Some Things to Consider During Difficult Markets – September 2022 Update

By Sacha Millstone, President of The Millstone Evans Group

Sacha Millstone

I am reaching out with a few comments about the markets. It has been a volatile year from the beginning. Markets were down double digits in January and February. Because significant cash flowed into our markets in March from overseas, (the U.S. markets are viewed as safe havens by the rest of the world – and the Russia/Ukraine war had started), we had a rally in March and, at the end of the month, we were down only 3.5%. From mid-April to May, the markets dropped double digits, and then there was a strong rally so April was down double digits and May was flat. In June, markets dropped further and hit their lows for the year. There was a strong rally from mid-July to mid-August. End of August through now, markets fell sharply, and are now again close to the June lows.

September is statistically the worst month of the year for the markets, which is especially noticeable in difficult market years. The worst days in September tend to come toward the end of the month, and here we are. Often we have seen this weakness carry into October, and as we approach the holiday season, we often see a rally in the 4^th quarter of the year.

We are in a bear market. Bear markets are defined by a drop of 20%. There are always good reasons for bear markets. This is the 12^th bear market in American history. Attached is information on the prior 11, including how long they lasted and how markets performed after they ended.

This is my 5^th bear market. From my experience, here are some actions investors should consider during a bear market:

Harvest losses in taxable accounts. You can offset taxable gains with losses. You can deduct $3K more than your gains. You can roll realized losses forward if they exceed your realized gains + $3K. They never expire. Many people had big tax bills last year because there were no losses to take in their taxable accounts last year. I have been doing this all year after client meetings. I will review all taxable accounts in December to check again.
If you qualify for Required Minimum Distributions (RMDs) from IRAs, if the values of those accounts are lower on December 31^st this year than they were last year, your RMD may well be lower, in 2023, which is another potential tax saving. No action is needed on this one.
Consider investing in CDs, shorter term Treasury Bonds, and other high quality bonds because the yields are higher than they have been in years. When you hear the phrase on the news that we have an “inverted yield curve,” it means that yields on shorter term bonds are higher than on longer term bonds. For example, as of the date I am writing this – Friday, September 23, 2022 - we had these CDs and bonds in the Raymond James inventory:

3mo CD - 3.40%
6mo CD - 4.00%
1Yr CD - 4.05%

1mo Treasury - 2.389%
3mo Treasury - 2.997%
6mo Treasury - 3.801%
1Yr Treasury - 4.074%
2Yr Treasury - 4.193%
3Yr Treasury - 4.207%
4Yr Treasury - 4.110%

Important note: rates change daily, so please contact me directly for current rates.

If you are contributing to a 401k, 403b, TSP or any other retirement plan, keep it up, and max out your annual contribution this year even if you don’t usually do so. Stocks and bonds are cheaper than they have been in a while.
When you regularly contribute the same amount to an investment like one does in employer-based retirement plans, this is called dollar cost averaging, and it results in you receiving a lower-than-average price during the time you do it. Talk to me and I’ll explain why.
You can set dollar cost averaging up in your accounts with us – it’s a very smart investment strategy in a difficult market, and there is no minimum investment.
Make an appointment to talk with me if you will have cash needs that we have not discussed over the course of the coming 12 months.
If you feel worried, stressed or fearful, let’s schedule a time to talk.

It is worth noting that there is also a market cycle corresponding to the 4-year election cycle. The worst year for market performance on average is the year of the midterm elections. The best year on average is the year after the midterm elections. It’s no guarantee, but it’s something to consider.

Warm regards,

Sacha

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