Data Point– Fewer Shipping Containers Arriving at U.S. Ports

This month’s chart explores an alternative dataset, the number of shipping containers coming into U.S. ports. Alternative datasets like this are often used by institutional investors, such as hedge funds, to identify patterns and trends that may not be visible in traditional economic datasets. Why are shipping containers relevant? The volume of loaded container imports can act as a predictor of upcoming economic activity, as they represent expected demand for goods, which is closely connected to consumer spending and overall economic growth.

Figure 1 graphs the total loaded container imports across six major U.S. ports every month for the last five years. The years 2018 and 2019 establish a pre-pandemic baseline, including seasonal trends, for monthly container imports. Container volumes were normal in January 2020 but then plunged in February and March and remained weak for multiple months as the pandemic shut down the global economy. Import volumes rebounded in the second half of 2020 as the economy reopened and remained above-average in 2021 as consumers spent heavily on goods. Container volumes peaked in May 2022, but since then, have declined in seven of the last nine months. February 2023’s import volume was the third lowest month in the last five years, behind only February and March 2020 in the early months of the pandemic.

What is the data telling us? Fewer container imports indicate the economy is reverting to pre-pandemic norms. This drop could help alleviate supply chain bottlenecks and ease inflationary pressures, a positive development after inflation rose to a 40-year high during the pandemic. In addition, the decline in container imports may provide insight into upcoming economic trends. Businesses typically import less goods when demand is anticipated to decline, and declining imports could be an indication that businesses expect economic activity to slow. The question is whether the drop in shipping container volume is related to seasonal trends or the Federal Reserve’s interest rate hikes, which are designed to ease inflation by reducing demand.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

1Q 2023 Recap & 2Q Outlook

Financial Markets Start 2023 Strong But End the First Quarter on a Question Mark

First quarter economic data showed the U.S. economy entered 2023 with considerable momentum, even in light of the Federal Reserve’s interest rate hikes throughout 2022. Fourth quarter 2022 GDP data showed the U.S. economy grew at a +2.6% rate. The growth was largely driven by a resilient consumer, inventory restocking, and increased government spending, while businesses cut back their spending and the housing market remained weak. Additional economic data in Figure 1 highlights the broad economic trends. Jobs remain plentiful with job openings significantly above pre-pandemic trend, inflation is easing, and consumer spending remains above trend. The data shows growth is normalizing as the economy returns to its pre-pandemic trend but suggests the economy is withstanding higher interest rates thus far.

Financial markets turned rocky during the last month of the quarter. Three regional banks failed, and the U.S. Treasury bond market became more volatile as investors debated whether the Federal Reserve would continue to raise interest rates against an uncertain backdrop. This quarter’s recap discusses recent bank failures, including concerns about financial stability, and provides an update on year-to-date stock and bond returns.

Regional Banks Fail After Sudden Withdrawal Spree

Three regional banks failed in March as the banking industry faced a crisis of confidence and customers quickly withdrew deposits. The top chart in Figure 2 (next page) shows deposits at U.S. commercial banks rose from $13.2 trillion at the end of 2019 to a peak of $18.1 trillion in April 2022 as businesses and individuals flooded banks with new deposits during the pandemic. More recently, deposits at commercial banks decreased in 9 of the last 12 months. The bottom chart in Figure 2, which graphs the change in bank deposits from peak levels, shows total U.S. commercial bank deposits have declined -$607 billion since April 2022. The decline marks the biggest banking sector deposit outflow on record and is starting to stress bank balance sheets.

To meet withdrawal requests, banks maintain a portion of their assets as liquid reserves, such as government bonds and commercial paper, that can quickly be converted to cash. If banks exhaust the liquid reserves, they can either borrow from other banks and the Federal Reserve or sell assets, such as their bond holdings. This basic process helps explain why three banks failed.

Depositors overwhelmed the banks in early March with withdrawal requests. The banks exhausted their liquid reserves, could not obtain loans from other banks or the Federal Reserve in a time-efficient manner, and were forced to sell their most liquid assets, which consisted of U.S. Treasury bonds and mortgage-backed securities. The problem for the banks is interest rates are significantly higher than when the banks bought the bonds, and the bonds are now worth less. When the banks sold the bonds, the were forced to realize billions of dollars of losses, which drained their capital cushions and made them technically insolvent. State banking regulators and the FDIC immediately stepped in to take over the failed banks and protect depositors.

