5 Lessons From the Bear Market

5 Lessons From The Bear Market

One year ago, on March 23, the S&P 500 closed at its bear market low. Today, we are going to talk about 5  lessons we can learn from the bear market of 2020. 

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A year ago, on March 23, the stock market reached its bear market low caused by the COVID pandemic. Stock prices fell about 34%. Over the next 5 months, prices raced higher.

What are some of the lessons we can learn from going through this bear market? For some, it was their first bear market experience. For others, like me, it was not their first. (This was my fifth.) These experiences teach some great lessons. Here are 5 lessons from the bear market.

Bear Markets are a Temporary Interruption.

Bear markets are a temporary interruption to the permanent long-term advance of stocks. About one out of every five years, we see a significant decline in the stock market. It is a reset and a healthy adjustment. Once the stock market hits bottom, prices go on to recover and set new highs.

Since 1946, we have seen 14 bear markets. Every single one has recovered and created new wealth for those who are patient and continue investing in stocks. 

Most People Can't Outsmart the Market

It is virtually impossible for most people to outsmart the stock market. Did you think…

  • February 19, 2020 was going to be the current all-time high?
  • March 23, 2020 was going to be the bottom?
  • The stock market was going to recover as fast as it did?

I did not expect any of the above. I bought stocks two days before the market set the all-time high. We anticipated things to get worse before they got better. We thought that the shutdowns were going to cause even more damage to our investments than they did.

The stock market turned quickly and raced higher. The bear market ended in less than 6 months! We expected the recovery to take at least two years.

Many people try to guess the highs and lows. They look for points to sell and to buy. Doing this often leads to big mistakes, and those can impact your lifetime return.

Buying Stocks "On Sale" is Hard

Buying stocks in the middle of a bear market is very difficult. A year ago, many of these great businesses were trading at 30%, 40%, or 50% discounts. We had the opportunity to buy many of those stocks at prices we may never ever see again.

In the moment, you can say, “Stocks are low, buy now!” At the same time, the news tells you everything is bad and getting worse. How do you see the return potential in those moments? In the middle of a bear market, most people assume stocks are heading lower, and they are going to lose even more.

You Don't Lose Anything Until You Sell

We all looked at our accounts last year and watched the values sink. It was uncomfortable and unpleasant. It created a lot of stress. There is a natural reaction to want to sell when things are going bad. You want to protect what you have.

Until you make that sale, the decline is temporary. If you hold on to your investments, you will most likely recover from the decline.

Selling near market lows makes those temporary decreases in value permanent losses. It also makes erasing those losses very difficult.

A Bear Market is Always in Front of Us

Nobody knows when the next bear market will begin. We do not know how far prices will drop or how long it will last. Bear markets are a common occurrence in the stock market. On average, we see one happen every five years.

We hope it takes several years before we experience the next bear.  When it happens, we can use the lessons learned from our past experiences to make us all better investors.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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10 Percent Doesn’t Mean 10 Percent

10 Percent Doesn't Necessarily Mean 10 Percent

When it comes to stocks, 10 percent doesn’t necessarily mean 10 percent. We will explain this and how setting reasonable expectations can make you a better investor.

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When young financial advisors go to financial advisor school, one of the first things they are taught is the stock market has an average annual return of 10% per year. This leads people to believe the stock part of their investments are going to improve by 10% each year. But, 10% doesn’t mean 10%.

Only two times in the last 96 years have we seen stocks return close to 10% in a calendar year (10.06% in 1993, and 10.88% in 2004). It is more likely the positive years are going to be much better. And, there will also be some negative years, too.

When you’re thinking about what could happen in any given year, you should expect anything. In the short term, almost anything is possible. But over a long period of time—20 or 30 years—expecting stocks to return 10% per year is reasonable.

Setting Reasonable Expectations

It helps to set reasonable expectations when you’re an investor. It helps you to understand volatility is part of the process. And, we also know there will be difficult periods you have to navigate.

For example, you should expect the stock market to be positive three out of every four years. And, you should anticipate one year in four will be negative. Those plus years are likely to be much better than the 10% average annual mark. The average up year is about 21%. The negative years average -13%.

Corrections

You should also expect corrections to happen at least once a year. (We may be in the middle of one right now.) The average correction is about -14%. But even with those interruptions, the market has continued to improve over time.

