December 2020 Newsletter to Clients

Enjoy this month’s edition that features a stock market comparison to 2009, some important TD Ameritrade deadline reminders and some advice from the SEC on protecting your passwords.

Moneywatch 40^th Birthday – The Past as Prologue

Perspective is a powerful tool so reflecting on what Bob Bova wrote in the newsletter in November, 2009 shows his advice then was still appropriate in 2020. The Great Recession of 2008-09 wasn’t fueled by a pandemic but the reaction of the stock market was quite similar to today. Bob wrote then that the stock market is a leading indicator – investors buy shares in companies based on their estimates of future company earnings. Conversely, unemployment is a lagging indicator.

In 2009 there was a bad economy but a surging stock market. The S&P 500 hit its low in March that year at 676 but surged to 1127 by the end of December. Meanwhile unemployment was pushing 10%. Bob wrote, “We are proud of the fact that one year ago, notwithstanding the feeling the ground was falling around us, we recommended deployment of cash into the stock market. Interestingly, the stock market hit its low in March so purchasing stocks then must have seemed insane to the uninitiated, but now we have a stock market up 62% from that low. Successful investors focus on the long-term outlook.”

In 2020, once the pandemic and the reaction to it took effect, the stock market hit its low on March 23 when the S&P 500 index dropped to 2237. As before, we urged clients to stick to their strategies and focus on their long-term goals. And, as before, the stock market surged this year with the S&P 500 standing at 3699 on Dec. 4 – a 65% gain since the low in March. As before, even with 12 million fewer employed people than in February, the index gained 11% in November - the best month for the S&P 500 since 1928! History repeating itself.

On the bond market and interest rates Bob noted, “…longer term interest rates are predictive of inflation.” When longer term bonds, such as the 10-year or 30-year Treasury bonds, rise in yield that can be an indicator that investors expect greater economic activity and inflation over the coming years. This year, bond yields have fallen and are still at historic low ranges. In 2009, the 10-year Treasury yield sat at 3.5% while the same bond yield today is around 0.90%. Currently, inflation is low and, based on low bond yields, expectations for higher inflation are still low. Because of these low bond yields, investors receive very little compensation for taking on more credit risk in the bond market. As a result, we’ve been increasing clients’ exposure to Dodge & Cox Income fund (DODIX) – a solid, long-time core-plus bond performer.

TD Ameritrade Deadlines

• For those who want to take a distribution from their IRAs for Tax Year 2020, TD Ameritrade must receive a completed distribution form no later than December 21, 2020;
• If you write a check from your IRA, Roth IRA, or SIMPLE and SEP IRA to a charity, the check must clear by December 31, 2020 to be reported on the 1099-R form for 2020;
• If contributing to a charity via one of the type of accounts above but not via check, TD Ameritrade must receive the request to gift funds or securities by December 18.

Protecting Your Passwords

The Securities and Exchange Commission recently issued the following advice on how to best protect passwords:

• Use different passwords for different sites. For instance, don’t use your Amazon password for your bank account;
• Always change your password if there are indications your password has been compromised;
• Strong passwords consist of a combination of uppercase and lowercase letters, numbers, and special symbols such as punctuation. They should be at least 12 characters long, although even longer is better;
• The strongest passwords are the hardest to remember. For example, E7r9t8@Q#h%Hy+M.

Thank you for your continuing confidence.