December Retirement Plan Newsletter

December Retirement Plan Newsletter

INSIGHTS

DECEMBER RETIREMENT PLAN NEWSLETTER

EXCHANGE YOUR OLD RETIREMENT SOLUTIONS FOR NEW ONES

JONATHAN COOMBS, INVESTMENT ANALYST

What is an Exchange?

An exchange is a turnkey solution for businesses that allows you to provide the benefit of a retirement plan while offloading much of the administrative and fiduciary responsibilities at a potential cost reduction. A team of professionals work together on your behalf so you can focus on running your business, not your retirement plan.

 

Retirement Readiness

An exchange is a great way to help your employees reach retirement readiness by providing them with a savings vehicle like a 401(k) plan, but with less administrative burden and by transferring certain risks.

 

Fiduciary Risk Mitigation

The fiduciary has a legal obligation to carry out its plan responsibilities with prudence, good faith, honesty, integrity, service and undivided loyalty to beneficiary interests – in this case, retirement plan participants. When joining an exchange, a fair amount of fiduciary responsibility is taken off your hands.

 

Administrative Relief

Employers oftentimes don’t have the resources to effectively manage the complex requirement of administering a qualified retirement plan. With an exchange all plan administrative duties can be outsourced – a benefit typically only available to very large companies.

 

Cost Effectiveness

There’s strength in numbers. By teaming up with other businesses in an exchange, you can benefit from economies of scale and seamless processing that help reduce the costs associated with operating and maintaining a retirement plan.

 

For more information on exchanges, please contact your plan advisor.

 

About the Author, Jonathan Coombs

Jonathan provides guidance to plan sponsors across the country on retirement best practices regarding fee benchmarking, investment analysis, plan design, fiduciary compliance and participant outcomes. As an asset allocation specialist, Jonathan project manages key business development initiatives in the custom solution arena. He also serves as a fixed income analyst. Jonathan attended The Julliard School, where he obtained a Bachelor of Science in music and a Master of Music.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

 

Hey Joel,

Should I distribute the Fiduciary Investment Review to plan participants? – Generous in Georgia

 

Dear Generous,

I appreciate your desire to provide detailed information to your plan participants, but hold your horses. While there is nothing legally preventing the sharing of the Fiduciary Investment Review (FIR) with participants, we do not recommend it and, in fact, strongly discourage it. The FIR is designed for delivery to fiduciaries, not participants. This is not only because the fiduciaries are more sophisticated but because the report is better understood (I would even say, only understood) when presented/explained by an advisor that knows the data. The average participant may be alarmed by watchlisted funds and take inappropriate action (i.e., remove them from his/her portfolio when that’s not the recommendation.) Further, we fear that participants will move all their money into the funds scoring 9 or 10 and as you can imagine, doing so would ignore the critical strategy of diversification. Instead of sharing the report itself, I always recommend an employee communication from the plan sponsor. Something like – “Hey employees, the company has met with our plan advisor to review the plan investments and all is doing great. We take the monitoring seriously, we do it regularly and will let you know when/if a change is needed… Until then, don’t forget to join, increase your deferral, diversify, etc, etc.” No need to create alarm unnecessarily.

 

Always here to give advice,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: HOLIDAY BUDGETING

Holiday Ballin' on a Budget

This month’s employee flyer gives participants tips for budgeting during the holiday season. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

The holidays are a time for giving, but often people can be a little overgenerous during this time of year and later find themselves in financial trouble. Consumer counseling agencies see a 25 percent increase in the number of people seeking help in January and February, mostly by people suffering from an influx of holiday bills.¹

Here are our top tips for saving money during the holiday season:

1. Create a Holiday Budget
Monthly Income – Monthly Expenses = Your Holiday Budget
Make a list of everyone you will buy for and how much you will spend on each person, then stick to it!

2. Pay with Cash
When you pay with cash, you can get a better handle on how much you’re spending. You’re forced to stick to your budget, because you can’t spend cash you don’t have!

3. Pay with Gift Cards
There are websites and stores where you can purchase gift cards at a discounted price. Shop with them and you’re automatically saving money. Shop for items on sale or at a discount store and save even more money!

