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Winter Notes 2018

Winter Blues?

We hope you had a terrific holiday season with friends and family!  As we drive into the heart of winter, we are reminded of what it takes to be a New Englander (even if you are in Florida or the Caribbean!).  We get to put on layers, big fluffy coats, snow boots, and try to convince ourselves that we are blessed to live in a four-season location!  And, most of the time, we are convinced!  So, embrace your earmuffs and gain warmth from your account and 401k/403b statements!

IRA Reminder

As we begin 2018, I encourage you to consider making a 2017 contribution to an Individual Retirement Account (IRA) before the April 18, 2018 deadline.  IRAs can be a good way to set money aside for your retirement. One benefit of a Traditional IRA is that any earnings accumulate tax-deferred, whether or not your contribution is tax deductible. Roth IRA earnings also grow tax-deferred and distributions can be tax-free if you meet the age and holding requirements.

Given these advantages, I want to remind you that contributions into Traditional and Roth IRA accounts can still be done for 2017, up until the tax filing deadline (Tuesday, April 18, 2018). The maximum total contribution allowed to all IRA accounts is $5,500.00 for Tax year 2017.  If you are age 50 or older by December 31st 2017, the maximum additional “catch-up” contribution is $1,000 (total maximum contribution allowed of $6,500.00).

Please contact us to discuss IRA accounts, eligibility, and IRA advantages further. If you wish to make a contribution to an existing IRA or to establish a new Traditional or Roth IRA, we are here to help!

Schwab Tax Document Timetable

Charles Schwab has announced that tax documents will be available online beginning February 1st with their 1st production mailing.  A second production mailing will begin on February 15th.  If you are signed up for paper delivery, please expect the first production mailing to arrive in mid-February and the second to arrive at the end of February.  Please refer to the Schwab website for instructions on downloading tax document data.

Important reminder:  For many years, Form 1099 tax documents have undergone revisions in the month of March.  The revisions have been necessary since some companies, limited partnerships, real estate investment trusts, and other entities have experienced difficulties conforming to complex tax law changes in a timely way.  Custodians like Charles Schwab and Wells Fargo Advisors have no control over the timing of the reporting from these entities.  However, they make every effort to issue revised Form 1099 documents as soon as they received updated information.  Please alert your tax preparer to the possibility of Form 1099 revisions.

Market Results and Outlook

2017 was one of the best years in the national economic recovery; and investment returns followed suit.  At Compass Rose, our portfolios have had extraordinary returns in 2017 and the progress continues into 2018.

From our perspective, the acceleration of the economic recovery restarted in March 2016.  That month began a series of robust market returns as economic activity began to accelerate and job growth jumped, leading to steady declines in the unemployment rate.  More recently, corporate revenues and earnings per share have risen, driving stock market gains.  Interest rates continue to be near historic lows, despite Federal Reserve steps to raise interest rates, albeit at a slower pace than anticipated a year ago.  Inflation is contained.  And, Congress passed a tax reform package that is considered stimulative to the national economy.

For 2018, we are potentially looking at modest inflation, a few more modest Federal Reserve rate increases, and significantly higher corporate earnings.  Adding to the good news, is global economic recovery in Europe, China, and Japan where solid growth is now occurring.  With the return of global growth and the prospect that corporations may now bring back capital to the U.S. from overseas at lower tax rates, further bumps to economic growth are possible.  In this context, the equity market could very well have another solid year.  The bond market may experience disruption if interest rates rise too quickly, however.

One word of caution: we have not had a significant market correction in a long, long time.  History teaches us that market corrections usually happen every year, and history tends to repeat itself.  So, please prepare for the possibility of a market correction in 2018.  To be perfectly honest, we at Compass Rose would welcome an average correction since it could set up the market for further future gains.  Without a correction, the magnitude of the eventual pull back could be far greater and potentially very painful.  We advise all clients to welcome an average correction as a needed “time out” for the equity market.  As always, we will take steps to moderate the downside of any extended correction.

Client Portal

Please be aware that we have just posted the 4th Quarter 2017 Asset Allocation and Performance Reports for all accounts to our Client Portal.  We believe that is very helpful if each client reviews their account reports.  If you need assistance in accessing the Client Portal, please call Bill Corvene here at Compass Rose for help.

We are making steady progress toward our goal to add your MoneyGuidePro® Plan (Retirement Plan) to the Client Portal this year.   We will alert you when the plan is available and we encourage you to go to the “play zone” in the plan to vary plan assumptions and observe the effect on your plan score.  It is a fun exercise and very instructive on which factors are critical to your long term financial success!