Lakeland Ledger articles

Over the past week, the stock market saw some of the heaviest selling in over two years. When the market has several days of steep declines, it can make investors very uncomfortable. The best advice for investors during market turbulence is to take a deep breath and keep things in perspective.

The financial press tells us the selloff this week was the result of the Wuhan Coronavirus. Although the Coronavirus has been in the news for the better part of two months, it didn’t seem to be impacting the market at all until a few days ago. To understand the possible impact of this virus, think about other viruses we’ve seen in the recent past.

The world has seen many epidemics over the past two decades. From SARS and the bird flu, to the swine flu and Ebola, many diseases have threatened to wreak havoc. All of these were terrible diseases, leaving thousands dead and millions more fearing a pandemic. Despite the human toll, they all passed, and the markets eventually continued to new highs. Long-term investors who had the presence of mind to remain fully invested were ultimately rewarded.

Rational investors would expect healthcare stocks to be driven higher by fears of a global pandemic. Companies that make drugs, operate hospitals, and build medical devices would all see higher sales. In fact, the healthcare sector has seen the same declines as the rest of the market. At times, especially during market selloffs, market participants behave irrationally.

Students of the market know that 5% selloffs happen about three times per year. The market averages one 10% drop per year. Even after Monday and Tuesday’s sell-off, the market was still higher than it was six months ago. Despite the 6% drop in the first two days of the week, the market closed higher on Tuesday than it was a year ago.

More importantly for long-term investors, a few days of market turbulence don’t change the economic fundamentals. Unemployment remains at historic lows. Inflation is muted, advances in technology continue, and the American consumer will keep spending money. As long as consumers continue to spend, American businesses will continue to profit, and investors will ultimately reap the rewards.

There’s always something in the news that feels like a reason to not own stocks. Last year, it was the inverted yield curve and fear of recession. The year before, it was tariffs and trade wars. Before that, Brexit, the Greek debt crisis, the global financial crisis, September 11th, and the tech wreck all gave investors excuses to sell what they owned and not buy stocks.

In every case, investors who sold because of the “bad news” lost out. Investors who held on were rewarded. A few investors bought more, when everyone else was afraid to buy, and they profited handsomely. For long term investors, the best course of action is to stay the course and not make emotional decisions.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer

Avoid Surprises at Tax Time: Check Your Withholding Now

The Tax Cuts and Jobs Act of 2017 reduced taxes on 80% of all Americans. The IRS has updated the forms and tables for income tax withholding to reflect the new rates. The new rates and withholding tables could mean surprises for some workers at tax time next year. It is important to understand how withholding works and what these changes mean for you.

How Income Tax Withholding Works

Most working Americans have estimated income taxes taken out of each paycheck throughout the year. Employers take a part of each employee’s paycheck and send it to the IRS. This system is called “withholding”.

When the year is over, your employer totals up the withholding for income tax and lists the amount on your Form W2. This form also has other details on your earnings, and on payroll tax payments.

Withholding from your paycheck for income taxes is based on an estimate of what your income tax bill will be. The actual amount of income tax you owe is determined when you file your personal income tax return.

Your “tax return” is the set of paperwork you send (by mail, or electronically) to the IRS showing your income, deductions, and tax payments. Your “tax refund” is the money you get back if you overpaid your taxes during the year. Personal income tax returns are usually due by April 15th of the following year.

If the amount withheld from your paychecks during the year is greater than the amount of income tax you owe, you receive a tax refund. If you didn’t pay enough tax throughout the year, you may have to pay a penalty for underpayment of estimated tax.

New Tax Law Means New Withholding Tables

The IRS provides a form called Form W4 that employees use to  provide withholding instructions to their employer. Changes to this form will change the amount of tax withheld from each paycheck. The IRS also gives employers a set of tables called “withholding tables”. Employers use the withholding table, and the employee’s Form W4, to determine how much tax should be withheld from each paycheck.

The Tax Cuts and Jobs Act provides new, lower income tax rates for the majority of workers. Because most workers will have a lower  income tax bill, the IRS has released new withholding tables to reflect the lower rates. Under the new tables, less tax will be withheld than last year for the same amount of earnings. For many workers, the new tables will suffice. However, some taxpayers may find that the new tables do not withhold enough estimated tax.

You can perform a quick “paycheck checkup” using the IRS withholding calculator at www.IRS.gov . Ask your tax advisor for an estimate of your 2018 taxes. If it looks like you will owe more than is being withheld, you can file an updated W4 to request extra withholding. When it comes to possible underpayment of income taxes, the sooner you start to fix it, the better!

 

Peter C. Golotko is president and CEO of CPS Investment Advisors. Matthew Treskovich is the Chief Investment Officer for CPS Investment Advisors.

