Broker Check

The RFG Weekly Wealth Report

February 05, 2018
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After 4 straight weeks of gains, the markets have slipped. As of Friday, the S&P 500 lost 3.85%, the Dow dropped 4.12%, and the NASDAQ decreased by 3.53%. International stocks in the MSCI EAFE also took a 2.78% hit. Domestically, the losses spanned sectors and asset classes. For the S&P 500, all 11 of the index's industries lost ground last week. This decline came after the S&P 500 had its best January performance in over 20 years.

FACT OF THE WEEK

Winning the Super Bowl has more advantages than just a Lombardi Trophy. In 2018, players on the winning team take home $112,000 per person, while each losing player pockets $56,000 - whether that player steps on the field or not.

MARKET MINUTE

Looking at the markets' sizable losses, you might expect that discouraging economic data came out last week - or some geopolitical drama spooked investors. On the contrary, the drops came in response to news that seems positive on the surface: Job and wage growth are picking up.

Reviewing the Jobs Report

On Friday, the Bureau of Labor Statistics reported that we added 200,000 new jobs in January and beat expectations. Average hourly wages also increased, bringing 2.9% growth in the past 12 months - the largest rise since 2008 - 2009.

Analyzing the Reaction

When labor data came out, bond yields jumped and 10-year Treasury yields hit their highest level in 4 years. Stocks sank in reaction to these interest rate gains.

Concerns about inflation are fueling this reaction. As wages grow, companies may increase their prices to support their rising labor costs - contributing to an inflationary cycle. With inflation can come rising interest rates.

As a result of this news, some investors became concerned that the Federal Reserve may increase interest rates this year more than initially expected.

Putting the Performance in Perspective

After the unusually calm market environment we experienced in 2017, last week's declines may feel unsettling. However, price fluctuations are normal and the economy continues to be strong.

In addition, as domestic indexes reach high levels, viewing their declines in terms of points, rather than percentages, can cause unnecessary concern. You may have read reports that the Dow dropped 665.75 points on Friday, contributing to its 6th biggest points decline in history. But even after losing nearly 1100 points in 5 days, the Dow was only down 4.12% for the week and remained up 3.24% for the year.

Of course, every economic environment has risks, and no market can go up forever. We are aware of the risks that increasing inflation and interest rates may bring, and we are here to help you navigate what the future holds.

RETIREMENT RUNDOWN

STAY ACTIVE IN RETIREMENT

Getting older doesn't have to mean declining wellness. Take steps now to preserve your health, and you may be better able to enjoy life after your career. Start with these tips to stay physically and mentally active in retirement:

Physical Activity

Physical activity can bring many benefits, including helping to delay some diseases and reduce symptoms of depression. The National Institutes on Aging (NIA) emphasizes the importance of exercise and recommends that people complete all of the following types of activities:

  • Endurance: Any exercise that makes you breathe hard helps you build your energy. The NIA recommends getting 30 minutes of endurance exercise on most or all days.
  • Strength: Lifting or pushing weights builds stronger muscles, which can improve many aspects of your daily life and help you stay independent.
  • Balance: Honing your balance can help keep you from suffering fall-related injuries and disabilities.
  • Flexibility: Stretching can help you to keep up with physical tasks, such as taking items off tall shelves.

Mental Activity

Staying mentally sharp in retirement is just as important as maintaining physical fitness. A recent survey showed that retirees fear Alzheimer's and dementia more than any other major disease. Thankfully, research has found that a number of habits can help you improve and protect your memory.

  • Learn new skills or information: When you're working, your job can keep you mentally active. But in retirement, you may need to seek new ways to stimulate learning.
  • Use your brain efficiently: Rather than spending energy on unnecessary tasks, like searching for your keys or trying to remember an event's time, make routine information easy to access. For example, always keep your keys in the same spot and keep a written calendar with all of your events and appointments. Doing so will free your brain to focus on new information or remember important details.
  • Stay socially engaged: Research suggests that strong social engagements may keep your cognitive abilities in shape. Whether you like to volunteer, have dinner with friends, visit your family, or anywhere in between, making your social life a priority is good for your health.
  • Ignore aging myths: Negative stereotypes about memory and aging aren't just insulting - they can also hurt how well people perform memory tasks. Instead of buying into rumors, feel confident that you are able to improve your memory and then take proactive steps to do so.

Staying mentally and physically focused matters in retirement. After all, you're not just ending your career - you're starting a new chapter in life that you deserve to enjoy fully.

FINANCIAL STRATEGY OF THE WEEK

TIME YOUR INCOME TAX DEDUCTIONS FOR MAXIMUM BENEFIT

The Tax Cuts and Jobs Act nearly doubled the Standard Deduction to $12,000 for individuals and $24,000 for married couples filing jointly. Depending on your tax situation, the doubling of the Standard Deduction may significantly limit the value of itemized deductions - incentivizing taxpayers to institute creative strategies to achieve tax benefits.

One strategy is to time your deductions to minimize them in one year and maximize them in the next. For example, if you are married and are donating $20,000 to charity annually, assuming you have no other deductions, you will no longer receive any tax benefits. By adjusting the timing of your deductions and donating $0 this year and $40,000 next year, you will be able to utilize the $24,000 standard deduction this year, as well as an extra $16,000 deduction above the standard next year. In this example, someone in the 37% tax bracket could reduce their taxes by almost $6,000.

Please let us know if you would like to explore any ideas or strategies for reducing your tax liability.

Have a good week!