Things to be Thankful For: Stock Market Returns, Not Bank Interest

Over the last 90 years, the stock market has been great to investors. No one knows what the market will do tomorrow, but the longer your horizon, the more the odds are in your favor – and you don’t have to wait very long for the numbers to look pretty good. With bank interest close to 0%, it’s worth exploring the odds the stock market does better than flat over varying periods of time.

Daily: Since 1928, we’ve had 23,588 trading days. The odds the market is up on any one day is 53% and the average return has been 0.03%. On a daily basis, the market is basically a coin flip.

Monthly: The odds get better on a monthly basis. 63% of the time the stock market has a positive return, and it averages nearly 1%.

Quarterly: Looking at data quarter by quarter, the percent of positive returns increases to 68%, or a little better than 2/3. The average return for all quarters is 2.5%.

Yearly: On a calendar year basis, we’ve seen positive returns 74% of the time for an annualized average of 10%.

Two-Year Periods: By increasing the time horizon to two years, the odds of a positive return get to 83%. If you can’t identify a definite need for your cash in the next 24 months and you aren’t super risk-averse, it’s worth taking some stock market risk.

Five-Year Periods: When we get up to rolling five-year periods, we see positive returns 87% of the time.

Ten-Year Periods: Over the 87 observed 10-year periods since 1926, the stock market has been positive in all but four of them, or 95%. The only instances of negative returns were in the Great Depression and the period that included both the dot-com bubble and the 2008 financial crisis.

It’s remarkable how many individuals and institutions we speak with that have excess money in bank accounts earning nothing. If you can’t identify a somewhat exact need for cash in the next 12 months, you should probably have something in the stock market. It may only be a small percentage but it’s worth it. The stock market can seem scary, especially when it’s trading at all-time highs, but with the right advisor, diversification, and a disciplined approach, it’s a risk worth taking.

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Rockbridge becomes Upstate NY’s only “Recommended Advisor” by the White Coat Investor

We are happy to announce we have joined 34 other Advisory firms from around the country who are labeled “Best Financial Advisors for Physicians” by the White Coat Investor.

Who is the White Coat Investor? Jim Dahle is a practicing emergency physician in Utah. After several bad experiences with financial professionals, he developed a passion for personal finance. He spent much of his free time over the next several years learning about personal finance and how it applies to doctors. Eight years after Medical School he started the White Coat Investor Blog which has developed a large following, especially among younger doctors. Jim’s mission is helping to ensure his peers don’t suffer the same fate he did, being sold an inappropriate whole life policy, buying mutual funds with sales commissions, and receiving generally poor financial advice early on in his career.

What are the criteria for becoming a Recommended Advisor? The White Coat Investor estimates at least 80% of doctors should use a financial advisor. However, there are only a small percentage of those calling themselves “financial advisors” who provide good advice at a fair price. The ones he recommends adhere to the same fee-only fiduciary model Rockbridge has been championing for 12 years. Recommended Advisors follow disciplined, evidence-based, investing. They don’t try timing the market, they don’t push high-cost active management, and they don’t sell products. Instead, Recommended Advisors provide quality investment management, emphasize financial planning, and charge less than the industry average. It makes perfect sense Rockbridge would be on the list.

What can I expect from Rockbridge going forward? We will continue to be the best financial partner we can as you embark on your journey through life. From our experience working with over 100 providers in Syracuse and beyond we understand what is and isn’t unique about being a doctor, dentist, PA, or NP.

If you haven’t spoken to your advisor recently or have a friend who you think could use your help, please reach out. We think we’re a great option for those seeking financial advice and it’s comforting to know experts in the industry, like the White Coat Investor, agree.

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How to give to charity in the most tax-efficient manner

Whether it’s giving Tuesday or end-of-year outreach, many non-profits will be asking their supporters for donations as we head into holiday season & year-end. To our readers who are charitably inclined, first let us say thanks for your generosity helping those in need. We also want to make sure you are giving your money in the most tax-efficient way possible. The three things we’ll go over in this article are gifting appreciated securities, Qualified Charitable Distributions (QCDs), and Donor Advised Funds (DAFs).

Gifting appreciated securities: If you plan on making a donation over a few hundred dollars, and you plan on writing a check, you’re probably making a mistake. A better option is to gift appreciated securities. With how much the market has gone up in recent years, there’s a good chance you have some after-tax (brokerage) holdings bought at a low price compared to what they’re worth now. If you were to sell the stock and gift the cash, you’d pay taxes on the gain. By gifting the appreciated security directly, you avoid paying the capital gains taxes.

Making the transfer is easy, you submit a form to your custodian (Schwab or TD) with details on what stock you want to gift and information on the non-profit receiving the gift. You can also donate the appreciated securities to a donor advised fund. The dollar benefit will vary based on how much of the gift is unrealized gain, your tax bracket, and if you’re itemizing. For some, a $10,000 gift will only cost you $2,500 or less on an after-tax basis.

Qualified Charitable Distributions: This option is limited to people aged 70.5 and over. With a QCD, you donate funds directly from your IRA to the charity. The advantage of this is the distribution never shows up on your tax return. This is most beneficial to individuals who give less than fifteen thousand dollars a year, so they don’t itemize on their tax return. If you aren’t itemizing, and instead taking the standard deduction, you don’t receive the tax write-off for a cash donation. By doing a QCD, you get the tax benefit. A lesser advantage is it may keep some people’s adjusted gross income (AGI) below a breakpoint where they would have to pay more for their Medicare Part B Premium. Similar to gifting appreciated securities, this just requires a form instructing the custodian to distribute the funds to your chosen charity.

Donor Advised Fund: These accounts make sense if you plan on giving $5,000 – $15,000 each year for the next several years – this amount isn’t enough in a single year to get a deduction. So rather than give $10,000 each of the next five years, give $50,000 this year and then none for the next four. This way you get the tax deduction for most of your gift. The funds that remain in the account get invested and hopefully appreciate over that time allowing you to give more. Charles Schwab has a great donor advised program we can help you open. Like we mentioned above, these are best funded with highly appreciated securities.

These are some guidelines to consider when making end-of-year donations. Please reach out to your Rockbridge advisor with questions on how your gifting desires mesh with your specific financial situation.

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