Personal Finance Financial Planning & Investing

[4Q Basket Case]

Something of a repeat of my post from March 18, along with something to consider.

Thinking about all the nastiness in the financial markets. We can yell and curse and stomp feet and burp about what's causing it, whose fault it is, and who to blame until we're blue. It won't help. What will help is rational decision-making.

If you're one or more business cycles away from retirement, put cotton in your ears and keep on keeping on. As another poster characterized this philosophy, "Keep calm and invest on."

The most successful investor of our time (maybe all time) is Warren Buffett. One of his great quotes is, "The market is designed to transfer money from the active to the patient."

So be a patient recipient of the market's largesse.

For those closer to retirement, or in retirement, here's something to consider: Convert some or all of your Traditional IRAs to Roth IRAs.

Here's the deal: In Traditional IRAs, contributions are in pre-tax dollars, but you pay tax on withdrawals. In Roth IRAs, the contributions are in post-tax dollars, but withdrawals -- even if there are massive gains since the contribution -- are tax-free.

The reason it might be a good time to convert is that you have to pay tax on the conversion now. Which sounds counterintuitive.

But you have to pay tax on withdrawals from Traditional IRAs anyway. And because today's market, especially the tech sector, is down significantly, the amount of the tax you incur in the conversion to Roth might be less than what you'd pay on Traditional withdrawals in the future. Since you'd be converting at a down time, you stand to gain a lot -- tax free -- when the market comes back.

And it will come back. So this is a twist on buying low and selling high.

Now, everybody's tax situation is different. One size definitely does NOT fit all. There could be reasons specific to you that this isn't a good idea. There could be reasons it's a great idea.

Regardless, it's definitely worth asking the question. Talk with your financial advisor and make the right decision for you.

Whether you decide to convert or not, you're making a conscious decision and taking control of your situation.

 

[BamaNation]

I think perspective and pictures really help here. Here's the complete VTI (Vanguard total stock market index) since its creation 24 years ago. Stay the course. Probably a good time to again point you to the Personal Finance sub-menu at the top right of the page which points to a bunch of specific topics we've had in this series. Thanks to 4Q and others for providing depth, insight, and calming voices amidst the bull and bear runs over the 6 years that we've had this series.





ALSO, this could be a GREAT time to simplify your holdings by selling funds/stocks that are currently at a loss and immediately reinvesting in an index fund (not the same fund but one that is similar), harvesting the loss (Tax Loss Harvesting or TLH), and using that loss to reduce your taxes for 2025 and/or in the future. I talked about something like this in my Complexity vs Simplicity post a few years back. This may be particularly useful for inherited funds / individual stocks and/or high-expense funds that you've been wanting to change.

 

[BamaNation]

Here's another chart showing treasury yields. To quote the WSJ article where I found this, "bond traders are reflexively pricing in the simplest scenario—a short-term economic shock followed by a rapid return to the status quo."

Whether this is the case or not will be proved out in the coming weeks, but that's what the "smart money" is doing. Things may change rapidly intra-day or intra-week. But longer-term, I'm "betting" this way too by staying the course.

 

[4Q Basket Case]

The current volatility in the equity and debt markets is a great illustration of an old adage: "The markets can handle bad news. They don't like it, but they can handle it. What they can't handle is uncertainty."

It's true that nothing is ever 100% certain. But there's a base level of "life happens" uncertainty just built in. It's when you inject uncertainty that is materially greater than the inherent level that you get problems. It's especially bad if it's injected quickly as opposed to over time.

That's what we have now -- a massive wave of uncertainty injected ex cathedra, all at once, for reasons that have nothing to do with the underlying economy's fundamentals. Are tariffs for real? Are they a bluff? Is someone (or a group of someones) intentionally manipulating the markets? What in the world is the reasoning behind this? Will things get back to normal? Even if they do for a while, could these morons do it again (or something else equally illogical) and this mess raises its head in the future? How is it even possible to plan for the future?

That's a lot of well-founded uncertainty, all coming in just the last few weeks.

Why this is happening, I don't know. I'm not sure even the perpetrators know. It makes no sense whatsoever.

I have re-visited my original position on pointing fingers and yelling and stomping. I initially thought that was a futile exercise, and our energy would be better spent doing other things.

I now think it might actually help in that it can focus the DC political streetwalkers (which is all of them regardless of their political party, personal plumbing, skin color, or preferred characteristics of a life partner) on their chances for re-election.

Still, that's a question for the ballot box and doesn't help your investment portfolio today. So what should you do now? Likely nothing.

