Eleven ways to stay sane in a crazy market

Eleven ways to stay sane in a crazy marketKeeping your cool can be hard to do when the market goes on one of its periodic roller-coaster rides. It’s useful to have strategies in place that prepare you both financially and psychologically to handle market volatility. Here are 11 ways to help keep yourself from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.

1. Have a game plan

Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. For example, you might take a core-andsatellite approach, combining the use of buy-and-hold principles for the bulk of your portfolio with tactical investing based on a shorter-term market outlook. You also can use diversification to try to offset the risks of certain holdings with those of others. Diversification may not ensure a profit or guarantee against a loss, but it can help you understand and balance your risk in advance. And if you’re an active investor, a trading discipline can help you stick to a long-term strategy. For example, you might determine in advance that you will take profits when a security or index rises by a certain percentage, and buy when it has fallen by a set percentage.

2. Know what you own and why you own it

When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits in your portfolio also can help you consider whether a lower price might actually represent a buying opportunity.

And if you don’t understand why a security is in your portfolio, find out. That knowledge can be important, especially if you’re considering replacing your current holding with another investment.

3. Remember that everything’s relative

Most of the variance in the returns of different portfolios can generally be attributed to their asset allocations. If you’ve got a well-diversified portfolio that includes multiple asset classes, it could be useful to compare its overall performance to relevant benchmarks. If you find that your investments are performing in line with those benchmarks, that realization might help you feel better about your overall strategy.

Even a diversified portfolio is no guarantee that you won’t suffer losses, of course. But diversification means that just because the S&P 500 might have dropped 10% or 20% doesn’t necessarily mean your overall portfolio is down by the same amount.

4. Tell yourself that this too shall pass

The financial markets are historically cyclical. Even if you wish you had sold at what turned out to be a market peak, or regret having sat out a buying opportunity, you may well get another chance at some point. Even if you’re considering changes, a volatile market can be an inopportune time to turn your portfolio inside out. A well-thought-out asset allocation is still the basis of good investment planning.

5. Be willing to learn from your mistakes

Anyone can look good during bull markets; smart investors are produced by the inevitable rough patches. Even the best aren’t right all the time. If an earlier choice now seems rash, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions. Expert help can prepare you and your portfolio to both weather and take advantage of the market’s ups and downs.

Words to ponder

“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.”
–Warren Buffett

“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble…to give way to hope, fear and greed.”
–Benjamin Graham

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”
–Peter Lynch

6. Consider playing defense

During volatile periods in the stock market, many investors reexamine their allocation to such defensive sectors as consumer staples or utilities (though like all stocks, those sectors involve their own risks, and are not necessarily immune from overall market movements). Dividends also can help cushion the impact of price swings. According to Standard and Poor’s, dividend income has represented roughly one-third of the monthly total return on the S&P 500 since 1926, ranging from a high of 53% during the 1940s to a low of 14% in the 1990s, when investors focused on growth.

7. Stay on course by continuing to save

Even if the value of your holdings fluctuates, regularly adding to an account designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, your bottom-line number might not be quite so discouraging.

If you’re using dollar-cost averaging– investing a specific amount regularly regardless of fluctuating price levels– you may be getting a bargain by buying when prices are down. However, dollarcost averaging can’t guarantee a profit or protect against a loss. Also, consider your ability to continue purchases through market slumps; systematic investing doesn’t work if you stop when prices are down.

8. Use cash to help manage your mindset

Cash can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to make thoughtful decisions instead of impulsive ones. If you’ve established an appropriate asset allocation, you should have resources on hand to prevent having to sell stocks to meet ordinary expenses or, if you’ve used leverage, a margin call. Having a cash cushion coupled with a disciplined investing strategy can change your perspective on market volatility. Knowing that you’re positioned to take advantage of a downturn by picking up bargains may increase your ability to be patient.

9. Remember your road map

Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Even with an appropriate asset allocation, some parts of a portfolio may struggle at any given time. Timing the market can be challenging under the best of circumstances; wildly volatile markets can magnify the impact of making a wrong decision just as the market is about to move in an unexpected direction, either up or down. Make sure your asset allocation is appropriate before making drastic changes.

