January 2021 Newsletter to Clients

Enjoy this month’s edition that features a notice about 2020 tax forms, a tip on how to find old, forgotten accounts and a recap on 2020 investment returns.

2020 Tax Documents:

TD Ameritrade has informed us their target delivery date for IRS Form 1099s is January 14, 2021. That is the date the first wave of forms will be available electronically. Clients should expect mail delivery to be 5-7 business days after that, per TD Ameritrade. As always, some 1099s will be delivered in a second wave starting in early February, depending on funds held within a client’s account.

To access your forms electronically, go to your Moneywatch portal and click on Vault in the upper right-hand corner, then click on Custodian in the upper left-hand corner. Your tax documents will be in the Tax Forms folder.

Found money:

Recently, several clients realized they still own retirement accounts held at former jobs. In the rush and excitement of changing employers it can be easy to forget the 401(k) or even pension left behind. Fear not, that account can still be rolled over into an IRA where it can be incorporated into your overall portfolio and investment strategy. In fact, an IRA often offers much better investment options than 401(k)s.

Similarly, occasionally clients discover old checking and savings accounts that are doing nothing but gathering dust. If you live or have lived in Kentucky, one way to see if you have accounts or other assets you may have forgotten is to check the Kentucky State Treasurer’s web site for Unclaimed Property: https://www.missingmoney.com/en/. If you live in another state, check your state treasurer’s website for the same info. Who knows, you may find some money you didn’t know you had.

2020 Investment Recap:

While the bar to clear for better living than 2020 is quite low – if I’m not hand-mixing hand sanitizer while wearing a mask to ward off the murder hornets, 2021 will count as an improvement – the bar for investment returns is quite high. Who would have believed that we’d experience a bear market (down 20% or more from the previous high) from Feb. 19 until March 23 and then experience new market highs by early September? In addition, both 2019 and 2020 saw double-digit gains for the index. That has happened three years in a row only 5 times since 1928.

• Stock market

While the overall stock market rose significantly during the year, the rise was uneven. When the S&P 500 index peaked on Sept. 2, the big five technology companies were up 65% on the year while the remaining 495 companies were only up 3%. Since those big five represented 25% of the value of the index, it lifted the overall index. 36% of the index’s companies were still in bear market territory. Through the 4^th quarter, however, the market rally expanded into other segments such as value stocks, small cap stocks and even airlines and energy stocks. The total return (including dividends) of the S&P 500 was 18.35%. The S&P 500 Value Index rose 1.35%.

Are stocks expensive or even over-valued right now? For perspective, a year ago the P/E ratio (Price per earnings) for the S&P 500 index was just 23.91 – at the end of the year the ratio was 37.85.

• Bond market

Government bonds proved to be a good hedge against the stock market when stocks crashed during the first part of the pandemic in February and March. Bond values soared when interest rates took a dive and the U.S. Aggregate Bond Index gained 7.51% for the year. At the end of the year, the 10-year Treasury yielded just 0.91%, meaning bond yields overall are still quite low unless an investor is willing to take much more risk. The managers of our bond mutual funds provide clients with a little bit of exposure to most parts of the bond market, including U.S. Treasuries, corporate investment-grade bonds, mortgage-backed securities, etc. That helps increase yields while still maintaining the purpose of a bond fund within clients’ portfolios – diversification and stability.

• Moneywatch strategy

The expression, “a crisis is a terrible thing to waste” captures our strategy during a year that experienced a bull market moving to bear moving back to bull. We always focus on our clients’ long-term, individual investment strategies while being flexible when opportunities arise. For instance, when stocks crashed in the 1^st quarter, we took the opportunity to buy when prices were lower, when appropriate. Similarly, when stocks surged in the 4^th quarter, that was an opportunity to take some profits within those holdings in order to remain properly diversified and prepare for the upside wave in other asset classes, such as real estate and international. As always, each client’s specific goals and timeline are our sole focus.

Thank you for your continuing confidence.