In May of 1932, Dean Witter wrote, “Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?” A few weeks later, the market turned, ending the worst bear market in history.
APRIL 2020 Newsletter: THERE IS NOTHING NEW ABOUT MARKET VOLATILITY
In May of 1932, Dean Witter wrote, “Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?” A few weeks later, the market turned, ending the worst bear market in history. (Jim Fullerton, former Chairman of Capital Group, the parent company of The American Funds, 1974)
“On April 28,1942,…in the midst of a war we were losing, faced with excess profits taxes and wage and price controls, shortages of gasoline and rubber and other crucial materials, and with the virtual certainty in the minds of everyone that once the war was over we’d face a post-war depression in that environment, the market turned around.” (Jim Fullerton, 1974).
In 1974, few people thought it was a good time to invest. The Dow had lost more than 40% from its high in January 1973. There had been a double bottom bear market in 1970. And once again the market turned around in November 1974.
We’ve previously discussed the end of the great financial recession of 2007 through March 9, 2009, when the Mark to Market rule was repealed. The market had been down 57% at one time. Unfortunately, this means it has been over 11 years since we have had to experience a tough Bear Market. On average, since the end of WWII, a Bear Market happens about every 5.7 years.
And what caused or explained the market turnaround in April of 1942? To again quote Jim Fullerton, “Simply a return to reality. Simply a slow but growing recognition that despite all the bad news, despite all the gloomy outlook, the United States was going to survive, that strongly financed, well-managed U.S. corporations were going to survive also. The reality was that those companies were far more valuable than the prices of their stocks indicated. So, on Wednesday, April 29, 1942, for no apparent visible reason, investors again began to recognize reality.”
“The Dow Jones Industrial Average is not reality. Reality is not price-to-earnings ratios and technical market studies. Symbols on the tape are not the real world. In the real world, companies create wealth. Stock certificates don’t. Stock certificates are simply proxies for reality.” (Jim Fullerton, 1974)
There is a huge wish to think “this time it is different” each time we have a severe market correction, but it never is – not in the underlying strength of companies or the economy, or the reason for investing in what Googins Advisors calls “solid companies.” Solid companies do not invest in “wishes and promises.” They consider many factors such as use of leverage, equity, care for employees, families, need for their product, and on and on – similar things you have thought of while building your wealth…or maybe you prefer ‘savings.’ Living through these times is not fun…but it has always been rewarding to those who stay the course.
Thanks to The American Funds’ website this newsletter is based upon – where thoughtful information is always available. Similar stories about the market go back into the 1800’s. There are other good websites; try them based on the mutual fund names on your account statement.
The internet tells me there are over 8,500 mutual fund groups available to invest in. Googins Advisors has a select list of investments we use for your accounts. It is comprised of about 15 mutual fund groups, and only certain individual funds are selected. These funds all use different percentages of stocks and bonds, which helps manage the volatility of your overall portfolio. There are no guarantees – not with stocks or bonds or real estate or gold or health. But there are good investments that have survived and grown over many years, and stocks have always outperformed bonds over time.
Call us at any time. Michael and I are in the office daily and everyone else is working remotely.
We wish you confidence and understanding as we survive this market.
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Please keep reading for details about the new CARES Act, which makes temporary changes regarding IRAs, other qualified plans, and required minimum distributions.
On March 27th, 2020, President Trump signed into law a roughly $2 trillion stimulus package to help individuals and businesses cope with the economic fallout from the Coronavirus. We have not yet learned all the details, but want to pass along some of the provisions we believe are relevant to investors:
- Required minimum distributions (“RMDs”) from IRA type accounts can be waived for 2020.
- If you have already taken your RMD for 2020, you may be able to roll that distribution back into your IRA, but only if you do so within 60 days of the distribution. There is speculation the IRS may extend this 60-day period; however, at present, if you received your distribution early this year, that money cannot be put back into your IRA.
- The tax filing deadline was extended to July 15th, 2020, as has the date to make contributions to IRAs and Health Savings Accounts for 2019.
- The 10% penalty on early retirement plan distributions is waived up to $100,000, provided the distribution is coronavirus-related (e.g. you, your spouse, or a dependent is diagnosed with COVID-19, or you experience “adverse financial consequences” as a result of being quarantined, furloughed, etc.).
- Loans from your 401(k), 403(b), etc. are temporarily allowed up to the lesser of $100,000 or 100% of the account balance.
If you are taking RMDs from your IRAs and do not need the money for living expenses, consider discontinuing those payments through the end of this year. Doing so would lower your 2020 taxes and help avoid the need to sell securities at reduced values; also, keeping more money in your accounts can lead to higher future values.
If you would like to discuss this further, please call or email us.
Sincerely yours,
Louise Googins – Author, Principal
Karl Kuelthau – Author, Principal
Michael Googins – Administrator
Kim Rankin – Accountant
Carson Bieber – Associate
And three UW-Madison Interns anxious and eager to return to the office.