For Our Clients

Educational Resources

By Joanne M. Welker, CFA, Senior Vice President and Manager, Advisory Services

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Unlike last year at this time, 2019’s year-end statement should provide feelings of relief, pride, and satisfaction versus last year’s fear and consternation after the market’s decline in December 2018.  Once you get past the celebratory feelings, there are some things you should consider and keep in mind when reviewing your year-end statements.

The S&P 500 was up 28.9% in 2019, its highest annual return since 2013, and in part due to the sharp decline the last December.  It was a good year for stocks, but we can’t count on or expect it to be that good again in 2020. The recent movement in the market due to the Iranian geopolitical issues is a stark reminder of that. But remember whether you are worried about the downside or are overconfident about the upside, long term equity returns are in the 8-10% range.  Therefore, when you review your statement, take a look at your overall allocation.  Did the increase in stocks cause your equity allocation to get higher than you are traditionally comfortable with?  If so, it may make sense for you to trim equity and reinvest in bonds or other asset classes (you may need to initiate this action, if you are not in an Advisory account, or a Retirement account with an auto rebalance feature that will rebalance back to target allocation for you).  Don’t allow yourself to get jaded by recency bias and get comfortable by “letting it ride.”  While we still expect stocks to perform in line with historical averages, it is much more important for you to have your portfolio align with your target asset allocation and not allow it to get too aggressive just because we’ve had a good year.  As you reinvest, don’t be tempted to chase performance.  Often asset classes that lag one year, will outperform the next.  Again, stay true to your risk tolerance and invest accordingly.

Also, as a reminder – when you receive your year-end statements, set up your tax folder, basket, corner of your desk, or wherever to put tax documents as they arrive, so they are all in one place when you decide to tackle your tax returns.  Lastly, when you review your 401k statement or similar retirement plan account, think a moment about your contribution rate.  Can your budget afford to bump it up a percent or two to save more for retirement?  Or, is the opposite true and it would make sense to decrease it slightly and pay down debt or build an emergency fund?  Whatever the case, always remember to consider your employer’s matching capabilities so you maximize what your company will contribute to your account.  Enough for now – Happy New Year, Happy Year-End Statement, cheers to 2020 and call us with any questions you may have!

Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability. Rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment.

Benjamin F. Edwards & Co. does not provide tax advice or tax preparation services, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.

January 7, 2020 |