Featured entries from our Journal

Details Are Part of Our Difference

Podcast Episode – Meir Statman

With the Recent Events in Ukraine, Should I Make Changes to My Portfolio?

Embracing the Evidence at Anheuser-Busch – Mid 1980s

529 Best Practices

Recent Market Volatility

As of May 17th, the S&P 500 is down 14% year to date. Given the apparent negative economic outlook, many investors are concerned about their investments and what they should do. However, before descending down a worry spiral, pause and ask yourself: “Is this normal? Have I seen this before?”

During the 94 calendar years from 1928 to 2021, the US stock market had intra-year, double-digit declines 59 times. That’s almost two of every three years that the US Market experiences a double-digit decline. Yes, two-thirds of the time. So, we can conclude that a drop like the one we are currently seeing is a common event in the stock market. Not only common but good! Why? The reason investors are compensated with positive returns over time from investing in stocks, instead of cash or bonds, is because of the occasional period of negative returns. If there was no risk, investors would not get any reward for bearing that risk. Said differently, market downturns are features, not bugs.

Let’s dive deeper into those 59 years that had double-digit declines. Did the market recover or stay negative at the end of those years? In 58% of those 59 years, the market ended the year with a positive annual return despite the double-digit drop. 40% of those 59 years finished with a double-digit positive return!

What is the economic intuition behind why markets recover more often than not? Markets do a great job of factoring in both positive and negative news about companies and the economic outlook. Investors only invest in the market at current prices if they expect to earn a positive return. If everyone knew that the market would go down, no one would buy stocks at their current prices. Prices would simply fall until they hit a level that gave an investor a commensurate return for the risk they are willing to take. Today’s market prices reflect the current economic outlook. From here, markets might go up or down, but on average, market returns are expected to be positive over time.

That is precisely why we recommend that our clients stick with their well-thought-out investment plans rather than panic out of the market. The risks you may be worried about are already factored into stock prices. You are not alone in your fears, but that doesn’t mean you have to act on them.  By selling now, you will miss out on the future positive expected return of stocks.  We just can’t predict when those positive returns will happen.

When you look at nearly a century of bull and bear markets, the good times have outshined the bad. While we don’t know how long a bear market will last, staying invested ensures that you capture the bull markets when they do arrive again.

Statistics calculated using data linked here. Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Hill Investment Group may discuss and display, charts, graphs, and formulas that are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies. Consult with a qualified financial adviser before implementing any investment strategy. 

Going the Distance

Do you know what percentage of Americans have run a marathon? About 0.5%, or one in about 200 Americans (according to a Runners World study). Why such a small group? Because it’s hard!

After my wife Jen completed the Boston Marathon last month, I shared that stat with our three sons. The Boston Marathon is like the Super Bowl for runners. For those who aren’t familiar with the running world, runners have to qualify based on race time. It’s an elite group. To participate, you have to train not for just one marathon but at least two (one or more to qualify and one for Boston).

My boys and I watched as thousands of dedicated runners sped by competing in their own Super Bowl. We even saw a blind runner being led by a trained guide which reminded me of our podcast guest, Caroline Gaynor, who guides blind Ironman triathletes.

If you’ve talked to anyone that has run a marathon, many will say the most challenging part is the training which typically lasts about 20 weeks and includes between 35 and 80 miles of running per week. That is a lot of time and hard work dedicated to a big goal – very similar to our theme of taking the long view.

Jen had setbacks in her training, including a strained calf and shin splints (among others). She worked with experts, such as a physical therapist and a chiropractor, to overcome her ailments and get back on track. Jen set a goal, and she had the fastest race in her running career (3:39), all while raising three kids and running a nutrition business.

How did she do it?  She took the long view! I saw many parallels between her journey and the one we take alongside our clients. Our clients have specific goals they want to hit. With thoughtful planning, including experts that help work through challenges, and a massive dose of patience, we work to help clients increase the odds of hitting their goals. So, while running a marathon may not be one of your goals, let us help you plan for your financial Super Bowl. Set up a time to talk or meet now.

529 Best Practices

If you have children, you have likely added the number, “529” to the list of ubiquitous IRS regulation codes that you know. You might even randomly discuss this IRS code with other parents while watching youth soccer games. While most of the articles on 529s focus on how and where to open accounts, little attention is given to optimizing, accessing, and using the funds. We want to remedy this by sharing some key considerations:

Which Educational Expenses Can be Paid From Your 529?

529 funds can only be used for “qualified” educational expenses. If your student is attending K-12 secondary school, account owners are permitted to use up to $10,000 per year for tuition only. However, once your student heads off to college, the list of qualified expenses expand significantly, including tuition/fees, housing, meal plans, and technology. If your student is fortunate enough to earn scholarships, that can help the funds in your 529 go even further.

What Are “Non-Qualified” Costs?

It’s important to note that many college costs are non-qualified, meaning the account owner cannot use 529 funds to satisfy those expenses. The following are some non-qualified expenses include:

  • College application and testing fees
  • Travel and transportation costs
  • Extracurricular costs like fraternity and sorority dues
  • Everyday living expenses

How to Withdraw and Use the 529 Funds

Since it is the account owner’s responsibility to prove that 529 withdrawals are used only for qualified expenses, proper record-keeping is critical. For those larger items such as tuition/fees, housing, and meal plans, it is usually possible to direct your 529 plan to remit payment directly to the school’s finance department which ensures a clean record of withdrawal and usage. If the account owner withdraws funds to the beneficiary (your student), maintain pristine records, such as receipts, for purchases so that there is an audit trail.

Importantly, the academic calendar is different than the annual calendar. Funds withdrawn in one calendar year should be used in that calendar year. Be sure to understand each school’s financial deadlines and plan accordingly. In all cases, make sure the fund manager has at least 10 business days to process a withdrawal request.

Finally, some students have 529 accounts that are owned by their grandparents. If the student is applying for or has accepted financial aid, there are strategies to minimize or eliminate the potential negative impact of withdrawals from the grandparent-owned account.

What if You Need More Funds or Run Out?

One of the great features of 529 accounts is you can roll over funds between the accounts of all your children. If you have three children and three funds, you can rest easy that even if you fund them equally, you can address the fact that all three will have different college expenses. Or, if one student ends up not needing any of their funds, you can change the beneficiary to one of their siblings. If you are in the enviable position that there is money left over, then you have a start on graduate school or an initial contribution for their future children.

Conclusion: When the Time Comes, Learn the Withdrawal Rules

Keeping up with all the college bills can be a challenge. If you take the time to learn the withdrawal rules and processes for your 529 plan before your student heads off to school, you can eliminate the headaches that can be part of paying for all the expenses related to sending your kid to college.  You’ll have peace of mind as well as the time to enjoy your student’s new adventure and future successes. As always, you can reach out to our team with any questions.

Featured entries from our Journal

Details Are Part of Our Difference

Podcast Episode – Meir Statman

With the Recent Events in Ukraine, Should I Make Changes to My Portfolio?

Embracing the Evidence at Anheuser-Busch – Mid 1980s

529 Best Practices

Hill Investment Group