Insights: Quarterly Newsletter from RKL Wealth Management (Fall 2017)

Oct. 16, 2017 | in Newsletter

A Message to Our Clients 

Contributed by: Laurie Peer, Executive Vice President 

“Hope for the best; prepare for the worst.” – FEMA

During the third quarter of 2017, many of our client discussions have focused on disaster preparedness, whether it is the form of natural disasters, such as hurricanes, tornadoes and flooding, or manmade disasters, such as identity theft and data breaches. Staying informed and planning ahead can help alleviate some of the serious concerns and impacts associated with these types of catastrophes. That’s why we’re sharing in this issue an excerpt from our recent client communication on identity theft protection.

In conjunction with our focus on disaster preparedness, our core client discussions continue to center on how to best prepare for your financial future. We recognize that there is no limit to the varied media messaging on economic and market events, as well as how best to save for retirement. We are committed to keeping our clients educated and informed on both aspects of these common queries. Nick Boyer, our Chief Investment Strategist, provides insights into global economic events in this issue’s Market Commentary. Judd Meinhart, one of our Wealth Advisors, has also contributed an article on the advantages of saving for retirement using an IRA or Roth IRA.

To further enhance your knowledge, we are pleased to be hosting two upcoming Educational Sessions. Our Advisor Team will be highlighting IRA Planning Techniques on October 25 at the Lancaster County Club. Nick will be guiding a Market Update on November 1 at the Berkshire Country Club. We hope you can attend either or both of these sessions, and join in the Q&A and camaraderie with our team of experts!

Our goal is to always stay in tune with our client’s needs, and bring to each of our client relationships the collaboration, knowledge and commitment for which RKL Wealth Management is known.

Market & Economic Update 

By: Nicholas A. Boyer, Chief Investment Strategist 

As we look back on the third quarter of 2017, we find ourselves eager to turn the page on several frightening and disheartening events including natural disasters, acts of violence and pervasive cybersecurity threats.

In reflecting on the meaning and implications of those hardships, we at RKL Wealth Management are reminded of perhaps our most important role as advisors – to improve financial outcomes for our clients by taking raw emotion out of the investment decision-making process. With that in mind, we note that by most objective metrics financial markets and the global economy remain quite healthy; and yet we are mindful of the risks associated with uncertainty around fiscal and monetary policy in the U.S. as well as a host of geopolitical risks abroad.

Warnings of an Imminent Market Correction Prove to Be “Fake News” 

The third quarter was broadly positive for equities as the S&P 500 Index continued to move higher delivering 4.5% in total return as domestic and global growth improved and corporate earnings remained strong. In September, the second quarter gross domestic product (GDP) report revealed a 3.1% annual growth rate suggesting the U.S. economy may yet meet or exceed full year 2017 estimates despite natural disaster-related headwinds. Meanwhile, globally the MSCI All Country World Index (ACWI) returned 5.3%, the MSCI EAFE Index (International) delivered 5.4% return and the MSCI Emerging Markets Index returned 8.0% for the third quarter of 2017. Ultimately, improving global economic conditions in key economies including China, Japan and the broader Eurozone have improved investor sentiment and provided support for international and emerging market equities. As we’ve previously noted, while equity valuations remain historically high, the near-term case for a correction (10% sell off) or a major market reversal remain unconvincing given the improving global economic outlook, extremely accommodative global monetary policy and a strong corporate earnings outlook.

The Yield Curve Has Been Stubborn but Rising Rates Are Very Real 

The U.S. Treasury yield curve has remained depressed for roughly a decade since the Great Recession, and just over a year ago the yield on the 10-Year Treasury hit an all-time low of 1.37%. While it subsequently climbed to 2.6% following the U.S. presidential election, it has been range bound since, trading between 2.2% and 2.5% throughout most of 2017. More recently, however, in a closely watched affair, the latest U.S. jobs report showed meaningful growth in Average Hourly Earnings (AHEs) – a critical metric – suggesting that tightening labor markets in the U.S. are finally pointing to a stronger outlook for wages. This expected increase in wages, and thus inflation, supports the Federal Reserve’s somewhat more “hawkish” approach to tightening monetary policy and normalizing interest rates. The combination of these factors has increased inflation expectations while pushing up the U.S. Dollar and Treasury yields.

