FINANCIALLY FOCUSED

January 2024 Newsletter

Happy NEW YEAR! Hoping this newsletter finds you well. Writing this 2023 recap and preparation for 2024 is certainly more enjoyable than the one ending 2022. I can’t thank you enough for the trust you put in me and the entire team here at Swenson Wealth Management. 2023 was a record year for client referrals and growth within our firm and it’s because of you. Cheers to a great 2024!

The IRS has made several changes to tax rates and contribution limits for 2024. In this newsletter, I’ll summarize these changes, give a quick recap on 2023 and give some insight heading into 2024.

Skyline Capital – I will be sending out a separate newsletter updating investors that are involved/interested in our real estate and storage unit funds. If you are not on that list and would like to receive information, call or email me at skylinecapital605@gmail.com. I will be introducing an exciting Sioux Falls project for potential investors.

Introducing Pontera - In a previous monthly email, we introduced Pontera. We continually get requests from clients and prospects that have money in existing 401k plans asking us to help manage the investment options within their work 401k. Pontera is a service that allows you to keep your existing retirement plan with your employer, but also gives us the ability to help you manage the investments in coordination with your overall financial plan.

In-Service 401k Distributions - If you are over the age of 59 ½ most plans will allow you to do an “in-service distribution.” This allows you to continue receiving the company match while employed, but also gives you the option to move money out of the plan to be professionally managed with no penalty or taxes. Call us if you think you may qualify.

Year End Tax Loss Harvesting

At the end of every year, we review your taxable accounts to see if there are any adjustments, we can make to generate a tax benefit. Most equities did come back so there was not a lot of opportunity on that front. The fixed income market did not start its rally attempt until late in the year, so we were able to harvest some losses in conjunction with a rebalance of our fixed income allocation.

Fixed Income Changes

The Federal reserve has not made any rate changes since July of 2023. In their latest meeting announcement, they indicated a willingness to get ahead of a potential recession by cutting rates sooner than expected. This spurred a rally in fixed income prices and the rhetoric gave us conviction that adjustments to our fixed income portfolio were prudent. As the rate hike cycle comes to an end, we have added some long-term bonds and duration to the portfolio. These changes allow us to take advantage of higher yields when the yield curve normalizes and capture better price appreciation if rates go down.

2024 Investment Outlook

Cash is more attractive than ever, but the sneaky double digit returns in equities this year shows the opportunity cost of not owning them. Inflation and economic risk will remain high in 2024, therefore quality stock ownership remains a priority. We will begin to shift to some areas of low beta. Beta is the measure of volatility of a stock compared to an index. Market dispersion has been very narrow, and much attention has gone to the Magnificent 7 (Apple, Microsoft, Alphabet, Tesla, Nvidia, Meta, Amazon). These stocks are high beta, and it was beneficial to own them in 2023. For a new bull market to come to fruition, market dispersion needs to widen which is why we want to look outside the 7. Historically, in years following the end of a rate hike cycle, the equal weight indices perform better than a concentrated portfolio.

The argument to spread out equity exposure is rooted in valuation. The S&P 500, which is heavily weighted by a few large cap stocks, carries a forward p/e ratio of 21.362. The S&P 500 equal weighted index carries a forward p/e ratio of 14.783. This tells us there are many quality companies that are relatively undervalued. The Magnificent 7 and ‘quality’ do align as the nickname implies. However, we think overconcentration in these mega cap stocks can lead to positive but underwhelming performance in 2024.

1 https://fred.stlouisfed.org/series/DFF
2 https://ycharts.com/indicators/sp_500_pe_ratio_forward_estimate#:~:text=S%26P
%20500%20P%2FE%20Ratio%20Forward%20Estimate%20(I%3ASP500PNQ)&text=S%2 6P%20500%20P%2FE%20Ratio%20Forward%20Estimate%20is%20at%20a,11.90 %25%20from%20one%20year%20ago.
3 https://www.invesco.com/us/financial-products/etfs/product-detail audienceType=investor&ticker=rsp
4 https://www.blackrock.com/us/financial-professionals/insights/weekly-commentary

2023 IRA Contribution deadline

For most, the deadline for 2023 IRA contributions is April 15th, 2024. If you would like one of our advisors to consult with your CPA to determine if it’s beneficial for you to contribute, we are more than happy to do so.

For 2023, as a single filer, your modified adjusted gross income (MAGI) must be under $153,000 to contribute to a Roth IRA. As a joint filer, it must be under $228,000. If you are over the income limits give us a call to discuss a possible “backdoor” Roth IRA and if it’s beneficial for you.

Marginal rates

For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

The other rates are:

35% for incomes over $243,725 ($487,450 for married couples filing jointly)
32% for incomes over $191,950 ($383,900 for married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)

The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024

https://www.whitecoatinvestor.com/retirement-plan-contribution-limits/

Should You Work Until You're 70?

More and more, the targeted retirement age for many people is 70, for numerous reasons. A U.S. News and World Report article, Why You Should Plan to Work Until Age 70, has some excellent information that may be useful for younger and older workers alike.

Contrary to what you may be thinking, it’s common for some people to work until 70 or older for reasons completely unrelated to finances.

Read More

Penne Ham Skillet

Looking for leftover ham recipes? This Ham & Penne Skillet is the perfect one to use! It has diced ham, penne pasta and peas in a creamy sauce. It makes a quick and easy meal when you're wondering what to make with leftover ham! Plus, the kids love it and so do adults. Throw this in your pot and make it tonight for dinner. 
 

Get Cooking!

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Investment advisory services offered through Alternative Investment Advisors, LLC. (AIA), an SEC Registered Investment Advisor. AIA and its advisors do not render tax, legal or accounting advice. Fixed insurance products and services are offered through Swenson Wealth Management. Swenson Wealth Management is not a registered investment advisor and is not a subsidiary or affiliate of Alternative Investment Advisors, LLC. Swenson Wealth Management and their individually licensed and appointed insurance agents, and AIA are not affiliated with or endorsed by the Social Security Administration or any government agency.

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