Welcome to 2023! With a challenging 2022 in the investment markets behind us, this year has started out on a brighter note. Bloomberg’s US Aggregate bond index gained 2.6% in the first 2 weeks of the year because of market-driven drops in interest rates, and the S&P 500 is up more than 4%*. Of course, we need to keep in mind that short-term market movements are not cause for excitement or concern. Stock and bond prices fluctuate significantly in the short-term as investors attempt to respond to economic data and adjust their forecasts accordingly. As long-term investors, it’s helpful for us to tune out this noise.

Since it's a new year, it's a good time to review your retirement plan contributions. The maximum regular 401(k) contribution for this year is increased to $22,500. The catch-up is $7,500 for those 50+ making the total potential contribution $30,000. You can start making the catch-up in the year you turn 50 even if your birthday is the very last day of the year. The maximum IRA contribution (Roth or traditional) is $6,500 this year with a $1,000 available catch-up. More limits are available on the IRS website.

Tax documents for 2022 have started to arrive. We recommend making a list of all of your taxable investment accounts and any retirement plan from which you took a distribution in 2022. You should receive a 1099 for each one of these. They may arrive in your physical mailbox, or you may receive an email from your custodian asking you to download the form. Prior to submitting your documents to your tax preparer, you can cross-reference your list to make sure you have each expected 1099. Failing to include a 1099 is one of the most common errors we see on client tax returns, and it will result in an unpleasant letter from the IRS.

You’ve probably heard about the large omnibus bill that passed at the end of 2022 called Secure 2.0. There is probably something in this new law that affects your financial planning. We have highlights below.

Please read on for other actionable planning ideas and a full review of the 2022 investment markets. We will be closed for Presidents' Day (Monday, February 20th) and Good Friday (April 7th). We plan to send the next newsletter out in mid-April. We'd love to hear from you on questions or suggestions for topics you’d like to see covered in the

future. We've included photos of some of our team members throughout the newsletter so you can see us in action and get to know us better.

*Source for investment returns is Morningstar as of January 17, 2023. S&P 500 TR USD for S&P 500. Bloomberg US Agg Bond TR USD for the US aggregate bond index.

Congratulations on making it through a difficult investment year! Investors in a diversified stock/bond portfolio who stayed the course throughout the year were rewarded with a positive quarter to end the year.

The S&P 500 was up 7.56% last quarter coming in at -18.11% for 2022. Small cap stocks were up slightly less this quarter at 6.23% and lagged behind the S&P 500 at -20.44% for last year. Large cap value stocks came roaring back last quarter at 12.42%. Though not enough to negate the prior quarters' losses, they certainly lost the least of the U.S. stock funds at -7.54% for 2022. These are index returns and individual fund performance for these asset classes varied.

Developed market stock was our top performer last quarter at 17.34%, more than doubling the S&P 500 and pulling ahead for the year with a -14.45% loss. You may note that international developed stocks outperformed large cap US for the calendar year of 2022, which is a nice reward for patient investors who have stuck with international stocks through some challenging years. Emerging markets stock also outpaced the S&P 500 at 9.7% for the quarter. It did, however, have a larger loss at 20.09% for the year.

The US aggregate bond index made 1.87% for the quarter bringing the loss for 2022 down to -13.01%. Shorter-term bond funds were up .73% for the quarter with an annual loss of -3.81%. While we don't know what 2023 holds for bond funds, we can confidently say that they are positioned to be a much more positive contributor to your portfolio now than they were a year ago because of higher interest rates.

There have been some media headlines about the "failure" of the 60/40 portfolio last year. As we know, there's no guarantee that stocks and bonds will always move in opposite directions. As we saw last year, when interest rates increase, bond prices must fall. And, when stocks are also dropping because of concerns about inflation, rising interest rates, and other issues, seeing both types of assets drop in value is expected. It's not a failure, but a reminder that investing involves risk. To benefit from the long-term returns of the investment markets, we need to be willing to tolerate these ups and down. We find the WSJ's Jason Zweig's perspective on the 60/40 portfolio helpful.

If you'd like to read more about the markets, Dimensional Funds offers an in-depth review of the 2022 markets and a look ahead.

If you'd like to see more perspective on how markets react during a recession, we find this one-sheet helpful.

**Source for investment returns is Morningstar as of December 31, 2022. S&P 500 TR USD for S&P 500. Russell 2000 TR USD for small cap stock. Russell 1000 Value TR USD for large value stocks. MSCI EAFE NR USD for developed international markets. MSCI EM NR USD for emerging markets stock. Bloomberg US Agg Bond TR USD for the US aggregate bond index. Bloomberg US Government 1-3 Yr TR USD for short-term bonds.