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Investing Fundamentals Have Not Changed
War between Russia and Ukraine, climbing gas prices, and inflation at a 40-year high: It’s understandable that investors might be edgy these days. Yet, it’s important to recognize long-term investing fundamentals have not changed.
Some may be surprised to learn that historically stocks have been remarkably resilient, even in times of war. Mark Armbruster of the CFA Institute points out the average return for large-cap U.S. stocks during World War II and the Korean, Vietnam, and Gulf wars was 11.4 percent. Current stock market performance has been on par with historical norms.
The Swiss Finance Institute looked at the period from 1926 to 2013 and found stock markets tend to fall in the “pre-war phase,” as forces are massed and tensions rise. Then stocks tend to rise when war breaks out. They call this phenomenon “the war puzzle” because there is no clear explanation for it.
Recently, the U.S. S&P 500 fell significantly in the weeks running up to Russia’s invasion of Ukraine. A month later, stocks had recovered a good portion of the drop.
Once again, we see the basics of good investment management remain valid over time. Investing fundamentals have not changed despite the headlines.
- Work with a trusted advisor and develop a written long-term investment plan aligned with your tolerance for risk.
- Stick with that plan, unless your circumstances profoundly change.
- Stay diversified and stay invested, even when things feel daunting.
Americans Remain Committed to Retirement Saving
Defined contribution (DC) plan participants’ contribution activity remained strong in 2021, according to an ongoing Investment Company Institute (ICI) study. ICI tracks contributions, withdrawals, and other activity in 401(k) and other retirement plans, based on data covering more than 30 million accounts in employer-based DC plans. The latest data indicate that Americans remain committed to retirement saving and investing. Only 1.2 percent stopped contributing to their plans in the first three quarters of 2021, compared with 2.2 percent in the first three quarters of 2020, and 5.0 percent in the first three quarters of 2009 (another time of financial market stress).
“Despite the economic hardships brought on by the lingering pandemic, the long-term mindset of retirement savers continues to serve them well,” said Sarah Holden, ICI senior director of retirement and investor research. ICI has been tracking DC plan participant activity through recordkeeper surveys since 2008.
Americans Remain Committed to Retirement Saving
Read about how early and consisting investing in your employer 401k can help you win the retirement race.
IRS Impersonation Scams on the Rise
As the new year begins, the Internal Revenue Service (IRS) is reminding taxpayers to protect their personal and financial information. Be aware there are many IRS impersonation scams that try to trick people out of their hard-earned money via text, email, and phone. This tax season, the IRS also warns people to watch out for signs of potential unemployment fraud.
Text Message Scams
Last year, there was an uptick in scam text messages that impersonated the IRS and referenced COVID-19 and/or stimulus payments. These messages often contain bogus links claiming to be IRS websites or other online tools.
Other than IRS Secure Access, the IRS does not use text messages to discuss personal tax issues, such as those involving bills or refunds. The IRS also will not send taxpayers messages via social media platforms.
Unemployment Fraud
Many states have experienced a surge in fraudulent unemployment claims filed by organized crime rings using stolen identities. Criminals are using these stolen identities to fraudulently collect benefits. You may be a victim of unemployment identity theft if you’ve received:
- mail from a government agency about an unemployment claim or payment for which you did not file. This includes unexpected payments or debit cards, and they could be from any state;
- an IRS Form 1099-G reflecting unemployment benefits you were not expecting or did not receive. Box 1 on this form may show unemployment benefits you did not receive or an amount that exceeds benefits you did receive. The form itself could also be from a state in which you did not file for benefits; or
- a notice from your employer indicating the employer received a request for information about an unemployment claim.
For more on keeping your financial data safe, click here to read our article on cyber security.
Shifting Priorities and Changing Plans
Pivot. Fans of the television show Friends may always get a chuckle from that word. For many, however, it now represents a strategy for dealing with life in a post-Covid world. Shifting priorities and changing plans have been dubbed the “new normal” and it can be pretty stressful.
Yet, change doesn’t have to be random and scary. With the right preparation and planning, unexpected change can be manageable and intentional shifts in direction can be exciting.
The Covid lockdown became a time of self-reflection, evaluating priorities, and taking stock in careers. Some people found themselves out of work, while others gained a new sense of pride in their jobs when they were deemed “essential” for the first time.
Many of us adapted to working from home. We attended online meetings with kids clambering on the sidelines, conducted business while the dog barked at the Amazon delivery person, or focused on tasks with a quiet home as the backdrop. Some learned to enjoy it, others found it maddening. The idea of work-life balance took on new meaning.
Roughly 20 months into this radical shake-up of our lives, many people are seeing new opportunity, a chance to pivot with purpose – to reboot our lives, go back to school, start a family, change careers, retire early. The highest pay or the fastest path to promotion may be lower on the list of priorities. Flexibility, family-friendly policies and mental health care benefits are in higher demand.
If you’re experiencing a major life change or shift in priorities, talk with your financial planner. Any adjustment in your short-term and long-term personal plans and goals will impact your short-term and long-term financial situation. Areas to consider include:
- Changes to current income and expenses;
- Adjustments to savings and investments;
- Emergency-fund needs;
- Retirement and education account funding; and
- Compatibility of your risk tolerance with your overall goals and needs.
A pivot in life, whether voluntary or forced, can be an opportunity. Make the most of it. We’re here to help.