March 2016 Newsletter
Stock Update
When stocks fall by 20% or more, we call it a "Bear Market."  This happens about every five or six years on average.  The period from mid-2015 through mid-February 2016 was considered a bear market for some sectors of the stock market (e.g. small cap and emerging markets.)

If we knew ahead of time when these declines were coming, we could allocate to cash. However, it is extremely difficult to distinguish between minor corrections, such as those that occurred in 2010, 2011, and 2012, and bear markets - until after the fact.  During these minor corrections, many forecasters said you should get out of the market and wait in cash.  But that did not work out so well because the market continued its upward trend through mid-2015. 
Complex financial chart of a financial instrument shown on a computer monitor, with several technical indicators
Whatever the circumstances, you can always find someone who says you should sell your stocks and wait for the situation to stabilize.  But that is just another way of saying you should try to time the market.  There is a better way to deal with market volatility:  diversification.
Diversification:  A Better Strategy
Colorful pie chart
A better way to deal with volatility versus timing the market is to invest a portion of your long term investments into other areas to offset some of the stock market's volatility.  This is the approach we use for the vast majority of clients.

Even those who draw monthly income from their investment accounts are likely to have a portion of their holdings in stocks.  When stock prices are down, we can draw money from other areas of the portfolio. This is not as catchy as saying we get people into and out of stocks at the right times.  However, it is a time-tested and practical way to manage stock market volatility.
Scary Headlines
Fear sells newspaper - or in the modern economy, fear sells "clicks."  Few people would be interested in a headline that says the market is doing exactly what we expect it to do.

One fear-inducing sound-bite was parroted about in January and February: "The stock market is off to its worst start in seven years."  Spreading this kind of fear can cause people to rethink their long-term strategies at exactly the wrong time.

In 2009, stocks started the year poorly but finished with a gain of 26%.  Sometimes it is hard to stay the course even though we know that growth does not occur in a straight line.  We get bombarded with headlines that make normal ups and downs seem like Armageddon.
Business man protects himself from the crisis
Last Reminder for 2015 IRA Contributions

The deadline for 2015 IRA contributions is April 15.  The contribution limit is $6,500 if you were 50 or older during 2015 or $5,500 if you are under age 50.  The limits are the same for 2016.  The two main kinds of IRA are Traditional and Roth.

Traditional IRAs:  These are the kind of IRAs that generally allow a tax deduction for any contributions.  There are no income limitations unless you or a spouse are eligible for a retirement plan.  You can take out money starting at age 59 1/2 without penalty.  Also, you must start taking out money from a traditional IRA at age 70 1/2 (or the year after, which is not usually recommended.)

Roth IRAs:  These IRAs enable you to deposit after-tax money (versus tax deductible money into a traditional IRA.)  Under current tax rules, you have no deadline to take money out of a Roth IRA.    After five years and upon reaching age 59 1/2, you can take out money from a Roth with no tax due.  Couples who made $183,000 or less (modified adjusted gross income) or singles who made $116,000 or less may be eligible to put up to $6,500 into a Roth IRA for 2015.     

College Savings
You may have seen a notice from Bright Directions or another 529 plan about three new rules, which are advantageous if they apply to you:

1.  When using money from a 529 plan for a non-eligible expense, the first rule lets you figure your gain or loss from any 529 account (instead of the old rule that made you aggregate across all of your 529 accounts.)

2.  Computers and related equipment are now considered eligible expenses.

3.  You can avoid taxes on refunds from eligible institutions by depositing any returned money back into your 529 plan within 60 days.
Social Security File and Suspend
You have until April 30, 2016 to implement the strategy commonly called "file and suspend."  To qualify, you have to have been born before May 1, 1950 and you cannot have claimed Social Security retirement benefits.  Under this strategy, usually the higher earning spouse files for benefits and immediately suspends receipt.  By filing, the lower paid spouse becomes eligible for spousal benefits (1/2 of the other spouse's amount). This way, both spouses can allow their benefits to continue growing until age 70 because spousal benefits do not reduce your own benefits.  With a tight budget, this free money is going away.
Investment Adviser Associate
Golden Trail Advisers continues interviewing people with 2-10 years of experience in the financial industry, preferably with an investment advisory firm.  We are pleased with the caliber of candidates we have been interviewing, but have not found the right person yet.  Stay tuned.


Feel free to forward these thoughts to anyone who might benefit from them.

Mike Sedlak, CFP®, CFA, CEPA, MBA   |    |   Golden Trail Advisers, LLC |         630-323-1111 Phone                 |        630-323-6540 Fax             |