Bear Markets

You should also expect bear markets. We had one last year, and it was an awful experience. But, the stock market recovered, and the recovery happened a lot faster than any of us anticipated.

When we set reasonable expectations, we can make better decisions about our investments. It keeps us from selling at bad times. It may keep us from buying at bad times as well. Avoiding those key mistakes can help us improve our real-life returns.

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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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What is Tax-Loss Harvesting?

What Is Tax-Loss Harvesting?

A listener asks a question about year end tax planning.  Can tax-loss harvesting help your tax situation?  Today we look at this strategy and how it works.

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What is tax-Loss harvesting

Today we answer a question from Joanne. She writes, “Last week I heard about something called tax-loss harvesting. What is it, and how can we benefit from it?” This is a strategy you can use to reduce your tax liability.

Understanding Capital Losses

From time to time, investments will decrease in value. And they may decrease to a level that is below your cost basis. Your cost basis is what you paid for the investment, plus any dividends reinvested into that position.

If the market value drops below your cost basis, you have an unrealized capital loss. You realize that loss when you sell it, and that can help reduce your income tax liability.

How Capital Losses Affect Your Taxes

First, losses offset any capital gains. Capital gains happen in two ways. They happen when you sell something for a profit. If you own a mutual fund, the fund may pay a capital gain distribution. The fund creates gains when the fund buys and sells securities.

An investor sells shares of Amazon for a $10,000 profit. They also sell shares of Ford for an $8,000 loss. They would only pay capital gains taxes on $2,000.

Loss-Harvesting

If your losses exceed your gains, you can use those losses to reduce other income, up to certain limits. You can use $3,000 of capital losses to reduce your other income each year. Any excess gets carried forward to future years.

Our investor sold shares of Amazon for a $10,000 gain. They also sold shares of General Electric for a $15,000 loss. You would not incur any capital gains taxes this year. They can use $3,000 of the remaining loss against their other income. The investor would have to carry $2,000 forward to use against their taxes next year.

What is Tax-Loss harvesting

Planning Tip

This does not apply to any investments in an IRA, 401k, or other types of qualified plans. You are not paying capital gains taxes on anything you buy and sell in those accounts.

Wash Sales

If you are harvesting a capital loss, you can’t buy the same investment you sold for a loss within 30 days. Doing so creates a wash sale. The IRA will not allow the loss on your taxes. If the stock you sold has a sudden increase in price, you can miss out on the gains.

Keep Good Records

If you have a large capital loss, it could take a long time to carry it forward. You will need to keep very good records.

There is Still Time for 2020

You still have time to harvest capital losses for this year. Any sales made between now and December 31 count on this year’s taxes. But you should speak to your tax professional to see what kind of impact those will have on your situation.

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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Is Doing Nothing The Right Thing To Do?

Is Doing Nothing the Right Thing to Do?

During a Bear Market, many investors are tempted to sell their stocks and move to cash.  Many financial advisors will tell them to sit tight, and ride out the storm.  Is “doing nothing” the right thing to do?  Today we’ll share some interesting data that shows that in the last market, doing nothing was better than panicking.

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We’ve already been through a lot this year. And we’re still dealing with a lot. We have an election coming up in a few weeks. The Coronavirus is still part of our lives. There are questions about another major shutdown. And there are some concerns with all the government help that there is going to be hyperinflation. There are a lot of things that could cause another bear market.

Doing nothing

When we have major turmoil, people want to do something to protect their nest egg. In every bear market, we’ve had people call and ask if they should go to cash. Our answer has always been no. Sit tight right through any storm we encounter.

We believe you will be better off if you don’t make an emotional decision. Doing nothing is hard to do. In fact, it’s the second hardest thing to do as an investor.

Inevitably, we will have someone who can’t take it anymore and bail out. During the “dot com” bust and the Great Recession, we had clients who sold their stocks within a week of the market bottom after the damage was done.

Cash panickers

Is doing nothing the right choice? Recently, Vanguard did a study during the bear market this spring. They looked at over 31,700 accounts, both retirement plans, like 401(k)’s, and retail accounts. They found that 0.5% of those accounts panicked and moved to cash between the market high on February 19 and the end of May.

They looked at two things. They looked at the actual returns of those clients at three different points: March 31, April 30th, and May 31. And they compared those to the returns those clients would have realized if they had done nothing. Here’s what they found.

