A Checklist for Volatile Markets

The equity markets rebounded this week, as monetary and fiscal measures along with incrementally positive global health data was favorably received. The economy experienced another historic week, as unemployment claims jumped by an additional 6 million (16 million total in 3 weeks alone). As we stated in last weekend’s reading, economic and health data should be separated from the markets, as equity markets have historically bottomed 3-6 months in advance of positive economic data.

It’s unknown what lies ahead for the public health, economy, or the markets. We continue to stress a disciplined approach to a long-term strategy and plan. Additionally, we generally suggest a review of expected cash flow needs over the next 3-5 years and to set aside those expected needs in fixed income. This suggestion is based on data. As shown, the average bear market since WWII takes about 2 years to go from peak-to-trough and another 1 year to recover to the previous peak.

Below is this weekend’s recommended reading:

A Checklist for Volatile Markets: Retirement Saver Edition (Christine Benz, Morningstar)

As Christine Benz notes, the general advice during a market selloff is to stick with a long-term game plan and avoid emotional decision making. However, it does not mean “do nothing.” She points out several items to review during these volatile periods.

1. Revisit portfolio distribution requirements and fixed income / cash reserves.

2. Increase contribution rates, if possible, towards retirement accounts or other savings vehicles (529 plans, brokerage accounts, etc.).

3. Take advantage of tax loss harvesting opportunities.

If you have any questions regarding the above items, please give our office a call.

Buying Foreign Stocks After a Fall (Ben Carlson, A Wealth of Common Sense)

International equities have experienced several years of underperformance versus their US counterparts. In fact, after this recent downturn, trailing 5 year returns for European equities are now negative as of March 31st. The author reviews other periods of negative returns over a five year period and the following annual returns over 1, 3, and 5 years. Additionally, he points out that US and International equities have been mean-reverting and provided good diversification benefits over the last 40 years.

Answers to Important RMD Questions (Anne Tergesen, Wall Street Journal)

As a part of the recently passed CARES act, Congress suspended required minimum distributions from retirement accounts for 2020. The Wall Street Journal dives into frequently asked questions related to the suspension. In summary the article focuses on the following:

1. This suspension applies to people with tax-deferred retirement accounts—including 401(k), 403(b), 457 and individual retirement accounts—who are subject to mandatory distributions.

2. If you made a required minimum distribution prior to the release of the bill and within the last 60 days, you may be able to reverse that transaction due to the 60 day rollover rule.

3. The RMD suspension benefit applies to inherited IRAs as well. However, if you have taken an inherited IRA distribution already this year, it appears there is no way currently to reverse that distribution.

4. If you turned 70 1/2 last year and delayed your distribution to 2020, you are not required to satisfy the 2019 distribution this year.

We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.

 Disclosure:

This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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