Putting the Market Volatility into Perspective

In an effort to find perspective around market volatility, we look to a chart that J.P. Morgan updates every quarter tracking intra-year declines. This chart maps annual gains or losses by the S&P 500 Index from 1980 through March of 2020. The annual returns are denoted by the grey bars. Notice there are many more positive grey bars than negative. In fact, it’s about 1 every 4 years that end up having a negative annual return. That statistic is based on an annual January 1 to December 31 calendar year.

However, if you also look at the red dots and their corresponding values you will find that many of those positive yielding calendar years had a period within the year (“intra-year”) that was negative. For example, in 1998 the market was up about 27% for the year but at some point “intra-year” the market was down 19%. Measuring from 1980, the average intra-year decline is 13.8% annually. This puts some of the market volatility into perspective: On average, we can expect that at some point in the year the market will dip down about 14% yet still have positive returns 3 of every 4 years.

It also serves as a helpful reminder when trying to assess portfolio performance and picking selective timeframes. The shorter the time frame, the more likely that you’ll catch some of these dramatic swings in the market in your performance calculations and that can cause a lot of anxiety (or bliss!) depending on what start and stop point you reference. Instead, we like to review rolling period returns of 5 years or more to smooth out these market fluctuations and keep focused on the long term.

*The information provided is based on information provided by you and is only an estimate based on that information. Windward Wealth Strategies does not offer tax planning or legal services, but may provide references to accounting, tax services or legal providers. They may also work with your attorney or independent tax or legal advisor. A qualified tax professional or independent legal counsel should review the tax implications of any securities transaction. This material is not intended to replace the advice of a qualified attorney, tax advisor, financial advisor or insurance agent. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional advisor.


A Hidden Benefit of the Coronavirus Stimulus Bill: You Can Wait to Take Your RMD

Originally published by Yahoo! Finance

The coronavirus stimulus package, known as the CARES Act, working its way through Congress is expected to waive required minimum distributions (RMDs) from retirement savings accounts for 2020, granting a reprieve for retirees age 70½ and older who might otherwise be required to sell low and take distributions just when the stock market has nosedived in recent weeks.

The bill also allows people younger than 59½ to take an early distribution, up to $100,000, from a traditional IRA to pay for a coronavirus-related hardship, such as a job loss. The early distribution is penalty-free, though not necessarily tax-free. The tax bill can be avoided if the money is returned to the IRA in three years; if not, the taxes can be spread out over three years beginning in 2020. Distributions are taxed as ordinary income.

With the RMD waiver, retirees who can afford to skip their 2020 distribution can now leave that money an extra year in an individual retirement account or a defined contribution employer’s savings plan, such as a 401(k) or 403(b), to recover without penalty. “That’s a huge relief for people who would otherwise be taxed on a value that has vanished,” says Ed Slott, founder of IRAhelp.com.

RMD amounts are calculated based on the recipient’s life expectancy and the value of retirement account balances at the end of the previous year. That means an RMD taken in 2020 would be based on account values on Dec. 31, 2019, when the Dow Jones Industrial Average was nearly 30% higher than in mid-March 2020. On top of those losses, the RMD adds another in the form of a higher income tax bill, often a sore point for retirees with pensions or other sources of income because of the potential for distributions to push taxpayers into a higher bracket.

Instead, the waiver gives those retirees more breathing room with the IRS at no cost. In any other year, skipping an RMD would come with a stiff 50% tax penalty on the amount that should have been withdrawn.

Distributions from inherited IRAs are also included in the waiver and do not need to be taken in 2020.

And what about individuals who just missed the new higher-age cutoff for taking RMDs thanks to the SECURE Act of 2019? “This buys them one more year,” says Ray E. LeVitre, founder of Net Worth Advisory Group. The SECURE Act raised the age that individuals must begin taking distributions, from 70½ to 72. But anyone who turned 70½ in 2019 still had to abide by the older rule and had until April 1, 2020, to take the first distribution.

