Let's Make 2023 Better!

We hope you had a wonderful Christmas and New Year celebration with family and friends!

While 2022 was a challenging year in the financial markets, we enjoyed hearing that our clients focused first and foremost on pursuing what mattered most in 2022! Thanks to things “normalizing”, we enjoyed hearing the many stories about family reunions, weddings, graduations, grandchildren and great grandchildren being born, anniversary celebrations, travel and visiting with friends they haven’t seen since before the pandemic, just to name a few. Since 2022 was such a great year, let’s make 2023 even better.

Capital Market Summary

In January 2022, your KFM team sat down to discuss what 2022 might look like from an investor perspective. After having had 3 consecutive years of growth in the capital markets, what was the probability that we would see a fourth year of gain? While we do not own or have the proverbial crystal ball, we knew intuitively it would probably be a challenging year. Did we know it would turn out that poorly? Absolutely not! But the laws of probability proved to be correct.

This is a short-list of significant events in 2022:

• Fed signals at least four rate hikes in 2022

• Russia invades Ukraine

• China’s COVID lockdowns affect 180 million people

• Elon Musk buys Twitter

• SCOTUS overturns Roe v. Wade

• U.K. Prime Minister Boris Johnson resigns

• FBI searches Mar-a-Lago

• Biden Tests Positive for COVID

• Passing of Queen Elizabeth II

• U.S. warns Russia not to use nuclear weapons

• Democrats keep Senate, Republicans take the House

• Hurricane Ian hits Florida

• Chinese citizens protest COVID policies

• S&P 500 Recovers 7.76% from its bottom on October 12 (down 27% YTD)

• Significant corporate layoffs begin

2022 put all the equity capital markets into “bear territory” (defined as a 20% or greater decline). It's always obvious when we look back to explain why, particularly looking at this list. But the hardest thing for all investors to do is look beyond the why. Look beyond the decline. To look to the future, knowing all bear market cycles end and bull market cycles ALWAYS follow. Never in history has a bear market NOT been followed by a bull market.

We may still have the “hangover” effect of 2022 going into 2023. That means that the start of 2023 might possibly look a lot like 2022. But again, we do have the law of probability on our side.

Listening and reading some of the financial publications at the beginning of 2023, you may have heard or read something like this:

Luke Lango on January 3, 2023 wrote “10 Bold Stock Market Predictions for 2023”. He echoes what many are saying. “The stock market has dropped 20% over the past year. Going back to 1940, whenever the stock market drops 20%-plus in a year, the next thing it tends to do is rally big. History says there’s an 80% chance stocks rally more than 20% next year. There’s a 95% chance they soar almost 40% over the next three years and a 99.7% chance stocks are nearly 65% higher in five years!”

We agree with what Mr. Lango and others are saying. We do know the capital markets will recover. We do know the negative year to date performance for 2022 will be made up. We are all hopeful this will happen sooner rather than later. Though, we are mindful that it may also be a while before the recovery begins. Regardless, we DO KNOW, the recovery will happen.

Let’s face it, 2022 was not a fun year. Like you, we like it a lot more when markets are positive. And that’s why we intend to make 2023 better. While we are guessing there will be more than just this highlight for 2023, right now the biggest highlight for Rob and Diane will be ushering in their third granddaughter somewhere around May! During the height of COVID, their first granddaughter was born, making 2020 a great year despite the pandemic and all its issues. What’s on your highlight list for 2023? If you don’t have one, make one! We look forward to celebrating that highlight with you in your upcoming update with your KFM Team.

We look forward to seeing you in the upcoming weeks and months. In the interim, should you have any questions or changes in your financial situation, please let us know. Let’s do this, let’s make 2023 better!

KFM Update

Your KFM Team had great celebrations with their family and friends over the holidays. The Southwest debacle only impacted one of your Team’s family members making the holidays that much more interesting. Thankfully, COVID did not play a role in our lives either.

2022 was a fun year with our clients. We had two in-person events with combined participation of over 75 people. The first was a Bocce Ball tournament in the Spring, with the second being a Ladies Night Out Sunset Cruise over the Fall. Both events were so much fun on so many levels. It was first and foremost great to be with clients face to face. But learning to play Bocce and enjoying a great sunset really put 2022 into proper perspective. Family, friends and relationships is what it’s all about.  We are looking forward to putting together our 2023 calendar and sharing in those events with you throughout the year!

1099s from your custodian are generally distributed in Mid-February. As normal, they will flow from your custodian to your Client Portal where they will be found in the Documents/Statements section under “Tax Reports”.

Lastly, THANK YOU! 2022 broke year another record for the many recommendations you all continue to provide KFM. We essentially told you the same in 2021, but 2022 brought even more. A recommendation to KFM is one of the highest compliments we can receive from our clients. More importantly, we cannot express enough gratitude for your continued trust and confidence in what we do. Thank you!

Legislative Update, Lauren Zuniga, CFP®

On December 29, 2022, the SECURE Act 2.0 was signed into law. While there are many provisions beyond what we are writing about today, we wanted to make sure you had an overview of some of the key changes that may be impactful to you. Below is a summary of the key provisions and their effective dates:

1) The required minimum distribution age has been pushed back-again! You might remember the original SECURE Act pushed back the starting age from 70.5 to 72. The SECURE Act 2.0 will further push back the starting age to 73, then again later to 75. In summary:

• Those born 1950 or earlier: no change (RMDs must continue)

• Those born 1951-1959: RMDs will start at age 73

• Those born 1960 or later: RMDs will start at age 75

2) New options for surviving spouse beneficiaries: Under existing law, surviving spouses of retirement account owners have options that are not available to any other type of beneficiary. Beginning in 2024, that list of options only expands. The surviving spouse will be able to elect as if they were the deceased spouse themselves. RMDs would be delayed until the deceased spouse would have reached RMD age.

3) Roth-related changes: Effective in 2024, plan Roth accounts will no longer be subject to RMDs. This includes Roth 401ks, Roth 403bs, and Roth 457s. Furthermore, in 2023, employers will be able to include Roth options in SIMPLE IRA and SEP IRA plans.

4) 529 to Roth IRA Transfers Allowed: Beginning in 2024, there will be the option to move 529 plan monies directly into a Roth IRA, but not without strings attached. The account must have been maintained for 15 years or longer, and the annual limit for how much can be moved is the contribution limit for that year. The maximum amount to be moved cannot exceed $35,000.

5) New rules for qualified charitable distributions (QCDs): While already significant at $100,000 annually, the maximum annual distribution will be adjusted for inflation. QCDs have become a great option for individuals over 70.5 to satisfy their charitable intent!

We look forward to discussing SECURE Act 2.0 throughout the upcoming year as to its implication to you. In the interim, should you have any questions relating to the information shared, please reach out to your KFM Team.