Outlook 2021: Powering Forward

More than most years, it’s hard to look ahead to the next year, to 2021, without looking back at 2020. A global pandemic, a massive economic collapse, a bear market, a surprisingly sharp reversal, a hotly contested election where passions ran high, the impact of lockdowns—it was an unusual year of extraordinary challenges. In 2021 it’s time to restart the engines, but things are going to look different, feel different. 2020 has changed us, the way we do business, the way we connect. It’s also shown us our constants, what works for us, and what we hold on to. In 2021 we restart the engine, but we’re not driving toward the same world we left behind in 2019. It’s not even our destination. There has been damage to areas of the economy that may never fully recover, but there are other areas that will adapt, reinvent themselves, and help reinvigorate growth. In Outlook 2021: Powering Forward, we talk about stocks and bonds, the economy, and the post-election policy environment, but in the background will be new challenges, new opportunities, and new ways of doing things. Thankfully, one constant has been the value of personal and professional relationships, even if we’ve had to learn how to connect in new ways. Sound financial advice offered a long-term map for many investors that helped them from getting off course in a turbulent 2020. There are still risks to navigate in 2021, but it’s time to get back on the road. COVID-19 Over the course of the year, we have seen an increased understanding of how to contain the COVID-19 virus, important progress on how to treat those hospitalized, and promising developments on treatments

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A Positive Outlook for 2021

To say that 2020 was a wild year would be an understatement. As we prepare to welcome in the New Year, we take a look at what we can expect in the stock and bond markets, the economy, and a new post-election policy environment in 2021. Some Policies May Change We understand the temptation for many to over-emphasize the importance of elections in making investment decisions. However, the post-election clarity may be more important than the outcome itself, and the strong November performance was a good example. Also, new policymakers in Washington, DC, bring some important new policy considerations for 2021: There are still some looming uncertainties regarding the makeup of the Senate, but it appears the most likely outcome will be a split Congress, which historically has produced the strongest stock returns. A split Congress will likely force both parties to negotiate on policy decisions, limiting the opportunity for dramatic changes. A fifth COVID-19 relief bill may be forthcoming, but recent headlines suggest the bill will be smaller in scale relative to previous relief bills. The Federal Reserve (Fed) took extraordinary measures to provide support to the economy and markets in 2020 and is unlikely to reverse course in 2021. Inflation risks may be skewed to the upside, an important consideration for the Fed moving forward. The Economy is Off To a New Start The US economy was performing well early in 2020; however, growth came to a screeching halt following the outbreak of COVID-19 and the imposition of “stay at home” orders. The ensuing data was astounding: Quarter-over-quarter gross domestic product (GDP) declined 31.4% in the second quarter, and unemployment skyrocketed to as high as 14.7%, both setting

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End of Year Deadlines Checklist

2020 has been one of the most unprecedented years in recent history, but some things—like tax contributions and retirement deadlines—don’t change much, if at all. And with the uncertainty surrounding just about everything, meeting these deadlines and getting tax efficiencies in place now may help the rest of the year run more smoothly. Read on for several things you’ll want to accomplish before 2020 draws to a close. Establish or Contribute to a Keogh Plan or Solo 401(k) A Keogh plan, or a tax-deferred pension plan that’s available to unincorporated businesses or the self-employed, allows contributions of up to $57,000 per year—far more than the $19,500 that can be contributed to a traditional 401(k).1 But to take advantage of these tax savings in 2021, the taxpayer must establish (and contribute to) a Keogh plan by December 31, 2020. Take Required Minimum Distributions (RMDs) Anyone with an IRA, 401(k), 403(b), 457, Simple IRA, or SEP IRA must begin withdrawing from these accounts at some point. These withdrawals, which are computed using the applicant’s age, life expectancy, and the total balance of the account, are known as RMDs, and are subject to income tax. The SECURE Act boosted the RMD age from 70.5 to 72. But because the penalty for failing to take an RMD (or for taking a distribution that’s too small) can be a 50 percent excise tax, missing this deadline can be an expensive mistake.2 As for the 2020 year, the CARES Act waived RMDs for IRAs and retirement plans, including beneficiaries with inherited accounts5. The waiver was also extended to individuals who turned age 70 ½ in 2019 and took their first RMD in 2020. Pay Expenses for

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Tax Benefits of Charitable Planning

