Reflections on 2022 and What’s Ahead…
First, welcome to 2023. We wish our clients and partners a happy, healthy 2023. We have many great plans for the year, including a monthly (vs quarterly) newsletter. Also, be on the lookout for more podcasts and helpful resources.
Although 2022 was a difficult year for the markets, we think it’s important to take a step back and review the last ten years to put things in perspective. Prior to the COVID-19 pandemic, the past decade included the longest bull market in history after the financial crisis of 2008 and 2009. Then, the COVID-19 pandemic hit in 2020. Congress and the Federal Reserve (the Fed) provided a tremendous amount of stimulus to help businesses and families. Because inflation is high and persistent, in 2022 the Fed reversed course and we saw interest rates go up seven times. We suggest it is likely that the next ten years will look different than the past ten.
Last year wasn’t a great year for investment returns as all three major stock market indices saw their largest declines since the 2008 financial crisis. The technology heavy Nasdaq fared the worst, down over 32% for the year. The S&P 500 was down 18%. Aggressive interest rate hikes by the Fed to help tame inflation, the ongoing Russia-Ukraine war, and fears of a recession all contributed to the volatility. Bonds also struggled in the face of high inflation and historic interest rate hikes with the Bloomberg US Aggregate Bond Index (intermediate-term high quality core bonds) suffering its worst decline (-13%) since its inception in 1977. On the positive side, many investors also saw 2022 opportunistically with comprehensive tax planning, including the ability to do Roth conversions and harvest tax losses after the market declines.
We may see more market volatility in 2023 with the Fed set to continue raising interest rates and a possible recession (which may be the most anticipated recession in history) on the horizon. We may have the opportunity to take additional tax losses this year. Negativity and economic uncertainty, perpetuated to an extreme by the media, bring opportunities for long-term investors as the markets will eventually rebound. Much of the bad news may be priced in as markets are more forward looking. Bonds may offer more support this year to balanced portfolios than they did in 2022 with higher interest rates. We could retest the lows from last year, but history has shown that markets bounce back.
Other reasons to be optimistic include: 1) our financial system is in much better condition than during previous economic downturns, 2) corporate and consumer balance sheets overall are in good shape, 3) US unemployment has risen (and may continue to rise) but remains low on a historical basis, and 4) inflation may remain elevated for some time as supply chain issues continue.
As we enter 2023, we recommend doing the following:
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- Review and replenish your cash reserves
- Check the interest rate that you are getting on your cash accounts and talk with your wealth advisor to see if better options exist
- Review your expenses/overall budget and adjust as needed
- If working, take advantage of the higher contribution limits to retirement accounts
- Think through any changes that you may have with your short and/or long-term goals and discuss them with your wealth advisor
- Learn more about the SECURE Act 2.0 and whether opportunities exist for you
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SECURE Act 2.0
The SECURE Act 2.0 was signed into law on December 29th, 2022 and it includes important planning opportunities which we discuss at a high level here, and will cover in more detail in future communications. SECURE Act 2.0 includes the following:
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- Increased catch-up contributions to employer provided retirement plans between the ages of 60 and 63, starting in 2025
- Allowing IRA catch-up contributions to be indexed to inflation beginning in 2024 (beyond the current $1,000 annual catch-up limit)
- Increasing the age for required minimum distributions (RMDs) from 72 to 73, starting this year
- Allowing a new way to transfer funds from 529 plans to Roth IRAs (with considerable restrictions), beginning in 2024
- Allowing a Roth version of SEP and SIMPLE IRAs, beginning in 2023
- No changes to the backdoor Roth IRA conversion strategy
Spend Wisely in Retirement
We have all celebrated and/or lived through many of life’s BIG transitions – graduations, job changes, marriages, having kids, divorce, death of a loved one, becoming a loved one, etc.
All these major life events receive a lot of attention. In most cases there are parties, showers, gifts, flowers, weddings, and funerals to mark these milestones. In several cases, they are memorialized with legal documents, articles, and numerous books about them. And yet, for a number of people, there is one very important life event that often gets far less attention, retirement.
Everyone tells you that you need to get ready for retirement financially. What they rarely tell you is that you also need to get ready for retirement psychologically. Most of the available literature regarding retirement planning is on the financial and estate planning side of things, which is extremely important. Rarely addressed, however, is the psychology of what we will inevitably face in our retirement years. Dr. Riley Moynes has done some very interesting work on the 4 phases of retirement (Ted Talk – Dr. Moynes) that most people move through. In his work he discusses phase 1 as the vacation phase, phase 2 as the feeling of loss and being lost, phase 3 as the time of trial and error, and phase 4 as squeezing the juice out of retirement.
Dr. Moyne’s work prompts us to recognize that retirement is more than a mere transition from the daily grind to a life of leisure. It is a major turning point in our professional, personal, and spiritual relationships. It also has a huge impact on our relationship with money.
For most of us, we have spent decades working very hard, saving, investing, and mostly watching as our money has grown. In retirement, we eventually flip a switch and begin spending those hard-earned assets. The decades of good habits we formed during our working years to save and invest can now turn against us and hold us back from enjoying the fruits of our labor.
In our work at Stephens Wealth Management Group, we have the pleasure and opportunity to ask the question: “What does money mean to you?” Often the answer is a variation of; “It means I get to live my life.” Money is permission to live your life on your terms, and we get the pleasure of assisting our clients in granting themselves permission to spend that money vs merely trying to save and manage that money.
As Dr. Moynes reminds us, “squeezing the juice out of retirement” can sometimes be a difficult journey and like most difficulties, making this shift in mindset isn’t easy. Money is freedom, it gives meaning, it gives the power to improve our lives and our wellbeing as well as the lives and well-being of others. Spending it requires learning a new skill; the ability to spend without feeling stress or anxiety. Spend some time planning how you will spend your money. Spend it wisely, but please, do spend it. Let’s leave nothing to chance.
Community Conscious
December brought several opportunities for the team to give back to the community. 
We made our annual donation to the Food Bank of Eastern Michigan, an important and beloved community resource. We had a great time brainstorming a theme for, decorating, and delivering a Christmas Tree to the Flint Farmer’s Market at an event sponsored by the Junior League of Flint. Our theme was Flint – Vehicle City and the tree was purchased by Market Tap.
We also adopted a family in collaboration with The Fenton Center of Hope. It was a
team effort to find items on their wish lists, wrap the packages, and deliver them. The Fenton Center of Hope was able to provide gifts to over 200 kids this year.
Books, Books and More Books
Client Service Lead, Kari Harber, is an avid reader. In addition to raising her three kids, one completing her degree at CMU, one playing football for Vanderbilt University, and a third attending Montrose High School, she read 100 books in 2022. We asked her to share a list of her top 5 books from the year in case you need a suggestion or two:
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- Daisy Jones & the Six – Taylor Jenkins Reid
- Anxious People – Fredrik Backman
- Small Great Things – Jodi Picoult
- If You Tell – Gregg Olsen
- Greenlights – Matthew McConaughey
- We said five, but are adding a sixth, The Psychology of Money by Morgan Housel. The first person to send us an email (info@stephenswmg.com), with the subject “newsletter,” will receive a complimentary copy of the book.
*Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Stephens Consulting, LLC, doing business as Stephens Wealth Management Group (SWMG), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Stephens Consulting. Please remember that if you are a SWMG client, it remains your responsibility to advise us, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SWMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SWMG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Links are being provided for information purposes only. SWMG is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. SWMG is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.
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