10. Look in the rear-view mirror

If you’re investing long-term, sometimes it helps to take a look back and see how far you’ve come. If your portfolio is down this year, it can be easy to forget any progress you may already have made over the years. Though past performance is no guarantee of future returns, of course, the stock market’s long-term direction has historically been up. With stocks, it’s important to remember that having an investing strategy is only half the battle; the other half is being able to stick to it. Even if you’re able to avoid losses by being out of the market, will you know when to get back in? If patience has helped you build a nest egg, it just might be useful now, too.

11. Take it easy

Eleven ways to stay sane in a crazy marketIf you feel you need to make changes in your portfolio, there are ways to do so short of a total makeover. You could test the waters by redirecting a small percentage of one asset class into another. You could put any new money into investments you feel are wellpositioned for the future but leave the rest as is. You could set a stop-loss order to prevent an investment from falling below a certain level, or have an informal threshold below which you will not allow an investment to fall before selling. Even if you need or want to adjust your portfolio during a period of turmoil, those changes can–and probably should–happen in gradual steps. Taking gradual steps is one way to spread your risk over time as well as over a variety of asset classes.

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This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc.does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other financial institution insurance, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Positioning for a market rebound

The experience of a declining market or perceived recession can be a heart racing experience. The temptation to move investments to historically safer territory can be overwhelming.

But history tells us that sticking with your long-term investment plan, including higher-risk equity positions, may give you something you wouldn’t have standing on the sidelines – a better opportunity to take advantage of the markets’ recovery.

We say perceived recession because economists don’t agree on a single definition, and usually can’t be certain one occurred until well after the fact.

Since World War II, the United States has witnessed approximately 10 recessions by the classic definition, lasting anywhere from six to 16 months and varying in severity. The classic definition of a recession is a decline in Gross Domestic Product (GDP) for two or more consecutive quarters.

Today, many economists go further, taking a range of economic data into account. The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a comprehensive determination by factoring in measurements such as employment, industrial production, real income and wholesale-retail sales.

Still, because any definition requires backward-looking measurements, the stock market usually begins reacting to recessionary pressures well before anyone can be certain that a recession is taking place. This makes timing the bottom of the market extremely difficult.

Looking back at the most recent recession, the S&P 500 experienced three straight years of negative performance (2000- 2002) before rebounding with five consecutive years of positive results (2003-2007). While past performance offers us no guarantees for the future, historically, some of the most dramatic market gains have followed market lows or while coming out of a recession.

(Dividends not included in numbers below.)


Recessions – Since 1950 they have averaged 10.3 months in duration, but the S&P 500 historically peaked 8.1 months before the average recession officially started. The market typically “predicts” a recession is coming.


Corrections – The markets have seen 10 significant market corrections (> 10% declines) since 1970, including 4 not related to recessions. In each instance, the market has advanced at an above average rate over the year following the market bottom.

The S&P 500 is based on the average performance of 500 widely held common stocks. The S&P 500 is a broad-based measurement of changes in stock market conditions. Index returns do not reflect the deduction of fees, trading costs or other expenses. The Index is referred to for informational purposes only; the composition of the S&P 500 is different from the composition of the accounts managed by the investment manager. Investors may not make direct investments into any index. Past performance may not be indicative of future results.

The cost of missing the good days

Even though recessions and market corrections are separate and independent events, the pattern of decline and recovery are similar. The returns after a recession or a correction have historically exceeded the long-term market average by a wide margin.

Yet missing just a few choice days in the history of the market cycle by swaying from a disciplined investment plan can make a huge difference in the returns investors realize. The table below illustrates the dramatic loss in performance by missing some of the best days in the market.


Getting out of the market is not the difficulty; it is the potential penalty for not choosing the right time to get back in. If an investor were to miss the best 10 days in the market over the last 20 years, their average annualized return drops from 11.82% to 9.17%. Missing the 30 best days during the same period drops the return to 5.26%, a potentially crippling blow to a retirement plan.

While no one can predict the bottom of the market, history shows that the U.S. economy is resilient, and that rebounds can take place quickly. Missing just a few of the leading rebound days can make a significant difference in the longterm performance of a portfolio. The only way to be assured of capturing all of the market upside is to remain fully invested, using a long-term investment plan with a portfolio diversified over several asset classes and investment styles.

While sticking with your investment strategy through turbulent markets can be a nerve-wracking experience, history suggests you may benefit by hanging on.