By the end of March, 56% of those clients who went to cash were in a better place than if they had done nothing. This means they had a higher balance than if they stayed invested.

The stock market rebounded very quickly. By the end of April, only one third of those clients were in a better place.

By the end of May, only 15% of those clients had a higher balance by going to cash. 85% of those clients who panicked would have had better results if they did nothing.

85% of those clients who panicked would have had better results if they did nothing.

Selling low...

Why is that? Most of them didn’t guess the correct time to move to cash. You have to make that decision very early in the process, so you don’t take part in the downturn. A good number of them went to cash after a significant amount of the damage was done.

When the market turned around and moved higher, they missed a great buying opportunity. They didn’t participate in the rebound. Essentially what they did was sell low and bought at higher prices. This is the exact opposite of what you’re supposed to do.

Is doing nothing the right thing
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The cost of being wrong

If you sell now thinking things are going to get bad, you have to be aware that they may not get as bad as you think. For example, let’s take the 2016 election. I woke up that morning and saw that Donald Trump won the election and immediately turned to CNBC. The futures that morning showed that the Dow Jones Industrial Average was in for a rough day. When I got to work I had two calls before the market opened. These clients were extremely concerned about what was going to happen in the stock market. They thought it was going to be ugly.

By the time the market opened, futures were positive. Over the next several months, we saw the stock market race higher. Had those clients gone to cash, they would have missed that rally.

If things do get as bad as you believe, you might be right for a while— just like the folks in the Vanguard study. But will you have the confidence to buy at lower prices?

Most people think things are going to get worse before they get better. Stocks are forward looking. The stock market will turn around long before the economy turns around. Stocks will begin to increase long before people believe things will get better. If doing nothing is the second hardest thing to do, then buying stocks in the middle of a bear market is the hardest.

Vanguard found only 9% of those 31,000 accounts bought more stocks during the bear market.

If you have to...

If you’re convinced you need to go to cash, do it early. Do it before things get worse. We’ve already seen a minor pullback. Don’t wait until things are down 20% or more to sell. And you need to have a plan to buy at lower prices. You must have courage to buy when things look like they’re going to get much worse.

If you can’t make the decision to do both of those things, then do nothing. Sit tight and ride out the storm.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Can Stocks Predict The Election Outcome?

Can Stocks Predict The Election Outcome?

Can stocks predict the election outcome? What about back-to-back bear markets? How big was the stock market drop in dollar terms?  We’ll cover these tidbits and more.

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Do you want to hear the full show?

The full episode is over 25 minutes long.  And we’ve found that not everyone wants to spend that much time listening to things.  But if you want to listen to the entire episode, it is below.

We answer:

A select few...

The stock market was down 34% earlier this year and it made a complete recovery. The recovery was led by a small handful of companies.

As of August 28, almost one-third of the stocks in the S&P 500 are still down at least 20% for the year.

That's a lot of money...

On February 19, the total value of the US stock market was $36.1 trillion. On March 23, at the bear market low, the US stock market was worth $23.4 trillion. $12.7 trillion evaporated into thin air over that timeframe. Most of that has come back, and we’re all glad for it.

can stocks predict election
Can stocks predict the election

Back-to-back bears?

We’re still dealing with this COVID-19 pandemic, and the economy isn’t back to full strength yet. There are some concerns that there will be some lingering effects. One of those concerns is a double-dip recession. The other is another significant drop in the stock market.

Over the last 75 years, the shortest time between the end of one bear market and the beginning of the next is two years and two months. The S&P 500 fell 22% during a bear market which ended on October 7, 1966. The next bear market, an 18 month long tumble of 36%, began on November 29, 1968.

It can happen quickly. Two years is the record. We may or may not see that record tested.

Can the Stock Market Predict The Election?

The S&P 500 was up 7.19% in August. It was the best August ever.

We found this interesting tidbit on the website MarketWatch. This is from Julian Emanuel of institutional investment management firm BTIG. “At first glance, August strength plays well into Donald Trump’s reelection. In the three months prior to November elections, positive S&P 500 returns have accompanied incumbent party presidential victories 85.7% of the time.”

“Going back to 1928, when stocks rose 5% or more in August, and the June to August return was in the top quartile, the market often struggled in September and October. When the S&P 500 was down from the end of August through the election, the incumbent party lost the White House on all six occasions.”

Could the stock market performance over the next couple of months predict the outcome of the election? It will be interesting to see if that comes true or not.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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The 2020 Bear Market is Over!

