WrapManager's Wealth Management Blog
When life changes, we can help you thoughtfully respond.

Doug Hutchinson

CFA®, Director of Research and Trading

Recent Posts

Gaining a Better Perspective on Recent Market Volatility

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

June 16, 2022

Global equity and bond markets have experienced heightened volatility over the last several months as elevated inflation readings and the prospect of higher interest rates has made the investment landscape appear treacherous.   

This increased volatility can certainly be unnerving for investors but it is not necessarily unexpected, especially for a mid-term election year.  Since 1980, the S&P 500 has an average intra-year decline of 14%.1 But the equity market drawdowns tend to be more severe in midterm election years, particularly in the months prior to Election Day.  Research from Federated Hermes Investors found that “Leading up to Election Day, stocks tend to experience a pronounced pullback – 19% on average – before rallying afterward”2 in midterm years. 

 Historically investors have typically been rewarded for staying the course through the temporary pain of volatility during midterm years. Federated Hermes Investors found that “the S&P on average has risen 32% off the midterm election-year bottom. And it has not declined in the 12 months following a midterm election since 1946.”3 

 

Avoiding the Temptation of Market Timing 

While it may be tempting for investors to try and time the market by selling investments following a market decline and re-enter the market when things feel safer, investors should note that timing the market with such precision is extraordinarily difficult.  JPMorgan highlights the pitfalls of a market timing strategy: 

 

  • “First, there is no guaranteed ‘signal’ to get out of the market, and market bottoms are only determined in hindsight. 
  • Second, the investor would need to buy in on the worst days during some of the most significant market drawdowns when loss aversion is at its greatest. 

 

As a result, it is hard to believe that someone could be smart enough to consistently miss the worst days while courageous enough to invest for the best days.”4 

 

Moreover, some of the days of best performance occur within weeks or even days of the worst days of performance and those good days are extremely important to recovering losses experienced on the worst days.  The chart below from JPMorgan shows the cost of missing out on the best days of performance. 

[+] Read More

market perspective stock market performance Economic Indicators Market Volatility

Help Protect Your Savings From Inflation Using I Bonds

June 2, 2022
In 1998 the US Treasury introduced Series I Savings Bonds (“I Bonds”) which are savings bonds for individual investors with interest rates linked to inflation. With inflation rates soaring, investors may be looking for options to help protect their portfolio against the ravages of inflation. Here is a quick primer on one compelling option in the fight against inflation: I Bonds.    How do I Bonds Work?  I Bonds are bonds issued by the U.S Treasury that earn interest based on a fixed rate and a variable rate that is adjusted twice a year based on changes in the Consumer Price Index for all Urban Consumers (or CPI-U).1  Current inflation is exceptionally high, so any I Bonds issued between now and October 2022 will earn interest at a 9.62% annual rate for six months.2 Interest is compounded semi-annually and added to the principal value of the bond. For example, if you bought $10,000 worth of I Bonds as of the date of this publication, you’d earn 4.81% (9.62% annual rate divided by 2) over the next six months and your I Bonds would then be worth $10,481 after six months.  The variable rate component of your I Bonds will then adjust to the new rate that will be announced in October. The variable rate on your I Bonds will also adjust every 6 months after that based on the inflation rate at the time.   The bonds will earn interest for the next 30 years or until you cash them out, whichever comes first.  You are not permitted to cash out your I Bonds within 1 year of purchasing them. Also, if you cash them out before holding them for 5 years, you will forfeit the last three months of interest.3    How do I Buy I Bonds?  I Bonds can only be purchased through the Treasury Direct website.  They may not be purchased in or moved to a brokerage account, a 401(k), an Individual Retirement Account (IRA), a Roth IRA, etc.   You can’t buy more than $10,000 worth of I Bonds electronically per person in a given calendar year.4   To purchase I Bonds electronically, you’ll need to set up an account on TreasuryDirect.gov and follow the instructions on the site to purchase your I Bonds.  [+] Read More

Year End Financial Review and Planning Checklist

December 9, 2021
Before the year ends, take some time to review your financial health. Here are 10 financial planning items to review before 2021 comes to a close.    1.  Take your Required Minimum Distribution   Required Minimum Distributions (RMDs) were temporarily suspended for 2020 due to COVID-19 relief legislation but RMDs are back for 2021 and beyond.  If your 70th birthday is on or after July 1, 2019, you will have to take an RMD from your retirement account prior to December 31st once you reach age 72 in most situations.1  Note that Roth IRAs do not have RMDs. Consult with your financial advisor to determine the exact amount of the RMD that you need to take before December 31st.  [+] Read More

Market Turbulence Amid Coronavirus Concerns

February 25, 2020
Global equity markets have experienced a pullback following heightened fears of the spread of coronavirus (COVID-19). This has left some investors wondering what actions they need to take (if any) with their portfolios. History has shown that equity markets typically rebound quickly in the event of a viral epidemic driven sell-off.  The pullbacks have historically been short-lived and have typically been followed by a continued upward trend. 1   [+] Read More

