What Do January’s Market Returns Mean for the Rest of the Year?

It’s that time again. A new year is here, which means a volatile 2018 is in the rearview mirror. The markets suffered a steep drop at the end of last year after climbing steadily through the first three quarters. A number of factors contributed to the markets’ fourth-quarter tumble, including tariffs, interest rate hikes and trouble in the tech sector.

A new year doesn’t mean those challenges are gone, but it does represent a fresh start. And if history is any guide, January can be a strong month for investors. According to a study from LPL Research, in the 68 years from 1950 through 2017, January has been a positive month for the S&P 500 41 times. It’s been negative 27 times.1

As any investor knows, history doesn’t guarantee future performance. However, there does seem to be a correlation between market performance in January and the rest of the year.

How do January returns impact the rest of the year?

According to LPL Research, there’s a relationship between January returns and market returns over the remainder of the year. Its research showed that during years in which there was a positive January return, the market had an average return of 12.2 percent over the next 11 months. When the January return was negative, the S&P 500 returned only 1.2 percent the rest of the year.1

If January returns are more than 5 percent, the correlation is even more pronounced. In those years, the market had an average return of 15.8 percent over the next 11 months. In fact, when January has a return of more than 5 percent, the rest of the year is positive 91.7 percent of the time.1

What is the January effect?

Why has January been positive more often than not? And why does January’s return seem to impact the rest of the year? There are no definitive answers to these questions, but there are theories.

There’s an idea called the “January effect,” which suggests that January returns may be the product of tax strategy. Investors sell stocks in December to harvest tax losses before the end of the year. That depresses prices and creates a buying opportunity in January. Because investors sold at the end of the year, there’s cash on the table to buy in the beginning of the next year.

Of course, this is just a theory. There’s no way to conclusively prove whether the January effect is a real phenomenon. Even if it could be proved, it’s never wise to change your long-term investment strategy based on short-term prospects.

If you’re concerned about the volatility of 2018 or in the coming year, now is a great time to meet with a financial professional. They can help you review your strategy and possibly make changes that reduce your risk exposure protect your assets.

Ready to evaluate your retirement strategy? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and goals and implement a safe and secure retirement plan. Let’s connect soon and start the conversation.

1https://www.thestreet.com/story/14469889/1/stock-market-s-strong-january-performance-bodes-well-for-the-rest-of-the-year.html

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18345 – 2018/12/31

What Can You Expect From the New Tax Law in 2019?

A new year is here, and with it comes a flood of year-end tax documents like W-2s, 1099s and others. Before you know it, the April 15 tax filing deadline will be upon us, and it will be time to submit your return.

It’s always wise to meet with your financial professional at the beginning of the year. It gives you an opportunity to discuss the past year, your goals for the coming year and your tax strategy. That advice rings especially true this year, with a number of tax changes about to kick in.

The Tax Cuts and Jobs Act was signed into law in late 2017 by President Trump, and 2018 was the first full calendar year under the new law. The return you file in April will likely be the first that reflects much of the law’s changes. Below are a few of the biggest changes and how they could affect your return:

Increased Standard Deduction

The new tax law impacted a wide range of credits and deductions, from the deduction of medical expenses to credits for child care. Those who itemize deductions may have felt the brunt of these changes.

However, the tax law significantly increased the standard deduction. In 2017 the standard deduction was $6,350 for single filers and $12,700 for married couples. The new law increased those numbers to $12,000 and $24,000, respectively.1

Given the changes to itemized deductions and the increased standard deduction, you may want to consult with a financial or tax professional before you file your return. If you’ve traditionally itemized deductions in the past, that may no longer make sense.

New Tax Brackets

The new tax law also made significant changes to the tax brackets. There are still seven brackets, just as there were before the passage of the law. And the lowest rate is still 10 percent. The top income tax rate is down to 37 percent from 39.6 percent.2 There are similar cuts to other brackets as well.

