As we enter the home stretch of 2019, some attention needs focused on year-end financial issues. Some of these issues are crucial and others are worth a little continued thoughtfulness.
One issue that I am working on for clients over age 70 ½ are IRS required minimum distributions from IRA accounts.
Once we hit 70 ½, the IRS has a formula by which a distribution must be taken annually from a non-Roth IRA account. Failure to take enough can result in a tax penalty. So, November is a month where we finalized RMDs so that all distributions can be double checked in early December. Be sure you’ve taken your distribution if applicable and consolidate your IRAs to make this simpler.
Another issue that is perpetually considered but important toward year-end is tax-loss selling in non-tax deferred accounts such as an individual or joint investment account. It makes sense to remove positions in accounts that have a loss and use that loss to offset income gains. This can be simple or complex depending on the strategy. But this should be addressed as part of an investment portfolio.
Through early November, 2019 has been a very good year for nearly all investments, including stocks and bonds.
But, with Halloween in the rear-view mirror, we will continue to hear about things that could spook the markets like ongoing U.S/China trade negotiations and the overall U.S. economy, which is statistically in very good shape.
Perhaps as we enter the latter part of November, the U.S. and China might truly talk turkey and get something in place that helps put much of the trade haggling in the past and provides a foundation to build on for the future. Or maybe not. Either way, markets will ebb and flow. But keeping a longer-term perspective helps weed out short-term fears.
Maybe this year will end with markets higher against the thud that ended 2018 when markets fell nearly 20 percent.
What is the phrase for a Christmas season market rally? The official Wall Street phrase is a “Santa Claus Rally.” I kid you not.
Actual long-term market data supports this phenomenon and, well, we’d all sure like to see this occur. But again, regardless of these short-term gyrations, as we close out 2019, the year has been a good one for investors overall.
But it does make sense to rebalance when markets rise and fall and this year has been a good example where the stock position in portfolios may have grown past being “balanced.” So, re-balance back to perhaps a less risky allocation as part of taking required minimum distributions and doing tax-loss selling.
Here is why that may be important – the bigger the downside risk in a portfolio, the higher the return will need to be to break even. This gets a little mathematically complex but is vital to portfolios.
With next year’s presidential election coming closer, historical data might be of interest. Political views aside, as difficult as that might be, here is what history shows us. Stocks have risen higher in 19 of 23 election years beginning in 1928. The average election year gain for stocks has been about 11 percent. There is no clear pattern that market performance is driven by which major party candidate wins the election. History suggests that investors should not make dramatic changes in anticipation of one candidate or another winning the presidential election.
Year-end brings Thanksgiving, Christmas, family time, and so much more. Having a keen focus on a few year-end financial issues can round out what I hope is a wonderful time of year for your family.
If we can help in any way, please give me a call and I will be happy to do what I can.