Hello there and Happy Spring to you and your family!
Another edition of The Inside Scoop is upon us and this one is packed full of great content. In this quarter’s edition you will find timely research surrounding bitcoin, the 2024 presidential election and Morgan Housel's most recent blog post, Lucky vs. Repeatable.
We also included a few photos of recent events our team has experienced. We hope you enjoy.
Yaz, Justin, Karley, Ashley & Whitney
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On April 8, 2024, a total solar eclipse moved across North America, passing over Mexico, United States, and Canada. Our office in Murfreesboro was not in the path of totality, but you better believe we took full advantage.
an excerpt from the blog post by Morgan Housel, partner at The Collaborative Fund and New York Times Bestselling author of The Psychology of Money and Same As Ever.
Luck plays such a big role in the world. But few people want to talk about it. If I say you got lucky, I look jealous. If I tell myself that I got lucky, I feel diminished. Maybe a better way to frame luck is by asking: what isn’t repeatable?
Lucky implies random events you could not see coming. What isn’t repeatable is different. Did Jeff Bezos get lucky creating Amazon? Not in the same way a lottery winner is lucky, of course. He was visionary and ambitious and savvy to a degree you only see a few times per century.
But could he, starting today, without any money or name recognition, create a new multi-trillion dollar business from scratch? Maybe, but probably not. There are so many things that helped Amazon become what it is that can’t be replicated – growth of the internet, market conditions, old competitors, politics, regulations, etc. Bezos is enormously skilled in a way that is not luck. But a lot of what he did was not repeatable. Those points are not contradictory.
It’s so important to know the difference between the two when attempting to learn from someone. You want to try to emulate skills that are repeatable. Attempting to copy the parts of someone’s success that aren’t repeatable is equivalent to a 56-year-old dressing like a teenager and expecting to be cool.
There’s a law in evolution called Dollo’s Law of Irreversibility that says once a species loses a trait, it will never gain that trait back because the path that gave it the trait in the first place was so complicated that it can’t be replicated. Say an animal has horns, and then it evolves to lose its horns. The odds that it will ever evolve to regain its horns are nil, because the path that originally gave it horns was so complex – millions of years of selection under specific environmental and competitive conditions that won’t repeat in the future. You can’t call evolutionary traits luck – they came about because of very specific forces. You just can’t ever rely on those forces repeating themselves exactly as they did in the past.
A lot of things work like that. In business and investing, you want to learn the big lessons about why things behave the way they do without assuming the past is a direct guide to the future, because it’s not – most of the details are not repeatable. History is the study of change, ironically used as a map of the future.
Jason Zweig of the Wall Street Journal once talked about what happens when you try to learn a very specific, non-repeatable lesson when a broader, very repeatable lesson is what you needed to pay attention to: [After the dot-com crash], the lesson people learned from that was not, “I should never speculate on overvalued financial assets.” The lesson they learned was, “I should never speculate on internet stocks.” And so the same people who lost 90% or more of their money day-trading internet stocks ended up flipping homes in the mid 2000s, and getting wiped out doing that. It’s dangerous to learn narrow lessons.
The great thing when you ask, “is this repeatable?” is that you start to focus on things that you and I – ordinary lay people – have a chance of repeating ourselves. You can learn a lot from Warren Buffett’s patience. But you can’t replicate the market environment he had in the 1950s, so be careful copying the specific strategies he used back then. You can learn so much from John D. Rockefeller about the importance of controlling distribution. But you cannot replicate the 20th century legal system that allowed him to destroy competitors, so don’t get carried away there.
Elon Musk can teach you a lot about risk-taking and branding, but much less about competing in the auto business. Jeff Bezos can teach you so much about management and long-term thinking, but much less about e-commerce and cloud computing. The way to get luckier is to find what’s repeatable.
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This past January, our team was selected to attend Baird's High Performing Teams Summit in San Antonio, TX.
From this time spent together, we were able to walk away with strategies, ideas, and resources invaluable to the work we get to do each day. We are excited for what's to come as we continue to serve you and your families with integrity and excellence.
