we are being careful and looking for a "margin of safety" as we are putting money to work.  Generally speaking, we have taken a more conservative and income-oriented approach.

Our approach saved a lot of anxiety during the market correction during the 4th quarter.  We were tactical and opportunistic during the selloff and it paid off.  Our portfolios are performing very well so far this year.

It's Tax Time !

Your tax forms are starting to become available.  Please keep in mind that we now 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 delayed or corrected.  We ask for your patience and understanding.  If you are using an accountant, he/she should be very familiar with this. 

As you Financial Advisor and a CFP®, we are happy to have a discussion about taxes.  We can answer questions and even guide you to the best of our abilities.  With the 2018  changes from the Tax Cuts and Jobs Act (TCJA) there are likely to be many more people filing on their own and claiming a standard deduction as opposed to itemizing deductions.  There are certainly many reasons to use an accountant or CPA.  However, if you think your taxes are pretty simply and you will be claiming the standard deduction, you might want to try to do your taxes yourself and save some money. 

Keep in mind that although we are more than happy to help...we are not CPA's and cannot sign your tax return.

If you have any questions, please contact us.

Financial Planning Tip of the Month

  This month we thought we would dig up an old resource that we have been using since our days as account executives at Fidelity. 

This is a simple yet effective guide that we use when determining an appropriate income strategy for clients. 

Retirement Income Strategies

Some day, now or in the future, you will realize that you’ve spent your entire working life saving for retirement.  While saving is important, the way you manage your retirement savings could be even more important.  That savings, after all, typically becomes your income.  We find that shifting from a saving mindset to a spending one can be very difficult for many people.

Building a retirement income strategy starts with a realistic look at what you’d like your retirement to be like.  You need to establish your priorities and understanding the trade-offs of each option.  You also need to figure out what that lifestyle will likely cost.  That can result in a balancing act for your emotional as well as financial life. There is no one-size-fits all retirement, and as such there’s certainly no one-size-fits all retirement portfolio. But most retirees should consider their investments through the lens of one of these four categories:

Growth potential:  It’s important that the growth of your investment portfolio outpaces inflation, but you should balance that need for growth against the risk of exposing your savings to excessive market fluctuations.

Guaranteed income:  Investment returns fluctuate - often significantly. But pensions and certain insurance products, including fixed annuities, can provide an income stream and help you prepare for retirement with greater certainty.  Annuities, however, may come with fees and withdrawal penalties that can limit your flexibility should an unexpected need arise.

Flexibility:  Having access to and control over your assets is important for some, but flexibility usually means giving up a stream of income.

Principal preservation:  Knowing that your investment is safe can help you sleep at night, but investments that aim to preserve your principal, such as money market funds, CDs or Treasury bonds, come with a different sort of risk.  These investments generally offer relatively low yields—and your principal might not be large enough to generate enough income from interest or dividends to fund your desired retirement lifestyle. Plus, if you invest too conservatively, your savings may not grow quickly enough to keep pace with inflation and longevity.

Building Retirement  Income Strategies

While there are several ways to maximize your retirement assets, here are three of the most popular…

The first is for people whose assets are large enough or they have enough in terms of other income from a pension, Social Security or another source that they do not need to draw down principal.

1. Interest and dividends only

If you've accumulated enough savings, it may be possible to use income generated by your portfolio to meet all of your retirement income needs. A typical portfolio could include bonds, bond funds, CDs, and dividend-paying stocks.

Pros

• Minimal risk to principal if you’re investing in FDIC-insured CDs or U.S. government bonds
• When assets invested in bonds or CDs mature, the entire principal is returned to you.

Cons

• The need to roll over bonds and CDs at maturity complicates long-term income projections because it is impossible to know future interest rates.
• Limited investments in stocks could leave you exposed to inflation risk.
• A heavy allocation in bond funds or dividend-paying stocks could expose you to increased market risk.

If you don’t fall into that group—and most people don’t—consider the second two strategies.  We are here to help you see where you are and map out possible strategies.

2. Investment portfolio only

Making regularly scheduled withdrawals from your investment earnings and principal is another approach. In this scenario, your investments are managed for a total return.

Pros

• Generates income and, depending on asset allocation, may provide growth opportunities.
• Making automated withdrawals simplifies the process.
• Greater flexibility and access to savings.

Cons

• May require more active management.
• Savings may not last through the end of your life.

3. Investment portfolio plus guarantees

By using a portion of your assets to purchase an annuity, you add an element of certainty to your retirement income strategy. An annuity is a long-term investment that comes with an insurance contract that guarantees a stream of income.

Pros

• Annuity income can be guaranteed for life —so this strategy can help cover essential expenses and manage the risk of outliving your savings.
• You can choose a fixed or increasing annuity income payments.  Most annuities provide a set payment each annuity income date.  Some annuities offer a feature that will potentially increase your payments each year to help your income keep pace with inflation.
• Because an annuity can provide a guaranteed source of income, you may be able to invest the rest of your portfolio with an eye towards growth.

Cons

• You may give up some control over a portion of your savings.
• Expenses associated with an annuity could be higher than other types of strategies.
• Income from the annuity might not be sufficient, causing you to draw down your other savings more than you’d like.

Bridge strategy

If you need some additional income for a period before full retirement, you may also want to consider using some of your assets to fund a short-term bridge strategy. Perhaps you will not be receiving Social Security or drawing on a pension or 401(k) immediately after you retire. Or, maybe you expect additional expenses due to a more active early retirement lifestyle. To help you “bridge” the gap, you might consider investing a portion of your portfolio in a way that will produce enough income to cover the gap, while investing the remainder for total return.

Pros

• A good way to generate an income stream for a fixed time period.
• The total return portion of your portfolio may produce enough growth to protect against inflation.

Cons

• Assets invested in total return strategy may be exposed to market risk.
• You must make certain that the assets in your total return portfolio will be adequate to cover your retirement income needs following your bridge period.

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

We would love to hear from you !