Client Update

If you’re the kind of person who likes to worry, then October has given you plenty of stimulus.  After a dip in the popular S&P 500 index for the month, all the gains that we’ve enjoyed this year have been wiped out, putting the index slightly into negative territory. 

In times when the markets are dropping, even if they haven’t hit correction territory yet (that would be a 10% drop), the media needs to find a narrative, and you hear all sorts of theories.  Corporate earnings have nowhere to go but down.  The tariffs are slowing down economic activity.  Interest rates are rising.

All of that is true, but none of it has anything to do with why the markets are falling.  The only true headline, and one you will never read, is that stocks are falling because some people are losing faith in their investments and selling out to bargain hunters.  Sometimes this activity feeds on itself; when people see the market falling, they, too, begin to panic.

The stock markets periodically deliver losses for reasons which are not always obvious even after the fact.  Bear markets are a normal part of investing, and this is a good thing, because it allows real investors to periodically buy stocks at discounted prices.  Research has shown that there is a gap between the return that most investors get from their stock investments and the actual returns delivered by those stock investments.  This is, of course, because they sell this or that fund before it goes up – or sell out and then wait to get back in until the market has gone up past where they sold.  Getting the full return of the markets is relatively easy: just hang on during those periodic downturns.

Every year, the U.S. government changes a variety of investment and benefits thresholds based on the inflation rate.  But since inflation has been relatively tame, most of the changes have been modest these past ten years.

That changes this coming year. 

Start with tax-deferred savings thresholds.  The limit for 401(k) or 403(b) contributions will rise from $18,500 to $19,000—and employees 50 and older will continue to be able to contribute an additional $6,000 as a ‘catch-up’ provision.  The overall limit for defined-contribution plans increased from $55,000 to $56,000.

Meanwhile, the IRS has raised the contribution limit for IRA accounts—that is, the maximum amount that can be contributed—for the first time in six years, from $5,500 to $6,000.  Traditional IRA contributions are tax-free (you get a deduction on your tax return) if you aren’t contributing to an employer-sponsored plan.  If you are, then the deduction for contributing is phased out starting at $64,000 in income (single) or $103,000 (filing jointly)—or $10,000 for someone married filing individually.

We are now in open enrollment on the government (39 states) or state health insurance exchanges (11 states and the District of Columbia)—so this is the time of year when consumers can buy health insurance coverage under the Affordable Care Act.  In most states, the enrollment season lasts six weeks—half as long as it used to—and many people are wondering whether the ACA is still viable.  Hasn’t the Trump administration taken steps to make it easier for healthy individuals to opt out of ACA and buy cheaper coverage that lacks certain popular consumer protections?  Doesn’t the economics of covering preexisting conditions require that all insurance buyers participate in the overall pool of insurance premiums?

There is no question that the alternative, cheaper policies endanger preexisting coverage in the long term, and many insurance carriers are publicly rethinking their rate policies.  But the Affordable Care Act has been surprisingly resilient so far, with 11.8 million Americans signed up for coverage.  Insurance companies, for the first time, have reinforced their commitment to the existing system by dropping their rates by an average of 1.5%—though there is wide variation among states.  Residents of Tennessee will see a 26% overall decline in the benchmark silver plans, while Pennsylvania residents will experience a 16% decrease.  In North Dakota, rates will rise an average of 21%.

In 15 states, insurance companies are returning or entering for the first time, and the total number of providers is up to 155, from 132 last year.  That means consumers will have more options.  Established insurers like Anthem, and startups like Oscar and Bright are providing coverage because, thanks to a big increase in premiums last year and the possibility that Congress will stall a full ACA repeal going forward, they believe they can scratch out a profit.

Taking the time to navigate the different options can save some consumers thousands of dollars.  For instance, many companies are offsetting their rising costs by offering high-deductible, low-premium plans along with health savings accounts (HSAs).  An HSA contribution is triple-tax-advantaged: it is deductible when you make the contribution, the money grows tax-deferred, and if you take the money out to pay for medical costs, it comes out tax-free.  Any money not used in a calendar year is rolled to the next.

At the other end of the spectrum, people who have developed a chronic condition, or who are older, might fare better with a low-deductible plan.  They pay a higher premium each month, but the lower deductible will reduce the amount they will have to pay out-of-pocket for medical procedures.  If you buy insurance through an employer, the low-deductible policy can be combined with a flexible spending account, or FSA, where a policyholder contributes pre-tax dollars to pay qualified medical expenses during the year.  Any FSA money left over will be forfeited.

High-achieving people will tell you that they sacrificed to get where they are, but what, exactly, did they sacrifice?  An article in Forbes magazine lists 18 things that high-achieving people routinely give up—and many of them are not what you would expect.

Number one on the list: a fear of uncertainty.  The article notes that there really are no guarantees in life, so when you start a new business, you aren’t really giving up certainty for the reckless unknown.  You’re giving up one kind of uncertainty for another—and the old one, which feels more certain, may be holding you back.

Two: Ignoring your feelings.  Your feelings actually give you a lot of clues about your situation.  Anger tells you where you feel powerless.  Anxiety tells you when something in your life is off-balance.  Fear tells you what you care about.  If you treat your feelings as messengers, you might learn what you need to do next to move ahead.

Three: Pretending your problems don’t exist.  The advice: make a spreadsheet of your debt, and list the habits you now are detrimental to your health. Think of who you owe apologies to and address your problems rather than sticking your head in the sand.

Four: Avoiding discomfort.  This is kind of like number one: if you build your life around just the things that make you feel at ease, that is a fast track to complacency.

We hear about how artificial intelligence is going to change the workforce, and how computers are taking over the world; but perhaps the biggest shift in our industrial lives has been flying under the radar: rather than making things, we will soon be “printing” them.

A new “metal printing press” developed by Desktop Metal, uses a variety of metal powders to lay down many thin layers of material in rapid succession, according to the specifications in a digital file, to build three-dimensional objects.  It employs more than 32,000 juts in conjunction with powder spreaders to jet millions of droplets per second, creating metal parts in minutes instead of hours.   The one-million-dollar printing device is designed to replace metal fabrication activities, many of which are currently handled by hand.  Among the early customers: Ford, Caterpillar and Google’s advanced technology and project group.  BMW has tested a steel prototype of a water impeller pump that costs $80 to make currently.  It can be 3D “printed” for just over $5, and the printed version is 50% lighter.

The goal is to have a “factory” of 3D metal printing units that can print parts and products on demand, with no minimum order size.  The parts will be lighter, cheaper and more efficient than what could have been fabricated in the past.  One analyst is forecasting that sales of industrial 3D printers could reach $18 billion by 2021.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.