CELEBRATING 30 YEARS

This year we celebrate 30 years since Horizon Financial Advisors opened its doors in the Jonnet Building in Monroeville, Pennsylvania. George Hebert and Laura Abbott DeCarolis began working together in the late 1980s as annuity representatives for Horizon Savings and Loan. In 1990 when the bank was taken over by the RTC, George and Laura left to launch their own company. Soon thereafter, Horizon Financial Advisors became an independent, full-service financial services firm offering financial planning, investment management, and general advisory services to its clients.

By becoming an independent firm, we were able to offer more products and services to our existing annuity clients. Additionally, with referrals from our clients, the company continued to grow. Today, we have over 600 households located all over the United States and serve as the advisor on a number of corporate 401(k) plans.

We have also increased our staff in order to continue offering responsive service to our clients. We operate using a team approach. George and Laura serve as advisors, along with Mike Satler who joined our team five years ago. Mike also serves in helping to manage our clients’ portfolios. Suzanne Satler is our Client Service Representative for the mutual fund and brokerage accounts, while Sharon Balestra is our Client Service Representative for our annuity and insurance policies. Lastly, Darcy McVay is our Administrative Assistant.

We are proud of what we’ve accomplished over the years and how we’ve done it. We have always put our clients’ best interests first. As financial advisors, our goal has always been to align our recommendations with our clients’ goals and risk tolerance and to help them gain peace of mind when it comes to their financial lives. We’ve always felt it important to be readily accessible to our clients. That is why we have a larger support staff than many advisory firms. Even though we have voice mail, we always intend to personally answer when you call so you can avoid navigating through a phone menu. But if you should get our voice mail, we’ll be sure to call you back promptly.

We would like to take this opportunity to thank all of you, our valued clients, who have contributed to our success, for your continued business and the referral of your family and friends. To celebrate this milestone and as a fun way of saying thank you, we will have a raffle each month for gifts. By now, each of you should have received our anniversary announcement with an enclosed raffle ticket. (We kept the stub of your ticket with your name on it.) On the 20th of each month throughout the year, we will randomly pull raffle tickets to determine that month’s winners. Darcy will contact all winners by phone.

We look forward to working together with you, your family, and your friends as we head into this new decade.

A NEW LAW BRINGS CHANGES TO IRAs

The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on Friday, December 20, 2019. We first learned of the news when we returned from the Christmas holiday. We were aware of the Act since the House passed it earlier this year and sent it on to the Senate. But we were surprised that action was taken before the end of the year. The law becomes EFFECTIVE January 1, 2020. Here are the major changes:

It is important to point out that those who have already turned 70-1/2 or inherited an IRA in 2019 or earlier will NOT be affected by these changes. More details on the above or additional changes brought about by the law will follow as they become available.

MARKET OUTLOOK

Late in 2018 a trade war between the U.S. and China commenced. Stocks plunged nearly 20% in the fourth quarter of 2018. The close of 2018 saw the S&P 500 index record its lowest annualized return for any 20-year period since the Great Depression. The uncertainty from the trade war and slowing global growth had posed risks to the U.S. economy. The fear of a U.S. recession began to loom. As a result, and as a defensive measure, the Federal Reserve reversed its monetary policy in 2019 and lowered interest rates three times last year. By the end of 2019, despite a slowing economy, a trade war with China, and political tension in the U.S., we ended the year with positive returns for both stocks and bonds with stocks gaining far more than we had anticipated. This helped investors recover from the small losses incurred in 2018.

Because the majority of the higher prices caused by the trade war tariffs were absorbed by producers and not passed on to the U.S. consumer, the U.S. economy remained healthy in 2019. With a trade deal being reached (in principle) with China in mid-December of 2019 and the Federal Reserve holding steady on interest rates, fears of a recession occurring in 2020 have dissipated. As we spoke about in our last issue, recessions are hard to predict but usually begin with an economy that is overheated or growing too fast. They also usually occur as a result of imbalances in the economy that need to be corrected. We do have some imbalances, but they don’t yet have a catalyst to light the fire.

For 2020, the focus will certainly be on the upcoming presidential election, which will no doubt be a contentious one. We are expecting the first five months of this new year to be a bumpy ride for stocks, at least until the primary election. Once a candidate for the Democratic party is chosen and there is more certainty of a platform for the party, the markets should regain momentum through the election. This is a historical trend. During presidential election years, stocks have historically been volatile leading up to the primary election then climbing by the end of the year. Looking back to 1928, there have been 23 elections since that time. In these election years, the S&P 500 earned positive returns in 19 of the 23 election years, regardless of which party’s candidate was elected. The average return of all these 23 election years was 11.29%.

If you’re sensing we have a more optimistic outlook for 2020 than we did a year ago, you are correct. We no longer see the potential of a recession in 2020. However, we are far from immune to the risks of this late-cycle economic recovery. The economies of the U.S., as well as those around the world, are expected to continue slowing. Therefore, it’s important to have portfolios positioned for more volatility. As a result, we’re utilizing funds that hold higher-quality bonds and stocks that are defensive in nature. The definition of a defensive stock is much different than it was a decade or two ago. It’s no longer about sector or style. The tendency might also be to focus on U.S.-based stock and stock funds. Since the end of the global financial crisis in June 2009, U.S. stock indices have generated returns roughly three times higher than their international counterparts. However, if you look at individual company returns, you would find that 74% of the top 50 stocks since 2010 have been based outside the U.S. In other words, it’s more important to focus on where companies generate their revenues rather than where they are physically domiciled.

