March, 2022




Another Volatile Week

The uncertainty introduced from Russia’s invasion continued to whipsaw the financial markets last week. Intensifying hostilities early in the week sent stocks sharply lower as oil prices surged and a flight to safety drove investors to buy bonds.


Stocks rebounded mid-week following the release of positive economic data and Congressional testimony by Fed Chair Jerome Powell, who said the Fed is likely to move forward on rate hikes, but would proceed cautiously. Investor enthusiasm was short-lived, however, as stocks resumed their decline on Thursday into Friday despite a strong employment report.


Powell Testifies 

Fed Chair Powell told Congress on Wednesday that he would propose a 25 basis point increase in the federal funds rate when the Federal Open Market Committee meets in mid-March. He conceded that the invasion of Ukraine and the economic sanctions against Russia introduced a level of uncertainty and that the Fed would proceed carefully with monetary tightening.


Powell also testified that he would not have the Fed’s strategy to shrink its balance sheet finalized before the mid-March meeting. Alluding to the urgency of fighting inflation, Powell left the door open to more aggressive rate hikes later in the year.1


Russian Attack Brings Long-sought European Unity 

There is no shortage of tragic events unfolding in Ukraine — from the loss of life to the shattering of international peace accords to the economic damage suffered on all sides of the conflict. But if there is a silver lining to this catastrophe, it may be found among the growing chorus of nations joining to oppose Vladimir Putin’s military aggression.

Russia’s invasion of Ukraine has managed to do in one week what many observers of Europe have agonized over for decades: It has singularly united the European Union. Along with the United States and NATO, Western democracies haven’t been this closely aligned in purpose since the aftermath of the September 11 terrorist attacks.

The most profound shift happened over the weekend with new German Chancellor Olaf Scholz signaling radical changes in nearly every sacred pillar of German foreign policy. Among other extraordinary measures, Scholz announced a one-time increase of €100 billion in defense spending and committed to allocate more than 2% of Germany’s gross domestic product to annual defense spending.

Other European nations have signaled their resolve in various ways, including shipping weapons to Ukraine, accepting Ukrainian refugees and looking for alternatives to Russian oil and gas supplies. Russia is a major trading partner for Europe, and it remains to be seen whether the continent can forego key Russian commodities given there are no easy substitutes.

Will this new-found European unity persevere once the Russian threat has passed? I believe it will. It must endure if the EU expects to thrive in a brave new world that has shifted from 30 years of relative peace and cooperation to populist politics, heightened trade tensions and outright military conflict.

Geopolitics has returned as a major driver of world events. Political leaders and investors alike have no choice but to confront that reality. 2


Invasion Implications

Setting aside the more important aspects of the human cost and damage to world order, Russia’s invasion of Ukraine introduced an acute layer of uncertainty into many layers of the financial markets. The immediate repercussion was the impact on global economic recovery due to rising energy prices, which reduce consumers’ discretionary spending and saddle businesses with higher costs.

The inflationary impact of higher energy and other prices, along with the prospect of decelerating economic growth, also complicates the Fed’s strategy to guide interest rates higher. Already, the probability of a 50 basis point interest rate hike at the Fed’s March 2022 meeting seems less likely than it was just a couple of weeks ago. Finally, Russia’s actions have raised new concerns over second-order effects that could further unsettle markets, such as a new round of supply-chain disruptions.


Intra-year Declines

While the current market crisis is ever changing, to keep things in perspective, we must remember that the recent market volatility is not at all unusual. In fact, we have had a lack of downside volatility (with the exception of the flash crash caused by news of the pandemic) and the recent drawdown of the market was simply a return to average intra-year volatility.

Over the last 40+ years the market ends the year in positive territory 75% of the time (3 out of 4 years) and in all those years that the market is positive, the average drawdown during those years was over 14%! From peak to trough, the S&P was down 13.7% through February 24th in 2022 which is in line with the historical average. Because the fundamentals of the economy remain strong, despite what certain news media outlets report, we still continue to believe that while this year will be rocky, the possibility for a positive year of performance is still present. 

In the chart below, you'll see the intra-year declines (indicated in red with a red dot) corresponding to that year's annual return of the S&P 500. Many may be surprised to see how many years end with positive performance in spite of short-term negative performance within that year. 



Source: Guide to the Markets | J.P. Morgan Asset Management (jpmorgan.com)


So, what are some possible implications for markets and our economy?

