July 2020 Newsletter to Clients

Enjoy this month’s edition that features a note to members of the UK community, a mid-year market commentary and a reminder of 2020 retirement plan contribution limits.

UK Faculty, Staff and Physicians: As you know, the University recently announced a reduction in its retirement contribution match from 10% to 5% over the fiscal year starting in July. We have been asked if it makes sense to increase your voluntary contribution 5% to make up the shortfall for the year. The answer is YES. If you can, increasing your voluntary contributions will help keep your financial plan on track. Please call us if you need help doing this. 

Market Commentary: If you’re a bit queasy from the roller coaster ride that has been the stock market the first half of the year, you’re not alone. A quick review:

• The S&P 500 index consisting of the largest U.S. stocks lost 20% in the first quarter of 2020. This was the worst first quarter in the index’s history.
• The S&P 500 gained 20.5% in the 2^nd quarter. That increase makes it the 4^th best quarter since 1950.
• At the mid-year mark, the index is down a little more than 2%.

So, you might ask, why is the S&P 500 Index still down if the 2^nd quarter gained more than the 1^st quarter lost? Good question.

Let’s say you have $100,000 in your retirement account and it is all invested in the S&P 500 that declines 10%. Your account now has a value of $90,000. If it gains only 10%, the effect on the remaining $90,000 will be an increase of only $9,000. In order to regain that $10,000, the stock market must increase by 11.1%.

This is why we diversify our portfolios. Adding investment types such as bonds, real estate and international stocks hopefully helps smooth out the ride so when U.S. stocks decline, our portfolios don’t decline quite as much, and hopefully regain their value faster too.

Retirement Plan Contribution Limits: Each year the IRS sets the amount that can be contributed to retirement accounts. Now that we’re halfway through the year, here is a reminder in case you want to max out your contributions for 2020.

• 401(k) and 403(b) - $19,500
  • $6,500 in catch-up contributions for those 50 and over;
• IRA and Roth IRA - $6,000 (income limits apply)
  • If 50 or over, $7,000;
• SIMPLE IRA - $13,500
  • $3,000 in catch-up contributions for those 50 and over.

Thank you for your continuing confidence.