Happy New Year!
We are so excited to be entering our 36th year as an independent financial advisory firm and are looking forward to 2019 and meeting the challenges that may come our way in the next twelve months. 2018 was quite a year and as we move into 2019, now is the time to schedule your personal year-end review. We will review your personal portfolio over the past year and also update and look at your current financial picture, current risk, 2019 Key Financial Data and how any changes might affect you, as well as planning for the future. It’s imperative everyone reviews their overall situation at least annually to be sure we are all together and current with your personal plan.
For those of you who have not yet taken advantage of your own MyWealth financial website, we will assist you in establishing the website and adding the pertinent information in order for you to begin monitoring your overall financial life and for us to help you with your long-term planning. If you’re not yet utilizing this valuable tool, you are missing out on one of the greatest services we provide to you. The first quarter of the year is the perfect time to take account of where you are financially and where you are heading moving forward. We also have some exciting changes and news to share with all of you for 2019 that could help lower your portfolio expenses. Call today to start the year off right and schedule your personal review meeting, either in person or online via the Go-To-Meeting option. Be sure to note that the only market holiday after New Year’s Day in January is Monday, January 21st-Martin Luther King Day-and our offices will be closed that day as well. Call us at 405-844-9826 today!
Tax Reporting for 2018:
The deadline for employers to send out W-2 and/or 1099 forms to employees and vendors is January 31st as well as 1099-R forms reporting distributions during 2018 from retirement accounts, including IRA’s. Investment reporting for taxable accounts (non-retirement accounts) from financial institutions such as banks, brokerage firms, etc. must be sent out by February 15th this year. This includes the investment reporting from tca by Etrade for your taxable investment accounts. Keep in mind, as has been the case in the past, there are oftentimes “corrected” 1099 forms due to various mutual funds that re-categorize distributions after their initial reporting. Partnerships must send out any K-1 forms by March 15th to any partners that participated during 2018 for their share of the income, deductions, credits, etc.
Required IRA Minimum Distribution Amounts (RMD) for 2019:
For those of you that are subject to the Required Minimum Distribution amount from your IRA(s)-age 70 ½ or older-the exact amount you must take in 2019 should be available from tca by Etrade sometime around January 15th. They will also be sending a letter regarding the amount around the end of January. REMEMBER: We take care of these for you each year based on your personal instructions and make sure you each receive the required amount before December 31st to avoid the 50% tax penalty should someone fail to take the amount or more required by law. Chris works diligently for you to be sure this doesn’t occur. IF you have any IRA’s that are not under our management, we cannot be responsible to be sure the RMD is taken as required for any accounts outside our supervision. Call us if you’d like information on consolidating your IRA accounts with us or have any questions regarding the RMD rules.
2018 Market Review:
Last year saw new highs for the major U.S. stock indices only followed by market corrections. Volatility was back after a benign year in 2017, and when all was said and done, the U.S. and most global stock indices ended with losses for the calendar year. The 30 Dow Jones Industrial Average ended the year with a loss of approximately 6.7%, and from its high on October 3rd to the 2018 low on Christmas Eve, it had fallen 18.8%. This was so close to the definition of a “Bear Market” which is a fall of 20% from the previous high. The Dow gave up 11.8% in the fourth quarter alone. The broader based Standard & Poor’s 500 stock index fell 6.3% for the calendar year, and from its high on September 21st to its low on Christmas Eve, the S&P 500 fell 19.8%, so close to the “Bear Market” territory. It fell 14% for the last three months of 2018. (Yahoo Finance)
The International markets were even worse, with the German DAX index down 18.26%, the British FTSE Index off 13%, and the French CAC 40 Index dropping 11% in 2018. The MSCI Emerging Market Index was also down 11% in 2018. (Investing.com)
It is so important that you review your long-term goals and risk tolerance on a regular basis in order for your personal risk level to be appropriate based on any market condition. We are “investors” and adjust portfolio risk within each risk level but do stay invested in some stocks/equities as the opportunities arise. We cannot avoid all downside risk, but our goal is to try and help mitigate risk based on each of our five risk levels but cannot and will not completely avoid loss in a down or bear market but can try to limit the downside risk based on each risk category. In early November we allocated funds to very short-term assets for clients that take a regular income from their portfolios equal to approximately 12-24 months of income needs in order to protect their withdrawals over the next year+ regardless how the markets perform. We also transacted some tax related selling in late December in an attempt to minimize reportable income/gains in all taxable accounts. This created some excess cash/money markets in these particular accounts, and we will be reinvesting that excess cash in January.
