The Big Wealth Transfer – October Monthly Insight

Posted By T. Lee Sherbakoff, CPA/PFS, CFP® on Oct 1, 2021


“The legacy of heroes is the memory of a great name and the inheritance of a great example.

—Benjamin Disraeli, British statesman and who twice served as Prime Minister of the United Kingdom

We hope everyone had a wonderful summer and are looking forward to cooler temperatures.

The momentum generated by a growing U.S. and global economy is likely to carry over into next year.  While a 2022 recession can’t be ruled out, leading indicators suggest the odds are low.  However, all eyes are on the logistical tail wagging the dog.  That said, unexpected market events can create short-term emotional responses, which are best avoided by long-term investors.

This year’s lack of volatility through September is simply remarkable.  The average intra-year pullback for the S&P 500 since 1980 has been 14.3%.  In other words, sometime during a calendar year, the market will drop on average approximately 14% from its high in that year.  Yet, since 1980, the S&P 500 has finished higher 31 out of 41 years.  As of September 30, 2021, the market was only – 5.1% from its 54th all-time high set this year on September 2. 

We will always believe no one can consistently time the peaks and valleys of the market. However, when there’s too much good news priced into stocks, any disappointment can create volatility. 

We’ve always found it interesting that some analysts hope to discern trends from various calendar-like indicators. We enter a new year, and typically the so-called January barometer gets some play.  Loosely defined, some say that how January performs sets the tone for the rest of the year.  “Sell in May and go away” is an investment strategy for stocks based on a theory that the period from November to April has significantly stronger stock market growth on average than the other months.  On a historical note, the stock market has performed poorest during the month of September.  The “Stock Trader’s Almanac” reports that, on average, September is the month when the stock market’s three leading indexes usually perform the poorest. Some have dubbed this annual drop-off as the “September Effect.”

We know that stocks can be unpredictable over a shorter period, and sell-offs are normal.  And they aren’t pleasant.  But we take precautions to minimize volatility and, more importantly, keep you on track toward your long-term financial goals.

During up markets and down markets, we like to stress the importance of your investment plan and the progress we’re making toward your financial goals.  Stocks will hit small bumps in the road, and occasionally hit a major pothole, but the long-term data highlight that stocks have easily outperformed bonds, T-bills, CDs, and inflation. 

Thinking about estate planning

According to the Wall Street Journal, at the end of this year’s first quarter, Americans age 70 and above had a net worth of $35 trillion.  This equates to 27% of all the wealth in the United States, up from 20% three decades ago, and is 157% of the US domestic product.  This is about double the inflation-adjusted wealth that the group had 30 years ago.  And, since the end of the first quarter, the S&P 500 has gained nearly another 10%.

It is estimated that, between 2018 and 2042, this generation will give out over $70 trillion dollars.  This generation will bequeath $61 trillion to heirs and the younger generations and the remainder, approximately $10 trillion, will go to philanthropy.  This will be the largest, most compressed wealth transfer in history.

This shows the economic power of the baby boomers.  They are giving this wealth up to the younger generations to buy homes and start businesses.  These persons inheriting money will also take more risks than the older generations by investing in more risky investments such as the stock market and crypto currencies.  We believe it’s important for both the boomer and their heirs to get solid, dependable financial planning advice around estate planning — or they risk getting something terribly wrong.