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After a sharp waterfall drop in March, major equity markets advanced strong in the second quarter. Following the Dow Jones Industrial Average’s (DJIA) worst first quarter ever the index posted its best second quarter performance since 1938 rising over 17%. The S&P 500 ended the quarter up 20%, achieving its largest quarterly gain since 1998 and the best second quarter for blue-chip equities since the S&P 500 was created in 1957. While those indexes did not reach their earlier year highs, the Nasdaq Composite recorded all-time highs this quarter as technology stocks have largely emerged strong following their March fall. (Sources: Yahoo Finance 6/30/20, Barron’s 6/30/2020)

Although the equity markets posted gains this quarter, efforts to contain the coronavirus have had a major impact on the global economy. Most of the second quarter’s stock-market advances took place in April and May. During June, the major indexes stayed in a relatively narrow range as investors evaluated increasing coronavirus cases against positive economic data.

As equity indexes soared from their late-March lows, there was an incredible amount of data to digest including:

• bond yields remaining very low;
• gold prices rising to an eight-year high;
• unemployment skyrocketing to ultra-high levels;
• oil prices rebounding from Q1 lows (still down YTD);
• a Chinese survey showing factory activity rose to a three-month high in June; and,
• disease experts warning about losing control of the COVID-19 outbreak.

(Source: Market Watch 6/30/20)

It has been the best of times and the worst of times for U.S. equity benchmarks over the past two quarters. This could be why headlines are sharing that stock-market strategists have never been more confused in June about the year-end outlook for equities.

Investors this quarter enjoyed a nice rise in equity prices. However, with markets being heavily volatile, some analysts feel that the market may have moved too far, too fast and based on historical numbers, like price earnings, that equities are highly overvalued and overpriced. The other camp insists that we are still in a “TINA” market, meaning, There Is No Alternative to stocks. This group feels that with interest rates still near historic lows, that equities need to be an investor’s main position. Equities are not cheap and even the savviest of investors need to be considerate of risk.

We could devote many pages to all of the issues that need to be watched, but for the sake of brevity this quarterly update will focus on a few of the central themes for investors. As financial professionals, we assist clients by providing ideas and suggestions based on their risk tolerances and objectives. Our goal is to focus on each client’s timeframes and goals.

Interest Rates Are Still in the Spotlight

Changes in interest rates are important for investors to note because they can have both positive and negative effects on the markets. Central banks historically have raised rates when the economy is overly strong and lowered rates when the economy is sluggish. The Federal Reserve (Fed) determines the United States rates at which banks borrow money. At their June meeting, the Fed kept interest rates near zero and indicated that’s where they’ll stay as the economy recovers from the coronavirus pandemic.

“We’re not thinking about raising rates,” Fed Chairman Jerome Powell said. “What we’re thinking about is providing support for the economy. We think this is going to take some time.” Central bankers also projected at the June session that the economy will shrink 6.5% in 2020. Then in 2021 they forecast a 5% gain, followed by 3.5% in 2022, both well above the economy’s longer-term trend.

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At the June session, the central bank repeated its commitment from the April meeting that it, “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Chairman Powell also said the Fed’s economic projections are based on “general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero.” (Source: CNBC 6/10/2020)

Low interest rates can make the yields on bonds less attractive to investors that need and seek returns. With the Fed committed to keeping interest rates low for the foreseeable future, investors need to reexamine their portfolios and return expectations. Interest rates will continue to be towards the top of our “watch” list.

Unemployment

After several quarters of strong employment numbers, COVID-19 decimated the U.S. work scene. The COVID-19 outbreak and the economic downturn it caused increased the ranks of unemployed Americans by more than 14 million, from a historically low number of 6.2 million in February (a 3.8% rate) to 20.5 million in May 2020 (a 13% rate). The May numbers were the second highest since the 1940s, trailing only the level reached in April of this year (14.4%). The rise in the number of unemployed workers due to COVID-19 is substantially greater than the increase experienced from the Great Recession. (Source: Pew Research)

Although the government, through programs like the Payment Protection Plan (PPP) have tried to save jobs, with many businesses closed or operating with restrictions, unemployment will continue to be an area that should be monitored by investors.

