Mid Year Outlook – Let’s hope the back half is less crazy…

Dear Friends,

As we approach the mid point of year 2020, it seems like we all need to catch our breath from the Covid nightmare. Unfortunately, I am not sure we’ll have that luxury given that this is in fact a Presidential election year (and the unemployment numbers still stink too!).

If you missed our last client conference call a couple of weeks ago, this piece contains a lot of information that Marc Nabi, Portfolio Manager with American Funds, discussed on the call.

In summary, always remember that recoveries last longer and produce much stronger results then downturns. And most importantly, the active management that occurs on a daily basis inside every fund that you own with us will be a key driver of your investment success over time. After any economic downturn there are always winners and losers among companies – business that emerge better positioned than their competitors. Selectivity will be key moving forward and that’s the kind of activity that occurs everyday with the portfolio managers who are making investment decisions inside each fund you own.

Don’t ignore the potential for continued volatility – that is a part of it and the tougher the headlines the more that is a factor. Speaking of volatility, let’s not forget about that Presidential election. There is no discernable difference between parties and market direction. Let’s face it – the economy is far bigger than any one person or one political party. Pay particular attention to the headline events that occurred during each President’s time in office. We often forget these historical headlines that, at the time they are happening, feel like the worst case scenario.

In a week or so you will receive your statements for the second quarter. The good news is that they will look much better than what you saw at the end of the first quarter. At the end of March, the markets were free falling due to the Covid shutdowns and in that first quarter were down about 20%. As of the date of this email, 6/25/2020, markets overall are down about 5% an upward shift of 15% since the end of March. This strong recovery in the second quarter makes the results for the year to date not too bad considering Covid.

As we have mentioned in previous emails, the office is fully open for meetings either by phone, video or in person. Please know that we do adhere to a universal masking policy for in person meetings and try to have those in-person meetings outside if the weather permits. Who knew those oak trees I planted a decade ago would grow to make a shady outdoor meeting space that we would actually use!

We hope you all are well. As always please let us know if we can be of any help and if we haven’t seen you in 2020 yet, we encourage you to contact us to set up a review.

Dear State of Florida Employee

June 9, 2020

Dear State of Florida Employee,

2020 is certainly giving us some significant swings in the markets, the economy and our society. The Covid pandemic created the single biggest loss of jobs in history. In response, the markets achieved an incredibly high level of volatility.

1. Market Commentary

The volatility in the market created breathtaking swings in account values. At one point, markets were down 34% from the beginning of the year. As of the start of this week markets had shifted up 45% from this low point to be less than 7% from their all time peak in mid – February.

There are three things that are helping the markets to hang in there despite the widespread Covid shut downs. First, don’t fight the Fed. This maxim has been around for decades and when the Federal Reserve is lowering interest rates and making borrowing easier the markets typically respond positively. Second, don’t fight city hall. When government leaders are providing significant cash relief to both individuals and businesses, the markets will respond positively as well. And third, tech rules the day. The Covid pandemic only accelerated the performance of industry leaders in the technology area and it is these companies that contribute significantly to market performance.

That’s the good news – but there is always the rest of the story. And Covid is still very much with us and its spread may very well have been compounded by the current level of social unrest as well. In addition, the amount of Americans unemployed is still at a staggering level. Consequently, the markets may be getting somewhat ahead of themselves. Remember though, the best possible investment results are achieved over time by being consistent with one’s approach. If you have any questions about your overall financial picture or investment mix, we are available at any time for phone or video conversations along with on-site visits that follow CDC guidelines.

1. Our Weekly Podcast & FRS Booklet

Our weekly radio show/podcast network continues to expand. In addition to the Newsradio Orlando network of stations on 94.1 FM, 93.1 FM, and 540 AM, the live show “Dollar & Sense” that airs every Sunday morning from 9 – 10 AM can now be heard on the local sports network 96 Nine The Game (96.9 FM) which is home to the Orlando Magic and the Tampa Bay Buccaneers.

To download or listen on-line, follow us on Facebook under Nelson Financial Planning. We are also on a variety of other platforms like Twitter, Itunes, Spotify and many others. Visit our website www.NelsonFinancialPlanning.com to find direct links to your favorite podcast format.

One of our most recent videos addresses the topic of why you should still continue to contribute to your deferred compensation account despite the Covid pandemic. Be sure to subscribe to our Nelson Financial Planning Channel on Youtube for this and other timely updates on retirement matters.

Our Booklet – The State of Your Retirement; The Essential Guide for all State of Florida Employees – continues to be the one source for state employees that describes all of the unique choices you face at retirement. The latest edition includes information about your eligibility for the Health Insurance Subsidy along with a chapter on the importance of Deferred Compensation Accounts. Please be sure to call (407-629-6477) or visit our website www.NelsonFinancialPlanning.com to get your free copy today.

III. Investment Plan Fund Changes

Last month FRS announced a change in its FRS Investment Plan Fund options. As of July 1, 2020, the FRS Large Cap Stock Fund and the FRS Small/Mid Cap Stock Fund will become the FRS U.S. Stock Fund. In addition, the FRS Investment Bond Fund will be merged into the FRS Core Plus Bond Fund and the FRS 2015 Retirement Plan Fund will be merged into the FRS Retirement Fund. These changes effectively reduce your investment options which unfortunately continues a trend within the FRS Investment Plan of offering less options. These reduced choices force employees to use more cookie cutter options that aren’t very finely tuned to one’s individual objectives. As for this change, we recommend that FRS Investment Plan participants who own these funds let them automatically transfer to the new funds as there really aren’t any other choices that represent similar investment objectives. Just one more reason why when you do retire from FRS you certainly want to explore your rollover options to an outside IRA in order to broaden your investment mix to more accurately reflect your retirement income needs.

These investment changes do present an opportunity to review your overall investment mix in your FRS Investment Plan. However, as you approach retirement, you should enter into more of a growth and income approach.  Receiving income while maintaining some growth to cover that income becomes paramount in retirement.  This shift means that your investment mix needs to adjust as well.  We encourage those that are within 3-5 years of retirement to review their investment allocation.  As always, we are happy to provide free consultations to state employees who would like to review their investment allocation.  Simply contact the office at 407-629-6477 to schedule a conversation and be sure to have your login information handy.

1. 2020 Legislative Update

In our January letter, we mentioned some proposed legislation that would have increased the employer’s contribution rate to your retirement. This bill (SB 992) didn’t really go anywhere during the legislative session and wound up being withdrawn. However, the bill was far from perfect as it also forced state employees to increase their required contributions from 3% to 5% over the next few years. Perhaps in the next legislative session FRS employees will get some improvement in their benefits!

1. Retirement Under the Florida Retirement System.

There are many factors that go into properly planning your retirement.  The various types of FRS retirement accounts such as IRAs, FRS Investment Plan Accounts and Deferred Compensation Accounts are unique and have different tax consequences depending on your age.  These are very important and very complicated issues that require proper planning in order to have the most flexibility in retirement. If you are thinking of retiring or have recently done so, please contact us at 407-629-6477 to schedule an appointment to discuss planning your retirement in the most tax and cost efficient manner. THESE RETIREMENT PLANNING SESSIONS ARE ABSOLUTELY FREE NO OBLIGATION CONVERSATIONS THAT ANALYZE ALL YOUR RETIREMENT OPTIONS. 

As always, stay well and please contact us with any questions on any financial matter.

Sincerely,

Joel Garris, JD, CFP, CFF

Host, “Dollar & Sense”