Before this decline, most investors knew the level of income offered by bonds was far too paltry. To be fair, that was the case for about a decade. Like a frog adjusting to increasing levels of discomfort, the era of super-low rates and declining inflation led to a secondary focus on yield. The primary focus was not on bonds’ return on investment, but rather on their return of investment.

You have to travel back to the early ‘80s to see anything quite like the last six months, inflation-adjusted. Since the start of 2022, the general bond market has plunged about 11%. With stocks in a bear market, there have been no traditional places for investors to hide. Year-to-date, overall portfolio declines in the mid-teens are the norm, even for conservative investors. Once again, truly ugly.

How we got here is now a well-known story; a witch’s brew of a pandemic plus massive government stimulus plus supply-chain breakdowns plus war-induced shocks to both energy prices and food inputs. In a flash, it’s added up to a worldwide surge in inflation and, importantly, rising inflation expectations.

Late last year, the Federal Reserve abruptly pivoted from its overly-sanguine view on inflation. I mistakenly shared that sanguine view, to be honest. Ultimately, I do still believe our recent spike in inflation will subside. But, as far as clawing back the recent carnage, a bond market recovery will undoubtedly require more patience.

However, there is some good news. The worst of the pain in bonds is likely over and yields are significantly more attractive today.

It’s important to recognize that now, more than ever, financial markets act like betting venues. Investors don’t just wait around for outcomes to be revealed. Instead, markets lurch from one set of expected outcomes to another set, based on shifting sentiment and probabilities about an uncertain future.

The Fed is the bond market’s focus and their power largely resides in their “forward guidance” about the path of their interest rate hikes. With the power of their words alone – how far and how fast they’ll raise interest rates – they largely control the direction of the bond market.

Once the Fed’s policy path is fully believed – and the Fed’s credibility is restored – their entire rate hiking campaign will be fully absorbed by the bond market. At that point, the lurching will stop and the ballast of bonds will return. I feel that time is very near and – I think I speak for many out there – it won’t be a moment too soon!

Jason P. Tank, CFA, CFP® is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Q: This year my tax preparer gave me “tax vouchers” and said I need to send in a bunch of tax payments this year. Admittedly, I’m bad at keeping track of stuff like this. Is there another way to avoid making these quarterly estimated tax payments?

A: Yes, depending on your particular situation, there are multiple ways to avoid having to make quarterly estimated tax payments.

To avoid penalties and interest, you need to either (1) send in enough to cover most of this year’s tax owed or (2) just pay at least what you owed last year.

But, if you happen to have sources of income where taxes are already being withheld on your behalf, you can adjust your tax withholding to avoid penalties, too.

If you’re still working, you can certainly increase your tax withholding. If you are retired and get a pension or Social Security, consider tweaking your tax withholding from these sources. And, if you are taking out money from your IRA, ask your advisor or brokerage firm to withhold enough to avoid underpayment penalties..

With just a little tax planning, you can absolutely avoid the mundane (and painful) task of writing eight tax checks with those seemingly random deadlines!

Q: We recently sold our business and have a lot of cash sitting around. With things looking so uncertain right now, we’re wondering about the best path forward. Does it make sense to let it just sit there or should we invest the money?

A: Before investing any of it, you really should sit down with your advisor to develop a detailed retirement-income model. This work will set the stage for your longer-term investing. It will also give you a chance for thoughtful planning. Investing the cash really is a secondary decision that comes after a well-developed plan.

Keep in mind, there may be some smart tax strategies to follow in the early years of your retirement. For example, doing strategic Roth conversions or voluntarily taking some capital gains are worthy of analysis. Having the cash to help manipulate your tax picture is a key ingredient for these strategies.

Addressing today’s market uncertainties, I think the old-fashioned approach of using “dollar-cost averaging” is always wise. This is just a fancy way of saying that you should spread your investments into the market over a set time period. This technique avoids plunking it all down at exactly the wrong moment. Eliminating regret or even long-lasting emotional scars about investing, especially right off the bat, will help you stick to your plan.

Jason P. Tank, CFA, CFP® is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

You’ve probably heard it before. Bear markets are par for the course in investing. Let’s go through some history to help calibrate your mind and emotions. In this review, my focus is on the four key metrics for bear markets; frequency, depth, length and recovery.

There have been nine bear markets in the past six decades. A bear market is technically defined as a decline of greater than 20%. To come up with my tally, I’m ignoring the truly weird Covid-shutdown collapse and recovery.

In terms of frequency, there was one bear market in the late-‘50s and then two more in the ‘60s, two in the ‘70s, and two in the ‘80s. The ‘90s were spared. And, as we all know, there were two big and memorable bear markets in the ‘00s, one at the start and one at the end. All told, on average bear markets show up every 5 to 7 years.

In terms of pain, the declines during each of these nine bear markets have been -21%, -28%, -22%, -36%, -48%, -27%, -33%, -49% and -55%. The average decline was about 35%. Excluding the three deep bear markets in that list, the average decline was about 27%. That should help frame the possible outcomes.

In terms of length, the bear markets reached their bottom in 2, 6, 8, 19, 21, 21, 2, 33 and 18 months, respectively. The average time it took before the eventual rebound was about 13 months. Ignoring the three deep bear markets, the average time to hit bottom was about 9 months.