Given Ukraine's critical pipelines and Western sanctions on Russia, the crisis may lead to higher energy prices, which will trickle down to higher pump and heating fuel costs.Sustained price increases could hamper the Federal Reserve's effort to control inflation, so we're keeping an eye on that as well. What could happen in markets? Extreme volatility, as we've already seen so far, is very likely. Another correction or even a bear market is definitely possible.


What does history teach us about market reactions to geopolitical shocks?

History shows that stocks usually recover quickly from geopolitical crises. We'll add a disclaimer that the future doesn't perfectly match the past — but it often rhymes. Let's take a look at some examples from other invasions and wars4:


Here's the key takeaway: short-term, markets usually react badly. However, a year later, markets have historically recovered. Will they always? In every case? That's impossible to say. But, the larger study of 29 geopolitical events since WWII shows a general trend toward short-term losses within the first month and longer-term gains."Geopolitical event" is a very antiseptic phrase for things like bombings, wars, invasions, and other horrific attacks, and really fails to encompass the full cost in human misery.

The bottom line is that we never know what happens next in these situations. We can hope, pray, donate, and speak out.

And we can focus on what's in our control: Ourselves, our actions and reactions, and our strategies for uncertain times.

Looking ahead, we can expect more volatility, more down days, and possibly even a bear market in some areas. Let's hug the people we love extra tightly today.

P.S. Tired of war and bad news? Need a break? We've got two TED talks for you:

1) A dive into research that shows how are brains might be wired for optimism

2) How to forge meaning from challenging moments



What If I Get Audited?

“Audit” is a word that can strike fear into the hearts of taxpayers.

However, the chances of an Internal Revenue Service audit aren’t that high. Between 2010 and 2018, the IRS only audited 0.6% of all individual tax returns.6

And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.

The IRS selects returns for audit using three main methods.7

  • Random Selection. Some returns are chosen at random based on the results of a statistical formula.
  • Information Matching. The IRS compares reports from payers — W2 forms from employers, 1099 forms from banks and brokerages, and others — to the returns filed by taxpayers. Those that don’t match may be examined further.
  • Related Examinations. Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.

There are a number of sound tax practices that may reduce the chances of an audit.

  • Provide Complete Information. Among the most commonly overlooked information is missing Social Security numbers — including those for any dependent children and ex-spouses.
  • Avoid Math Errors. When the IRS receives a return that contains math errors, it assesses the error and sends a notice without following its normal deficiency procedures.
  • Match Your Statements. The numbers on any W-2 and 1099 forms must match the returns to which they are tied. Those that don’t match may be flagged for an audit.
  • Don’t Repeat Mistakes. The IRS remembers those returns it has audited. It may check to make sure past errors aren’t repeated.
  • Keep Complete Records. This won’t reduce the chance of an audit, but it potentially may make it much easier to comply with IRS requests for documentation.

Remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Audits Have Changed

Most audits don’t involve face-to-face meetings with IRS agents or representatives. In 2019, the latest year for which data is available, 73.8% were actually conducted through the mail; only 26.2% involved face-to-face meetings.


Internal Revenue Service, 2020



How To: Podcast (Plus GTS Podcast Picks!)

If you ask us, there are two types of people in this world. Those who love podcasts, and those who are yet to discover they love podcasts.

Podcasts are a medium of audio entertainment, with an immense and diverse library of shows available to pique anyone's interest. They are the perfect thing to transform idle-minded activities throughout your day- like driving, cooking, folding laundry, walking your dog, or working out- into stimulating and enjoyable moments between your ears.

So long as you have a device with internet connection, you can catch up on current events, listen to in-depth interviews, escape into a compelling story, follow a true crime investigation, or do a deep dive into a subject you've always wanted to learn more about, from basically anywhere.

Perhaps best of all, with very few exceptions, access to this world of over 850,000 podcasts is completely free.8 If you have been on the fence about podcasts or uncertain of how it all works, please grant us the opportunity to share a few quick and easy steps to get started. Read all the way through to find some bonus listening recommendations from all of us at GTS Financial.

The Prerequisites

Your Device - You can access and listen to podcasts on basically any device with the internet, but because podcasts are often enjoyed on-the-go, I would recommend using your smart phone to store your podcasts.


  A Podcast App -  There are a number of applications available to access and listen to podcasts. If you are just getting started, the easiest option is to use the application already installed on your phone. If you own an iPhone, you'll have the Apple Podcasts app. Android users will have Google Podcasts. Outside of those options, Pocket Casts Podcast Player consistently gets high ratings for user experience.9


  Wireless Headphones - This third 'prerequisite' is actually more of an optional addition to your podcast enjoyment kit. Eliminating pesky cords allows for you to move with ease to enjoy your podcasts without interruption.