Economic and Political Concerns

Equity markets typically lead the economy and one big unanswered question moving forward continues to be, how will the economy recover? The answer depends on who you ask. “The economy’s turnaround from coronavirus-addled lows will arrive in the form of a steep V-shaped rebound”, according to Blackstone CEO Stephen Schwarzman. He feels that we will see a two-stage recovery, with economic reopening sparking a rapid rebound from the bottom set in the second quarter. He also shares that, “Where the Federal Reserve’s liquidity-boosting measures drove a sharp run-up for risk assets, easing of nationwide lockdowns will prompt a similar pattern for economic activity.” His advice to investors is, “You’ll see a big V in terms of the economy going up for the next few months because it’s been closed. As people are allowed to go back, the economy will really respond a lot.” (Source: BusinessInsider.com 6/10/20)

JPMorgan strategists in their June message were less optimistic. They feel, “Investors should be more selective over the next six months as some assets will outperform others.” Their advice is that, “Investors should be more discerning over the next six months as markets are showing a ‘slight fatigue’.” (Source: BusinessInsider.com 6/10/20)

American Funds/Capital Group’s Vice Chairman and portfolio manager Rob Lovelace shares, “it’s hard to predict the exact path of the recovery.” In their June mid-year outlook, he said, “It’s hard to know how wide the valley is, but I believe we will end up in a better place two years from now.” (Source: Capital Group 2020 Market Outlook 6/2020)

When sharing his economic outlook for the remainder of 2020, David Solomon, the CEO of Goldman Sachs said that, “uncertainty still remains 6-12 months out, and what additional negative impacts will result on the economy, including on the healthcare situation”. He expects the recovery to get more challenging and flatten out toward the end of the year and as we get into 2021. He noted it will take “quite a while” to get the economy back to where it started before the crisis. (Source: SeekingAlpha.com 6/20/20)

As if the economy did not create enough concerns, political uncertainty (including the upcoming 2020 elections), continuing health concerns and social unrest are all additional areas we need to be aware of. From a financial standpoint, we try to understand how the political landscape affects investment markets. We will be keeping an eye on these activities and how it may affect your investments.

Strategies for Investors During Market Volatility

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Bear markets like the one we experienced this March can be confusing and painful. When investors suffer a sharp decline, it could feel like it’s never going to end. Any investor that panicked and sold their investments could have missed out on this quarter’s rebound. While prior equity market performance is no assurance of present performance, something to remember is that post-World War II, bull markets have been far more robust than bear markets, and they’ve lasted considerably longer. While every market decline is unique, over the past 70 years the average bear market has lasted 14 months and resulted in an average loss of 33%. By contrast, the average bull market has run for 72 months — or more than five times longer — and the average gain has been 279%. (Source: Capital Group 6/2020)

As investors learned in the last severe downturn, equity market returns have often been strongest right after the market bottoms. After the carnage of 2008, U.S. stocks finished 2009 with a 23% gain. Missing a bounce back can put an investor behind, which is why it’s important to consider staying invested through even the most difficult periods. Now is a good time to:

Revisit your financial goals and objectives.

Investors should always put their primary focus on their personal goals and objectives. When equity markets become volatile sometimes even the savviest of investors become not just concerned, but unnerved. It’s important to keep perspective when markets are volatile. It is very important that you understand your situation and your financial plan. Letting your emotions drive your decisions can be costly. A wise strategy is to proceed with caution and always allocate your investments to match your risk tolerance.

We focus on YOUR goals and strategy.

