As this historic year comes to a close, we want to share some important investment and financial planning thoughts and advice with you. Please take a moment to read each of the sections below and call, email, or text us if any of this information triggers a question, concern, or desire to sit down with us to make a financial plan for you and your family.
2020 - An Important Year for You to Remember
All of us will have a memory of 2020 that we will carry with us for the rest of our lives. For some it may be a family member falling victim to COVID-19, a spouse losing their job, a wildfire deployment, or suddenly finding yourself in the role of homeschool teacher. As your fiduciary financial advisors, we hope another memory that will stay with you is that financial markets are incredibly resilient!
As the pandemic started spreading around the globe in late February, the stock market reacted normally and rationally by falling over 35% in value before hitting a bottom on March 23rd. During that time of extreme uncertainty, we pleaded with you on a nearly weekly basis to stay in your seats and avoid locking in losses by selling equities in your retirement accounts. Most of you listened to that advice. As your monthly 457(b) deferrals were deposited in March, April, and May, you were buying stocks at deeply discounted prices.
Today, with just 6 trading days left in the year, the majority of stock market indices have produced double digit returns for patient and disciplined investors in 2020. We want you to remember that markets can be extremely volatile in the short term, but the markets have always produced a positive return over the long term. If you are always properly allocated, you will never have to worry about what the market does today, next week, or even next year.
Your 457(b) Deferral Limits in 2021 - No Changes - But you can still double dip!
The IRS did not change 457(b) deferral limits in 2021:
Under age 50 - $19,500
50 or older - $26,000
50 or older - special catch-up over last 3 years of service - $39,000
However, the District match that you receive does count towards your annual limit. (Exception: 401(a))
Double Dipping - All of you should be aware that your participation in a Governmental 457(b) plan does not prohibit you from participating in a 401(k), SEP-IRA, Simple IRA, regular IRA, or Roth IRA if you have another job or if you are self-employed. Feel free to contact us if you have questions about the rules, or if you want to know how best to save for retirement.
DecisionPoint Semi-Annual Account Reviews
As many of you know by now, we go into the 457(b) accounts every 6 months to review your investment election, deferrals, beneficiaries, etc. The purpose of these reviews is to catch any mistakes you may have made that we feel could potentially cost you in future retirement benefits (i.e., not allocated properly based on your age, not utilizing the match, etc.). Since we have not been able to visit with you in the stations for most of the year, we are going to be calling you individually during the first couple weeks of January to conduct those account reviews. We are really looking forward to checking in with you!
Investment Advice through Sketch Art
Below is a sketch by NY Times Financial Columnist Carl Richards. Carl uses sketch art to teach important investment principles and help investors overcome behavioral tendencies which lead to bad investment decisions. Throughout 2021 we will be sharing his sketches with you to help you become a better investor.
Most investors make the same mistake with their money over and over again. At the top of the market, they can’t buy fast enough. When the market bottoms out, they can’t sell fast enough. They break the number one rule of investing by buying high and selling low. Most people just call this bad investing. But, as this sketch illustrates, buying high is a form of greed, and selling low is a form of fear.
To be clear, the solution here is not to simply throw your hands in the air and give up, since fear and greed are human emotions that you will likely grapple with the rest of your life. The solution is to recognize that, in aggregate, investors tend to be very bad at timing the market. So we recommend you never attempt it. Instead, do this:
Ignore what the crowd is doing.
Base your investment decisions on what’s needed to reach your goals.
Stick with the plan despite the fear or greed you may feel.
As always, please reach out if we can be of assistance!
- Your DecisionPoint Financial Planning Team -