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Tag: Market Volatility

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation – April 13, 2020

You can tell a lot about your broker or advisor from the actions they take (or don’t take) in market disruptions. The current period, with steep market declines, extreme volatility, pandemic fear, and emergency legislation packages certainly qualifies as a market disruption. We believe good advisors and brokers excel in communicating with clients regarding the markets, financial plans, and legislative effects in such periods.

The current period offers many topics, and even opportunities, that should be discussed. These include:

  1. Basic Communication
  • Touching base with clients to determine their mindset. Is the current environment causing fear or is it looked upon as an opportunity to purchase assets at a reduced price? Each client will have a unique perspective, and it is important for your advisor or broker to understand your view. Any appropriate action will vary based on your circumstances and perspective.

2. Focus on Goals

  • It is extremely important that any action be consistent with long term goals and an established financial plan. Often emotional and hasty decisions made in times of market turmoil are harmful to the ability to achieve a long-term plan.

3. Put Cash to Work or Increase Risk

  • If you see investment opportunity when markets fall, this is a great opportunity to discuss investing extra cash or increasing risk in accounts.

4. Roth IRA Contributions and Conversions

  • Consider making 2020 contributions and conversions while markets are lower.

5. Tax Considerations of the Market Decline

  • If you have investments with a low cost basis that you have held to avoid taking the gains, these positions will likely have lower gains or no gains at this point. This may be a good time to discuss reducing or getting out of such positions.
  • Gains on investments made in non-retirement accounts will be subject to long-term capital gains rates if held for twelve months or longer
  • For some clients a partial or full conversion from a traditional IRA to a Roth IRA should be considered. Funds in a traditional IRA have not been taxed. By converting, taxes will likely be owed. Because balances in most traditional IRAs are presently lower, the associated taxes owed may also be lower. As an added bonus, if the markets bounce back in the next couple years, the growth on any converted money will occur in the Roth IRA and should not be taxable in the future.

6. Periodic Withdrawals

  • If you have consistent withdrawals, monthly or quarterly for example, from investment accounts, you may want to discuss funding the withdrawals from any cash or fixed income investments that are available. This will keep you from selling equities at a reduced price.Legislative Updates

7. Legislative Updates

  • Filing deadline – For most people, 2020 tax filings are not due until July 15th (instead of the normal deadline of April 15th).
  • Federal quarterly estimated tax for April 15th has been extended to July 15th; second quarter estimated tax payment has also been extended to July 15th.
  • Required Minimum Distribution (RMD) – If you are normally required to take an RMD from any type of IRA or from your workplace retirement plan, you will not have to do so in 2020.
  • IRA Withdrawals and 401k Loans – the CARES Act relaxes some of the rules regarding these items. Your advisor or broker should be able to discuss this in more detail should you have a need.
  • Charitable Contributions – for 2020 there is no limit on the amount of a cash gift you can donate to a charity and subsequently receive an offsetting deduction, in the amount of the gift, from your income. If you’ve ever considered a large gift to a charity, you should discuss with your advisor if 2020 is the appropriate year. This change does not apply to donations to donor advised funds.

CapSouth advisors are prepared to discuss all these topics with clients and prospects, and they have been actively doing so over the last few weeks. If your current advisor or broker is not discussing them with you or you have no current advisor, we would welcome the opportunity to speak with you and to potentially begin a new relationship.

To speak to a CapSouth advisor about these topics, contact our office at 800.929.1001 or visit our website at www.capsouthwm.com

Investment advisory services offered through CapSouth Partners, Inc., an independent Registered Investment Advisor, dba CapSouth Wealth Management. CapSouth Partners does not provide tax or legal advice. Please consult your tax or legal advisor prior to making decisions which may have tax or legal consequences. Information contained herein is believed to be reliable but is not guaranteed as such by CapSouth. Nothing contained herein should be construed as individual investment advice; all commentary is of a general nature. This commentary contains opinions; any opinions presented should not be construed as fact and are not in any way a guarantee of future events, returns, or outcomes.

Market Commentary & Coronavirus Thoughts

Marshall Bolden, CFA®, President

March 2, 2020

Given the sharp increase in market volatility and the stock market declines over the past several days, many clients have understandably been concerned. While we cannot predict what the markets will do moving forward, we do want to provide some thoughts and commentary regarding the current situation.

Markets hate uncertainty, and there is currently a lot of uncertainty around the spread of coronavirus and how this will impact economic growth rates and corporate earnings. As the virus has moved outside China and established outbreaks in other countries, fear and uncertainty have grown. This is coming at a time when equity valuations, particularly in the U.S., were higher than average. This combination of factors has led to sharp pullbacks in the equity markets. From its closing level on February 19, the S&P 500 Index declined nearly 13% through February 28. The last week was the worst week for many equity markets since the 2008/2009 financial crisis.

It is too early to speak with any certainty regarding the ultimate reach of the virus and how this will affect various economies. We do expect volatility to remain elevated in the short term as the reach of the virus continues to expand and as various governments, agencies, and industries react to this. However, this does not necessarily mean the equity markets will continue to decline steeply. As already mentioned, the short-term market movements are a guessing game, but we do have historical data related to previous periods when pandemics occurred. JP Morgan Asset Management has reviewed S&P 500 returns related to the SARS, swine flu (H1N1), bird flu (H7N9), Ebola & MERS outbreaks. This data shows an average max drawdown of less than 10%, that one month after the outbreaks the average return is nearly flat, and that 6 months after the outbreaks the average return has been above 10%. In other words, the drawdowns or market declines in similar past events have not been prolonged events, and the S&P 500 has normally been higher 6 months after an outbreak than it was at the beginning.

Volatility and market declines inevitably cause emotions to increase. The urge to sell, reduce risk, or generally take action rises. Behavioral finance has told us this for years. There is also plenty of actual, historical data that points to the impact of quick, emotions-based decisions. Outcomes of such decisions are often detrimental to investor’s returns and probability of reaching their long-term goals. This makes sense. Our emotions normally scream to sell or reduce risk when the markets begin to fall, and once the markets have been up a while and/or are more stable, they tell us to get back in or to increase risk. Doing this often results in selling low & buying high…the exact opposite of the investment idiom that says to buy low & sell high. The reality of investing is that very few, if any, people can accurately and consistently predict short term market movements. Therefore, we will continue to stress long-term investing and for investments and risk level to be determined in light of a long-term plan. This linked video commentary by Kara Murphy provides further insight regarding recent market events and the importance of investing within the context of a long-term plan. Kara is the Chief Investment Officer

Investment advisory services offered through CapSouth Partners, Inc., an independent Registered Investment Advisor, dba CapSouth Wealth Management. CapSouth Partners does not provide tax or legal advice. Please consult your tax or legal advisor prior to making decisions which may have tax or legal consequences. Past performance is no guarantee of future results. Information contained herein is believed to be reliable but is not guaranteed as such by CapSouth. Nothing contained herein should be construed as individual investment advice; all commentary is of a general nature. This commentary contains opinions; any opinions presented should not be construed as fact and are not in any way a guarantee of future events.

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