Objective Financial Advice
Greetings!
Good morning! We hope this newsletter finds you well as we close out a tumultuous year.

The year in the investment markets has been eventful -- to say the least! As of the end of November, the S&P 500 total return is more than 15% year-to-date which is surprising given the first quarter loss of almost 20%. We are back in positive territory due to a phenomenal rebound in second quarter and continued growth since then. International developed stock markets are up 4% for the year. Emerging markets stock is up almost 12% for the year. Finally, the US aggregate bond index is up 7% this year.*

Many are wondering whether they should do tax planning now for the Biden administration. Jean addresses this on our blog.

We are enjoying our new office. The address is 1692 Keller Parkway, Keller, TX 76248. We invite you to tour it virtually if you haven't already. Because of the rising COVID numbers, we've moved all meetings to virtual for December and January. We want to help keep you and our team safe!

In addition to our general updates in this newsletter, keep reading for Rachel's guidance on how to focus on what you can control with your investments. Patty also shares tips to "Wax Off" 2020 and "Wax On" 2021. Please reach out with any questions or suggestions for topics you’d like to see covered in the future.

Our office is closing at 3 pm today for our team holiday party on zoom. We'll be back in the office tomorrow morning for more financial planning. We wish you a joyous holiday season. Please stay healthy and live well!
*Source for investment returns is Morningstar as of November 30, 2020. S&P 500 TR USD for the S&P 500. MSCI EAFE NR USD for developed international markets. MSCI EM NR USD for emerging markets stock. Barclays US Agg Bond TD USD for the US aggregate bond index.
D Magazine 2020 Top Wealth Managers and Best Financial Planners
We are delighted to share that Keener Financial Planning once again was included in the D Magazine Top Wealth Managers list for 2020. We were one of 33 firms named out of 43 applicants. 

Two of our CFP® professionals, Patty Priddy and Jean Keener, were also named to the D Magazine Best Financial Planners list. For more, including important disclosures about awards, visit our website.
Taking Control of Your Investments
Rachel Songer, CFP
by Rachel Songer, CFP®

If you were an investor in 2019, you probably closed out the year feeling pretty good. Stocks had their best annual gains since 2013: S&P 500* up 31.49%. 2020 has proven to be an entirely different animal with extreme swings in a single day (nearly 12% on the S&P 500 in March). As an investor, you may be feeling some loss of control. 

We want to shift your focus to things that you can control. Below are a few things that can be implemented right now:

1)   Your retirement contributions
We’ve all heard during the accumulation phase of life, we need to be saving money. How much differs for each person or family depending on your goals. Perhaps saving the generally accepted 15% of income is sufficient for meeting your goals, but what if you have more aggressive goals like an early retirement date? You may need to be saving more than this to account for health insurance premiums before Medicare eligibility. Rather than trying to determine “your number” as a target portfolio value that would allow you to retire safely, I’d like to challenge you to redefine “your number.” Make "your number" your overall annual savings figure because that's something you control!   

2)   Your portfolio withdrawal rate
Experts provide a rule of thumb between 3 – 5% as a safe withdrawal rate from your portfolio every year in retirement. This is a good starting point, but rules of thumb come with limitations. One example would be the decision to delay Social Security until age 70. If you have no income at this time, you will likely exceed the average 4% safe withdrawal rate for those years prior to receiving Social Security. If this is the case, you will want to make sure that you have sufficient assets to handle a larger distribution percentage for those first few years. We recommend updating your plan annually if you are taking distributions to account for economic conditions, tax planning strategies, and pension and Social Security election decisions. 

3)   Your investment costs
Vanguard Group founder, Jack Bogle, stated, “In investing, you get what you don’t pay for. Costs matter.” One of these costs that nearly all mutual funds and exchange traded funds share is an expense ratio, or the costs associated with managing the fund. You won’t see this as a line item on your statement because it is paid out of the fund itself, but it does lower your rate of return. You may see fees for buying or selling funds, as well. These can be avoided by seeking out no-load or no-transaction-fee funds. Many custodians do not charge transaction fees for their own funds, so if you like a particular company’s funds, you may benefit from having your accounts held at that company. Asset management fees also matter and can often be in excess of 1% annually. All of these costs should be considered as you make your investment choices as they all factor into your portfolio's returns.