Investor Outlook

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The market responded well in the short-term to what looked like a successful reopening of the economy. Many analysts were amazed by the quick bounce-back in the market despite the enormous unemployment rate and the continuing bear market in the economy. While the fears of another downturn are real, investors need to understand that there is a major difference between a sharp selloff of 5%-10% and an over 30% decline like we suffered in March. Analysts feel that the public health situation and the economic landscape have significantly improved since then, so pullbacks in equity markets might even bring for some investors buying opportunities and not reasons to sell. Moving forward, an investor has to keep in mind that the fate of COVID-19 is still a gigantic unknown. It is impossible to predict if the first wave of impact is now calmed or if a second wave will emerge. Economic data will continue to be hard to forecast and equity markets are not always tied to economic data. During confusing and volatile times, it is always wise to have realistic time horizons and return expectations for your own personal situation and to adjust your investments accordingly.

Three questions to ask are still:

Are you confident in your strategy?

Are you comfortable with your strategy?

Are you consistent with your strategy?

If you have carefully created a strategy with realistic financial goals, then try to not allow emotions or media magnification to influence you to shift from it. Remember the words of legendary investor Benjamin Graham, Warren Buffett’s mentor:

“A financial strategy is only as good as your ability to consistently follow it.”

We are here for you!

Our goal is to understand our clients’ needs and then try to create a plan to address those needs.

1. Has your current financial advisor reviewed the tax consequences of your investments?
2. Has your current financial advisor discussed tax planning and your investments?
3. Would you like a COMPLIMENTARY opinion of your situation?

If you answered NO to questions 1 or 2 and/or YES to question 3, call us at 410-908-9293 to schedule a complimentary financial check-up.

What you don’t know could hurt!

“The best way to measure your investing success is not by whether you’re beating the market, but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, LLC (IFG), and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is general considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is no guarantee of future results. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Sources: CNBC.com, marketwatch.com, Yahoo Finance, Barron’s, Pew Research, Seeking Alpha, BusinessInsider.com, Capital Group. Contents provided by the Academy of Preferred Financial Advisors, 2020©

The post Economic Update: Second Quarter 2020 appeared first on Financial 1 Tax.

Proactive Retirement Planning Using the New SECURE Act

Setting Every Community Up for Retirement Enhancement

An Overview of Some Key SECURE Act Changes That May Affect Your Retirement Strategy
Law enacted on December 20, 2019

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. This new legislation made major changes to a number of tax rules that govern retirement savings. Many of these changes started in 2020 and some of the details are still being finalized.

Making retirement plans more available to Americans and encouraging retirement savings was the driving force behind the creation and enactment of the SECURE Act. It includes significant changes that all retirement savers should be aware of for retirement and tax planning purposes.

Familiarizing yourself with how the SECURE Act may impact your current retirement plan and discussing it with a knowledgeable financial professional can help you proactively and properly amend your strategy to adjust to the SECURE Act changes.

Proactive Tax Planning with the SECURE Act

Here are some of the changes that may affect retirement savers and their tax strategies:

• The Required Minimum Distribution (RMD) age was raised from 70 ½ to 72.
• The age limit for traditional IRA contributions was eliminated.
• A new 10-year rule essentially requires (there are some exceptions) all inherited IRAs, Roth IRAs, and qualified plans to be distributed within 10-years of death.
• There are new 529 Education Fund Rules.
• There is a 10% retirement account penalty exception for both births and adoptions.

For informational purposes only: this information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or tax professional.

The policy behind the Required Minimum Distribution (RMD) rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries.

Qualified Charitable Distributions (QCDS) are a potential strategy for retirement savers.

While they are not new or changed by the SECURE Act, under today’s tax laws and with more taxpayers using standard deductions, Qualified Charitable Distributions (QCDs) of up to $100,000 are available to an IRA owner over 70 ½ years old. They are many times used as a proactive tax planning strategy for anyone over 72 taking a Required Minimum Distribution (RMD). An amount directly given to an eligible charity processed as a QCD counts toward your RMD requirement and reduces the taxable amount of your IRA distribution. This QCD lowers both your adjusted gross income and taxable income, resulting in a lower overall tax liability. It also lowers your income for purposes of calculating if your social security is taxable. By using, or preparing to use, a QCD, you can potentially meet your RMD requirements and satisfy your charitable intents, all while reducing your taxes.

