|Wouldn’t it be nice if the stock market didn’t have such violent swings in either direction? Especially the dramatic downward plunges – we’d ALL like to avoid those! But the reality is, the markets include a certain amount of volatility, and keeping those market swings in perspective is important.Here are five facts to remember when the market gets bumpy:|
|Be Wary Of Headlines Quoted In PointsIt’s common for the financial media to quote changes to market indices – specifically the Dow Jones Industrial Average – in terms of points. Why? Because a large point change sounds scary, and scary makes people pay attention to graphics like this:|
|Pay close attention to what that point change REALLY means. In reality, a 340-point change in the Dow only equals about +/- 1% change based on current levels of around 34,000 (as of September 2021). When the Dow was at 10,000, a 1% move is only 100 points. It’s all relative, and important to view numbers IN CONTEXT.|
|Look At The Bond MarketIt’s difficult to determine if a market downturn is the start of the next recession or simply a bad day. Turns out the bond market can offer some peace of mind when volatility flares up.To gain some insight into underlying economic conditions, we can turn to the Treasury spread (to learn more about Treasury spreads, please read this Investopedia article.) When spreads go higher, that implies improving economic conditions (bullish sentiment); conversely, when spreads go lower, that implies deteriorating economic conditions (bearish sentiment).Here’s why it matters:Treasury spreads have correctly anticipated the last six recessions (red circle), dating back to 1976. Critically, if Treasury spreads drop below zero, that’s not a great sign. It doesn’t happen often, but there’s genuine cause for concern when they do.|
|So, the next time the stock market is having a down day, listen to the bond market. You can check Treasury spreads for free on the St. Louis Federal Reserve’s website.Please note: Treasury spreads are just one input. Forecasting economic conditions is an inexact exercise where past performance is not necessarily an indicator of future results.|
|Volatility Doesn’t Necessarily Mean LossA volatile year doesn’t mean that it will be a negative year! For example, let’s compare two years that featured a similar return: 18.4% in 2017 vs. 16.9% in 2020. Despite similar returns, the S&P 500’s volatility was much higher in 2020 than in 2017. As the charts below indicate, if you stayed put throughout the year, you made similar double-digit returns in both years.|
|Speaking of staying put… Patience Is A VirtueIt can be hard to stick to your plan through periods of volatility. When volatility picks up, just remember that investors who hold the line tend to realize more of the market’s returns than those who try to time their entry and exits.As the charts below illustrate, longer hold periods can make those stormy days seem much less significant.|
|The Glass Is Half-FullThose names you hear quoted in the media – the Dow, the S&P 500, and the Nasdaq, and so on – they represent a basket of America’s largest and most profitable businesses. These businesses produce the goods and services that make our modern world run. Sure, recessions happen and make the business climate challenging, but those are relatively rare.In fact, since 1945, recessions have lasted less than a year, on average, whereas the good times where businesses grow historically last more than five years.In the long run, stocks go up more often than they go down!|
|If market volatility is still making you uncomfortable, there are investments that may help. Contact our office today to understand if these investments are right for you and aligned with your current financial plan.|
Tunde continues his talk with Jamarlin Martin from GHOGH Podcast. They discuss how QE or quantitative easing (money printing) is likely to look different in the next financial crisis in America and some tax benefits with side hustles. They also discuss why estate planning is a selfless act.
The views expressed are not necessarily the opinion of SagePoint Financial Inc. Due to volatility within the markets mentioned, opinions are subject to change without notice. All Investing involves risk including the potential loss of principal. No investment strategy including buy and hold and diversification can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary and therefore this information should only be relied upon when coordinated with individual professional advice. This information is not to be taken as investment advice or a guarantee of future results.
Individual Retirement Arrangements (IRAs) are for retirement saving, right? Absolutely. Is that their only purpose? Not necessarily.Continue reading
When you read about money matters, you will sometimes see the phrase, “getting your financial house in order.” What exactly does that mean?
When your financial “house is in order,” it means it is built on a solid foundation. It means that you have six fundamental “pillars” in place that are either crucial for sustaining your financial well-being or creating wealth.
#1: A savings account. This is your Fort Knox: the place where you store and build the cash you may someday use for your biggest purchases. Savings accounts pay a modest interest rate. You should still consider having a savings account, even in today’s low-interest rate environment. Banks and credit unions often limit the number and amount of withdrawals you can make from savings accounts per month.
#2: A checking account. This is your go-to account for everyday expenses, whether you pay your bills digitally or the old-fashioned way. Checking accounts pay a modest interest rate. Some accounts may have minimum balance requirements, so it’s best to closely read the new account information. Also, opening a checking account may lead to opening a credit card account at the same financial institution.
#3: An emergency fund. This bank account helps you deal with the unexpected. You know that label you see on fire extinguisher boxes – “break glass in case of emergency?” Only in a financial emergency should you “break into” this account. What is a financial emergency? Everyone’s definition varies, but examples include hospital bills, major car repairs, and unemployment.
#4: A workplace retirement plan account. Some want to start saving for retirement as soon as possible. Workplace retirement plans offer you a convenient way to get started. In most of these plans, your contribution is made with pre-tax dollars.1
Money saved and invested in these accounts can compound, and the compounding may become greater with time. Consistent monthly investment is the “fuel” for your account.
Regular monthly investing does not protect against a loss in a declining market or guarantee a profit in a rising market. Individuals should evaluate their financial ability to continue making purchases through periods of declining and rising prices. The return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.
#5: An Individual Retirement Arrangement (IRA). This is a tax-advantaged retirement savings account that you own. There are traditional IRAs (up-front contributions are not taxed; retirement withdrawals are) and Roth IRAs (up-front contributions are taxed; retirement withdrawals are not, provided federal tax laws are followed).2
Mandatory annual withdrawals are required from traditional IRAs starting at age 72. The money distributed to you is taxed as ordinary income; if such distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty. No mandatory annual withdrawals are required from Roth IRAs while the original owner lives. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Thanks to the SECURE Act, you may contribute to Roth and traditional IRAs all your life, as long as you meet the earned-income requirement for account contributions.2
#6: A taxable investing account. This is also popularly called an investment account or brokerage account. Unlike an IRA or workplace retirement plan, the invested assets in these accounts are taxed each year. A taxable investing account gives you access to a wide range of investment products, which can help complement the other accounts in your financial foundation.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Tax Policy Center, May 2020
Internal Revenue Service, November 10, 2020