Advanced Health Care Planning: Why It Cannot Wait Until Tomorrow

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By: Managing Director – Family Wealth Strategist, Abbey Flaum, J.D., LL.M.      

Whether you are deciding about what time you will go to bed, whether you have time for a run, which doctor to see, which medicines to take, or which surgeries to undergo, you make daily health care decisions for yourself. These decisions are not always big ones, but they are necessary; so, what happens in the event you can no longer make these decisions – big or small – for yourself? Advanced health care planning answers that question.

Advanced health care planning involves documenting your wishes about how you would like your health care to be managed, and appointing someone to carry out those wishes in the event you are unable to make your decisions.

There are two main types of legal documents used to document your healthcare decisions:

  1. Living Wills mainly address how you would or would not want to be kept alive if you were in an end-stage condition. We don’t ever want to need a living will to instruct a close friend or family member about whether or not to “pull the plug,” as we all hope to die peacefully in our sleep when we are elderly and have lived a good, full life; but, about half of Americans ultimately pass in a hospital or skilled nursing facility, suggesting a need for these documents.
  • Powers of Attorney for health care enable you to appoint your healthcare proxy, or “agent,” to make healthcare decisions for you in the event you cannot make those decisions yourself and to express your healthcare preferences to guide your agent. This document may be completed either instead of or in addition to a living will, as, in most states, the appointed agent has the ultimate decision-making authority for you.

Many states have combined the living will and durable power of attorney for health care into one document: the advance directive for health care. No matter the form of these documents, we all need decisions addressed by these documents to be made; so why is it that only about one-third of Americans have them? Perhaps it is because so many people bury their heads in the sand when it comes to grim scenarios necessitating an advance directive that feel unlikely to occur. Maybe it’s just that we all are so busy with the day-to-day business of our everyday lives that we do not want to take a minute plan for an emergency; but whether you’re a teenager heading off to college, a thirty-something parent, a baby boomer early in your retiree life or a ninety-year-old who visits the doctor more regularly, advance directives are a must.

For so many people who have completed advance planning documents, they have done so because a hospital administrator handed them one in advance of surgery and asked them to fill it out. Arguably, these surgery patients are at the same disadvantage as those who print out advanced health care planning documents online (where many states offer a state form for free!): these documents are frequently written in “legalese,” and even the most intelligent people may inadvertently complete them incorrectly. To impress upon you the importance of completing these documents with the guidance of your estate attorney, some of the most significant aspects of these documents are outlined as follows:

  • Who will be your healthcare proxy/agent?

This selection of the person to oversee your health care in the event you cannot make health care decisions for yourself is arguably the most important decision in your advanced health care planning documents. Your agent is the ultimate decision-maker (and may even make decisions that supersede your expressed health care preferences). Typically, you can name an initial agent and as many successors as you would like. The following are a few considerations for choosing your healthcare agents:

  • Select someone who you fully trust to honor your wishes for your health care.
  • If you are considering naming several people to serve jointly in this role (e.g., your adult children), think long and hard about whether this is a good idea or whether this decision is likely to cause friction and place your health care in a state of limbo in the event of a disagreement among your agents.
  • If you are deciding between a few people, with all other factors being equal, choose the candidate who lives or works closer to you. It is not a dealbreaker if your best candidate lives across the country, but many people prefer to name someone who is local and who may arrive at the hospital without boarding a plane.
  • Consider whether your agent stands to receive a significant inheritance from you if he/she removes you from life support. In many cases, the answer to this question is “yes,” as people commonly name their spouses and children to serve in this role; but, if the answer is yes and that thought has you scared that your agent will want to kill you off because you have a papercut, then please don’t name that person.
  • Do you want to permit an autopsy on your body when you pass?
    • Sometimes, autopsies are required by law. If an autopsy is not required when you pass, do you want to allow your agent to have one done on your body when you pass? You would not be mandating an autopsy; rather, you would simply be granting permission to have one done.
  • Do you want to permit organ donation when you pass?
    • Before you joke, “Who would want my organs,” a small reminder that permitting organ donation is not equivalent to mandating organ donation. If you permit organ donation, then you are simply empowering your agent to decide about donating your organs in the future.
  • How should your body be disposed of when you pass?
    • Burial? Cremation? Body Composting? Donation to Science? We have so many options when it comes to this part of post-mortem planning. I once had a client who typed a ten-page, ten-point font, single-spaced document detailing the company to perform her creation and details for her memorial service (venue, caterer, menu, music playlist, speakers, etc.) This does not have to be you but be sure to let your family know what you would like them to do with your body and how you would like to be remembered.
  • In the event of a situation in which you are terminal and/or permanently vegetative, what are your treatment preferences? The main choices are summarized as follows:
    • ‘Do everything possible to keep me alive’
    • ‘Let me go, but keep me comfortable’ (the “pull-the-plug” option)
    • ‘Let me go, with certain exceptions’ (e.g., nutrition and/or fluids by tube, ventilator, or CPR, as necessary)
  • Who should be your guardian in the event you need one?

