Following several years of strong positive returns, the U.S. equity market ended the year essentially flat. Although overall performance on the year was muted, major stock indices were volatile, reaching new highs in May and suffering a steep correction in August. For the year, the Dow was up a modest 0.21%, the S&P 500 gained 1.38%, international developed markets were down 0.81% and emerging markets were down 16.96%. Among the strongest market sector performers in 2015 were Consumer Discretionary and Health Care. Consumer spending benefited by the drop in energy prices, while Health Care saw corporate actions such as restructurings, mergers and acquisitions. Energy was the worst performing sector, driven in large part by the dramatic drop in oil prices, which continue to be under pressure from increased supply.
The U.S. dollar has strengthened significantly relative to other currencies, putting downward pressure on global commodity prices and resource-based economies. The major economic story for the fourth quarter was the Fed’s decision to raise interest rates. Although concerns remain and the Fed continues to keep short-term interest rates at very low levels, the question has now moved to how quickly those rates will increase – and that depends on the continued improvement of the economy.
While Europe and Japan are battling deflationary pressures and stagnant growth, and China is managing transitions of economic growth and reform, the U.S. economy remains one of the world’s few major economies in a cyclical upswing. The U.S. economy is solid, and the trends are good. Risks are omnipresent, but with a solid foundation we should be well positioned to overcome challenges. As always, a long-term perspective and diversified portfolio remain the best ways to take advantage of investment opportunities and overcome risks.
2016 EMPLOYER PLAN & CONTRIBUTION LIMITS
– $18,000 for 401(k)
– $24,000 for 401(k) with catch up contributions
– $265,000 Maximum Annual Compensation
– $53,000 Maximum Annual Individual Limit
– $120,000 Compensation Definition for Highly Compensated Employee
DEALING WITH VOLATILITY IN THE MARKET
Conventional wisdom says that what goes up must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when it’s your money at stake. The important thing to remember is that market volatility is inevitable. It is the nature of the markets to move up and down over the short-term.
Volatile markets are characterized by wide fluctuations and are often caused by economic releases, company news or unexpected earnings results. It is clear there is no consensus on what causes volatility, however because it exists investors must develop ways to deal with it. The right approach during all kinds of markets is to be realistic and tune out the distractions. Have a plan, stick with it, and strike a comfortable balance between risk and return. Diversifying your investment portfolio is one of the key ways you can handle market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of different investments such as stocks, bonds and cash alternatives has the potential to help manage your overall risk.
It is also important to focus on the forest, not on the trees. As the market goes up and down, it’s easy to become focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio.
REQUIRED RESTATEMENT OF ALL DEFINED CONTRIBUTION PLANS
The Pension Protection Act (PPA) and subsequent legislation have made numerous changes to the rules governing tax-qualified retirement plans. While those changes have already been reflected in separate amendments to our client’s plans, procedural rules established by the Internal Revenue Service (IRS) require that all defined contribution plans, including 401(k), profit sharing and money purchase plans, be completely restated to incorporate all changes. The restatement deadline is April 30, 2016. If a plan is not timely restated, its tax qualified status will be jeopardized. This could result in serious adverse tax consequences to business owners, their companies and their employees. Our firm is in the process of restating our client’s defined contribution plans. As part of our restatement process, we review each plan’s design to ascertain that the plan optimally achieves the business owner’s financial and employee benefit objectives. If you would like us to prepare a PPA plan restatement or need further information please call us.
Please call Pension Parameters to discuss your portfolio questions: (212) 675-9360 OR (732) 583-1313