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Second Quarter 2020 Vista 401(K) Plan Performance, June 30, 2020

By Michael Sheridan, Senior Consultant

Even though I have lived in Tallahassee for almost half my life and consider myself to be a Floridian, my hometown is forever Miami. I wish to express my deep concern for everyone in South Florida during this terrible time, as well as the rest of our world. Yes, these events have had a dramatic and unprecedented impact on your retirement plan’s funds, but it is currently not as bad as it was just a few months ago.

As you know, the plan had well above historic averages performance last year and gave it all back early in 2020. It is now almost back to even for the year. Hopefully, you are not trying to guess the market and are riding it out after making some small balancing adjustments.

I continue my concern for the impact of the large-cap tech growth stocks, known as FAANG stocks, that are dominating the markets’ performance and not giving us a true story of the impact of the pandemic on our economy. Small and mid-cap stocks have not performed that well for the year and international stock markets have suffered. Again, probably not as bad as they could have.

Bond yields are low, but values are decent. Getting a 6.5% gain this year, so far, without factoring in interest received, which is used by the fund managers to buy more shares for your account, is a pretty good return for a conservative US Government Bond fund, managed for our plan by American Century.

I think we all correctly sense that all of these Government support expenditures and the consequent big federal budget deficit will end up triggering inflation again in the future. Those of you who have diversified some of your funds into the American Century Inflation Adjusted Bond fund are smart and the 5.1% YTD (year to date) gain is rewarding. Likewise, the Fidelity Total Bond fund’s slow but steady growth and their 5.4% YTD gain is satisfying.

We will continue to monitor these bond funds to make sure that they do not “chase returns” by adding low grade bonds (junk bonds) to their funds just to get the higher yields. We had that problem years ago and removed the funds from the plan. That practice is against our Statement of Policy which dictates our practices.

The Federal Reserve has stated that they intend to keep interest rates between about 2 ½% and 0% for the next couple of years, and that will dictate that low and hopefully steady state practices (read: safe) are appropriate investment opportunities.

I feel my job is try to advise all of you and the plan’s managers and your Advisory Council as to the safest way to hold on to your retirement funds this year. Conserving what you have already, possibly with a small gain by this calendar year’s end, seems like the best advice I can give. I don’t want us to venture into seeking yields and chasing returns from risky investments that should not be in retirement plans.

For our large cap funds, I am particularly disappointed in our new addition as our most conservative stock fund, the JPMorgan Equity Income fund. We will seek some answers, but their inclusion, rightly so, of energy stock companies and banks, has hurt their performance more than any other fund in the plan.

All of the Balanced funds and Target funds are performing about as expected so far considering their composition. Our two International funds are performing as expected, unfortunately showing loses.

Global stock funds, in general, gained a sector average of 18.1% for the quarter, which still put them down an average of 9.2% for the year. Volatile!

What really pleasantly surprised me is that a top performer, Fidelity Growth Strategies, a mid-cap fund, is doing so well with a 4.5% gain YTD. I would not have predicted that accomplishment and again praise the value of your diversity.

Our top performer is the T. Rowe Price Blue Chip Growth fund, which has done a great job of balancing tech stock companies with the pandemic’s impact on the market. It is up 10.9% YTD, and that puts it into a stratosphere almost by itself.

To put all of this in overall market context, the stock market lost about 24.6% on average during the first quarter but rallied in the second quarter so that funds are still down 3.1% for the year. Volatile!

I suggest that you continue to diversify, diversify, diversify and hold decent positions in bond funds and stock funds. Take the Investment Risk Profile quiz on our website and see if you might benefit from around a 50-30% Stock, 50-70% bond mix until the world becomes clearer.

Be safe.

June 2020 Fund Performance Chart

Monitor Your Investments

By James Matheu, Retirement Services Manager

Last quarter I wrote an article entitled “Take a Deep Breath and Don’t Panic.” That advice made sense three months ago, and it makes sense now. Although, as of this writing, the market has rallied, we are still mired in challenging times. The Coronavirus remains a threat and states and local governments continue to enforce restrictions to varying degrees to control the spread. Some states are concerned that there may be another Coronavirus wave in the fall, while others are convinced the worst is behind us. Predicting who is correct and where we are in battling this disease is little more than guesswork. Until we, as a country, are confident that the disease has passed, or at least subsided, and all states have returned to a version of normal, the market will be susceptible to dramatic fluctuations. Still, this should not deter you from investing in your future.

