4th Quarter 2018 Investment Newsletter

Economic and Market Overview

  • December saw stocks fall sharply on concerns of slowing economic growth, rising interest rates, and a government shutdown. Technology, financial, and international stocks were the most volatile.
  • Even though the long-term trajectory of a well-diversified portfolio is upward, sudden and sharp declines do occur from time to time (see chart below), the extent of which is clear only in hindsight. We welcome these dips to move money from bonds (the “dry powder”) to stocks while prices are lower, and “harvest” capital losses to reduce taxes and offset gains.

*Chart shows growth of $10,000 over ~30 years. Diversification does not eliminate the risk of market loss. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect expenses associated with the management of an actual portfolio. Asset allocations and the hypothetical index portfolio returns are for illustrative purposes only and do not represent actual performance. Global Stocks represented by MSCI All Country World Index (gross div.) and Treasury Bills represented by US One-Month Treasury Bills. Globally diversified allocations rebalanced monthly, no withdrawals. Chart provided by Dimensional Fund Advisors.

  • The importance of diversifying bonds as well as stocks is illustrated by General Electric, one of the few companies with AAA rated debt as recently as 2009.  GE bonds soon may be downgraded to BB, the top tier of “junk” ratings, while GE stock declined by nearly 60% in 2018.

Retirement Savings and Taxes for 2019

  • IRA and Roth contribution limits have increased from $5,500 to $6,000, with those who are age 50+ are able to contribute $7,000 for 2019, if income requirements are met.
  • The 401(k) /403(b) contribution limit increased to $19,000, and for those age 50+ to $25,000.  SIMPLE IRA contribution limits increased to $13,000, or $16,000 if age 50+.
  • The annual gift exclusion amount remains at $15,000.
  • Health Savings Account (HSA) limits have increased slightly to $3,500 (single) and $7,000 (family), and you can contribute an extra $1,000 if you’re age 55 or older any time in 2019.
  • With historically low marginal tax brackets, younger employees and those in the lower and middle tax brackets should consider deferring into a Roth 401(k), if available, for decades of tax-free growth.
  • A reminder that as of 2018, interest expense from home equity lines of credit used for credit card repayment, auto purchases and those types of items is no longer tax deductible. Only debt used to improve the home is still deductible.

Our New Office

  • We are happy to report that we are (mostly) settled into our new office behind the Fashion Mall! Our new address is 8900 Keystone Crossing, Suite 450, Indianapolis, IN 46240.

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We welcome and encourage your calls with questions, and sincerely appreciate both your business and referrals.

 

Market Index Returns QTR 4
S&P 500 (Large Cap)      -13.5%
Russell 2000 (Small Cap)      -20.2%
MSCI International Index      -12.8%
MSCI Emerging Markets       -7.4%
US REIT Index (Commercial Real Estate)      -6.6%
DJ Commodity Index      -9.4%
OofA 1-3 Year Corproate & Gov’t Bond Index       1.2%
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