Please note, for tax return filings, your IRA custodian is not required to specially identify the QCD on your annual 1099-R form. The responsibility is on you to inform your tax preparer that you used a QCD. If you do not let your preparer know, they could report this transaction as fully taxable, which would negate the benefit of your smart planning. Also, the distribution must be made directly to a qualified charity.

This is a specific area where a financial professional can offer some suggestions and strategies. We would be happy discuss with you whether or not this tax saving strategy may beneficial to your specific situation.

Potential New 10-Year Rule Strategies

Potential New 10-Year Strategies: Roth IRA Conversions

The new 10–Year rule reminds us that a proactive approach could potentially reap rewards. To maximize your situation under the new 10-year rule, you may want to consider Roth conversions and possibly spreading distributions over many years and lower brackets. Unlike distributions from regular IRAs, Roth IRA qualified distributions are not taxed.

Roth IRA Conversion Considerations

Your personal critical decision factors include your:

• Tax rate differential (tax in year of conversion vs. tax rate in withdrawal years).
• Use of “outside funds” to pay the income tax liability.
• Need for IRA funds to meet annual living expenses.
• RMD considerations (remember these begin at age 72 for non-Roth IRAs).
• Time horizon (how old are you and how long can you defer taxes).
• Estate tax considerations.
• Ten-year Rule.

Potential Benefits of a Roth IRA Conversion

• They could lower overall taxable income long-term.
• ROTH IRAs enjoy tax-free compounding.
• ROTH IRAs have no RMDs (at age 72).
• ROTH IRAS allow tax-free withdrawals for beneficiaries.

Each case can present different opportunities and it is best to talk with us or your tax professional about your specific situation.

We understand this decision can be complex and these are not easy choices. We are here to help you review your personal situation and recommend the best course of action.

Family Tax Bracket Management©

A critical area to review due to the SECURE Act is what we refer to as overall Family Tax Bracket Management©. Mathematically speaking, if you are in a higher tax bracket than your beneficiaries, it might make sense to let them take distributions in their tax bracket rather than you in yours. However, if your beneficiaries are in a higher tax bracket, it might make sense to take distributions in your bracket, convert these accounts to Roth IRAs and leave them an account that still has to be taken out in 10 years, but can grow tax free.

Something to Consider: even if NO changes are made to tax rates, in 2026 current law states that tax brackets will return to the older higher rates.

One strategy we can help with is to review you and your beneficiary’s marginal tax rate(s) each year.

Should I leave my beneficiaries a Traditional or Roth IRA?

Over your lifetime, you may accumulate assets in tax deferred retirement accounts like 401(k) plans and traditional IRAs. When thinking about the assets you have accumulated in your retirement accounts, a key issue is tax efficiency. Accumulating assets in a tax efficient way is only one part of the strategy, the other complex part is withdrawing those assets while attempting to minimize taxation. A common goal is to try to proactively plan withdrawals from retirement accounts to minimize your tax liability.

The SECURE Act creates an opportunity to review your retirement plan with an eye for tax planning. Determining the most efficient ways to either withdraw or pass to your beneficiaries your accumulated wealth is always an important decision. Our goal is to remain aware of changes that affect our clients and then share those changes with them. We want to provide proactive tax planning ideas when possible.

If you would like to discuss your retirement plan and withdrawal strategy, please call us. Our goal is to understand our clients’ needs and to monitor their wealth. We can discuss your specific situation at your next review meeting or you can call to schedule an appointment. As always, we appreciate the opportunity to assist you in addressing your financial issues.

Could it get worse, or will it get better? How long will this last?

We know these are many investors primary questions. A large part of the answers will depend on when the growth rate of Covid-19 cases stabilizes and how quickly a cure can be developed and distributed. It will also depend on whether or not fiscal and monetary emergency measures are enough to help ease the economic crisis. While we are not clairvoyant, we are making our best efforts to stay aware of changes that could affect your personal situation. Our objective is to try to offer the most educated guidance to help keep you on track with your financial goals. We realize that this is a very emotionally straining time and we want to make sure you know we are here for you. Call us with any questions or help with any concerns you may have.