Usually, financial planners discourage their clients from delaying the first distribution to the next calendar year to avoid having two RMDs taken in the same year rather than spreading them out over two. This time, procrastinators may have had the last laugh. “The ones who benefited the most are the people who didn’t listen to us,” says Slott. In that instance, the 2019 and 2020 distributions are both waived. But if you already took your 2019 distribution last year, you’re out of luck; the distribution cannot be undone.

A 2020 distribution taken within the last 60 days, however, can still be put back into an IRA in what is called an indirect rollover, provided you haven’t made any other indirect rollovers in the past year. If you have taken more than one distribution in the past 60 days, those additional distributions could be put into a Roth IRA, using a strategy called an indirect Roth conversion. Although you won’t avoid the tax on those distributions, you’ll have the benefit of letting that money grow in a tax-free Roth account, says Brian Vnak, vice president of advisory services for Wealth Enhancement Group.

For distributions taken more than 60 days ago in 2020, a new strategy exists. Under the CARES Act, those distributions could potentially be repaid into the IRA over the next three years if you can show that the money was withdrawn to cover a coronavirus-related hardship.

The RMD waiver won’t offer much relief for the vast majority of retirees who need the distribution to survive. In fact, most retirees withdraw more than the required amount each year, and the U.S. Treasury Department estimates that only 20.5% of RMDs in 2021 will be for the minimum amount.

For individuals who need the money now, whether it’s an early distribution permitted under the stimulus package or an RMD, financial planners recommend tapping any cash in the account first, before bonds, and leaving stocks as a last resort. Otherwise, they have the double whammy of locking in their losses and paying taxes on the distribution, says LeVitre.

See full article here.


From Windward Wealth Strategies Regarding COVID-19

Executive Summary

  • The CoronaVirus has halted consumers as large events are being cancelled, people are staying home from social functions and sick days are being used.
  • The S&P 500 is off its high.
  • Federal Reserve has cut rates and have announced a bond repo for T bills.
  • Federal Government is looking to cut payroll taxes until the end of the year among other stimulus.
  • Federal Government has banned travel to/from Europe.
  • Xi visited the coronavirus epicenter Wuhan and gave it the all clear to go back to work.
  • US GDP is likely to suffer from the lack of consumer spending, potentially putting us in to a recession.
  •  It is too early to tell what the effects of the virus are and what the market should be priced at.

What to do now?

Windward has always stressed the need to plan for bad markets while you are in a good market. This allows us to not have to react in a downturn and instead be proactive, put cash to work and buy during downturns. We recommend resisting the urge to sell which makes temporary losses permanent. Instead, be long term greedy. This does not mean complacently sitting on the sideline, but rather choosing to make all of these decisions in good market environments. Remember, on average, every year for the past 30+ years we have an intra-year decline of at least -13% . Bear markets are typically relatively short and timing the sell and the buy perfectly is nearly impossible.

Consumer spending drives about 70% of the Gross Domestic Product (GDP- our measurement of growth) in the United States.  The consumer has supported the lifeline of this bull market for a very long time now.  Couple that with accommodative interest rates and nearly full employment, we had a good looking economy going into January. Even through February great economic reports and analytics were being reported. 

That is all coming to a halt as people are staying home, having sick days and refraining from large gatherings. Without the consumer out buying things at the mall, traveling, going to Disney World or going to a movie, the US economy is likely going to fall into a recession soon, if not already.  Not because the corporate world isn’t working, but because people aren’t buying their goods right now.

THIS WILL END, We will get back to normal, it’s just a matter of how long. This 2020 market environment is likely a cyclical (even ‘black swan’) event that will have an end date,  and not entirely a systemic issue (like the financial crisis of 2008) that is like a cancer killing the underpinnings of the economy in traumatic ways.  A cyclical event will, instead, slow us down and the unknown is the extent of the slowdown for length of time and growth.  Having allocations to hedges and bonds for the very reason of thwarting off the full effect of the stock market volatility is key to maneuvering through market volatility. 