As I detailed in our April Newsletter, the market will fluctuate, and at times, it will fluctuate wildly. However, over the years the market will continue its upward trajectory. In the course of the last sixty years, The Dow Jones Industrial Average experienced an average yearly return of around 8%, the S&P 500’s average yearly return was roughly 10%, and the Nasdaq, since its inception in 1971, posted an average yearly return in the 11% range. In fact, the Nasdaq closed at an all-time high on Wednesday, June 23, 2020.

Based on this history, the question is not if you should invest in your Vista 401(k) Plan, but how you should invest in your Vista 401(k) Plan. As investors, our risk tolerance and goals differ. Some watch the market fall and they see it as an opportunity to purchase more shares of their selected funds at a reduced rate. Others watch the market fall and they are unnerved. They view it as lost funds that will take years to recoup, thereby delaying their retirement plans. Once again, as of this writing, the market has experienced a recovery of sorts, and Vista 401(k) accounts are growing. Many losses are in the process of being erased. Now is the time to again breathe deeply and re-evaluate your portfolio, using an important tool to ensure you are invested properly based on your risk tolerance.

This tool will help determine where you land on the risk tolerance spectrum. It is called the Investment Risk Profile and can be found on the vista401k.com website. To locate the Investment Risk Profile simply click on the following link: https://www.vista401k.com/learning-center/401k-tools/investment-risk-profile/. This site asks the investor five questions, and the investor accumulates points based on how they answer these five questions. The categories are ranked from most conservative to most aggressive, as follows:

  • 5-8 Points: Capital Preservation
  • 9-12 Points: Conservative
  • 13-16 Points: Moderate
  • 17-20 Points: Growth
  • 21-25 Points: Aggressive

This tool, while helpful, should not be your sole consideration. An investor must also determine where they are in their career. A participant in the early to mid-stage of their career may be conservative by nature and look toward capital preservation as noted above. Yet, such an investor should also be aware that if they choose an aggressive path, they will be able to capture market upside with plenty of time to recuperate should the market turn negative. Conversely, if you are in the latter stages of your career you may decide to pull back from an Aggressive position and look toward conservative investments or perhaps even capital preservation as you do not have the years to recoup losses. Ultimately, it is up to individual investors to determine how to manage their risk tolerance.

There are no hard and fast rules and what you choose to do is, of course, up to you. Many choose to remain conservative from start to finish, while others are aggressive until the day they retire. Our role is to make you aware of the Investment Risk Profile and remind you to consider where you are in your career when making investment and allocation decisions. We recommend a yearly analysis of your positions to include completion of the Investment Risk Profile. This will ensure that your Vista 401(k) account mirrors your investment goals and desires over the years.

So, do not forget to maximize your contribution to your Vista 401(k) account and evaluate those investments using the techniques listed above to make sure your retirement plan reflects your risk tolerance.

If you do not have a Vista 401(k) account or your Vista401(k) account is dormant, now is the time to open a new account or restart your contributions! Remember, your Vista 401(k) plan is an excellent way to fund the many adventures you have planned for retirement!

Major Changes in RMDs for Year 2020

By Robert Pumphrey, Retirement Services Specialist

If you are among the more mature Vista 401(k) retirement plan participants, you are likely aware that the abbreviation “RMD” stands for Required Minimum Distribution. Prior to January 1, 2020, all participants were required to take yearly distributions from their 401(k) plan once they turned 70 ½. In the last seven months this yearly requirement has undergone some significant changes, and because of those changes, we will need you to notify us by October 1, 2020 if you wish to take an RMD in 2020. Read below for more information.

There have been two pieces of recent legislation that have altered the landscape. The first is called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and was passed at the end of 2019. The second is called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and was passed in response to the Coronavirus. This article details how these two acts impact the RMD going forward.

SECURE Act

On December 20, 2019 President Donald Trump signed the SECURE Act into law. Effective January 1, 2020, the law raised the RMD age from 70 ½ to 72 years-of-age. Thus, if you turn 70 ½ after December 31, 2019, your first RMD is due in the year you reach age 72. However, if you reached age 70 ½ prior to January 1, 2020, your RMD is due for the year in which you reached age 70 ½, not age 72. In either case, except to the extent impacted by the CARES Act (mentioned below), RMDs must commence by the later of:

a) April 1 of the calendar year following the calendar year in which an employee attains age 72 (or 70 ½) or

b) the calendar year in which the employee retires.

