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SECURE Act Passes, Cautious Stance Continues, Financial Planning Crucial

By January 8, 2020September 16th, 2023No Comments

Happy New Year to all of you!  We hope you all had a wonderful Holiday Season and we are looking forward to serving you in the years to come.

U.S. Financial Markets’ January Holiday:

The U.S. Financial Markets will be closed on Monday, January 20th for Martin Luther King, Jr. Day.  Our offices will be closed that day as well.

The SECURE Act Passes:

The SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law December 20, 2019.  It is the most significant retirement policy legislation since 2006.  There are several changes within the Act that will affect individuals as well as employer sponsored retirement plans. These changes take effect in 2020. We will be addressing any of the changes that personally affect you as we review your long-term planning.  Those of you that have not yet utilized our services to prepare your long -term plan need to do so now as we move into the New Year.   Some of the major changes are:

  1. The Required Minimum Distribution from IRA accounts has been extended to Age 72 from the previous 70 ½.
  2. Individuals can now continue to contribute to an IRA account regardless of age if they continue to have earned income. Previous to this change, anyone over 70 ½ with earned income could no longer contribute to their IRA.
  3. Penalty-free withdrawals up to $5,000 for birth or adoption of a child can now be taken from a retirement account without the 10% early withdrawal penalty that used to exist. The amount of the withdrawal is still subject to regular income tax.
  4. The “stretch” or beneficiary IRA for non-spouse beneficiaries has basically gone away. There are some exceptions to this rule, but for most, anyone that inherits and IRA that is a non-spouse will now be required to take the IRA funds within 10 years.  If a beneficiary that is a non-spouse is less than 10 years younger than the IRA owner, the proceeds can still be withdrawn over that beneficiary’s life expectancy. Other exceptions exist as well.

There are several other changes in the SECURE Act and we wanted to highlight some of the changes that apply to individuals.  Again, we will be reviewing the specific changes that might affect you personally at your next review/planning meeting.  Call us to schedule your meeting today!

Investment Outlook 2020 and Beyond – Fear Not, “Recession” Could Be Near:

The last twelve months has witnessed one of the strongest US equity/stock markets in several years. This, coupled with a strong bond market, has helped portfolios perform well. Even with the rise in stock prices last year, we still have not seen any changes overall to warrant a tilt away from our cautious stance moving into 2020. Rising stock prices alone do not have any impact on our outlook. Most portfolios will maintain some level of equities/stocks at all times, but we remain at the lowest level of exposure to stocks for each risk level as we move into the New Year. We rely heavily on interest rate and bond markets to guide much of our risk assessment of portfolios, and we began seeing some concerns in mid-2018. As we moved into 2019, these observations were eventually confirmed when we witnessed a yield inversion in the US treasury markets. Fast forward to today, the relevant yield inversion has started normalizing driven in part by the actions of the Fed lowering short-term rates. We believe a basically flat yield curve will continue through the coming year, but it leaves us in a cautious stance for the time being.


At the moment, our fixed income/bond exposure favors short term bonds. We would not anticipate a shift towards a preference for long term bonds until we get closer to the end of the year or beyond. While employment remains strong and inflation subdued, these facts alone are not enough to push our allocations for all risk levels into a more aggressive stance. In our opinion the employment markets have been a lagging indicator relative to other measures such as interest rates, manufacturing indicators, and money supply metrics. If we had to speculate, it would be fairly normal to see little improvement in these indicators until sometime in 2021 or later. This would likely allow us to shift back into a more pro-equity/stock portfolio for all risk levels at that time. More aggressive portfolios could see an earlier shift if the stock markets witnessed dramatic price movements that justified additional risks to be taken due to lower valuations. We will only be able to observe this as time passes and will keep you informed.


As is the case most of the time, we favor value-oriented stocks and have been able to continue finding value even in the current rising market. Given the current valuations seen in many economically sensitive stocks, it would lead us to believe that if there is a recession on the horizon, it will most likely be somewhat subdued and could even go unnoticed by many. If this does occur, it will be the first recession since the financial crisis we experienced in 2008-2009. It must be reiterated that the financial crisis was an extremely unique recession-the “perfect storm”- which is unlike anything we would anticipate seeing again for some time to come. Before 2008, financial markets had not witnessed a similar event since 1929. Remember the technical definition of a “recession”: Two calendar quarters of back-to-back negative economic growth (GDP).


