On Friday, Nov. 16, 2019, the Dow Jones Industrial Average closed at a record high of 28004.89, the 11th new “record high milestone” in 2019. The summit was reached driven by a buying surge in the last few minutes of the trading day. When you see dramatic jumps or drops just before the closing bell, it’s not mom and pop investors, it’s machines, computer programmed trading, trying to get ahead of the close and the next open.

The S&P 500 Index also closed at a record high on Nov. 16, as did the tech-heavy Nasdaq Composite. What now? How do you view another record high, year-end 2019, and the outlook for 2020?

Several times this year, the yield on the benchmark 10-year U.S. Treasury note dipped below the yield on 3-month paper. Mr. Market worried about “inversion,” an abnormal situation when yields on longer-term Treasury paper drop below shorter-term yields. Often, yield inversion is perceived as signaling a potential recession. Yields on the 10-year note rebounded above 3-month yields in late October, viewed as a positive sign for the economy. Boom! A multi-week market winning streak!

Consumers are in a cheerful mood, and retail sales rebounded in October compared to September. Christmas decorations already festoon local malls, and the holiday shopping outlook is positive. The U.S. Federal Reserve Bank’s three interest rate cuts this year add to the rosy outlook. A year ago the Fed was raising interest rates, resulting in poor market performance in 4th quarter, 2018. Part of 2019’s performance includes a recovery from last year’s end-of-the-year “lump of coal in your stocking” dive. The average investor still remains wary of a drop, remembering last year as well as 2007-2008. One bullish sign appears to be the lack of bullishness among individual investors. They know the machines can reverse course quicker than they can!

How should you view the market spurt? If you have 10- to 15-years before retirement, use market dips to add to equity holdings. If you’re nearing retirement or are retired and dependent on your stock portfolio for retirement cash flow, to some degree or substantially, have a 3- t0 5-year “paycheck fund” in federally insured money market accounts and other low-volatility assets.  For taxable allocations, consider a mutual fund or separately managed municipal bond account, normally a minimum investment of $125,000 or more, where the portfolio can focus on state-specific holdings to reduce state income tax liabilities.

The fact that rapid fire market highs have occurred during the impeachment hearings indicate that Mr. Market isn’t concerned yet with political noise on MSNBC or other news outlets. When it comes to talking heads and market strategies, consider Jon Stewart’s sage advice: “If I’d only followed CNBC’s advice, I’d have a million dollars today. Provided I’d started with a hundred million dollars.”

Have sufficient safe money and potentially low-volatility reserves to provide a buffer and peace of mind, because the market will always be volatile, just as periodic earth tremors will continue to bedevil Californians who never really know when the “big one” will hit. As the storied money manager, Peter Lynch advised, “More money has been lost trying to anticipate and protect from corrections than actually in them.”

Start now with year-end “to do’s,” including 4th quarter tax planning. Do you have capital gains you wish to use to offset loss carry forwards? If you are age 70 ½ or older with money in a qualified IRA, or you’re a beneficiary of a Inherited IRA, have you completed your Required Minimum Distribution (RMD) for 2019?     

IRA owners 70 ½ or older may make tax-free donations to eligible charities, including houses of worship. For example, you could direct all or a portion of your RMD to charity and avoid taking the amount into 2019 taxable income. You must complete the transaction by 12/31. This can be attractive if you don’t have sufficient tax deductions to get above the newly expanded standard deduction. Talk with your financial and tax advisors about any tax strategy as this commentary offers only basic information, not specific tax advice.

It’s time to apply for a 2020 Georgia Income Tax Credit under the Georgia Private School Tax Credit Student Scholarship Organizations (SSOs) law. Again, consult your advisor.

Keep long-term reality in mind. The Dow first crossed 10000 in March, 1999. Ten years later, March, 2009, the Dow bottomed below 6500 in the Great Recession market rout. Factor “ups and downs” into your long-term financial independence goals. Every winning team has a defensive strategy!

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