Anthony D. Criscuolo

It's never the right move to give into over excitement or fear, make sure you avoid this and "stay cool".

The stock market this past year has given investors both joy and agony continuing to provide object lessons.

: Don’t get overly excited when the market soars. If you become convinced that there’s no place to go but up and happy days will last forever, you’ll likely forget good risk management and load up excessively on stocks.

: Don’t panic when the market falls sharply. If you do, you’re likely to sell your holdings near a market bottom.

: Having a long-term strategy designed to achieve your financial goals, such as funding college education and securing a good retirement, can help you keep an even keel and avoid rash decisions.

Let’s look at the market’s recent swings and how they affected a nervous investor we’ll call “Joe Excitable.”

After reaching a high last September the stock market fell throughout the autumn. The S&P 500 (an index of America’s largest stocks) hit its low point on December 24.

“Yikes, I better sell!” Joe thought. So, he unloaded all his stock mutual funds and felt good for a while.

Soon after he sold all his holdings, the S&P 500 began to rise. By late April it has risen a whopping 25%.

“Jeez, I’m missing out!” Mr. Excitable fretted. “The market must be back to the good times.” So, he invested every penny in the stock market.

In May, the market dropped more than 6%. Now Joe is thinking about selling again stuck in a cycle without much growth to speak of.

Where we stand now and why a bit of caution is wise

Despite the recent volatility, the stock market is still up substantially over the past serval years. Optimism about the U.S. economy remains high, especially as many companies continue to report better-than-expected profits.

The labor market remains tight and retail sales have stayed generally strong. The Federal Reserve Bank, which sets short-term interest rates, has signaled a more modest pace for future rate hikes.

This has reassured investors, because substantial rate hikes usually hurt the stock market. With little threat of inflation, the Fed can keep interest rates low.

Why should you be cautious despite the good news?

No one knows if the market’s next move will be up or down.  What 

 known is that stock markets move upward over the long term—but there are lots of ups and downs along the way.

Many investors seem too complacent about the future of the stock market.  Upward market and economic cycles never last forever. We are still due for a recession sooner or later. While most economic data remains strong for now, surprises to the downside might be more likely than surprises to the upside.

But a recession still may not arrive for a while. The Fed seems less likely to overshoot and increase rates too high, too fast, which was a major concern only a few months ago. In fact, the Fed is now even signaling a possible rate cut later this year. We may be in for a 

 recession, in which the economy slowly cools down after years of growth.

Keep in mind that not all future market declines will be the result of a dramatic bust like the financial crisis of 2008-09. A more normal recession and market decline may result when the economy cools off naturally over a longer period.

Don’t buy stocks excessively because you think the market will continue to rise.  Don’t sell stocks randomly because you’re afraid the market is going to crash. In other words, don’t be like Joe Excitable and buy high and sell low.

Stick to a long-term, goals-based strategy.  It helps you to avoid the emotional temptations market news can create.

You may need to buy or sell now if your strategy calls for it.  Rebalancing your portfolio to keep your asset allocation (the proportion in stocks and bonds) in line with your target allocation is wise. The whole point of having a target asset allocation is to be a prudent risk manager and avoid trading based on emotion.

U.S.  stocks have generally outperformed foreign stock markets for the past several years. As a result, many investors have little or nothing in foreign stocks.

If you’re one of them, you’re missing out on the benefits of diversification. We live in a complex global economy, and there are many big important companies outside the U.S. A judicious investment in international securities can hedge against the potential fall of the dollar and position you to profit from growth at large global companies.

And be sure to diversify your international investments. Use mutual funds and exchange-traded funds (ETFs) for emerging foreign markets in Asia, Eastern Europe and South America, and for established foreign stock markets in Western Europe, Japan, Canada and Australia.

Having too little in foreign stocks is just one way your portfolio can get out of balance. You may have too much invested in tech stocks.  You may have too much or too little in large or small companies. 

Remember, market cycles in U.S. and foreign stocks (and bonds) never reach an end point. They always move through a pattern of peaks and troughs.

Don’t get caught up in either Pollyanna optimism or terrified pessimism. Ignore the “gurus” who confidently predict the unpredictable. Sticking to the long-term view of your own financial goals will help you cut through short-term noise and avoid missteps at both the bottoms and tops of market swings.

Articles

Market timing doesn't always work. Have a long-term plan and determine if you're overinvested or underinvested in U.S. stocks, foreign stocks, and bonds. 

How to Stay Focused When the Stock Market Soars or Sinks

As 2017 lurches toward its end, investors need to plan their tax and investment moves before it’s too late. But it’s just as important to 

Don’t buy a mutual fund that will soon make a large distribution. You may give the IRS a big gift.

