Being Smart with $$ -- Take Advantage of the Market Drop

If the health crisis we are facing isn’t enough, perhaps the stormy weather in the financial markets has you feeling even worse.  But when the markets are down, you have the chance to make some moves you wouldn’t otherwise make.  Take tax losses to reduce your tax bill but consider reinvesting the proceeds into a similar asset so as not to lose your market exposure.  Sell poorly performing funds you have wanted to punt that may no longer be at a tax gain and reinvest into low-cost better performers in the same sector. Convert assets from a traditional IRA to a Roth IRA with a lower tax bill since 100 shares of most assets today are worth less than they were 2 months ago.  You can sit paralyzed as the markets react to the coronavirus news or you can act on it and grab what benefits you can.  (Specific moves should consider your personal circumstances and you should consult with your financial professional to ensure actions are in line with your needs and tax laws.) 

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart with $$ -- What Kind of Investor Are You?

Successful investors know there is never a good time to buy stocks.  Either the world seems healthy and stocks are overpriced (and who wants to buy an overpriced stock?) or the world has a new crisis with stocks plummeting (and who wants to buy stocks when they’ll be cheaper tomorrow?)  But successful investors know that they can’t correctly time the market on a regular basis.  They also know that despite short-term turmoil in the markets, their gains over the long run will likely be quite substantial.  Most of the rest who look for the perfect entry point usually complain that they can’t get a lucky break in the markets.  Which investor are you?

Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ -- Every Day You Start Fresh in the Stock Market

Every day you start fresh in the stock market. At the start of every day, you know there is the chance the market can go up and there is the chance that it can go down. It is never obvious which way it will go because there are always factors that could push it either way. So every day you start fresh and yesterday no longer matters. And if you remind yourself that 10 or more years from now your diversified stock portfolio will likely be much higher because of the effect of huge annual global corporate profits, you might relax and ignore the day-to-day volatility. Far too many investors fear the stock market in the short term and then miss the incredible gains over the long term after they panic and sell their holdings. If you are invested correctly, your stock holdings should be the part of your portfolio designed to meet your needs in the long term. If you are invested correctly, the short-term volatility should be a problem for day traders but not for you.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice.)

Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ - Is it Too Late to Trade Based on Today's Headlines?

The stock market caught the coronavirus today and fell hard. Over the past several weeks, investors have been unsure of the impact of the virus and balanced it against good corporate earnings and other news and market movements have been restrained but today the markets fell based on headlines of worsening contagion.  If you wish you traded out of some stocks before today’s coronavirus news, remember that the markets always adjust to news stories before you can trade on them.  Therefore, if you do trade, you are already too late based on what we know right now.  Any decision to make a bet on a stock or an entire market is a claim that you know better than the rest of the world because markets trade at an equilibrium price where the optimism of buyers is offset by the pessimism of sellers.  Every year, many brand name investment firms claim to know better than the collective of the world’s investors and guess wrong.  Nobody likes to see their investment account balance fall but investors like Warren Buffet see it as buying opportunity and if you are invested for a distant goal, then short-term drops in the market should not concern you.  You should keep the faith that while global corporate earnings may be impacted by something like coronavirus, in the long run, all those profits will lead to higher stock prices over the decades before you reach your goal.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart with $$ - In 2019, "Good" may not be good enough

How did your portfolio do in 2019?  “Good” may not be good enough.  Many will look at returns of 10% or more and send their adviser a thank-you note.  But any percentage return is irrelevant unless you compare it to returns you should have earned based on market performance and your personal circumstances.  If you are 50, you may compare your portfolio return to Vanguard’s Target Retirement 2035 Fund which gave investors a return of over 22% in 2019.  While your circumstances and risk profile may be somewhat different than others who are 50, this comparison may put your 2019 performance in perspective.  Are you 55? The Vanguard 2030 Fund returned over 21% in 2019.  As many advisers I meet tell me they can time the market to improve performance, the comparison of your portfolio to these Vanguard funds may put these advisers’ claims to the test.  If you paid high fees to an adviser for a 15% return this past year, then your $1 million portfolio may have earned $50,000 less than it should have, not to mention the $10,000 in fees you may have paid.  The market doesn’t go up over 20% most years and missing the years it does by trying to time the market can be quite painful.  There is an old adage that says that success in the markets is not about timing the market but instead it is about time in the market.  A steady investment plan over the decades before retirement and the decades in retirement lets you earn high, long-term returns and requires that you ignore short-term volatility.  If you earned returns this year that were well below those provided by Vanguard target retirement funds matching your horizon, then you might want to question your or your adviser’s investment strategy.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice. 2019 market returns are far higher than historical averages.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ - Classic Investor Mistake

A classic mistake investors make:  Waiting to invest until “after the impeachment” or until “after the tariffs are put in place.”  I regularly hear investors express their view that these items must be bad for stock prices in the days following these events so it is best to wait until after they occur.  The problem with this logic is that if you know it is coming, then so does everyone else and the risk may already be priced into stock values.  Today the market is trading up despite the impeachment last night.  In fact, despite the impeachment that has been expected for quite some time, large-company stocks are up over 6% in the last 3 months.  One never knows which days or months the stock market will rise or fall but many of the assumptions people make about the forces impacting stock prices are flawed.  The best chance for making money in stocks is to buy and hold for decades and add regularly with each new paycheck.  Waiting out short-term events can be costly in the long run.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ - Year End Moves

There’s only one month left this year to take advantage of financial moves that may be in your favor.  Is your income low this year? If yes, you may consider converting some traditional IRA assets to a Roth and paying taxes at a low rate.  If your income is low enough, you may be able to sell stock at a gain and pay no Fed taxes.  If your income is high, you may want to give a gift of appreciated stock to someone who has little or no income and have them sell it (but maybe not to your minor or young-adult children because of the sneaky kiddie tax).  Or you may want to donate appreciated stock to charity instead of cash.  Do you have stock with unrealized tax losses?  Sell it before year end to offset gains or even reduce earned income.  Did you turn 70-1/2 this year or in a past year? You may need to take required distributions from retirement accounts.   Or maybe you inherited a retirement account? You may need to take a required distribution from this account even if you’re younger than 70 and even if it is a Roth IRA.  Do you have lots of cash? Consider adding more to retirement accounts from your paycheck and use the cash to pay bills.  Do you have money left in a flexible spending account? Spend it! But you may NOT want to spend money in an HSA.  Just beware many of the pitfalls of completing any of these actions incorrectly or it may backfire on you.  Speak to your adviser to make sure you are executing financial strategies properly. 

Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com