Accordingly, while yields remain generally low, we believe the increase in the 10-Year Treasury yield of over 30 basis points or 0.30% since early September, coupled with the Federal Reserve’s commitment to unwinding its balance sheet and an expected rate hike in December, represent an important signal that we have indeed entered a new era of rising interest rates. While no one can predict the path of interest rates, the pace and timing of future rate movements will have significant implications for fixed income investors. Further, we note that effective risk management techniques will be critical to managing bond portfolios in the event of increasing interest rate volatility.

Monetary Policy Uncertainty Represents President Trump’s Biggest Moment 

Over the last several years, global central banks engaging in synchronized monetary stimulus have played a key role in driving equity valuations higher and keeping market volatility low. Easy financial conditions and extraordinary liquidity have allowed time for the economic recovery to take hold in the U.S. and now globally. Consequently, among the biggest known risks to financial markets and the global economy is the potential for an unexpected reversal in global monetary policy. This has recently become particularly hazardous given the potential for significant turnover at the Federal Reserve Board over the next few months. President Trump is now in a position to select the Chair, both Vice Chairs and potentially five new board members in total. Given the enormous impact of U.S. monetary policy globally coupled with the incredible complexity of the Fed’s current plan to prudently normalize interest rates, it’s important to acknowledge there is some risk that a change in the current approach and/or policy path could have significant ramifications for financial markets and the economy. It is also possible, that the appointment of certain candidates who may be perceived to favor particular policy goals could have an immediate impact on investor sentiment and potentially influence markets in the near term. That said, while it’s impossible to predict the outcome of President Trump’s appointments and the impact of the upcoming transition, we believe it remains unlikely that monetary policy will change dramatically in the near term given the Fed’s principal mandate (maximizing employment and maintaining stable prices) will remain unchanged.

Outlook Positive: Financial Markets and Global Economy Remain Strong 

“More money has been lost trying to anticipate and protect from corrections than actually in them.” Peter Lynch 

Ultimately, it is our view that any investment process which calls for temporary changes in strategy based on even intense emotional conclusions or wholly unpredictable risks is no different than gambling. This is why we rigorously adhere to an investment process that is guided by our philosophy and grounded in well-established investment principles. While a market correction is certainly possible, we currently see no reason to alter our overall strategy at this time and will remain proactive in monitoring and managing risks across our portfolios. As always, we will continue to closely monitor developments in financial markets and the economy, and encourage our clients to reach out at any time to discuss our strategy and individual circumstances in further detail.

Traditional or Roth IRA: Which One Is Right for You?

By: Judson S. Meinhart, Wealth Advisor

As the nation watches a tax reform framework develop in Washington D.C., it makes sense to take a closer look at two of the most popular tax- advantaged retirement savings vehicles for individual investors, the IRA and Roth IRA. Though they are both “Individual Retirement Accounts,” they have distinctly different characteristics that can make contributing to one or the other advantageous.

For 2017, individual investors are limited to a $5,500 contribution to either a traditional or Roth IRA. Savers over the age of 50 are also allowed an additional $1,000 “catch-up” contribution to either type of IRA. You can contribute to both an IRA and Roth IRA in the same year; however, total contributions cannot exceed the $5,500 (or $6,500 for those over 50) limit.