Panic and bad choices can cause more harm for investors than a virus or market downturn!

Help us grow!

This year, one of our goals is to offer our services to several other people just like you! Many of our best relationships have come from introductions from our clients. Do you know someone who could benefit from our services?

We would be honored if you would:

  Add a name to our mailing list, Bring a guest to a workshop, or Have someone come in for a complimentary financial checkup.

  Please call Financial 1 at 410-908-9293 and we would be happy to assist you!

If you are currently not a client of Financial 1 Wealth Management Group, we would like to offer you a complimentary, one- hour, consultation with one of our professionals. Please call 410.908.9293.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Diversification is used to help manage investment risk; it does not guarantee a profit or protect against investment loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. Contents provided by the Academy of Preferred Financial Advisors, Inc.

The post SECURE Act Changes That Affect Your Retirement appeared first on Financial 1 Tax.

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No one expected the longest bull market in history to see its demise brought on by a virus. While U.S. equity markets were able to withstand a trade war with China, a presidential impeachment, the potential for a global recession and global uncertainty including Brexit and civil wars in the Middle East, the U.S. economy was ambushed by a silent and highly contagious virus.

The first three months of 2020 were filled with Covid-19 fears and economic responses. The world is experiencing a pandemic and a financial crisis that caused many investors to feel a level of anxiety that they have not had for over a decade. It’s almost impossible to remember that in Mid-February, equity markets were experiencing all-time, record highs. Now, we are in an unprecedented, event-driven bear market.

In the first quarter of 2020, more specifically, on March 12, the longest bull market in the history of the S&P 500 ended. This was the worst quarter for the Dow Jones Industrial Average (DJIA) since 1987 and its poorest first three-month start to the year ever.

The Dow Jones Industrial Average’s decline of 23.2% for the quarter was its biggest since the 25.3% drop seen during the fourth quarter of 1987. The S&P 500 posted a 20% decline. Prior to this waterfall downturn, the stock market seemed unstoppable, with both the 122-year-old DJIA and the S&P 500 quadrupling earlier this year from their March 2009 lows. Many investors who remained vigilant and held their positions during that time were generously rewarded. In just a few weeks, the stock market experienced several firsts in its history including:

• In less than three weeks, the S&P 500 fell from a 52-week high to a 52-week low.
• The Bloomberg Barclays U.S. Corporate Bond Index lost more than 7% in a week.
• The New York Stock Exchange (NYSE) experienced its worst set of down days where 90% or more of NYSE-traded stocks closed lower for the day.
• The S&P 500 hit the circuit breaker and triggered a trading halt four times.
• The Nasdaq Composite Index suffered its largest one-day percentage decline ever.
• The Dow Jones Industrial Average posted its biggest weekly gain since 1938.

(Sources: marketwatch.com 3/16/20, WSJ 3/27/2020)

An 11-year bull market has changed into one of the quickest bear markets of all-times. Not only is the world trying to stop the spread of a highly contagious virus, but it is also scrambling to fix the disruption of global supply chains and the decline of consumer demand.

Interest Rates Are Still in the Spotlight

After lowering the federal funds rate by a half-point to a range of 1.0% to 1.25% in between its regularly scheduled meetings, as a response to the risks the COVID-19 coronavirus outbreak was creating, the Federal Reserve cut its benchmark interest rate in mid-March by a full 1% to 0%-0.25%. When the Fed first started reducing interest rates, many experts noted that the central bank was “catching up” to where markets had headed. Now, it seems as if they are responding to both the economy and the fact that the 10-year Treasury had fallen to all-time lows.