This commentary reflects the thoughts and opinions of Raymond James Asset Management Services and is subject to change without notice. Presentations are for information purposes only and should not be construed as a recommendation regarding any security. Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful.

The importance of picking IRA beneficiaries

Inheriting IRA or 401(k) proceeds from a friend or relative can be a potentially huge windfall, but it can also be a sizable tax headache. For both the giver and the recipient, it’s worth getting some advice.

Bank accounts, stocks, real estate and life insurance proceeds generally pass to heirs free of income tax. However, inherited retirement benefits can be a different story. Beneficiaries have to pay ordinary income tax on distributions from 401(k) plans and traditional IRAs after they are inherited. (You don’t see the same problem with Roth IRAs – their benefits can be free of income tax to your heirs if all tax requirements are met.)

A financial planning professional or an experienced tax advisor can work with you based on your personal tax and estate circumstances to determine an inheritance strategy that is best for you. Some general guidelines:

Spouses are the first stop: Federal law dictates that your surviving spouse must be the primary beneficiary of your 401(k) plan benefit unless your spouse signs a waiver to redirect those funds. Even with a traditional IRA, naming the spouse as the primary beneficiary may be an appropriate option. Should the surviving spouse have his or her own IRA, this approach would allow them to simply roll over the assets from the decedent’s IRA into their own. Furthermore, if the surviving spouse is significantly younger than the deceased, the surviving spouse would receive the added benefit of stretching out distributions from the IRA until he or she turns 70 1/2. The stretch-out allows the assets to continue to grow on a tax- deferred basis, thereby maximizing asset value and delaying any income tax due.

When might you want to rethink a spousal beneficiary? When the surviving spouse’s estate is expected to be large enough to exceed the applicable exclusion amount for federal and state estate taxes. The applicable exclusion amount after allowable expenses is $2 million in 2008 and above $3.5 million in 2009. It should also be noted that in addition to federal estate tax, many states impose a state tax on estates with considerably lower asset levels (often anything over $1,000,000). Proper estate planning may alleviate this issue.

What about non-spousal beneficiaries? Today, non-spouse beneficiaries may be able to roll over all or a part of inherited 401(k) benefits to an inherited IRA. A recent change in IRS regulations still requires non-spousal heirs to withdraw a minimum amount from Inherited IRA assets every year, but it’s based on the age of the recipient rather than the age of the decedent.

Establishing a Stretch IRA: Due to recent changes in the minimum distribution law, taxpayers may now establish IRAs designed to stretch out the time period over which a non-spouse beneficiary (i.e. child) is required to take minimum distributions from an inherited IRA. Proper use of this vehicle may potentially allow for continued growth of tax-deferred earnings over multiple generations and can have a substantial impact on the future value of the family portfolio.

Naming trusts or charities as beneficiaries. Placing IRA assets in trust can have substantial advantages but can be complex. It should only be considered after receiving tax advice from a competent professional. It is particularly important to get tax advice related to this issue. Trusts can be complex instruments with which to bequeath assets, and even though naming a charity as one’s primary beneficiary will not affect distributions in your lifetime, it could affect the tax consequences for non-charitable beneficiaries who are sharing the same asset upon your death.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by a local member of FPA

7 Year-end Tax Tips

7 Year-end Tax Tips

The end of the year is approaching, and so is another tax season. The good news is that some of the uncertainty about deductions for small businesses has been lifted this year thanks to the Protecting Americans from Tax Hikes (PATH) Act, which Congress passed in late 2015. Here are some ways to square your bill so you – and your business – will benefit.

Consult the pros – Because the rules are complex and ever-changing, it’s a good idea to schedule a meeting with a knowledgeable accountant and your other professional advisors, who know your specific financial situation.

Maximize depreciations via Section 179 – This tax break, extended in the PATH Act, allows your business to deduct the price of qualifying equipment or software purchased or leased during 2016. The expensing limitation is $500,000 and applies to items including office furniture and vehicles. Then there’s bonus depreciation, which lets business owners depreciate 50% of the cost of new equipment purchased and placed into service in 2016. This provision was extended through 2017 and can be used in conjunction with Section 179. Learn more at IRS.gov.

