WrapManager's Wealth Management Blog

The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that protects bank depositors against losses (up to a certain limit) if an FDIC insured bank fails. The FDIC is funded by premiums that member banks pay for deposit insurance coverage.  Since its creation in 1934 following a series of bank failures in the late 20s and early 30s, no depositor has lost a penny of insured funds at an FDIC insured bank because of a bank failure. 1 Insurance Coverage Limits  “The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each ownership category.”2  For a single account (owned by one person) the FDIC will insure all deposits up to $250,000 per insured bank. 3 For example, if a single account owner has a $10,000 checking account and $20,000 worth of Certificates of Deposit (CDs) at the same FDIC insured bank, all $30,000 at this bank is insured because it is below the $250,000 limit.   On the other hand, if this same single account owner deposits $240,000 into their checking account, they will now be over the $250,000 limit since they will now have $270,000 at this bank ($250,000 in their checking account plus $20,000 worth of CDs) and they will have $20,000 in uninsured deposits.  For a joint account (owned by more than one person), the FDIC will insure all deposits up to $250,000 per co-owner. 4 For example, if a couple has $200,000 in their joint checking account and $100,000 worth of CDs owned jointly at the same FDIC insured bank, all $300,000 at this bank is insured because the amount per depositor ($150,000) is below the $250,000 limit.   The FDIC website offers a tool to help you calculate your insurance coverage: https://edie.fdic.gov  Credit Unions  While credit unions are not covered by FDIC insurance, the National Credit Union Administration (NCUA) offers similar deposit insurance for its member institutions: up to $250,000 per depositor, per credit union, for each ownership category.5  The NCUA website offers an insurance estimator to calculate your insurance coverage: https://mycreditunion.gov/share-insurance-estimator-home  What if you Have Uninsured Deposits?  If you exceed the FDIC insurance limits at your bank, the most straightforward way to safeguard uninsured funds is to move those uninsured funds to another FDIC insured bank.  Another option would be to consider moving uninsured deposits to different ownership categories. FDIC insurance covers $250,000 for each ownership category, even within the same bank.  [+] Read More

The Consolidated Appropriations Act of 2023, passed by Congress and signed into law by the President, contained several retirement related provisions collectively known as the “SECURE Act 2.0.”  The SECURE Act 2.0 is a follow up to the original Setting Every Community Up for Retirement Enhancement (SECURE) Act passed and signed into law in December 2019.  Here are some of the key provisions of this new law:  Raising the Required Minimum Distribution (RMD) Starting Age  The SECURE Act 2.0 pushes back the age at which retirees must begin taking RMDs to age 75.  This provision will be phased in over the next ten years, so the starting age for RMDs will be pushed back to age 73 in 2023 and then pushed back again to age 75 in 2033. 1  The original SECURE Act moved the starting age to 72 in 2020 and the SECURE Act 2.0 has no impact on the RMD starting age of retirees who have already begun taking RMDs.  Using IRA Distributions for Giving  While the age at which RMDs begin will be changing, the SECURE Act 2.0 does not change the age at which Qualified Charitable Distributions (QCDs) can be made. 2 The earliest age at which an individual can make a QCD will still be 70 ½.  A QCD is an otherwise taxable distribution from an IRA that is paid directly from the IRA to a qualified charity.   Also, the current annual limit of $100,000 for QCDs will be indexed to inflation going forward. 3   Higher Catch-Up Contribution Limits  Effective in 2025, workers between the ages 60 and 63 will see the catch-up contribution limits in certain employer retirement plans such as a 401(k) or 403(b) increased to the greater of $10,000 or 150% of the regular catch-up contribution limit. 4  Also, all catch-up contributions limits for all age groups will be indexed to inflation (including the IRA catch-up contribution annual limit which is currently $1,000) starting in 2024. 5  [+] Read More

Global equity and bond markets have experienced heightened volatility over the last several months as elevated inflation readings and the prospect of higher interest rates has made the investment landscape appear treacherous.    This increased volatility can certainly be unnerving for investors but it is not necessarily unexpected, especially for a mid-term election year.  Since 1980, the S&P 500 has an average intra-year decline of 14%.1 But the equity market drawdowns tend to be more severe in midterm election years, particularly in the months prior to Election Day.  Research from Federated Hermes Investors found that “Leading up to Election Day, stocks tend to experience a pronounced pullback – 19% on average – before rallying afterward”2 in midterm years.   Historically investors have typically been rewarded for staying the course through the temporary pain of volatility during midterm years. Federated Hermes Investors found that “the S&P on average has risen 32% off the midterm election-year bottom. And it has not declined in the 12 months following a midterm election since 1946.”3    Avoiding the Temptation of Market Timing  While it may be tempting for investors to try and time the market by selling investments following a market decline and re-enter the market when things feel safer, investors should note that timing the market with such precision is extraordinarily difficult.  JPMorgan highlights the pitfalls of a market timing strategy:    “First, there is no guaranteed ‘signal’ to get out of the market, and market bottoms are only determined in hindsight.  Second, the investor would need to buy in on the worst days during some of the most significant market drawdowns when loss aversion is at its greatest.    As a result, it is hard to believe that someone could be smart enough to consistently miss the worst days while courageous enough to invest for the best days.”4    Moreover, some of the days of best performance occur within weeks or even days of the worst days of performance and those good days are extremely important to recovering losses experienced on the worst days.  The chart below from JPMorgan shows the cost of missing out on the best days of performance.  [+] Read More

