Third Quarter 2024

Advisor Desk

There’s a lot to unpack this quarter. With the Fed lowering rates, market volatility in August, and an upcoming election, headlines have been in no short supply. These are the times when your asset allocation and risk tolerance are truly tested. However, this isn’t just a test of your portfolio’s performance; it’s a test of your ability to stick with the risk level you’ve chosen. It’s normal to feel uneasy during market fluctuations, but these dips shouldn’t keep you up at night if your asset allocation aligns with your long-term goals.

This year has shown us the importance of ignoring short-term market movements. Despite a 10% drop in August, the U.S. stock market (S&P 500) is up 5% over the past three months and nearly 20% year-to-date—a solid performance by historical standards. Staying focused on your portfolio’s long-term objectives and financial plan is essential, especially during turbulent times.

It’s easy to react to daily headlines, but they rarely have a lasting impact on your financial goals. Often, people react to volatility by shifting from stocks to gold, cash, or bonds, only to switch back to stocks once the market recovers. This reactive approach doesn’t account for the speed at which markets crash and recover, often resulting in missed opportunities.

Instead, consider cash as an integral part of your overall asset allocation. While money market rates may eventually decrease following the recent rate cuts, this won’t happen overnight. History suggests that we may need another rate cut or a few more months before seeing a significant impact on yields. In the meantime, cash still plays a crucial role in your portfolio—it provides liquidity for emergencies, prevents you from having to sell investments during downturns, and allows you to seize opportunities when they arise.

By viewing cash as a strategic component of your asset allocation, you’re better positioned to navigate volatility and stay committed to your long-term financial goals.

Market volatility also creates opportunities for Roth conversions. Converting assets from a traditional IRA to a Roth IRA when values are lower means paying taxes on a reduced amount. As the market recovers, the growth within the Roth IRA will be tax-free, making this a smart move for long-term tax planning. Mark has a great discussion of this below as well as a variety of other resources for you to dig into this quarter.

– Stephan

Stephan Shipe, Ph.D., CFA, CFP® is the Founder and CEO of Scholar Financial Advising.

SFA Announcements

We are excited to announce the details of our 2025 Personal Finance Conference!

Join us next summer in Charleston, South Carolina from June 11th – June 13th.

We’ll kick things off with our annual Client Reception, followed by an extended 2-day conference filled with various speakers, break-out sessions, and panel discussions.

We hope to see you there!

This event is provided free of charge and only available to our current clients.

Contact us for more information.

Things We Are Watching

Chris Lawrey, Ph.D.
Financial Advisor

• Will the Federal Reserve lower the Federal Funds Rate more this year?
• Will the Treasury Yield curve remain inverted? (An inverted yield curve is a strong indicator of impending recession).
• The 10-2 Year Treasury Yield spread is positive for the first time since July 2022
• Will BRICS (International organization including Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia and United Arab Emirates) continue to push towards de-dollarization?
• Consumer Confidence continues to rise slightly to 103.30 in July.
• The Presidential election campaigns and polling data. The next administration could have a major impact on the markets and specific sectors.
• Will the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, & Tesla) continue to outperform market expectations or have they become overvalued?

Ask an Advisor

In this month’s edition, advisor Mark Johnson, Ph.D. answers the following questions:

What are Roth IRA conversions?

When someone moves funds from a Traditional IRA, 401(k), or similar type of retirement account to a Roth IRA, that is commonly referred to as a Roth IRA conversion (or Roth conversion for short). Doing this is a taxable event and you pay taxes on the amount that you convert because contributions to traditional accounts are typically made with pre-tax dollars. But funds once in a Roth account, typically can grow tax-free.

When should someone consider doing Roth conversions?

Deciding when to do a Roth conversion depends on various factors, but below are considerations:

1. Income in 2024 (or any year): If you are in a lower tax bracket now compared to the tax bracket that you expect to be in later in life, converting some of your funds can possibly save you money in the long-run. Tax rates are subject to change, but many expect them to rise in the future due to the level of the federal debt.
2. Are you near retirement or in retirement: Early in retirement, you might be in a lower tax bracket before required minimum distributions (RMDs) begin and before you apply for social security benefits. Converting funds before RMDs and/or social security payments may be beneficial.
3. Market downturns: If the market is down in a given year, the value of your investments may be lower, so you could pay less in taxes on the converted amount. Clients heavily invested in stocks may have done well this year, so this may or may not make sense this year depending on the asset class and the other considerations included in this list.
4. Tax Diversification: Having a mix of taxable, tax-deferred, and tax-free accounts can give you more flexibility approaching retirement as well as in retirement. A Roth conversion helps build up your tax-free bucket because you have already paid the taxes on the contributions to your Roth account.
5. Avoiding RMDs: Roth IRAs do not have RMDs during your lifetime, which can be advantageous if do not want to land in a higher tax bracket during retirement and/or you want to leave assets to heirs.

Reminders

Need more help?

Contact us to inquire about professional recommendations, including CPAs.

When should you contact us outside of your annual meeting?

Anytime you have a build up of cash, change your job, make or consider a major purchase, relocate, or are concerned about the allocation of your portfolio.

Reach out anytime with questions or to schedule a meeting.

We look forward to hearing from you!

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