Provident Investment Management

News & Insights

Year End Financial Planning Tips

The end of the year is a great time to review your finances.  Whether you’re still working or retired, there are changes you can make to ensure that you’re not leaving any money on the table.  These changes can help reduce your 2018 taxes and set up for a more financially sound 2019.  It might seem easier to procrastinate and push these financial decisions into the New Year.  However, timing is important when it comes to making some of the tax-related adjustments, many of which have a deadline that must be met by December 31.

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December Investment Comments

Despite October’s market drama, anxiety over the recent election, and hand-wringing over the durability of the economic expansion, the stock market seems to be on sound footing.  Economic growth appears solid and valuations are reasonable thanks to the impact of lower corporate tax rates.

Third quarter Gross Domestic Product (GDP) rose at a 3.5% annualized rate.  As always, there are pluses and minuses.  The most important component of GDP is consumer spending, which rose at a very satisfactory 4.0%.  Imports surged, which is not unusual when U.S. economic growth is faster than other developed countries.  Pre-buying ahead of tariff increases likely played a role as well. Imports have the effect of reducing GDP.  Largely offsetting this was higher government spending and increased inventories.

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Getting Your Financial House in Order

No one likes to think about their demise.  However, like Ben Franklin’s ubiquitous saying goes, nothing in this world is certain except death and taxes.  This Viewpoint is a practical warning about steps you need to take, or need to have your elderly parents take if you are fortunate to still have them with us.

Without proper planning, successor trustees or executors could spend 6-9 months of their lives dealing with dozens of insurance companies, mutual fund providers, brokerage firms, and transfer agents in charge of dividend reinvestment programs (DRiPs).  Each firm has its own terminology, policies and procedures, and paperwork.  Many of these forms need to be notarized, have signatures guaranteed, or even have them “medallion guaranteed.”

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November Investment Comments

November’s midterm elections are likely to result in a divided congress.  Forecasting website currently predicts an 85% chance that Democrats win control of the House but only a 19% chance the Senate swings blue as well.  A surprise sweep by one party could cause further asset price volatility as investors contemplate the implications for the important 2020 elections.  As 2016 proved, unlikely things can happen.

October is a famously volatile month.  1929’s Black Tuesday and 1987’s Black Monday both occurred in October.  This year, the S&P 500 dropped more than 5% during the first two weeks of the month.  Pullbacks of any magnitude have been rare during this long bull market.  One notable feature of this retreat was that it failed to spare the high-growth technology companies who had long been the market’s most resilient leaders.  Although smaller companies generally fared worse than large ones, and Netflix, both of which had approximately doubled over the prior 12 months, both dropped about 10% (Netflix would recover on the back of its Q3 earnings announcement). Alphabet—a.k.a. Google—has now only about matched the overall market over the past year.  Facebook fell way off the pace when its stock declined more than 20% in late July.  The unstoppable FAANG (an acronym from the first letters of these tech giants) trade is not necessarily over, but it looks vulnerable.

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Free Credit Freezes Available Soon

The massive Equifax data breach occurred approximately one year ago, resulting in the theft of Social Security numbers, birthdates, names, addresses, and in some cases driver’s license numbers.  The number of individuals involved was staggering, nearly 147 million.  Shortly following the breach, Scott wrote a Viewpoint outlining potential countermeasures for individuals interested in protecting themselves from identity theft.  Not to fully rehash these alternatives but they included placing a fraud alert on your credit file, the use of a credit protection service, or a credit freeze.  Scott’s article is still accessible on our website, and given the prevalence of credit fraud, the use of one of these alternatives is worth strongly considering.

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October Investment Comments

Against a backdrop of tariffs, Federal Reserve interest rate increases, and emerging market struggles, the S&P 500 steadily advanced to a new all-time record in late August.  This has now become the longest bull market in history, measuring 9½ years from the low of March 9, 2009.

Common sense would dictate that what goes up must come down.  However, in the long-term the market’s value is a function of corporate earnings growth, and that has been stellar.  According to FactSet Research, second quarter S&P 500 earnings growth was 25%, supported by a 10.1% sales advance.  Analysts expect third quarter earnings to grow 20% and full calendar year 2018 growth of 20.6%.  A one-time event, corporate tax reform has accounted for about half of the earnings increase, but accelerating sales supported by a strong U.S. economy is an ongoing market driver.

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Donor-Advised Funds

Although we consider ourselves money managers, not experts on taxes or charitable giving, we think our clients should be aware of a potential tool for optimizing tax and gifting strategies.

Donor-Advised Funds (DAFs) are charities whose purpose is to help donors give money to other charities.  They have existed for over 80 years and have recently enjoyed a surge of popularity.  DAFs are similar to private foundations in many ways, but they offer a cheaper, more accessible alternative for the 99.5% of people who don’t have the wealth or the energy to organize and administer their own foundations.

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September Investment Comments

U.S. economic indicators appear quite strong and supported an impressive 4.1% annualized growth rate in second quarter Gross Domestic Product.  Underlying growth would have been 5.1% excluding inventory de-stocking; ups and downs in inventories typically correct themselves the following quarter.

Retail sales growth also remains solid, up 6.4% from last year.  After inflation, real retail sales growth is 3.5% and may be a reasonable measure of trendline economic growth.  Consumer optimism, an excellent employment environment, and the impact of lower withholding from last year’s tax cuts suggest spending growth will continue.

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