Q3 2021 Plan Performance
By Constantine Mulligan, Director of Investments Partner, Cerity Partners LLC
Vista 401(k) Plan Fund Performance
When examining longer time periods (3, 5 and 10 year periods) all funds are performing as expected. None of the funds in the lineup have fallen into the bottom quartile for performance over this time period, and the majority of funds have performed in the top half of their respective peer groups. This is a result of consistent processes, strong security selection, and low cost.
In the very short term (1 year and less) there are two funds that exhibited underperformance relative to their peers, the T. Rowe Price Dividend Growth Fund and the T. Rowe Price Blue Chip Growth Fund. Over this time period, equity market factors such as “growth” (stocks of companies that are expected to grow quickly) and “value” (stocks of companies with cheaper per share pricing) have exhibited volatility, with growth outperforming at times, and value at others. The two funds mentioned exhibit these factors in a more pronounced way than their peers and have therefore exhibited short term under- and outperformance. This short-term performance represents “noise” from our perspective and is not a cause for concern.
For our clients who wish to take a deeper dive, we have provided the following economic and market commentary. This will provide an explanation of the overall macro and micro economic factors influencing the markets and, in turn, your Vista 401(k) account. If you have any questions or wish to discuss these matters in greater detail, please contact us at 866-325-1278 or e-mail us at 401k@vista401k.com.
Q3 2021 Economic and Market Recap
When the numbers are reported at the end of October, the U.S. economy, which registered over 6% annualized growth in both the first and second quarters of the year, is expected to have slowed in 3Q to roughly 2-3%. The primary culprit for the slowdown to what are still reasonably strong growth rates was the spread of the highly contagious delta variant of Covid-19 and the impact it had on both restraining consumer spending on services and prolonging global supply chain dysfunction.
The concept of “stagflation,” a term coined in the 1970s to describe an economy with high inflation rates and little to no economic growth, has resurrected this year, even though it is difficult to characterize the current growth environment as stagnant. Inflation is the greater long-term risk to the markets as price increases in certain sectors have been surprisingly persistent with strong aggregate demand and constrained production due to supply chain and virus issues.
The U.S. Federal Reserve consistently characterizes this year’s inflation as transitory. Moreover, it says the inflation is a function of base effects from very low Covid-induced prices of last year and what they believe to be temporary supply chain issues that should dissipate over the coming months. Other central banks in the demographically challenged developed market countries are suppressing the urge to tighten into this inflationary environment unless, and until, the price increases become truly persistent.
With inflation currently rising faster in the U.S. than in most other developed market economies, the Fed will be the first global central bank to begin removing the extraordinary purchase of short to intermediate maturity government bonds. The Fed has been very careful in its messaging to avoid market disruption, but as indicated in its quarter end meeting, the “tapering” process should begin in December.
Fiscal policy concerns and dissonance within the Democratic Party contributed to September market skittishness. While dominating the headlines at the end of the quarter, debt ceiling debates and government shutdowns have historically been viewed by markets as political sideshows with minimal long-term impact. But fiscal policy will be less supportive of the economy as the government passes the baton of consumer support to the private sector with taxes increased for both individuals and corporations. Senators Manchin and Sinema have become leaders of the moderate faction of the Democrats and their influence on the political process should lead to a notable tamping down of the magnitude and scope of spending increases including the tax increases needed to finance the spending.
Given the above trend economic growth the U.S. experienced in the third quarter, and little risk of recession on the horizon, it was somewhat perplexing that bond yields declined in July before moving back up for the rest of the summer. Looking ahead, bond yields should continue to increase towards 1.75% on the 10-year treasury by year end and the treasury yield curve should continue to steepen. Continued careful messaging by the Fed and a gradual implementation of the tapering process should prevent any disruptive spike in yields.
In assessing the global equity markets, it appears the U.S. large cap sector, as reflected by the S&P 500 index, is vulnerable to a correction given the strong year to date performance on top of last year’s impressive returns. Investors should be aware that the average stock in this index has already corrected over 10% and the small and midcap sectors have underperformed large cap year to date.
What this Means for Investors
Low inventories, the need for supply to catch up with demand, strong jobs and wage growth, and very healthy corporate and consumer balance sheets all provide a reasonably favorable economic backdrop and imply a low probability of recession going into 2022.