In 1998 the US Treasury introduced Series I Savings Bonds (“I Bonds”) which are savings bonds for individual investors with interest rates linked to inflation. With inflation rates soaring, investors may be looking for options to help protect their portfolio against the ravages of inflation. Here is a quick primer on one compelling option in the fight against inflation: I Bonds.    How do I Bonds Work?  I Bonds are bonds issued by the U.S Treasury that earn interest based on a fixed rate and a variable rate that is adjusted twice a year based on changes in the Consumer Price Index for all Urban Consumers (or CPI-U).1  Current inflation is exceptionally high, so any I Bonds issued between now and October 2022 will earn interest at a 9.62% annual rate for six months.2 Interest is compounded semi-annually and added to the principal value of the bond. For example, if you bought $10,000 worth of I Bonds as of the date of this publication, you’d earn 4.81% (9.62% annual rate divided by 2) over the next six months and your I Bonds would then be worth $10,481 after six months.  The variable rate component of your I Bonds will then adjust to the new rate that will be announced in October. The variable rate on your I Bonds will also adjust every 6 months after that based on the inflation rate at the time.   The bonds will earn interest for the next 30 years or until you cash them out, whichever comes first.  You are not permitted to cash out your I Bonds within 1 year of purchasing them. Also, if you cash them out before holding them for 5 years, you will forfeit the last three months of interest.3    How do I Buy I Bonds?  I Bonds can only be purchased through the Treasury Direct website.  They may not be purchased in or moved to a brokerage account, a 401(k), an Individual Retirement Account (IRA), a Roth IRA, etc.   You can’t buy more than $10,000 worth of I Bonds electronically per person in a given calendar year.4   To purchase I Bonds electronically, you’ll need to set up an account on TreasuryDirect.gov and follow the instructions on the site to purchase your I Bonds.  [+] Read More

Before the year ends, take some time to review your financial health. Here are 10 financial planning items to review before 2021 comes to a close.    1.  Take your Required Minimum Distribution   Required Minimum Distributions (RMDs) were temporarily suspended for 2020 due to COVID-19 relief legislation but RMDs are back for 2021 and beyond.  If your 70th birthday is on or after July 1, 2019, you will have to take an RMD from your retirement account prior to December 31st once you reach age 72 in most situations.1  Note that Roth IRAs do not have RMDs. Consult with your financial advisor to determine the exact amount of the RMD that you need to take before December 31st.  [+] Read More

Global equity markets have experienced a pullback following heightened fears of the spread of coronavirus (COVID-19). This has left some investors wondering what actions they need to take (if any) with their portfolios. History has shown that equity markets typically rebound quickly in the event of a viral epidemic driven sell-off.  The pullbacks have historically been short-lived and have typically been followed by a continued upward trend. 1   [+] Read More

Concerns over an inverted yield curve combined with the threat of higher tariffs around the globe have created some equity market volatility over the past few weeks.  The ups and downs of equity market volatility can certainly be unnerving for investors, but volatility in and of itself is not necessarily a bad thing nor is it necessarily a signal of an upcoming recession. In fact, since 1980 the S&P 500 has suffered an average intra-year decline of 13.9% while the market has had positive returns in 29 of those 39 years.1   [+] Read More

 The recent pullback in global stock markets has caused some concern that the bull market in equities is winding down. There is even some concern that this pullback is among the initial signs of an upcoming recession.  To gain some better historical perspective on the recent movement in the stock market, let’s take a look at historical intra-year market declines versus calendar year returns.1     [+] Read More

Historically, equity markets have been very volatile in mid-term election years. Since 1962, the S&P 500 has had an average intra-year pullback of 19% in mid-term election years.1  In fact, equity market returns have historically been very tepid before Election Day in early November.  In mid-term election years since 1950, the market has returned an average of just 0.96% in the first 10 months of the year, but markets have typically rebounded in the final 2 months of the year, returning an average of 4.24% across November and December. 2 The recent market pullback has wiped out 2018 gains and the S&P 500 is now roughly flat for the year. Again, historically the first 10 months of a mid-term election year are typically flat only to see a relief rally in the final 2 months of the year once the results of the election are known with certainty. Will history repeat itself in 2018? While it is nearly impossible to forecast stock market returns over a specific time frame (particularly for a brief 2-month window), there are reasons to be optimistic going forward: Corporate earnings remain strong3: 81% of the 140 companies in the S&P 500 that have reported third quarter earnings (as of October 23, 2018) posted earnings per share that beat Wall Street expectations, with only 10.7% of companies reporting earnings below expectations.  Over the last 25 years, an average of 64% of companies reported earnings that beat Wall Street estimates with 21% of companies missing expectations.4 [+] Read More