Month: August 2023

In the great endurance sailing races of the world, competing teams must continuously judge the winds and engage the race, even during extreme weather events. As a mountaineer, many times have I thanked God I was not suffering in a high mountain storm, but hunkered down in a 25 below bag sipping tea; but that luxury excludes racing teams, and this gives me both admiration and pity for sailors! Investing often resembles endurance sailboat racing in this respect, so let’s investigate what present weather patterns are saying about the strength and direction of the financial markets today.

Negatives

• Market sentiment has been registering “extreme greed” in recent weeks, a precursor to the market stumble now underway. Young and healthy bull markets climb “the wall of worry” in widespread fear and pessimism, emotions which may return expediently amidst renewed volatility and the most forewarned recession in history.

• New warnings the banking crisis isn’t over could prove destabilizing if true, a probability given where interest rates reside today. That said, big U.S. banks are incomparably better capitalized than in 2008, and any further trouble increases the probability the Fed, which fears crisis and deflation, will stop raising rates.

• The inverted yield curve (and its recession warning) and the tightening credit market are noteworthy, but the former hasn’t been substantiated by alternative data, and the latter has thus far been modest.

Positives

• Inflation continues to decelerate, and “less bad” conditions present an early impetus for higher asset prices.

• Interest rates approach a cyclable peak, a second Fed “pause” may be in order for the September meeting, and reputable sources suggest the Fed is altogether done raising rates.

• Unemployment remains low, labor remains scarce, and so far, the most forewarned recession in history remains elusive.

• Considering historical valuations, stock prices appear to be fairly priced today.

• The S&P 500 remains considerably above its 200 “daily moving average”, widely regarded as a time to buy stocks.

These factors suggest it is not time to throw our tackle overboard to lighten the ship for turbulent seas! Rather, take a long-term approach with a strong focus on quality, both on the equity and fixed income side, and compound returns with systematic purchases and the reinvestment of all distributions. Understand your investment objective and risk tolerance, and be sure your asset allocation reflects both.

Think about it, Shaun.

“Go to the ant, O sluggard; consider her ways, and be wise.  Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.” ~Proverbs 6:6-8 ESV

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

A great deal of the planning for our 23-day Denali climb in 2017 involved food. Bulk, weight, caloric type and content, prep and cook time, cold tolerance, and savor were all important considerations. A frozen chocolate bar will break your teeth. At 17,000 feet, your body struggles to digest beef jerky. A food allergy can end your climb, and your life! Meticulous meal planning was required for such a long excursion in such a threatening environment. Income planning, and more particularly, the withdrawal decisions retirees make from investment accounts, are equally critical, as a lengthier retirement, and, therefore, a bigger cumulative retirement income need, have accompanied a longer life expectancy for many Americans. What are the withdrawal options? What are the advantages and risks of each? How will you know which to choose?

Trail snacks on Denali came every 75 minutes and equated to a decision over protein and sugar. Smart climbers ate their protein on the lower mountain, and their sugar at high altitude. The two general retirement withdrawal options from investment accounts are systematic withdrawals and annuitization payments.

• Systematic withdrawals are voluntary distributions taken at regular intervals, and can be increased or decreased, and started or stopped, at any time. Besides flexibility, advantages include low expenses, access to a lump sum, growth potential and the ability to raise the income amount to combat inflation, and control to withdraw what is needed each year. Risks include premature depletion, inequitable distribution of returns due to a major bear market during early withdrawals (understand the Monte Carlo Analysis), and the weight of knowing you may outlive the account.

• Annuitization is the formal conversion of an annuity from accumulation to a fixed stream of payments. During accumulation the account is allocated based on investment objective and contributions may be made. During annuitization payments are made in the amount, and for the duration chosen. The two main advantages to annuitized payments are lifetime benefits and the absence of market risk. Disadvantages include higher expenses, loss of access to principle, loss of income flexibility, and loss of purchasing power to inflation.

Other considerations regarding these asymmetrical withdrawal options include differing tax treatment, potential withdrawal penalties, and coinciding with required minimum distributions (RMD’s). In case you still think this exercise is elementary, consider the withdrawal program must also a) accurately meet the annual need, b) minimize your annual tax burden AND be consistent with your long-term tax plan, c) not disrupt your estate plan, and d) represent the wisest overall financial decision for you and your family, all factors considered.

Precious few mountaineers have ever climbed Denali alone; it is for the vast majority a team effort. Whether it is you, or someone else on your behalf, make sure your investment advisor, tax planner, and estate planner are aware of these issues, considerate of both withdrawal options, and that they work together to find the balance of these options that works best together for you.       

Think about it, Shaun.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.