Tax-Loss Harvesting

Tax-Loss Harvesting

Don’t miss the opportunity to save on your taxes

This time of the year, many people start thinking about year end tax planning. An often-integral part of tax planning involves the potential for tax-loss harvesting in your taxable portfolio. What we are going to discuss below can only be done in taxable accounts (i.e. individual, joint, UTMA’s, Trusts) and does not apply to IRA or other tax deferred accounts.
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Third Quarter 2018 Review

Third Quarter 2018 Review

Market Overview

We continue to see back and forth trade posturing between the United States and foreign trading partners and expect this to continue throughout the remainder of 2018. With that being said, the U.S. and Canada reached a deal after a lengthy negotiation. The new “United States-Mexico-Canada Agreement” (USMCA) is a reworking of NAFTA and hopes to bring more jobs into the U.S. Despite this trade uncertainty in quarter 3, the American economy advanced. In the 3rd quarter of 2018, U.S. stocks once again performed well seeing momentum from U.S. growth and strong earnings reports. The trade concerns and other political uncertainty has continued to put pressure on international markets. Emerging market stocks slid slightly while Europe continues to struggle as the United Kingdom’s negotiations to “Brexit” from the European Union leads to continued uncertainty for the region. Fixed income markets remain a challenging place to invest as interest rates continue to rise.

Equity Markets

Large U.S. companies continued their outperformance as the S&P 500 returned 7.2% for the 3rd quarter. The Dow Jones Industrial Average rose by 9%. Despite these returns, volatility declined resulting in a quarter where the S&P 500 did not have a single trading day where it closed with a 1% move up or down. Small cap stocks trailed larger companies but still posted a 3.2% return for the quarter. International stocks in developed markets declined (0.8%) for the quarter, lagging the United States. As discussed above, emerging markets also retreated with a negative (2%) return for the quarter. Foreign trade will likely remain a focus of the Trump administration into 2019 with further volatility in international markets also likely to continue.

Bond and Credit Markets

On September 26th, for the third time this year, policy makers voted to unanimously raise the federal funds rate 25 basis points to a range of 2.00% to 2.25%. It is expected that the Fed will look to raise rates once more before the end of 2018. While the President negatively reacts to these rate hikes, they are still considered historically low and a sign of a strong economy. Fed Chairman Jerome Powell stated that “this gradual return to normal is helping to sustain this strong economy for the longer run benefit of all Americans.” Most researchers believe that even with continued rate hikes, they are not expected to slow down a resilient economy. From an investment standpoint, these rate hikes pose challenges to bondholders as bond prices decline when interest rates rise. The broad based U.S. Aggregate Bond Index declined slightly by (0.2%). For the year the index is off by (1.6%). Municipal bonds rose 0.3% for the quarter. The yield curve remains very flat with a 38 basis point spread between the 2-year and 30-year U.S. Treasury bond.

Commodities

Commodities declined for the quarter posting the longest losing streak in more than 3 years. The Bloomberg Commodity Index fell (2.5%) amid concerns over the Chinese demand outlook and continued trade friction. Gold posted its 6th straight decline in September while oil and natural gas prices continue to climb. The U.S. Dollar is a significant factor when it comes to commodity prices. The Dollar Index moved higher by 0.41% for the quarter and is now higher by 3.17% for the year.

Perspective For the Rest of the Year

The overwhelming media story for the 4th quarter is likely to be centered on the mid-term elections occurring in November. Democrats are forecast to make gains in the House while Republicans may fare better in Senate races. If Democrats are able to take control of Congress they could look to block President Trump’s policies essentially making him a lame duck president for the remainder of his term. Continued trade tension and this political uncertainty could cause the abnormally low volatility from the 3rd quarter to subside and investors should expect market fluctuation to normalize.

Year-End Tax Planning

At CRA Financial, we look to help our client’s create tax efficiencies where possible. This is done by looking at which mutual funds will be paying out capital gains distributions at the end of the year and also harvesting losses in non-qualified portfolios where appropriate. As always, we are here to help you with any questions. We look forward to continuing to service you and thank you for your trust in our team.

Respectfully submitted,
CRA Financial, L.L.C.