The IRA was first introduced in 1974 as part of the Employee Retirement Income Security Act. The main benefit to the traditional IRA is that contributions are tax deductible. The ability to deduct contributions is a very nice perk to saving, especially for those in higher tax brackets, but this deductibility comes with some strings. If you are covered by an employer-sponsored retirement plan, think 401(k), SIMPLE IRA or 403(b), the deductibility of your contributions is limited by your earnings. Phase-out of deductibility begins at $98,000 of modified adjusted gross income (MAGI) for taxpayers who are married filing jointly (MFJ) for 2017 and $61,000 for single filers. Even if your spouse is covered by a plan at their place of employment, if can impact the deductibility of your contributions. Phase-out of deductibility begins at $184,000 of MAGI for MFJ taxpayers who are not covered by a plan at work, but their spouses is.

Earnings on investments, whether inside your traditional IRA or your Roth IRA, such as interest, dividends, and capital gains, are permitted to grow tax free. However, money that you withdraw from your IRA, tax-deferred contributions and earnings are taxable at your ordinary income rate. This is great if you anticipate being in a lower tax rate down the road, but if you anticipate that your tax rate will rise significantly in the future, there may be a more tax efficient way for you to save.

Roth IRAs, often thought of as the counterpart to the traditional IRA, were introduced as a part of the Taxpayer Relief Act of 1997. Named for Delaware Senator William V. Roth Jr., a Roth IRA boasts some distinct differences from its elder sibling. Contributions to your Roth IRA are made with post-tax dollars, meaning that there is no deduction for Roth IRA contributions. However, since contributions were already taxed, when money is withdrawn, both earnings and original contributions can be disbursed to the taxpayer with no tax consequence. Roth IRAs can be an ideal savings vehicle for those in lower tax brackets – think younger savers – and those who anticipate being in a higher tax bracket in retirement.

For more information on the differences between traditional and Roth IRAs, tax efficient savings strategies and which type of contribution is right for you, be sure to RSVP to our IRA Planning Techniques educational seminar on October 25, 2017. For additional information, please contact Diane Loftus at 717.399.1700 or dloftus@rklwealth.com. 

Team Updates & Accolades 

RKL Wealth Management is pleased to announce that Tom Reardon was recently promoted to Senior Wealth Advisor and that two new members, Haley Schwartz and Christian Pascuzzo, recently joined the team.

As Senior Wealth Advisor, Tom continues his work to create and implement customized financial plans for clients, with a focus on helping them prioritize goals for retirement, educational funding and estate planning. Tom holds the Certified Financial Planner (CFP®) credential from the American College of Financial Services, and a Series 65 license from the Financial Industry Regulatory Association. He sits on the boards of the Tri Valley YMCA and the Wyomissing Football Association, and belongs to the Greater Reading Young Professionals and the Financial Planning Association. Reardon holds a B.S. Business Management from West Chester University, and he resides in Sinking Spring with his wife and two daughters.

 

As Wealth Advisor, Haley specializes in helping individuals and families create sound financial plans to achieve their goals. She brings five years of financial advisory experience to her role at RKL Wealth Management. Certified by the American College of Financial Services as a Retirement Income Certified Professional (RICP®), Haley also holds a Series 65 license from the Financial Industry Regulatory Association. She earned her B.S. in Business Management from Penn State University. Haley resides in Lancaster and enjoys visiting the beach and watching sports, particularly Penn State football.

 

Christian serves as a Financial Planner, responsible for creating and maintaining financial plans for RKL Wealth Management clients. In addition to nearly four years of financial advisory experience, Christian also holds the Series 6 and 63 registrations and is in the process of earning his Series 65 license. He earned a B.S. in Economics with a minor in Mathematics from Shippensburg University. Christian resides in Schuylkill Haven and enjoys biking, snowboarding, golfing and playing soccer in his free time. He and his fiancée, Sarah, are engaged to be married in June 2018.

 

 

A friendly reminder… 

Unless advised otherwise, RKL Wealth Management’s standard practice is to keep up to 1% cash in your investment account. As such, if you have an unanticipated need for a larger than normal distribution beyond the cash balance in the account, it may take up to approximately five (5) business days to complete the transaction and deposit the funds into your checking account.

Thank you for your understanding.