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Norby Joins Lutz Financial

Lutz, a Nebraska-based business solutions firm, welcomes Bailey Norby to the Lutz Financial division in the Omaha office. Bailey joins the team as a Client Service Associate. She is responsible for the preparation and filing of client data…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

GRAND ISLAND + NORTH 

403 Lexington Circle

Grand Island, NE 68803

P: 308.384.9910

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND + SOUTH

2722 S Locust Street

Grand Island, NE 68801

P: 308.382.7850

Norby Joins Lutz Financial

Norby Joins Lutz Financial

INSIGHTS

Norby Joins Lutz Financial

Lutz, a Nebraska-based business solutions firm, welcomes Bailey Norby to the Lutz Financial division in the Omaha office.

Bailey joins the team as a Client Service Associate. She is responsible for the preparation and filing of client data, as well as ensuring an exceptional client experience during every interaction. Norby received her Master’s degree in business administration from Creighton University.

 

RECENT POSTS

2019 Payroll Update

There are several important updates and considerations related to wages and year-end payroll duties. Please review the included topics and contact us if you have any questions…

read more

Norby Joins Lutz Financial

Lutz, a Nebraska-based business solutions firm, welcomes Bailey Norby to the Lutz Financial division in the Omaha office. Bailey joins the team as a Client Service Associate. She is responsible for the preparation and filing of client data…

read more

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

GRAND ISLAND + NORTH 

403 Lexington Circle

Grand Island, NE 68803

P: 308.384.9910

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND + SOUTH

2722 S Locust Street

Grand Island, NE 68801

P: 308.382.7850

Qualified Charitable Donations: Using IRAs as a Charitable Piggy Bank for Investors

Qualified Charitable Donations: Using IRAs as a Charitable Piggy Bank for Investors

INSIGHTS

Qualified Charitable Donations: Using IRAs as a Charitable Piggy Bank for Investors

NICK HALL, LUTZ FINANCIAL INVESTMENT ADVISER

 

Qualified Charitable Distributions, or QCDs, are a tax provision allowing people age 70 ½ or older to designate funds from pre-tax IRAs to be sent directly to a charity(s). Initially, QCDs were a temporary provision in the tax code as part of the Pension Protection Act of 2006. This was set to run through the end of 2007, however, after 2007 there were last-minute, and sometimes retroactive, legislative Acts that reinstated this provision for a year or two.

Finally, in December of 2015, the PATH Act made this provision permanent going-forward and eliminated the guessing game every year. The law permits any individual that is 70 ½ or older to gift up to $100,000 annually from a pre-tax IRA to a charity, or charities, of their choice. Normally, distributions from a pre-tax IRA are taxed as ordinary income and follow the marginal tax rate schedule. However, QCD legislation allows distributions to be made from the IRAs and shields them from tax returns so long as they go to a qualified charity. It is important to note that individuals must actually be age 70 ½ at the time of the QCD, not simply turning 70 ½ sometime that year.

 

BENEFITS

Satisfy Charitable Contributions and Supporting Greater Good

Most people make charitable contributions throughout the year to causes that are important to them. These range from weekly contributions to a church, contributions to local non-profits, donations to a college alma mater, or more national, far-reaching agencies. Utilizing the QCD provision is a great way to facilitate normal annual gifting or one-time pledges to organizations in a tax-free manner.

QCDs are permitted to any organization that qualifies as a 501(c)(3) charity. Doing a QCD can simplify charitable gifting by consolidating weekly or monthly giving into quarterly, semi-annually, or even annual gifts. There is no limit as to how many charities you can gift to.

 

Satisfy RMD

A major benefit of the QCD provision is that it can be used to fully or partially satisfy required minimum distributions (RMDs) from pre-tax IRAs. Upon reaching 70 ½, individuals must take out a percentage of their pre-tax IRAs, or 401(k)s, that have grown tax-deferred over their working years. Individuals can also utilize the QCD provision for an RMD on an inherited IRA if they are personally 70 ½ at the time of the distribution. The RMD is calculated by using the previous year-end balance of pre-tax retirement accounts and dividing this number by a life expectancy factor. The beginning RMD distributions for a married person is approximately 3.75% of their total pre-tax IRAs.

  • For example: Sam Smith, turned 71 in April 2018. He retired a few years ago and rolled over his old employer 401(k) into a pre-tax IRA. Sam took his first RMD in 2017 and the IRA balance on December 31, 2017 was $1,000,000. Sam would need to take out roughly $37,500 as his RMD from his IRA before December 31, 2018. For married couples, it is common for both spouses to have pre-tax IRAs that are subject to RMDs. The QCD provision allows people to use distributions sent directly to charity (or a check made payable to charity sent to them) to count towards annual RMDs.