The all-time low for the Fed Funds Rate is effectively zero. The Fed has only lowered their rate to a range of 0% to 0.25% twice: once during the financial crisis of 2008 and now in March of 2020. (Source: The Balance, 3/30/20)

CNBC reported on April 1st that the, “10-year Treasury yield falls to 0.6% as the coronavirus crisis deepens.” With interest rates at or near all-time lows, many investors cannot generate income or meet their long-term goals with a full portfolio of cash and bonds. (Source: CNBC, 4/1/20)

Oil Prices

Oil prices suffered an extremely rough stretch this quarter. As if things were not bad enough, the oil price war between Saudi Arabia and Russia, which emerged suddenly and dramatically on March 7, compounded the already ultra-bearish demand backdrop. The Saudi Arabia and Russia oil price war resulted in a massive price drop on March 8, 2020, when U.S. oil prices fell by 34% and crude oil fell by 26%. (Source: CNN.com; 3/8/2020)

The Coronavirus’ impact on oil consumption is unlike anything in modern history. Governments continue to impose flight restrictions and other travel bans, enforce lockdowns, and require non-essential businesses to close doors. Numerous school closures also mean many fewer buses and cars will be on the roads. As the quarter closed, there was pressure on the president to step in and assist in resolving the price war. Oil prices saw the worst month and quarter in oil price history down over 50%. With energy companies and oil still being a contributing factor to the overall economy, oil prices are a topic we are keeping a watchful eye on. (Source: Washington Post, 4/2/20)

The CARES Act

The government is trying to help businesses and prevent the threat of a recession through the $2.2 trillion-dollar Coronavirus Aid, Relief, and Economic Security (CARES) Act. This emergency relief package, the largest economic-relief package in U.S. history, included: Extensions of unemployment benefits, $150B for state and local governments, $500B in general corporate aid, $350B in small-business loans that will be facilitated by community banks, $100B for the healthcare system and Direct payments to individuals: Individuals can receive up to a maximum of $1,200 per person ($2,400 per couple) depending upon their income.

The estimates for the total monetary and fiscal output to manage this crisis is $4 trillion, according to Jurrien Timmer, Director of Global Macro for Fidelity Management and Research Company. So far there is a strong response from the U.S. Government, which will need time to see if it produces results. (Source: fidelity.com, 3/23/20)

A Brief Lesson in Some Market Terms

Oftentimes, we hear the wrong words used in the wrong context. For educational purposes, we feel it is important to clarify some stock market words and their definitions.

“Dip” – a short-lived downturn from a sustained longer-term uptrend.

“Correction” – a 10% drop in the market from recent highs. Historically corrections occur an average of about every eight to 12 months and last about 54 days. (Source:thebalance.com 3/9/20)

“Bear Market” – a long, sustained decline in the stock market. If the market declines 20% from the its recent high, this is considered the start of a bear market.

“Crash” – a sudden and dramatic drop in stock prices, often on a single day or week. Crashes are rare, but typically happen after a long-term uptrend in the market.

Bear Market Basics

Bear Market’s Most Basic Principle: Bear markets are a part of the investing experience. Many people believe that a bull market means a steady growth in equities. This is not the case. During this most recent, long-standing bull market, there were 13 corrections and the market moved down intraday into bear market territory (down at least 20%) three times. (Source: www.fidelity.com)

We have now entered into a bear market territory (a close of 20% down) so it might be helpful to review some information about bear markets.

Bear markets can be classified into one of three categories: structural; cyclical; and event-driven.
Goldman Sachs analyzed bear markets back to 1835. They defined these three markets as follows:

1. Structural: bear markets created by imbalances and financial bubbles, very often followed by a price shock such as deflation. The markets have an average drop of 57%.
2. Cyclical: bear markets that are typically a function of the economic cycle, marked by rising interest rates, impending recessions and falls in profits. These markets have an average drop of 31%.
3. Event-driven: bear markets created by events such as war, an oil price shock, an emerging-market crisis, or like most recently, a sudden viral pandemic (Covid-19).
   We are currently in an “event-driven” bear market. These are the bear markets that are hardest if not impossible to forecast or navigate. Covid-19 created a first of its kind bear market, one that was caused by a virus. We have had event-driven bear markets, but none were created by a viral pandemic. According to Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer, “event-driven ” bear markets, on average, result in lower declines than the other two types, and historically have lasted shorter. This unusual downturn is one that offers no easy outcomes. (Source: marketwatch.com 3/11/20)

How should investors think about this downturn and what should they do?

