The most recent Consumer Price Index (CPI) data shows that inflation continues to persist near recent highs. The trend makes it likely that the Federal Reserve will raise interest rates again in November.
The two questions I’ve been getting are:
- Does that mean a recession is inevitable?
- Are we past the bottom or are markets going to fall further?
We won’t know for sure how things will play out until current events are in the rearview. By that time, the markets will have already recovered from their lows.
However, the uncertainty won’t stop the media from churning out scary headlines and flawed predictions. Instead of speculating about what the future brings, here are some lessons and guidelines we can follow
5 Lessons About Markets
- Markets can keep falling for a lot longer than we’d like.
- Market bottoms don’t come with an all-clear signal, and missing the best days of the market can shockingly damage your long-term growth.
- Don’t panic and make sudden decisions. One bad decision can destroy years of good ones.
- Stocks historically deliver strong growth over time. But you only benefit from it if you can withstand the painful periods that come with the territory.
- You can’t avoid all risks. You can identify them, manage them and focus on what’s in your control.
Here’s the bottom line: Reaping the rewards of long-term investing means taking the good times along with the bad.
The end of a bear market looks an awful lot like the middle, and investors who panic, sell and miss the ride back up regret it.
That’s because the best days and worst market days tend to cluster. Sit the bear market out, and you’re likely to miss out on the whole play.
All the news about inflation is not bad. Social Security benefits will increase by 8.7% in 2023. On a percentage basis it’s the largest increase in 41 years. One planning aspect of the increase in Social Security benefits is its impact on other things, mainly taxes. It will be important to analyze whether the increased benefits will bump you up into a higher tax bracket.
Speaking of higher tax brackets, this week the IRS announced the updated “inflation adjusted” tax brackets for 2023. They are up about 7% from the 2022 brackets.
Marginal Tax Brackets for Tax Year 2023, Single Individuals
|Taxable Income||Taxes Owed|
|$11,000 or less||10% of the taxable income|
|$11,001 to $44,725||$1,100 plus 12% of amount over $11,000|
|$44,726 to $95,375||$5,147 plus 22% of amount over $44,725|
|$95,376 to $182,100||$16,290 plus 24% of amount over $95,375|
|$182,101 to $231,250||$37,104 plus 32% of amount over $182,100|
|$231,251 to $578,125||$52,832 plus 35% of amount over $231,250|
|$578,126 or more||$174,238.25 plus 37% of amount over $578,125|
Marginal Tax Brackets for Tax Year 2023, Married Filing Jointly
|Taxable Income||Taxes Owed|
|$22,000 or less||10% of the taxable income|
|$22,001 to $89,450||$2,200 plus 12% of amount over $22,000|
|$89,451 to $190,750||$10,294 plus 22% of amount over $89,450|
|$190,751 to $364,200||$32,580 plus 24% of amount over $190,750|
|$364,201 to $462,500||$74,208 plus 32% of amount over $364,200|
|$462,501 to $693,750||$105,664 plus 35% of amount over $462,500|
|$693,751 or more||$186,601.50 plus 37% of amount over $693,750|
The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
Another benefit of high inflation and rising interest rates is that fixed income investments are becoming more investable. Recently, fixed income investments have been used in a portfolio for the hedge they provide (usually) against falling stock prices and not necessarily for large interest yields. Now some fixed income yields are getting to the place where they can help a portfolio generate income. Fixed Income is becoming investable for yields. The T-Bill yield at 4%+ is an example.
I know that, with everything going on in the markets, it’s easy to feel overwhelmed. Our team of financial advisors are here to answer your questions and provide you with the support you seek. You’re welcome to schedule a complimentary consultation if you’d like to speak further.