When you donate to a charity, you want to know that your donation is going to its highest and best purpose—which means minimizing the tax exposure of the donated assets. One way to accomplish this, whether you’re hoping to donate during your lifetime, after your death, or both, is through a charitable remainder trust. Read on to learn more about the benefits of charitable planning through a charitable remainder trust. What is a Charitable Remainder Trust (CRT)? A CRT is a type of irrevocable trust that generates an income stream for the trust settlor or other beneficiaries, with the rest of the trust assets going to a named charity or charities. This essentially provides the trust settlor with a “life estate” in the donated assets while ensuring they can seamlessly pass through to the charity after the settlor’s death. Key Benefits of a CRT A CRT can be ideal for anyone who would like to make a difference through charitable giving—without necessarily losing the use of the assets in the interim. CRTs can be especially beneficial when funded with long-term, highly-appreciated assets that would otherwise be subject to some hefty capital gains taxes when sold or passed along via an inheritance. CRTs can be funded by cash, publicly-traded securities, real estate, and a few other types of complex assets. And if you’re not sure you’d like to commit to a single charity (or set of charities) for the lifetime of the trust, you can combine a CRT with a donor-advised fund (DAF), a mechanism by which charities can be added, omitted, or substituted at any time without any additional cost. CRTs also offer several tax benefits, explained in further detail

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Smart Shopping During the Holidays

The holiday season is just a short time away, which means the shopping season is about to be in full swing. Shopping for holiday gifts is stressful but also a little fun, especially when you think about the joy you will bring to those who receive them. But in all the rush to get everything done in time, it is easy to forget smart shopping techniques and over-spend or purchase a lot of items that you do not need. So this year, why not try some smart shopping tips to help you get everything you need, without the regret of having to pay it off after the holiday season? Start With a Plan Developing a plan is one of the easiest ways to make sure that you buy for everyone on your list with the money you have available to spend. Start your plan with a budget and then make a list of everyone you need to buy for. Next, come up with a few gift ideas for each person. Then, research pricing and find the gift for each one that will fit in with the amount you have budgeted for gifts. Stick to your list and avoid any last-minute splurges. Focus on the Big Sales Days While one of the most well-known shopping days to get amazing deals is Black Friday, don’t forget some of the other popular holiday shopping sales days such as Cyber Monday and Christmas Eve. If you are buying gifts for family or friends that you will not see until after the holidays, consider shopping the amazing sales the day after Christmas when the stores are deeply discounting their items to help reduce their surplus

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COVID-19 May Threaten the Recovery

A new wave of COVID-19 cases threatens to trip up the economy. Increasing cases in Europe and the United States have brought new restrictions on activities, but the market doesn’t appear to be fazed by the recent outbreaks. Progress on developing vaccines has provided a clear boost to sentiment, but prospects for a divided Congress and the potential for more fiscal policy support also may be playing a role. New Wave of COVID-19 Just as the economic recovery was beginning to gain some steam, COVID-19 cases have been rising dramatically in several regions around the world [FIGURE 1]. The change of seasons is adding to concerns, as colder weather shifts more activities indoors—increasing the chances of viral transmissions. This has prompted many governments to take greater action to try to curb the spread of COVID-19. Several countries and many states in the United States have rolled back reopening plans and implemented new restrictions such as school closures, nighttime curfews, and even stay-at-home orders. Economic Effects of Lockdown 2.0 The new round of restrictions, dubbed “lockdown 2.0,” has already begun to cause a decline in economic activity in the Eurozone. Markit’s composite Purchasing Managers Index (PMI) for the Eurozone, a survey of purchasing managers’ spending plans released November 23, slipped back into contractionary (sub-50) territory at 45.1, dragged down by the services component. Manufacturing activity remained expansionary at 53.6—highlighting the outsized effects that the COVID-19 outbreak has had on service industries. While the United States has not implemented the same degree of restrictions as Europe, rising cases already have had an effect on consumer and business behavior. Restaurant-booking data from OpenTable has declined since mid-October, and weekly jobless claims have begun to

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Frothy Sentiment Rides Bullish Technicals

The post-election environment and positive developments toward a COVID-19 vaccine have led to a surge in stock prices. The added clarity on these two fronts has boosted sentiment, which may present a risk in the near term as stock prices are near all-time highs. A November to Remember The reaction from stocks since the US election has been truly impressive. The S&P 500 Index is up 8.8% for the month, on pace to be the best November for the S&P 500 in 40 years. Small caps have also soared, with the Russell 2000 Index up 16%, which would be its second-best month ever. Although we remain longer-term bullish on equities, there are some signs that sentiment could be getting a little frothy at the moment, which could increase the odds of a pullback. Technicals Supportive of Future Strength On November 9, more than 71% of the stocks in the S&P 500 hit a one-month high, the third-highest reading using data back to 1990. Not only does this tell us that participation in the post-election rally has been extremely broad and not limited to only a few heavily weighted names in the index, but historically this has been an extremely positive signal for the next year. Returns can be quite weak in the near term after more than 65% of stocks reach a one-month high, but returns over the next 12 months not only have been far above average, but have been positive in all seven observed instances [Figure 1]. In fact, nearly every measure of breadth and participation we monitor shows a similar trend. Looking at longer-term indicators, 90% of the stocks in the S&P 500 are above their respective 200-day

