As we begin the New Year, on behalf of the entire ZRC Wealth Team, I’d like to express our sincerest gratitude for the opportunity to serve you, your families, businesses, and employees. The trust you place in us to manage your hard-earned money and guide you on your financial journey inspires us every day to do our very best work for you. Thank you.

As we reflect on the past year, we mourn the passing of several dear friends and family members. Among them was Ryan Kosakura’s mother, Jane Kosakura, who put up an amazing two year fight against pancreatic cancer. Her kindness and grace will forever live on in our memories.

Coming soon – a new, state-of-the-art, Wealth Management Experience. With our goal of staying at the forefront of the wealth management profession, we are rolling-out a new wealth management platform. Your investments reports, comprehensive financial plan, net-worth statement, and important documents will all be in one, easy-to-navigate portal. There will even be a ZRC Wealth app to access it on your mobile devices.

In a few months, we will begin sharing with clients this industry-leading Wealth Management Experience. We look forward to introducing you to an easy and intuitive way to track your investments, including those held outside ZRC, and keep track of your net-worth and financial goals.

Effective immediately, ZRC will waive the management fees for the children of clients whose account(s) are $100,000 or less. . . regardless of whether they are 16 years old or 36. ZRC continues to build on putting families first as an organizational bedrock. We haven’t billed on 529 college savings accounts for years. Now we are expanding on this by not billing on clients’ children accounts. This is a fantastic opportunity for your children to save with no management fees from ZRC and get expert financial advice from a fiduciary. While many advisors focus on “preparing the money for the kids,” we also focus on “preparing the kids for the money” – which may be even more important.

Dimensional Fund Advisors (DFA) reduces mutual fund management fees. Effective February 28, 2020, DFA will reduce the management fees of their institutionally priced funds by an average of 8%, with most fund expense ratios being cut by 1 to 8 basis points. This includes their flagship Core, Value, and Fixed Income Funds. For example, the DFA U.S. Core Equity 1 & 2 Funds that are held by every client of ZRC, are being reduced by 3 basis points (0.03%). We’ve long be a fan of DFA. They have pioneered and proven many investment concepts. For that reason, over the last 20 years, 85% of their funds have beaten their benchmarks (compared to just 17% for the rest of the mutual fund industry).* To learn more click here.

2019 Commentary and Market Summary. What a difference a year makes! 12 months ago, U.S. stocks declined nearly 20% from the end of September to the end of December. Though stocks finished 2018 only down single to low double digits, investors were on edge. Low and behold, Friday, January 4th marked the beginning of a rally in which the S&P 500 would gain 31.5% for year. The stocks of smaller U.S. companies (those with market capitalizations generally less than $5 billion, as represented by the Russell 2000 Index), returned 25.5% in 2019.

International stocks also experienced excellent returns, with the broad-based MSCI EAFE (Europe, Australasia, and Far East) Index returning 22% and the MSCI Emerging Markets Index returning 18.4%.

Bonds also posted an especially strong year (the Fed cutting rates three times helped a lot) with the Bloomberg Barclays U.S. Aggregate Bond Index returning 8.7% and foreign bonds (as represented by the Bloomberg Barclays Global Aggregate ex-USD Bond Index (dollar hedged) returning 7.6%.

Lost on many people was that the volatility of the last several years continued in 2019 . . . the difference being the volatility was mostly on the upside. For example, 72% of the S&P 500’s return came in the 1st (+13.65%) and 4th (+9.07%) quarters alone. If you were out of the market for even a quarter, you missed a lot. Ditto for Emerging Markets, with 118% of its return coming in the 1st (+9.91%) and 4th (11.84%) quarters. How is that even possible you ask? Because it was down 4.25% in the 3rd quarter. This is why so many investors fare worse than the stated average returns of funds or indexes. They get out at exactly the wrong time.

While 2019 was a great year for stocks, it was far from the best. In fact, going back to 1926, there were 17 years when the S&P 500 performed better. However, after a strong year, investors often wonder whether stocks will continue to do well. We’ve received a number of inquiries from clients, asking if we should consider selling a portion of your stock investments. While, we do pare-back positions after appreciating significantly (what we call rebalancing), you know what follows all-time highs? More all-time highs! That’s how the markets work. They reward investors for pledging their capital, long-term. It’s as simple as that.

I’m not aware of a prognosticator or talking head that predicted stocks would be up 30% in 2019. No one saw it coming. And that’s the beauty of a diversified investment strategy, such as what we advocate here at ZRC. To profit, all you have to do is show up. Patience and discipline help a lot too.

What is in store for 2020? While no one has a crystal ball, we can look at the returns of the S&P 500 following each of the years when it gained 20% – 40%. On average, stocks returned 10.6%, which is close to the index’s long-term average. So for 2020 we remain cautiously optimistic.

What can we learn from this? Investors are well served by sticking with their prescribed asset allocations – having enough stocks in their portfolio so they can eat well tomorrow and having enough bonds in their portfolio so they can sleep well tonight. For Barry Mendelson taking you through seven slides that made the Quarter and the Year, click here.

New Law Impacts retirement plans and IRAs. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law last Friday. The new law impacts retirement plans and IRAs in a variety of mostly positive ways, but one provision is being panned – the restriction of the stretch IRA to a limited number of beneficiaries. The provision eliminates the option of taking minimum required distributions over the lifetime of many beneficiaries and requires payout by the end of the 10th year after the account owner’s death. This will apply to distributions with respect to individuals dying after 12/31/19 and there is concern that estate plans and trusts written to take advantage of the stretch IRA will require immediate attention.

We have included a summary list of SECURE Act provisions here and highlighted some of the provisions below. As a service to our clients, we keep track and advise you on the timing and amount of your Required Minimum Distributions(RMDs).

  • Those working past age 70 ½ can continue contributing to IRAs and Roth IRAs.
  • The start date for RMDs changes from age 70 ½ to 72 for those attaining that age after 2019.
  • Non-spouse beneficiaries of an inherited IRA must withdraw all funds by the end of year 10 after the IRA owner passed away, instead of over the lifetime of the beneficiary.
  • Retirement plans can be adopted up to the due date (including extensions) of the tax return for the taxable year of adoption. Previously, plans had to be adopted by the end of the plan year.
  • The three-year business tax credit for plan startup costs increased from a current cap of $500 to up to $5,000 in certain circumstances and provides a concurrent $500 tax credit for three year plans adding auto enrollment for new hires.

Congratulations. Kelly & Pat Gillette’s son, Jayden, and his Cardinal Newman High School Varsity Football team claimed their first state title by beating El Camino-Oceanside 34-14 on December 14th for the CIF 3-AA State Bowl.

Sincerely,

Sources: Morningstar, Inc., Dimensional Fund Advisors, Avantis, & J.P. Morgan Asset Management, Inc.

* https://us.dimensional.com/#chapter1

All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future returns. Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

S&P data is provided by Standard & Poor’s Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2019, all rights reserved. Dow Jones data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Treasury bills © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).