KF Update – Schwab, Year End Planning, & Market Update

Kane Financial Update – Schwab, Year End Planning, & Market Update

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Good morning, we hope this email finds you well and you are having a wonderful autumn season.  We wanted to send along some updates now that the transition from TD to Charles Schwab has been completed.  This transition did not affect clients on the Aspire 403(b) platform.

Schwab Transition
Client accounts on the TD Ameritrade platform were successfully moved to Charles Schwab over Labor Day weekend.  The transition went smoothly and we have only noticed a few differences in the platforms that clients should be aware of:

  • Distributions: TD had a 1 business day turnaround while Schwab has a 3 business day turnaround, so please keep that in mind when requesting one-time distributions.
  • Tax Withholding: Schwab does not allow our practice to choose a percentage tax withholding when requesting distributions, but your withholding instructions from TD did carry over.  If you did not choose an election at TD, the default percentage is 10%.  We are reviewing withholding instructions for all clients during upcoming review meetings.

Year End Planning
With the end of the year fast approaching, here are some financial planning considerations:

  • Retirement Account Contributions: If you estimate your income to be high in 2023, you still have time to get money into pre-tax retirement accounts to help lower your tax liability.  If you have a 401(k) or 403(b) available, the max contribution is $22,500 ($30,000 if over age 50).  A Simple IRA allows for $15,500 ($19,000 if over age 50) of pre-tax contributions, and a traditional IRA $6,500 ($7,500 if over age 50).  If you have questions or need help making or increasing your contributions please contact our office as we would be happy to assist.
  • Roth Conversions: If you have money in pre-tax retirement accounts, and you estimate your income will fall into the lower tax brackets for 2023 (Under $60,000 if filing single and under $118,000 if filing joint married) a Roth Conversion could make sense.  You would be converting pre-tax monies to roth, paying the taxes now in lower brackets (10% & 12% federal), and those monies would then be tax free forever.
  • Qualified Charitable Distributions (QCDs): If over age 70.5 and you do not itemize your taxes, you can make a contribution to a charity of your choice directly from a pre-tax retirement account.  This distribution is not taxable, meaning you would be receiving a tax benefit for the charitable donation.

Markets & Economy
While the markets have experienced a difficult few months following summer, the S&P 500 remains in positive territory for the year.  Here is the Year-to-Date performance of several closely followed indexes and asset classes:

Dow Jones – Large US Value Companies – (0.06%)
S&P 500 – Large US Companies – 11.47%
Nasdaq – Large US Growth Companies – 24.05%
Russell 2000 – Small/Mid US Companies – (3.40%)
MSCI EAFE – Large International Companies – 4.78%
Barclays Bond Index – Aggregate US Bonds – (3.13%)
Gold – 9.63%
Silver – (3.05%)
Bitcoin – 80.67%
*source Kwanti & Yahoo Finance

One of the reasons equity (stock) markets are always volatile in the short-term they are driven by investor emotions.

In times of optimism investors tend to allocate money into equities anticipating a good economy and high rates of return.  In times of pessimism and uncertainty, investors tend to move to cash and/or flock to safe assets such as treasury bonds.  

The long-term returns of equities are tied to corporate earnings.  To illustrate that point, here is the S&P 500 earnings (orange line) compared to its growth (blue line) over the past 20 years:

*source Macrotrends

Here is the S&P 500 earnings (orange line) compared to its growth (blue line) since 1926:

*source Macrotrends

As difficult as it can be to filter out all of the short-term noise, it’s important to continue keeping that long-term perspective and stay invested.  Long-term, equities will rise and reward patient investors. 

Another Warren Buffett quote that backs this up: “In the short-run, the market is a voting machine, but in the long-run, the market is a weighing machine.”  The market “weighs” corporate earnings and that is what drives its performance.

If you have any questions, please do not hesitate to contact the office.  We hope you find this information helpful and you have a wonderful rest of the autumn and holiday season!

Clint & Renee