Investment Commentary – November 27, 2018
Year to Date Market Indices as of Market Close November 27, 2018
Dow 24,748 (0.12%)
S&P 2,682 (0.32%)
NASDAQ 7,082 (2.60%)
Gold $1,220 (-8.79%)
OIL $52.09 (-9.69)
Barclay Bond Aggregate (-1.96%)
Fed Funds Rate 2.25% (last increase was 9/26/18)
Stocks close higher as gains for defensive sectors outweigh U.S.-China trade jitters
Stocks bounced back from early losses to close higher Tuesday as gains in so-called defensive sectors helped to offset anxieties that a near-term resolution to trade tensions between the U.S. and China remain elusive.
How did benchmarks fare?
The S&P 500 index SPX, +0.33% climbed 8.75 points, or 0.3%, to end at 2,628.20 with healthcare, consumer staples and utilities, which are favored during times of economic uncertainty, among the biggest gainers.
The Dow Jones Industrial Average YMZ8, +0.71% rose 108.49 points, or 0.4%, to 24,748.73 and the Nasdaq Composite Index COMP, +0.01% added 0.85 point to 7,082.70.
What drove the market?
President Donald Trump told The Wall Street Journal, in an interview published late Monday, that it is “highly unlikely” that he would accept Beijing’s request to hold off on increasing tariff rates on Chinese goods from the beginning of January 2019, raising some doubts about prospects for a detente between the world’s two largest economic superpowers when Trump and Chinese President Xi Jinping meet in Buenos Aires later this week. The pair are set to discuss trade on the sidelines of a meeting of the Group of 20 nations.
Trump said that if talks with his Chinese counterpart don’t go well that he could put tariffs on the rest of Chinese imports that are currently not subject to duties. “If we don’t make a deal, then I’m going to put the $267 billion additional on” at a tariff rate of either 10% or 25%, he told the newspaper.
Animosities over trade between the U.S. and China have been among the central concerns for investors recently because an intensification of hostilities could precipitate a slowdown in China and the rest of the world.
How fixed indexed annuities can help take the sting out of health care costs
We all know that a dollar doesn’t buy what it used to. That’s especially true of health care.
Any way you look at it, a person’s future health is one of retirement’s biggest “unknowns.” Because no one knows how well they’ll age, it’s hard to estimate how much they’ll spend on insurance premiums, deductibles, prescription drugs and nursing care.
One thing is for sure, however. Whatever it costs today, it will cost more tomorrow. In fact, according to HealthView Services, a maker of health care cost projection software, health care costs are expected to rise about 5.5 percent per year for the foreseeable future. That far outpaces the U.S. inflation rate of 2.1 percent in 2016 and 2017, and significantly exceeds Social Security’s projected annual cost-of-living adjustment of 2.6 percent.
Consider these total lifetime out-of-pocket cost projections for health care:
Retiring at age 65 Total Cost Present Value Total Cost Future Value
Retiring at 65 $404,253 $607,662
55-year-old couple $498,962 $1,010,223
45-year-old couple $635,142 $1,730,774
Health care costs include Medicare Parts B and D, Medicare Supplement Insurance Premiums, Dental Premiums, out-of-pocket expenses and inflation. Calculations assume that a healthy male and female will have life expectancies of 87 and 89 respectively, and will have a combined future modified adjusted gross income (MAGI) of under $170,000.
Fixed indexed annuities can help manage the rising cost of care.
Managing the health care cost spiral without depleting assets is a big challenge for retirees. Fixed indexed annuities can help. They can provide a way to manage expenses people know they’ll have, while giving them the flexibility to meet future needs.
A “retirement paycheck” that’s guaranteed for life
Lifetime withdrawals from an income or benefit rider can provide a guaranteed stream of income for predictable expenses like premiums, copays, dental and vision care. Keep in mind that rider payout factors increase with age, and the value of the benefit base typically increases the longer the contract is held.1
Protection and growth potential
A fixed indexed annuity’s indexed crediting strategies earn interest based in part on the upward movement of a stock market index.2 The annuity’s Accumulated Value is protected from loss due to market downturns. This combination of protection and growth potential can be important when considering costs that are likely to increase regardless of economic conditions.
Access to money with annual free withdrawals
Most fixed indexed annuities allow a yearly free withdrawal amount without having to pay a Withdrawal Charge or Market Value Adjustment where applicable.3 Required Minimum Distributions are IRS mandatory withdrawals and are generally considered part of the free withdrawal. Keep in mind that withdrawals in excess of the free amount will reduce a rider’s Lifetime Income Withdrawal amount.
Most fixed indexed annuities offer confinement provisions, either as a waiver of withdrawal charges in the base contract or as a rider benefit. Rider benefits typically provide a significant increase in the Lifetime Withdrawal amount for a set period if certain conditions are met. While not the same as long-term care insurance, these provisions can help defray the cost of care in a nursing home or other Qualified Care Facility. Hybrid annuities that offer long-term care benefits are also available.
It’s important to consider all expenses as well as income and retirement goals. Annuities as a retirement savings solution can help people achieve the retirement they’ve always
It’s important to consider all expenses as well as income and retirement goals. Annuities as a retirement savings solution can help people achieve the retirement they’ve always dreamed of.
Guarantees provided by annuities are subject to the financial strength of the issuing insurance company.
1 Lifetime Income Withdrawals may be reduced or may stop if you take Excess Withdrawals from your contract. If Excess Withdrawals, Withdrawal Charges or MVAs reduce the contract’s Accumulated Value to zero, your Lifetime Income Withdrawal Payments will stop and the applicable rider will terminate.
2 Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. An index may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.
3 Withdrawals and surrender may be subject to federal and state income tax and, except under certain circumstances, will be subject to an IRS penalty if taken prior to age 59ó. Withdrawals are not credited with index interest in the year they are taken. Withdrawals in excess of the free amount are subject to a Withdrawal Charge or MVA which may result in the loss of principal if taken during the first specified years of the contract. Withdrawals are based upon the Accumulated Value of the last Contract Anniversary.
Around the web
GDP ahead: One of this week’s most closely watched reports is likely to be Wednesday’s update of third-quarter GDP growth. The government’s initial estimate in late October pegged last quarter’s growth at 3.5%—down from the second quarter’s strong 4.2% pace, but slightly above most economists’ expectations.
Bitcoin crash: Volatility continued to roil the cryptocurrency market, as the value of bitcoin sank to around $4,000—a decline that came just a week after the price fell below $6,000 for the first time this year. Bitcoin has plunged more than 78% below its record high of about $19,000 reached last December.
Solid economy: Many U.S. economic indicators continue to point in a positive direction, despite the recent market sell-off. On Wednesday, the Conference Board Leading Economic Index for the U.S. posted a small monthly gain compared with the prior month, and it remained at a level that historically has suggested a low probability of a near-term recession.
Fed under pressure: Market turmoil is focusing more attention on the U.S. Federal Reserve heading into its next policy meeting on December 18–19. Some Fed leaders have recently signaled that they plan to proceed with their fourth interest-rate increase of the year, despite calls from President Trump and others to slow the pace of rate hikes. ggested a low probability of a near-term recession.
The Markets 10 years ago vs. today
DOW 8,726/24,748 (+183.6%)
S&P 500: 887/2,682 (+202%)
Nazdaq: 1,532/7,082 (+362%)
Other Notable Indices (YTD)
Russell 2000 (small caps) -0.86
EAFE International -9.65
Emerging Markets -15.70
Shiller Annuity Index 3.58
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.