Notice: If you filed your taxes in April - congratulations! Now, finish the tax race by sending us your return (upload here) so we can help you with tax planning.

Stocks powered ahead in the first quarter of 2024. For large company US stocks, it was the best quarterly performance since 2019, with the S&P 500 Index registering 22 “all time high closes” during the three-month period as trading wrapped up on March 28.

Many market forecasters were constructive heading into the start of the year, but few prognosticators predicted the continuation of the powerful rally that began in late October 2023. A resilient economy, confident consumers, and excitement about artificial intelligence were reasons cited for the run-up in stock prices.

For the quarter, large company US stocks returned 10.4%. Small company stocks also rose, but the pace of increase was a slower 5%. Stocks of foreign companies returned 6%.

Bonds, however, finished in the red. Interest rates rose as inflation data disappointed. The Bloomberg US Aggregate Bond Index, the benchmark for high-quality bonds, declined by 0.7% during the quarter.

Midway through April, stock markets were showing some signs of fatigue after running up so much in Q1.

As of April 19, the S&P 500 Index of large company US stocks had declined by 5% from the end of March, and the technology-heavy Nasdaq Index had fallen by nearly 7%.

Longer-term bond yields increased by about 0.4 percentage points, a sizable three-week move, which also translated to about a 5% price decline for high-quality bonds maturing beyond ten years.

Investing is a marathon, not a sprint. This adage may seem a bit time-worn, but nevertheless appropriate given the recent conclusion of the 128^th running of the famed race in Boston.

I have had a long relationship with the sport of running, and although my lane has been distance, I’ve always admired sprinters. They approach competition with a narrow focus, execute with maximum intensity, and learn the results of their efforts in a matter of seconds.

And truth be told, I am intrigued by investment sprinters, too, who have a lot in common with track sprinters. For example, I’ve observed professional traders staying narrowly focused on their task and applying a high degree of mental energy throughout a trading session.

Typically, investment sprinters have quick reaction functions. Buying and selling tends to happen frequently under their watch, and investment sprinters try to make profits quickly while avoiding large losses.

I’m also intrigued by investment sprinters because their mental wiring and their market approach is so foreign. In philosophy and in practice, I identify with investment marathoners.

For investors in it for the long haul, lots of buying and selling doesn’t make much sense. Investment marathoners keep long-term objectives in mind. They develop a plan, stick to the plan, and expect to measure success over an extended timeframe.

Investment marathoners share the desire with investment sprinters to avoid large losses, but cutting a loss quickly isn’t part of the approach. Investment marathoners know the environment will include downturns along with market gains and can get comfortable with discomfort for periods of time.

Even though they understand the investment landscape, investment marathoners can get worn down and can become discouraged when the course gets challenging – that is, when prices go down instead of up and when portfolio values drop instead of rise.

The following two charts, courtesy of JP Morgan Asset Management, can be particularly useful in helping investment marathoners maintain perspective.

The first chart below shows what has happened each year in the US stock market for the past 44 years.

The grey bars show annual returns. The red dots show intra-year drops and refer to the largest market drops from a peak to a trough during each year.

Important statistics from this first chart:

When the stock market is in one of its periods of decline, the learning from this chart is worth remembering: you can expect stocks to take a tumble during the year, but there’s a high likelihood that returns will finish the year in positive territory.

The green bars depicts stock market performance, the blue bars bond market performance, and the grey bars performance of a portfolio of 60% stocks, 40% bonds. The bars show the range of returns over 1-year, 5-year, 10-year, and 20-year “rolling” periods, from 1950 to 2023.

For example, the left most bar considers stock market returns for all one-year periods from 1950 to 2023. The highest one-year return was 52%. The lowest one-year return was -37%.

Moving to the right, the next green bar considers stock market returns for all 5-year periods during the same 73-year timeframe. The highest annual return during any 5-year period was 29% and the lowest annual return for any 5-year period was -2%.

Key points from the second chart:

Distance running isn’t for everyone. The mind must be willing, and the body must be able to work hard to get to the finish line.

But investment marathoning is accessible to everyone. All it takes is the right plan, a commitment to stay the course, and confidence to let the financial markets do the hard work (and generate satisfactory returns) over the long term.

