Trumps Wins, Republicans Control the Senate and House…Maybe
Donald Trump was elected the 47th President of the United States. Though the media and political pundits predicted a tight race, the results were called the following morning. Even with a majority in both houses, Trump may find it hard to get things through Congress, especially in the House of Representatives. A small vocal Democratic group remains so unless the Senate eliminates the filibuster by changing the rules, it takes 60 votes to get things done. We are preparing a special edition of the Perspective$ talking about “Now What?” that we plan to have available soon.
Fed Cuts Target Rate by 25 BPs
The Federal Reserve met on election day and the day after. After reducing interest rates by 50 basis points at their last meeting, the Fed announced another 25-basis point reduction in short-term interest rates. What hasn’t been expected is that since they started the reduction about two months ago, long-term interest rates on the 10-year treasury have increased about 50 basis points.
While many are perplexed by this development, it has “righted” the yield curve after being inverted for the past two and a half years. It could also indicate that the bond traders are still concerned about inflation, especially considering all the promises made by both Trump and Harris throughout the campaign and the money they discussed throwing around. But talk and promises are one thing. Turning them into reality is another. There is no question that neither Democrats nor Republicans are shy about spending money. Time will tell.
IRA Income Thresholds Going Up Next Year
In 2025, when you contribute to an IRA, the limits remain the same for a regular contribution of $7,000 and a catch-up of $1,000 for people aged 50 and over. IRAs have a small catch in that your deduction is limited based on income if you also have a retirement plan through work. Single taxpayers begin phasing out between $79,000–$89,000. A married couple filing jointly where the spouse contributing is also covered under a retirement plan at work finds the phase-out ranges from $126,000–$146,000. If the spouse making the IRA contribution isn’t covered by a workplace retirement plan but their spouse is, the phase-out occurs from $236,000–$246,000.
401(k) Super Catch-Up Starting 2025
As we approach wrapping up 2024, we wanted to remind everyone of the new IRS contribution limits for 401(k) accounts starting in 2025. These changes, part of the SECURE Act 2.0, are designed to help older workers catch up on their retirement savings.
The most notable change is for workers aged 60 to 63. They’ll be able to contribute up to $11,250 in catch-up contributions to their 401(k) plans. This is a substantial increase from the current $7,500 limit for those 50 and older. This provision applies to participants aged 60, 61, 62, or 63 by the end of the calendar year.
For eligible individuals, this could mean a total 401(k) contribution of up to $34,750 in 2025. Here’s how it breaks down:
- Standard contribution limit: $23,500
- Enhanced catch-up contribution: $11,250
While the spotlight is on the 60-63 age group, other workers will see changes too:
- Under 60: The standard 401(k) contribution limit increases to $23,500
- 50 and older: The regular catch-up contribution stays at $7,500
These changes offer a great opportunity to boost your retirement savings, especially if you’re nearing retirement age.
Source: The 2025 401(k) Contribution Limits Are Here. See How Much You Can Save. – WSJ
The Santa Claus Rally
As the days become shorter and the weather gets colder, investors look forward to one of the most intriguing market anomalies of the year, the Santa Claus Rally. Yale Hirsch coined the term in 1972, recognizing the stock market’s tendency to rise through the last five trading days of December and January’s first two trading days. However, as investors rush in to exploit this market anomaly, the potential to realize excess returns has become less pronounced.
According to YCharts, between 1950-1971, the S&P 500 Index posted positive returns in 86% of instances for the Santa Claus Rally’s time horizon. As more investors became aware of the annual rally, the opportunity to generate excess returns has diminished. In the last ten years alone, the S&P 500 Index posted negative returns in 50% of instances for the Santa Claus Rally’s time horizon. Ultimately, there is insufficient evidence to prove that investors can generate excess returns during the Santa Claus Rally, and they should stick to their long-term investment allocations rather than relying on jolly old Saint Nick.
Second Guessing Doesn’t Work
Often, clients ask why we don’t get out of the market when we “think” it’s going to go down and get back in when we “think” it will go back up, a/k/a market timing. This is because we are not fortune tellers who “know,” let alone “think,” the market will go down or up.
When individual investors work independently, they will get in or out at the wrong time because they let their emotions get in front of good common sense in a well-diversified portfolio where risk is tailored to their individual life goals.
Need proof? Morningstar recently released their “Mind the Gap” study, which found that individuals in mutual funds and ETFs often underperformed the actual performance of the investment because of the timing decisions they made and lost 15% of the return on average, or 1.1% annually, over the past decade. How much did it cost? For every $100,000 invested that underperformance adds up over ten years to about $11,600, and over 20 years, it leaves approximately $24,458 on the table. The time you are in the market makes a difference, not the time you are out of the market.
Do Your Homework
In a world of 24/7 news stories and many coming from unreliable sources, it is incumbent upon each of us to make sure we do our homework. It is easy to find “facts” that support just about any position one wants to take, but when the “facts” aren’t there, many just create their own “facts.” Just listen and fact-check any political candidate, especially those who run for President. If you generally listen to or read from the liberal side, you will get quite a different view when you do the opposite by listening to the conservative view. Vice versa applies. Rarely do they agree, and they don’t because they draw on a different set of “facts.” But all of this homework isn’t just about politics. It is true about many aspects of life: a rumor becomes fact; a story online because everything online is true, isn’t it?; a belief can find its own set of “facts” to support the belief. We know you will not always agree with us, but we want you to know we are doing our homework at ProVise. We dig hard to separate the real from the unreal. We dig hard to look deeper into the “obvious.” We are not always going to be right, but what advice you get from us is based on research, not emotions. We hope that in this crazy world of 24/7, you appreciate us working hard to get it right for you.
Happy Thanksgiving
The ProVise family wishes to thank you for your continued confidence in our ability to help with your financial planning and investment management. We are honored to have each of you as a member of the ProVise family, which has about 1,100 clients spread over more than 30 states. Given all that has happened, let us remember, especially this year, how thankful we are to have family and friends to share our sense of community. May you have a very Happy Thanksgiving!
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