 

Minimize Taxes

The above fictitious example of Sam Smith is a common scenario. Sam would have to recognize an additional $37,500 in ordinary income on his tax return, and his spouse may have an additional RMD that needs to be counted as income. Retirees often see their income rise in retirement upon reaching 70 ½ because of large RMD income.

Using the QCD can prevent pushing people into the next tax bracket if their RMD is big enough because it shields some or all RMD income which would normally be taxed. For others, utilizing the QCD provision can keep more of their Social Security income non-taxable, keep Medicare Part B and Part D premiums lower, and help others avoid the 3.8% net investment income tax by shielding RMD income from a tax return.

 

QCD Becoming More Prominent in the Wake of the Tax Cuts and Jobs Act of 2017

Many people make charitable donations by transferring highly appreciated stocks or securities from their taxable brokerage accounts to a donor-advised fund or organization like the Omaha Community Foundation charitable checkbook. This strategy avoids high capital gains and helps get an upfront deduction in the year securities are gifted, yet has the flexibility to gift proceeds to charities of their choosing over subsequent multiple years. We still think this is a worthwhile strategy for younger investors, but the new tax law has made the QCD even more powerful for those over age 70 ½. As a side note, QCDs are not permitted to be made into donor-advised funds but must be made payable or go directly to a charity.

Standard Deductions

The Tax Cuts and Jobs Act of 2017 (TCJA) brought on broad, sweeping changes to the tax code. One of the biggest changes was an expanded standard deduction and increased limitations on itemized deductions. A direct correlation of these changes included dramatic shifts in the tax benefit of making charitable donations.

Previously, the standard deduction for a married couple filing jointly (MFJ) was $12,700, with personal exemptions of $4,050. Thus, MFJ couples got $20,800 combined in standard deductions and personal exemptions. TCJA consolidated the standard deduction and personal exemptions into one larger standard deduction of $24,000 ($12,000 single filer). For those who are 65 and older, an additional $1,300 standard deduction is added per individual.

Itemized Deductions

Additionally, the new tax law significantly limits allowable itemized deductions. Namely, state and local taxes (SALT) and real estate taxes are now capped at a combined limit of $10,000 annually versus the old law allowing individuals to include the full amount of these taxes as itemized deductions. On top of this, miscellaneous itemized deductions (tax preparation, investment advisory fees, organization fees, safety deposit boxes, etc.) in excess of 2% of AGI were repealed for individuals.

As a result, the only deductions that are left are the $10,000 limit for SALT/real estate, home mortgage interest, charitable contributions, and medical expenses in excess of 7.5% of AGI (2018). Thus, more than 90% of the population will be filing the standard deduction in 2018 and beyond because they don’t have enough itemized deductions to eclipse the much higher standard deduction limits.

For many retirees, one of their major goals before retirement is paying off the mortgage. Without mortgage interest to deduct, the only eligible itemized deductions are from SALT/real estate taxes and charitable contributions (and maybe medical deductions). With SALT deductions now limited to $10,000 and no other eligible deductions, the first $14,000 or $16,600 (couples over 65) of annual charitable gifting for married couples has no tax advantage.

QCDs are unquestionably the way to gift for anyone over 70 ½ given these new tax laws because you are taking pre-tax funds and gifting them to charity—in essence getting a full tax deduction you might not otherwise get. Thus, the QCD provision has turned IRAs into Charitable Piggy Bank for those over the age of 70 ½.

 

Like any tax recommendations, we suggest you or a loved one speak with your CPA to discuss the merits of potentially using the QCD provision. It is not an all or nothing proposition. If you wish, you can designate only a small portion of your RMD to go to a specific charity or charities. At any rate, I would expect the QCD provision to continue to gain popularity as a great way for those over age 70 ½ to give to the charities of their choosing because of the recent tax law changes that have gone into effect for 2018.

 

 

Important Disclosure Information
Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.

ABOUT THE AUTHOR

402.827.2300

nhall@lutz.us

LINKEDIN

NICK HALL, CFP® + INVESTMENT ADVISER

Nick Hall is an Investment Adviser at Lutz Financial with over eight years of industry experience. He specializes in comprehensive financial planning and investment advisory management services.