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Our team exists to come alongside you in your wealth journey as we do not believe in a one sized fits all approach when it comes to your future. In order for us to serve you to the best of our ability, we ask that you keep a few things updated along the way.
360 Wealth Log in to the Baird Online app. At a minimum, link the basics. (mortgage, 401(k), loans andbank accounts). Your accounts will auto-update and will feed into your financial plan for a 360 view & precise financial advice. It is important to keep us informed of any outside accounts as we periodically review your long-term goals.
Taxes After filing, send us your tax return. Every year. It's that easy. Our team will then do a thorough analysis. We will discuss implications and scenario based decisions personalized to you and your family.
Insurance Start the conversation and keep us updated on your current plan. Whether it be a whole life policy review, health or property insurance referrals, we will review your current situation and connect you with the best resource to mitigate risk.
Estate Documents It is imperative that you update us when there are material changes to your will, power of attorney, and other directives. No one wants to think about the worst case scenario, however, keeping our team informed of any updates ensures a smooth transition if/when it were to happen.
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All That Matters: Elections and Your Money With an upcoming presidential election, it’s tempting to plan for various outcomes to protect your money. In this episode of All That Matters, Ross and Mike explain why that may be a big mistake.
The Year of the Big Mistake Mike: I call 2024 the Year of the Big Mistake because I’ve seen the same theme year after year in my career. I’ve seen people approach election years with the attitude that if one candidate or party wins or loses, they’ll be forced to take action with their money. To help avoid this mistake, Ross and I are going to show four charts that show how the market views elections, and how the market has acted in past election years.
The first thing we want to show you is the history of the stock market during various presidencies, all the way back to December 1943.
The market's trend is apolitical.
The chart shows Democrat presidents, Republican presidents, and the growth of $100 all the way up to last year. And you’ll notice the trend of up and to the right. Why does the market look like this, Ross?
Ross: Overall, the market is apolitical. There are a million things that the market cares about—such as earnings growth and economic growth—before it cares about the politics of the day. It also pays attention to the trends and innovations that support that growth, things like AI and the internet. Ultimately, these are the levers that drive stock prices over time. And while policies matter and can have an impact on corporate performance, the trend is still up and to the right because companies continue to grow and do well, and it’s not because of who is sitting in Washington.
Mike: I like to play a game with this chart where I pinpoint when companies were founded. Look at when Apple, Boeing, Costco or Starbucks were founded. What you’ll notice is that those companies were created regardless of who was in the White House. Those companies were created by entrepreneurs who had a good idea, who wanted to solve a problem, create a new product, and the people who invested with them got to benefit from that. Aggregate all these companies together, and you get a portion of the U.S. stock market: companies and people creating and solving problems. That’s who you are investing in, not who sits in Pennsylvania Avenue.
Market Selloffs During Presidencies Mike: Our next chart looks at every single president back to Herbert Hoover, and the sell-offs that each president has experienced. Notice anything here, Ross?
History happens to presidents.
Ross: It’s the inverse of what we just showed. The market is apolitical, and bear markets are apolitical. These events are usually caused by something completely irrelevant to who is in the White House. It might be a currency crisis overseas, or perhaps a banking crisis in the U.S. that was brewing for a decade. The president may shape policy, but bear markets and recessions are just going to happen regardless of who is in office. It’s not necessarily of their making, and it usually isn’t.
Mike: Every president all the way back to Herbert Hoover has had a double-digit decline in the stock market during their presidency. There’s the Cuban missile crisis in there. There’s presidential scandals in there. There’s long-term capital imploding. There’s COVID. There’s the global financial crisis. Just because somebody sits in the office doesn’t mean they’re immune from market sell-offs.
Ross: We’ve seen a handful of bear markets just in the last five years, driven by interest rates, by COVID-19. These downturns were going to happen regardless of who was in the White House at a given time. And whoever wins in November will face a big correction or a bear market during their term. You can almost set your watch to that.