By Matthew Treskovich, CPA/PFS, MBA, CFP®, CMA

In the second quarter, markets continued to recover from the correction earlier in the year. The Federal Reserve increased interest rates again in June. Fundamental economic data continued to paint a positive picture. The job market remained strong, and consumer spending trends hinted at further growth.

US consumers and workers continue to do well

Heading into the 2008 recession, consumer debt as a percentage of disposable income was at a 30-year high. In the years following the recession, consumer debt as a percentage of income fell to a 30-year low. Through the end of the second quarter, consumer debt remains at historically low levels. Earlier in the year, we saw that in some regions there were more open jobs than individuals looking for work. This situation has expanded to cover the entire country. There are now more job openings in the United States than unemployed workers. Almost 70% of the US economy is consumer spending.  Low debt and good employment prospects mean that consumers will likely continue to spend money. A recession caused by declining consumer spending is not likely this year.

Global economy still expanding

The global economy is still in expansion, although some parts of the world appear to be slowing. The steady and synchronized global economic growth we saw last year has given way to a more volatile environment this year. In the United States, economic indicators are still positive. In other parts of the world such as China, there are signs of slowing growth. Earnings growth for US companies continues to improve. The earnings growth of companies in emerging markets appears to be slowing. Tariffs are still a risk to global economic growth, but an all-out trade war is not the most likely outcome.

Diversification is still important

In 2017, large company stocks outperformed small company stocks.   So far this year, we’ve seen the opposite occur. Through the end of the second quarter of 2018, small company stocks have outperformed large company stocks. This is a great example of why it is important to stick to a consistent diversified asset allocation. In any given year, certain parts of the market will outperform, and other parts will under-perform. Proper diversification means having the right mix of different assets in your portfolio. Periodic re-balancing helps keep your portfolio properly diversified. Both of these things are very important for investors to who want to achieve and maintain financial independence.

Long term investors know that chasing performance reduces returns. A properly diversified, periodically re-balanced, portfolio is still the best way to get good returns and reduce risk in the long run.

Matthew Treskovich is the Chief Investment Officer for CPS Investment Advisors.

Protecting Your Portfolio from Tariffs and Trade Wars

Matthew Treskovich, CPA/PFS, MBA, CFP®, CMA

For much of the past few months, talk of tariffs and trade wars has dominated the news. For the past several decades, US trade policy has consistently favored globalization. Trade policy has favored the easy movement of goods across borders. US policy has also allowed the easy movement of production from the United States to other counties. Policymakers in the US and abroad now seem to be more willing to enact policies that restrict trade. This could indicate that globalization is decelerating. There are other signs of declining globalization, with production of goods being moved back into the United States.

What does a decline in globalization mean for investors?

Globalization has generally been a positive trend for investors. Large US companies have generally benefited by being able to move production overseas. This allowed those companies to reduce costs and increase profits. Moving production overseas has also had negative impacts on investors. Almost seventy percent of the US economy is personal spending. Lower wages and job losses due to globalization have reduced personal spending. This effect has offset some of the benefits of globalization for investors.

The biggest risk to investors is the uncertainty that could come with shifting to a less-globalized system. In the stock market, uncertainty usually means volatility. Higher volatility doesn’t always mean lower returns, but it can cause investors to make mistakes that can cost them money.

The headlines move faster than the fundamentals

Headlines in the news change every day, but economic fundamentals don’t change overnight. Talk of tariffs has been in the news since January. So far, only a small number of imports are subject to new import taxes. Other countries are starting to enact their own tariffs in response, but it will be time for the effects to show up in the economy. If tariffs have a large negative effect on the economy, it is possible they could be removed as quickly as they were created.

For long term investors, the key to surviving a trade war is having a properly diversified, well-balanced portfolio. Investors who have concentrated positions in companies that could be hurt by tariffs should consider diversifying their portfolios. Long term investors should resist the temptation to make changes to their portfolios based on short-term news. This is especially true when the news is more about politics than economics. In the short run, escalation of tariffs and talk of trade wars could cause market volatility. Long term investors should focus on their financial plan instead of the headlines. Investing in great companies in America and the world is still the best way for investors to achieve and maintain financial independence.

Matthew Treskovich is the Chief Investment Officer for CPS Investment Advisors.

By Peter C. Golotko, CPA/PFS, MBA, and Matthew Treskovich, CPA/PFS, MBA, CFP®, CMA

People often think estate planning is only for the wealthy. Actually, just about everyone who owns property or has money needs an estate plan. Estate planning is more than deciding what happens to your property when you’re gone. It also includes the planning during your life that leads to creating and safeguarding assets like your retirement savings. Estate planning is an important part of protecting your financial security.

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