fireworks, sky, new year-879461.jpg
fireworks, sky, new year-879461.jpg

Market and Performance Update – As 2022 recedes into the history books, we look at the stock market performance last year with all the joy we’d have for a root canal right after we’d been to an IRS audit. In the monthly newsletters I write every month, I normally report on four different stock market indexes.

First, we report on the Dow Jones Industrial Average (DJIA or Dow). The Dow is a group of 30 very established, very large companies that are chosen and tracked by Dow Jones and Company. It was the first such index and it began toward the end of the 1800’s. Starting with only twelve companies in it, they expanded the number to 30 about a hundred years ago. It is the index reported each day on your local or cable business news channel. While it is a good indicator of the direction of the largest companies in the country, it is not as indicative of the overall stock market and economy as the S&P 500 is.

Which is the next index we report on. The Standard and Poor 500, better known as the S&P 500, it is an index of stocks of 500 different companies chosen by the Standard and Poor company to give us a broader view of the overall stock market because it keeps track of so many more companies than does the Dow. Started in 1957, it is the second oldest index we report on. Most stocks and mutual funds of stocks use the S&P 500 as the performance benchmark they use to compare themselves to.

Third, we report on the NASDAQ Index. The NASDAQ 100 comes from the NASDAQ exchange that was started in February of 1971. It was a place that stocks of start-up tech companies could be listed, sell their shares and raise cash for their companies. 

For example, the Apple Computer company was incorporated in 1976 and was first listed on the NASDAQ exchange as a tiny company in December of 1980. 

It is currently the largest company (by market cap) in the world and is listed in both the S&P 500 and the Dow 30. In our experience, the NASDAQ index is the most volatile index we cover. 

Based on the meticulous records I’ve been keeping since 2014, the NASDAQ has been the best performing index ProVest covers 6 out of the last 9 years. It’s been the 2nd best performer for two of them, and in 2022 it lost the most value by a wide margin.

Finally, we cover the Russell 2000 index. This is a lesser-known index, but we believe it’s important because it tracks the rise and fall of small US Companies. Started by the Frank Russell Company in 1984, it is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group. Mutual funds that advertise themselves as “Small Cap” normally use the Russell 2000 index as its benchmark

I said all that to say this – The performance of all of them SUCKED last year!!! Here’s what happened;

                                    2022            Dividend       Total Performance

DJIA                          -8.78%           1.91%            -6.87%

S&P 500                   -19.43%        1.78%            -17.65%

NASDAQ                  -37.12%        1.29%            -35.83%

Russell 2000            -21.56%        1.48%            -20.08%

So, as you can see, The stock market had a tough time last year. Even so, by my calculations, from 2014 (when I started keeping detailed records, including dividends) through 2022, even with the decline of the indexes, someone who’d been in the NASDAQ index the entire time, would’ve had a return of over 10% per year, and that’s AFTER a 1.5% per year management fee.

Of course, we never recommend someone sink their life savings into a NASDAQ index fund. If one did, we believe they may wind up in the cardiac unit of the hospital after a year like 2022. No, we believe in the active management of our clients’ assets. After the 2008 debacle, and the disappointed faces we encountered during our 2009 reviews with clients, we knew there had to be a better way. 

We worked on it a very long time, but we believe we have had a very workable and successful system for several years. We manage four different models. We purchase the research, we study what it tells us, and we make the trades. While we’re not allowed to tout our performance of last year in this newsletter, let’s just say we are very proud of the returns we were able to achieve in 2022.  And, since our system is proprietary, ProVest Wealth Advisors is the only place one can go to get it. 

While we do not guarantee any kind of performance of our models, we are always studying the research and following the signals they give us. We certainly appreciate all our clients who believe in us and what we’re doing. We don’t ever want to disappoint you. While we know we won’t always delight you, we want you to know that we are working hard to earn your respect and your loyalty every day.

While we do not guarantee any kind of performance of our models, we are always studying the research and following the signals they give us. We certainly appreciate all our clients who believe in us and what we’re doing. We don’t ever want to disappoint you. While we know we won’t always delight you, we want you to know that we are working hard to earn your respect and your loyalty every day. Happy 2023. Now, let’s get to work!

What you need to Know – While I normally write the entire newsletter we send to you, this month we want to provide you with some detail on the SECURE Act 2.0. The most clearly written piece I’ve seen comes from my good friend, Raymond Ferrara. Ray is President of one of the largest Financial Planning and Money Management groups in Florida. I met him in 1983 and we’ve been friends ever since. This is from his newsletter, Provise Perspectives. It’s a little long, but it contains some really good information.

SECURE Act 2.0

As the holiday season approached, all Congress could do was sing, “All I want for Christmas is everything I couldn’t pass before” as they passed a $1.65 trillion omnibus bill with 4,155 pages that continued the government through September 2023. Included in the bill were many of the potential changes we discussed earlier this year, also known as SECURE Act 2.0. These changes covered 350 pages on retirement planning and threw in lots of pork with a vote of 225-201 mostly along party lines in the House and by a more bipartisan vote of 68-29 in the Senate. 

Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 has made significant shifts to both those accumulating for retirement and those in retirement. In fact, there are 92 changes. Here are highlights and several planning opportunities.

