Thoughts and musings from my desk to you.

Recession? Who Knows?

Economist Paul Samuelson famously quipped that “the stock market has predicted nine of the past five recessions.” This tongue-in-cheek expression reflected his view of jumpy stock investors’ impact on the market, who pile in and out, often letting fear win out over fact.

Current tea leaf readings might have one conclude that a recession is imminent, and that may be true. The bond market gives pretty reliable clues, an inverted yield curve among the most notable.

Expect to Bleed at the Cutting Edge

It is quite fun to try to predict the future and invest in companies in the sweet spot of your prognostications. Investing in long-term growth trends with short-term dislocations is a viable strategy, and we do this often. But finding the “next big thing” is entirely different and is fraught with pitfalls. Such positioning comes with great peril because the future is not that predictable. More importantly, it is also likely that other investors share your view already and beating you to the punch is what causes FOMO and will likely cause you to overpay.

Beware Self-Justification

We all know that market timing doesn’t work. It is a fool’s errand to sell it all, hoping to buy it back lower. But the temptation to do so is heady when the market is in decline. When the near future looks scary, it’s easy to think that perhaps selling now and buying back later is a good idea this time. Fear encourages self-justifying arguments for bad decisions by wrapping them in something else.

Why Are ETFs Better Than Mutual Funds?

Exchange-Traded Funds (ETFs) are taxed based on each individual’s tax basis in the shares, and the activity of other investors does not result in shared taxation. This offers ETF investors a significant advantage when seeking long-term compounded return.

Rising Rates

The poor economic policy of the past is coming home to roost in the form of rising rates and spiraling inflation. To make matters worse, policy leaders spent months gaslighting us all, denying inflation’s presence when the signs were in plain sight. This lag in taking action has surely exacerbated the situation because it’s best to nip inflation in the bud before it blooms. Too late for that.

Segment Unveils Initiatives to Navigate Market Volatility

With almost 40 years of investing experience, Baumgarten is revealing how he applies keen knowledge and his eye for tracking the latest financial developments to Segment Wealth’s advisory practice.

Resist ESG Investing

Environmental, Social & Governance (ESG Investing) is the new popular trend in investment evaluation whereby investors use non-financial factors to screen investment options. As it gains popularity for its feel-good effects, it is currently enjoying outsized results as investors jump on the bandwagon.

Dubious Economic Thought

As economic thought has shifted toward mathematical rather than empirical evidence, economic conclusions are at risk of shifting toward “accuracies” while being wrong all the while. The economy functions as a self-aligning organism due to the harmonic motivations of value decisions within each of us. If we turn that into a math equation, we get outcomes nobody could foresee.

Protecting Gains? It’s Complicated.

Clients generally understand how our low-turnover methodology equates to better returns over time. For example, with enough tax deferral, an 8% return can be augmented to a 10% return (in dollars). But that’s not all. Preserved gains that remain untaxed until death are tax-free in many circumstances. This can make low-turnover methodologies even more compelling. Despite the power of these factors, protecting gains and principal is still the first order of business at Segment.

Roth Conversions

Roth conversions remain one of the most underutilized tax planning strategies around.

Imagine the limited benefits of continued tax deferral for a 90-year-old retiree with a $500,000 IRA and an income of $100,000 a year. That income is comprised of pension distributions, IRA required minimum distributions (RMD), and some dividend income. Let’s say she has two grown children in their 60s, each earning $600,000 a year in a 41% tax bracket. Since Mom’s tax bracket peaks at 24% (up to around $170,000 worth of annual income), it would make perfect sense for her to do annual $70,000 Roth conversions, whittling down her $500,000 IRA and avoiding that next bracket of 32% above $170,000 in gross income.