We hope you have had a good start to 2019!
The New Year is shaping up quite nicely. The markets have recovered well from the December lows, although not back to the all-time highs from early October. We think the market reaction to events late last year was overblown and that the January/February recovery was more about shaking off the unfounded fears from December than it was about the state of the economy and corporate profits. Looking forward, I think the economy is in great shape. While it may not grow at the 3-4% rate of last year, most economists expect it to expand in the 2-3% range – slower than last year, but still growth.
Your financial portfolio is comprised of many parts. This would equate to what Warren Buffett calls the “economic trees”. In other words, the idea is not to get too caught up on any one investment. “A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty,” Buffett writes. He won’t get every investment right. Neither will we. Berkshire holds a substantial position in Kraft Heinz (KHC), whose shares recently tumbled after the company delivered poor results and slashed its dividend. But, if we review the portfolio as we’d view the forest, we find a diversity of trees, wildlife, and plants. Your portfolio is built from the bottom up. Like the forest, it’s very diversified as guided by our relative strength and momentum charting systems, and it is created with your financial goals in mind. As Buffett says, “I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities.”
That said, how did the 19.8% drop in the S&P 500 Index (September peak to December 24 trough) sit with you? With your input, we do our best to gauge your tolerance for risk. If you found yourself fretting over the volatility, we should talk.
Individual Retirement Accounts (IRA). The conventional wisdom of spending down non-retirement accounts and then spending tax-deferred accounts such as IRAs, 401k plans, 403b plans, or annuities in retirement is no longer universally the best path. In fact, the opposite strategy may make sense, depending on your personal situation. With so much money swishing around in tax-deferred accounts, the temptation is to sit back and watch those accounts grow and enjoy the immediate tax benefits, but this lackadaisical approach is exactly what the government is counting on — and possibly what you don’t need.
If you are eligible to contribute to a Roth IRA, I encourage you to do so now. Note that the maximum annual contribution limit combined for all retirement accounts has risen to $6,000 for people under age 50 and to $7,000 for those over 50 starting in 2019. For many of our clients with incomes above the limit for Roth IRA contributions, contributing to a traditional IRA and then converting from a traditional IRA to a Roth IRA is also advantageous in the current tax environment, and now is a good time to get it done. Let’s talk about your situation.
On another note, so that we can respond to your emails as quickly as possible, please copy Priestley on your emails to me. I receive over a hundred emails a day and can’t always read and process them in a timely fashion, so this will ensure that your emails receive immediate same-day attention from either Priestley or me. Her email address is priestley@wofm.us.
We value our relationship with you, and we’re available to you in person or by phone to address questions, concerns, any changes in your life that affect our work for you, etc. We generally meet with clients every six months for a comprehensive review. If you are not on our regular schedule, let’s catch up – you’ll be surprised at the difference we can make!