Remember, losses on paper are temporary until sold. Downturns result in rebounds which is why being IN the market is so critical. With every decision to sell, requires a precise decision of when to buy back in or you will miss the most beneficial of rebound days. If you look at history of bear markets (markets down more than 20% from their highs) the number of days in that bear market are far fewer than the number of days on average in a bull market (markets with good growth). So while this market is reacting swiftly to the downside, there is likely a bottom to be met.  It may be possible that an intra-term bottom around 30% down from the highs could be a likely floor. That doesn’t mean we stay there for 2020, that is just an intra-year downturn that is part of long term investing.  

Steps clients should take is to:

  1. Assess their thoughts/feelings surrounding this market and apply them to their current portfolio.  Asset allocations should be massaged per any risk tolerance adjustment – after the market heals. Keep diversified and add hedging strategies where they are recommended. Proactive trading should be on the buy side.
  2. Understand the goals and strategies of the portfolio. At Windward, investing is about your future, we continually review portfolios.  Accounts are positioned for volatile times and the focus is on long-term growth over inflation and taxes.  We look for ways to be tax efficient, while looking for buying opportunities.
  3. Never invest more that you are willing to risk or that you will need in the next two years.
  4. Proactively put long-term allocated cash to work.

The Virus

Isn’t it just like the flu? We’ll explain why it’s a bit different in the detailed section. This is not a story about how each individual should fear a deathly virus and panic, it’s more about slowing the spread of the virus to reduce the strain on hospitals and longer term effects on our economy due to sick leave and consumers not spending because they are home sick.  If we can flatten the curve of the number of cases hitting during a short or longer time frame, it would be beneficial to lengthen that time frame. This allows for our healthcare system to maintain their systems, tend to all of the sick and not exist beyond their own capacity. If we have a plethora of sick people hitting the healthcare system at once, our healthcare providers will not be able to handle it. 

This is not taking the deaths from the virus lightly by any means but in comparison with other illnesses, this affects most people of elderly age as well as those with underlying health ailments. Slowing the spread can make it more manageable for healthcare and consumer activity – which is the foundation of 70% of the growth of the economy. 

Ways to do this are through massive testing, good hygiene and staying home.  South Korea has been incredibly impressive on how they get ahead of this virus by testing everyone. They tested, they responded and they are in better shape than any other country. Italy, has not done so well. It got out of hand and now they are having to take some very dramatic steps by basically shutting down all social functions.  China is the main source of the virus and has not been forthcoming of their actual numbers. This is troublesome because it keeps the US out of the look not knowing what the real count of the number of people dying vs the number of people sick.  Right now, we think the denominator of that ratio is incredibly low which results in a falsely high death rate.  The US death rate is much lower so far. The US needs to test, and we need to test as many people as possible. It’s the only way to get a handle on what the statistics look like, just like South Korea.

At this point it’s less of a point of the tally of people who contract the virus, but it’s more about the fear of getting it.  Fear has created a contagion effect where normalcy is out the window. People are not going to large gatherings (probably wise to slow the virus), they aren’t going shopping, attending sporting events and business travel to conferences are all but halted.  This behavior will kill the consumer.  The key when you do go out is to wash your hands. This virus is said to be transferred very easily and washing hands is key to reducing transmission.

What’s Next?

There is an end to this, we just don’t know when yet. The good news is this is not a result of a systemic issue like in 2008 in the financial crisis where financial surprises kept coming out of the woodwork and causing precipitated downturns.  This is more like a black swan event that is having a quick and strong impact on our economy because it is taking the consumer out of the workforce and from spending money on our economy’s goods and services. The fundamentals of many companies will likely remain intact but with an intense growth slowdown for the foreseeable future. That anticipated slowdown is what makes values of stocks go down. It will take some in depth analysis to make sure balance sheets and forecasts are steady and reliable after this starts to blow over. Once we have more information on containment and slowdown of infection, we will likely have a rebound and rebounds can happen very quickly.

Sincerely, Windward Wealth Strategies

*The information provided is based on information provided by you and is only an estimate based on that information. Windward Wealth Strategies does not offer tax planning or legal services, but may provide references to accounting, tax services or legal providers. They may also work with your attorney or independent tax or legal advisor. A qualified tax professional or independent legal counsel should review the tax implications of any securities transaction. This material is not intended to replace the advice of a qualified attorney, tax advisor, financial advisor or insurance agent. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional advisor.