People often think of guardians in terms of who should care for their minor children in the event they pass away, but you may need a guardian if a court finds that you are not able to make decisions for your care, safety, support, or welfare. Your advance directives enable you to nominate someone to serve in this role should such a decision come to pass.

  • Other Input

If you have other wishes that are not addressed within a legal form, express those in an “additional information” section or attach an addendum. Perhaps you want your agent to consult with a member of the clergy of your church, synagogue, mosque, or other religious institution. Perhaps you have certain allergies that your agent should be aware of. Maybe you want to emphasize that certain individuals should never be involved in decisions relating to your health care. Whatever it is…say it! This is your document!

A qualified estate planning attorney can boil the language of advanced health care documents down to simple decisions and help you to select the choices which most accurately represent your preferences. It is not only important for your peace of mind to know that your preferences are legally documented, but making your wishes known is a gift you give to your family. It lets them know that their actions on your behalf are in line with your wishes. That it is okay to keep you alive or let you go. That they do not have to live with guilt, wondering if they are acting as you would want.

You might think you are too young, too healthy, or too busy to complete your advanced healthcare planning now, but it is only a matter of years, months, weeks, days, or even minutes until that mind frame makes it too late to complete your advanced planning.

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If you have any questions or would like to discuss this further, please reach out to your client service team, call us at 404.264.1400, or visit us on the web at HomrichBerg.com. We also have a short video you can watch, click here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of the date above unless otherwise disclosed. The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product, or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Contingency Planning For Business Owners

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Successfully transitioning a family business requires time and energy above and beyond what is already required to run a business. A successful family business transition should ensure that both the business and the family prosper, and to achieve a successful transition a business owner must have a transition plan in place. In fact, a business owner generally needs two plans: a long-term strategic plan and a contingency plan. A strategic plan may involve planning for family succession or for the sale of the business and seeks to maximize the value of the business taking into account the owner’s liquidity needs and the family’s legacy goals.

A contingency plan is typically incorporated into a business owner’s overall estate plan to minimize potential issues that may result if the business owner dies or becomes incapacitated before the strategic transition plan can be fully implemented. Most of us don’t want to think about contingency planning because it is planning for something that we hope doesn’t happen, but having a contingency plan in place can be critical for preserving the value of the business and maintaining family harmony when the unexpected happens. Below are some considerations for family business owners regarding putting a contingency plan in place.

Determine Control of the Business

For contingency planning, it is often best to leave a family business in trust. A trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another person. This allows a business owner to separate the legal ownership and control of the business from the beneficial enjoyment of the income and proceeds from the business. In addition, because a trust holding an operating business can be more challenging to administer than a trust holding liquid securities, it is common to have a separate “business trust” just for the business with trustees that can provide appropriate oversight.

Leaving the business in trust can provide stability for the family and employees. If the owner’s children are not involved in or lack the skill to run the business, then having the business in trust allows the owner to appoint trustees with an understanding of the business. This may be a key employee or a trusted advisor such as the company’s attorney or CPA. If one or more of the owner’s children are involved in the business, then having the business in trust allows the owner to appoint one or more independent trustees to help resolve any family disputes that may arise regarding the business. A “board of trustees” may include the children along with key employees and trusted advisors.

