Bear Markets – Did You Know?

If you’ve watched the news or browsed the web at all recently, no doubt you have seen the term “Bear Market” quite frequently. This term is often used when the worlds’ stock markets go through difficult periods, but what does it mean? And what should investors do about it? Here are five points to consider that will hopefully offer you perspective and confidence:

1. What is a Bear Market? A bear market is generally defined as a stock market decline of at least 20%. The recent market decline (S&P 500) we’ve experienced in 2020 went from the peak in February to the trough in March of -34%.
2. How often do bear markets occur? Since 1949, the S&P 500 has experienced 10 declines of at least 20%, or one every 7 years on average.
3. How long do they typically last?  Since 1949, the average bear market has lasted about 14 months. The average bear market total return was -33%.
4. Bull vs. Bear – Good News! Since 1949, the average bull market has lasted nearly 5 times as long as the average bear market. The average bull market lasted about 71 months and had an average total return of 263% over that time period.
5. A $10,000 hypothetical investment in the S&P 500 in 1980 (with dividends being reinvested) would have grown to more than $870,000 by the end of 2019. During that time period, the investor would have experienced 4 bear markets, 20 market corrections of 10% or more, and 5 recessions.

Key Takeaway: As difficult and unsettling as bear markets can be, it is important to understand that we “earn” the bull markets by being disciplined and patient during the bear markets. The reason that equities can make relatively high returns over time is that those returns are unpredictable in the short-term.

Sources: Capital Group, RIMES, Standard & Poor’s, 2020; MFS Market Insights, 2020; Vanguard Understanding market downturns, 2020; JP Morgan Guide to Markets, 2020.

Why the ‘Last Dance’ was about more than just sports…

Over a five-week period in April and May, millions of people tuned in to watch the ESPN docuseries, “The Last Dance”, about Michael Jordan and the 1990s Chicago Bulls dynasty. Whether it’s the lack of live sports and entertainment in a COVID-19 world or the never-ending admiration people have for Michael Jordan, everyone was talking about the series. Basketball fan or not, it was an incredible story that people of all ages and backgrounds will enjoy.

Spoiler alert: Michael Jordan and the Chicago Bulls won six NBA championships during the 1990s, twice winning three in a row, and went down in history as one of the best sports dynasties in history. Michael Jordan will forever be part of the debate for greatest of all time and Dennis Rodman will be remembered for his wild tendencies. Most of us knew all of this before watching a single episode of the series and yet something about it captured the attention of millions. Every episode was about so much more than just sports.

I would argue that everyone who watched, either consciously or sub-consciously, took something away from it. Here are a few of the lessons that we walked away with:

PATIENCE IS REQUIRED

The age of technology is creating an issue across all generations, especially the younger ones. Yes, we are guilty of this also. Technology has created a society where people look for and need instant gratification. The problem is that becoming an overnight success or getting rich quick shouldn’t be expected and is highly unlikely. Michael Jordan, arguably the greatest basketball player ever, didn’t have overnight success so why should we expect it? He may have been known as a great basketball player, but that doesn’t mean he immediately started winning championships. As many of us have heard, he was even cut from his high school basketball team.

We shouldn’t mistake patience for complacency either. Exhibiting patience by sitting back while the word keeps turning won’t bring success. Hard work is always required, but don’t expect results overnight. Success can be a slow grind and is different for each and every individual based on their circumstances.

MAKE THE COMMITMENT

The 1990s Chicago Bulls made a commitment to win. They had a clear goal to win a championship and made the commitment to do whatever it would take to win. It’s easy to make a lofty goal, but it’s difficult to commit to the amount of work needed to achieve that goal. There were numerous interviews during “The Last Dance” where someone mentioned the amount of time and thought that Michael Jordan put in to his craft. Michael Jordan’s commitment to the Bulls organization, his family, and himself was always something to be admired. For most people, there isn’t a better example of commitment than his infamous “flu game” where he scored 38 points while being exhausted from flu-like symptoms.

He also acted as a leader by pushing this commitment on to his team. His leadership style was criticized at times, but the results speak for themselves. Did his commitment and leadership style come across as ruthless? At times. Whether this leadership style would work in other environments is a debate for another day, but what can’t be debated is how he was able to make his entire team as committed as he was. As Jordan said in “The Last Dance”, “winning has a price and leadership has a price”. Jordan later said “I never asked a teammate to do something that I am not currently doing”.

