Ladies and gentlemen, the weekend! In this space each week, Greg and I share some of our favorite articles, notes, and graphics from the past week along with our commentary. Please feel free to provide feedback and forward along to others if you enjoy. We appreciate you taking the time to read. 

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Deconstructing 10, 20 & 30 Year Stock Market Returns

“The best 20 year annual return was more than 18% per year from the early-1980s through the spring of 2000 at the aforementioned dot-com bubble peak.

The worst 20 year return was a gain of less than 2% ending in 1949. This makes sense when you consider that period included the Great Depression and World War II.

One of the neat things about the distribution of returns over 20 years is almost 90% of the time annual returns were 7% or higher. Annual returns were 8% or more in 75% of all rolling 20 year observations. They were 10% or higher 56% of the time…

The lowest annual return over any 30 year period going back to 1926 was 7.8%. That’s what you got had you invested at the peak of the Roaring 20s boom in September 1929. You would have lost more than 80% of your investment in the ensuing crash and still made more than 850% in total over 30 years…

The most recent 10 year annual gain through January 2023 was 12.7%. The previous 20 years were up 10.3% per year. And the past 30 years were up 9.8% per year.

The most recent 30 year period since 1993 includes:

The Asian currency crisis, the dot-com crash, 9/11, the Iraq/Afghanistan wars, the Great Financial Crisis, the biggest global pandemic since 1918, the war in Ukraine and 9% inflation not to mention flash crashes, a few recessions, government shutdowns, trade wars, an insurrection, multiple impeachment hearings, 4 legitimate bear market crashes, 9 other stock market corrections and a whole bunch of other crazy and/or bad things I can’t think of right now.”

See the Graph of the Week below for the full graphic of rolling 30-year U.S. stock market returns. This article had some interesting data points. It also served as a nice reminder of compounding and the smoothing effect when we stretch out investing time horizons from annual to 10, 20, 30-year periods.

Considering a Roth IRA Conversion? 6 Reasons It Makes Sense

1. You Could Be in a Higher Tax Bracket in Retirement.

However, with planning, there is a window of opportunity after retirement and before RMDs start where you may be able to minimize your tax bracket and use those years to do a Roth IRA conversion. Social Security can also be delayed until age 70. If this window is planned for by accumulating cash to pay for retirement expenses, then the tax bracket will be low and a great time for a Roth IRA conversion.

2. Roth IRAs Have No Required Minimum Distributions.

3. Tax Diversification With a Roth IRA.

A Roth IRA can be beneficial for tax diversification. That way, you can look at your tax position each year and determine which account would be best to withdraw from when money is needed. For instance, there is an extra charge added to Medicare premiums when income exceeds certain levels. If you find your taxable income nearing one of these levels yet you still need money to meet expenses, pulling the money from a Roth IRA could be an ideal solution. You will receive your funds, meet your expenses and avoid the higher Medicare premiums.

4. Estate Planning: Roth IRA Income Not Taxable for Beneficiaries.

With the SECURE Act, [non-spouse] beneficiaries now must liquidate the entire IRA within 10 years. It can be spread out over the years or withdrawn as a lump sum in one of the years, but the result is that there is now a narrower window in which those funds must be withdrawn and taxed.

5. Your Tax Filing Status Could Change.

6. The Market Is Down.

When the stock market is down, it may be a good time to do a Roth conversion. You will be able to convert more shares at the lower price and have the potential future gain be tax-free, as it will now be in the Roth IRA. In addition, you can also identify which shares you want to convert if you are doing a partial conversion, selecting the stocks that you think have the most growth potential.

Are markets right in expecting an ‘immaculate disinflation’?

“A blockbuster jobs report (released on Feb. 3) gave investors pause as markets digested data indicating a labor market that continues to be characterized by robust hiring and decent wage growth. While the much-feared 1970s-style wage-price spiral has yet to materialize, the risk that services sector inflation will become sticky at somewhat elevated levels and thus reduce the likelihood of a quick return to the 2 percent inflation target is quite real…

A recent Washington Post report highlighted some of the factors responsible for a sustained labor shortfall in consumer-facing service sectors: ‘An estimated 2.5 million people have died, retired or otherwise dropped out since 2020. Americans older than 55, in particular, stopped working at heightened rates during the pandemic because of covid-related health risks. Plus, rapid run-ups in home values and stock prices made it financially viable for scores of older Americans to retire. Those extra vacancies in the job market, researchers have found, created room for people in the service industry to move into new lines of work.’

At present, there is considerable disagreement regarding the outlook for the U.S. economy, and this has given rise to sharply differing expectations about the future trajectory of policy rates. If rapid restoration of price stability were to take place, it is feasible that the Fed will not have to stick to its “higher for longer” policy rate stance.

In fact, rising levels of optimism in early 2023 indicate a growing belief among market participants that the U.S. economy may attain some sort of an “immaculate disinflation” that does not entail an actual economic contraction or substantial deterioration in labor market conditions.”

This was a nice summary of the economic uncertainty from inflationary and labor market forces that are still experiencing post-Covid aftershocks. "Immaculate Disinflation" is a much better reference than “soft landing” if it does come to fruition.

Thanks for reading. Have a Super weekend!

RBG Wealth Advisors LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.