Dear Friends,

As we enter 2020, we can appreciate just what a difference a year can make.  Even if you are not of the Christian faith, chances are you are very familiar with the Ten Commandments from the Bible (I remember my teacher in grade school trying to explain adultery!).  There is not an official 11th Commandment, of course, but if there was, it might be “Thou Shalt Not Fear” (a phrase that is mentioned early and often). Fear and greed have long been acknowledged as drivers of financial market volatility.  If we can manage fear and greed, we can make wiser and more disciplined decisions, based on strategy, research, and planning.  If we look back a year ago after a near 20% market sell off, the VIX index, which measures volatility and investor sentiment and serves as a de-facto “fear index”, was twice as high at just over 25 vs. today’s reading of around 12.  This can fluctuate significantly daily, but usually fear is high when this index reading is high.

There is much debate about valuations of the market – in other words is the market too high?  First off, the market hitting new highs in pure nominal terms is not uncommon. In fact, the S&P 500 has hit nearly 750 all time highs since 1980 (an average of 18/year).  Famed fund manager, Peter Lynch once said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” This doesn’t mean we won’t have pull-backs and recessions – we certainly will, and accordingly make any needed changes in context of the business cycles, valuations and portfolio goals. There will be more volatility, particularly in an election year, which could create more opportunities for the patient (and not fearful!) investor.

While 2019 returns were robust, we continued to see the S&P 500 outpace other market indices and asset classes (+6% vs small stocks, +8% vs Int’l, +16% vs Emerging, and +23% vs. the bond index) as well as a diversified portfolio. However, in the 4th quarter specifically, we began to see the trends change somewhat as Small Cap stocks along with Emerging Markets modestly outperformed the S&P 500. Consistent with longer term historical trends, we believe the pattern of performance could be more rotational in nature (than we’ve seen recently) in the years to come, and so believe in the merits of a diversified portfolio.

There are significant changes and updates for 2020 from both the IRS and SECURE Act:

The maximum contribution limits for 401Ks ($19,500 for employees) and HSAs ($3,550 individual, $7,100 family) have all increased for 2020.  These include Catch-up provisions if over age 50.

The age at which you must take distributions from your qualified retirement accounts (including most IRAs and 401Ks) has been raised from age 70 ½ to 72.  This is a huge and impactful change.

Contributions to IRAs can be made with no age limit.  There does have to be corresponding reportable income which basically puts this on par with Roth IRAs.

There are other changes with the SECURE Act, and if you have any questions, please don’t hesitate to connect with us.  As always, we appreciate the opportunity to serve your families and businesses together.

Mitch and Destin