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Weekly Market Commentary

8/27/2024

Maxed Out Your 401(k)? Here's What To Do Next


The 401(k) plan is an excellent way for working Americans to save for retirement. For many, hitting the maximum contribution limit is a goal that many work toward to reap the benefits of saving tax-deferred. But what happens when you've maxed out your 401(k) contributions and want to continue saving for an independent and comfortable retirement?

Maxing out your 401(k) is a significant achievement toward securing an independent financial future. However, several other investment strategies offer tax advantages and asset accumulation potential so you can continue investing toward your retirement savings goal. Here are some strategies to consider investing in next.

Individual Retirement Account (IRA)
One of the most common options when you've maxed out your 401(k) is contributing to an Individual Retirement Account (IRA). An IRA offers similar tax benefits to 401(k), where your contributions grow tax-deferred.

Roth IRA
The Roth IRA differs significantly from traditional IRAs and employer-sponsored 401(k)s, which are funded with after-tax dollars. The benefit of a Roth IRA comes at retirement, as you are able to withdraw funds, both contributions and accumulation, without incurring additional taxes, which is beneficial if you anticipate being in a higher tax bracket upon retirement.

To qualify for a Roth IRA, your income must fall within certain limits, which are adjusted annually. Talk to a financial professional to determine if your income falls within the IRS limits if you are considering a Roth IRA.

Taxable Brokerage Account
A taxable account is another saving strategy to consider when you've maxed out your 401(k). Although these accounts don't offer the same tax benefits as 401(k)s and IRAs, they provide increased flexibility in withdrawal times and without penalties. A balanced mix of stocks, bonds, and mutual funds in brokerage accounts can offer substantial accumulation over time.

Health Savings Account (HSA)
An HSA is another great supplemental retirement saving strategy. These accounts are used with high-deductible health plans, giving individuals the advantage of triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. After age 65, non-medical withdrawals are taxed at the regular income tax rate, turning the HSA into a supplemental retirement income account.

Alternative Investments
Suppose you have already maxed out your 401(k) and these above savings strategies. In that case, it may be time to consider alternative investment strategies, such as buying a rental property or investing in real estate investment trusts (REITs) or private investments. Alternative investments can provide a steady source of income and potential appreciation. However, it's vital to conduct due diligence by consulting financial and tax professionals to ensure these strategies are appropriate for your situation as they come with risks.

Let's Team Up

Whether you invest in an IRA, HSA, a taxable brokerage account, real estate, or private investments, the key is maintaining a diversified portfolio to spread risk and increase growth and asset accumulation opportunities. Consider enlisting the help of a financial professional to help navigate these decisions in line with your specific circumstances and objectives.

Note: Due to the Labor Day holiday, next week we will not be distributing Weekly Market Commentary.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 
 
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
 
ART Tracking #: 612127-03-01
In his speech at Jackson Hole, Chair Powell expressed more confidence in the disinflation process and noted the FOMC does “not seek or welcome” further cooling in the labor market.

Initial jobless claims have risen in recent months, averaging 236k since early June versus 213k in the first five months of 2024. Claims were volatile in July and, on two occasions, spiked to their highest levels since last August. This, in tandem with a weaker Jobs report, stoked fears of a rapidly cooling labor market. Interestingly, a deeper dive into state-level data suggests that two states are largely to blame for the swings in claims: Texas and Michigan.

In these states, three of the last six weeks have shown week-to-week changes in initial claims that surpass one standard deviation in magnitude based on data back to 1988. In Michigan, larger temporary auto plant closures in July likely pressured more individuals to file for unemployment. In Texas, storm-related issues forced individuals out of work as the jump in claims coincided with Hurricane Beryl’s landfall in the state. These spikes proved temporary, however, and claims in both states have retraced lower. For the week ended August 17, initial claims settled at 232k, higher than prints earlier this year but below the average 244k reported in the five years before the pandemic. While weekly prints may be volatile, long-term investors should focus on longer-term trends, which show a labor market that is slowing, but not one that is rapidly deteriorating.