Let’s get together this quarter as mentioned earlier to review your personal goals and risk tolerance. 2019 could be more challenging than 2018, but also provide more potential opportunities as well. We will keep you posted.
We have been exercising caution within client portfolios given the appropriate risk levels, which helped us alleviate some of the market fluctuations that occurred last year. Since early 2017, we have preferred longer-term bonds, but it was not until mid-2018 that we began to become increasingly cautious. Our cautious stance removed all equity exposure from the allocation side of the portfolios, while maintaining individual stocks in the various stock models. This stance has helped portfolios outperform their prospective benchmarks during the recent volatile period that occurred in the fourth quarter
Moving forward into 2019, we remain cautious with a heavy stance still in fixed income/bond funds. We have been primarily targeting the back end (long term bond exposure) of the yield curve, and we expect this position to continue for the foreseeable future. However, we have become increasingly optimistic and excited for the value opportunities that are now appearing within the equity/stock space. We have not seen attractive valuations like we see now since late 2011. With these opportunities present, we still feel it best to tilt towards caution, taking each specific risk level into consideration. The bond markets still indicate concerns ahead and volatility appears to be priced into the markets through much of the first part of 2019. While it is impossible to say with certainty, we would anticipate a cautious stance to be maintained over the next eight to twelve months. At some point, we will begin adding equity/stock exposure back into our normal target allocations for each risk level and we will maintain open communication throughout this process. We do not, at this time, expect this change to occur until well after the first half of 2019. However, this can quickly change with market forces. We will keep you posted.
Before the market correction during the fourth quarter of 2018, it was somewhat difficult for us to stay very cautious while equity prices continued running higher. It became even more difficult when we fully invested our allocation models in long-term bonds, while almost every outside source said to do otherwise. Since the recent equity correction, we have felt justified in protecting clients’ assets and limiting volatility. On the other hand, do not forget portfolios are always invested in one asset or another. We are long-term investors, and we attempt to be more conservative in volatile times by changing allocations between stocks and bonds but focus on increasing risks when it seems justified. The time to increase risk will undoubtedly come, and we will try to take advantage of it the best we can. All of these measures are also relative to each clients’ individual risk level. So, if you are an aggressive client and markets experience sustained losses, your portfolio will most likely also experience a loss. We just intend to make that loss less than an overly aggressive stance. On the contrary for our most conservative clients, you should find your portfolios to be more affected by change in the bond markets than stock prices.
For these reasons, we stress the importance of total financial planning. You should focus on your specific portfolio’s needs and risk tolerance, while maintaining your attention on your own big picture and not what you hear the “markets” are doing from day to day. It’s our job to focus on these shifts and make sure your portfolio is properly invested for the years ahead based on your overall risk and goals. We’re here to help.
It’s a pleasure to serve each and every one of you, and we look forward to an exciting 2019. While this year may come with some bumps along the way, we are anticipating this and ready to take advantage of market conditions when we believe the time is right. As always, we are value investors and will be constantly searching for the best value investments to benefit your portfolio moving forward. While this period of uncertainty may continue much of the year, we will continue to keep you updated as our outlook changes. Here’s to a successful 2019!
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be
invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into
directly. Past performance does not guarantee future results.