Contract with the Stock Market

Expertly Riding the Waves of VolatilityStock market prices

We have prepared this piece to reiterate what we should all know, understand, and believe if we are going to own stocks in our portfolios.  We look forward to continuing to educate you to help you stay well-informed and continue to watch our financial markets closely.

Why do we invest in stocks?

Quite simply, the reason we invest in stocks is because over the last 100 years they have illustrated again and again that if you invest for the long-term that you will, on average, receive about a 10% annual average return.  This 10% return is about 40-50% higher than the return from bonds and about 50-60% higher than the returns from cash over that same 100 year period.  Arguably, the excess returns over bonds and cash will be higher in the low interest rate environment we have become accustomed to for some time now. 
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New Rules for 529 Plans

Education Savings PlanEasing the burden of paying for education

The Tax Cuts and Jobs Act of 2017 will expand the use of 529 Plans to allow savers to accumulate money and pay for education on a tax-free basis. Before we discuss the changes let’s review the basics. A 529 Savings Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.  You are not required to use the 529 in your domicile state and your plan, regardless of which state is the sponsor, can be used for any college in any state.  Contributions to a 529 Plan are invested and grow tax deferred.  If the funds are ultimately used for education, distributions come out federally tax-free. Contributions to the plan qualify for the $15,000 annual gift tax exclusion.  The Plan has to have a named donor and a designated beneficiary. The donor of a Plan retains control indefinitely and only the donor can request withdrawals and can close the account at any time.  However, if the funds are used for anything other than education, the earnings portion of the account is subject to income tax plus a 10% penalty.  Most plans allow for lifetime contributions of $300,000 or more.
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Second Quarter 2018 Review

Second Quarter 2018 Review

Market Overview

The quarter was marked by a continued rally in the U.S. Dollar sparked by strong U.S. growth and economic data, much to the detriment of emerging market stocks and commodities (with oil being the only exception).  The quarter was roiled by tariff posturing, most notably between the United States and China.  Although President Trump softened his trade stance in recent days, the projected tariffs are still due to take effect as soon as July 6th.  Needless to say there is still a fair amount of angst and a high level of uncertainty associated with the lack of resolution, even at this late date.
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NJ Governor signs SALT deduction workaround into Law

New Jersey Governor Phil Murphy signed into law May 4th, 2018 the State and Local Tax Deduction bill that would allow New Jersey municipalities to create charitable funds through which NJ taxpayers can donate in exchange for a tax credit of up to 90% of their donation to reduce their property tax bill.  Generally, the charitable deduction would then be fully deductible on the federal income tax return.  The legislation will go into effect in July 2018.
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First Quarter 2018 Review

First Quarter 2018 Review

Market Overview

The overwhelming story of the 1st quarter of 2018 was the return of volatility to our financial markets. In the past quarter, investors saw the S&P 500 experience 6 trading days of plus or minus 2% moves; something that did not occur during a single trading day in 2017. The stock market in 2018 is proving to be more sensitive to political posturing, threats of a trade war, rising interest rates, and inflationary fears. This volatility, however, is far from abnormal with a 12% decline at some point during each year being the average. Lack of volatility during 2017 spoiled investors.

CRA Financial First Quarter 2018 Review

Equity Markets

The quarter started out similar to last year, with the S&P 500 advancing 5.62% in January. In contrast, February and March proved to be a bumpy ride with the stock market retreating 3.89% and 2.69% respectively. The U.S. stock market saw a 1.22% decline compared with a 2.38% decline in developed international equities where the potential risk of a trade war is causing economic uncertainty in a similar fashion. International emerging market equities continued to be a bright spot for investment illustrating a 0.91% return for the first quarter due to improving economic conditions and earnings growth.

International Trade and the Markets

With the announcement of steel and aluminum tariffs and the more recent tariffs of up to $60 billion on Chinese imports, there is the potential for an increased risk of a trade war. A trade war would mean that tariffs are raised steeply and broadly across a range of products and potentially across multiple countries. A trade war among major countries hasn’t occurred in over 90 years but the results have been very bad for economies in the past. Most research and analysis indicates that the current situation would not be expected to deteriorate to this level; however, renegotiating existing trade agreements will have an effect on different businesses/sectors of the economy. Trade announcements from the current administration will likely continue to create volatility in the financial markets, most likely in the short-term.