Investors generally hope that equity markets will go up. The volatility and turbulence of this current economic and political environment has caused even some of the most seasoned investors to become skittish. In March, legendary investor Warren Buffett said that he hadn’t seen anything like the coronavirus pandemic. “If you stick around long enough, you’ll see everything in markets,” he told Yahoo Finance. “And it may have taken me to 89 years of age to throw this one into the experience.”

Since that statement, it’s become even more confusing as infections mount around the world and the stock market continues to spin out of control in both directions. Many investors are trying to compare their portfolio’s performance during this difficult period. So how did the Berkshire Hathaway leader perform?

“While Buffett is well known for weathering the worst market downturns and coming out stronger, the last several weeks have been just as painful on his portfolio as it has on the broader market,” Bespoke explained in a post noting that the average stocks in his top holdings on March 24th were down 37% from their February highs. Perhaps the most important thing to think about is that like everybody else, his portfolio obviously hasn’t been immune to all this volatility. (Source: MarketWatch.com, 3/27/20)

The chart in this report shares that the six biggest point declines and the six biggest point increases in the Dow Jones Industrial Average (DJIA) all came in the last five weeks of this quarter. On March 12th, the DJIA fell 2,352 points which was over 9%. Had you sold that day you missed the next day’s (March 13th) rise of 1,985, also a move of over 9%. This level of volatility is unprecedented and therefore even the savviest of investors needs to PROCEED WITH CAUTION!

Helpful Strategies for Investors

Revisit Your Personal Objectives — First and foremost, we continue to urge you to ask yourself four questions:

1. Have my financial timelines changed?
2. Have my financial goals changed?
3. Has my risk tolerance changed?
4. Are there any changes my advisor needs to know about my situation?

Think Long-Term — Investing involves uncertainty and therefore investors should consider using long time horizons.

Look into Rebalancing — Maintaining a properly designed and well-diversified portfolio is important. Now is a good time to take a look at your portfolio and consider any rebalancing that may need to be performed.

Suspend Distributions — If you are comfortable with suspending distributions and looking for a potentially better time to take them, please call us at we can see if this strategy works for your personal situation.

Consider Roth IRA Conversions — There are many reasons to consider Roth IRA conversions. For many retirement accounts with equities, account values are down. This can create opportunities, especially for those investors currently in the 12%, 22% and 24% tax brackets. Add in the new SECURE Act’s changes to inherited IRAs and it becomes even more prudent to consider the pros and cons of a Roth IRA conversion. Roth Conversions have some complicated rules and guidelines, therefore, as always, first discuss this option with us and your tax preparer to see if they are a good fit for your financial goals.

Think Rationally, Not Emotionally — One of Sir John Templeton’s “Rule’s for Investment Success” is, “Do not be fearful or negative too often.” Market turbulence should remind us that it is a good idea to re-evaluate instead of panic.

Tune Out Media Magnification and Seek the Help of a Professional — One of our primary goals is to make sure you are comfortable with your investments. We will always consider your feelings about risk and the markets and review your unique financial situation when making recommendations.

We pride ourselves in offering:

• consistent and strong communication,
• a schedule of regular client meetings, and
• continuing education for every member of our team on the issues that affect our clients.

A skilled financial professional can help make your journey easier. We care about our clients and we are here for you. Our goal is to be prepared, not scared! If you feel we need to talk, please call. We are honored that you have chosen us to help with your financial needs.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Diversification is used to help manage investment risk; it does not guarantee a profit or protect against investment loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Sources: Barron’s, marketwatch.com; washingtonpost.com; goldmansachs.com; politio.com; fidelity.com; cnn.com; forbes.com. Contents provided by the Academy of Preferred Financial Advisors, Inc.

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