These recent bank failures have raised concerns about financial stability and drawn comparisons to 2008. However, there are important differences from 2008, including both regulatory changes and the causes of insolvency. Banking reforms after the 2008 crisis strengthened the overall financial system, and higher capital requirements now provide banks with a more robust financial cushion. In addition, regulators now possess greater authority to resolve issues in large, failed banks in order to avoid chaotic situations like the Lehman Brothers bankruptcy. In terms of cause, the 2008 crisis was primarily triggered by bad loans and complex securities. In contrast, recent bank failures resulted from the Federal Reserve’s rapid interest rate increases, which created paper losses for banks that made loans or purchased bonds at lower interest rates.

Navigating the Volatile Interest Rate Landscape

The Treasury market is experiencing more volatility and illiquidity because of conflicting signals about the strength of the U.S. economy and the Federal Reserve’s policy plans. Solid economic data in January showed the U.S. economy coping well with rising interest rates, suggesting the Federal Reserve may need to do more than anticipated to ease inflation. During early March congressional testimony, Federal Reserve Chair Jerome Powell spooked markets by suggesting the central bank would need to raise interest rates higher than initially thought and then keep interest rates higher for longer. The warning caused Treasury yields to rise and bonds to trade lower. Less than one week after Powell testified, multiple regional banks collapsed, causing worries about the U.S. financial system’s stability. Treasury yields reversed course and declined, causing bonds to trade higher. The two conflicting themes have resulted in wild price swings in the usually quiet Treasury market as traders place bets on the likelihood of future rate cuts.

Figure 3, which graphs the rolling 2-day percentage change in the 2-year U.S. Treasury yield, shows the recent spike in volatility. Taller bars indicate the 2-year Treasury yield experienced a bigger 2-day move. The chart looks like a heartbeat over the past 12 months, going up and down with occasional volatility as markets responded to new information. However, the far right of the chart shows a spike in both directions recently. The 2-year yield plunged -0.87% on March 13th after two regional banks failed over the weekend, its biggest 2-day decline since the Black Monday stock market crash in October 1987. After banking regulators took over control of the banks and the Federal Reserve introduced lending programs to stabilize the banking sector, the 2-year yield surged +0.35% on March 21st.

What is causing the volatility? Investors now fear the Federal Reserve faces a tough set of choices. The central bank must balance bringing inflation under control with minimizing damage to the U.S. economy. One factor complicating the central bank’s task and contributing to interest rate volatility is the lagged effect of monetary policy – it is difficult to model how 2022’s interest rate hikes already have and will impact the economy. As a result, there is little consensus inside the Federal Reserve on the path of monetary policy. The central bank’s Summary of Economic Projections, which provides forecasts for key economic indicators and offers insights into the future direction of monetary policy, shows a wide range of interest rate projections. Projections for interest rates at the end of 2024 range from 3.4% to 5.6%, while the 2025 projection range is 2.4% to 5.6%. With even the Federal Reserve uncertain about policy, interest rates could remain volatile in the coming quarters.

How does the volatility impact businesses, consumers, and investors? Treasury securities are considered safe-haven assets, used as collateral for loans and other debts, and serve as a benchmark for pricing other financial securities, such as corporate and municipal bonds, mortgages and other asset-backed securities, and money market instruments. Increased volatility and illiquidity can disrupt the flow of credit, making it more challenging to price loans and various other financial products. While current volatility is linked to uncertainty about Federal Reserve policy rather than financial system stress, the risk is interest rate volatility spreads to other corners of financial markets. For businesses and consumers, this could mean higher financing costs and more difficulty obtaining loans. For investors, this could mean borrowers are unable to refinance their maturing bonds and end up defaulting on their principal and interest payments.

Equity Market Recap – A Reversal in Performance Trends During the First Quarter of 2023

Stocks traded higher in January before giving up some of their gains in February and March. The S&P 500 Index of large cap stocks ended the first quarter up +7.4%, outperforming the Russell 2000 Index’s +2.7% return. Most of the S&P 500’s relative outperformance occurred in March as investors de-risked their portfolios following the bank failures. There was also a sizable shift in factor performance during the first quarter. The Russell 1000 Growth Index gained +14.3%, outperforming Russell 1000 Value’s +0.9% return. Like the S&P 500, the Growth factor’s relative outperformance occurred in March after the bank failures. Growth stocks tend to be higher quality businesses with stronger fundamentals, and recent bank failures may have motivated investors to rotate into higher quality companies. Regardless of the cause, Growth’s outperformance is a significant change from 2022 when the Federal Reserve’s interest rate increases weighed on expensive stock valuations.

