In The Long Run..

In the Short-Run, the Market Is a Voting Machine, But in the Long-Run, the Market Is a Weighing Machine” – Warren Buffett

Happy New Year!

I know, I know, we are all over the hoopla about the beginning of a New Year and ready to just get on with the year.  However, there is a cause for celebration after last year’s market was one for the record books.

Three Reasons to be Happy

#1 The market ended the year above average.  Average returns for the S&P 500® are just over 10% and last year the S&P 500® was up over 24%. This is completely normal after the year we had 2022.

#2 Inflation didn’t continue the run as expected. Inflation ticked up but not as much as anticipated and stabilized towards the end of the year.

#3 Real estate staged a comeback towards the end of the year!  Mortgage rates declined and real estate values went up.

In this month's edition:

1. Fixed Index Annuities (FIA)
2. 2024 Tax Changes
3. Bitcoin
4. The Finish.

Fixed Index Annuities (FIA)

I miss the good old days when CDs and savings accounts were great places to store cash. As a refresher CDs and savings accounts are both FDIC insured.  This means they are among the most secure places to put your money.  Because of this they also generally offer lower interest rates. Now that times have changed it’s important to be aware and potentially consider a not-so-new option – Fixed Index Annuities (FIAs).

Fixed Index Annuities (FIAs) are similar to Fixed Annuities but different in a few important ways.  Similarly, FIAs are “guaranteed”  by their issuer (Insurance company). So choose your issuer wisely.  In contrast, FIA returns are tied to a market (index) and not a fixed rate seen in Fixed Annuities.  This means you could benefit when the market rises with a Fixed Index Annuity.

FIAs have been around for many years and were big after the Housing Bubble when interest rates were lower. Recently, there has been a renewed interest in FIAs due to consumers looking for safety and stability.

The Good

• You could potentially participate in the market with protection against market downturn.
• FIAs are guaranteed by the credit of the issuer (insurance company). Choose wisely.
• FIAs fees tend to be transparent.
• FIAs like other annuities grow tax-deferred.

The Bad

• FIAs sometimes can be complex when considering terms like participation rate, point-to-point, and buffer.
• Some FIAs use unfamiliar indexes to base their performance which can be confusing and hard to follow.
• There are many unique and different options you can add to an annuity (riders) that can make the decision complex.
• A portion or all of the income received from FIAs is taxable.

The Ugly

• Liquidity, Liquidity, Liquidity. Depending on how you purchase an FIA you could have reduced access to your money in time of need. You could have Surrender Fees if taking money out early.
• FIA performance will always be less than the index it’s tracking.

Overall, for the right situation and for the right reason an FIA could be a good addition to stabilize your portfolio or protect a portion of your investments.  Other factors like other sources of guaranteed income (pensions, Social Security) should be taken into consideration as well. Pay special attention to ensure you are not putting yourself in a bad position in the event of an emergency.

2024 Tax Changes

Welcome to a New Year and new tax limits. This is my favorite time of the year. Key changes this year are increases to contribution limits and the standard deduction.

• The 401k, 403b, and 457 annual contribution levels Increased to $23,000 from $22,500 and the catchup contribution for over 50 stayed the same at $7500. The total is now $30,500.
• IRA/Roth contribution limits increased from $6,500 to $7,000, and catch-up contributions remained $1,000.
• The standard deduction and tax brackets also increased.

Bitcoin

On January 11^th the Securities Exchange Commission (SEC) opened trading for Exchange Traded Funds (ETFs) that track the performance of Bitcoin.  This will enable mainstream investors to participate in the Bitcoin market. 

My take is a regulated traded Bitcoin ETF may be a good addition to a portfolio for the investor who already has everything.  For example, you have covered your bases, and you are on track to achieve your goals. Adding a small amount to Bitcoin could provide you with at least something to talk about at the water cooler (if we are still doing those things) and at best an additional tool to diversify your portfolio.

The Finish

Another great year awaits us all!  Great not because of its perfection, but great because of its presence.  Enjoy the year and I look forward to connecting soon.

-Lamont

Principle Wealth Advisor, ALNA Financial

Recent Blog Post

Preparing for the Next Downturn

Learn effective strategies to prepare for the next market downturn.