4)   Your asset allocation
Your asset allocation selection has the most bearing on your investment returns. This is why it is important to select a mix of stocks and bonds that considers both your risk tolerance and your capacity for risk. While this selection is something you should intend to maintain for a long period of time, this should be adjusted as your financial situation changes. The change we recommend most frequently to clients is a movement to a more conservative allocation (or one with less stock and more bonds) as they move closer to retirement. This is a parallel movement with risk capacity. The closer you move toward needing to draw from the portfolio you’ve worked so hard to accumulate, the more you need those funds to be there. Your risk capacity decreases as you get closer to the distribution phase, and your asset allocation should reflect that.

5)   Your rebalancing strategy
Rebalancing is the process of realigning your investments back to a target asset allocation. This involves selling the asset classes that have done well to buy asset classes that have not done as well, or maybe even have negative returns. The idea is to take your profits on positions that have done well to buy low on positions that have not performed as well. Following these parameters will help to curb action driven by emotions like trying to unload positions that are struggling to prevent further loss. There are many schools of thought on how often to rebalance. At a minimum, we recommend an annual review of your portfolio. 

During such a period of stress, emotions, and uncertainty, we recommend focusing on these strategies because you can control them. If you're not using this approach currently, please reach out so we can help.

*S&P 500 is the S&P 500 TR USD index sourced from Morningstar November 30, 2020.
Tips to Wax Off 2020 and Wax On 2021
Patty Priddy, CFP
by Patty Priddy, CFP®

What a year 2020 has been! For most people, it is one for the books, or in the infamous words of Mr. Miyagi in Karate Kid, it is a year we want to “Wax Off’. With that in mind, we also want to look for opportunities to “Wax On” for 2021. Applying that to your financial life, what does that look like?

Ways to “Wax Off” 2020
Tax Planning Required minimum distributions from IRAs weren't required this year. That doesn't mean you shouldn't take one. Make sure you aren’t losing out on an opportunity to take some money out of your IRA this year at a lower tax bracket. You could even consider a Roth conversion if you don’t need the money right now for retirement spending.
Taxable Income in 2020 Keep in mind that if you took a distribution in 2020 from your IRA, that money is still taxable, even if you took the money before you turned 59 ½ and were able to avoid the penalty for coronavirus-related payments. Also, if you received unemployment compensation in 2020, be sure to have money set aside for the taxes on that income.
Charitable Contributions Increase charitable contributions if you can. This seems especially important this year, since so many people have been affected by the economic fallout from COVID. If you are 70 ½, you can contribute up to $100,000 per year from your IRA, referred to as a Qualified Charitable Distribution (QCD). This not only helps the charity, but allows you to make the contribution with no tax cost for the IRA withdrawal. You may also consider donating appreciated stock in your taxable brokerage account to qualifying charities, which saves you from paying taxes on the investment gains. Beef up your cash donations. Even if you don't itemize your deductions, you can deduct up to $300 in donations to a qualifying charity for 2020 -- this "above the line deduction" must be made in cash!
Suspended Student Loans If you have student loans not currently accruing interest and you have some cash, look to pay down the balance.
Health Insurance If you have reached your deductible in your health plan, try to schedule any pending health procedures this year. Also, be sure to spend the funds in your flexible spending accounts. Those accounts are set up to “use it, or lose it”. And if you have a health savings account, try to fund it completely for 2020. 

Ways to “Wax On” 2021
IRA Contributions In early 2021, contribute to your IRA or Roth IRA for 2020 if you haven’t already done so. You have until April 15, 2021. If you have earned income, even if you're past the age of 70 ½ in 2020, you can now still make an IRA contribution. 
401K Savings Make sure you are saving at least up to your company match in your 401K. Consider increasing your contribution by 1% from 2020 if you aren’t currently maximizing.
Health Expenses If you have a health savings account (HSA), try to not pay your health care expenses from that account, and pay out of pocket. This account can be invested and grow over time for use in later years.
Emergency Fund Review the balance in your emergency fund. If 2020 has taught us anything, it is that life is unpredictable. Make sure you have three to six months of living expenses in a savings account.
Helping Those in Need If you have extra money or time, plan to give back in 2021. This can take the form of monetary donations or simply reaching out to others who may be isolated during this time.  

Address:
1692 Keller Parkway
Keller, TX 76248
Ph: 817-993-0401
Fax: 817-993-0002