Beyond claims, BLS revisions released last week removed 818k jobs from payroll employment in March 2024. This suggests the labor market was weaker than reported in 2023, but also that strong productivity gains should be revised upward. In his speech at Jackson Hole, Chair Powell expressed more confidence in the disinflation process and noted the FOMC does “not seek or welcome” further cooling in the labor market. This cements a first rate cut in September, creating a sense of urgency for investors to lock in attractive yields before they move lower.


Chart of the Week: Source: Department of Labor, Haver Analytics, J.P. Morgan Asset Management. Change in aggregated state-level initial claims may not equal the change in reported initial claims due to seasonal adjustments being applied to state-level data.

Thought of the Week: Source: BLS, Department of Labor, Haver Analytics, J.P. Morgan Asset Management.

Abbreviations: Cons. Sent.: University of Michigan Consumer Sentiment Index; CPI: Consumer Price Index; EIA: Energy Information Agency; FHFA HPI: - Federal Housing Finance Authority House Price Index; FOMC: Federal Open Market Committee; GDP: gross domestic product; HPI: Home Price Index; HMI: Housing Market Index; ISM Mfg.
Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally
Adjusted Annual Rate
 
Equity Price Levels and Returns: All returns represent total return for stated period. Index: S&P 500; provided by: Standard & Poor’s. Index: Dow Jones Industrial 30 (The Dow Jones is a price-weighted index composing of 30 widely-traded blue chip stocks.) ; provided by: S&P Dow Jones Indices LLC. Index: Russell 2000; provided by: Russell Investments. Index: Russell 1000 Growth; provided by: Russell Investments. Index: Russell 1000 Value; provided by: Russell Investments. Index: MSCI – EAFE; provided by: MSCI – gross official pricing. Index: MSCI – EM; provided by: MSCI – gross official pricing. Index: Nasdaq Composite; provided by: NASDAQ OMX Group.

MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.

Bond Returns: All returns represent total return. Index: Bloomberg US Aggregate; provided by: Bloomberg Capital. Index: Bloomberg Investment Grade Credit; provided by: Bloomberg Capital. Index: Bloomberg Municipal Bond 10 Yr; provided by: Blomberg Capital. Index: Bloomberg Capital High Yield Index; provided by: Bloomberg Capital.

Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.

Commodities: Gold, FactSet; Crude Oil (WTI), FactSet; Gasoline, FactSet; Natural Gas, FactSet; Silver, FactSet; Copper, FactSet; Corn, FactSet. Bloomberg Commodity Index (BBG Idx), Bloomberg Finance L.P.
 
Currency: Dollar per Pound, FactSet; Dollar per Euro, FactSet; Yen per Dollar, FactSet.
 
S&P Index Characteristics: Dividend yield provided by FactSet Pricing database. Fwd. P/E is a bottom-up weighted harmonic average using First Call Mean estimates for the "Next 12 Months" (NTM) period. Market cap is a bottom-up weighted average based on share information from Compustat and price information from FactSet's Pricing database as provided by Standard & Poor's.
 
MSCI Index Characteristics: Dividend yield provided by FactSet Pricing database. Fwd. P/E is a bottom-up weighted harmonic average for the "Next 12 Months" (NTM) period. Market cap is a bottom up weighted average based on share information from MSCI and Price
information from FactSet's Pricing database as provided by MSCI. Russell 1000 Value Index,
 
Russell 1000 Growth Index, and Russell 2000 Index Characteristics: Trailing P/E is provided directly by Russell. Fwd. P/E is a bottom-up weighted harmonic average using First Call Mean estimates for the "Next 12 Months" (NTM) period. Market cap is a bottom-up weighted average based on share information from Compustat and price information from FactSet's Pricing database as provided by Russell.
 
Sector Returns: Sectors are based on the GICS methodology. Return data are calculated by FactSet using constituents and weights as provided by Standard & Poor’s. Returns are cumulative total return for stated period, including reinvestment of dividends.

Style Returns: Style box returns based on Russell Indexes with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for stated period including the reinvestment of dividends. The Index used from L to R,
top to bottomare: Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to book ratios and lower forecasted growth values), S&P 500 Index (Index represents the 500 Large Cap portion of the stockmarket, and
is comprised of 500 stocks as selected by the S&P Index Committee), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures
the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values), Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth values).

Past performance does not guarantee future results.
 
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
 
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial
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