Bob's Blasts

February, 2020

Markets

Equity markets got off to a good start for the year but pulled back in the final week of January due to concerns around the coronavirus and its potential economic impact.  Many analysts are expecting first quarter economic data and earnings to come in weak as a result. US equity markets remained resilient, brushing off the concerns and recovering all of their losses within the first few days of February.

While equity valuations remain high versus historical averages, continued stimulus and low rates by central banks along with a strong US consumer has kept markets moving higher. With valuations stretched and a cloud of uncertainty remaining, it may be tempting to want to sell stocks. Looking back since the end of the financial crisis, there have been numerous reasons to want to sell stocks. 

Since March 2009, the US economy has had 5 quarters with negative growth, the US government has shut down 3 times, General Motors filed for bankruptcy (2009), flash crash (2010), Greek debt crisis (2010), S&P downgrades US debt (2011), negative interest rates begin in Europe (2012),  oil prices drop over 50% (2014), first Ebola case in US (2014), Brexit (2016), President Trump elected (2016), largest one day drop ever for Dow (-1,175 points) (2018), US yield curve inverts (2018), trade wars (2018) and now the coronavirus.   

While market downturns have taken place multiple times along the way and will continue to occur moving forward, overall returns have been strong during this period.  A study by Wayne Thorpe, senior financial analyst, at the American Association of Individual Investors Journal pointed out some data to remember when markets drop. Since 1871, market downturns (10% or more drop) have recovered as follows:

 

  • 3% of market downturns recovered within a month
  • 50% of market downturns recovered within 2 months
  • 80% of market downturns recovered within 1 year
  • 95% of the time those big “once in a lifetime drops” returned to even in 3 to 4 years
  • Since 1871, the average time it took for the market to recover (top to bottom to top again) was around 8 months

 

Taxes

As a reminder, it is very helpful if you provide us with a copy of pages 2 and 3 of your 2019 tax return once completed.  The most important page is page 2 which includes wages, adjusted gross income, taxable income and taxes owed.  It is also helpful if you could provide Schedule 1 “Additional Income and Adjustments to Income”, which is usually page 3.  This information is extremely useful as we will review for anything that may have been missed, look for beneficial tax strategies, determine how to allocate assets and make buy and sell decisions within your portfolio. With the recent changes to tax laws, this may also be a good time to take advantage of opportunities which may not be around forever such as converting IRA money to a Roth IRA.     

A few things to keep in mind as we move into tax season:

  •   If you donated money from your IRA in 2019, be sure to notify your accountant.  This information is not provided on the 1099 tax document. 
  •   2019 Traditional and Roth IRA contributions must be made by April 15th.  Don’t wait until the last minute as processing times may be slower during tax season and things can sometimes get lost in the mail.
  •   If you end up owing, consider adjusting your withholdings to avoid potential penalties or quarterly estimated taxes. 
  •   Make sure your beneficiaries are up-to-date and reflect your wishes. With the recent passage of the Secure Act and changes to beneficiary payout options, using a trust as the beneficiary for an IRA may not work as intended.
  •   Be on the alert for tax scams and fraud.  Tax season is prime time for scammers and many of you will get calls, emails and text messages from entities claiming to be the IRS.  The IRS typically reaches out via US mail, so ignore any other means of communication and never provide personal information to an unsolicited contact. 

You will be receiving your remaining Royal Alliance tax documents shortly.  Take your time and get everything in order.  It’s better to take a little extra time getting yourself well organized, than getting in a rush and ending up missing something. Please reach out if you have questions or feel unsure about anything before filing your taxes.

 

 

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.