The Growth vs Value performance reversal also shows up in first quarter sector returns, with Growth-style sectors outperforming. Figure 4 is a scatterplot that compares each sector’s 2022 return (vertical y-axis) against its first quarter 2023 return (horizontal x-axis). In general, the worst performing sectors in 2022 are the top performing sectors in 2023, while 2022’s top performing sectors are broadly underperforming to start 2023. Beyond the year-to-date performance reversal, there was no obvious preference for defensive or cyclical sectors.

Turning to global markets, international stocks posted positive returns during the first quarter. The MSCI EAFE Index of developed market stocks gained +9.0%, outperforming the MSCI Emerging Market Index’s +4.1% return. Europe was the top performing international region and boosted developed markets’ performance. The region managed to avoid a major energy crisis during the winter months thanks to unseasonably warm weather and efforts to secure alternative natural gas sources after Russia cut off most of its supply. Short-term gas prices have fallen from record highs, preventing severe shortages and rationing, although utility bills remain high. In Asia, all eyes remain on China as the country reopens after relaxing its Covid-zero restrictions. The reopening is expected to boost China’s economy, and potentially the global economy, but it is unclear how strong or lasting the growth will be.

Bond Market Recap – Riskier Bonds Underperform Due to Concerns About Refinancing Risk

Bonds traded in both directions during the first quarter, initially trading higher in anticipation of the end of the tightening cycle before trading back lower as the Federal Reserve hinted at higher interest rates for longer. Corporate investment grade bonds ended the first quarter with a +4.6% total return, outperforming corporate high yield’s +3.7% total return. Like equities, investment grade’s outperformance primarily occurred in March after bank failures raised concerns of increased default risk.

Tighter bank lending standards are becoming a concern in credit markets. For perspective, banks aggressively tightened lending standards during the last 12 months in anticipation of the Federal Reserve’s interest rate hikes slowing economic growth. With recent bank failures causing banks to question the stability of checking deposits, there is a risk that banks will adopt a more cautious approach to lending and reduce the total amount of credit they offer. The decreased credit supply and access to credit could have a domino effect, impacting the economy and financial markets over time. Borrowers, specifically high-yield issuers, could default on their debt if it becomes difficult and too expensive to refinance their maturing loans. Credit markets will be watching for signs of refinancing stress in the coming months.

Second Quarter Outlook – Back to the Fundamentals

The outlook is indecisive as financial markets close out the first quarter of 2023. Some investors believe the Federal Reserve’s actions will slow economic growth and tip the U.S. economy into a recession. This group points to recent bank failures as a warning sign that higher interest rates will have a negative impact. In contrast, some investors believe the U.S. economy is strong enough to withstand the Fed’s actions. This group points to first quarter economic data as a sign of strength and banking regulators’ actions as an indication the U.S. financial system is functioning as intended.

The back and forth is likely to continue until some of the market’s most pressing questions are answered. Key questions include the direction of Federal Reserve policy, the stability of the U.S. banking sector, inflation’s stickiness, corporate earnings growth, and the strength of the U.S. economy. Our team will be monitoring the answers to these questions in coming months to help guide investment portfolio positioning, with first quarter earnings season scheduled to start in mid-April.

As we have mentioned previously, the current investing environment requires a long-term outlook. Trend changes are frequent, fast, and driven by fluctuating market headlines, and keeping up with the day-to-day whims of the market can be emotionally taxing. Developing a financial plan and sticking to it are important steps to achieving your financial goals. Do not hesitate to reach out to our team if you have any questions or concerns about your financial plan or situation.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Putting Context Around Recent Stock Market Volatility

Stock market volatility is rising this year after a relatively calm 2021. Financial markets are experiencing bigger moves up and down as investors navigate a long list of events, including Federal Reserve interest rate hikes, heightened geopolitical risk, and 40-year high inflation readings. This month’s chart provides historical context around stock market volatility and discusses how to think about your portfolio during periods of increased volatility.

Figure 1 charts the S&P 500 Index’s daily price return since 1970 and overlays the top 30 and bottom 30 days. There are two important takeaways. First, the best and worst trading days historically occur in clusters. Second, timing the market is almost impossible due to the close proximity of good and bad days. As an example, earlier this month the S&P 500 registered its 15th biggest daily return since 1970 after the latest inflation data suggested price pressures may be easing. The +5.5% S&P 500 return on November 10th followed volatile trading during September and October and demonstrates how market volatility occurs in groups.