Persistent, more permanent inflation in commodity prices, particularly energy, could hamper growth. However, pandemic- related effects such as port congestion will begin to be rectified. Wage pressure may take much longer to dissipate. Continued productivity enhancing technology investments by corporations will be key to maintaining profit margins, preventing the development of a truly inflationary cycle, and growing real wealth in the economy.
September 2021 Fund Performance Chart
Invest Now, Build Your Nest Egg
By Jim Matheu, Retirement Services Manager
Too often employees in their twenties do not understand the importance of retirement planning. It is something they fail to think about or act on until they are in their thirties or maybe even their forties. This is an all-too common and very costly mistake. Conversely, employees who start investing in their 401(k) plan in their twenties, continue each pay period, uninterrupted, for their entire career, and retire in their sixties will likely retire with more money than they ever expected. This holds true despite your level of income. Those who receive a modest salary but manage to invest 3% of their paycheck every pay period and experience an average annual return in the neighborhood of 8%, will reap the rewards come retirement. Should you increase your contribution as finances permit, you will be even more pleased with the result.
SAVE MONEY
Rather than investing in their future, many choose to spend their money today, on a variety of different things. They would rather go on expensive vacations or travel to the beach or mountains most weekends. This is terrific and even necessary when you are looking to unwind and recharge. Yet, I suggest that you strike a balance. You can still take vacations, perhaps not as many, and weekend getaways are fine too, but limit them to once a month or once every few months and invest the money you save in your retirement plan.
If the above sounds extreme, consider alternatives that will allow you to invest in your retirement plan. It might be that you purchase gourmet coffee once or twice a day. This is an expensive habit. Consider making coffee at home and limiting your coffee purchases to a few times a week. Perhaps you have lunch delivered to your place of employment or routinely visit a sit-down restaurant for lunch. If this is the case, it is time to start brown-bagging it. Similarly, if you eat dinner out most nights, make a change. Prepare dinner at home and rent a movie for entertainment. You can still go out to dinner but decide to do so less frequently. These are all ideas to help you save money and invest in yourself so that one day, when your career is over, you can vacation without concern or travel every weekend if you so choose. It might be that you don’t have a desire to travel. That’s fine too. Stay home and spoil yourself or family and friends. Either way, you will be doing what you want to do on your own schedule and terms. The price of this freedom later in life is that you show a modicum of fiscal restraint today and invest in your Vista 401(k) Plan.
If you fail to do so you may miss out on hundreds of thousands of dollars upon retirement. The longer you procrastinate, the smaller that nest egg will be when that inevitable day arrives. That being said, it is never too late to begin saving for retirement!
TAX SAVINGS
Tax savings is another reason to invest in your Vista 401(k). All contributions to your Vista 401(k) are invested on a pre-tax basis. This serves to reduce your taxable income today and, thereby, reduce your current tax burden. However, you do not avoid paying taxes on your 401(k) account, rather taxes on your contributions and gains are paid upon withdraw of funds.
FINANCIAL EDUCATION HOTLINE
Now that you have invested in your Vista 401(k) retirement plan it is time to take advantage of our 1-on-1 financial education hotline. This great service is brought to you through FBMC Benefits Management, Inc. by Cerity Partners LLC, an independent Registered Investment Advisory firm. Cerity offers a financial coach to help you understand your Vista 401(k) investment options, answer your questions, and help you to make sound decisions about your retirement account. All you must do to benefit from this service is enroll in the Vista 401(k) Plan and call FBMC’s Retirement Services Department at 866-325-1278 or email us at 401k@vista401k.com.
The Vista 401(k) Plan is your vehicle that will lead you to a secure retirement. FBMC and Cerity Partners will help guide you along the way. However, you are the captain of your ship and as such you must, initially, navigate these waters by making the leap today! A simple investment every pay period left untouched over the years will provide comfort and security when you need it most! So do not wait any longer.
Invest now! Reap the rewards later! And if you follow the plan outlined above, you will not be disappointed!
If you have any questions or wish to discuss your Vista 401(k) account, you may also contact the Retirement Services Department at (866) 325-1278 or e-mail us at 401kvista401k.com.
