Quarterly Update
What a difference a quarter makes. The 4th quarter of 2018 was full of uncertainty and volatility. The markets were concerned with the potential for an inverted yield curve, Brexit issues, the Fed raising interest rates, Chinese Tariff’s, and a potential Government shutdown to name a few. The 1st quarter of 2019 has alleviated a lot of these fears, at least in the short term, and is another great lesson that when we have a well-diversified portfolio that is built for your long-term plan that we shouldn’t panic.
Heading into Christmas morning, the markets were off almost 19% during just the 4th quarter. Since the day after Christmas, they are back up almost 20%. Market volatility is scary, and the markets at times feel like they are strongly influenced by fear and greed. But as we have written before, missing even a few up days over a 10- to 20-year span can really affect your long-term retirement plan. For that reason, with money to be used for retirement, we always recommend that you stay invested through tough times to take advantage of a recovery, whether over a quarter or a few years.
The 1st quarter was great from an investment performance standpoint. However, we do still have things to watch. We don’t have an official Brexit deal yet, nor a final accord on Chinese tariffs, and we believe we are in the late stages of a market cycle, which we have been talking about for a while. Recently, we saw the yield curve invert, which caused a lot of media coverage. As a result, we’ve had a lot of questions about just what that means. The yield curve is the difference between interest on the longer-term and shorter-term Treasuries. An inverted yield curve happens when long-term yields fall below short-term yields. It has historically been viewed as a reliable indicator of upcoming recessions. It tends to indicate that overall, investors think that long-term the economic outlook is poor compared to anticipated short-term results.
While a yield curve inversion has preceded recent recessions, historically it hasn’t immediately happened, and the lead time has been very inconsistent. We have included a great chart that Blackrock put together on past yield curves.
So, what does this mean? As we have said, we do believe that we are late in the cycle, but we also believe we have a little time until the next recession. At our investment committee meetings, we have been discussing our continued efforts to increase the credit quality of our bond funds and also starting to look at shifting more money from growth stocks into more value stocks. Overall, we are moving into funds that tend to have a slightly smaller return, but tend to hold their value much better during a market downturn. You will continue to see adjustments to the portfolios as we move forward with a mind on incrementally reducing risk.
On another note, we wanted to remind everyone that retirement plan contributions increased for 2019. Here are the new limits for a few different types of plans. If you don’t see your plan below, please do not hesitate to contact us.
401(k), 403(b), most 457 plans, and the Thrift Savings Plans: $19,000, or $25,000 for those 50 and older
IRA and Roth IRA accounts: $6,000, or $7,000 in the year you turn 50 and older
SEP IRAs/Solo 401(k)s: $56,000
Please feel free to reach out to us with any questions, and as always, we greatly appreciate your trust in us.