AREAS OF FOCUS
  • Financial Planning
  • Investment Advisory Services
  • Retirement Planning
  • Income Tax Planning
  • Social Security and Medicare Planning
  • Education Planning
  • Investment Product Research
  • Small Business Owners
  • High Net Worth Families in Transition
AFFILIATIONS AND CREDENTIALS
  • Financial Planning Association of Nebraska, Member
  • Certified Financial Planner
EDUCATIONAL BACKGROUND
  • BSBA in Finance and Business Management, Eller College of Management - University of Arizona, Tuscon, AZ
COMMUNITY SERVICE
  • Mount Michael Benedictine, Alumni Board President-Elect
  • Lutz Gives Back, Committee member
  • United Way, Volunteer
  • Salvation Army, Volunteer
  • Omaha Home For Boys, Volunteer
  • Susan G. Koman Race for the Cure, Volunteer

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

GRAND ISLAND + NORTH 

403 Lexington Circle

Grand Island, NE 68803

P: 308.384.9910

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND + SOUTH

2722 S Locust Street

Grand Island, NE 68801

P: 308.382.7850

November Retirement Plan Newsletter

November Retirement Plan Newsletter

INSIGHTS

NOVEMBER RETIREMENT PLAN NEWSLETTER

HOW AND WHEN TO PAY PLAN EXPENSES WITH PLAN ASSETS

How and when to pay plan expenses with plan assets

TOM BASTIN, JD, LLM, AIF, CEBS, MANAGING DIRECTOR, SOUTHEAST REGION

Some retirement plan expenses can be paid for with plan assets — but many can’t. Which are the “reasonable and necessary” retirement plan expenses that can be paid out of plan assets?

Generally, services required to maintain the plan’s compliance and administration can be paid from plan assets. Obvious examples include the annual nondiscrimination testing and preparation of the annual Form 5500. Another example is a plan amendment or restatement that is required because of a legislative change.

Optional services generally cannot be paid out of plan assets. One clear example is costs for projections that are optional and benefit the company, not the plan participants.

Some service fees may not be easy to classify. Fees for resolving plan corrections — such as delinquent deferral remittances or contributions determined with a definition of compensation not supported in your plan document.

In the event of an incorrect test result, regardless of who was at fault, the law ultimately holds the plan sponsor responsible for the proper maintenance of the plan. As a result, the plan sponsor cannot shift the financial burden for the corrections to the plan.

All in all, it’s perfectly acceptable and common to charge reasonable and necessary transaction-based and record-keeper administrative fees to participants. However, it is critical to ensure that similarly situated participants are treated the same. It would be discriminatory and, therefore not allowed, for non-highly compensated employees to pay administrative fees while highly compensated employees did not.

If you are unsure whether a specific fee can be paid from plan assets, please contact your advisor. We’ll happily talk through the particulars of your situation to help you arrive at an appropriate decision.

 

About the Author, Tom Bastin

Tom BastinTom uses his expertise in plan design, administration, recordkeeping, compliance, investment analysis, fee analysis, vendor benchmarking, fiduciary governance and participant education to help plan sponsors and participants reach their retirement goals. PlanAdvisor ranked Tom one of the “Top 100 Retirement Plan Advisers” in 2013 and 2015. Financial Times ranked him one of the “Top 401 Retirement Advisers” in 2015. Tom earned a Bachelor of Arts at Purdue University, a Juris Doctor at Nova University and an LL.M. in Taxation Law from the University of Miami.

 

DON'T LET YOUR RETIREMENT PLAN TURN FROM BENEFIT TO LIABILITY

A retirement plan is important to your business — and to all the employees relying on it for income later in life. However, mistakes and confusion can turn retirement plans from an attractive benefit into a liability.

A properly administered retirement plan avoids unnecessary costs and administrative problems, and ultimately mitigates liabilities for plan fiduciaries. The IRS recommends periodic plan reviews as part of proper administration and recently released a short bulletin with helpful tips and information about how to create and implement a retirement plan check-up.

A plan checkup should include a review of your plan documents and communications. A comprehensive review will confirm that the plan’s current terms are being administered correctly and that the current plan language still makes sense and isn’t unnecessarily limiting based on practical administrative considerations.