Decide How to Divide the Business

A closely held business often makes up a large portion of the owner’s total net worth, but the business owner may want to leave the business only to certain children based on their involvement in the business. It is not necessary that one’s estate be divided equally among their children and “equal” isn’t always “fair.” If one child has taken charge of the business and grown it significantly, then that child may deserve a larger share of the business than the other children who have not contributed. However, a business owner can structure the business so that the children receive equal shares while ensuring that the child that was heavily involved has control over the business.

Similar to how a trust can be used to separate ownership from beneficial interest, a business can be structured so that only a small percentage of the ownership has voting rights. Restructuring the business to have voting and non-voting ownership interest allows the business owner to leave the business equally to the children but give the voting interest only to the child involved in the business. If the business owner decides to leave the business in trust, then it may not be necessary to have voting and non-voting ownership interests, but being able to structure the business this way is another option to preserve the value of the business and maintain family harmony.

Assess Liquidity Needs

A valuation is critical for business transition planning. A valuation expert can help a business owner understand not only what the business is worth, but also what options are available for transitioning the business. Some businesses are very marketable and the most benefit for the family may come from an immediate sale. Other businesses may have strong cash flow but no apparent buyer, in which case keeping the business and fostering family participation may be the best option.

A valuation is also important in identifying estate tax and liquidity issues. Individuals are allowed to give away a certain amount of assets during life or at death without those assets being subject to the federal estate and gift tax. The lifetime exemption in 2023 is approximately $12.9M ($25.8M for a couple) but is scheduled to essentially be cut in half at the end of 2025 under current law. If a business is likely to be held rather than immediately sold, then the estate may need liquidity to pay estate tax.

Life insurance can be an easy and effective way to provide liquidity, but it is not always an option due to cost and insurability. A loan is another option for liquidity, but this again may not be a good option depending on the credit environment and the business’s cashflow needs. There may not be an easy solution to a liquidity issue, but addressing the issue as part of a contingency plan can help to minimize any potential problems.

Implement the Contingency Plan

Once a business owner has determined who should control the business and how the beneficial interest in the business should be divided and held, having an attorney draft the necessary documents is a straightforward process. However, finalizing a contingency plan is emotionally challenging. A business owner is signing off on a plan that they hope will never be implemented. It is important to acknowledge that a contingency plan is not what anyone wants but is the best plan to preserve the value of the business and maintain family harmony based on current information. If there is ever a time when perfection should not stand in the way of progress it is contingency planning. If you have any questions or would like to discuss your contingency plan further, please reach out to your client service team, or call 404.264.1400.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without HB Wealth’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by HB Wealth or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither HB Wealth, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

Summer Fun

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Summer is that great time of year when you get to plan outdoor activities, enjoy lazy days by the pool, and spend day after day with your children by your side – all – day – long.  Gone is the quiet, empty house during those school hours. Now, you have energetic, enthusiastic, rambunctious children looking for something to do! Somewhere to go! Making plans! Spending your money! Yep, they can hear an ice cream truck a mile away; they feel the pull of the mall from across the county; they want to go to the beach. Even in homes with two working parents, the lure of summer activities calls when kids are out from under the routine of school, sports, and homework.

Before you get too despondent, think about the prime opportunity that you have to teach your kids about choices, limits, and priorities. Here are some ways to turn summer energy into money lessons learned:

  • Give them a “treat” budget for the week – cash on the barrel head on Monday but they get nothing else from you. If your daughter buys $20 in ice cream day one, so be it. She will need to realize that she no longer has money to buy treats for the rest of the week like the other kids. It’s hard as a parent to make your kids face the consequences of their decisions but that is how they learn. Don’t make it seem like a punishment or “see I told you so.” Just be nonchalant and nonjudgmental – her money was already enjoyed. Do ask what she might do differently next week so that she sees the power of having a plan to improve on a prior mistake.
    • The benefit to you is that you don’t have to make 50 treat decisions every week – you make one treat decision for the summer and that is “how much do they each get per week?” You can certainly let them know that if they don’t spend it on treats, they can save it. It’s their money but you have to be on board with that. This works fantastically while on vacation or visiting an amusement park.
  • Give them an activities budget for the month – there are only so many activities that a family can afford in the summer so set your budget and then have a family discussion about alternatives. Give everyone a couple of days’ notice and tell them to come to the meeting with their ideas and proposals. They have to know how much their idea will cost, how long it will take, and other relevant details. This is great on so many levels!
    • They do the work of researching options; they see first-hand the costs involved, and they get the experience of selling their ideas to the family. It is also great for prioritizing and making trade-offs: is it better to do one great, but expensive, activity or lots of small less expensive ones? These are decisions that people have to make every day so it’s great to give them some practice.
  • Get them involved with grocery shopping and couponing – have them go through papers to clip coupons for the foods they like and products that they use. Now at the store, let them compare the name brand with the coupon savings to the no-name product. Which is the better deal? How much does the family spend on groceries? Make it a game to try to reduce what was spent last week. How much is buying salad fixings versus buying the premade version? How does that compare to eating out? Perhaps you let them help create grocery savings which can then go toward the activities budget.
  • Let them help with the vacation planning – this is a fabulous way to set priorities and compare the cost of things like different hotels, Airbnb’s, or other vacation spots. Why is it more expensive to stay close to the park rather than 20 miles away? Do you want a bigger house or rent the smaller one and use some of those funds to put toward activities?
    • Do you have an eating out budget while on vacation? Let them help consider the options (no, they can’t recommend pizza every night – you still get to set the ground rules!)
    • Do you have a souvenir budget? Everybody gets $X for the trip or for younger ones, perhaps $X per day. That really does help you with decision fatigue if you set the boundaries right up front.

Kids are naturally interested in money but often we don’t let them participate in the decision-making aspect of spending. They ask (for everything), and we are worn down by having to make decision after decision about the spending. Look for opportunities to give them the budget amount, and they can decide how it gets spent. The key thing, though, is that they have to live with their decisions. If you keep the time frame short (a few days or a week), they can see the light at the end of the bad decision tunnel. The next time, they will be more thoughtful and aware of the impact of blowing through their money too quickly. Obviously, all of this has to be age-appropriate but even a kindergarten child can understand spending all of his or her money versus holding on to some for next time.

As kids get older, you can transition this into the new clothes spending and other aspects of their discretionary spending. Look for opportunities to bring up and plan for “saving for” that something that they want to have or do. Maybe there is a new video game coming out; can you have a money jar where they can start building up their cash for it? Do you pay for “above and beyond” work around the house?

There are many ways to let kids interact with money. As parents, you need to decide what habits you want to instill in them when “new” money comes in. Are they required to give a portion to charity? Do they need to save part of their money? Forming a pattern of “this is how it’s done” will help them develop habits to last a lifetime. If they never have to save money, they never learn to save. If they never have to make choices between this and that, they will never learn how to prioritize and make difficult financial choices.

Even if you have the means to provide what they want, it is important for them to learn the lessons of scarcity, prioritizing, saving, and making trade-offs. At some point, you want them to be financially independent and to do that well, they need some good basic habits. They need to make some mistakes with money, have some disappointments, and learn some lessons. The school of “hard knocks” is the best teacher. As parents, we don’t want our kids to have to really experience hard knocks so maybe we can create a few “softer knocks” that lets them learn without the pain being too great.

This summer, pick one or two things that might fit for your family and turn the kids loose to learn a few money lessons. They might surprise you, and you’ll probably find it’s a bit easier on you when you can fall back on the budget rather than having to think about it every time they ask for something.

Enjoy your summer!

To learn more or get help with money lessons for your kids, please email me at gildea@homrichberg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Graduating To…

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For many, May is the season of graduations. It’s so busy, so exciting and sad and involved. There are activities and tasks and parties. There are pictures and gowns and diplomas. It is a whirlwind of action, and everybody talks about “graduating from” – from high school, from college, from grad school. It’s funny that we don’t talk about what people are graduating “to” – to the next level in school, to a job, to “real life.” It’s there in the background, but at graduation time, we are looking backward and not forward.

So, what is your graduate (or you) graduating to this year? Is he or she graduating to a new level of responsibility with his or her money? Is he or she graduating from being dependent to being independent financially? Are you looking to graduate to new levels of accountability to your own goals and dreams now that your child is on to the next level? It’s helpful to take this time of the year and see how you can be very mindful as you help your kids graduate to a new financial level.