News Alert: Equifax Data Breach

Equifax, one of the three major credit reporting bureaus, had a cybersecurity incident from mid-May to July of 2017, which potentially impacted 143 million U.S. consumers. At this time, it’s been reported by Equifax that information accessed in the breach includes full names, Social Security numbers, birth dates and addresses. RKL Wealth Management has not been affected by this breach.

Potential Consumer Impact 

Find out if your information was exposed by visiting www.equifaxsecurity2017.com/potential-impact or by calling the Equifax Call Center at 866.447.7559.

Equifax is offering complimentary identity theft protection and credit monitoring to all of its U.S. customers, even those not affected by the breach. To sign up for one free year of TrustedID Premier Credit Monitoring, visit www.equifaxsecurity2017.com/enroll/. Please note that Equifax’s TrustedID Premier Service is free for only one year, and charges will be applied after this period.

Steps to Protect Yourself and Your Family 

1. Implement a two-step authentication process for your bank and custody accounts. 

Most banks offer two-step authentication by sending a one-time passcode to your phone or email that is required to access your account in addition to your User ID and password. For clients who have assets held with Charles Schwab, the firm offers a two-step authentication which utilizes a one-time password device that generate the code when you press a button.

2. Put a fraud alert on your credit reports. 

A fraud alert notifies lenders and creditors to take extra precautions when verifying your identity before extending credit. When you file a fraud report with any agency, they’ll contact the other credit bureaus for you. Initial fraud alerts are free and remain in place for 90 days. You can place a fraud alert online through Experian, Equifax, or TransUnion.

3. Put a freeze on your credit reports. 

A security freeze on your credit report takes your information out of circulation. No current or prospective lender will be able to access your credit history. If you need to apply for credit, you will have to lift the freeze. A freeze is not free. You may have to pay a fee to put a freeze on and to take it off. You must call all three credit reporting agencies individually to implement a freeze.

• Equifax 1-800-349-9960
• Experian 1-888-397-3742
• TransUnion 1-888-909-8872

4. Request a copy of your credit report. 

Review a current copy of your credit report and review for any changes or activity not implemented by you. This may be free for you at www.annualcreditreport.com.

5. Engage a service to monitor your existing credit cards and bank accounts closely. 

There are service providers who offer 24/7 fraud monitoring on your accounts and cards for a monthly service charge. There are also free services available such as CreditKarma.

What to Do if I Notice Unusual Activity in My Account? 

We encourage you to monitor your brokerage accounts frequently and to immediately report any unauthorized transactions. If you do, please contact us as soon as possible, and we’ll take the appropriate steps to file a dispute or fraud report on your behalf.

At RKL Wealth Management, the security and privacy of our clients is our top priority. Contact your RKL Wealth Advisor or one of our local offices if you have any questions or need more information.

New Policy on Check Deposits 

We are working every day to more effectively serve you. Part of our process includes handling your checks for deposit into your investment accounts. The way we handle your checks falls under very strict custody rules laid out by the SEC. In compliance with those rules, it is required that your checks for deposit be addressed to your custodian on the payee line. For example, if your account is with Schwab, the payee should read Charles Schwab fbo [insert your name]. If your account is held at SEI, Vanguard or Jefferson National, then the payee should read SEI fbo [insert your name], Vanguard fbo [insert your name] or Jefferson National fbo [insert your name].

Please note that effective December 31, 2017, if we receive a check where the payee is not correctly addressed, the check must be returned to the sender per SEC requirements.

We thank you in advance for your assistance in this matter. If you any concerns or questions, please don’t hesitate to call RKL Wealth Management.

 

 

IMPORTANT CONSIDERATIONS 

The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. The information and data contained herein was obtained from sources we believe to be reliable but it has not been independently verified. Past performance is no guarantee of future results. 

RKL Wealth Management LLC is a registered investment adviser. To learn more about how we can help you meet your goals, please contact our office at (717) 399-1700 or via our website, rklwealth.com. Additional information is available upon request. 

© 2017 RKL Wealth Management LLC – All rights reserved.