The 2020 Bear Market is Over!

The 2020 bear market is officially over. Today: 

  • we’ll take a look back at what happened.
  • We’ll tell you what it means to patient long term investors.
  • We’ll talk about the implications going forward.

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The 2020 Bear Market is Over

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Transcript: The 2020 Bear Market is Over!

The 2020 bear market officially ended last week. It started February 19, when the market set an all-time high at 3386. Over the next 33 days, stock prices fell 34%. On March 23, the market closed at 2,273. Since then, the market increased 51.5%. On Tuesday, August 18, It closed at a new all-time high of 3,389.

2020 Bear market Over
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How Does This Compare to Previous Bear Markets?

2020 Bear Market is Over
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When we look back at the major bear markets, we think of the “dot com” bust and the Great Recession. During the “dot com” bust, stock prices fell 49%. It lasted almost three years, and it took about 56 months for prices to completely recover. The Great Recession didn’t last quite as long. Prices dropped 57% and it took about 49 months to recover.

This one happened a whole lot faster. If we look at drops of similar size, there are two to consider, 1968 and 1987. In 1968, prices dropped 36%. It took 543 days to go from top to bottom. And, it took 21.7 months to recover.

Bear market 2020 over
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What does this mean to patient, long-term investors?

Since 1946, we’ve seen 14 bear— or near-bear—markets. All are slightly different. The details about why they started, how far they fell, and how long they lasted, differ. But when you step back and look at each of them, they’re all basically the same. Every bear market is a short-term interruption to the long-term advance of stock prices.

2020 bear market over
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What are the implications of this going forward?

The first thing we need to remember is there’s another bear market coming. It may be sooner than we like. We’re still dealing with the impact of the coronavirus pandemic. The virus is still present. We have high unemployment. Businesses continue to struggle to get back to normal. That could all be a catalyst to the next bear, and it may happen faster than we want.

It may be several months before the next bear starts. We have no idea when it will happen. We also don’t know how far it will drop or how long it will last.

Now’s a great time to check the risk reward part of your portfolio. We all depend on stocks for the growth they provide over the longer term. Growth we need to achieve our goals.

If this last one made you extremely uncomfortable, it’s time to have a conversation. You should talk about the amount of short term risk you are taking for the pursuit of that long term growth.

It’s a better time to make adjustments to the stock allocation of your account. Selling stocks when prices are near their all-time highs is better than selling in the midst of a bear market. Remember, we want to buy low and sell high—not the other way around.

2020 bear marketover

Now is a Great Time To Evaluate Risk and Reward

Pursuing modest growth means you face difficult times.  We have a way to help you measure how you feel about those downturns.  It’s called a Risk Number.  Click the button to find out more.

Thinking about bear markets is a good reminder of one of my favorite sayings about stocks. 

We never know what the direction of the next 20% movement in prices will be. But we are pretty sure what direction the next 100% move will be.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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No more bear – Data update August 21, 2020

No More Bear! - Data update for August 21, 2020

We are no longer in a bear market, it ended this week.  We share some interesting data about that. We also share the updated Covid-19 tracker from First Trust Portfolios.  

No More Bear!

On Tuesday August 18th, the S&P 500 set a new high. This means no more bear!  We will have a lot about this on our next episode of Monday Morning Money.

No More Bear

Liz Ann Sonders from Charles Schwab (our soon to be custodian) posts some great data on Twitter.  Here are some interesting facts about the recovery… 

The “Awesome 8”

Eight companies have led the charge higher in the recovery.  And most of the rest of the companies haven’t done very well.

More evidence of a few big companies leading the charge.

Missing the Big “Up Days”

You always hear someone talking about missing the big up days.  It turns out many of them happen when the market is crashing.

Virus Data Update

Our friends at First Trust Portfolios have updated their virus data tracker.

Key Takeaways…

  • New positive tests and deaths continue to show a downward trend.
  • Progress continues on the development of a vaccine.
  • The US currently has some of the strictest social restrictions in the world right now. (green line).
  • This is nowhere near as deadly as the Spanish Flu in 1918.  And it isn’t as bad as the 1957-58 flu outbreak.
  • The number of states reporting increasing numbers continues to track lower.

“Fast Data” from First Trust

Fast data includes passengers being screened at TSA checkpoints and other data available weekly.  Below is some other data that shows an uptick in activity.