Looking Ahead To 2020

As 2019 comes to a close, this is a good time to consider what we see ahead for 2020 beyond economic and market issues.

Windward Wealth Strategies intentionally works to provide more than an investment strategy that is consistent with a client’s risk tolerance. We also help with tax issues, estate planning, charitable giving, protecting personal data and other areas that impact all of us. With that in mind, here are a few predictions and trends you can anticipate in the year(s) ahead, specifically related to all of us as consumers:

  • If you’re flying in the United States after October 20, 2020, you will need a Real ID compliant card. An updated DHS driver’s license should have a star in the upper right-hand corner, or you can use a valid passport or military ID for travel. The Department of Motor Vehicles provides information on what’s required to obtain a new Real ID license.
  • In addition to autonomous vehicles, facial recognition software and other uses of Artificial Intelligence, there are some other uses that aren’t necessarily beneficial. It’s worthwhile to know that AI is already being used for cyberattacks, including ransomware, identity theft and fraudulent financial transactions. Experts have shared that ultimately, the best way to combat malicious AI is with AI itself, which will adapt as cybersecurity evolves to avoid security “blind spots.” As consumers, we need to use common practices such as: using and continuously updating antivirus software; being on the lookout for suspicious emails from trusted sources, like companies you work with; using complex passwords and/or a secure software password protection program (like Keeper); and checking bank and other financial data regularly for any inconsistencies. Cyber experts anticipate that AI and speech technology will be used to exploit consumers with phone calls that will have the recipients believe they are talking with a person they know or a representative of a company they have a relationship with. Nationally, a bipartisan bill (TRACED Act) to protect consumers from robocalls passed the House and is expected to pass the Senate soon. Shortly after, the President will likely sign it into law. This will place more of the responsibility on wireless service companies to provide greater security protection for mobile phones.
  • Disinformation and fake news are spreading in the public and private sectors and being used as a weapon by nation states. In 2020, we will see more of the stark reality that deep learning algorithms can bring, using seemingly realistic images and videos. Be wary of this type of activity, especially through social media. As one example, many Facebook® and Instagram® users saw fake news involving celebrities who supposedly left their regular work and have started their own clothing or cosmetics companies. Those behind this disinformation hoped to steal user data when they logged on to a linked website.
  • One of the most significant issues in the future is what governments throughout the world will do to protect our privacy. Will privacy become a top-level priority, and what are the implications for enterprise data management? Advertisers on Google®, Facebook and Amazon® have been using data for some time to target customers. Google’s recent acquisition of Fitbit®, in particular, means the tech giant has access to years of fitness and related data for tens of millions of consumers. The questions is: what will they do with that data? That’s just a singular example of data mining that will surely continue to be exploited.


Protecting personal data and preparing for changes in technology requires knowledge of what tactics hackers use and vigilance in protecting one’s personal information. You may already be using some of the following tools or doing your best to avoid certain risks, but here are some recommendations:

  1. Don’t use public Wi-Fi or use it sparingly only for sites that don’t involve secure access.
  2. Immediately delete any emails from sites that you suspect may be represent phishing.
  3. For desktop computers and mobile devices, use auto-lock to keep your device safe from unauthorized use.
  4. Use two-factor identification whenever it’s available for banking and any other financial transactions.
  5. Access the site “haveibeenpwned.com to find out if any of your email addresses (assuming you have more than one) have been hacked.
  6. Change passwords regularly, make sure they aren’t all the same and consider using a password encryption program for desktops and mobile devices.
  7. Make sure your home wireless network is set up with a secure password.

If you have any questions regarding personal security or if you want to review any security or related issues in greater detail, please let any of us know. Have a happy and safe 2020!


Contact Us

Windward Wealth Strategies Northeast Wisconsin Office 2370 State Road 44 STE A Oshkosh, WI 54904