Weekly Reflection for November 18, 2022

Market Update in Charts

The major indices gave up some of last week's sharp gains. The Nasdaq has seen the most turmoil. Analysts noted that among the stocks investors were most enthusiastic about were the most expensive and unprofitable technology companies in the Nasdaq.

Even if charts, especially about things as dry as bond yields, are not your thing, this one is still worth watching. Since 1955, every time the red line (the difference between a 3-month and a 10-year Treasury turned negative, meaning an investment yielded more in the 3-month security), a recession has followed, shown in gray. See chart below to see the yield curve, another way of showing this data.

The yield curve plots the return of different terms of Treasury securities. It typically slopes upward, like the black line from a year ago, as the yield, or payout, increases with duration. This also signals expectations for good economic activity. A flat or declining yield curve, like the line in blue, suggests investors are pessimistic about economic growth and expect near-term rate hikes.

It is hard to tell from this chart but the average 30-year fixed mortgage fell to 6.61% from 7.08% the week prior. This followed a decline in the 10-year Treasury bond, which followed a decline in the October inflation data. Affordability, however, remains a major concern for buyers.

Employees are in charge these days. Workers are gaining the upper hand in negotiating better wages, benefits and working conditions now and for years to come. Per studies by Glassdoor and Indeed, an aging working population and less immigration in developed economies is leading to a shrinking pool of available workers now and for the decades ahead.

While employers are gently cajoling workers to come back to the office, as many as 60% continue their work-from-home arrangement. Maybe they will come back eventually, just don't call them "family". See more about the workplace survey here.

Your To-Do List By December 30th

The frenzy of year-end is just around the corner. Before you get too swept up in holiday fun, make sure you have your financial tasks for 2022 wrapped up. December 30th is the absolute deadline for any business tasks; the 31st is a Saturday this year.

Take your Required Minimum Distributions. If you are age 72 or better, the IRS requires you to withdraw a minimum amount (RMD) from your retirement accounts. There are exceptions - if you are still working and contributing to a 401(k), you may be able to defer withdrawals. If you are considering a charitable contribution and over age 70.5, a Qualified Charitable Deduction will take care of your RMD, remove the income from your taxes and benefit a charity.

Maximize your Retirement Plan Contributions. Employer-sponsored plans like 401(k)s and Simple IRAs require that employees make their contributions before the end of the year. Here is a link to contribution limits for 2022. Look at opportunities for Tax-Loss Harvesting. This is the classic lemonade-making opportunity when your holdings look more like lemons. Selling positions at a loss to offset gains taken in other positions and can reduce taxes. This is done only in taxable, non-retirement, accounts. Net losses exceeding gains can be carried forward to offset future realized gains. This year and the next few will be good for some to consider a Roth Conversion. The tax brackets are widening and Ed Slott, the preeminent IRA guru, says tax rates are the lowest “most people will see in their lifetimes." Moving money from a traditional to a Roth IRA is a taxable event but could save you plenty in taxes in the future. Here is a helpful article on the ins and outs of this process.

Review any other tax-favored accounts like Flexible Spending and Dependent Care accounts to make sure you are using all dollars and benefits available to you. If you are gifting cash or securities, the 2022 exclusion is $16,000. (Amounts beyond this to anyone person require additional tax forms or payment of taxes by the giftee.) Other notables include college savings (529) contributions. Some states require 2022 contributions be done before the end of the year; others have more generous deadlines extending into the next few months of the year or by tax-filing.

The IRS tax-filing deadline for 2022 will be April 18, 2023. All 2022 contributions to contributory IRAs, like the Roth and traditional, or to a SEPIRA, must be made by then. Health Savings Account (HSA) contributions can also be made up to this date.

If you are able to delay receiving income until the calendar flips to 2023, you may want to consider it. The widening tax brackets, as mentioned above, mean you could be paying less in Federal tax in 2023. Read more here. As always, consult your tax-preparer or CPA when considering these items. If you need help finding someone, we can assist. Making good decisions for you around your finances is our goal so please do not hesitate to get in touch.

Ah, Thanksgiving

This coming week we will celebrate our uniquely American Thanksgiving holiday. The president will pardon a turkey, despite no one ever knowing exactly what heinous crimes the turkey allegedly committed. More Americans will set their kitchens on fire than on any other day; frying a turkey is fraught with hazards.

Food, the main event, is wildly more expensive this year; the cranberries and veggies will sadly be the only items without eye-watering price tags. But let’s be honest, veggies are not why we all gather on the fourth Thursday in November.

Traveling is also a major hassle but we do it because there are some things that should just never happen over Zoom. And after we break bread together, conversation will turn to holiday gifting and what our loved ones still need or want after the last two years of retail self-therapy. Maybe some will join the midnight throngs at the big box stores to get an ambitious start on the black Friday shopping.

All sarcasm aside, we love this holiday for all that it is intended – a special opportunity to give thanks for our blessings. We wish you and your cherished ones a lovely Thanksgiving celebration.