River Wealth Advisors' Currents Newsletter
The advisors at River Wealth are committed to enriching investors by sharing their insights and understanding of the market by regularly publishing the quarterly Currents Newsletter.
INSIDE THIS ISSUE - March 2018
2017 was an outstanding year for investors in financial markets. The global economic expansion accelerated, corporate earnings improved, and stimulative domestic fiscal and regulatory policies expanded, capped by the year-end tax overhaul. As domestic markets continued to find all-time high levels, and international markets experienced their most significant returns since the financial crisis, we approached the New Year with a heightened level of vigilance.
After what had been an exceptionally long period of growth and calm in financial markets, during February, bouts of market volatility surfaced. Some would say this activity was overdue. There is an expectation that expanding markets from time to time will experience a correction. Indeed, it has been quite some time since the market has taken a breather from its uphill climb, so some investors are concerned.
To put some of the market’s ups and downs into context, the S&P 500 didn’t lose more than 2 percent on any trading day in 2017, and only four, five and six times in 2014 through 2016. There are several reasons that the equity market declined sharply from all-time highs. These include fundamental economic conditions, as well as a technical trading situation, that were generated by the preceding long period of calm in the market.
Ironically, from a fundamental perspective, what triggered the significant drops in the market was good news about the economy. Strong employment reports coupled with expectations for increased inflation and an associated increase in market rates of interest were the catalyst for equities selling off and interest rates increasing in the bond market as market participants recalibrated.
Even in the strongest of bull markets, stocks should not be expected to rise every day, and periodic dips should be anticipated. Market dips provide a good reminder about setting realistic expectations and ensuring that portfolios are aligned with goals and tolerance for risk. Asset allocation and rebalancing programs utilized within our client portfolios are designed to take advantage of these situations while managing portfolio risk. As always, we remind investors to remain focused on long-term objectives.
Global Economic Conditions
Global economic conditions continue to accelerate heading into 2018. Domestically, real GDP has posted two quarters of year-over-year expansion above 3 percent for the first time since 2014, in what seems to be a more stable and sustainable path for growth. International economies have also expanded at an accelerated pace.
Corporate earnings growth has accelerated, boosted by the reduction in shares outstanding, resulting from buyback activity, along with the recent tax overhaul in the U.S., which significantly reduced corporate tax rates. Expectations for 2018 remain optimistic, as analysts project double-digit earnings growth to continue.
Domestic Policy Activity
Corporations seem to be the biggest benefactor of the legislation, which attempts to bring U.S. tax rates in line with our trading partners around the world. The new law decreased marginal rates, increased income brackets and provided for a larger standard deduction, which could result in lower average federal rates for many individual tax payers.
Central Bank Activity, Rates and Inflation
In December the Federal Reserve increased the Federal Funds rate, which was widely expected, to a range of 1.25 percent to 1.50 percent. Consensus opinion now is that the Fed is likely to increase rates three or four times in 2018, with the first rate increase happening at the March FOMC meeting.
To repeat from last quarter’s note, in the shadow of strong financial market performance lies a sense of concern that some unpredictable policy situation could cause systematic problems. These concerns are primarily focused on foreign relations and trade policy where relationships are complicated, delicate, and sometimes tenuous.
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Is the Retirement Plan Your Company Offers Enough?
Understanding How Much You’ll Need to Retire
Participating in a company-sponsored retirement plan is a smart move when planning for your retirement, but simply signing up is not enough to ensure that you will be able to retire comfortably when the time comes.
Selecting the Best Options
Most company-sponsored retirement plans give employees the option of selecting from a group of funds to have their money invested in. The number of funds available varies by company but can be overwhelming. Keep in mind that just because a particular investment option is included doesn’t mean that it is right for you.
The advisors at River Wealth can help you make sense of which selections will match your retirement plan goals the best. Simply provide us the list of investment options that your employer’s plan offers, and we review them to assess their performance, risk level and associated fees. Our recommendations will take into account any other investments that we manage for you, as well as how the selections fit with your total investment portfolio.