Before the original SECURE Act, Required Minimum Distributions (RMDs) had to begin the year one turned age 70 ½ or no later than April 1st of the following year. However, the SECURE Act increased the RMD age to 72. SECURE 2.0 once again raised the RMD age to 73 beginning in 2023 and then to age 75 in 2033. This will allow more time for the money to grow on a tax-deferred basis and provide greater flexibility in withdrawals which may help reduce the income tax burden. Why wait 10 years before raising it again? To make this bill more appealing, by not increasing the debt any more than necessary, this delay provides more income to the government over the next 10 years. 

Under prior law, those age 50 and older had a catch-up provision allowing them to put more money into retirement plans. In 2022, a 401(k) or 403(b) participant could put in an extra $6,500 over and above the regular contribution limit of $20,500 for a total of $27,000. The new law states that starting in 2023, both the base amount and the catch-up amount are indexed for inflation and the catch-up jumps to $7,500 and $22,500 for the base amount for a total of $30,000.

Beginning in 2025, those ages 60, 61, 62, and 63 may put in the greater of $10,000 or 150% of the current catch-up contribution amount. Congress created a “catch” to the “catch-up”. If the participant makes over $145,000, then the catch-up must go into the Roth 401(k) and loses the tax deduction. While it might be seen as a negative in the short-term, the catch-up provisions to the Roth 401(k) provide some tax diversification in retirement.

Unfortunately, the $1,000 catch-up contribution for an Individual Retirement Account (IRA) has not changed since 2006. However, beginning in 2024, it will finally be indexed for inflation. 

For those that have reached age 70 ½, they have had the option to make up to $100,000 in Qualified Charitable Distributions (QCDs). By giving directly from the IRA to a qualified charity, the IRA owner does not have to declare this distribution as income, and it qualifies for the RMD. Correspondingly, the IRA owner cannot deduct the charitable contributions.

The QCD increases to $200,000 in 2023 and is adjusted for inflation annually beginning in 2024. Further, a one-time gift of $50,000 can be made to a charitable vehicle that will benefit the IRA owner and/or spouse – think Charitable Gift Annuity or Charitable Remainder Trust. This $50,000 will be part of the annual limit. By using the IRA for charitable purposes rather than using cash, it reduces your Adjusted Gross Income (AGI) income and may prevent the taxpayer from paying a higher premium for Medicare.

Previously, matching employer contributions had to go to a tax-deferred account rather than a Roth account. Going forward a participant can choose tax-deferred or tax-free. This provides the participant with tax planning that was restricted in the past. Further, Roth 401(k) withdrawals will be treated like a Roth IRA, meaning that there will be no annual RMDs required. That is to say, the Roth 401(k) distribution never has to be taken until the owner’s death. In the old world, the Roth 401(k) distributions from a 401(k) had to be taken at the same time as regular 401(k) distributions. 

SECURE 2.0 requires all new employers with a 401(k) or 403(b) to automatically enroll new employees at a 3% contribution rate. However, the employee may opt out. The contribution rate will go up 1% per year to a maximum of 10%. This should increase participation in 401(k) retirement plans. Current plans are exempt from this provision, but we encourage all plan sponsors to consider putting this into effect.

Younger retirement savers get some added benefits as well. SECURE 2.0 will allow employers to a 401(k) or 403(b) plan to make matching contributions which can equal up to the amount a participant is paying on student loan debt. Since many student loan borrowers couldn’t pay down debt and participate in a retirement plan, this should make it easier to do so. 

Now here is a real planning opportunity regarding 529 College Savings Plan and retirement planning. A 529 beneficiary can convert up to $35,000 to a Roth IRA without penalty or taxes so long as the 529 plan has been in existence for at least 15 years. Further, the amount transferred in any one year is limited to the amount that can go into a Roth IRA and is reduced by any other contributions to a Roth IRA. Okay, money left over can be used, but only money that has been in the plan for more than five years. There is more good news: the income limits placed on one’s ability to contribute to a Roth from a 529 plan are waived. This all begins in 2024.

Beginning in 2024, a retirement plan participant may set up an Emergency Savings Account (ESA) held in cash or cash equivalents with a maximum balance of $2,500. The ESA may qualify for a match from the employer and distributions can be made without incurring an early withdrawal penalty. The penalty-free withdrawals are available for the following situations:

1) emergency withdrawals up $1,000 (no more withdrawals are available until it is paid back or three years have passed); 2) state and local corrections officers and private firefighters may now use the catch-up provisions; 3) terminal illness with “terminal” being defined as within seven years; 4) qualified disaster distributions up to $22,000 for all disasters beginning with January 26, 2021; and 5) up to $2,500 per year for premium payments for a qualified long-term care insurance plan.

Have you lost track of a retirement plan? Section 303 requires the Labor Department to set up a database for participants to seek out plan administrators that might have knowledge of a “lost” plan. 

It will take time to digest all these changes and the planning opportunities that come with them. Make no mistake, they are significant changes.

The Adventures of Mark, my good friend from Athens, GA – This is the story of the first time Mark called 911. He was just a boy of twelve. 

Mark –                       “Hello? I need your help!”

911 Operator –        “Alright, what is it?”

Mark –                       “Two girls are fighting over me!”

911 Operator –        “So what’s your emergency?”

Mark –                       “The ugly one is winning.”

May the Good Lord put the warmth of the sun on your face, help you along with the wind at your back, all while keeping your hallelujahs multiplied.