With hostilities raging in the Middle East and Eastern Europe, the resultant humanitarian tragedies weigh heavily on caring individuals, even for those of us fortunate enough not to have loved ones directly affected by the strife.

As investors, our minds may also turn to the potential financial market impact of the conflicts.

I participated in a conference call recently on geopolitics hosted by Goldman Sachs. The guest speaker was Retired General Sir Nick Carter, whose last assignment was chief of the Defense Staff for the United Kingdom (the US analog is the Chair of the Joint Chiefs of Staff).

General Clark examined the situations in Gaza / Israel / Iran; Ukraine / Russia; China / Taiwan; and North Korea – through the lens of current or potential future military engagement.

The flashpoint that concerned Clark most was Iran’s recent drone and missile attack on Israel, following the Israeli attack on the Iranian consulate in Damascus on April 1.

Clark stated that this was the first time since the founding of the Islamic Republic of Iran in 1979 that Iran has mounted a direct attack on Israel. In Clark’s words, “we’ve reached another level in terms of escalation.”

Additionally, Clark sees the Israeli / Hamas situation as near unsolvable; the Russia / Ukraine war as intractable; China’s objective of gaining control of Taiwan unmovable; and North Korea’s desire for nuclear weapons insatiable.

Clark concluded by wondering if the system of rules-based international order, put in place after World War II, will survive; and if not, what might replace it.

This was clearly a heavy report with a discouraging prognosis.

The second message for investors: bad geopolitical outcomes infrequently bring about extended stock market declines.

While far from uplifting, past experiences may serve to allay the worst fears related to the potential market impact of escalating geopolitical risk.

The table below from Goldman Sachs presents twelve hostile geopolitical events and stock market performance over three subsequent periods: the next day, 30 days later, and low point in the market following the event (which may have occurred before or after the 30-day mark).

The key take-away from this chart: adjusting portfolio positions in anticipation of a bad geopolitical outcome is a hit-or-miss strategy. In six of the twelve instances, stocks were in positive territory one month after the event.

Stock market drops concurrent with negative geopolitical events are often significant, as the low point in the chart above depicts, but the duration of the impact is impossible to know, and other influences and countervailing events can affect stock prices, too.

Also, the negative stock market impact of geopolitical events tends to be in line with normal stock market declines experienced in years that did not include a hostile geopolitical event.

Since 1980, the average intra-year stock market drop has been 14.2% (see the first chart in the previous section of this letter).

It is understandable if you are troubled by geopolitical risk and worry about how it might affect your investments. Recent events have been distressing, violent, and cause a strong emotional response for many of us.

However, from an investment perspective, remaining dispassionate is recommended. Sticking to your investment approach and your financial plan will serve you well in the long term.

For the fourth year in a row, the IRS has provided relief on Required Minimum Distributions (RMDs) for beneficiaries of Individual Retirement Accounts (IRAs) who are subject to the 10-year payout rule.

This class of IRA beneficiary is known as “Non-Eligible Designated Beneficiaries” (beneficiaries who are not surviving spouses) and who inherited IRAs where the original owner died after December 31, 2019.

The original SECURE Act, which took effect in 2020, eliminated the stretch IRA for most IRA and Roth IRA beneficiaries whose original owner died after 12/31/2019, and replaced it with a 10-year withdrawal rule.

On April 16, the IRS issued Notice 2024-35, which excuses RMDs missed in 2024 for Non-Eligible Designated Beneficiaries.

The relief does not apply to RMDs for beneficiaries who inherited IRAs before 2020.

Pre-2020 inheriting beneficiaries are subject to the pre-SECURE Act rules, which allow any designated beneficiary to stretch distributions out over their own lifetime, resulting in smaller RMDs and a smaller annual tax bill.

We provided more information on this topic in our August 18, 2023 blog post entitled: Heir Drama: Inherited IRA Update. The IRS also expects to issue final regulations on this topic later in 2024.

If you fall into the category of Non-Eligible Designated Beneficiary, you may want to consider the impact to your income tax situation over time by delaying distributions. Holding off could mean future spikes in taxable income, and ultimately paying more income tax over time.