IT TAKES A TEAM

Michael Jordan may have been the star of the show, but he couldn’t have done it by himself. There were so many people that had a part in the dynasty it would be hard to list them all. From Phil Jackson and Scottie Pippen to Steve Kerr and Scott Burrell, they all had their role. We’ve seen time and time again situations where a superstar doesn’t have the right cast of supporting characters around him or her and struggles to have success. This doesn’t always mean that it needs to be the most talented team either. We’ve also seen situations where the most talented group isn’t the best team.

How do we relate this to life and business? If you want to have success in your personal or professional life surround yourself with the people that will help you succeed. Find your “coach” in Phil Jackson, find your right-hand man in Scottie Pippen, and find the teammate you can trust in Steve Kerr. Without the right team it will be difficult to succeed.

“The Last Dance” was an incredible documentary and one that everyone should watch. Even if you are watching purely for enjoyment try to find a few lessons that you can apply to your life. As Michael Jordan said at the end of the docuseries, “all you needed was one little match to start the whole fire”. Find that match in your own life.

Wealth Managers | Confluence Financial Partners

Though the market changes, our commitment to clients does not. Our Chief Executive Officer, Greg Weimer, and Director of Investments, Bill Winkeler, give you an update on the current market and share insights on how to navigate these times.

Join us as we discuss how you can be the architect of your future. Greg Weimer shares the importance of your 5 year goals and how they can be thought of on an annual, quarterly, and even daily basis.

It’s been said that ‘most people underestimate what they can do in 5 years and overestimate what they can do in 1 year’ – something that we have been focusing on internally at Confluence as we strive to improve each day. Let us know how you plan for the future or reach out if we can help.

From rebate checks to small business support, there is quite a bit packed into the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on Friday. The $2+ trillion emergency fiscal stimulus package is intended to mitigate some of the economic effects caused by the COVID-19 outbreak.

We have all been working to gain an understanding of the law so that we can act as a resource for our friends and family looking to take advantage of the applicable provisions. We have been reading numerous articles, participating in webcasts hosted by industry experts and large accounting firms, and talking with banks to understand the process for various provisions. New information is still coming out daily, but please do not hesitate to use us as a resource as we work through this pandemic.

Here is a look at some of the key provisions in the CARES Act that may be of interest to you:

1. A check – Based on income and family makeup, most Americans can expect to receive $1,200 individually ($2,400 for joint filers) and $500 per dependent. Amounts phase out for those who reported adjusted gross incomes over $75,000 for individuals and $150,000 for joint filers in 2018 or
2. A buffer – The CARES Act eliminates the 10% early withdrawal penalty for coronavirus-related distributions from retirement accounts. Withdrawn amounts can be repaid to the plan over the next three years. In addition, required minimum distributions (RMDs) are waived for 2020. Investors who have already taken an RMD for 2020 have options that may include returning the amount or rolling it over, as long as the distribution was not made from a beneficiary
3. Support for small businesses – In the form of more than $350 billion, including forgivable loans (up to $10 million) to help keep the business afloat, a paycheck protection plan and
4. Expanded unemployment benefits – Unlimited funding to provide workers laid off due to COVID-19 an additional $600 a week, in addition to state benefits for up to four months. This includes relief for self-employed individuals, furloughed employees and gig economy workers who have lost work during the
5. Fortified healthcare – $100 billion is allocated to hospitals and other health providers to help offset costs and provide relief. In addition, the legislation provides funding for numerous other areas including state and local COVID-19 response measures, an increase to the national stockpile for medicine, protective equipment, medical supplies and additional FEMA disaster relief
6. Enhanced education – $30 billion to bolster state education and school funding, as well as the deferral of federal student loan payments through the end of September.

What’s next? Treasury Secretary Steven Mnuchin has targeted early April to deliver the funds. Discussions are starting in D.C. around a possible next phase of economic relief, although it’s just talk for now.

We’ll continue to keep you updated with relevant and timely information. In the meantime, please don’t hesitate to reach out. These are difficult times in which we are living, but we are confident that we will get through them together.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Confluence Financial Partners is not a registered broker/dealer, and is independent of Raymond James Financial Services. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Investing involves risk, and investors may incur a profit or a loss. Some expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.  Some of the material was prepared by Raymond James for use by its advisors.

We are happy to announce Confluence Financial Partners has been named as one of Pittsburgh’s Best Places to Work by The Pittsburgh Business Times.

Click Here to see article: Best Places to Work!