No More bear
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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Data Update, August 14, 2020 – Corona Virus and The Bear

Data Update, August 14, 2020

Coronavirus Data and the Bear Market

Today is our data update for August 14, 2020.  We share some data about the Coronavirus provided by First Trust Portfolios.  And we also provide an update on the Bear Market.

Covid-19 data update

This data sheet is provided by our friends at First Trust Portfolios.  It shows a variety of key data points about the pandemic in our country.  If you would like to download a pdf file of this, please click on the button.

Here are our key takeaways from this week’s virus data.

  • The trend of new cases flattened in the last week and began to show a slight uptick.
  • Two more vaccines entered phase 3 trials (up from 6 last week), and one more vaccine was granted approval for limited use. 
  • The “deaths per 1 million people” data is new this week.  

An article this week discussed the decreasing number of tests being conducted which will have some impact on the numbers. 

The 2020 bear market update: almost over...

Data Update august 14 2020
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So close.

For a brief moment, the S&P 500 Index flirted with a new all-time high.  Here are the relevant points in this Bear Market.

  • From February 19 to March 23, the index fell 33.9%. (It was the fastest drop of that magnitude, ever!)
  • Since then, the index has recovered more than 50% of the loss.  
  • At the market’s close on August 13, the market was less than 0.5% away from setting a new high.

We will have more thoughts on this in the coming weeks. 

Have a great weekend!

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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How Will the 2020 Presidential Election Affect the Stock Market?

How Will the 2020 Presidential Election Affect the Stock Market?

How will the 2020 presidential election affect the stock market? That’s a big question on the minds of many. Today, we’ll dig into some numbers. We’ll show you what happened to the stock market in the three months before and after previous presidential elections.

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2020 election affect the stock market

This year is off to a crazy start. It started with the Coronavirus. That caused the stock market to drop by about 34%. From the bottom of the bear market to today, we’re now close to all-time highs. The stock market has increased by almost 50%.

The virus is still a factor in our lives. Now we get to add a presidential election to the mix. How will the campaign season influence the market?

Elections and the Stock Market: Historical Data

We are focusing on the three months before a presidential election. This means August, September and October. And we are looking at the three months after. This includes November, December, and January. We have nine election years going back to 1980.

The 3 Months Before

The average gain of the stock market for the three months before an election was about 0.75%. Stocks improved six out of the nine years.

The 3 Months After

For the three months after an election, the stocks gained 2.36%, on average. It was positive in seven of the nine years.

The Outlier: 2008

There was an outlier. 2008 was a really bad year. From August to October 2008, the stock market dropped by about 23%. Following the election, the stock market continued to decline. It fell another 22.5%.

If you remove this outlier from the data set, the results look much different. 

Leading up to the election, the gain improves to about 3.5%. After the election, if you take out this outlier, the stock market improved 5%.

Will this year be more like 2008?

The election didn’t have the type of impact on the stock market that one might think. But you might be wondering right now, “Will this year be more like 2008?”

But there are also reasons to expect this rally to continue. Some data points to better things ahead.

Vaccine Progress

Companies are making progress on a vaccine. A lot of the optimism in the stock market relates to the optimism of a vaccine coming to market sometime next year. There are a number of companies now entering second and third stage trials.

The Big Question: Do Your Long Term Plans Depend on the 2020 Election?

It is hard to make big allocation decisions based on short term events. Most of the historical data points to the election not being a significant factor to stock market performance.

Your long term plans aren’t likely to change based on the outcome of this election. This makes it very difficult to make a decision based on that outcome.  .

The election concerns many people. There’s a very big divide between the two sides. It’s very contentious and very emotional. This creates a desire do something. Some think if “Candidate A” wins, things are going to go downhill. And if “Candidate B” wins, things are going to be great. But we don’t know what that outcome will be.

Making big decisions based on short-term events, creates more chances to make mistakes. That’s not a real good way to do things.

You need to base your asset allocation decisions on your long term plans. You shouldn’t base them on what happens in a presidential election.

Have Questions?

If you have questions about your situation or would like to discuss how the pandemic and bear market have affected you, click the button to arrange a call.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Today on our show, we offer a simple, low-cost estate planning tip to help you avoid probate.  We talk about the current bear market, and share some expert predictions.  And we answer three questions.  The big one: do I need Medicare supplement insurance?

