We Need Your Help! (and a Bear Market Reality Check)

December 20, 2016

Our clients are always asking us questions. There’s often confusion and complexity in the financial world. Our hope is to remove that by giving a clear, unbiased answer.

One of the most frequently asked questions surrounds the topic of Required Minimum Distributions (RMDs). RMDs are the age at which the IRS requires an individual to take out a certain portion of their pre-tax qualified, or IRA, accounts. There are additional rules and considerations when planning for an RMD, something we typically discuss with our clients when the situation applies.

Now, we’ll take a look at where the markets have been, and what may be ahead of us. The U.S. market has had outstanding returns since the 2008 Great Recession. The S&P 500 Index, which is a good barometer of the U.S. stock market, has been up 13.11%* over last five years alone as of December 16, 2016. Going back to 1926, stocks typically increase about 10% on average, which make the last five years in the U.S. look great.

However, we are now approaching eight years since the last bear market. A bear market, by definition, is when the market drops 20%* or more from its top. Historically speaking, bear markets happen about once every three and a half years, dating back to 1900, meaning we’re well past due.  

As the market moves up, two things can happen - either companies continue to post strong earnings and justify higher prices, or stocks become increasingly expensive. The latter is more concerning. The general rule of thumb is that investments with a price-to-earnings (P/E) ratio of 15 or less, is considered a “value.”* As of November 30, 2016, the Trailing P/E was 24.15, while the projected P/E was 17.35*. So, while not a “value buy” in some minds, stocks hold great potential with future earnings. However, as we all know, future earnings are not guaranteed.

One thing that is certain is the need to have a plan in place for your assets. There are products which can allow an individual to transfer market risk to an insurance company, while still being actively involved in their finances. If there’s no plan in place, a market downturn can be all the more frightening.

*These numbers were provided by S&P Dow Jones Indices LLC, a division of S&P Global.

 

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. 

Indices are unmanaged measures of market conditions.  It is not possible to invest directly into an index.  Past performance is not a guarantee of future results.