Unintentional fiduciary breaches typically involve administration issues like delinquent deferral remittances, a definition of compensation that’s inconsistent with the definition expressed in the plan document, missed participant notifications or misinterpreted eligibility provisions (such as confusing “hours of service” with “elapsed time”).

These errors can be time-consuming and costly to resolve — but when recognized early, it’s easier and less costly to resolve them. The IRS and the DOL offer voluntary correction programs to help you. Under certain circumstances, a company may self-correct administrative errors internally without informing the IRS, based on their self-correction program.

There is no substitute for proper administration of your retirement plan, but some document language is cryptic. Accidents can go unnoticed, and most plans can benefit from assistance in interpretation to ensure proper administration of the provisions in their plan document.

A second perspective can be invaluable. For assistance reviewing your plan, please contact your advisor.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

 

Hey Joel,

Can I avoid an audit by splitting my employees into two plans? – Fingers Crossed in Florida

 

Dear Florida,

There are some organizations out there promoting this approach. Here is the problem: There is no regulation indicating a situation in which two separate plans would be acceptable so you can avoid an audit. There are plenty of regulations regarding control groups, affiliated service groups, etc., indicating this is not acceptable. Upon audit by either the IRS or DOL you have zero guarantee they won’t disallow all 5500s filed without an audit subjecting both companies to penalties (IRS $25 per day, DOL $1,100 per day) for late filing since no audit was included. Both the IRS and DOL will ask questions pertaining to ownership of all entities by the owners of the company that is audited. In other words, they are going to discover there is a second plan.

In addition, under the Prudent Man Standard of Care you will need a strong reason for separating plans and exposing participants to higher costs as a result (all the 403(b) fee lawsuits center around record-keeper consolidation in order to achieve cost savings in addition to fund consolidation to obtain lower cost share classes). Thus, I would not go this route receiving a legal opinion the plan sponsor can rely upon given the potential for thousands of dollars of fines. The legal opinion should be made out to the plan sponsor and not the TPA or advisor marketing the approach. The plan sponsor needs someone they can turn around and sue when this blows up on them.

 

Uncrossing Fingers,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: TIPS TO WEATHER A TURBULENT MARKET

Tips to Weather a Turbulent Market

This month’s employee memo reminds participants that market volatility is normal and provides tips on steps they should be taking in both up and down markets. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

With the recent market volatility, it’s understandable that you may be concerned about your investments. Volatile markets can make you wonder if you’re on track to meet your retirement goals. Don’t be discouraged and most of all, don’t panic. Instead, be proactive! Consider the following steps you should be taking in both up and down markets:

  1. Review Your Portfolio. Know your investment mix and be sure you are invested in the appropriate asset classes (based on your risk tolerance and time horizon to retirement). Times like these reinforce the need to diversify (while diversification does not guarantee against loss of principal, it can help spread your risk among different asset classes and market segments).
  2. Check Your Contribution Rate. How much you contribute each month can directly impact how much you will have at retirement. Have you done a retirement needs calculation? Do you know how much you should be contributing each month to reach your goal? Are you increasing that amount each year or more often based on your income and age?
  3. Rebalance. This will readjust your portfolio back to your original investment strategy attempting to “sell high and buy low.” Essentially, when you rebalance, you tend to sell some appreciated assets and purchase others with lower valuations. Regular rebalancing (as a rule of thumb, at least once a year) may increase the overall return of your portfolio over time.
  4. Consult with a Professional. Don’t go it alone. Financial planning resources are available through our retirement plan advisor.

Remember, staying invested in times of market turbulence will help you participate fully in potential market gains. While there is never any certainty in the market, it is worth noting that some of the sharpest market declines were followed by steep rebounds. History has taught us that volatility is to be expected. The implications surrounding the current turmoil should call on plan participants to focus on what they should otherwise be doing on a regular basis.

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Norby Joins Lutz Financial

Lutz, a Nebraska-based business solutions firm, welcomes Bailey Norby to the Lutz Financial division in the Omaha office. Bailey joins the team as a Client Service Associate. She is responsible for the preparation and filing of client data…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

GRAND ISLAND + NORTH 

403 Lexington Circle

Grand Island, NE 68803

P: 308.384.9910

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND + SOUTH

2722 S Locust Street

Grand Island, NE 68801

P: 308.382.7850

Lutz Financial Adds Josh Jenkins

Lutz Financial Adds Josh Jenkins

INSIGHTS

Lutz Financial adds Josh Jenkins

Lutz, a Nebraska-based business solutions firm, welcomes Josh Jenkins to the Lutz Financial division.

