At the conclusion of the Q4 BTWM Virtual Lunch Webinar (read a brief summary here), Ryan O'Connell answered three questions from our community:
- What returns should I expect from stocks?
- What should I own right now?
- Is there anything I should be doing before the end of the year?
Let’s briefly dive into each.
Returns haven’t been reliable. The market has been violently flat over the last 18-20 months, giving us hope and then concern throughout this entire timeframe. With the consensus opinion being that a light recession is still a very likely possibility, high returns from stocks over the next several quarters are not a guarantee by any means. Using history as a guide, when markets are at these valuations, we can estimate a return of around 5% a year over the next five years.
What you should own entirely depends on your time horizon. The leaders of the S&P 500 are trading at premiums in terms of their P/E ratio, meaning there may not be a lot of upside. With nearly half of Russell 2000 companies failing to turn a profit, small caps are unlikely to surge. However, if you’re not retiring for several decades, my advice for you is likely to include utilizing small caps.
When researching stocks to add to your portfolio over the next few quarters, I recommend looking for low volatility and more predictability. Find companies that have predictable earnings growth.
Before the end of the year, there are two things you should consider:
- Required Minimum Distribution (RMD)
If you’re 73 or older, you are required to take an RMD. The penalty for not taking an RMD is 50% of the required distribution. If you’re not in desperate need of this distribution and have yet to make a withdrawal, consider making a direct gift to your favorite non-profit from your IRA. This move can fulfill your obligation while making an impactful gift that is not taxable to the charity.
- Tax Harvesting
A popular end-of-the-year strategy is tax harvesting, which allows you to offset recorded gains by intentionally recording losses. If you have recorded gains this year, consider talking to your financial advisor about tax harvesting. Learn about the basics of tax harvesting here.
What questions do you have about the market and investing as we near the end of the year? Feel free to contact me directly to discuss or contact BTWM here.