The rest of this post, including the closing sentence, is an excerpt from a WSJ newsletter:

​

Q: The stock market is in chaos. Should I stay in or get out?​

The Trump administration’s shifting signals about tariffs have sent stocks and bonds—and investors’ stomachs—heaving up and down. The key to survival is thinking clearly—and asking the right questions, writes Jason Zweig.​

A: Now isn’t the time to load up on stocks whenever they slump—or dump stocks out of fear they’ll fall further. Instead, ask yourself these questions:​ What do you own? You can’t make a reasoned decision about whether or what to sell if you don’t know exactly what and how much you own. (With the S&P 500 down more than 10% this year, you may be less overexposed than you were a few months ago.) Why do you own stocks? To benefit from the stability of longstanding trade agreements? Probably not. Most likely, you want to participate in the long-term growth of the U.S. (and global) economy. That leads directly to the third question: What has changed? People, companies, markets and countries are remarkably resilient. Still, markets might not recover on the timeline you need. Look inward: If you’re in or near retirement, you can’t wait years or possibly even decades. Finally, if you didn’t already own this asset, would you buy it at this price? Beware of the tendency to measure your gains and losses against a vivid, recent reference point rather than against what matters: the price you originally paid. You may find that you’re sitting on a profit, not a loss. If you can’t answer the four questions, you have no business taking drastic actions.​

 

[BamaNation]

If the tariffs isolate & expose China for who they really are, even unintentionally, and it forces them to uncharacteristically capitulate, then that will be a good thing and worth the short-term pain. Given typical Chinese views on saving face, I don't have much hope in this being what happens. If tariffs are the impetus of reordering the underpinning of the US economy, probably not so good. But, @4Q Basket Case , you're spot on in that the uncertainty is what is stoking the sell side. That and being able to get 4+% in "risk-free" treasuries. "Why buy into the market uncertainty if I have a sure thing in treasuries risk-free?" That's the mantra for the traders. We aren't traders, we're investors so...

While past performance is no predictor of future results, it does give perspective. Perspective is what we (I) need right now. If you're selling because of short-term actions / policies, you're probably not cut out for market investing, IMHO.

Charts give lots of perspective. Here's the last 25+ years S&P chart with the 1999-2001 dot bomb, 2007-2009 global financial crisis, 2020-2021 Corona, and April 2025. Nothing is certain through any of these events except that with time & perspective, the line keeps moving toward the upper right. You just have to have the nerves and calmness to don't just do something, but stand there and stay the course.



On a personal note, we had been contemplating what to do with cash from recent dividends in our brokerage & Roth accounts. Going against my own advice of not timing the market, I was waiting to see what happened with the tariffs. Market kept moving down and I was expecting it to keep moving down for a few more days. Then it spiked on Wednesday and I paid 7% more than I would have on Monday if I hadn't been indecisive.

Additionally, yesterday, I was continuing to put some remaining dividends to work as the market was down 2% and a short few hours later it was up 3% so I made 5% on what I invested yesterday.

The story for me is to not try to time the market - time IN the market is better than TIMING the market.
As they say, Nobody knows nothing. If they tell you they do, they're lying. So, don't try to predict anything. Just invest for the long term and one daily move of -5-8% won't even matter 20 years from now. But being in the market at your desired asset allocation on the day it goes up +5-8% really will matter.

 

[PA Tide Fan]

Since the market is down right now I'll bring up the practice of rebalancing a portfolio periodically. If the recent drop has caused an investor's portfolio to have 5-10% less in stocks than they normally would then it makes sense to buy the market right now to get the stock portion of the portfolio back to where it was. During times when the market is soaring and the stock portion becomes higher than normal an investor would sell some stocks to get it back down to a normal allocation again. By doing that an investor is always buying a little when stocks are low and selling a little when stocks are high. This works perfectly in any tax-deferred account where there are no tax consequences. In a taxable account an investor needs to calculate how much tax is involved in rebalancing.

 

[BamaNation]

... annnnd we're back above the S&P level prior to "Liberation Day." Still down a couple % YTD. Who knows what will happen good/bad in days/weeks/years ahead, but yet another example for me of "just don't do something, stand there" to Stay the Course !

If you Tax Loss Harvested equities on Apr 2-3 you're up ~10% in a month. Yet again, another reason to know what our allocation risk tolerance is and stick to it and rebalance / TLH when necessary.

Refer back to what 4Q posted from Jason Zweig's article, too!

(BTW, a great podcast interview recently with Zweig on the Bogleheads on Investing podcast. I recommend listening to ALL of the BHOI episodes. GREAT interviews in a non-hype way. Rick Ferri is the host and has written several books, is a board member of the John C Bogle Center for Financial Literacy and has his own fee-only advising practice. He's solid and sort of the opposite of the current sleazy crop of idiot/hype/meme financial gurus.)