Quote of the Week

“You can’t change anyone else-as tempting as it is to try. You can only change yourself.” –  Unknown

Technical Corner  

This is a reality check. There are no signs that global economic growth is picking up. None. And yet, equity markets have continued to rise. Central market planners in the White House and down the street at the Federal Reserve Building can talk all they want about “substantial progress” on trade talks or “solid” economic growth. But the stark reality is the U.S., and global growth continues to slow.

Economic gravity will win the day. It always does. We will ultimately get government shutdown delayed 4th Quarter GDP data this week on Thursday, which will ultimately reveal the deterioration in the U.S. economy. From what I am reading, 2018 4th Quarter GDP growth should come in around 1.50% to 1.75% which is a big come down from the 3.34% growth in the 3rd Quarter of 2018.

The late December 2018 rally and the rally so far this year is reminiscent of the rally in the 2000 to 2002 market crash when the markets were down 50% from top to bottom. Stock market bulls like to say that the Fed can rescue equities from the slowdown by cutting interest rates, but the Fed cut the Fed Funds rate from 6.25% all the way down to 1.25% and stocks crashed anyway.

After stocks dropped 29% from the 2000 highs to a new low in early 2001, the S&P 500 rallied 21.7% before continuing to tumble to the 2002 lows.

We currently are looking at adding Utilities and Energy to the portfolios. They tend to do well in this stage of the cycle. We have an investment planning meeting this week. I will let you know.

Name Wkly %Chg YTD %Chg 12-mo%Chg
Dow Jones Industrials +0.57 +11.59 +2.85
Nasdaq Composite +0.74 +13.45 +2.59
S&P 500 +0.61 +11.40 +1.65
MSCI EAFE* +1.60 +  8.70
10-yr Treasury Yield  -0.01  –  0.03
*5-day performance ending Friday

 

Lisa’s Thoughts

There’s Still Time to Contribute to an IRA for 2018

Even though tax filing season is well underway, there’s still time to make a regular IRA contribution for 2018. You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2018 ($6,500 if you were age 50 or older on December 31, 2018). For most taxpayers, the contribution deadline for 2018 is April 15, 2019 (April 17 for taxpayers who live in Maine or Massachusetts).

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2018, even if your spouse didn’t have any 2018 income.

Traditional IRA

You can contribute to a traditional IRA for 2018 if you had taxable compensation and you were not age 70½ by December 31, 2018.   However, if you or your spouse was covered by an employer-sponsored retirement plan in 2018, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA.

2018 income phaseout ranges for determining deductibility of traditional IRA contributions:
1. Covered by an employer-sponsored plan and filing as: Your IRA deduction is reduced if your MAGI is: Your IRA deduction is eliminated if your MAGI is:
Single/Head of household $63,000 to $73,000 $73,000 or more
Married filing jointly $101,000 to $121,000 $121,000 or more
Married filing separately $0 to $10,000 $10,000 or more
2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan $189,000 to $199,000 $199,000 or more
Roth IRA

You can contribute to a Roth IRA even after reaching 70½ if your MAGI is within certain limits. For 2018, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $120,000 or less. Your maximum contribution is phased out if your income is between $120,000 and $135,000, and you can’t contribute at all if your income is $135,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $189,000 or less. Your contribution is phased out if your income is between $189,000 and $199,000, and you can’t contribute at all if your income is $199,000 or more. And if you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.

2018 income phaseout ranges for determining eligibility to contribute to a Roth IRA:
Your ability to contribute to a Roth IRA is reduced if your MAGI is: Your ability to contribute to a Roth IRA is eliminated if your MAGI is:
Single/Head of household $120,000 to $135,000 $135,000 or more
Married filing jointly $189,000 to $199,000 $199,000 or more
Married filing separately $0 to $10,000 $10,000 or more

Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. If you haven’t yet reached age 70½, you can make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)

Finally, if you make a contribution — no matter how small — to a Roth IRA for 2018 by your tax return due date and it is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2018.

©2019 Broadridge Investor Communications Solutions, Inc

 By the Numbers

START RIGHT AWAY – A child born in February 1997 (22 years ago) who started college in the fall of 2015 is scheduled to graduate from an average 4-year public in-state college in May 2019. If the child’s parents had invested $139 per month beginning at the child’s 1997 birth and had earned an annualized +8% on all invested dollars, the parents would have been able to pay for their child’s 4-year college expenses of tuition, fees, room and board (the 4-year cost was $81,880).”  If the $139 per month was invested in a Coverdell Education Savings Account or 529 plan and used for education all the growth is tax free. Michael A. Higley, BTN 02-25-2019

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These are the opinions of Larry Lof and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.

The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.

Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.

 

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