Making Your List, & Checking It Twice

We are coming up on the end of the year, and it's time to do a bit of financial and tax planning.  This seems to always make people's hair stand on end, which is understandable, but hopefully by providing a "check list,"  the project will seem less daunting  (select Adobe PDF icon below to access the document.) Before we touch on the planning piece, following is a brief recap of the markets since mid-year, as well as what we expect moving into year-end and 2014.

2nd Half of 2013

Since launching Alexis this past summer, the markets have been full of surprises – specifically, no major pull-back in September or October, historically the time of the year when the market takes a breather before a run-up into year-end.  In fact, we experienced a “relief rally” – relief that:

  • We didn’t go over the (fiscal) cliff.
  • The budget debate was “resolved” (also known as, kicking the can down the road.)
  •  The debt ceiling wasn’t pierced, which may have resulted in a downgrade of the U.S. credit rating.
  • Janet Yellen, who is seen as quite “dovish” (meaning likely to keep the foot on the “QE accelerator”) was nominated as the next Federal Reserve Chair over Larry Summers.

The planets basically aligned, and as a result, the third quarter ended up +4.7%.

Markets typically rally into year-end – but as per the above, we have experienced a few anomalies over the past few months.  However, barring any big news pertaining to a change in the Fed policy stance regarding QE (Quantitative Easing), or economic data that would suggest tapering of the QE program early next year, we are on track for a solid fourth quarter.

What about 2014?

The Economy

There is increasing angst among institutional investment managers regarding how much more “oomph” is left in this bull market.  As is always the case, there are several scenarios that could unfold, each having a likely a different impact on the market.

  1. Strong Economy - Unemployment drops dramatically, below the Fed's current target of 6.5% (currently 7.3%); inflation picks up to healthier levels, above the Fed's target of 2%  (current inflation, as measured by the Bureau of Labor Statistics, is 1.0%).  [It is worth noting, that these figures are debated strongly by many, arguing that structural unemployment and inflation are higher than reported by the governmental agencies.]
  2. Moderately Strong Economy - Unemployment continues its slow descent, and inflation gradually picks up.
  3. Economy Slips Back into Recession

We think the most likely scenario is number 2.  The wild card is the Fed's policy stance toward such a scenario.  And with new Fed Chair moving into office, uncertainty is even higher.  While Yellen has indicated that tapering QE is off the table until the economy substantially picks up, there is still quite a bit of concern regarding market levels and the possibility of tapering at some point during the first half of next year.

The Markets

Obviously, no-one knows if we will have a substantial pull-back or bear market in 2014.  As always, we strive to focus on the "weight of the evidence" - as Ned Davis says (one of our primary research sources) - "we focus on what the market is doing, rather than what we think it should be doing."    Given we are now several years into this bull market (with the exception of a short bear in 2011), the weight of the evidence on several fronts is pointing to a more "neutral" stance. However, right now - for the month of December - the market seems to want to "melt up" - and it may continue to do so into 2014 before we see a sizable pull back.

So the real question for investors is: a) are you currently invested? b) do you have new money to invest?

As our clients know, we see ourselves first and foremost risk managers, seeking to mitigate substantial loss of principal, which can wreak havoc on one's ability to build wealth.  So, we have been fairly cautious over the past months, as many of our indicators have shown that the risks have outweighed the potential rewards.

If you have been invested since the beginning of the year, then you likely have enjoyed the  benefit of riding this wave, and may want to consider hanging in there.  However, if you have new funds to deploy, you may want to apply a more cautious approach. And for all portfolios, we suggest seeking a disciplined approach to reducing and/or eliminating market exposure should we get major pullback or enter a bear market.

We will be discussing our views on 2014 in greater detail in our next newsletter. santa check list

Making Your List, & Checking It Twice

There are a few important financial planning items that you will want to consider before year-end - specifically, those that can help reduce your 2013 tax liability.  The PDF document below includes, among other items, information pertaining to:

  • Funding your company retirement plan
  • Making contributions to your child's 529 plan
  • Making charitable donations or gifts
  • Tax changes due to implementation of the Affordable Care Act, which may impact your investments

Hopefully this will make your year-end planning process less onerous.

download pdf

As always, call with questions or comments.  Otherwise, enjoy the upcoming holiday!

Live well. Invest well.

Join the conversation!

- Roberta

Information contained herein is for informational purposes only and is subject to various interpretations and time-frames, and should not be considered investment advice. Advice may only be provided after entering into an advisory agreement with Alexis Advisors, LLC (“Advisor.”) Advisor does not assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein. Advisor shall not be liable for the improper or incomplete transmission of the information contained in this communication. Past performance is not indicative of future results while changes in any assumptions may have a material effect on projected results. Third Party Research Disclaimer: Third party research is provided for information purposes only and has not been prepared by Alexis Advisors, LLC. The information contained herein is based upon sources which we believe to be reliable, but no representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in the reports. About : Alexis Advisors, LLC is a Registered Investment Advisor with the Commonwealth of Virginia. Advisor’s current Disclosure Brochure is set forth on Form ADV Part 2 and is available for your review upon request. Please contact Advisor promptly if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.