Monthly Market Update:
Recap of December 2019
A trip around the sun is complete and another year has begun. Let’s take a look at what the markets did in December, what analysts are predicting for 2020 and also an important new law that will at some point affect either you or your beneficiaries.
Let’s start December and go from there. This past month saw more record setting numbers. Trade talks with China have been the talk for the year, but in late 2019 the USMCA trade agreement went through the house of representatives and looks to be complete soon. China and the US have made a verbal agreement that should get the ball rolling. As it stands, the US will be charging 7.5% in tariffs on $110 billion of Chinese goods, down from the 15% that was originally put in place. With the tariff reduction, China is supposed to buy more goods from the US in the areas of agriculture, factory goods and energy products.
For December, the US stock market S&P 500 was up 2.82%, the Down Jones Industrial Average up 1.87%, and the Nasdaq Composite up 3.63%. Emerging markets had a big month due to trade talks. The MSCI Emerging Markets were up 7.46& and the MSCI EAFE was up 3.25%.
The Barclays US Aggregate bond was down .07% and the Barclays US Corporate High Yield Bond was up 2%.
For 2019, the markets surpassed analyst expectations, but remember this year was not the norm. Your financial plan should be a guideline for the growth you need and though there will be down markets at some point, it is all about the averages.
For 2020, Business Insider put together a list of top strategists in the financial industry who estimated the S&P 500 return. The average estimated return was 3.5%. Predicting 2020 is a bit of a gamble. Some people may be right and many will be wrong. The key is to always stick to the financial plan.
2020 does have a lot of rumor for it to be a volatile year due to the elections and a potential slowing economy. MarketWatch posted an article in December of 2018 with strategists estimating the S&P 500 returns for 2019 and none were close to the growth we saw. That being said, the strategy should never be to time the market.
Now let’s talk about law for a moment. There was a new law that was passed called the SECURE Act, which is short for Setting Every Community Up for Retirement Enhancement Act of 2019. There is good for some and bad for others in this law and I will be brief in my explanation, but if you have any questions, please reach out and I will be happy to explain this further.
To start, one big change is they have raised the required minimum distribution age (RMD) to age 72. It was originally set to age 70 ½. If you have already begun your RMD, this will not affect you. Remember, the RMD is for money that is tax deferred such as a traditional IRA.
Another change is age limits on retirement contributions. The old rule stated you could not put money into retirement plans past age 70 ½, but the new rule allows you to continue contributing.
One other change is for those still working. Smaller companies don’t often have 401k plans and this rule creates incentives to small businesses to offer retirement plans.
These are three of the main takeaways that I like in the new act. A few others I am not a fan of. The first is what was called a Stretch IRA. This is where a non-spouse beneficiary of an IRA could stretch the payment of their IRA across their lifetime, allowing the funds to grow for a significant period of time. The new law requires any non-spouse beneficiary of an IRA to withdraw the total amount of the IRA within 10 years of the death of the original account holder. So, if you were to pass away this year and your child inherited 100 thousand dollars in an IRA, this money would have to be withdrawn from the account within 10 years. Basically, the government wants to get as much of the tax money on deferred accounts as possible.
Have no fear though, we will be discussing options during our annual reviews to limit the tax burden on those inheriting the money and also talk about educating those set to inherit your money so they know what to do. If you are already receiving money from an inherited IRA, nothing will change for you.
Another downside is there are less restrictions for employers offering annuities through their retirement plans. This is a huge win for insurance companies, because annuities often have much higher fees than standard brokerage accounts. This could potentially put more money in the insurance companies pocket and less in yours.
These are a few of the key points that pertain to individuals with the SECURE Act.
I’ve covered a lot more than I usually do. If you have any questions, please reach out and always remember to stay the course with your investments.