The Stock Market During Election Years Mike: We’ve shown how the market performs during presidential terms, but let’s take a closer look at what happens in the market during election years.
Re-election years tend to be solid.
Ross: Election years are when the news is going to be shouting at you every day about the deeply partisan stuff. It’s when it gets noisy and scary. But throughout history, election years have been as average as they could be. The average S&P 500 return in an election year going back to World War II is 11-ish percent.
Election years are better for the market when an incumbent is running for reelection. Since World War II, the stock market has had a positive return in every election year where there was an incumbent, because the incumbent tends to promise things to get reelected. Alternatively, you’ll see that the three down markets were all a result of an open election. But generally speaking, the stock market has tended to do well in almost any year –pick a year out of the hat and it’s likely to be positive.
Market Performance and Government Makeup Mike: So we’ve talked about the presidential election, but what about Congress? How does the stock market perform under various forms of our government?
Financial markets are NOT partisan.
Historically, the average stock market return in any given year is 9-10%. You’ll notice that the only partisan power combination that has a lower average annual return is R-President / D-Congress.Two of the worst bear markets happened when we had a Republican president and the Democrats controlled both houses of Congress: the global financial crisis and the 1973-74 bear market. If we removed those two events, the returns for that combination would shoot right back to average.
Ross: This chart shows that – whatever the makeup – the market has been positive over the last 100 years. It goes back to, “history happens to the president.” For example, the global financial crisis is pulling that one bar down, but that crisis was the result of decades of policy that was shaped well before that makeup was in Congress and the White House. There is no partisan makeup that is a red flag for the stock market, and all of the makeups have had average returns high enough to invest through and reach long-term goals that beat inflation.
Final Thoughts Mike: Everything we’ve discussed is evidence-based and uses averages. Past performance is no guarantee of future results. But what the data shows us is that the stock market and your money does not root for a certain election outcome. Your money and your stocks are concerned with interest rates and how the economy is doing and consumer spending and all the other levers that drive corporate profits. That’s what I’m trying to get at with the Big Mistake: it conflates social and financial elements and assumes that something needs to happen with your money based on what you think may happen with the election. History is quite clear that when it comes to your investments, you should be watching how publicly-traded companies are doing.
Ross: News media is as pervasive as it is increasingly negative. These headlines are beamed at us from all angles, 24 hours a day, making it challenging to separate the news from the noise and what matters for your money. We know how difficult it is to ignore alarming headlines when it comes to your money.
Mike: You may be tempted to want to make some change with your money based on the election, but history has never shown that to be a good decision. Financial history shows that what you’re investing in is the long-term growth of the United States. And that’s what we’ll remind you of almost every time.
The Internal Revenue Service recently released updated income tax brackets, standard deduction, and retirement contribution limits for the 2024 tax year. While these taxes are not due for some time, it may benefit you to start thinking ahead.
Overall, more than 60 provisions have changed. Here are a few of the most critical tax bracket and retirement contribution limit changes.
Tax Bracket Inflation Adjustment Overall, tax brackets have been adjusted upwards by 5.4% for 2024. The primary purpose of this adjustment is to account for inflation, which is based on the Consumer Price Index. The government’s goal is to keep income taxes in sync with consumer buying power.
Standard Deduction The standard deduction has increased to $29,200 for married couples filing jointly, up $1,500 from the previous year. For single filers, this number increased by $750 to $14,600. Individual Retirement Accounts (IRAs) IRA contribution limits are up $500 in 2024 to $7,000. Catch-up contributions for those over age 50 remained at $1,000, bringing the total limit to $8,000.
Roth IRAs The income phase-out range for Roth IRA contributions increased by $8,000 to $146,000-$161,000 for single filers and heads of household. For married couples filing jointly, phase-out will be $230,000 to $240,000 (a $12,000 increase). Married individuals filing separately see their phase-out range remain at $0-10,000.
Workplace Retirement Accounts Those with 401(k), 403(b), 457 plans, and similar accounts will see a $500 increase for 2024, bringing the total maximum contribution amounts to $23,000. The catch-up contribution for those aged 50 and older remains at $7,500, bringing their total limit to $30,500.