Tech Stock Challenges

The very large and news grabbing FANG stocks (Facebook, Amazon, Netflix, Google) experienced challenges during the past quarter. Facebook, Twitter, and Alphabet (Google) in particular have recently found themselves in regulators’ sights due to concerns that privacy laws may have been violated. This could lead to more regulatory oversight causing an increase in operating costs. While the recent volatility in these stocks correlates somewhat to the rest of the NASDAQ, the NASDAQ as a whole actually still posted a positive gain for the quarter of 2.32%. The 7.36% gain of the NASDAQ in January perhaps was the market overbuying these stocks as they were 2017 winners.

Bond and Credit Markets

In March the Federal Reserve raised its benchmark 25 basis points to the range of 1.5% to 1.75%, marking the sixth time since the financial crisis that it has raised rates. The Fed also reiterated its forecast of three hikes for this year, meaning it expects two more for 2018. Given this backdrop of steadily increasing rates, fixed income markets were challenged during the first quarter. Both U.S. fixed income and global high yield were down 1.5% and 0.4% respectively. Municipal bonds also saw a 1.1% decline. In light of higher volatility, cash outperformed most other assets classes, returning a meager 0.3%.

The 10-year U.S. Treasury ended the quarter with a yield of 2.74%. The yield curve remains relatively flat.

Perspective for the rest of 2018

Looking to the rest of 2018, it is expected that market volatility will remain as it is the norm for stock markets. With that being said, analysts expect corporate earnings to continue to grow through the rest of 2018. Traditional stock market fundamentals remain supportive of an ongoing bull market and, in fact, the Index of Leading Economic Indicators rose again in March, continuing its robust upward trend. While sticking with an investment in stocks is more difficult when they aren’t moving straight up, the long- term return that these investments provide is often needed for investors to reach their financial goals. At CRA, we will continue to monitor our markets and portfolios carefully and thank you for your continued relationship with our firm.

Respectfully submitted,
CRA Financial, L.L.C.

2017 – The Year in Review

2017 – The Year in Review

2017 Year in Review Early Predictions

Heading into 2017, many analysts were predicting a modest year for investors. Fresh off the end of 2016 where stocks rallied strong in the fourth quarter to finish up almost 12% (S&P 500) for the year, both Credit Suisse and Goldman Sachs were predicting an S&P 500 return for 2018 of less than 3%. Further, many analysts were also predicting a rough ride for the bond market, where it was widely believed that rising interest rates would cause most bond returns to be flat or negative for the year. The S&P 500 posted a total return of 21.31% for 2018, its best year since 2013. And, although the Fed (FOMC committee) raised short-term interest rates three times in 2017, the long end of the interest rate yield curve (as indicated by the 10 Year US Treasury Rate) actually declined slightly during 2018, starting the year at 2.45% and finishing 2018 at 2.40%. The US Bloomberg Barclays Aggregate Bond Index finished 2017 with a respectable 3.54% return. If the last two years have taught us anything, it is that forecasting elections or market returns is a fool’s errand.
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Forth Quarter 2017 Overview

Forth Quarter 2017 Overview

Market Overview

Amidst a backdrop of unusually low volatility, United States and a broad swath of world equity markets rose sharply during 2017, based upon the expansion of 45 separate global
economies. The US broad market advanced 20.52% for the year, 6.2% coming during the final quarter. Developed international and emerging international markets climbed 25% and 37% respectively during 2017, while posting end of quarter gains of 4.23% and 7.44% respectively.
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Explaining “Backdoor Roth IRAs”


Learn how higher income earners can contribute to a Roth IRA

ROTH IRAS ARE A POWERFUL WAY TO SAVE FOR RETIREMENT

Contributions into a Roth IRA are not tax deductible. However, the earnings in the account accumulate tax deferred, and can be distributed completely tax free after age 59½, provided 5 years have elapsed since the tax year of your first Roth contribution. Many investors who might otherwise contribute to a Roth IRA find themselves constrained by the IRS income limits which restrict their ability to contribute to a Roth IRA based on their adjusted gross income (AGI).
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