For grade school kids, perhaps you set up a weekly allowance and tell them that’s all they get – treats, activities, things that they want must all come from that one pot. It will be interesting to see how each child manages their pot of money. The older they are, the more they can be responsible for and the longer the time between “pay days.” Can you add some “big jobs” with bigger “pay” so that they can see how work above and beyond the norm can pay off? Do you dock the pay for shoddy work to help them learn the value of a job well done? Do you want to establish some rules for giving and saving before spending so that they get a taste of real life?

For middle school kids, perhaps they need to earn their pot of money – bigger jobs equal bigger pay. Initiative and creativity result in bigger payouts. This is a time when kids can be babysitters, pet sitters, or provide some basic yard work around the neighborhood. What is the rule about giving, saving, and spending when they earn their own money? Do they need to start putting some dollars away for activities in high school or college? Can they oversee their clothing budget for the coming school year?

For high school kids, it may be an opportunity for a job. For anyone under 16, those jobs need to be local but for those over 16, hit the fast-food places and find a way to make some money. What have you discussed about saving some of those earnings for college? Now is the time to set expectations. It can be difficult if kids have very involved activities like sports or music that take a lot of time so employers who are used to working around sports practices may be the way to go.

As you plan a vacation this summer, can you involve the kids in allocating the budget? This is a great way to discuss the fact that the vacation fund is not infinite, choices and tradeoffs must be made, and each person’s wishes should be considered. It is great to let the kids see and discuss the differences in cost and quality between a “Ritz” experience and a “Super 8” experience. Even if you can afford the Ritz, it may be interesting to see if the kids would choose a Marriott experience and use the excess funds for something else. You can use this same approach with camps and other activities. Discussing limits and money choices will help them in the future when they must make such decisions on their own.

You can also use this time to help them track their spending, monitor how the family is doing with the vacation budget, and see how quickly smaller costs (gas, snacks, and meals) add up! It never seems like you have spent much when it is a few bucks at a time, but we do a lot of “small buck” spending.

Regardless of how they respond, how thoughtful they are or not, this is a time to allow for mistakes and missteps. This is a time to let go of judgments and what you think is the best way to handle it, and let your kids try, and do, and fail, and figure things out. We want them to make the mistakes with $5 before they start dealing with $500. We want the natural consequences to play out, so they see that sometimes we make a choice we regret, and the best thing to do is learn so that you don’t do it next time. As a parent, I was too quick to “save” my kids from their errors and smooth over the regrets, and I think that was a mistake. The school of hard knocks is an excellent teacher, and right now, the “knocks” are not as painful as they will be down the road!

We want to help them see how great saving can be because you don’t know what fun and interesting opportunities are around the corner so tucking away some money is a smart thing to do. Perhaps in the vacation planning, you can “set aside” funds to account for an emergency or for an unexpected adventure that you didn’t plan for. This helps them learn that you can’t plan for everything, but you can prepare for the unexpected.

For college kids, now is the time to talk about managing money, having a spending plan, and setting up a savings strategy. If the student is working or interning, lessons about saving a percentage of every paycheck are very important.

Certainly, you want them to start getting in tune with how much “bills” cost – cell phone, car insurance, health insurance, etc. These not-very-fun purchases will soon be part of their everyday lives – are they getting ready? Are you setting the expectation and timeline for those bills to come their way after graduation? Do they have a checking and savings account and understand the difference? Can they monitor their balance, plan out for expenses between now and the next paycheck? Allocate money to savings and learn the discipline to say “no” to pulling it out of savings on a whim? These are important skills for the financially independent.

And for the parents, are you planning, saving for it, and taking baby steps to reach whatever you want to graduate to? Part of the reward for getting your kids to independence is the freedom (and extra money) available to move you to your own dreams. It is so easy to get caught up in the kids that we lose sight of our own aspirations and desires. Perhaps in this season, you can dust them off and get excited about them again.

Amid all the excitement about graduating from, take a little time to focus your kids on what they are graduating to in the coming months. Summer is a slower time for most so seize this time and start focusing them on graduating to good money habits.

If you or your graduate are interested in going deeper, join me for a free webinar on June 14th from 12:00 p.m. – 1:00 p.m. ET – Starting Your Financial Journey on the Right Foot. You can CLICK HERE to register. If you’d like to participate but have a conflict, register anyway as all registrants will receive the recording and the resources after the event. Here’s to graduating to the next adventure!