With the stock markets at all-time highs, investors may begin questioning whether this is the time to take gains and move to cash. If we’ve learned one thing in our more than 30 years of experience in this business, it would be that NO ONE can or should time the markets. Timing the market means selling prior to or during downturns then jumping back in when the market shows signs of improvement. This strategy can negatively impact an investor’s long-term results. It is one reason why investor returns tend to lag fund returns over time. Long-term investors who have held a properly allocated portfolio and who have avoided jumping in and out have historically been rewarded in the end.

Sources: First Trust; American Funds.

TAXATION UPDATE

The following are tax rules and limits for the 2020 tax year. This information can be used to help you plan for the new year.

• The tax rates for 2020 are the same as last year, but the income ranges have increased slightly. They are:

  Tax Rate	SINGLE FILERS Taxable Income Between	MARRIED FILING JOINTLY Taxable Income Between
  10%	$0—$9,875	$0-$19,750
  12%	$9,876—$40,125	$19,751-$80,250
  22%	$40,126 —$85,525	$80,251-$171,050
  24%	$85,526—$163,300	$171,051-$326,600
  32%	$163,301—$207,350	$326,601-$411,700
  35%	$207,351 —$518,400	$411,701-$622,050
  37%	Over $518,400	Over $622,050

   

• The 0% tax rate on capital gains and qualified dividends still exists. It applies to married filers with income less than $80,000 and to single filers with income less than $40,000.

• The limit for contributions into a 401(k) and 403(b) INCREASES by $500 to $19,500 (plus a $6,500 “catch-up” for those age 50 or older, which also increases by $500). The limit for contributions to a SIMPLE IRA also INCREASES to $13,500 (plus a $3,000 “catch-up” for those age 50 or older, which has not changed).

• Taking the deduction for Traditional IRA contributions may be limited for those who participate in an employer-sponsored retirement plan. The AGI income phase-out increases to $104,000-$124,000 for marrieds, $65,000-$75,000 for singles, and $0-$10,000 for married filing separately. Where only one spouse is active in a plan, the phase-out increases slightly to $196,000-$206,000 but remains $0- $10,000 for married filing separately.

• The income limit for making Roth IRA contributions also increases slightly with the phase-out at $196,000-$206,000 for married filers, $124,000-$139,000 for single filers, but $0-$10,000 for married filing separately.

• The standard deduction for 2020 rises to $24,800 for married filers (plus $1,300 for each spouse age 65 or older), $12,400 for single filers (plus $1,650 if age 65), and $18,650 for heads of household (plus $1,650 if age 65).

• Required minimum distributions from IRAs can still be made as contributions to charitable organizations without being considered taxable income. The distribution must go directly to the charity.

• Interest on home equity loans is no longer deductible unless the loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan.

• The medical expense itemized deduction returns to 7.50% (from 10.0%) in excess of AGI for 2020 and is claimed on Schedule A.

• The child tax credit continues at $2,000 per qualifying child under the age of 17. Additionally, a $500 credit is available for qualifying children age 17 or older. The phase-out remains at $400,000 (of MAGI) for married filers and $200,000 for all others.

• The annual gift tax exclusion remains at $15,000 per recipient.

• The Social Security wage base for this payroll tax INCREASES to $137,700 for 2020.

• Those collecting Social Security before full retirement age (who are between the ages of 62 and 66) can earn $18,240 in 2020 without losing benefits. But individuals who reach their Full Retirement Age during 2020 can earn up to $48,600 in the months before reaching FRA without losing benefits.

• The American Opportunity Education tax credit holds at $2,500 PER STUDENT for qualifying expenses made within the first four years of post-secondary education. The credit phases out for married filers with income between $160,000—$180,000 and single filers with income between $80,000-$90,000. For those not eligible for the American Opportunity Credit, the Lifetime Learning Education tax credit offers a maximum credit of $2,000 PER RETURN. It phases out for married filers with income between $118,000-$138,000 and single filers with income between $59,000-$69,000.

• The contribution limit to Health Savings Accounts (“HSAs”) increases slightly to $3,550 for single coverage and $7,100 for family coverage. HSA owners age 55 or older can contribute an additional $1,000. As always, you can make the contribution only if you have a “high-deductible health plan”.

Sources: Internal Revenue Service; National Association of Tax Professionals; Social Security Administration.

Disclaimer: The opinions expressed herein do not necessarily reflect those of Trustmont Financial Group/Trustmont Advisory Group. Additionally, the information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed. Lastly, reference to any product, service or concept in no way implies that it is suitable for everyone. There may also be risks and costs associated with any product, service or concept mentioned herein. Where applicable, a prospectus should be read for complete details. The material presented here is neither an offer to sell nor a solicitation of an offer to buy any securities.