Given the multi-year bull market, some stock funds will have large year-end capital gain distributions — sometimes 20% or more which could kick you into a higher tax bracket.

You can usually find out the size and timing of year-end fund distributions on the web. If you like a certain fund, wait until 

 the record date to buy shares. Only people who own shares as of the record date will get the distribution.

If you already own a fund that’s about to make a big distribution, you can still take action. If you don’t have a substantial unrealized gain in the fund, you can sell it before the record date. After the sale, you can use the proceeds to buy an index fund that’s similar to the fund you’ve sold. This ensures you’ll remain fully invested in that asset class. 

If you have a big unrealized gain and selling the fund would result in a tax hit, there’s still one thing you can do. You can give some or all of your shares to charity before the record date. You’ll secure a tax deduction, avoid ever realizing the gain, and also avoid the current year income from the distribution.

. If you don’t review and rebalance your portfolio often, you’ll be over-allocated to assets that have done well recently (such as US equities) and under-allocated to investments that have performed relatively poorly. But asset classes tend to revert to the mean over long holding periods. Yesterday’s losers will eventually become tomorrow’s winners and past winners will decline.

If you sell your recent winners and buy more recent losers, over time rebalancing will lead to superior long-term results.

You are selling high and buying low. You probably won’t do it exactly at the top or bottom, but that’s not the point.

Stick to your long-term asset allocation and investment strategy through up and down markets and do not let recent performance influence your long-term asset allocation. By regularly rebalancing you are controlling risk and ensuring your portfolio maintains its overall target asset allocation. You’ll stay on track to achieve your target return while taking an acceptable level of risk.

Rebalancing need not trigger taxes. Many people can maintain their asset allocation just by rebalancing assets held in retirement plans.

Take a close look at your fixed-income portfolio and its interest-rate sensitivity. Many investors have bought risky and longer-term bonds to get a higher yield. With the Fed holding interest rates down for so long, that’s been the only way investors could achieve a decent yield.

However, as interest rates start to rise, longer-term bonds will get hit the hardest because bond prices move inversely with interest rates. High-quality, short-term bond funds may seem boring, but they’ll seem pretty exciting when rates rise and long-term bond funds start falling.

. While you’re rebalancing, revisit the universe of mutual funds and ETFs to ensure you are using the most cost-efficient funds available. Sometimes mutual funds create new share classes, which may have a lower expense ratio.

You may also find a similar fund or ETF with basically the same market exposure but much lower expenses.

But be mindful of the trading costs and possible tax costs to switching out an investment. It doesn't always make sense to trigger commissions and taxable gains just to save a few basis points of expense ratio.

Consider the tax efficiency of your portfolio

. Can you get rid of some of your active funds that trigger high income distributions and thus your tax burden year after year? Look for more passive strategies that may have similar market exposure and returns, but with much lower turnover and greater tax efficiency.

When rebalancing, you may want to move certain tax-inefficient assets, like REIT funds, into your IRA or 401(k) to minimize your tax burden.

Realize your portfolio is only part of the puzzle

. Your portfolio isn’t the only important thing. Look at all the issues confronting you. Consider all tax, accounting, estate planning, insurance, business management, retirement and charitable-giving considerations.

Even if you are a do-it-yourselfer, consider hiring a fee-only financial adviser.

After all, you don't necessarily fix your own car or treat your own illness — you hire a mechanic or a doctor. Your financial well-being is just as important. In this fast-paced global economy and complex tax system, professional advice is almost always worth the cost.  

Anthony D. Criscuolo, Certified Financial Planner (CFP), portfolio and client service manager with Palisades Hudson Financial Group’s Fort Lauderdale, Florida, office.  

is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with more than $1.3 billion under management. It offers financial planning, wealth management, and tax services. Its Entertainment and Sports Team serves entertainers and professional athletes. Branch offices are in Stamford, Connecticut; Atlanta, Georgia; Portland, Oregon; and Austin, Texas.

The firm’s monthly newsletter covering financial planning, taxes and investing is online at 

www.palisadeshudson.com/insights/sentinel

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In this fast-paced global economy and complex tax system, professional advice is almost always worth the cost. 

Don't Make This Mistake When Making These Year-End Financial Moves

People often find it harder to talk about money than politics, death, or religion; to get family money issues out in the open. You don’t necessarily have to be in the “1%” to benefit from having one or more family meetings.

Family meetings will generally fall into one of the following types.

A first family meeting often falls into this category. It covers the family’s overall financial situation and long-term plans.

Don’t make decisions at the first meeting. Instead, try to achieve understanding between various family members about financial matters.

Family members can discuss their views of the family’s wealth—both dollars and cents, and also thoughts about responsibility, fairness, and philanthropy.

