The last few trading days have seen some of the biggest single-day declines since the onset of COVID in 2020, and the uncertainty does not seem to be subsiding. That said, in this newsletter you will find practical guidance, and above all, encouragement to stay the course.
I would be remiss not to mention how impressed I have been by our clients’ response to the recent volatility in the market. Keep up the good work.
MARKET UPDATE
In last month’s newsletter I shared,
“Given the ever-present uncertainty of the future (in today’s case: looming tariff wars, continued investment in AI, sticky inflation, and so on) I do not know what the market has in store. What I do know, is at some point (there is virtually no way to know when) the value of mainstream equities will decline.”
Well, here we are. As of market close April 7th, the S&P 500 is down about 14%.
Now, before I give you the incredibly encouraging historical data of stock returns following stock market declines, permit me to share that moments like these are:
- unavoidably part of the mainstream equity owner’s investing experience. Since the stock market bottom of the Great Financial Crisis on March 9, 2009, there have been 30 corrections of more than 5%.
- quite opportunistic for many investors. (Please read the “Friendly Reminders” below for a brief list.)
Now for the data.
Let’s talk consumer sentiment. J.P Morgan has a great chart produced in their “Guide to the Markets” called “Consumer confidence and the stock market.” It outlines the average 12-month return of the S&P 500 after the 9 biggest sentiment “troughs” since the 70s (to note, we are near a current trough given March ended at 57, with 50 being the lowest of these 9 troughs). The average return?
24%.
Historically speaking, when people are the most worried, the market responds most positively.
I do not know how long this volatility will last. In the meantime, take heart – we have planned for this. Thank you for your continued trust.
As always, we will be forwarding this month’s “Client’s Corner,” by Nick Murray. I hope you enjoy.
FRIENDLY REMINDERS
- Tax Loss Harvesting – Market declines are great opportunities to “harvest losses” by selling holdings at a loss, and purchasing similar holdings that maintain portfolio exposure and diversification. Doing so provides tax benefits, while keeping you invested and diversified. If you have non-qualified accounts with us, please keep in mind you might be receiving trade confirmations as we harvest losses in your account.
- Investing Additional Cash – Consider the recent market drawdown as an opportunity to invest at discounted prices. If you have any cash sitting around, it might be a good time to put it to work.
- 401(k) Contributions – Consider increasing your 401(k) contributions while prices are cheaper as the investments within your retirement plan are also priced cheaper than they were at market highs.
- Roth Conversions – If you have a traditional IRA or SEP IRA, consider completing a Roth conversion. Converting during a market decline means you will pay less tax on the conversion while remaining invested. Then, as the market recovers, the growth of the converted amount is tax free. Attached is a graphic that can help determine if a Roth conversion is right for you.
- Budget/Cash Flow – While the overall economy and its respective influence on mainstream equity prices is out of our control, there are things we can do. Now is a great time to look at your budget and see if there are places to be trimmed. Renegotiating phone/internet contracts, cancelling unused monthly subscriptions, or being thoughtful on food spending are a few ways to cut back. The idea is to align your spending with your goals and values.
- Social Security Fairness Act – Signed 01/05/2025, the act eliminates provisions that previously reduced Social Security benefits for persons receiving pensions from work not covered by Social Security. Examples of these individuals include teachers, fire fighters, police officers, and public workers. Attached is a graphic that gives further guidance.
- Roth and Traditional IRA Contributions – The deadline to contribute to a Traditional or Roth IRA for 2024 is April 15, 2025. Each individual may contribute a max of $7,000 with an additional $1,000 for those over the age of 50.
- Tax Documents – As I mentioned, the majority of tax documents from Schwab should be posted. However, if you contributed to an IRA, SEP-IRA, or SIMPLE for 2024, you will need to let your CPA know the exact amount. Tax documents reporting these contributions (Form 5498) will not officially come out until May (given that contributions are allowed up until the April 15th deadline). If you did not take a withdrawal from your retirement account you will not receive a 1099. Please give us a call if you have any questions.
- PWA Portal – Here is a link to your PWA portal login. This portal is your one stop shop to view your accounts, balances, and quarterly statements. If you are unable to login, please let us know and we will get you set up.
On behalf of your PWA team,
Brock Hedgecoke, CFP®
Financial Advisor