Bob's Blasts

January, 2020

Markets

Equity markets closed out the year and decade on a high note with many major stock indices near all time highs. Looking back at the past decade, we saw the unemployment rate drop from around 10% to 3.5%, the S&P 500 almost triple and interest rates decline significantly as the 10-year treasury yield got cut in half.    Quite a different outcome than many expected ten years ago as we were coming out of the financial crisis.  

Barron’s recently gathered ten veteran investors and economist to give their insight on 2020.  Below are a few consensus takeaways from these and others we have read:

  • There is little chance of a recession in 2020 as the consumer is strong and the Federal Reserve remains accommodative.
  • Rates should stay low unless there’s an uptick in inflation which seems unlikely.  Technology has kept inflation low and should continue to do so.   
  • If the economy and markets continue to do well, Trump has a high probability of being re-elected.
  • No one seems to care about debt/deficits in Washington.  Don’t look for much to change in 2020.
  • Don’t expect a repeat of 2019 market returns in 2020. Almost all of the returns in 2019 where based on stocks getting more expensive and not on earnings growth. Markets appear fairly valued, if not slightly overvalued.  

While we talk about predictions usually ending up being wrong, we wanted to point out what we’ve been hearing and reading as we’re often asked.   

 

Taxes/Retirement

A major piece of tax legislation passed in the final weeks of 2019 which may impact some of you.  There were many items included in the bill. Below are a few that we feel will be the most impactful: 

  • Required Minimum Distributions (RMDs) are now required to start the year turning 72 instead of 70 ½.   If you turned 70 ½ last year, you still need to take your RMD this year.  This only applies if you turn 70 ½ in 2020 or later.  Charitable donations from IRAs can still be made after age 70 ½.   
  • If a non-spouse inherits an IRA, the account must be depleted within 10 years unless deemed an “eligible designated beneficiary”.  The “stretch provision” which allowed distributions over the beneficiary’s lifetime has been eliminated in most cases. If you have already inherited an IRA and are taking distributions over your lifetime, there are no changes.  This only applies to IRAs inherited in 2020 or later. 
  • IRA contributions can now be made after age 70 ½.
  • Annuity availability in 401ks.
  • Exception to 10% early withdrawal penalty from an IRA for childbirth and adoption. (up to $5,000) 
  • Qualified education expense for 529 plans expanded for student loan payment (subject to lifetime limits) and apprenticeships.

Hopefully everyone had a great holiday season and is looking forward to a new year and new decade.  We start this decade in a much different place than the last, but don’t forget all of the pullbacks and turbulence we experienced along the way.   Remember all of the reasons there were to get out of the market, yet all of the growth that resulted by staying invested.  Always expect the unexpected as things we can’t even imagine are sure to happen over the next ten years.   

Please reach out if you have any questions or there is anything you need.   Thank you for your support over all these years, and we look forward to helping in the years to come.    

 

 

This material is meant for general illustration and/or informational purposes only.  Views expressed in this newsletter may not reflect the views of Royal Alliance Associates, Inc.  It is our goal to help investors by identifying changing market conditions.  However, investors should be aware that no financial advisor can accurately predict all of the changes that may occur in the market.   This material should not be relied upon as investment advice.  Investors should note that there are risks inherent in all investments, such as fluctuations in investment principal.  Past performance is no guarantee of future results.  There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. This article contains forward looking statements and projections.  Neither Royal Alliance Associates, Inc nor its representatives provide tax or legal advice.