This type of discussion can be useful whenever there is an important change in the family situation, whether good (a wedding, a baby, or a major windfall) or bad (job loss, major financial setback, or a death in the family).

Whenever something major changes, a general meeting can give family members permission to talk frankly about the long-term implications, financial and otherwise.

A family meeting can be a top-down explanation of a couple’s or an individual’s plans. Subsequent meetings may be appropriate if a gift or an estate plan is substantially changed or updated. The details shared may be as broad or as specific as the individuals involved think appropriate, but may include:

Inheritance plans for grandchildren or great-grandchildren

Explanation of the selection of executors and trustees

If there’s a family business, regular meetings are crucial. Family members who are intimately involved in the business’s day-to-day operations already know what’s going on, but family members with less involvement may still wish to be updated regularly.

Other discussions may cover new roles for younger adult family members and their personal long-term goals, who gets a say in major decisions about the business and who holds leadership positions within the organization, and the relationship of family members not directly involved in the business to its operations and profit. Most crucially, it should cover succession plans for when the current family leadership steps down.

Sometimes, a particular issue will become pressing enough that the entire family needs to discuss it in a formal setting. Since the problem may involve intense emotions, an outside facilitator is usually a good idea.

It’s unlikely you’ll completely resolve a major problem in a single sitting. But the best chance of a successful resolution requires calmly listening to different perspectives and keeping lines of communication open. The goal of this sort of meeting is to resolve the issue, preserve family harmony and, in extreme cases, avoid litigation or unwanted publicity.

For some families, conquering the initial awkwardness of talking about money will be the biggest hurdle. Once the meeting itself arrives, everyone may be surprised at how smoothly things progress. But not always.

Money conflicts within a family will usually center on disagreements about a few key questions. Does the money belong to those who built the wealth or is it a family resource to be shared, and if so, shared by whom specifically? What is the wealth best used for in the long run? What is the family’s responsibility to its individual members, and vice versa?

Members of a generation that created or significantly increased family wealth may feel they have a better perspective on what to do with the family’s assets and more experience in pursuing financial goals. Depending on how much communication has already taken place, they may well have more information than younger family members about an enterprise’s operations or the nature of the family assets.

They may or may not have articulated their expectations about subjects such as the desire for their children to become self-sufficient, their philanthropic intentions, or the way they intend to fund long-term care or other lifetime expenses. Leaving such expectations unspoken, however, can lead to hurt and resentment over time.

On the other hand, members of younger generations may worry about how to plan their own financial affairs if they are not sure how much inheritance, if any, they should expect. But they may understandably feel awkward asking this question outright.

They may also one day be asked to step into various roles within the family, such as a leader in the family business, a trustee, a holder of a power of attorney, or an executor. They will need to know where pertinent information is located and how to contact relevant professionals, such as the financial planner or attorney involved in developing the estate plan.

The younger generation may also wonder about how the older generation will distribute assets if circumstances differ substantially between siblings or cousins. One sister may be a surgeon with a high salary and two children. The other may work for a nonprofit with a smaller salary and no children. Their parents might wish to leave them relatively equal inheritances, or they may adjust for income, grandchildren or some combination of factors.

Whatever the older generation decides, the decision will almost certainly be easier to handle in a lifetime discussion than as a complete surprise when the will is examined after death.

Family discussions may also shed light on differing desires among younger generations. For instance, some adult children may feel a strong attachment to a family vacation home; others may not want to deal with the hassle of maintenance and would rather sell the property. Some may take a strong interest in the family business; some will not.

Not all conflicts can be resolved through simple discussion, of course, but honesty and transparency make it much more likely that a compromise will be found. For siblings who don’t get along, a parent can choose to set up separate trusts or bequests to remove the need for consensus and to offer a measure of privacy. The need for such steps may not be apparent, however, if everyone avoids talking about financial topics.

Talking about money is difficult, and talking about money with family can be especially so. But the consequences of avoiding it are serious and the benefits of doing so are clear. A family meeting will provide family members a forum in which to start these conversations and, in the long run, will lead to more fully considered financial planning choices that will help maximize family wealth and harmony.

Anthony D. Criscuolo, Certified Financial Planner (CFP), is client service and portfolio manager with Palisades Hudson Financial Group’s Fort Lauderdale, Florida, office. 

 is a fee-only financial planning firm and investment manager based in Scarsdale, NY, with more than $1.1 billion under management. Branch offices are in Atlanta; Austin, TX; Fort Lauderdale, FL, and Portland, OR,

Read Palisades Hudson’s daily column on personal finance, economics and other topics at 

http://palisadeshudson.com/insights/current-commentary

Financial decisions affect everyone in the family and so it's important everyone is on the same page. Here are five types of meetings you should ad to your family calendar.