Dear Friends,

There is certainly no shortage of 2020 humor making the rounds. We will spare you with our attempt to be funny at the end of what has been one hell of a year. We write our year-end letter now because year-end is a busy time of year for important reasons which most people (even some professionals) glance over.

If you read no further than these bullet points, we would like you to please keep in mind the following dates, deadlines, and important messages:

 

  • If you choose to make additional gifts or create a Donor Advisor Fund (DAF) we need your detailed instructions no later than Tuesday, December 1, 2020 to ensure the proper execution of your wishes.
  • Roth IRA conversions and Qualified Charitable Distributions (QCDs) instructions, with the advice of your tax counsel, must be received on or before Tuesday, December 1, 2020.
  • We will provide advance notice to our clients with net capital gains distributions in excess of $25,000 in their taxable accounts. We were very active this year (i.e. during the March meltdown) harvesting losses to reduce capital gains taxes now and in the future.
  • If you have executed a sizable capital transaction, unique expense, or charitable event away from your relationship with us, please inform us immediately.
  • As of this update, we anticipate our team will remain remote until the spring/summer of 2021 for the health and safety of our team and our clients.
  • Our team made a significant investment in 2020 to enhance our communication efforts using social media, webinars, and we are planning for more specific thematic updates in 2021. 
  • If nothing else, 2020 was a stark reminder that planning for a successful outcome extends beyond one’s balance sheet and includes our health and wellness, shared experiences, and time with loved ones.

 

The Big Picture

When we reflect on the year 2020, we will all remember the pandemic as a life-altering event which has shaped our own unique experiences and adaptations. As a society, we learned how to work, teach, and socialize differently. We mourned and celebrated events in ways we never dreamed of 10 years ago. Family dinners were once again the norm, and for an unprecedented time, the world has slowed down.

In every crisis lies opportunity, and the pandemic of 2020-2021 will prove to be no exception.

The great economic pause was short lived as adaptation unfolded. Zoom meetings, remote education, telehealth visits, outdoor dining, virtual conferences, and rearranged supply chains were quickly mobilized.  Nearly every element of our economy was forced to evolve in a matter of months. Underlying trends already in motion were expedited suddenly instead of gradually. While it’s unlikely the drastic nature of these changes will be permanent, these changes are nevertheless transformative and have challenged and prepared us for a different future than the one we previously envisioned.

From the perspective of a long-term term investor, these changes have created a slew of exciting opportunities. On the other end of the spectrum, unplanned economic impacts have also exacerbated headwinds such as low interest rates, underfunded budget deficits, and increased socioeconomic inequality in ways which we believe will eventually lead to higher tax rates.

While these challenges come as no surprise, and threaten to impede economic growth, they are not insurmountable. Solutions will require time, collaboration, and the guidance and expertise of a team to diagnose your own unique set of financial risks so that we may act decisively when opportunities arise.

Market Update

Equity Markets

Equity markets were a mixed bag in 2020.  The rally in equities since the March pandemic meltdown has been relatively narrow, concentrated in the tech sector both domestic and international, while large segments of the global stock market remain underwater. According to most valuation metrics, U.S. equities remain historically expensive, while foreign equity markets continue to present relative value and provide nearly double the income of U.S. equities – something many retirees will rely more heavily on with interest rates being as low as they are.

Bond Markets

The sharp fall in interest rates in 2020 fueled another year of robust returns in many segments of the fixed income market. Tax exempt municipal strategies lagged more traditional areas (i.e. government/high qualify corporate bonds), but all are positive YTD and more importantly fulfilled their dual objective: 1) to mitigate volatility during times of stock market distress, and 2) to preserve the capital and purchasing power of hard earned savings. 

Unless interest rates go negative here in the U.S. (which we believe is possible), returns from fixed income are expected to be anemic moving forward.

Key Takeaways

  • 2020 was a stark reminder that it is unwise to “fight the Fed” who have driven interest rates to near zero and signaled a protracted period of low, and perhaps eventually, negative interest rates.  By default, U.S. equities may benefit because There Is No Alternative (TINA).
  • If interest rates remain historically low, investors must choose between maintaining their bond exposure and accepting a lower rate of return OR increasing their risk profile in favor of equities with the hopes that markets don’t fall in price. 
  • Despite the fallout of a pandemic, portfolios and underlying strategies held up remarkably well. The ability to remain calm during times of market distress were rewarded by the recovery of balances, and in many cases, areas of sizable gains alongside our disciplined rebalancing and tax harvesting efforts.

 

Tax Planning and Tax Smart Strategies

A rate of return is only as good as its net return after paying taxes.

2020 was the first year operating under the SECURE Act passed in December 2019 and we believe a sign of tax policy changes to come as governments at every level (Fed, state, and local) grapple with woefully underfunded benefits and programs - Healthcare, Pensions, and Social Security being the big three. Planning for the rise of taxes over time is not an option; it is a necessity, and through prudent tax planning you can help make up for lower returns. 