Yield Curve Inversion and Recession Threats

August 15, 2019
Concerns over an inverted yield curve combined with the threat of higher tariffs around the globe have created some equity market volatility over the past few weeks.  The ups and downs of equity market volatility can certainly be unnerving for investors, but volatility in and of itself is not necessarily a bad thing nor is it necessarily a signal of an upcoming recession. In fact, since 1980 the S&P 500 has suffered an average intra-year decline of 13.9% while the market has had positive returns in 29 of those 39 years.1   [+] Read More

End of Year Market Volatility

December 18, 2018
 The recent pullback in global stock markets has caused some concern that the bull market in equities is winding down. There is even some concern that this pullback is among the initial signs of an upcoming recession.  To gain some better historical perspective on the recent movement in the stock market, let’s take a look at historical intra-year market declines versus calendar year returns.1     [+] Read More

Mid-Term Election Year Volatility

October 26, 2018
Historically, equity markets have been very volatile in mid-term election years. Since 1962, the S&P 500 has had an average intra-year pullback of 19% in mid-term election years.1  In fact, equity market returns have historically been very tepid before Election Day in early November.  In mid-term election years since 1950, the market has returned an average of just 0.96% in the first 10 months of the year, but markets have typically rebounded in the final 2 months of the year, returning an average of 4.24% across November and December. 2 The recent market pullback has wiped out 2018 gains and the S&P 500 is now roughly flat for the year. Again, historically the first 10 months of a mid-term election year are typically flat only to see a relief rally in the final 2 months of the year once the results of the election are known with certainty. Will history repeat itself in 2018? While it is nearly impossible to forecast stock market returns over a specific time frame (particularly for a brief 2-month window), there are reasons to be optimistic going forward: Corporate earnings remain strong3: 81% of the 140 companies in the S&P 500 that have reported third quarter earnings (as of October 23, 2018) posted earnings per share that beat Wall Street expectations, with only 10.7% of companies reporting earnings below expectations.  Over the last 25 years, an average of 64% of companies reported earnings that beat Wall Street estimates with 21% of companies missing expectations.4 [+] Read More

Investing When the Market is at an All-Time High

September 18, 2018
Should You Be Concerned About the Height of the Market? US equity markets have been trading at or near all-time highs recently as the S&P 500 and Nasdaq Composite both reached new highs multiple times in August.1 This news has led some skeptics to believe that a US stock market at a record high level could be a cause for concern. Does reaching an all-time high mean that the market is more likely to decline in the near future? After all, reaching an all-time high means we could be at the peak of the market and we could now be poised for a sell-off. Before we get too caught up in the hype though, let’s take a look back at what market highs have shown historically. Looking at the month-by-month returns of the S&P 500 (including dividends) from 1900 through July 2018, 276 of all months in this time period ended at all-time highs as compared to the monthly close of all previous months.2 Interestingly enough, of these 275 months ending at all-time highs prior to July 2018, 258 of them, or 93.8%, were followed by at least one new month-end all-time high at some point in the next year. 98.2% of all-time highs were followed by at least one new all-time high within the next 5 years and 99.3% of all-time highs were followed by at least one new all-time high within the next 10 years. [+] Read More

How Should You Handle Roth IRA, HSA, and 401k Savings? – Doug’s Quiz Corner

September 14, 2018
Saving for Retirement and Potential Health Care Costs Your friend Jody has recently started a new job and she has several options for saving for her retirement and future health care costs. Jody’s new employer offers a 401(k) with a match of up to 3% of her salary. They also offer a Health Savings Account (HSA) option. Jody lives in a state that does not tax withdrawals from HSAs for qualified medical expenses and contributions to HSAs may be deducted from taxable income for state income tax purposes. In addition, Jody also has a Roth IRA which she is using to save for her retirement. Jody is in very good health and would prefer to have a health plan that limited her upfront health care costs while allowing her to save for future expenses. She is comfortable with a high deductible plan. She is financially secure and doesn’t plan on touching the money in her Roth IRA until retirement. Assume Jody meets the eligibility requirements to participate in her employers 401(k) program, enroll in a Health Saving Account, and simultaneously has enough to contribute to a Roth IRA. [+] Read More

Should You Invest Your Entire Investment Portfolio in a Single Management Strategy?

September 4, 2018
We’ve all heard the term “don’t put all your eggs in one basket”. Of course, this concept can be easily applied to investing. Many sophisticated investors understand that investing in only one stock, or only one asset class, or only one anything is risky. However, the question of whether or not you should invest in just one money manager is rarely directly addressed. A key objective of diversified investing is to build a portfolio that is spread across multiple asset classes in an effort to lower the overall volatility of the portfolio. If you invest your entire portfolio in one single stock it’s clear that your entire portfolio will be tied to the fortunes, and therefore risk of that one company. Adding additional investments to the portfolio can lower the overall volatility and risk of the portfolio, especially if you are adding additional holdings with low correlations to one another. In other words, if your portfolio zigs, you want to add something that zags to get the most effective diversification benefit. To take this further, if your portfolio is made up entirely of one large cap telecom stock, adding a second and third large cap telecom stock may give you little in the way diversification benefit if each of these companies have similar factors that drive their returns. Ideally, a portfolio will be well diversified among different sectors. That way, if one sector is performing poorly, this poor performance may be offset by other sectors with stronger performance. Likewise, geographical diversification is important to help mitigate the impact of a poorly performing market. [+] Read More