“Nuts and Bolts”: How to Open a Vista 401(k) Account
By Jim Matheu, Retirement Services Manager
You have made the decision to invest in your Vista 401(k) Plan. The question is, how do you open an account?
Below are several ways. Choose the option that’s most convenient for you:
1. Call the Retirement Services Department and request that we email you an application form. Once you complete the form, fax it to the Retirement Services Department at (850) 425-8345.
2. Visit the Vista website at vista401k.com, print an application, complete that application and either fax it to the Retirement Services Department at (850) 425-8345 or mail it to us at:
FBMC Benefits Management, Inc, P.O. Box 1878, Tallahassee, Florida 32302-1878
3. Go to the Vista 401(k) website at vista401k.com, click on “Open an Account” and follow the prompts. If you have any questions, please contact the Retirement Services Department at 866-325-1278.
4. At the end of each month, we send a 5-day email campaign. At the bottom of each email is an abbreviated application. This abbreviated application can be completed online, saved to your desktop, and emailed to the Retirement Services Department at 401k@vista401k.com.
Please note if you have any difficulties when you attempt to enroll, restart your Vista 401(k) account, or change your contribution, then contact the Retirement Services Department at 866-325-1278 and we will walk you through the process!
Things You May Not Know About the Vista 401(K) Plan
By Toni Milton, Sr. Retirement Plan Specialist
Retirement savings doesn’t just spontaneously happen. It takes planning, commitment and, yes, money. If you are not saving for retirement, it’s time to get started. The sooner you start saving the more time your money will have to grow. Here are a few things you may or may not know about your school board sponsored 401(k) plan.
ENROLL YEAR-ROUND AND RIGHT AWAY
Did you know you do not have to wait until open enrollment to enroll in the Vista 401(k) Plan? You can enroll in this plan any time during the year. Some 401(k) plans make you wait up to a year before you are eligible to contribute to their plan. Not the Vista 401(k) Plan. This plan allows you to contribute via payroll deduction beginning with your first paycheck.
ENROLLMENT IS NOT AUTOMATIC
Did you know the word “Vista” noted on your W-2 is not related to the Vista 401(k) plan? In fact, if you do participate in the Vista 401(k) plan it will be noted on your W-2 as a number. There will be no reference to a 401(k). Please note that the school board will not automatically enroll you in the 401(k) plan. If you would like to open a Vista 401(k) Plan, you can contact the Retirement Services Department by phone at 866-325-1278 or via email at 401k@vista401k.com. You may also visit our website at vista401k.com.
Everyone that has a 401(k) account should receive a Vista 401(k) statement every three months. If you are not receiving a statement, please contact our office at 866-325-1278.
TAX DEFERRAL
Did you know you receive a tax break when you contribute to a 401(k) account? You contribute pretax money from your salary which lowers your taxable income and helps you cut your tax bill now. Further, your invested funds as well as any gains grow tax free which will serve to increase your saving and grow your account. You will pay taxes on principal and earnings at time of withdrawal. To enroll, please follow the directions detailed above.
CERITY PARTNERS
Did you know that you are responsible for all investment decisions on how to allocate your contribution among the available investment options? If you do not select any options, your money will default to the American Funds Target Date Fund closest to your 62nd birthday. To remove some of the investment decision burden, Cerity Partners, an independent Registered Investment Advisory firm, is available to provide 1-on-1 counseling. They will analyze your retirement portfolio and make investment recommendations based on your set of circumstances at no additional charge to the participant.
HAPPY RETIREMENT
The Vista 401(k) Plan is a flexible benefit option offered to all eligible School Board employees. It is an excellent vehicle that will enable you to properly save for retirement. Now is a good time to start, restart, or increase your Vista 401(k) contribution so that when you retire you can enjoy life and do everything you were unable to do while working.
If you have any questions, please contact the Retirement Services Department via phone, 866-325-1278, or email, 401k@vista401k.com.
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The articles and opinions in this newsletter are those of FBMC Benefits Management, Inc. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial professional for further assistance with regard to your individual situation.This material is intended to provide general financial education and is not written or intended as tax or legal advice and may not be relied upon for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.