Bob’s Journal for 4/10

Financial Moves That Ease the Pain of Market Declines

A sharp, sudden market decline can create financial opportunities for alert investors.

Market declines can present opportunities for those who put emotions aside, ignore the headlines, and consider which long-term actions might be best for them. One strategy to consider is to convert a traditional IRA to a Roth IRA.

You include the converted amount in gross income as though it were distributed to you. You pay income taxes today instead of years from now.

In return, the income and gains compound tax free within the Roth IRA. Both the income and principal are tax free when distributed to you, after a five-year waiting period. They also are tax free when distributed to any heirs who inherit the Roth IRA.

You don’t have to sell assets to do a conversion. In most cases, you can direct the traditional IRA custodian to transfer shares of stocks or funds to a Roth IRA. The value of the assets on the day of the transfer will be the amount included in your gross income.

The benefit of a market decline is that you can convert more shares of an investment for the same tax cost as before the decline. Or you can convert the same number of shares for a lower tax cost.

Suppose you had 100 shares of an ETF that sold for $10 per share a couple of months ago. If you had converted them, you would have included $1,000 in gross income. Today, you can convert them and include only $800 in gross income.

That’s an opportunity to make a conversion at a 20% discount. Plus, when the shares recover, all that appreciation from the recovery will be tax free, as will any future appreciation.

In taxable accounts, a market decline is a good time to consider tax-loss harvesting.

Look for investments that now have paper losses. If you sell them, the losses can be deducted against any capital gains you’ll have this year, or up to $3,000 can be deducted against other income.

Any capital losses you don’t deduct this year can be carried forward to future years to be deducted in the same way.

Of course, any significant change in asset prices, either up or down, is a good time to consider rebalancing your portfolio.

At one point, an asset allocation was established for your portfolio. The allocation had an appropriate risk level for you.

Changes in asset prices change the asset allocation. That also changes your risk level and potential future returns.

When stock prices rise, you have a greater allocation to stocks than intended. And when stocks decline, you have a lower allocation to stocks.

After a market decline, consider whether stocks now are too small a portion of your portfolio. You might want to sell other assets or use cash to increase the stock allocation.

In these days of no-commission trading, rebalancing assets in a tax-deferred account doesn’t cost anything.

In a taxable account, you might owe taxes if you sell appreciated assets (such as gold) to buy more stocks. Determine if the tax cost is worth restoring the original allocation of the portfolio.

Most investors, instead of watching headlines or listening to talking heads on television, should consider these moves.

Medicare Advantage Plans Receive Some Breaks for 2026

Last year, I was documenting actions the previous administration was taking to make Medicare Advantage plans less attractive.

The Centers for Medicare and Medicaid Services (CMS) set reimbursement rates for Medicare Advantage plans lower than expected and took other actions that made the plans less profitable than the insurers offering them expected and, in some cases, made them unprofitable.

The result was that fewer Medicare Advantage plans were available for 2025. Many of the plans that are available had fewer benefits and higher costs for beneficiaries than in 2024.

Advantage plan sponsors have been expecting another tough year, especially after CMS initially proposed another low increase in reimbursements for 2026.

But this week, CMS said it would increase the 2026 reimbursement by 5.06% instead of the 2.23% initially proposed. The change means an additional $25 billion in payments for insurers sponsoring Medicare Advantage plans.

CMS said the higher reimbursement rate is based on recent data and reflects rising medical costs.

In another move, last week, CMS announced it was withdrawing a proposal by the previous administration to increase the coverage for obesity drugs. The drugs will be covered only in certain circumstances.

But the current administration will continue a policy change that ends billing practices Medicare Advantage plans have used to increase their payments from CMS. The change is phased in over three years and is expected to be fully implemented in 2026.

The result of these actions is Medicare Advantage plans might not change as much from 2025 to 2026 as they did from 2024 to 2025. Insurers might not have to drastically reduce the number of plans, increase beneficiary costs, and trim benefits.

We won’t know for sure until 2026 plan details are announced just before this fall’s Open Enrollment period. For now, 2026 looks more promising for Advantage plan members than they did a few months ago.

Trouble Mounts in China’s Economy

China now appears to be in a full-scale trade war with the United States. That could worsen economic problems that already were developing.

One trend that hasn’t received enough attention outside China is that the country’s tax revenue has been declining.

Tax revenue declined 3.4% in 2024, the biggest annual tax revenue decline for China that we’re aware of, according to recent reports.

Another way to look at it is that overall revenue for the national and local governments was 29% of national output in 2018 but is expected to be only 21% in 2025, according to Fitch Ratings.

Other data indicate that the government’s budget deficit will be about 9% of spending in 2025, compared to 3.2% in 2018.

China has many plans that depend on heavy spending by the national government. Those plans could be hampered if tax revenue stagnates or declines, and the government isn’t able to borrow the difference.

The Data

The Small Business Optimism Index from the National Federation of Independent Business (NFIB) declined in March for the fourth consecutive month to 97.4. The index was 100.7 in February. It hit a recent peak of 105.1 in December, the highest level since October 2018.

Consumer credit outstanding fell 0.2% in February, following a 2.1% increase in January. Nonrevolving credit (mostly vehicle and student loans) declined 0.3%. Revolving credit (mostly credit cards) increased 0.1% in February.

February’s decline in consumer credit was only the second decline in the last 12 months and the third since August 2023.

The PMI Services Index for March rose to 54.4, from 51.6 at the end of February and 54.3 in mid-March.

The PMI Composite Index was 53.5 at the end of March, the same as in mid-March and an increase from 51.6 at the end of February.

The ISM Services Index fell to 50.8 in March, the lowest level since June, from 53.5 in February.

There were 228,000 new jobs created in March, a big increase from the 117,000 jobs created in February.

The labor market participation rate increased, so the unemployment rate rose to 4.2% in March from 4.1% in February, despite the increase in the number of jobs.

Average hourly earnings increased 0.3% in March after rising 0.2% in February. The 12-month increase in average hourly earnings was 3.8% through March and 4.0% through February.

New unemployment claims fell by 6,000 to 219,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.903 million from 1.847 million.

The Markets

The S&P 500 lost 11.50% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 10.27%. The Russell 2000 dropped 12.38%. The All-Country World Index (excluding U.S. stocks) declined 11.07%. Emerging market equities decreased 12.14%.

Long-term treasuries lost 3.43% for the week. Investment-grade bonds fell 3.08%. Treasury Inflation-Protected Securities (TIPS) dropped 1.31%. High-yield bonds declined 3.74%.

On the currency front, the U.S. dollar declined 1.12%.

Energy-based commodities dropped 11.33%. Broader-based commodities lost 10.23%. Gold declined 4.33%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com, and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.