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Ready to Retire? How to Know for Sure

Retirement is an exciting time for many, and the reward for years of hard work. While there is no set age for retirement, it is important to be prepared before you make the leap, so that you enjoy your retirement and financial stability during it. If you are considering retiring soon, below are some quick considerations to make to know for sure. Have You Secured Healthcare Coverage? One of the largest expenses during retirement could end up being your healthcare expenses, especially if you do not have a healthcare plan in place when you retire. While you will become eligible for Medicare at the age of 65, if you retire before then, you will want to find coverage to bridge the gap between the time your current coverage ends and Medicare coverage begins. You may want to look at the cost of private insurance, see if you are eligible to be on a spouse’s plan, or COBRA your current plan for a period of time after your employment ends. Always be sure to have some kind of medical coverage, even if it has a high deductible, as lack of coverage may lead to significant expenses. Have You Eliminated Most of Your Debt? Going into retirement with major debt may lead to you burning through your savings quicker than you anticipated. If you have stayed on top of your debt and have paid off your mortgage, lines of credit, large loans, and high credit card balances, you are likely in a good position to consider retirement. Do You Have Enough Money Saved? When planning for retirement, you likely had a retirement goal, which would provide you with at least roughly 75%

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IRA 101: Know the Facts

Individual retirement accounts (IRAs) are one of the most common assets people rely on to save and invest for retirement. In fact, more than a third of households in America own an IRA. If you’re thinking of opening an IRA for the first time, it’s a good idea to review the rules. Even if you have had an IRA for years, note that laws change. The Different Types There are two main types of IRA accounts to choose from: traditional and Roth. The timing of the tax advantages is the main difference between the two. For a traditional IRA, contributions are tax deductible and tax is paid upon withdrawal. Roth IRA contributions are taxed in the year they are made, and qualified withdrawals are tax-free. Both types are almost equally popular: 36% of American households have Roth IRAs 35% of American households have traditional IRAs 26% of American households contribute to both There are also employer-sponsored IRAs. These may fall into either of the two categories. Contribution Limits The IRS set a 2020 annual limit of $6,000 for people under 50 years old. People who are 50 years and older can make a total contribution of $7,000. What some breadwinners do to maximize contributions is to file joint tax returns and open a second account for their spouses. They then make additional contributions to this account. The IRS states that the combined contribution cannot exceed the lesser of the couple’s taxable income or the contributor’s individual limit times two. Eligibility The IRS considers net income from self-employment, gross wages and gross salaries as qualifying income. Too much income, however, and IRA contributions can get reduced or prohibited altogether: Qualifying Widower

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Q3 Results Brighten 2021 Picture

Corporate America delivered quite an encore to a surprisingly good second quarter earnings season with more of the same in the third quarter, despite a higher bar. S&P 500 Index companies didn’t quite match the biggest upside surprise ever—but they came close. We’re optimistic about the earnings recovery in 2021 and beyond, and outline five key takeaways for investors. An Encore Performance Earnings blew away expectations during the second quarter as the unprecedented COVID-19 lockdowns early in the quarter, followed by the uncertainty and unevenness of the reopening and limited guidance from corporate leaders, caused analysts to badly miss with their forecasts. In the third quarter, analysts had more information and the environment included fewer twists and turns, which should have made predicting results much easier. Still, analysts were overly pessimistic by nearly the same margin, as earnings results far surpassed expectations. Putting numbers to it, with more than 90% of S&P 500 companies having reported quarterly results so far, S&P 500 earnings are tracking to a 7.5% year-over-year decline, roughly 14 percentage points better than September 30 estimates (source: FactSet) [Figure 1]. Revenue is tracking to only a 1.7% year-over-year decline, a solid 1.9 percentage points above prior estimates. Other numbers put the strong third quarter into perspective: Big upside. The average S&P 500 company surpassed consensus earnings estimates by 19%. The second quarter’s 22% upside earnings surprise was the highest ever recorded by FactSet, and this quarter’s level—despite a higher bar—was not far behind. Average revenue upside of 2.6% is the highest FactSet has ever recorded (their data goes back to 2008). Broadly positive results. The percentage of companies beating earnings expectations stands at 84%, tied for the highest percentage since

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