When Markets Move Fast, Do the Opposite

When Markets Move Fast, Do the Opposite

After a relatively calm start to the trading year, U.S. stocks have fallen dramatically. As of April 8th, the S&P 500's year-to-date performance through the first 66 trading days is the 4th worst on record, dating back to 1928. We've witnessed intraday swings in the major stock indexes of 6% or more at times.

In the middle of precipitous market drops, it is reasonable to feel like you need to take action in order to protect your investment holdings. While doing so may bring you some short-term stress relief, it will likely come at the cost of lower long-term returns.

Looking at the 10 worst starts to the year since 1928, including this year, the 9 other periods had an average return for the remainder of the year of +19.98%.

6 of those 9 other periods registered a positive return for the remainder of the year. The worst was -10.1% (1973), while the best was +53.0% (1935).

When volatility is neck-breaking and market sentiment is in the gutter — as it is now, with the CNN Fear & Greed Index at 5 out of 100, in "Extreme Fear" territory — we encourage clients to move slowly and think twice before making changes to their portfolio. If you must act to feel better, talk to us about incremental adjustments that increase your diversification without greatly altering your long-term return potential.

The bottom line: you should feel like you don't need to alter course at all. If you are in the accumulation phase, you are likely to come out of any downturn in a stronger position than you went into it. If you are retired or close to it, your portfolio likely includes a cushion of bonds and/or money market to protect your next few years of income needs — so you won't be forced to sell stocks while they are depressed in value. If stocks fall enough to where your portfolio is 5% below your target weighting, we'll add to your stocks at very attractive prices. Patient investors will reap the rewards when optimism inevitably returns to financial markets.

Health Savings Accounts (HSAs): A Powerful Tool, But Not for Everyone

Health Savings Accounts have gained popularity due to their "triple tax savings" benefits — tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. However, accessing these benefits requires enrollment in a High-Deductible Health Plan (HDHP), which comes with potential financial trade-offs compared to traditional insurance plans. HDHPs generally have higher deductibles that apply broadly to medical services, potentially leading to greater out-of-pocket costs — especially for families with significant healthcare needs.

Traditional health insurance plans, while lacking HSA eligibility, offer benefits that may be more advantageous for those with consistent or high medical expenses. Tax-free premiums, separate out-of-pocket maximums for prescriptions, and access to Flexible Spending Accounts provide alternative tax savings and cost management strategies. Generally, clients in lower tax brackets or nearing Medicare eligibility may find that the stability of a traditional plan outweighs the benefits of an HSA. Please contact Tilia's advisory team if you would like assistance ensuring your healthcare choices align with both short-term medical needs and long-term financial goals.