Big Numbers

Big Numbers!

(Jump to the bottom for this year’s updated tax and contribution limits!)

Now that 2022 is squarely behind us, we can take a look at the final results. All major indexes were down in 2022, with the largest decliner being the tech-heavy Nasdaq, closely followed by long-term Treasury bonds. In fact, it was the worst year on record for long-term bonds. Here is the breakdown of the major indices performance for 2022:

SP500: -18.1%

Nasdaq: -32.5%

Russell 2000: -20.5%

Barclays Aggregate Bond Index: -13.11%

30 Year Treasury Bonds: -32.3%

Rising interest rates caused by high inflation were largely to blame for the poor performance of both the equity and bond markets. The value of diversification broke down, however, as both stocks and bonds moved into negative territory.

Bright spots in 2022 included energy and utilities, the only two sectors of the SP500 that boasted positive returns. More notable was the explosion in interest rates on very short-term fixed income. Whereas bank deposits, CD’s and Treasury Bills eked out maybe 0.25% return prior to 2022, short-term, risk-free assets are typically yielding between 4.0%-5.0% today. Not all banks have caught up, however, so if you aren’t earning high interest on cash, it might be time to make a move.

While high interest rates are beneficial for cash, it has the double effect of keeping cash out of the markets. We often look at the market’s “risk premium”, or the added return one gets for investing in volatile market over and above the return on “risk-free” assets, namely Treasury Bills.

When treasuries are yielding next to nothing, it has the effect of driving money into the market and raising stock prices. However, when Treasury yields are close to 5%, it takes a bit more motivation to lure investors into the stock market. This has the effect of keeping P/E ratios lower and stock prices moving more slowly.

So where does that leave us heading into 2023? Certainly there are always opportunities available in the market. Inflation will eventually cool and the Fed will stop their aggressive interest rate policies. This leaves opportunity to take advantage of the current decline in long-term bonds. Likewise, the decline in technology stocks (Apple, Alphabet (Google), Meta (Facebook), Amazon and Netflix were all down ~40% or more in 2022) means that there are some good entry points in strong, long-term growth companies.

However, risk remains an important factor. Inflation can go on longer than most people expect, causing the Fed to continue to raise interest rates. The economy is also likely to continue to slow, leading to worry over a stock market recovery. That said, while the market is presenting some good long-term entry points, short-term money is best served by taking advantage of incredible short-term yields that are available.

As always, please contact us if you have any questions about your investments or strategy.

Finally, with inflation comes significant increases in contribution limits for 2023.

Below you will find the updated tax and contribution limits for this year:

Contribution updates:

·         Increased $500: IRA and Roth IRA: $6,500 ($7,500 with age 50 catch-up)

·         Increased $1500: Simple IRA: $15,500 ($19,000 with age 50 catch-up)

·         Increased $2,000: 401(k) and 403(b): $22,500 ($30,000 with age 50 catch-up)

·         Increased $300: Wisconsin 529 deduction: $3,860 (excess contributions can be carried forward)

In addition, some phase out and contribution limits for higher earning clients:

·         Increased $25,000: Annual compensation limit for defined contribution plans increased to $330,000

·         Increased $5,000: Total defined contribution limit is now $66,000

·         Increased $9000/$14,000: The beginning of the Roth IRA phase out is now $138,000 (single) and $218,000 (married filing jointly)

·         Increased $5000/$7000: The beginning of the Traditional IRA phase out when already covered by a retirement plan at work is $73,000 (individual) and $116,000 (married filing jointly)

The information given herein is taken from source that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities, LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but is not guaranteed by us as to accuracy or completeness. This is for information purposes only and in no event should be construed as an offer to sell or solicitation or an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP's express prior written consent.