The Cox Connection helping you build your wealth

Vol 7 Issue 3 || AUGUST 2024

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CAPITAL MARKET UPDATE

Market Performance as of 07/31/24

U.S. SECURITIES

  • S&P 500 TR: 2Q24 4.28% and YTD through 7/31/24 16.70%
  • Dow Jones Industrial Average TR: 2Q24 -1.27% and YTD through 7/31/24 9.41%
  • Bloomberg Barclays US Aggregate Bond: 2Q24 0.07% and YTD through 7/31/24 1.61%
  • Top 3 US Sector Performers 2Q24: Technology, Communication Services, and Utilities
  • Worst 3 US Sector Performers 2Q24: Materials, Industrials, and Energy

FOREIGN SECURITIES

  • MSCI EAFE (unhedged International Stocks): 2Q24 -0.42% and YTD through 7/31/24 8.43%
  • MSCI Emerging Market (unhedged): 2Q24 5.0% and YTD through 7/31/24 7.81%
  • Bloomberg Bclys Glbl Agg Bond Hedged: 2Q24 0.12% and YTD through 7/31/24 2.07%

INVESTMENT INSIGHTS

Market Thoughts

STAY FOCUSED

Our year started out great, and we expected there would be some pullback at some point. We experienced a pullback on August 5th with a global sell-off and negative news about jobs and the economy. These are all normal trends in economic cycles but remember, over the long term the markets climb upward. Along with this, you have heard us talk about diversification many times over the years. We talk about how you should spread your money out across various asset classes and styles. We know, through numerous studies, that doing so will reduce your investment risk and allow you to achieve a return that will help you accomplish your goals, especially retirement. Right?

Today, we remind you again about controlling portfolio risk because there are huge temptations in the market to throw in the diversification towel and go all in. You hear in the news about the returns technology and communication stocks have been posting for the last several quarters. We see those market results as well and have definitely made investments within those sectors. We believe there are times to over or underweight allocations to different asset classes and styles, but you will typically only see us only adjust 5%, maybe 10% at most. We are committed to a strategic long-term asset allocation that we believe will give you the level of risk and return that is right for you and your goals.

We encourage our clients who really enjoy the excitement and trading of the technology sector and other growth stocks to have a side brokerage account where they can make decisions to buy and sell those kinds of securities. We love seeing our clients get excited about investing; we however, do not encourage taking a lifetime of savings and allocating too much to risky stocks, even in the short-term. Here's why:

  1. Tech-oriented stocks currently have high valuations or a high price-to-earnings ratio compared to other stocks. This means that anticipated growth expectation is driving the price and not necessarily wise management of cash flow, debt, or profits. Paying attention to only future growth expectations leaves someone at risk for an emotional reaction when events occur, like government regulation, supply chain issues, or other product disappointments.
  2. Aggressive growth-oriented stocks have large price swings from day to day (investors are moody). The biggest loss by the SPY (S&P 500 SPDR ETF) in the last 3 years was -23.87%, while the biggest loss by XLK (Technology Select Sector SPDR) was -31.23%.
  3. People often forget about "buy low sell high." We don't think this means sell all and buy all (all or nothing); we think of it having a strategy to sell some gains at a price target and then invest the proceeds in new opportunities. Having a sound exit strategy is the hard part for many!

Take a look at the graphics below.

Diversification across sectors and asset classes is important but so is making sure your portfolio has a healthy-sized basket of securities and not just one or two securities to represent each asset class. Look at the image below to see how exposed to losses you might be if you invested in individual stocks over the last 5 years compared to mutual funds. Thirty-seven percent of individual U.S. stocks lost money in that 5-year period while only 0.1% of mutual funds did. This is why we believe in mutual funds and avoiding highly concentrated stock positions when possible.

We are eagerly watching the 2024 Presidential Election news. We don't normally see meaningful market movements during and after an election, but we do expect some positive sentiment to develop as interest rates improve and, hopefully, an improving geopolitical environment. Through the end of the year, we continue to expect the largest U.S. companies to lead the equity markets but feel the broad equity market will end the year positive. Bond prices will improve as interest rates adjust.

Sources: Image/Graphic credit - BlackRock Advisor Center at BlackRock.com. Total returns of the indices mentioned are provided by Morningstar, MSCI, S&P Dow Jones and SectorSPDR.com. None of these firms nor their Information providers can guarantee the accuracy, completeness, timeliness, or correct sequencing of any of the information on their websites, including, but not limited to information originated by them, licensed by them from information providers, or gathered by them from publicly available sources. There may be delays, omissions, or inaccuracies in the information. Past returns are no indication of future results.

WARNING: Be aware of Investing biases during an election year

It is human nature to develop cognitive biases, or perceptions that may distort reality and decision making. We want to help you understand the biases we all carry so that you can worry less and make wise decisions regarding your investment portfolio.