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Estate Planning Tip: Transfer On Death Provisions

One of the things we’re going to talk about today is a basic estate planning tip. Oftentimes people ask us what happens to their accounts when they die. A lot of times, they’re trying to avoid the probate process. The probate process can be somewhat inefficient. So let’s talk today about it. Let’s talk about what happens when an account owner dies? What happens to their account.

Standard Individual Accounts

If a person has an individual account.  What happens when they die? we have to open an estate account. In order to do that, we will need:

  • A tax ID number for the Estate (normally the attorney applies for it)
  • A copy of the owner’s death certificate,
  • And a court-certified letter of testamentary. Sometime this is called a court appointment, which names the executor of the estate.

When we do that the original account is frozen. We can’t do any transactions in that account, and we can’t send out any money.

Once we get all the paperwork together, the assets transfer into the estate account. 

How long does it take to transfer an estate account to the beneficiaries?

That’s completely up to the executor. We need a letter signed by them to distribute those assets from the estate account. It can be pretty quick. They can also leave it there for an extended period of time. It’s completely up to them and how quickly they want to get that settled.

Some take as few as 30 days. Some take six months or more.

Transfer on Death Provisions

One thing you can do to improve the efficiency of this process is to use a transfer on death registration. What do we need to do to create a TOD account? And, what happens when we have a TOD provision on the account? What happens when the original owner passes away?

The form that the original owner would need to sign is actually called a non-probate TOD agreement. That form names beneficiaries for that individual account. And it specifies how they want the assets in that individual account to be divided.

We need

  • the name of the beneficiary,
  • the social security number and date of birth.
  • We also need the percentage of the assets that will go to each of them.

When the owner passes, the account is frozen. Individual accounts are opened for each beneficiary. We need a copy of the death certificate and a form called a transfer on death affidavit. Each beneficiary signs this form. This allows them to accept the assets from the decedent’s account.

Once we get the forms, the assets can transfer in two to three days.

It’s a lot more efficient than having an estate account. Plus, you don’t have to go through a lot of the probate stuff. It’s not going to completely avoid probate, there still may be some loose ends. But, it’s going to be a whole lot more efficient.

Once those accounts are open, each beneficiary has the option to do whatever they wish. They can liquidate it. They can continue the relationship with our firm. Or they can transfer it to another firm. It’s a much faster and more efficient way to get assets from the original owner to their heirs.

Joint Accounts

Can you add TOD provisions to a joint account?

On a joint account, when the first owner dies all the assets immediately go to the surviving owner. When the second owner dies, you would do it the same as if it was an individual account,

Typically, it goes to the surviving spouse (most of the time). In those cases, the TOD provision on a joint account comes into play if there’s a simultaneous death. Once the account goes to the survivor, they have to do the TOD paperwork all over again.

IRA’s, Retirement Plans, and Insurance Contracts

These provisions don’t apply to IRAs or retirement plans. IRAs and retirement plans have their own beneficiary designations. They are non-probate assets. It also doesn’t apply to insurance contracts like annuities or life insurance. Those also are non-probate assets that have beneficiary designations. It only applies to individual and joint accounts.

Still need a will…

This does not replace the need to have a will or a trust. You should involve your estate planning attorney (if you have one). They may have other ideas that are better suited for you.

This is a simple and easy way for you to do some basic estate planning. And it costs nothing.

Note:

The account owner must sign the TOD application. Powers of attorney cannot sign this form. Even if the power of attorney document says that the agent can name beneficiaries, we require a signature from the account owner.

Let's Talk Stocks...

Medicare Supplement insurance - Bear market

It’s been crazy.

Every time I speak to someone, they say that they can’t believe that the stock market keeps going up like it has. Here’s where we are in the current bear market.

We had a 35% drop in the first quarter. Since then, we’ve seen stock prices increase by about 44%. Year to date, prices are at a breakeven point. We started the year with the S&P 500 at 3,230. On price basis, the S&P 500 is breakeven for the year.

Prices have to go up another 5.5% percent to set a new high. The high point is 3,386. We still have a little bit to go to completely erase the bear.

Given the amount of bad news we’ve had, the increase doesn’t make sense. There is still a lot of potential bad news out there too. It doesn’t seem possible that we’ve erased that big of a drop this fast.

