November 2020 Newsletter to Clients

Enjoy this month’s edition that features a Moneywatch birthday memory, a special birthday wish, a review of investment performance, and some end-of-year tax tips.

Moneywatch 40th Birthday:

Do you remember what you were doing 40 years ago, in 1980? Were you born yet?

Star Wars Episode V: The Empire Strikes Back was the top selling movie – and it was actually viewed in the movie theater, not at home on a 60” TV; Robert DeNiro won the Oscar for best male actor as Jack LaMotta in Raging Bull; Sissy Spacek won for Loretta Lynn in Coal Miner’s Daughter; President Jimmy Carter required 18-25 year old males to register for a peacetime military draft in response to the Soviet invasion of Afghanistan; the compact disc was invented; and the 401(k) had not yet been birthed by the IRS.

And Moneywatch Advisors was created by Bob Bova. Still working from his home on Turkey Foot Road in Lexington at that time while earning his MBA from the University of Kentucky, Bob began taking on clients. His first, a recent widow who had received $50,000 from a life insurance policy, needed investment advice. Soon after came clients who needed a full financial plan and help saving and investing for their retirement from a firm that would provide only advice in their best interest.

Today, Moneywatch is proud to help 356 clients and manage over $190 Million of their investment and retirement assets for their financial future.

Birthday Wish:

We would like to wish a Happy Birthday to Bill Leffler, Vice President Emeritus. Bill turns 91 on November 24.

Investment Performance:

The Federal Reserve recently reaffirmed their intent to keep interest rates where they are currently – low – and to continue to purchase U.S. Treasury bonds as well as mortgage backed securities. It indicated it would continue this path until there is evidence of a tight labor market and when inflation clears their 2% threshold.

Why does this matter? Because low interest rates have a profound impact on investors’ decisions, particularly large investors like pension funds and endowments that trade in huge volumes. For instance, a pension fund that has an obligation to pay a monthly income to retirees must earn a return sufficient to cover that outflow plus enough growth to cover the income of future retirees. So, when faced with the choice of investing in a 10-year U.S. Treasury bond earning annual interest of maybe 0.80% or taking greater risk with the potential of greater return in the stock market, they’re choosing to stick with the stock market. Investors making similar decisions are helping to buoy the stock market.  Here are some key return data through the end of October:

•             S&P 5oo – up 2.76%;

•             S&P Small Cap 600 – down 6.37%

•             World stocks minus the U.S. – down 7.47%

•             U.S. Aggregate bond index – up 6.32%

Year-End Reminders:

With the end of 2020 quickly approaching – thankfully – here are some reminders how to reduce your taxable income:

•             Max out your personal contributions (not including your employer’s contributions) to your retirement accounts. Remember, contributing pre-tax will reduce your taxable income dollar for dollar and, of course, grow to help your future self.

o             401(k)/403(b) - $19,500;

o             Those 50 and over can contribute an additional $6000;

o             IRA and Roth IRA - $6500;

o             Those 50 and over can contribute an additional $1,000.

•             Although Congress suspended Required Minimum Distributions (RMDs) for 2020 due to the economic impact of the pandemic, those age 70 ½ and over can still make Qualified Charitable Contributions from their IRAs. If you are inclined to make a charitable contribution anyway, donating directly from your IRA is a great way to do it. First, if you contributed to your IRA pre-tax a charitable contribution from your IRA means you will never pay income tax on that amount. Second, contributing from your IRA will reduce your end-of-year account balance, meaning a smaller RMD in 2021 than it would have been otherwise.

•             Please call us with end of year tax questions, we’re happy to discuss.

Thank you for your continuing confidence.