Further, under the SECURE Act, participants will now have the option to contribute to individual retirement accounts after the age of 70 ½ if that participant is still earning income. These laws were changed in response to the fact that people are working and living longer.

CARES Act

On March 27, 2020, President Trump signed the CARES Act into law. The CARES Act allows any individual with an RMD due in 2020 to skip this year’s distribution. This pertains to a defined-contribution retirement plan, including a 401(k) plan, 403(b) plan, or an IRA. It includes anyone who turned age 70 ½ in 2019 and would have had to take the first RMD by April 1, 2020. Further, the CARES Act does not require that you take an additional distribution next year. It is only cancelling this year’s distribution if you choose to do so. In simple terms, it provides for the 2020 required minimum distribution to be waived for the 2020 year.

Under the CARES Act, the following RMD payments do not need to be made from the plan—it is the participant’s decision whether to take the distribution or not:

  • 2020 RMD payments for individuals who were already receiving them (attained the age 70 ½ before 2019)
  • 2020 RMD payments for individuals who turned age 70 ½ or retired (if later) in 2019, as well as their 2019 RMD payment to the extent it was not already made in 2019
  • 2020 RMD payments for individuals who retire in 2020 after turning 70 ½ before 2020.

If you already took an RMD in 2020, it can be reversed until August 31, 2020, according to IRS Notice 2020-51.

Given the CARES Act law change, the Vista 401(k) Plan will discontinue our yearly processing of 2020 RMDs. Under this approach, individuals eligible for the RMD must notify us by October 1, 2020 if they elect to receive such distributions in 2020.
Please call us at 866-325-1278 if you desire to take your RMD in 2020 so that we can make certain your withdrawal is processed in a timely manner.

Saving for Retirement

By Toni Milton, Sr. Retirement Plan Specialist

As we move through these uncertain times, the Vista 401(k) Plan remains committed to delivering the highest level of service to plan participants. We are aware that many people are facing a great deal of uncertainty at work, wondering how they will deal with mounting expenses and debt all while trying to save for retirement. They are wondering how a second wave of the coronavirus will impact their retirement savings. While the future is uncertain, we are doing all we can to make saving for retirement easier with the Vista 401(k) Plan.

Easy to Enroll!

The 401(k) Plan is a benefit offered to all full-time school board employees. The benefit is currently being promoted through monthly emails sent out to all employees. Check your email inbox for the opportunity to enroll, restart, or increase your 401(k) contributions. This is an easy way for those of you nearing retirement to take advantage and catch up on lost contributions to the plan. This year you can contribute up to $19,500, and if you are age 50 or older, you are eligible to contribute an extra $6,500 for a maximum amount of $26,000.

Maintain Appropriate Levels of Risk

Try to keep in mind that a 401(k) plan is designed for long-term saving and while your account balance may have gone down, it will also increase as the market eventually recovers. You should take an approach to investing and risk tolerance to accommodate for market fluctuations. As you approach retirement you may not have a lot of time to recover from adverse market conditions brought on by the COVID-19 pandemic. Because of this, it is important for those nearing retirement to begin planning early and proactively taking steps toward the next phase of their journey, such as maintaining a risk-appropriate retirement portfolio.

Diversification

The Vista 401(k) Plan was designed to be an inexpensive way to create a high quality, diversified portfolio. How you save can be just as important as how much you save. Inflation and the type of investments you make play an important role in how much you will have saved at retirement. Learn more about your plan’s investment options by asking questions. Diversifying, or placing your savings in a variety of different investments, is a great way to reduce risk and improve your long-term returns. Your investment mix may change over time depending on several factors like age, goals, and financial circumstances. Get financially educated. Do a financial check-up of your investments every so often and make sure you are diversifying your money in multiple investments. It’s import that you understand what’s happening with your money. The Vista 401(k) website found at www.vista401k.com provides you with a host of information that you will find very educational. Further, we prepare and send this quarterly newsletter as well as quarterly statements detailing fund performance.

Act Now

School will be back in session before you know it and finding the time to review your account will become harder. Take time now to ensure you are properly prepared for retirement. It’s quick, easy, and everything can be done from the comfort of your home via the website.