I grew up in a New England household where weekends were spent in ice rinks. I loved it! My brother was an ice hockey player, and I was a figure skater who joined my sisters in the sport each weekend (at the time, hockey for young women wasn’t an option).

I have a favorite quote from one of hockey’s greats, Wayne Gretzky, who said: “Skate to where the puck is going, not where it has been.”

I was reminded of this quote recently during a conversation I had with a gentleman at a networking event while waiting in line for a “free headshot,” a perk of being a participant in the event.

My new acquaintance had grown children, and when I told him I was a college planning advisor, he perked up and said, “Good for you!” He then began to reflect upon his experience in helping his children with their college applications.

He said he was obsessed with one outcome: the bumper stickers he would be able to affix to the family car. Not the college cost; not where his kids would be happy and thrive academically; just the school with the best “elite” reputation.

He was from an affluent suburb in Boston. He said all the cars in his neighborhood had elite college bumper stickers: Harvard, Yale, Brown, etc. His primary thought, and self-admitted anxiety thinking about college for his children, was about those bumper stickers. He said literally “nothing else mattered.”

While this gentleman had every right to his approach and opinion (every family has their own list of criteria for choosing a college) I was taken aback. But I was also intrigued because he was so animated and emphatic while telling me his story.

While bumper stickers might have a limited audience, consider the scope of merchandise a typical family will buy at the bookstore during a college tour or event. Don’t many students and parents want to wear that sweatshirt to manifest attaining admission? It’s almost like a dream board (and maybe not so different from the bumper sticker after all).

That conversation at the networking event reinforced my belief in the importance of helping parents and students move beyond the emotional part of college search.

If families think deeply about their priorities and goals and how school choice will impact their personal financial situations, the decision framework might shift.

Consider a recent Bloomberg article entitled If You Didn’t Get Into an Ivy, a Public School Is the Better Investment, which claims that many elite private colleges underperform when it comes to the average student’s return on investment.

The Bloomberg News analysis of more than 1,500 nonprofit four-year colleges shows the return on investment at many elite private institutions outside the eight Ivies is no better than far-less selective public universities.

The analysis shows that a typical 10-year return on investment of the so-called “Hidden Ivies” – a list of 63 top private colleges – is about 49% less than the official Ivies and 9% less than states’ most prominent universities, known as public flagships.

These statistics are meaningful because of the high cost of attendance. For instance, a recent New York Times article commented on a situation where a newly admitted Vanderbilt University engineering student was shown an all-in price of attendance for their first year of $98,462.

As a financial advisor providing college planning, I encourage a holistic approach to the planning and decision-making process, with the goal of finding the most affordable choice that also is a great fit for the student to accomplish their academic goals, in a community and location where they will be happy and flourish.

Many of the alternatives will give students a four-year merit scholarship along with a great education and a wonderful experience. These institutions are p aces where students can build a tremendous foundation, lifetime friendships and mentor relationships, and gain experience to build on.

Which brings me back to Wayne Gretzky’s quote.

I recommend families move away from where college admissions goals have been: attaining admission to a brand-name, elite school.

Instead, consider where holistic college admissions planning is going:

Shifting the Dream School mindset and using a holistic planning approach to college search will help parents and students make the best all-around “smart choice” from their college list.

How happy are people around the world?

A comprehensive study on the subject, the World Happiness Report (WHR) is produced annually and measuring happiness around the world.

The 2024 edition of the WHR focuses on the happiness of people at different stages of life. In the West, the received wisdom has been that the young are the happiest and that happiness thereafter declines until middle age, followed by a substantial recovery.

The WHR also reflects a worldwide demand for more attention to happiness and well-being as criteria for government policy. It reviews the state of happiness in the world today and shows how the science of happiness explains personal and national variations in happiness.

The academic findings, social insights, and policy implications of the report are fascinating and important. But how about the price of happiness?

Fortunately, this is easy to determine.

Happiness costs $50 per hour and relates to a visit to the Golden Dog Farm in Jeffersonville, Vermont. This short video explains. Watching is free. Click on the link or the picture below. Hopefully viewing it will deliver a bit of happiness, or at least a smile!

Best regards,

Rob