Recessions are normal parts of the market cycle, and we prefer to practice prudence to take advantage of opportunities in the coming 12-24 months or whenever our indicators begin to show stability. Equity markets could easily continue rising higher, even if a recession comes. We do not believe anyone can accurately guess the future direction of the stock market, and don’t believe it to be beneficial for our clients to take excessive risks when we are seeing indicators telling us that the financial markets are not well primed for a continued stable environment. We will rely on our individual stock positions for equity exposure, which we believe will help limit downside risk if or when it comes, as all models are based on valuation principles. The internal market indicators that we are observing are typically long term which can look ahead five to ten years. To put our current outlook in perspective, similar signals were seen suggesting a more conservative approach be taken thirteen years ago in 2006 and in 2000 before that. We encourage continued patience with us as we attempt to be prudent and preserve wealth until a clearer landscape emerges. We believe it would not be prudent for any client’s interest, no matter the risk appetite, to chase market price appreciation at this juncture, especially just for the sake that stock prices have moved higher. The time will indeed come if history can serve as a guide to our observations, to increase our stock allocations once again.


While we see the signs of a possible impending recession, we do not expect it to be severely disruptive or caused by a financial bubble like we saw in the real estate markets before the financial crisis of 2008 or technology stocks in 2000. There have been many “mini-bubbles” along the way; none of which we found disruptive to portfolios. Recently, in 2019, we witnessed a “bubble” that seemed to be deflating as many high growth, venture backed companies (also known as “unicorns” for having over $1Billion valuations) attempted to or did go public. You can read more about this and the most extreme issues seen in relation to a company named WeWork here. Some of these companies did manage to go public but most have experienced dismal performance as valuations have adjusted to more sobering realizations of an over-valued market (Beyond Meat falling almost 70% from its high, Slack falling 45% from its high to low, Uber falling 44% from its high to low, Lyft falling 48% from its high to low). Ironically, we may get the opportunity to own some of these names at some point if valuations fall to a reasonable level. Prior to that, we saw bubbles in “crypto” related assets, such as Bitcoin, in 2018 and then also “pot stocks” in late 2018 and early 2019 (most losing well over half their value), both of which none of our clients were exposed to in accounts managed by us. These are just a few examples to illustrate that stock valuations have been getting overstretched in some areas. In the broad public markets, we do not currently see general excesses like this, which is positive.


The current negative interest rates that are being seen globally do present an interesting facet to the current market environment and we will continue to monitor to see if might lead to any changes in our outlook. Globally we see this anomaly as a result of demographics, extreme risk aversion, government and central bank stimulus, as well as regulations placed on financial institutions to hold the instruments regardless of price. It would seem that demographics and extreme risk aversion will continue to weigh heavily on these investments at least until the baby boomer generation declines to a much smaller part of the overall global population, particularly as a percentage of wealth held.

Over the next few decades, it seems difficult to see any outcome other than extreme government debt levels continuing to be fueled by no or little current interest payment consequences, which would have to lead to inflation at some point. However, we understand our limits and inability to predict exactly when this pendulum will swing. We can only deal with the current environment taking a shorter outlook of a few years in which we believe deserves a conservative stance.

If you find yourself interested in exploring topics similar to what we have discussed above, an excellent read that we can agree with for the most part regarding various long term market environments and cycles is Howard Mark’s Mastering the Market Cycle. Howard does an incredible job explaining in-depth topics for a diverse audience with various levels of financial knowledge.

The Importance of Financial Planning

We continually stress the importance and value of financial planning, which we offer at no additional cost when we manage your investment portfolio. Planning helps us see that all clients are properly invested to reach their long-term personal and financial goals. We have invested time and money in order to provide some of the most up-to-date planning software and services available today for all of you in an effort to assist you in your personal financial planning and achieving your financial goals. For those clients who are not currently taking advantage of what we believe to be such a significant value, we will be contacting you individually this year to discuss some of our new policies with you and requirements we now have with our professional designations for 2020 and beyond. If you are not actively engaged as a planning client, we encourage you to make that your resolution. Please call us today to schedule your personal planning review .

As always, we will keep you informed as our views change and keep you posted moving forward. Here’s to an even better and exciting 2020!

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.



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