The 2019 Best Places to Work in Western Pennsylvania honors the region’s most outstanding workplaces. Winners are selected based on an online employee survey in June of this year and are honored at an event and in a special section of the paper. You must have at least 10 employees working in western Pennsylvania to participate. (Anyone with 5 percent or more ownership in the company may not participate in the survey and does not count toward the final employee total.) Companies do not have to be based in western Pennsylvania. Only employees working in the region are included in the survey and results.

Traditional 401(k) vs. Roth 401(k)

Retirement plans can be confusing – we know! The decision of whether to contribute to a Traditional 401(k) or a Roth 401(k) is one that many people have or will encounter at some point in their lives. Although these two types of retirement accounts are very similar, they also have key differences. As more and more employers begin to offer a Roth 401(k) option, you should make sure that you have an understanding of each so that you can make the most informed decision possible.

What is the difference?

The main difference between a Traditional or Pre-Tax 401(k) and a Roth 401(k) is the tax impact. With a Traditional 401(k), you receive a tax benefit for your contribution now, but are taxed on the withdrawals later. A Roth 401(k), however, does not provide a tax benefit now. As a result of paying tax on your contribution now, the Roth option allows for tax-free withdrawals later.

Here is a quick example to help explain the tax difference between the two options. This year, if you contribute $10,000 to a Traditional 401(k) and were taxed at a fictional rate of 15% (this would depend on your tax bracket) the $10,000 contribution would decrease your current year taxes by $1,500. If you contributed $10,000 to a Roth 401(k) instead, there would be no reduction to your current year taxes. If we fast forward to retirement and assume the $10,000 contribution is now worth $50,000, there will again be a difference between the two upon withdrawal. If you made a withdrawal of the entire $50,000, the full $50,000 would be taxed at your retirement tax rate with a Traditional 401(k), but the entire $50,000 would be withdrawn tax-free if it were originally invested in a Roth 401(k).

As you can see, the current tax benefit is greater with the Traditional 401(k), but the future tax benefits are better upon withdrawal from a Roth 401(k). One other item to note is that these facts hold no matter what the withdrawal amount is. No matter the amount, a withdrawal from a Traditional 401(k) is generally all taxable and a withdrawal from a Roth 401(k) is generally tax-free.

Which is right for you?

Unfortunately, the answer is that it depends. The primary question to ask yourself is: will my tax rate now or during retirement be higher? If you are in the beginning of your career or expect your income during retirement to be more than it is today, a Roth 401(k) may be right for you. If you believe your tax rate now is going to be higher than what it will be during retirement, then a Traditional 401(k) may be the best option for you.

Another advantage of the Roth 401(k) is that in addition to your original contribution, the growth of the account can be withdrawn tax-free! This is not the case with a Traditional 401(k). Also, if your employer provides a contribution match, you would need to pay tax on this portion of your account at the time of withdrawal whether you use a Traditional or Roth 401(k) as it is a pre-tax contribution.

Other considerations

There are several other differences between the Traditional and Roth 401(k) options that you may want to consider.

• Required minimum distributions (RMDs) – Beginning at age 72, there are required minimum distributions from both 401(k) options unless you are still working. However, a Roth 401(k) could be rolled over to a Roth IRA. Unlike Traditional IRAs, Roth IRAs do not have required minimum distributions.
• Estate planning – Inheriting a Roth retirement account is more beneficial to your heirs than a Traditional account. This is because they would generally not have to pay tax on distributions from the inherited Roth account, whereas they would have to pay tax on distributions from the Traditional.
• Law changes – Just as we can’t predict what your future tax rate will look like we also can’t predict law changes that could occur. Any law changes during your lifetime could change the results of this decision for yourself or your heirs. For example, the recent SECURE Act pushed back RMDs from age 70 ½ to age 72. It also requires an inherited IRA to be distributed within 10 years of inheritance rather than over the beneficiary’s lifetime. This could be a reason to contribute to both a Traditional and a Roth 401(k) to give yourself tax diversification across different accounts. Many employers will allow you to split your contributions between the two.

Conclusion

In summary, there is no easy answer to what type of 401(k) option is better. The decision will depend on your individual circumstances and most likely will change throughout your life. Using the information above should hopefully give you a good starting point to be able to make the most informed decision possible.

Please don’t hesitate to reach out to us if you would like to discuss further!

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72. RMD’s are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.

Any opinions are those of Gregory Weimer and Chuck Ziants and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Expressions of opinion are as of this date and are subject to change without notice. You should discuss any tax or legal matters with the appropriate professional.