To learn more or get help with good money habits to share with your kids, please email me at gildea@homrichberg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Annual Returns Are Almost Never Average; Volatility Is A Normal Part Of Investing

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Going back over the last 50 years, the average return of the S&P 500 has been about 10%. However, the annual total return has only fallen inside of a range of +/- 2% of the average (8-12%) three times. When looking at bonds, which are typically thought of as a more reliable return stream, annual returns only came within the +/-2% range of the average 12 times. There were a handful of times when both came close to the annual averages in the same year, but there was only one year when stocks and bonds were both in the +/-2% range.

Scatter plot showing 50-year annual stock and bond returns. The x-axis represents stock returns from -40% to 40%, and the y-axis shows bond returns from -20% to 30%. Red dots indicate year data points, centered around a highlighted area.

Source: FactSet as of 12-31-22. Past performance is not indicative of future results.

As the Fed continues to battle inflation aggressively and the full impact of the rate hikes is still working through the economy, we believe it is important for investors to remember that there will always be bumps along the road of investing. This applies to bull and bear markets and whether we are in a recession or in an expansion. The market is always looking ahead, and it is natural that the market will therefore have more volatility because daily, weekly, and monthly up and down moves are tied to whether economic or market data met or did not meet investors’ expectations at a certain point in time. The markets are rarely a reflection of what is happening today but are more often a reflection of what investors believe about tomorrow, next month, next quarter, and even next year. We believe the best path along that road is to create and follow a financial plan that can allow investors to keep perspective during those inevitable bumps, and to take advantage of opportunities as they present themselves over time.

One of the most important factors leading to achieving long-term returns is time in the market. An investor must be invested for the long term to achieve long-term results – that seems obvious, but it is a key lesson that many investors forget as they try to time the market to only experience the good years! As shown in the prior chart, investors rarely achieve the average returns in any given year. The chart below illustrates that the market is much more volatile when looking at shorter time periods (red dots represent intra-year declines and gray bars are full year returns). Even in the short term, market corrections and negative periods do not always equal negative years for the U.S. stock market by the time the year is over.

Chart showing S&P 500 intra-year declines vs. calendar year returns from 1980 to 2022. Bars represent annual returns, dots indicate maximum drawdowns within each year. Overall trend displays several declines amidst annual gains.

Source: FactSet as of 11-4-22. Past performance is not indicative of future results.

Trying to successfully time the market means investors must make two correct decisions: when to get out of the market and when to get back in, or vice versa. It is often “easier” to get out than it is to get back in, as markets tend to start recovering long before economic or psychological conditions make investors comfortable getting back into the market. History tells us that missing out on the market’s best days has been shown to reduce performance over time.

Although returns are never guaranteed, history indicates that by staying invested longer investors can receive better returns. In looking at 1-year, 5-year, 10-year, and 20-year S&P 500 historical rolling returns, the market teaches us that anything can happen in one year (there are more red bars in the first row), but as we extend our investment horizon from the short term to the longer term, the odds of better outcomes and positive returns are increased over time as shown in the 10-year and 20-year rolling periods.

Bar chart displaying annual stock returns over 1, 5, 10, and 20-year periods. Positive returns are shown in green, and negative returns in red. The bars fluctuate with varying heights, indicating the volatility and trends over the different time frames.

Source: FactSet as of 12-31-22. Past performance is not indicative of future results.

Overall, we believe time in the market is more important than timing the market, and we believe that building a portfolio strategy that helps you stay invested is key to achieving success. Building good habits and creating a financial plan that sets boundaries to remove some of our natural emotional responses that may derail our best intentions is crucial for investors’ long-term performance.

If you have any questions or would like to discuss further, please reach out to your client service team or call 404.264.1400.    

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

The information reflects Homrich Berg’s views, opinions, and analyses as of April 30, 2023. Past performance is not a guarantee or indicator of future results. Inherent in any investment is the potential for loss. This commentary is for informational purposes only and should not be considered legal, tax, accounting, or investment advice. Views and opinions expressed herein are as of the date posted unless indicated otherwise, with no obligation to update. Certain information herein has been obtained from third party sources believed to be reliable but has not been independently verified. Discussions pertaining to potential future events and their impact on the markets are based on current expectations and analysis. Actual results may vary.

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