In terms of time to recover, here’s how long each of them took to claw back the losses: 11, 14, 10, 21, 70, 3, 20, 56 and 49 months. The average time to rebound was about two years. Once again, excluding the big three, the average recovery was closer to one year. Naturally, the deepest bear markets took a lot longer to recover.

Based on this history, once or twice a decade investors can expect to experience a decline of 30% to 35% that dishes out its pain over about a year’s time. And, when it’s finally over, the typical bear market loss is fully recovered over about 12 to 24 months.

Over the past five months, the broader stock market is now flirting with a 20% decline. If this one becomes a bear market of the typical sort, we’re probably more than halfway to the end of the pain. A more-severe kind of a bear market is wholly dependent on the Fed, of course. In turn, the Fed’s future actions are wholly dependent on the path of inflation expectations.

I’m currently leaning toward the typical kind of bear market. Regardless, this is the moment for long-term investors to steel their mind on a well-reasoned game plan based on sound discipline. That is, in the end, the only true way to navigate the ugly anatomy of a bear market.

Jason P. Tank, CFA, CFP® is the owner of Front Street Wealth Management, a purely fee-only advisory firm. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

There is no better time to plan things out than when you are officially approaching retirement. But, what does it mean to be approaching retirement? And, what does it really mean to plan things out?

First off, if you are within ten years from retiring and haven’t modeled out your retirement-income plan, it’s time. For many, the idea of doing a retirement-income plan is as unappealing as a root canal. If done well, it really shouldn’t feel that bad!

The retirement-income planning process certainly shouldn’t culminate in an almost-useless, thick report containing a bunch of colorful charts and endless pages of numbers. We all know where that type of report ends up.

Instead, a quality retirement-income plan should help you do two simple things. The goal is to set a reasonable destination and show you a clear set of paths to get there. Most importantly, it should be kept up-to-date to help you confidently re-route as your life inevitably changes.

A retirement-income plan starts with three key building blocks; an inventory of your finances, a picture of how you want to live in retirement and your estimated time of arrival.

The first building block is taking an inventory of your current and future financial resources that will support your retirement years. It starts with tallying up your current investments and layering in your future savings. But, your future resources might include financial events, such as the sale of your business or the decision to downsize your home. Of course, your financial inventory should also include your expected Social Security benefits, possible pension benefits and even a transition to part-time work for a stretch.

The second building block is to summarize your expected living costs in retirement. Just forget the ugly word, budget. Instead, a nicer term is a living cost summary. This is just an assessment of all of your expenses today and after you retire. In the end, all spending is a choice and a living cost summary is just a reflection of your values and priorities. It doesn’t have to be overly precise, but it does need to be honest.

The third building block is to define your desired time of arrival to the point where your work becomes optional. That’s the true working definition of retirement, after all! By the way, this doesn’t have to be viewed as an on-off switch. For some people, it can be a transition.

With your financial inventory, your living cost summary and time of arrival established, a robust retirement-income model can then be created. If it’s done right, it should give you a clear picture of your financial future that deepens your understanding. Importantly, any model worth its salt should allow for the flexibility to test and retest the choices you make today and tomorrow. Think of it as a living map. That’s a whole lot better than a root canal!

Q: A friend just told me of a way to make a guaranteed 8% over the next year by investing in Series-I savings bonds. I’m a natural skeptic and I’ve learned that if something is too good to be true, it probably is! Does that rule apply here?

A: Your friend is not wrong. But, there are some details to understand before jumping in.

In today’s inflationary environment, Series-I savings bonds are getting a lot of headlines. Technically, they will make you 3.56% over the next six months and probably another 4.8% for the six months after that. Together, that’s around 8% on your money over the next year. But, as Paul Harvey used to say, there’s more to the story.

While the headline rate is very attractive today, you should probably view it as a kind of “teaser rate.” While inflation is up wildly, if and when it subsides, Series-I savings bonds will likely lose their current luster.

To start off, the rate of interest earned on Series-I savings bonds is made up of two parts; the fixed interest rate and the inflation part. Together, this is known as the “composite rate.” The fixed rate is currently set at zero. The inflation component is as high as it’s been in decades.

You can only buy a maximum of $10,000 per calendar year of Series-I savings bonds through TreasuryDirect.gov. If you’re married, you can together purchase up to $20,000 per year. While this isn’t chump change, it might take you a long time to build Series-I savings bonds into a meaningful part of your investment portfolio.

However, there are ways to go beyond the maximum $10,000 purchase limit. You could buy Series-I bonds for your children and you can also buy them through your trust, if you have one established. Taken together, you could increase your ability to stockpile Series-I savings bonds at a faster pace.

Before going crazy, you should also consider the illiquidity of Series-I savings bonds. You are absolutely required to hold them for a full year. Given this, Series-I savings bonds aren’t appropriate for any money that you might need access to soon.

Now for the small “life hack”, as my kids would say.

If you are still interested in Series-I savings bonds, you might consider pulling the trigger before the end of April. If you beat that deadline, you’ll get to lock in the current 3.56% semi-annual rate for the first six months and then in October you will also get to lock-in the expected 4.8% rate for the next six months. That gets you to April 2023. But, if you wait until May 1, you’ll only get the expected 4.8% semi-annual rate for the first six months and then in November your Series-I savings bonds will very likely reset to a much lower rate.

In other words, by acting in the next week, you can gain an extra six months of high returns. After that, all bets are off!