Under the old tax code, for example, a married couple earning $250,000 would be in the 33 percent bracket. Under the new law, that same couple is in the 24 percent bracket. A single individual earning $80,000 was in the 28 percent bracket under the old law but is now in the 22 percent bracket.2

Itemized Deduction Changes

As mentioned, the new tax law increased the standard deduction qualification amounts. And many itemized deductions were eliminated or reduced including those for state and local taxes, real estate taxes, mortgage and home equity loan interest, and even fees to accountants and other advisers.

However, there could be other opportunities to boost your itemized deductions above the standard deduction level. Charitable donations are still deductible, as are medical expenses assuming they exceed the 7.5 percent threshold. If you’re a business owner, you can deduct many of your expenses, including up to 20 percent of your income assuming you meet earnings thresholds.3

Ready to build a sound tax strategy? Our founding partner is a chartered accountant. He can show you how taxes impact your entire retirement picture. Contact us today at Sage Financial Partners.

1https://www.nerdwallet.com/blog/taxes/standard-deduction/

2https://www.hrblock.com/tax-center/irs/tax-reform/new-tax-brackets/

3https://money.usnews.com/investing/investing-101/articles/know-these-6-federal-tax-changes-to-avoid-a-surprise-in-2019

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18326 – 2018/12/26

Give Yourself the Gift of Retirement Planning This Holiday Season

The holidays are here again. It’s that time of year to shop for gifts, plan parties and spend time with family and friends. If you’re like most people, you’re busy trying to find the perfect gift for your spouse, children, parents or other loved ones.

But have you considered a gift for yourself? It may be tempting to go out and buy yourself the latest gadget. However, consider another item that could pay dividends for years and decades to come: a review and adjustment of your retirement strategy.

According to a Gallup survey, 54 percent of Americans are worried about being able to afford retirement.1 If you’re among that group, now may be the time to take action. The holidays may not traditionally be the season of financial planning, but the year-end represents an ideal time to make changes and take action.

Give yourself the gift of a solid retirement strategy this holiday season. A financial professional can help you conduct a full review and recommend possible changes. Below are a few steps to consider:

Year-End IRA Contributions

Do you use an IRA to save for retirement? It’s a powerful savings tools because IRAs offer a variety of tax benefits. In a traditional IRA, you may be able to make tax-deductible contributions. Your growth is also tax-deferred until you take distributions. In a Roth IRA, you don’t get deductions for your contributions, but you get tax-deferred growth and tax-free withdrawals after age 59½.

In 2018 you can contribute up to $5,500 to either a traditional or a Roth IRA. That number increases to $6,500 if you are age 50 or older. If you haven’t yet hit those limits, see if you can make another contribution soon. You can actually contribute all the way until April 15, 2019, and still count it as a 2018 contribution.2

Increased 401(k) Contributions in 2019

Are you one of the millions of Americans using a 401(k) plan to save for retirement? If so, you can put more money away in 2019. The contribution limit for 401(k) and 403(b) plans is increasing to $19,000 next year. If you’re age 50 or older, you can contribute an additional $6,000 in catch-up contributions.3

Granted, $19,000 may be a significant amount to contribute to your retirement plan. However, even a modest increase can have big returns. Consider that your contributions will grow tax-deferred over years and possibly decades. An increased contribution could also lead to increased matching contributions from your employer.

Retirement Income Estimate

You may know how much you have in savings for retirement, but do you know how much income those savings will produce? If not, give yourself a gift this holiday season and meet with a financial professional to develop a retirement income estimate.

A financial professional can project your potential income from Social Security, a pension, savings or other sources. That can help you determine whether you’re on the right path or if you need to make adjustments.

Ready to retake control of your retirement strategy this holiday season? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1https://news.gallup.com/poll/210890/americans-financial-anxieties-ease-2017.aspx

2https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

3https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18279 – 2018/11/28