Objective Financial Advice | | |
We hope you are well and enjoying some of the beautiful days this spring season can bring!
You've been hearing a lot about market volatility over the past several months, including from us. In case you missed our April 3rd Client Letter, you can read it on our website. In this email, we provide suggestions on estate planning considerations with your furry family members, more perspective on the investment markets, and planning opportunities that a market downturn can provide.
While there are opportunities in a down market, we encourage caution on one financial action in particular: rollovers. When requesting a rollover, the funds in the account are usually sold and there's a period of time before they can be reinvested in your rollover IRA. When we are experiencing more movement in the market than usual, there's a higher potential for the funds to be liquidated on a down day and miss a major recovery while the check is being sent to you. To reduce the risk, we want to see the Volatility Index (VIX) consistently under 30 for a few weeks before someone initiates a significant rollover.
If you are a Turbo Tax user and are also receiving Social Security income, please check your 1040, line 6b. Some Social Security recipients are seeing an erroneous $0 for 2024 on this line. Up to 85% of Social Security can be taxed, so if you think this applies to you, please look into amending this error sooner than later.
We congratulate our Financial Planning Associates Morgan Moore and Stephen Ropes for passing the CFP® exam last month! Additionally, we welcome our summer intern Justin Apostolo to the office today!
Please read on for other actionable planning ideas. We will be closed for Memorial Day (Monday, May 26th), Juneteenth (Thursday, June 19th), and Independence Day (Friday, July 4th). We plan to send the next newsletter out in mid-July. We'd love to hear from you on questions or suggestions for topics you’d like to see covered in the future.
| | Including Pets in Your Estate Plan | |
In Southwest Idaho, there is a bit of a "chicken situation." Pictured to the left is the prettiest princess, Gertrude. Gertrude is at the bottom of the pecking order and swallows grapes whole to avoid sharing with her three sisters. She provides eggs and entertainment, but she is not a pet.
For those animals that you fondly think of as family members, have you considered how they fit into your estate plan? You can't name pets as beneficiaries on accounts (though you can always name a charity that helps animals), but what about naming a caregiver for Whiskers or Fido if something happened to you?
Estate planning documents can include instructions for care for your pets along with caregivers named in an emergency or more permanent capacity. Your will actually cannot leave money directly to a pet but it can provide for the expenses required for pet care in a trust, which will receive funds that you specify in your will. The will can also include authorization for the use of funds from your estate to, for example, transport the pet(s) to their new home. A pet trust provides a legally enforceable arrangement that not only funds the pets’ care, but also stipulates how the pet is to be cared for.
While there is a pretty low chance of Gertrude and her feathered counterparts outliving her humans, that may not be the case for your animals. If you are blessed with the opportunity of a decade or more with your not-quite-human family members (and no, we don't mean your Aunt Winifred--bless her heart), you may want to consider a plan for their continued care. Just in case.
Article adapted with permission of financial columnist Bob Veres to include personal perspective from Rachel Songer, CFP®.
| | Should I Change My Investment Strategy? | | |
If you saw this headline in the Wall Street Journal: The Days of Set-And-Forget Investing Just Ended for Many Americans, you may be wondering: Should I change my investment strategy? Spoiler Alert: Our response is no, we are not changing our investment strategy. If you'd like to see why, check out our March 18 blog.
| | When Life Hands You Lemons | | |
It’s hard to find any investor who enjoys a market downturn, but there are a few ways to turn these unhappy events to your advantage. You could use a downturn to gift assets to your children or to a trust (out of your estate) and let the assets recover in value in the hands of people with a lower tax rate. You can also move assets out of a traditional IRA into a Roth IRA (Roth conversion) and be taxed on the lower valuation of the assets. When the downturn ends, the assets will hopefully grow free of all future taxation, meaning lower taxes today could represent a bargain in the future. If a Roth account passes to heirs, they’ll be able to take the money out tax-free.
You could also look at down markets as a chance to sell any assets that are trading below what was paid for them and using the losses to help offset the taxes owed on gains elsewhere in the portfolio. Think of this as sharing the pain with Uncle Sam. An ETF that is trading above the original purchase price can be sold, harvesting the gain, and offsetting the harvested loss, resulting in zero additional taxes. Up to $3,000 a year of ordinary income can be offset with carefully-harvested capital losses incrementally lowering your tax bill.
Be mindful of wash sales when it comes to harvesting losses. The IRS imposes a 30-day ‘wash sale’ rule, which basically says that when you sell a stock, fund, ETF etc. at a loss, you cannot claim that loss if you immediately buy back the same stock, fund, ETF etc. Instead, you have to wait 30 days to replace that exact position. If you want to keep participating in the market, you have to buy a different security—although it could be similar (but not substantially identical) to the one you sold.
When should you deploy these strategies? That’s another catch; to get the optimal benefit, you would have to know the exact point when the downturn reaches bottom before it starts to rise again. Unfortunately, nobody knows the date, time or level in advance. So we just need to use our best judgement and accept that we can still benefit from the strategy even if we don't pick the exact best moment.
Article adapted with permission of financial columnist, Bob Veres.
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After two consecutive years of returns well above what we would expect in an average year, we have come to the other side of that coin--the side that tends to bring averages down. You don't like it and we don't either, but since neither one of us has that crystal ball to tell us the exact date and time to exit and then re-enter the market, we tolerate these downturns.
Generally in this section of the newsletter, we focus exclusively on the last quarter. Because April has been such an eventful month, we're going to include some data through the end of last week to make the observations as fresh as possible. As of the end of the day on Friday April 25, the S&P 500* is down about 10% from its high on February 19 and about 5.7% since the beginning of the year. During the month of April, it's been down as much as 20% from the high. International developed stocks are up close to 10% for the year, and the US aggregate bond index is up about 2.7% year-to-date.
A theme emerges from this data.
Since the beginning of the year, we've seen broadly diversified portfolios that include bonds and international stock fare much better than portfolios more concentrated in US stocks. Does this mean we need to abandon U.S. stocks in favor of a more global allocation? No. Maintaining your asset allocation through ups and downs is the best way to avoid "selling low" and "buying high." If you remember the chart from last quarter's newsletter where it showed U.S. stock outperforming international stock for more than a decade, history shows it'll be coming back. It just might take a little longer than we'd like.
If you created a financial plan with us, you know that we test for market downturns just like this in your plan. Why? Because market downturns are so normal that we should plan for them. Perhaps this feels different than last time, and that's not without merit. No two corrections or bear markets are alike. In the moment, it may feel implausible that the markets will recover—until they do. Both downturns and the subsequent upturns usually catch people off-guard, and that’s normal too. We encourage you to stick with your investment strategy and if you need to close your eyes for a bit, that's okay. Sometimes shutting off the noise is the best action you can take.
*Source for investment returns is Morningstar. Year-to-date returns are as of Friday April 25, 2025. S&P 500 TR USD for S&P 500. MSCI EAFE NR USD for developed international markets. Bloomberg US Agg Bond TR USD for the US aggregate bond index.
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Keller, TX 76248
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