Hello All-

Hope your 2023 is off to a good start. Is it just me, or does it already feel like it should be March? Wishful thinking, I suppose…at least from this cold Bostonian’s perspective.

On the personal front, I’m excited to mention that my partner Stephen, a primary care physician, just became certified by the American Board of Obesity Medicine. Stephen works for Southcoast Health in North Dartmouth, MA and intends to make this an area of focus in his practice.

Marathon has had a very busy, but exciting start to the year, with several new faces. Here is our updated contact sheet.

First, we are excited to welcome Jake Foley as our new Chief Operating Officer. Jake replaces Brent Wood, and this was a Marathon-driven decision as our growing practice simply needed more experience, precision, and organization. As some of you know, the firm has had difficulty finding the right fit for this critical role over the last few years, given our growth and transformation in a short time, and also simply because we had become accustomed to superstars Emily and Evan who set the bar high. It’s only been a couple of weeks, but Jake has already been a big breath of fresh air, and I know you’ll see the difference in quality, precision, and timeliness of responses as well. Prior to joining MFG, Jake was COO for another, larger RIA firm for many years, and he knows every dimension of our business inside and out. Jake currently lives in St. Louis, Missouri wife his wife Courtney and son, Arlo.

Next, we’re also thrilled to welcome Adrienne Snyder as Director of Financial Planning, and will be coordinating the financial planning process and enhancing our clients digital experience through Emoney/Personal Financial View. Adrienne has a degree in Personal Financial Planning from Texas Tech University. Texas Tech maintains national recognition as one of the premier financial planning programs in the nation. Prior to joining us, Adrienne was working as an associate advisor in the wealth management department at a Top 10 public accounting firm. Adrienne currently lives in Houston, Texas with her husband Doak and daughter, Avery.

In addition, while they’re not yet on the contact sheet, we have partnered with Brody Rosenfeld, CPA, CFP, and Jason Floyd, CFP, as our self-described financial planning geeks, to help us bring our clients’ financial planning experience to the next level. These two gentlemen are highly experienced and credentialed and we’re excited to have their brilliant minds assisting with the financial planning process and ensuring no strategic opportunity is missed. Brody is in Philadelphia, and Jason in Utah.

One more important update, and I’ll get on to the usual ‘news you can use’. Evan will be moving his office across town to 1 Beacon Street, where he will join forces with his soon-to-be father-in-law, a 37-year veteran advisor. For obvious reasons, this has been an avenue Evan has been reluctant to pursue, but given the scale of the opportunity, and now that he’s about to officially marry into the family, it’s really a no-brainer. That being said, Evan and I will maintain our partnership and continue to share and service clients together. We’re so grateful for Evan’s diligent leadership as practice/operations manager for several years, and excited to see him fully spread his wings and fly as an advisor. In short, Evan will move offices in February, but not much will change otherwise. If you’re used to working with him most closely, that will continue.

Now, on to the news. First, I’ll start with financial planning updates/considerations for 2023, and then talk a bit about the market.

2023 Important Numbers—There have been meaningful changes to contribution limits to qualified retirement plans for 2023, and a number of other key figures have also changed surrounding tax brackets, RMDs, etc. If you’re still earning/saving, please be sure to adjust your retirement contributions to reflect new limits, if not already, so you’re not having to play catch up later in the year. Almost everything you need to know is summarized on these two pages here. Please let us know if you would like assistance updating contributions.

SECURE Act 2.0 has been dominating the headlines, and I’m sure you have questions. Take a look at this checklist titled ‘What Important Issues Should I Consider Regarding Changes Made By The SECURE Act 2.0’. The checklist summarizes the most significant SECURE Act 2.0 changes, groups the changes by the year in which they take effect, and should be able to help you more quickly and efficiently identify and prioritize the opportunities that are relevant to you or someone else you care about. 

Required Minimum Distribution (RMD) guidance for beneficiaries of IRAs inherited since 2020 (with the passage of the 2019 SECURE Act) has been murky. For ‘Designated Beneficiaries’ (i.e., where an individual human being, as opposed to the estate or a charity, was named on a beneficiary form), the key question is where the decedent who left the account to the beneficiary died before or after 2020. If the decedent died before 2020, the beneficiary can use the pre-SECURE Act ‘stretch’ rules (taking RMDs over the course of the beneficiary’s lifetime), though notably these individuals had to reset their ‘stretch’ RMD schedule in 2022 to the current IRS Single Life Table (which resulted in slightly lower RMDs) and will take their 2023 RMD accordingly (determining their life expectancy by subtracting one year from the life expectancy used in 2022).