Discuss whether to defer income and accelerate deductions –There are several ways to put off income into the next tax year and increase deductions now if you expect your income to be at the same or a lower rate next year. For example, you can plan to send your bills out a few days later in the last month of the year, which means getting paid a few days later in January of next year. You can also prepay some bills to take the deduction now.

Consider a retirement plan redesign – If your business has changed significantly since you first started a retirement plan, it’s a good idea to make sure this important employee incentive is still the right fit. There are several options to choose from, including SIMPLE IRAs, profit-sharing, and safe harbor 401(k)s. A qualified plan offers a deduction for your contributions, and you defer tax on earnings on contributions.

Reconsider your business structure carefully – Some businesses can gain an advantage by changing the ownership structure. Owners with an LLC can still elect to be taxed as an S-corporation retroactively at year’s end.

Find the silver lining of a net operating loss – If your business losses exceed your income for the year, the excess loss can lower your income and cut your tax bill in another year. You can apply the loss to prior years’ taxes and get a refund or use it in the future. The rules and formulas for this maneuver are complex, so make sure to consult an expert.

Check changes due to the Affordable Care Act – Businesses that have fewer than 25 workers and cover 50% or more of health premiums might qualify for the Small Business Health Care Tax Credit. Keep these tips in mind at tax time and keep your accountant and professional advisors up to date on any changes to help make the best decisions for your business.

Next steps:

Don’t hesitate to talk about some of these strategies with your advisor and your accountant.

  • Retirement plan redesign
  • Budgeting for equipment purchases
  • A holistic view on personal and business finances

Material prepared by Raymond James for use by its financial advisors.

A Retirement Savings Exit Strategy

A Retirement Savings Exit Strategy

Create a plan to withdraw your minimum distributions on your terms, while complying with Uncle Sam’s

Every day, an estimated 10,000 people reach the IRS trigger age when they must begin withdrawing money from their retirement plans. If you’re among them, it’s wise to develop a strategy.

Once you hit 70½, IRS rules call for required minimum distributions (RMDs) every year on all of your traditional, simplified employee pension (SEP) and SIMPLE IRAs, as well as employer-sponsored plans. Roth IRAs are exempt.

Since you definitely want to comply (the IRS will levy a 50% penalty on any amount you are supposed to withdraw but don’t), talk to your advisor about how to be smart with RMDs, perhaps even automating them. Here are some strategies.

Scenario: You want to take advantage of a low tax year or down market

Strategy: Convert traditional IRAs to Roth IRAs

If your income declines, you may want to convert a traditional IRA into a Roth IRA. You’ll owe taxes on the amount you convert in the year of the conversion, but unlike traditional IRAs the balance in your new Roth IRA is not subject to RMDs – and any withdrawals you choose to make are not taxable.* You want to pay taxes at the lowest rate possible, so if you are in the 15% tax bracket now but believe you will be in the 25% or higher bracket later, you may be able to save by paying taxes now.

Scenario: You don’t need the money and want to minimize your taxes

Strategy: Make a charitable contribution from your IRA

You may also make a qualified charitable distribution (QCD), which allows you to donate up to $100,000 directly from your IRA to a qualified charity. This removes money from your IRA tax-free, which in turn reduces the amount on which your RMD for that year is calculated, and also provides you with a potential tax deduction. You must be 70½ or older to be eligible.

Scenario: You need the money to live on and want to minimize taxes

Strategy: Consider purchasing an annuity within your IRA

Another idea is to purchase what’s called a “qualified longevity annuity contract” (QLAC) in your IRA. With a QLAC, you pay a specified premium now in return for guaranteed income later. You don’t have to take an RMD from the portion of your IRA used for that premium until age 85, which may cut your tax liability. The IRS exempts longevity annuity premiums of up to $125,000 or 25% of your IRA account, whichever is less. Annuities can be complicated, so discuss it with your advisor.

Guarantees are subject to the claims-paying ability of the issuing insurance company.

Plan wisely, live well

These are just a few of the options available with RMDs; a professional can help you create a specific plan that addresses your individual situation. Remember, your goal is to comply in a tax-efficient manner that takes into account other income streams, your estate plans and the fact that you worked hard for that money and it’s time to enjoy it

Next steps:

Get professional help about:

  • Tax planning
  • Making the most of charitable gifts
  • Other RMD strategies

*Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

As federal and state tax rules are subject to frequent changes, you should consult with a qualified tax advisor prior to making any investment decision