A Message to Our Clients
Contributed by: Judson S. Meinhart, Wealth Advisor
As advisors, we use storytelling all the time. We all have our few go-to stories. Some we use so often, and have been heard by our clients and coworkers so many times, we are forced to retire them. Recently, I heard one of these retired stories, and found it so compelling I thought it would be appropriate to memorialize it in print.
The story is about two people in separate cars taking a trip across town, leaving from the same point and headed to the same destination. The protagonist of our story calmly walks out to her car, and as she gets in she makes sure to buckle her seatbelt and adjust her rear and side mirrors to minimize any blind spots. She tunes her radio to her favorite music or news station and puts her car in drive. On her journey she obeys all traffic laws, using her traffic signals before turning, and coming to a complete stop at every stop sign (even when no one is watching). She arrives at her destination on the other side of town none the worse for wear.
As you might have guessed, our antagonist approaches this trip quite differently. She races to her car, jumps in and before she even has the door closed is already zooming out of her driveway. Screeching around turns, she’s almost half way to her destination before she realizes she hasn’t even buckled her seatbelt. “I’m half way there, what’s the point now,” she thinks to herself as she changes the radio station while accelerating to make it through the intersection before the yellow light turns red.
Both of our subjects will eventually arrive at their destination on the other side of town, but one took a considerably higher level of risk while getting there. While those risks taken by our lead-footed driver might have gotten her there quicker, it could have also led to delays or not arriving at all had she been pulled over or suffered an accident along the way.
As you might have guessed, this story serves as an analogy for investing, and it is particularly appropriate to share after a year like 2016. As Nick Boyer points out in our Economic Update, 2016 was the most eventful market year in recent memory. Volatile years like 2016 reinforce our seemingly ever-present investing theme of thinking big picture. With a comprehensive financial plan to help identify your risk tolerance and determine your appropriate asset allocation, you can feel confident that your investment strategy has you on track to reach your destination, without taking unnecessary risks.
Market & Economic Update
By: Nicholas A. Boyer, Chief Investment Strategist
From a market standpoint, 2016 was the most eventful year since 2008. Following a steady dose of downward revisions to growth estimates in 2015, coupled with concerns over the impact of potential Fed rate hikes in 2016, the year began with low expectations for equity market returns and growing fears of a global recession. All of this led to a global equity market correction in early 2016 as weakening investor sentiment drove price-to-earnings ratios (P/E) lower and volatility somewhat higher. Most pundits and investors grew increasingly bearish and began to readjust their outlook for global equities and risk assets. Experts cited bloated valuations in U.S. equities and numerous macroeconomic risks from oil market weakness to mounting geopolitical unrest to the growing “threat” of populism. Meanwhile, global interest rates collapsed as the Bank of Japan (BoJ), European Central Bank and several smaller European authorities ventured into the uncharted territory of negative interest rates. What followed was a series of events that not only pulled back the curtain on the mainstream media and financial “experts” exposing them for sensationalist amateurs, but also demonstrated that global economic growth is accelerating, equity returns have room to run provided that earnings growth and sentiment remain strong and that populism may have ultimately become a key catalyst for expansionary fiscal policies.
Per the following tables (as of 12/31/16), the S&P 500 posted double digit returns, only to be outdone by risk assets, which produced impressive returns across the board in 2016 (commodities, oil, natural gas, small cap, etc). Meanwhile, a sweeping sector rotation ensued as investors fled defensive sectors (health care, real estate and communications) in favor of more cyclical sectors (energy, financials and industrials).
While the risk-on rally and rotation into cyclical factors slowed as the market consolidated in the last few days of 2016, nearly all leading market and economic indicators are rising as we head into 2017, lowering the odds of a significant market and/or factor reversal. Alongside the improvement in economic indicators, global bond yields have been rising since late summer. Since the U.S. election, as inflation expectations have shot higher in much of the developed world, that trend has accelerated. China has taken more aggressive steps to alleviate concerns over its economic outlook and the decline in the Chinese Yuan. Yields in Japan remain depressed, but near zero 10 year yields is part of the BoJ’s current stimulus program. Outside of Japan, yields are rising (though admittedly off of extremely low levels).
As we close out 2016 and look toward 2017, we find the U.S. economy and global growth prospects much improved relative to 2015, as inflation and bond yields are finally signaling an end to the depressed level of activity that has dominated the past few years, while investors seem enthusiastic about the prospect of the end of stagnation. Fundamentally, the level of the S&P PE and the risks facing corporate profitability remain concerns and bear watching. However, the rotation into cyclical sectors and value factors, as well as the potential for fiscal stimulus in 2017 leave us with expectations of further gains in the S&P next year, as earnings growth improves and the economic volatility that has marked the past few years subsides. While we expect that volatility in the bond market may increase given the outlook for economic activity and interest rates, we want to remind investors that the goals of our fixed income allocations are to preserve capital, generate income and provide diversification from equity exposures, and as such, we want to avoid the temptation to try to time the bond market.
As always, we encourage investors to remain disciplined in their investment strategy and committed to their financial plan. Please feel free to reach out to the investment team with any questions or to discuss any of these topics in further detail.
Meet Brandon Adams & Jeff Guindon
RKL Wealth Management LLC has welcomed Brandon K. Adams and Jeffrey R. Guindon as Portfolio Managers with the firm. In their new roles, Brandon and Jeff are responsible for developing customized investment portfolios to help clients meet their unique financial goals and needs.
