February Newsletter to Clients

Enjoy this month’s edition that features a note about taxable accounts, a quick review of investment markets so far and a security reminder.

Tax Season

The run-up to elections are often referred to as “the silly season” but it would seem that moniker would be a better fit for tax season. In fact, if a camel is just a horse made by committee, then the U.S. tax code is more like a giraffe combined with an elephant with mouse ears and fish gills. Nevertheless, it is inescapable.

You can access tax documents in your portal or directly through your TD Ameritrade accounts. If you have any trouble, please let us know.

For those with taxable accounts, you may notice a capital gain despite the poor performance of the stock market last year. That is because, even if stocks decline, companies and bonds continue to pay dividends and the mutual funds we hold pay those to us throughout the year. In addition, if a mutual fund sold a stock for a gain during the year, that capital gain is passed on to us as well. In late December, Moneywatch sells funds for a loss, when possible, to try and offset those capital gains. Dividends, however, can only be offset up to $3,000 per year through selling funds at a loss.

Fidelity performed a study where they determined that, since 1930, dividends accounted for approximately 40% of the total return of the S&P 500. So, they are an important component of our portfolios’ total returns, but can have short-term tax impacts as well.

Investment Performance

Both stocks and bonds are off to a terrific start to 2023. The S&P 500 of large, U.S. stocks is up over 6% through the end of January and world stocks are up over 8% so far. Bonds are up over 3% as interest rates have declined slightly. Investors seem to be betting that the Federal Reserve will slow their interest rate hikes. If so, that will help stabilize bond prices.

As we’ve described a couple of times, while last year’s poor performance by both the stock and bond markets isn’t much fun, it did allow for a re-set back to more normal conditions. For instance, most of our bond mutual funds are yielding more than 4%. Additionally, stock prices are closer to where they have been historically relative to company earnings. With interest rates higher and bonds yielding more, investors have less incentive to chase returns by investing in stocks with little to no earnings. Hopefully this re-set bodes well for the coming year and beyond.

TD Ameritrade Security

When a client notifies us their passwords or computer was hacked, we notify TD Ameritrade. They then flag the account(s) for six months and watch for any suspicious activity. Below are security measures they recommend for clients:

• Have their computers cleaned of any malware;
• There are some reliable anti-virus programs available that clients can run themselves, or they can take the computer in to a trusted professional in their area to have it cleaned;
• Change their passwords;
• If the client cannot run a virus scan immediately, we recommend that the client take this step immediately and then again after having any malware removed from the computer to be completely certain that the fraudsters no longer have access to this information;
• If the client can run a virus scan immediately, they should run the scan and once they know they are working from a clean source, they should change their passwords;
• They should change their passwords for all services. This would include e-mail, social networking sites (e.g.: Facebook), financial sites, etc.;

Thank you for your continuing confidence.