What We're Thinking: What Happens in Markets During Wars?

 

They're at it again. When will we ever learn?

In the meantime, financial markets are in the news and you might be wondering how to navigate this particular case. We take a broader, long-term view of historical precedents. Here's what we see.

There are eleven war cases, going back to Pearl Harbor. One year later, the S&P 500 was higher in eight of the eleven cases. That's a 72% positive rate. And it's only for one year. Longer time frames produce outcomes approaching 90%. 

 

The main long-term driver of stock market returns is not war or peace. It's corporate earnings (profits). Except in recessions, profits continuously move higher. Here's an 80-year illustration. Earnings are in black. The S&P 500 is green. 

As usual though, there's a caveat. In this case it's valuation.

Valuation is an expression of the premium above fair value that buyers are willing to pay. At this point, buyers are paying a historically high premium for U.S. stocks. (International stocks are closer to fair value.)

 

This doesn't necessarily mean there has to be a crash. It does mean we should expect lower average annual returns going forward. Some analysts are calling for low single-digit average annual returns for the next 10 years. We actually use those conservative values in estimating low ranges of future portfolio values. 

If any of this concerns you or you just want to talk about it, we're here. We can have the conversation that uniquely applies to you.

 

James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315

Evidence-based. Rules-driven. Policy-focused.

 

What We're Thinking: Your Best Strategy

  

“What does 2026 hold?”
“Will the stock market crash?”
“What will happen with interest rates and inflation?”
“Should I buy gold or Bitcoin, or both?”
"Is AI in a bubble?"
“What are the big questions facing the markets in 2026?”
“How should we deal with what’s going on in Washington?”
“Will Social Security go away?”

Sorry. We don’t have answers to those questions. Why? Because some version of them show up every year as a response to a demand and hunger for certainty. Yet, the documented research on forecast reliability concludes that it's pretty much a coin toss. The truth is, the world is uncertain, and personal finance is largely an exercise in managing uncertainty.  

With that out of the way, let's remember what we control. We can't control or accurately answer any of the questions above. But we can control things like...

· How we allocate financial assets. This shapes over 90% of portfolio outcomes.
· How much media we consume and what kind. This blog post is a rare slice of unconflicted media.
· Where we spend money, especially on discretionary choices.
· How much money we spend. Many people can actually spend more than they think.
· Our strategies.

Your Best Strategy

“The best long-term strategy is to stick with your long-term strategy."
Elisbetta Basilico

Your best strategy is the one you have. If you’ve been working with us for a while, you know that everything is based on your goals, your tolerance for volatility, your tax profile, and the feel of your day-to-day life. 

 

So, the answers to the questions that typically come up about next year or "the future" are already embedded in your strategy. That’s the best place to work. Here are a few ways to sustain a robust strategy.

1. Keep it simple! A simple strategy is one you could explain to a 10-year old in less than 25 words. Complexity leads to distractions, loss of focus, blurred vision, and conflicted actions.

2. Be adaptable. The world can change quickly. A flexible strategy will allow you to bend but not break, adapt to challenges, and spot new opportunities. The good news is that globally diversified portfolios do this. They automatically catch the cream rising to the top. If you own a total stock market index fund, you’ve actually owned Nvidia for 25 years.

3. Speculate at the edges. If an exciting idea or possibility calls to you, try it out in a small way. Failures won’t be fatal and you can always go deeper. This could also satisfy the need to “do something” or neutralize FOMO.

4. Stay focused. Distractions abound. Know the job-to-be-done, the problem to be solved, the goal to be achieved. Dial down notifications and breaking news.

5. Be action-oriented. Great strategies lay out a clear path and steps to take. Otherwise, a plan just sits on a shelf. This doesn’t mean to always be doing something. It does mean that when something needs to get done, it gets done. Let us know how we can help.

                                                                      Best Wishes for a Joyful Holiday Season
                                                                        And Contentment in the New Year 

 James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315

Evidence-based. Rules-driven. Policy-focused.

 

 

 

What We're Thinking: Are Stocks in a Bubble?

  

 Last week’s stock market thunder has added new urgency to the conversation about the possibility of a developing stock bubble.

While that might get clicks and shares on social media, the tailwinds driving this bull market remain in place. The Fed is guiding interest rates lower. Global central banks are doing the same. Company profits remain largely on track. Credit spreads (the difference in yield between high and low quality bonds) are narrow. Even deficit spending counts as a tailwind.

However, while these arguments support continued price appreciation, they can also contribute to a melt-up scenario in which valuations are already historically and statistically over-extended. Almost every major asset class is hitting all-time highs at prices reflecting heavy premiums. Hence, some thoughtful caution is warranted.

First, accurately timing a market peak is 100% luck. Read that sentence again. One especially amusing example was that three days before the 1973 U.S. peak, Time magazine ran an article highlighting the beginning of a gilded age! A new market high did not happen for nine years.

Seven epic bubbles have unfolded over the past 100 years. The U.S. in 1929, 1973, 2000, and 2007. Japan in 1989. China in 2007 and 2015. All of them show that time and hindsight were needed to identify a peak. No one knows they’re happening in real time.

So, what’s an investor to do? Three things will keep you sane:

1. Mind your asset allocation policy. Stay in your lane. 
2. Make changes incrementally over time. Avoid sudden “all-in” or “all-out” bets.
3. Build ready cash or short-term bond resources. Liquidity is your edge in a downturn.