However, Designated Beneficiaries who inherited retirement accounts from decedents that died after 2019 (after the SECURE Act took effect) and who do not qualify for ‘Eligible Designated Beneficiary’ status (which applies to spouses and other specified types of beneficiaries) are subject to a different slate of rules.

Under IRS proposed regulations released in early 2022, if the decedent in these situations died before their Required Beginning Date (RBD) when their own lifetime RMDs would have begun, Non-Eligible Designated Beneficiaries would be required to empty the account by the end of the 10^th year after death, though they do not have to take RMDs in the interim. However, if the decedent died after their RBD, then the proposed regulations stipulate that Non-Eligible Designated Beneficiaries must take RMDs for years 1 through 9 of the 10-year term, and the account must be emptied by the end of the 10^th year after death (i.e., whatever wasn’t already withdrawn from earlier RMDs and voluntarily withdrawals must be liquidated by the end of that 10^th year after death). And while there is no penalty for those who didn’t take these RMDs for 2021 and 2022 (as the result of an IRS notice eliminating the penalty for missed RMDs in these cases), that relief does not impact the calculation of the 2023 RMD, where Non-Eligible Designated Beneficiaries of those who inherited from a decedent who died after their RBD must take ongoing RMDs (though the IRS could issue final rules or clarifications before the end of the year).

WHAT ISSUES SHOULD I CONSIDER WITH MY SOCIAL SECURITY RETIREMENT BENEFITS?

Now, on the investment front, let’s review our core principals and outline current observations.

First, core principles:

Now, current observations:

As most of you who read these newsletters know by now, Nick Murray is one of my favorite industry veterans to cite when trying to help clients see the big picture in more challenging moments like this one. This month, he put out an essay written directly to clients of his subscribers (financial advisors), titled ‘The Day the Great Postwar Bull Market Died’ Nick says “My purpose in this little essay-as someone who lived through those 21 months not merely as an adult but as a young financial advisor, trying to make some kind of sense of total, unprecedented chaos-is to put you fully in touch with the absolute horror of it. Because the plain fact of the matter is that this time was different. On a number of fronts, it was unlike anything in living memory.” He then gets into inflation, the first oil shock, recession, Watergate, etc. and goes on to say “Again, the universal cry—as mainstream equities lost half their market value over very nearly two years—was ‘This time is different.’ And again, in so many ways, that observation was inarguably true. Until it wasn’t anymore…inflation was brought under control by the Fed, America later became the world’s largest oil producer. And so on: we muddled through, until we triumphed.”

For those of you who are looking for a bit more in the way of ‘prognostication’ from us regarding outlook for 2023, we are seeing a lot of encouraging data. Inflation is now showing a sustained trend of meaningful declines, energy prices are falling, consumer and corporate balance sheets are strong, unemployment remains historically low, economic (GDP) growth is, at least for now, nowhere near negative territory, and while corporate profit and consumer spending growth is slowing, it isn’t negative either. While we remain mindful that 2023 will not be without fundamental challenges (e.g. it’s falling, but inflation remains high), the volatile market in 2022 has lowered stock valuations relative to their earnings, suggesting many of the recessionary concerns have already been priced in. This leads us to believe that 2023 is unlikely to be a repeat of the year just passed. While it’s always a good idea to have a plan for stormy weather, history tells us that the winds may be a bit more in our favor this year. Here are some encouraging points:

Below you’ll find a number of articles and other resources on market outlook, and these contain many useful charts and other data points that further illustrate the trends we are seeing. The one article from the last few weeks which John felt was most intriguing, and thus worth highlighting, is this one from Bloomberg titled ‘Economist Says His Indicator That Predicted Eight US Recessions Is Wrong This Year’. The famous economist Campbell Harvey has had a winning track record since he showed in his dissertation at the University of Chicago decades ago that the shape of the bond yield curve was linked to the path of US economic activity. US recessions have been preceded by an inverted yield curve—when short-term rates exceed those of longer—since the late 1960s. Fast forward to 2023, that’s exactly what’s been happening with the Treasury yield curve in the past month and a half. Yet, Harvey is saying this time the US economy will manage to avoid a real slump even though it will keep slowing down for a bit longer. Even though the yield curve is flashing red for recession, he thinks this is a ‘false signal’ this time. He contends that it is simply too easy for workers who get laid off to get re-hired given new technology, and he also believes that inflation will keep coming down naturally. He describes the Fed continuing to raise rates as scoring an ‘own goal’ (i.e. unnecessary blunder because inflation will normalize if it leaves rates alone).

-Charlie

John Bay, CFA I Chief Market Strategist | jbay@meetmarathon.com

Jake Foley I Chief Operating Officer | jfoley@meetmarathon.com

Adrienne Snyder I Director of Financial Planning | asnyder@meetmarathon.com