July 2024 Monthly Market Insights
Greetings Team,
July 2024 will be forever etched in the annals of history as a month of mind-bending surprises and heart-pounding adventures. We witnessed a daring attempt to take down Donald J. Trump, a mind-boggling IT catastrophe, and Joe Biden, the seasoned statesmen, bowing out of the Presidential race, marking a significant moment in American politics. But let's set politics aside and focus on what we do best—Finance. In this month's newsletter, we embark on a journey that concerns us all, especially as we grow older—retirement planning. But before we do, let’s look at the current state of the economy.
The S&P 500 closed the last day of July on a high note as it notched its best day in 5 months, trading up 1.6% to 5,522 as technology rebounded and rate cuts came into view. The widespread gains came as Treasury yields eased in the bond market after the Federal Reserve gave the clearest indication yet that rate cuts in September are on the table. The market is also undergoing a transformation, moving beyond its usual key players. While large-cap tech giants have long dominated the scene, small cap stocks are enjoying a remarkable surge, partially fueled by lower interest rates. This past week, the S&P Small Cap 600 increased by 3.6% as investors adjusted their portfolios to include a greater proportion of small caps.
Joe Biden stepping down from the Presidential race serves as a poignant reminder of the inevitable march of time. As our population ages, the need for careful and strategic retirement planning becomes ever more critical. As you ascend towards the clouds of financial freedom, the excitement builds, knowing that a blissful retirement awaits. But unforeseen expenses can send your retirement plans into a tailspin. It's crucial to buckle up and chart your course, ensuring a smooth and enjoyable ride through your golden years. So here are some strategies to consider as you prepare for retirement.
Think of retirement savings as a hidden treasure buried under the shifting sands of financial uncertainty. The key to accessing this treasure is to save early and strategically. However, don't put all your savings in one spot! Diversify across different accounts, like a wise investor spreading wealth across various assets. While many Americans know the advantages of tax-deferred accounts like 401(k)s, 403(b)s, and 457 plans, it's crucial not to overlook the benefits of Roth 401(k)s and IRAs. A careful tax analysis may reveal that contributing to or converting some savings into these accounts can lead to significant long-term savings through tax-free withdrawals.
Imagine annuities as enigmatic creatures lurking beneath the surface of the financial ocean, each with its own costs and complexities. One such creature is the variable annuity, allowing you to invest in various sub-accounts, potentially increasing your returns but also introducing greater risk. With a single premium immediate annuity, you can summon the aid of an insurance company in exchange for monthly payments for a specified period or even for life. Opting for a life-only annuity ensures the largest payout, though payments cease upon your passing. For couples, a joint-life annuity provides income as long as either spouse remains alive, though it may reduce the monthly amount. Like a traditional pension, annuities can cover essential expenses, freeing you to invest the rest of your portfolio in growth opportunities.
As you sail towards the horizon of retirement, there's a storm on the horizon that can wreak havoc on your finances—health care costs. It's like encountering a mighty Kraken, threatening to drag you down into the abyss of financial ruin. But fear not, for you possess a secret weapon—long-term care insurance. This insurance acts as a sturdy ship, protecting your savings from being devoured by unexpected medical expenses. Additionally, make use of the financial lifeboats known as health savings accounts (HSAs). These accounts offer tax advantages, allowing you to set aside funds for medical expenses with the potential for tax-free growth. With these strategies in place, you'll be well-equipped to conquer health care challenges that come your way.
Ah, the dreaded topic of working longer, a notion that may not set hearts ablaze with enthusiasm. Yet it holds the key to making your treasure last. Firstly, by working a bit longer, you'll have the chance to amass more savings for your future. Secondly, working longer reduces the number of years you'll need to rely on your portfolio, allowing it to flourish and grow undisturbed. Lastly, delaying the filing for Social Security brings forth an increase in the size of your benefits. Remember, filing as early as age 62 may result in a reduction of up to 30% in benefits. So, set your compass towards a few more years of labor, and watch as the fruits of your extended voyage enrich your retirement dreams.Here's to a month of economic growth and thoughtful retirement planning. Happy investing!
Onward and upward, always.
Steven and Daniel