The virus isn’t going away either. Many states are trying to avoid another shutdown. I know we have mask requirements now in Ohio and West Virginia. I saw where Kentucky closed bars and limited restaurant capacity to 25%. States are trying to avoid shutting down, but there are some potential ugly things out there. You can make the case for why this market is going to correct again, but you can also find some rays of sunshine.

Expert Predictions

Medicare Supplement Insurance

It’s interesting to see what some of the experts think. Bloomberg released a recent survey of their equity market experts. They asked 17 analysts for their forecast for the year end value of the S&P 500. The average of the 17 predictions for the year end value is 3100. That’s about a 4% drop from current levels. On average, they think that stocks are a bit ahead of themselves and we’re due for a reset.

Five of these people have predicted that the S&P index will fall below 3000, which would be a 7%% drop from current levels. The lowest prediction is 2,750. That is a significant drop. The highest prediction was 3,500, which would be a new all-time high. That would be about a 7% increase from where we are right now.

How good are these predictions? We’ve talked about this in the past. Crystal balls aren’t always in working order. We really don’t know how accurate these forecasts will be.

If someone were to press me on it, I predict 3,150. I also believe we’ve gone a little bit too far, and we’ll see a small pullback.

Insurance Medicare Supplement
Medicare Supplement Insurance Do I Need

Question 1: Do I Need to Keep My Medicare Supplement Insurance?

If a person has Medicare A and B, plus prescription insurance, what is the benefit of Medicare supplementinsurance? Ours runs around $500 a month and there is no way we come close to that in paid claim benefits. I’m not a healthcare guru. But it seems to me there could be better ways to invest my $6,000 a year.

What does Medicare Cover?

To answer this question, we need to dig into what Medicare covers. Traditional Medicare has two parts. Part A is hospitalization. This covers hospital stays, skilled nursing home visits and hospice care.

Part B covers medical expenses. This includes doctor visits, surgeries and procedures. It also covers preventative care, durable medical equipment, clinical trials, and ambulance services.

Part A

Medicare doesn’t pay 100% of your expenses. Part A, has a $1,408 deductible for your first 60 days in a hospital. That is per benefit period.

A new benefit period starts if you haven’t been in the hospital for 60 days. Here’s an example. If you went into the hospital today, and you were there five days, you’d pay $1408. If you go back to the hospital later this year, say November. You would start a new benefit period. That means you have to pay another $1,408 deductible.

Days 61 through 90 cost you $352 per day, this is your out of pocket cost. And if you’re in a hospital more than 90 days, days 91 plus can cost you up to $704 per day. That’s your risk on the hospitalization side.

Part B

Part B is your medical expenses and is your doctor visits. So you have a $198 deductible. And then Medicare pays 80% of the Medicare approved amount. You pay the other 20% and any of the excess non-approved amounts.

Let’s say you have a joint replacement, and your total bill is $50,000. You pay the first $200. And then you pay 20% of the remaining bill. That’s $10,000! That’s your risk exposure in this case.

What do Medicare Supplements cover?

Medicare supplement insurance policies cover these out of pocket expenses. Most of them cover the Part A deductible. And they cover the Part A coinsurance—which are the costs beyond day 60. They also pay the Part B coinsurance.

Some Medicare supplement insurance policies will pay the Part B deductible. In our experience, you usually pay more in premium than the Part B deductible. We usually don’t recommend policies that cover the Part B deductible. Many will also cover the Part B excess charges. If a doctor bills $1,000 for a procedure and Medicare only approves $800, many of those plans will cover that extra $200. They cover some other things as well.

Is it worth it?

Is $6,000 per year worth it? When you’re healthy, and you don’t have claims, it doesn’t seem like it. But remember, you may not be in good health in the future, and you could have a claim at any time. Your risk exposure to not have that coverage is significant.

In many respects, this is like your homeowner’s policy or your car insurance. You pay premiums for years. If you never have a claim, you start to wonder, “Why do I do this?” But one car accident and you have a $3,500 repair. Suddenly, you’re glad you have that car insurance.

Medicare Supplement Insurance is the same thing. You could use that $6,000 a year to make money. But what would the net cost be if something major happened? And as you get older, you have an increased possibility of that happening.

You have to make that decision on your own. But in many respects, we find that the Medicare Supplement insurance premiums can be worth it.

Insurance Medicare Supplement
Supplement Medicare

Question 2: What is Your Opinion of Gold and Silver as an Investment Option?