  1. Confirmation Bias: This occurs when we easily accept information as true because it supports an existing belief.
  2. Availability Bias: This happens when you assume information is more accurate or an event is more likely simply because it is readily available.
  3. Hindsight Bias: This is the tendency to believe that past events were more predictable than they actually were.
  4. Scarcity Bias: This occurs when an impending deadline, such as an election, leads you to make decisions with undue urgency.
  5. Recency Bias: This makes you prioritize recent events over historical ones, even though historical events might be just as relevant.
  6. Action Bias: This is the inclination to favor taking action rather than inaction, even when there is no evidence that the action will lead to a better outcome. Be cautious of this tendency!

If you would like to review your accounts or discuss events that might impact your portfolio, please call us at 281-395-8300 or email us at info@coxglobalassociates.com to schedule an appointment.

Source: https://www.morningstar.com/personal-finance/3-cognitive-biases-avoid-when-preparing-2024-election

529 PLANS: What iF your kids decide against college?

As a parent or grandparent, you may have diligently saved money in a 529 account to help fund your child's or grandchild's college education. But what happens if they decide college isn't the right path for them? It's a valid question that many families are facing as more and more people choose alternatives to traditional four-year colleges.

It's more common situation than you might think. Fewer students are going to college, and the expenses continue to climb. American undergraduate enrollment rates peaked in 2010 and have steadily declined since. During the same period, college costs have risen over 12%!!

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. The state tax treatment of 529 accounts is only one factor to consider before committing to this type of savings plan. You should also consider any fees and expenses associated with a particular plan. Whether or not a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary, and state tax laws may differ from federal tax laws. Earnings on nonqualified distributions will be subject to income tax and a 10% federal penalty tax.

First and foremost, it's important to remember that having a 529 account doesn't mean that the funds are reserved only for a four-year college education. There are several options for using the money saved in the account.

One option is to use the funds for a two-year program, such as those for an associate's degree or at a trade school. Many vocational schools offer programs that can lead to careers that don't require a four-year degree. When you use the funds in a 529 account for these programs, you are still investing in your child's or grandchild's future and providing them with skills that may help them succeed.

Another option is to use the funds for education expenses outside the United States. Many countries have educational institutions that offer programs that may interest the student in your life. By using the funds in a 529 account, you can help support their academic goals, no matter where they choose to pursue them. Certain restrictions apply, so you will need to explore this option more thoroughly if you decide to pursue it.

The rules for 529 accounts allow up to $10,000 per year in tuition expenses at elementary, middle, or secondary schools with 529 assets. Furthermore, a lifetime maximum of up to $10,000 of 529 assets can be used to repay existing student loans. If the student doesn't use the 529 plan, the funds could be used by a different beneficiary. This means that you can transfer the funds to another family member who may be preparing to attend college, or you might even use the funds for your education if you decide to return to school.

As part of the SECURE Act 2.0 from 2022, a 529 account holder can move money to a Roth IRA account under certain conditions, including:

  1. The 529 plan must have been open for a minimum of 15 years.
  2. Changing beneficiaries to another student may restart the 15-year clock.
  3. The owner of the Roth IRA must be the beneficiary of the 529 plan (meaning the student).
  4. Any money moved from a 529 plan into a Roth IRA account will be subject to the Roth IRA annual contribution limits. The Roth IRA contribution limit in 2024 is $6,500, with an extra $1,000 allowed for individuals over 50. The lifetime limit is $35,000.
  5. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.

It's important to note that taking the money out of a 529 account for nonqualified expenses comes at a cost. Doing so may result in federal income taxes and a 10 percent penalty on the earnings portion of the withdrawal. However, there is one exception to this rule: 529 plans allow money to be taken out for the exact amount of the scholarship or grant that has been awarded.

The truth is that for some young adults, college does not offer what they need. A person who aspires to enter a creative field might find more value in a vocational school or pursue their chosen field through smaller classes or specialized institutes. While most universities and colleges offer these courses, the cost involved could be a problem, as might the requirement to take courses beyond the student's chosen field to earn a full degree. In short, college is not for everyone.

As you are guiding and advising the student in your life through these complicated decisions, it's important to remember that a 529 account offers you a great deal of versatility and is designed with these variables in mind. Remember that the funds in a 529 account can support the student's educational goals no matter their path. By understanding how it functions and working with a financial professional, you will find that a 529 plan offers many potential opportunities.

Source: https://www.coxglobalassociates.com/resource-center/money/what-if-your-kids-decide-against-college

Schedule a review of your accounts by visiting this link: https://calendly.com/meetwithcoxglobal. We are available by phone, zoom, and in person.

click here: https://calendly.com/meetwithcoxglobal

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Cox Global Associates, Inc. || 1260 Pin Oak Road, Suite 204 || Katy, TX 77494 || 281.395.8300 https://www.coxglobalassociates.com/ || info@coxglobalassociates.com

Securities and Advisory Services are offered through Geneos Wealth Management, Inc. FINRA, SIPC. Investment advisory services also offered through Cox Global Associates, Inc., A Registered Investment Advisor.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Articles may be developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.