Brandon has nearly a decade of experience in the investment industry, including roles as a Portfolio Analyst and Manager. He also has experience in endowment portfolio research and reporting. Brandon holds a B.S. in Finance from Penn State University, and is a Level III candidate for the Chartered Financial Analyst® designation. In his spare time, he enjoys mountain climbing – most notably Mt. Kilamanjaro in the summer of 2009 – and playing basketball. Brandon resides in Mount Joy with his wife and daughter.
Jeff brings over 10 years of experience to his role at RKL Wealth Management. He previously worked at several local firms as Portfolio Manager and Director of Investment Research. Prior to entering the wealth management industry, Jeff worked as a healthcare management consultant. He holds a B.S. in Sociology from James Madison University and earned his M.B.A. in Finance from York College of Pennsylvania. Jeff resides in Lancaster with his wife and two sons, and he enjoys reading, hiking, traveling and volunteering.
Notable 2016 Deadlines and Important Updates for 2017
By: Judson S. Meinhart, Wealth Advisor
The deadline to make 2016 contributions to Traditional and Roth IRA accounts is April 18, 2017. Limits for 2016 and 2017 contributions are $5,500 with an additional catchup contribution of $1,000 for taxpayers age 50 and up. For self-employed individuals, 2016 contributions to SEP-IRA and Individual 401(k) accounts can be made up until the due date of the individual tax return, including extensions, which is October 16, 2017. However, contribution limits depend on income earned in 2016.
Tax Rates on Qualified Dividends and Long-term Capital Gains
Widened tax brackets for 2017 means that the 20% top tax rate for qualified dividends and long-term capital gains will kick in for joint filers with taxable income above $470,700. The same rate applies to singles earning more than $418,400, and those filing head of household with income over $444,550. Singles with taxable income below $37,950, heads of households below $50,800 and joint filers below $75,900 will pay no tax on qualified dividends and long-term capital gains in 2017.
Deductibility of Long-term Care Premiums
The limits on deducting long-term care premiums are higher in 2017.
Most contribution limits for retirement savings plans do not change in 2017. These include:
- 401(k), 403(b), and 457 plans: $18,000 or $24,000 for those 50 and older
- SIMPLE IRA: $12,500 or $15,500 for those 50 and older
However, the total contribution limit for defined contribution plans increases to $54,000, and plan contributions can be based on up to $270,000 of salary.
Odds & Ends
The taxable wage base for Social Security increases to $127,200, up $8,700 from 2016.
The 2017 standard deduction gets a slight increase to $6,350 from $6,300 for singles, and to $12,700 from $12,600 for married couples
The threshold for deducting medical expenses for those 65 and older jumps to 10% of adjusted gross income in 2017, from 7.5%. This new threshold matches the threshold for those younger than 65.
RKL Wealth Management Proud to Announce Formation of Founders Fiduciary Services
For the past several years, RKL Wealth Management has been looking for a way to deliver trust and fiduciary services to our clients. In response to this need, Founders Fiduciary Services LLC (Founders), a private label trust company, was formed with a consortium of professional advisors.
This new venture makes trust services available to clients that already have a professional team of family advisors in place.
Founders will be able to help clients with their fiduciary needs, including serving as trustee, executor and agent under power of attorney instruments. Founders initially will offer its fiduciary services throughout Pennsylvania, with the possibility for future expansion.
How can you take advantage of this expanded service offering?
- Are you are in the process of forming a Trust, but are in need of an individual or entity to serve as executor and/or trustee?
- Do you currently have a Trust and are unhappy with your current service?
- Do you need to name a Power of Attorney?
All of these are situations where Founders Fiduciary Services LLC might be appropriate for you. Contact your RKL Wealth Management Advisor for more information.
Beware of Email Scams
By: Stephanie A. Connerton, Chief Compliance Officer
RKL Wealth Management employs numerous security measures designed to keep your financial information safe. In light of recent reports of email hacking, we want to remind our clients to be vigilant with their personal email accounts.
Delete email and text messages that ask you to confirm or provide personal information such as credit card, bank account or Social Security numbers. Legitimate companies do not ask for this information via text or email. Do not click on links or call phone numbers provided in these suspicious messages. These “phishing expeditions” use spoof sites that look real but are designed to capture your information.
“During our regular verification of accounts, we couldn’t verify your information. Please click here to update and verify your information.”
“We suspect an unauthorized transaction on your account. To ensure that your account is not compromised, please click the link below and confirm your identity.”
Please contact us immediately if you believe your email account has been compromised. We will work quickly with you and your account custodian to change your online account access (new passwords, new security questions, etc.). We will also help you take additional steps to protect your accounts including obtaining and reviewing your credit reports, contacting your bank and credit card companies and setting up alerts to notify you of any activity in your accounts.
RKL Wealth Management will not act on an email or text message requesting that funds be distributed from your account(s) to be paid to a third party (anyone who is not you). You must contact us by telephone using a known phone number. If we receive a request via email or text message for third party payments, we will call you at your phone number of record to confirm.
RKL Wealth Management wants you to have the highest level of confidence that your personal and financial information is protected.
Our Community Focus
This past holiday season, RKL Wealth Management was proud to make a donation to the Central Pennsylvania Food Bank, which distributes more than 48 million pounds of food and grocery products every year to more than 900 soup kitchens, shelters and food pantries in 27 central PA counties. These agencies directly feed thousands of hungry families.
For more information about the Central Pensylvania Food Bank, visit www.centralpafoodbank.org.