Setting Your Contribution Rate
Once you’ve selected the best funds offered with your 401(k), you’ll need to determine how much you will be contributing from each paycheck. You’ll need to factor in your current financial needs to cover your mortgage, car loans, credit cards and other household expenditures, which may limit the amount you set aside with each pay.
Be sure that you contribute enough to qualify for the full employer match that is offered, which usually ranges from 3 to 6 percent. In order to reach their retirement goals, most people need to be contributing at least 10 percent. Remember, whatever you choose to contribute will be tax deferred, which can make a difference come tax time. Our advisors can help you calculate the contribution rate that makes the most sense for your situation.
Additional Retirement Savings
For many investors, their company-sponsored retirement plans alone will not be enough to meet all of their post-employment needs. You may need to supplement retirement savings with an individual IRA account. For people who are aged 50 and older, the federal tax code provides “catch-up” savings opportunities, so people can increase their contributions to IRAs or 401(k)s. Taking advantage of catch-up contributions can deliver a significant boost to your retirement savings.
It’s important to sit down with an experienced financial advisor to find out how much your company’s plan will cover and what additional investments you might need to maintain your lifestyle when you retire. River Wealth Advisors can walk you through the details and help make sure you’re on track for retirement.
Retirement Advice – Pass It On to Your Millennials
One question we often get at River Wealth Advisors from our clients is how they can help their adult children jump-start their retirement savings. The answer that applies to everyone is “get started now”; no matter how small, your savings will add up over time. Don’t underestimate the power
of compounding returns.
A recent Millennial Money Study by Fidelity Investments revealed that while adult children are striving for financial independence, for nearly half (47 percent), their parents are still paying for ongoing expenses (e.g., cell phones, utilities, cable service). There has also been an increase in adult children living at home, with 21 percent of millennials reporting they are living under their parents’ roofs.
Besides being able to reduce living expenses, sharing a home with their parents also helps millennials by seeing firsthand how to build a stable financial future. Sixty-five percent of those surveyed said that their parents have provided good examples of how to build a successful financial future. Developing sound savings habits at
an early age provides a number of big advantages.
One great example of saving your way to financial stability is Grant Sabatier, the founder of Millennial Money. Dubbed “The Millennial Millionaire,” Grant went from having just $2.26 to his name to accumulating over $1 million in five years. He’s dedicated to helping others in his generation build wealth and has launched www.millennialmoney.com as a resource.
The first step in starting to save for retirement is figuring out how much you can put aside each month. Nearly one in five millennials surveyed said they spend money “as soon as I get it.” Some of this can be attributed to the fact that this generation relies on debit cards and mobile payment services, rather than cash, so the outgoing funds aren’t as tangible.
A good way to start figuring out where you can save is to create a spreadsheet of all your monthly bills, expenditures and income. From there you can identify any extra spending that can be trimmed. Maybe it’s as simple as packing your lunch or changing your cable package. Ten dollars here, twenty dollars there – it all starts to add up. Keep in mind this is a process; getting started is the most important step.
If you are eligible for an employer-sponsored retirement program, be sure to participate. It’s important to remember that any money that you contribute is pre-tax, so you get the advantage of building your retirement while lowering your taxes.
How much should you save for retirement? In general, the recommendation is to put at least 10 percent of your income each year, which includes any employer match, into a tax-advantaged retirement account. The conclusion of the research was that on average, the single most powerful change that millennials could make to improve their retirement outlooks was to save more.
Client Portal Offers Secure Account Access To Your Billing Statement
At River Wealth Advisors we are committed to providing an exceptional experience to our clients. Our secure online portal is the latest offering that enables clients to quickly access their account information. Eliminating mailed account statements allows you to get your account information more quickly, reduces the need for filing paper copies and also helps the environment by eliminating waste.
With a few clicks, the client portal provides a complete picture of your finances, including portfolio assets, 401(k) and other accounts. It also provides a secure, convenient and efficient way to provide financial files to your accountant or attorney.
Effective March 15, 2018, you will start to receive electronic billing statements.
To receive electronic billing statements, you will need to have access setup to River Wealth’s secure client portal. If you have any questions or need to set up portal access for your account, contact Ali Bircher at ABircher@RiverWealthAdvisors.com or call us at (844) 784-7065.