March Newsletter to Clients

Enjoy this month’s edition that features some tax reminders plus an example of how we diversify clients’ portfolios.

Income Tax Info

As you know, the deadline to file our 2023 tax year returns is Monday, April 15 – unless you file for an extension. Below are a few important reminders:

• You should have received your 1099 tax forms by now. If you enrolled in online access to Schwab, the forms are available online. If not, Schwab will mail them to you. Remember, because of the Schwab purchase of TD Ameritrade on Labor Day, you will also receive 1099 tax forms from TD Ameritrade too.
• If you are eligible to contribute to a Traditional IRA or Roth IRA, you may still contribute up to the tax filing deadline of April 15. For tax year 2023, the contribution limit is $6500 plus an additional $1,000 if you were 50 or over during 2023. Of course, the IRS sets income limits in order to contribute to these, so please check with us prior to doing so.
• Contributions to SEP IRAs can be made up to the filing deadline too.
• For tax year 2024, the IRS has increased the contribution limits as follows:
  • An individual may contribute up to $23,000 to 401(k)s, 403(b)s, 457(b)s – this does not include any contribution your employer makes;
  • Those 50 or over may contribute an additional $7500 to those plans;
  • Contributions to Traditional IRAs or Roth IRAs are capped at $7,000 plus an additional $1,000 for those 50 and over.

The Stock Market and Diversifying

The S&P 500 index returned 5.2% in February – it’s best February return in 9 years. To put this in context, from 2000 to 2023, the average return for the S&P 500 during that month was -2.1%. More important, more than 71% of the stocks included in the index have positive returns so far this year. The median return of all stocks, however, is just 3.3%, meaning the large companies at the top are generating most of the index’s return.

Speaking of those large companies, I assume you are familiar with the term the Magnificent 7? The term refers to the 7 largest companies at the top of the S&P 500 that pulled the index higher last year almost by themselves. Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla are included in that group. Three of those companies – Nvidia up 30% in February, Meta up 26% in February and Amazon up 13% in February – added almost $1 Trillion in market capitalization by themselves last month.

There is now a new term – the Granola stocks of Europe. These 11 companies play a similar role to the Magnificent 7 but are based in Europe: GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi. Where the Magnificent 7 make up 30% of the value of the S&P 500, the Granolas represent about 25% of the STOXX 600’s value.

While we access the Magnificent 7 through the funds in our Large Cap category, the Granolas are accessed through funds in our International category. Investing in those companies is a great way to diversify our portfolios and buy at a discount to the Magnificent 7 because the Granolas trade at a Price to Earnings ratio of about 20, while the Mag 7 trade at a P/E ratio of about 30. Who doesn’t like a discount? Plus, the Granolas average dividend yield is 2.5%, compared to the Mag 7’s of 0.3%.

While no one knows how the domestic and international stock markets will perform the rest of this year, including a wide variety of companies in our portfolios will spread our figurative eggs across more baskets and, hopefully, help smooth out the ride.

Ramsey Bova, Owner and President, CFP®

Thank you for your continuing confidence.