Gift Tax The annual gift tax exclusion is now $18,000 for 2024, an increase of $1,000 from the previous year. . .
So you’re thinking about crypto…
When cryptocurrency makes headlines, it can be a good time to revisit a simple checklist to help investors weigh the pros and cons of entering that space.
Why am I buying it? Said simply, FOMO (fear of missing out) is not an investment strategy. And while I’ve heard some plausible cases for owning digital assets, “because the price is going up” is not one of them (though, predictably, investor interest does tend to spike during bull markets). Bitcoin remains largely unproven as a currency and flopped as an inflation hedge, so the most interesting case is as “digital gold” – a fungible store of value with a fixed supply, but with portability and divisibility that a big hunk of metal can’t offer. Ultimately, the question is whether bitcoin offers a case as a long-term portfolio diversifier – something with returns uncorrelated to other assets (stocks, bonds, real estate, etc.) and with a positive expected return. As of now, that answer remains murky to me (why should Bitcoin be expected to have a positive return? What is its intrinsic value?). But it also seems clear that’s not how it is being used anyway. Per Coinbase, the median time users hold Bitcoin before selling it or sending it to another account is just 89 days. Risky (and even speculative) assets could feasibly have a place in someone’s portfolio, but there’s a meaningful difference between investing and gambling – and we aren’t in the business of gambling.
Do I understand it? A commonly repeated Warren Buffet maxim is to “never invest in a business you cannot understand.” There are over 23,000 cryptocurrencies in circulation, each with unique code and functionality (which, in most cases, isn’t much at all). Even Bitcoin, the most popular, remains vexing – again, is it a currency, digital gold, a lottery ticket, or something else entirely? The bar for investing hard-earned dollars into an asset should be extremely high. Past that, there are important ancillary items outside of the investment case that must be understood and considered: the tax implications, the security of the storage vehicle, the manipulability of the markets, the potential for new regulation, etc. Now, in fairness, most investments face these questions – but crypto is still new, and many of these items are either in flux or unanswered for now. As the size of the investor base grows with time, expect the regulation and taxation questions to come further into government focus.
Is the volatility manageable for me? Cryptocurrencies are ubiquitous today, but they’re still relatively new. And partially because of this, their volatility is well above most more traditional investments. Bitcoin has seen four crashes of 50% or greater since 2017 alone (and two of 80%or greater); the S&P 500 has had fewer since World War II. Stomaching the pain of market crashes is one of the most difficult parts of investing. Cash balances spiked following both the Covid-19 crash and 2022 bear market, leaving trillions of dollars on the sidelines during the recovery rallies that followed. And while one might expect the volatility of crypto to moderate somewhat as institutional adoption grows, without a clear use case or widely utilized valuation method, we should expect the volatility to remain high. This is especially true when compared to financial assets like stocks and bonds (whose cash flows can be used to estimate a value) or commodities with economic worth (like crude oil or copper). How will most investors handle the next 85% crash, especially if the answer to question #2 is a “maybe” at best?
Bitcoin is intellectually interesting and returns can be eye-catching, but there should be a high bar to clear for investing our money into something. To me, it is not clear that Bitcoin or other cryptocurrencies have cleared that bar, and the longer-term investment case is still a question mark. But this list offers a starting point.
Passing the Torch | Thoughtful Strategies for Wealth Succession Wednesday, April 17, 2024 from 12:00 PM - 1:00 PM CT
Join us for an insightful webinar where we'll explore the crucial aspects individuals should keep in mind when transferring their wealth. Whether you're planning for the future or currently navigating the complexities of wealth transfer, this session will provide valuable guidance and expert advice. Our panel of seasoned professionals will cover topics including tax implications, estate planning strategies, family dynamics, charitable giving, and more. Don't miss this opportunity to gain the knowledge and tools you need to make informed decisions and secure your legacy. Register now to reserve your spot!
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