What can you do to improve the chances of achieving your long-term goals? As always, our team recommends staying balanced and diversified. Different asset classes react to market conditions in different ways. Diversification spreads your investments around so your exposure to, and the potential impact from, any one type of asset is limited. More importantly, focus on the long-term rather than day-to-day price swings. History indicates lengthening your time horizon increases the odds in your favor. Should you have any concerns around market volatility, don’t hesitate to reach out to our team.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Providing Context on Recent Market Volatility

Monthly Market Summary

  • The S&P 500 Index returned -4.1% during August, underperforming the Russell 2000 Index (-2.0%) for a second consecutive month.
  • Energy (+2.7%) was the top-performing S&P 500 sector during August despite oil prices falling -9.7%. Utilities (+0.5%) was the only other sector to produce a positive return. Technology (-6.2%) was the worst performing sector as interest rates rose, followed closely by Health Care (-5.8%) and Real Estate (-5.6%).
  • Corporate investment grade bonds generated a -4.4% total return, slightly underperforming corporate high yield bonds’ -4.3% total return.
  • The MSCI EAFE Index of global developed market stocks returned -6.1% during August, underperforming the MSCI Emerging Market Index’s -1.3% return.

Stock & Bond Markets Endure a Bumpy August After July’s Gains

The S&P 500 produced a -4.1% return during August, but the headline number doesn’t tell the full story. Equity markets initially rallied during the first half of the month, with the S&P 500 gaining +4.2% through August 16th as July’s market rally continued. However, the second half of August marked a sharp reversal as the S&P 500’s gave back all its gains plus more. Credit markets also experienced a reversal during August as interest rates reversed higher and bonds produced negative returns. The increased volatility across stock and bond markets is being attributed to a wide range of investor views creating a tug of war effect in markets, as well as uncertainty regarding how long the Federal Reserve will continue to raise interest rates.

Federal Reserve Chair Pushes Back Against Hopes for Policy Pivot

The Federal Reserve held its annual August Jackson Hole meeting, and Chair Powell used his speech to forcefully push back against the notion the Fed will pivot and cut interest rates if economic data starts to weaken. Powell emphasized the central bank’s “overarching focus right now is to bring inflation back down to our 2 percent goal” and cautioned, “Reducing inflation is likely to require a sustained period of below-trend growth … [and] will also bring some pain to households and businesses.”

Investor hopes for a Fed pivot were one of the primary catalysts that propelled the stock market higher during July and August. Chair Powell’s speech dashed those hopes and sent the S&P 500 down more than -3% on the day of his speech. Why? Two lines from Chair Powell’s speech underscore the Fed’s goal, “There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.” This focus on lowering demand for goods and services may increase portfolio volatility during the months ahead as investors debate how long it will take the Fed to achieve its goal and the impact tighter policy will have on the economy.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Required Minimum Distributions – Not Required This Year But Should You Take It?

We recently saw a humorous quote stating that they “missed precedented times.” 😊 That is so true as we come near the end of 2020. There will be plenty of reflection that occurs for years to come. Hopefully, many good things can be remembered. 

November is an excellent time to think about pre-planning. It’s a great time to look at strategies for reducing taxes before December 31st. Every year at this time we start talking with clients about their required minimum distributions (RMD). By definition, this is the amount of money that must be withdrawn from a traditional, SEP, or Simple IRA account and qualified plan participants of retirement age. The original starting age was 70 ½ and has now been changed to age 72. Earlier this year, Congress waived the required minimum distributions. 

Even though participants do not have to take it, here are a few reasons some may consider it: 
• Low income and low tax bracket – If your income for 2020 is in a low tax bracket, it may be wise to consult with your accountant and see how much money can be withdrawn from your tax deferred account with little or no taxes at all. If the funds are not needed for spending, then they can be transferred into a brokerage account and managed. If every year for your tax return you pay no taxes at all, then this might be something to investigate. 
• Converting funds to a Roth – There are times where taking funds from the IRA and converting them to a Roth is extremely beneficial and this year may be the best time. When funds get converted, they show as income but stay in a retirement account and grow tax free. In traditional years, a Roth conversion is not allowed for RMD. In addition, those funds can then be withdrawn tax free if the Roth has been opened for 5 years or more. 
• A known increase in taxes next year – If there is a known increase in income such as a sale of a business, an expected pay increase, or the potential of rental income from a property for 2021 and it will influence the tax bracket, then taking the RMD this year may be best.
• A higher RMD next year – If it is expected that the RMD is going to be much higher next year because none was taken this year, this is another reason.  As a reminder, the RMD for each year is based off the December 31st value from the previous year and then it is calculated.  

These are only a few reasons why taking the RMD could be considered.  As always, we encourage you to consult with your accountant and your advisor to collaborate and come up with your best tax option for 2020. 

At PFG Private Wealth Management, we thank you for your trust in us and encourage you to be safe. 

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.  Insurance products and services are offered and sold through individually licensed and appointed insurance agents.