Better Than Between Two Ferns!
Ben Offit, CFP®, Principal of Offit Advisors and incoming President of the Financial Planning Association of Maryland discusses his company's rebrand, the state of the financial services industry, his plans and vision for the FPA of Maryland, and more in this interview with Elville and Associates' principal Stephen R. Elville.
Equities went on quite a ride in November. Following the worst month in years in October, the S&P 500 rebounded sharply at the outset of November only to slide back down, hitting the lowest closing level since April. However, equities picked up momentum once again later in the month, boosted in part by a change in tone by Fed Chairman Powell This resulted in gains overall in November. Compared to much of the late summer and early fall, volatility remained elevated. But it did not hit the levels seen during the market sell-off in October.
Large cap equities fared better than small caps during November, but the disparity was not as pronounced as was the case in recent months. The numbers for November were as follows: the S&P 500 gained 2.04%, the Dow Jones Industrial Average rose 2.11%, the NASDAQ Composite advanced only 0.49%, and the Russell 2000 Index increased 1.59%.
Growth stocks, as measured by the Russell 1000 Growth Index, lagged value stocks, as measured by the Russell 1000 Value Index, gaining 1.06% and 2.99%, respectively. However, growth still enjoyed a clear advantage over value on a year-to-date basis from a style perspective, as did large cap stocks compared to small cap stocks.
International equities posted gains in November, with emerging markets bouncing back after some of the weakest results of any asset class throughout the year. The positive news out of the G20 meetings largely occurred after the final trading day of November, but markets started December off strongly after a trade war truce between the U.S. and China was announced.
Emerging market equities, as measured by the MSCI Emerging Markets Index, gained 4.12% over the month. While this was one of the best overall asset classes in November, emerging market equities remain one of the weakest asset classes in 2018. The MSCI ACWI ex USA Index, a broad measure of international equities, gained 0.95% in November. Both of these indices are still down double digits on a year-to-date basis in what has been a very difficult year for international equities following strong gains in 2017.
Fixed Income Markets
The yield on the 10-year U.S. Treasury declined during the month from 3.15% to 3.01%. Yields on treasuries maturing in one year or less increased, and as a result the yield curve flattened significantly during November. The three-month to 10-year Treasury spread decreased to 64 basis points from 81 basis points. The decline in yields beyond the one-year maturity point created a more constructive backdrop for most fixed income sectors, with the exception of corporate bonds, and most notably high-yield bonds.
For much of the year, high-yield bonds had been one of the few pockets of strength in fixed income, but this bond sector had some of the sharpest declines in November with the Bloomberg Barclays U.S. Aggregate Corporate High Yield Index declining 0.86% during the month. Despite those declines, high-yield bonds remained fractionally positive on a year-to-date basis, up 0.06% through the first eleven months of 2018.
The declining rate environment helped the U.S. Treasury market show gains across the board during the month. Overall, the Bloomberg Barclays U.S. Aggregate Bond Index gained 0.60% and the Bloomberg Barclays U.S. Credit Index slid modestly lower, down 0.07%. TIPS and municipal bonds also gained during the month.
Outside of high-yield bonds, municipal bonds, and the front end of the U.S. Treasury curve, most bond sectors remained in negative territory heading into the final month of the year. The widely followed Bloomberg Barclays U.S. Aggregate Bond Index is down 1.79% so far this year and should returns stay negative to close out 2018, it would mark only the fourth time since the index’s inception in 1976 that this index has recorded a negative calendar year.
The Top Ten End of 2018 Planning Checklist
1. Will you itemize or take the standard deduction on your 2018 return?
The Tax Cuts and Jobs Act of 2017 (TCJA) made sweeping changes to the individual and corporate tax system. As a result, many taxpayers will benefit from the reduced tax rates and increased standard deductions, while others may pay more due to capped and/or eliminated deductions. That makes it important to understand whether or not you’ll be in a position to itemize when filing your 2018 return. If you’re on the fence, there may be strategies you can still put in place this year to push itemized deductions over the 2018 standard deduction limits of $12,000 for individuals and $24,000 for married couples filing jointly. If you’re not sure where you stand, get in touch with us or your CPA as soon as possible.
2. Verify Your W-4 Withholding
Changes in the federal tax law made it necessary for taxpayers to re-evaluate their paycheck withholding for 2018. The IRS introduced new tax withholding tables earlier in the year. If you have not yet evaluated your withholding for tax-year 2018, consider a quick “paycheck checkup” using the online IRS withholding calculator. Be sure any changes in your life—marriage, divorce, the birth of a child—are reflected in your allowances. The goal here from a strategic tax planning perspective is to reduce the potential for any surprises in the form of a high tax bill or too high of a refund when filing your taxes next April. Remember, getting a big tax refund isn’t all it’s cracked up to be. It simply means that you were providing Uncle Sam with a short-term, no-interest loan.
3. Maximize Your Retirement Account Contributions
Now is the time to maximize contributions to your retirement accounts. If you participate in a company sponsored 401(k) plan, try to meet your employers’ matching contribution at the very least so you’re not leaving “free” money on the table. Additionally, you may want to increase your own contribution in an effort to get closer to the maximum amount allowed; $18,500 for 2018 or $24,500 if you’re age 50 or over. If you contribute to an IRA, you have until April 15, 2019 to make a 2018 IRA contribution. The maximum you can contribute to an IRA for tax-year 2018 is $5,500 plus an extra $1000 catch-up contribution, if you are age 50 or older.
4. Check Your Flexible Spending Account Balances
There is still time to take a look at your flexible spending accounts (FSAs). The “use it or lose it rule” generally applies to your flex accounts. You may also want to check with your employer to see if they have adopted a grace period allowed by the IRS to set aside 2018 money into the beginning of 2019.
5. Maximize HSA Contributions
A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers enrolled in a high-deductible health plan (HDHP). HSA funds may only be used to pay for qualified medical expenses. The 2018 annual contribution limit for individuals is $3,450 and $6,900 for those covered under qualifying family medical plans. Funds in an HSA grow tax-free and unlike an FSA, can grow from year to year.
6. Check Your Required Minimum Distributions
If you’re age 70 ½ or over and required to take distributions from your traditional IRA or other qualified retirement accounts, do a quick verification to ensure you’ve satisfied your distribution for 2018 to avoid paying up to a 50 percent excise tax if you fail to take the appropriate distribution.
7. Consider Tax-Loss Harvesting - Taxes should never be the only reason to sell an asset, but if you’re looking to make a change in your portfolio, selling out of a position with an unrealized loss can help offset other gains. Before taking action, be sure to consult with your tax advisor to see if it would be valid to book a loss before year end to offset any realized taxable gains.
8. Rebalance Your Investment Accounts
Has your portfolio shifted more than you realize. Now is a good time to take inventory of your retirement plan from your job and other investment accounts to see if you need to recalibrate your account back to your desired asset allocation.
9. 2019 Company Plan Changes
Have you thoroughly reviewed your company employee benefits for 2019? Do you need to make additions, subtractions, or changes depending on your family dynamic or changes to the plan? Also, perhaps your company has updated their investment lineup options through their retirement plan and you may need to update accordingly?
10. Your 2019 Goals
Start thinking about what you want out of 2019 for your self, your family, your business. Based on your desires, are there action items you can take now to put yourself in a position to actually achieve this or move closer to this goal in 2019? Perhaps it is a family vacation, perhaps it is a large purchase, or perhaps it is taking more time off. Let us know if we can help you forecast and make your vision a reality.
Partial credits to Forbes.com