With all the advertising promoting gold and silver as a safer investment. What is your opinion of that, and what is your advice to someone weighing that as an option?

Safer? Really?

Safer is an interesting way to put that. I’m not sure I would call gold and silver “safer.”

Gold and silver are fear assets. When things around us are going poorly, precious metals tend to do a lot better.

Right now, we are in a pandemic. We have a situation where the government is spending a lot of money to help people. They’re printing the money. And there’s some questions about whether they can sustain this long-term.

When a country does this, they’re trying to create some type of inflation. If we have hyperinflation—like Venezuela, they’re the most recent high profile case. In Venezuela, inflation has been some 3,000%. They’ve printed all this money. A loaf of bread costs $200. The price of gold also goes much higher.

When you look at what’s happening in America right now, some believe gold might be a really good asset. We keep pumping out trillions of dollars of stimulus money. The Fed continues to buy assets, and the money’s coming out of thin air. There’s a good reason to think gold could go much higher.

Consider all the alternatives

You have to consider a couple of other things as well. What other investments can you use? Stocks are one choice. we’re big believers in stocks. Equities have a lot of volatility. As we’ve talked about, we could see the stock market fall more in the coming months. Gold and silver may do a better job of holding their value over the next few months.

Bonds don’t look attractive right now. Yields are extremely low. And the only way bonds can generate any significant gains is if yields go even lower. Gold and silver may do a better job of holding their value than bonds right now.

Current prices matter

The other thing you need to consider are current prices. Gold recently set all-time highs. So you’re buying an asset at its highest price—ever. You are buying now and hoping it goes higher. Much of the gain from Gold has already happened.

If the US economy continues to rebound, gold prices could fall. Silver isn’t near an all time high. It has some room to run, but there are similar concerns.

Volatility in Gold and Silver

Medicare Supplement Insurance Gold Silver Stocks

Remember, gold and silver have a lot of volatility. All three investments have times when they perform extremely well. And, all three have times when they deliver gut wrenching drops.

Gold and silver can do well when stocks don’t. But the opposite can also be true. You have to be careful when you’re buying any type of asset when prices are at all-time highs. A lot of the gains have already happened.

There was an interesting stat from that chart. From 2007 through June of this year, stocks and gold have a very similar average annual return. I would have thought that stocks would have performed better. But the recent events had a significant impact on these numbers.

Question 3: Is the Media Moving the Market?

Is the market today being influenced by the media, especially the liberal left agenda?

This is an interesting question. When you’re in an election year, politics tends to dominate the headlines.

Both sides are trying to make themselves look good, and make the other side look bad. So both sides are pushing their agenda. It depends on which channel you turn to on a given night. as to which one you’ll hear.

You can argue the market has improved because the conservative agenda has shined. You can also make a case that the market has improved because of the liberal agenda. I’m not sure either argument is valid.

It depends on your perspective. You can create a reason for the moves in your own mind. You might believe the stock market is pricing in a Joe Biden victory in November. You can argue the stock market has benefited more from policies put forth by republicans.

When stocks go up, there are more buyers than sellers. When stocks go down, there are more sellers than buyers.

A lot of what we’ve seen to this point from the government has had a lot of bipartisan support. A lot of it has been driven by actions of the Federal Reserve—who is supposed to be politically neutral. You can’t really say that one party’s agenda is responsible for what is happening in the market.

Constant themes in the stock market…

As we get closer to the election, politics will play a bigger role in the day to day volatility. But you have to remember something with stocks: companies still find ways to make money. When we’re investing in stocks, we are buying those future profits. It doesn’t matter who’s in charge, Businesses will find a way to make money and grow their earnings.

The other thing to remember is volatility.  It’s always part of the stock market, no matter who’s in charge. We will always see stock prices have wild swings up and down.

In the big picture, the reasons why the market does what it does really don’t matter that much. Over time, stocks go up. It’s what they do. Politics don’t matter as much as some people want to believe.

What’s moving the market?

So my answer to the question. Nobody’s agenda is affecting the stock market. Stocks have gone up for these three reasons:

  • Anticipation of economic recovery
  • Optimism for a vaccine coming to market quickly
  • Earnings news hasn’t been as bad as anticipated

That’s why the stock market has gone up. In my opinion, it has nothing to do with right vs left or conservative vs liberal.

Medciare Insurance Supplement
Medicare Supplement
Medicare Supplement Insurance

 

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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