Tax Smart Investment and Planning Efforts in 2020

  • Tax Loss Harvesting and Swaps: Following the onset of the pandemic, March, April, and May of 2020 provided an ideal environment for tax loss harvesting and swaps. Many of you now have the benefit of realized losses to help offset future realized gains and were able to fully participate in the recovery.
  • A Busy Year for Roth IRA Conversions: The elimination of the stretch IRA feature for IRA beneficiaries, courtesy of the SECURE Act, combined with the prospect of higher tax rates in the future creates a unique opportunity for Roth conversions. Please consult with your tax advisor if you haven’t already about whether a Roth conversion is appropriate for you.
  • Qualified Charitable Distribution (QCD’s) and Donor Advised Funds (DAF’s): Many of you in 2020 were excited to learn more about the various ways to fulfill your charitable desires while also reducing taxable income.
  • Tax Analysis Feature: We rolled out a new tax analysis feature this year included in our financial planning process to help you and your accountant better structure tax efficient retirement and charitable strategies.
  • Tax efficiency: This is the hallmark of our practice and it is important for you to remember how favorable today’s tax environment is as it relates to your longer-term success and tax planning. We will continue to reduce your tax burden through tax-loss harvesting and asset exchanges where prudent.

And if you haven’t said a huge thank you to your tax counsel, please do so.  No one has had to work harder than the capable accounting professionals that navigate the significant changes of the Payroll Protection Program, CARES, and SECURE Acts.

 

Estate Planning Strategies and Planned Giving

For those who engage in more sophisticated estate planning or planned giving, please contact us and we will be pleased to discuss your options with you and your legal/tax counsel. We have a number of planned giving strategies available through local and national organizations to consider, depending on your wishes. Many prominent estates and trust attorneys have retired in recent years and we have been performing due diligence on your behalf for possible new, and younger, attorneys and accountants to serve you in the future.

 

Practice Update

Communications

In our effort to better communicate our process, perspectives, and address timely market related events, our team has spent a significant amount of time revising and expanding our communications process. Here are some of the ways we plan to connect with you in the coming year:

Team Accomplishments

Assuring continuity for our client base is an ongoing hallmark for our practice. While over 70% of our peers do not have a succession plan for their clients or themselves, we do. The average age of our team is now 42 and we are strategically planning for decades ahead.

In addition to assuring continuity, we are also expanding our skills and expertise. As you may already know, Casey is a CERTIFIED FINANCIAL PLANNERTM having passed his exam in 2017, and Erika, as the pandemic was breaking out around the world, passed her CFP® exam on the first “go” this past March.

Casey was named 40 Under 40 by Investment News, an esteemed accomplishment within our profession. But don’t worry, we’re keeping his ego in check. 

Brittany serves on an internal advisory council here at Steward Partners to help with direction of operations here at the firm. 

 

Looking Ahead

Environmental, Social, Governance (ESG)

The trend towards ESG investment strategies is an important one with a wide range of market implications. Throughout 2020 our team has been working behind the scenes to provide the option for those who wish to better align their investment strategies with their values and various causes. Stay tuned for more to come and some exciting opportunities in 2021.

 

Though physically not in our Portsmouth office since mid-March, we remain excited to come to work “virtually” from our home offices every day and we are honored to serve as a fiduciary for you, your family, and your friends.

As always, we reserve capacity to assure the ability to help the family and friends of our existing clients. If you have someone who may benefit from our services, we would appreciate hearing from you.

Thank you for your ongoing trust. Stay safe and well,

 

Tom Sedoric

Partner, Executive Managing Director

Wealth Manager

 

D. Casey Snyder, CFP®

Partner, Senior Vice President

Wealth Manager

 

Erika Luczynski

Partner, Vice President

Wealth Management Associate

 

Brittany Long

Partner, Vice President

Senior Registered Client Administrative Manager

 

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. Past performance is no guarantee of future results.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not providing advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. All investing involves risks, including the possible loss of principal amount invested. No investment strategy can guarantee your objectives will be met.

Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Each year InvestmentNews recognizes 40 industry professions under the age of 40 based on factors including accomplishments as exhibited by their credentials and achievements in their industry-related projects, contributions to the industry, quality of leadership within the financial advice field, and promise/commitment to the field. The nominees were all under the age of 40 when the honorees were announced. Over 1,000 nominees were considered and 40 were chosen to receive the award in 2020. The nominations are read and vetted by an internal group of editors and reporters at InvestmentNews. The ranking may not be representative of any one client’s experience, is not an endorsement, and is not indicative of advisor’s future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. InvestmentNews is not affiliated with Raymond James.