Josh joins the firm as a Senior Portfolio Manager & Head of Research. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support. Jenkins received his Bachelor’s degree in accounting from the University of Nebraska at Lincoln.

 

RECENT POSTS

2019 Payroll Update

There are several important updates and considerations related to wages and year-end payroll duties. Please review the included topics and contact us if you have any questions…

read more

Norby Joins Lutz Financial

Lutz, a Nebraska-based business solutions firm, welcomes Bailey Norby to the Lutz Financial division in the Omaha office. Bailey joins the team as a Client Service Associate. She is responsible for the preparation and filing of client data…

read more

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

GRAND ISLAND + NORTH 

403 Lexington Circle

Grand Island, NE 68803

P: 308.384.9910

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND + SOUTH

2722 S Locust Street

Grand Island, NE 68801

P: 308.382.7850

Lutz Financial: Market Update

Lutz Financial: Market Update

INSIGHTS

Lutz Financial: Market Update

JOSH JENKINS, LUTZ FINANCIAL SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

After recently hitting an all-time high, the U.S. stock market has experienced a return to volatility. While it’s perfectly natural to be uncomfortable watching the prices trend lower the way they have, it’s important to remember gyrations in a given week, month, or even year are generally not going to impact your financial plan and long-term goals. Still, we felt this was a good opportunity to reach out and let you all know what we are thinking.

Market Declines are Normal and Healthy

Last year was smooth sailing for investors as the market steadily marched higher with virtually no volatility. That experience was highly unusual, however, as the table below illustrates. Based on a study from the Capital Group, the stock market experiences a decline of -5% or more three times a year on average, and a -10% decline once a year. What we are experiencing today is normal, the uninterrupted gains of 2017 were not.

A History of Market Declines

After an extended period without a meaningful pullback, it’s easy to become complacent. When the market finally does retreat, it can feel like a shock to the system. The financial media certainly does not help the situation. Their business is predicated on attracting viewers, and perpetuating fear is extremely effective at doing that.

The truth of the matter is the market can sometimes rise too far too fast. When this happens, prices need to correct and reset for future gains. The beginning of this year offers a great example of this. Stocks went gangbusters in January, dipped in February and March, then rebounded and steadily moved to new highs.

While we know declines are an inevitable part of the market cycle, we don’t know how long they will last, or how far prices will fall. It is okay not to know these things, because nobody else knows either. The important thing is having a plan in place for when they arise.

The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” – Warren Buffett

Emotional Investing Leads to Bad Outcomes

When it comes to building and maintaining wealth, investors are often their own worst enemy. Rather than execute decisions based on thorough analysis, they have knee jerk reactions based on fear and greed. Everyone is susceptible to this pitfall – it’s the result of thousands of years of evolution. Our ancestors living in caves would not have survived long enough to procreate if they stopped to do a S.W.O.T. analysis each time they sensed danger. The fight or flight response kept them alive. While these emotions can keep us from physical danger, they often lead to poor decisions when it comes to investing.

The chart below from J.P. Morgan illustrates the conclusion of the prominent DALBAR study, which measured investor returns over a 20-year period. The result is not pretty. The average investor (orange column) earned just 2.6%, much lower than the funds they were investing in! The underperformance is largely the result of poor timing decisions, such as chasing recent winners and dumping recent losers. It may seem obvious that buying high and selling low is a poor strategy, but our raw desire to have more money than our neighbor, or to protect our life savings from decline can trump rational thought. A disciplined investor that was able to buy and hold a balanced portfolio like the 60/40 or 40/60 on the chart would have more than doubled the return of the average investor. Compounding a reasonable return over the next 20 years is how you build wealth, not trying to pick the next Amazon.

20-year annualized returns by asset class (19998-2017)

What Should Investors Do?

The best thing for investors to do is tune out the noise from the day to day gyrations in the market. Understand there will be bumps (sometimes large ones) in the road from time to time. Remember this is normal, healthy, and often offers a good opportunity to buy at a discount or harvest some losses. Keep emotions under control. Don’t become too excited when things are going well, or to down when things look dire. The best advice anyone can give, is to build a sound plan and then stick to it.

 

Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over eight years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE
THOUGHT LEADERSHIP

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