1. What a Long, Strange Trip It’s Been

2020 Year-to-date performance through 6/30/2020:

Fixed income securities were up 6.4%.
US stocks were down (4.8%).
Emerging Market stocks were down (13.2%).
International stock were down (13.3%).

Impact Capital portfolios have been overweight fixed income securities and underweight both international stocks and emerging market stocks for the entirety of 2020.

See Disclosure #1

2. May the Odds Be Ever in Your Favor

The S&P 500 index weighs each stock in the index according to their size. Outperforming stocks earn larger weightings. As of July 15, the S&P was down 1%.

The equally-weighted S&P 500 index is still down 9%. Picking outperforming stocks is difficult.

The technology sector is leading all S&P 500 sectors in performance this year (up 15%).

The energy sector is trailing all S&P 500 sectors in performance this year (down 38%).

See Disclosure #2

3. The Advice You Need: Roth IRA Conversions

This year may be an opportunistic time for you to convert some or all of your traditional IRA to a Roth IRA.

What is the difference? Contributions to traditional (deductible) IRAs are made with pretax dollars.The growth is tax deferred, but the entire distribution is taxable. Contributions to Roth IRAs are made with after tax dollars. The growth and the distributions are tax free as long as you have reached age 59 ½ and have had your Roth IRA for at least 5 years. A conversion from a traditional IRA to a Roth IRA is subject to income tax.

Why do this? The goal of a Roth IRA conversion is to eliminate tax on any future growth in the converted assets. Consider that selectively converting a portion of your traditional IRA lowers the amount in that IRA, which also lowers your future required distributions and the income taxes on those distributions.

Why do it this year? You want to pay taxes when the tax rates are lowest. The relief offered by the suspension of Required Minimum Distributions in 2020 may lower your taxable income this year, making the tax impact from the conversion less burdensome.

Pay it forward. For estate planning purposes, under the SECURE Act, non-spouse beneficiaries must drain their inherited IRAs within ten years, thus creating taxable income for traditional IRA beneficiaries. A Roth conversion eliminates tax on the beneficiary IRA to the extent of the conversion, however a comparison between income tax rates of the IRA owner and beneficiary need to be considered when making the decision to convert.

Disclosures

1. Fixed income securities are represented by the Vanguard Intermediate Bond ETF (Ticker: BIV). US stocks are represented by the S&P 500 index (SPX). International stocks are represented by the iShares Core MSCI EAFE ETF (Ticker: IEFA). Emerging Market stocks are represented by the iShares Core MSCI Emerging ETF (Ticker: IEMG). Portfolios won’t always be overweight the best performing asset class and underweight the worst performing asset classes, but it is nice when it happens!
2. The technology sector is represented by the Technology Select Sector SPDR fund (Ticker: XLK). The energy sector is represented by the Energy Select Sector SPDR fund (Ticker: XLE). The equally-weighted S&P 500 index is represented by the Invesco S&P 500 Equal-Weighted ETF (Ticker: RSP). Performance for the chart is year-to-date as of July 15, 2020.