Age group and generational demographics help shape strategy. There are Youngs, Middles, and Olds.

👉Youngs are under age 40. They are building personal capital through career development and financial capital through saving and investing. In hindsight, every market downturn, without exception, has been a golden opportunity to buy quality assets “on sale.” Their job is to hold their noses and continue to invest aggressively in all market conditions. Full stop.

👉Middles are between 40 and 70. This group has reached full development of personal capital. They’ve built a base of financial capital. Sooner or later, they retire. This is the most challenging age group. There’s an inclination to press hard to maximize retirement savings, but in doing so, may expose themselves to significant declines and limited time to ride the eventual recovery. Recoveries after full blown bubble collapses can take several decades.  

Careful planning needs to take place in these years. Contact us if you or someone you know is in this age group and they’re trying to wing it or just hoping for the best.

👉The over 70 Olds tend to already be more conservatively positioned, so market trends have less of an impact on them. However, the news background during declines is always troubling. This causes people to think about doing potentially regretful things like going to all-cash or buying an annuity.

Please contact us if any of this raises questions or concerns for you. We were made for these times.

James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315

Evidence-based. Rules-driven. Policy-focused.

 

 

 

 

 

What We're Thinking: Making Your Donations Count

 

Every day, mothers visit food banks seeking to sustain their families. Every day, someone with a substance issue calls for assistance. Every day, a young person realizes they need to build an income-producing skill. Every day, it seems we read that the Trump administration is dialing down support and assistance for vital human services in our communities. 

This is a problem we can address. Community nonprofits take on important social issues and provide essential services in our communities. They include food distribution, shelter, domestic protection, youth programs, health, education, libraries, public safety, and many more. 

Those organizations rely on multiple financial resources to sustain their programs. In addition to individuals like us, there are foundations, endowments, and large philanthropic donors. With changing priorities in governmental support, nonprofits will be relying more than ever on non-governmental sources. That's where we can help.

For those willing to make donations, there still might be uncertainty about where to make them, how much to give, and avoiding scams. We have some ideas for your Consideration.

Are you drawn to helping others and tackling social issues head-on? Then you might want to consider a career in the vibrant world of social services non profit organizations.

In our ever-evolving world, where challenges and disparities persist, social service nonprofits play a vital role in creating a better tomorrow. These organizations, driven by compassion and commitment, provide critical services that contribute to economic stability, mobility, and community well-being.

Read more at Social Work Portal: https://www.socialworkportal.com/social-service-nonprofits-guide/

Are you drawn to helping others and tackling social issues head-on? Then you might want to consider a career in the vibrant world of social services non profit organizations.

In our ever-evolving world, where challenges and disparities persist, social service nonprofits play a vital role in creating a better tomorrow. These organizations, driven by compassion and commitment, provide critical services that contribute to economic stability, mobility, and community well-being.

Read more at Social Work Portal: https://www.socialworkportal.com/social-service-nonprofits-guide/

Where to give. 

We begin with the idea of "thinking globally and acting locally." Yes, the needs of the planet are mind-boggling and beyond the reach of any one person or agency. But the needs in our communities and neighborhoods are often very visible. You know your community and neighborhood's needs better than anyone.

We think meaningful impacts can be made to smaller, local, nonprofits. They might be new or have limited reach because they don't yet receive support from larger entities, or are simply unknown. This is where your donations could make notable difference. Act locally.

How much to give. 

IRS records show a wide range of giving patterns. The average is about 6% of income. Some people use "tithing" (10% of income) as their standard for giving. Whatever you give matters.

If you're 70 1/2 this year and have an IRA, you can make up to $108,000 of donations via a QCD (qualified charitable donation) that will be tax-exempt. If you must take a Required Minimum Distribution (RMD) from an IRA, a QCD will count towards the RMD and not be taxed.

A donor-advised fund (DAF) may be another possibility. An account is established. You make donations as you wish and get an immediate tax benefit. Then you make grants to qualified charities as you wish. DAFs are ideal for those who want flexibility and impact without the burden of running a private foundation. Consult with your tax advisor before opening a DAF.

For more information on how any of these might work for you, please get in touch with us. 

Avoiding scams.

Scams abound, especially when related to sudden dramatic disasters like storms, floods, earthquakes, and fire. There are ways to vet 501(c)3 charities for their efficiency and impact. 

A key document is a charity's IRS Form 990. Each 501(c)3 must file one annually. This takes some effort, but there are reliable resources that compile this information. Here's a list:

• Candid (formerly GuideStar): Offers a large database with profiles on millions of nonprofits, summarizing their mission, programs, and financial information. Registration is free.

• Charity Navigator: Provides easily understandable ratings based on financial health, accountability, and transparency using data from the IRS and charities themselves. 

• Charity Watch: An independent watchdog that provides in-depth analysis of charities' audited financial statements and tax filings, aiming to ensure donations are used effectively. 

• BBB Wise Giving Alliance: Evaluates charities based on standards related to governance, finances, fundraising, and effectiveness. 

• GiveWell: Focuses on identifying and recommending charities that are highly cost-effective and impactful, often with a different methodology than other raters. 

Finally, if you need to figure out how to make these things work in your financial plan, we'd love to help. We're enthusiastic proponents of helping individuals make a difference in their communities. 

 

 James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315

Evidence-based. Rules-driven. Policy-focused.