 

User Basics

  • Similar to television, podcasts are typically released as episodes. Some podcasts release stand-alone episodes whereas some others are best listened to in the order they are released. Many longer-running podcasts have several seasons of content to explore.
  • Once you've discovered an episode you are interested in, you can download it so that it is stored on your phone to listen to anytime and anywhere (even if you are no longer connected to the internet like on an airplane). If you find a show you particularly love, you can subscribe to the show, which means your app will automatically download all available episodes as they are released to be waiting for you in your app.
  • A lot of podcasts have advertisement breaks (not ideal, but it is what makes them free to enjoy!). Most apps have a handy button to fast forward a number of seconds if you don't want to listen, or there are options to pay a nominal amount to enjoy ad-free content from a number of bigger podcast producers.

Choosing Your Content

What can oftentimes be the most daunting aspect of podcast enjoyment is deciding what to listen to! Here are a few tips to start curating your podcast playlist:

  • Phone a Friend - It never hurts to start by talking to a podcast-listening friend who knows you well and has similar interests. Most people are excited to give recommendations!
  • Use The Discovery Features - Most apps have a page made specifically to help you discover popular podcasts across various categories so you know what is likely to be highly rated and high-quality. You can also scroll down after you find a show you enjoyed to see if they provide "You may also like…" recommendations based on what you've just listened to.
  • Never Underestimate the Search Tool - If you're looking for a podcast on a particular subject, or even a specific format, try plugging it in to a search - you can try 'parenting panel discussions', 'interviews with athletes', 'investigative reporting on medical malpractice'…the more specific the better!
  • Sample Big Podcasting Powerhouses - There are a number of podcast studios that churn out consistently quality content - check out the offerings of National Public Radio, Gimlet Media, Radiotopia, Freakonomics Radio, and Pushkin Industries, just to name a few!

GTS Podcast Picks!

  • Grant: "I'm a fan of podcasts about mindset. I also love learning from other successful people in life.  As Confucius once said, "By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest." I recommend you check out two of my favorites: School of Greatness and Impact Theory - particularly this episode from Impact Theory about how to control negative thoughts, it's one that has always stuck with me!"
  • Tyler: "One of my favorite podcasts is The Moth. It's basically regular people on a live stage telling a story from their life. I love hearing about people's stories and what makes them who they are."
  • Heather: "HOW DO I CHOOSE?" I'm having trouble narrowing it down, so you're getting a short list. If you're interested in interviews with intriguing people from all spectrums of life - I'd recommend People I (Mostly) Admire. For some heartwarming and humorous storytelling, I love Heavyweight. Each episode, the host tries to help someone resolve a moment from their past, injecting his own brand of self-deprecating humor along the way. I laughed a lot during this episode.Finally, I'm a psychology and sociology nerd who loves to learn about the intangible forces that shape human behavior - the shows Invisibilia and Hidden Brain are both fun and fascinating. This Invisibilia episode called How to Become Batman is a memorable one!
  • Stacey: "John Maxwell's teachings have been instrumental in my life. This podcast from him on How to Become a Life-Long Learner is one of my favorites!" 





Is Caffeine the Solution, or the Source of your Headaches?

With close to 90% of the U.S. population consuming at least one caffeinated beverage per day, caffeine is easily America's most popular drug.10

That's right, caffeine is technically a drug. More specifically, it is a stimulant of the central nervous system that has effects on your brain similar to amphetamines, cocaine, or heroin- albeit much milder of course!10

Before you begin to think this article is to read like a "This Is Your Brain On Drugs" advertisement, please be reassured that we know there is absolutely nothing wrong with enjoying your morning cup of joe! In fact, when consumed in moderation, caffeine can be an extremely beneficial addition to your life. Caffeine has been shown to boost your energy and mood, improve cognitive and physical performance, and even help your body burn fat.11

When consumed in greater quantities, however, caffeine can stealthily shift from being the solution to the common woes of living a busy life to being the source of a number of common health complaints. Read on to learn the signs that your caffeine consumption might be drifting into the 'too much' territory, plus pick up some tips for how to cut back without a withdrawal headache.

Caffeine Criteria

The general guidelines for caffeine are pretty simple on the surface:

  • Healthy Adults - Most experts recommend consuming less than 400mg caffeine per day.
  • Pregnant or Nursing Mothers- Like other ingested drugs, caffeine can pass the placental barrier and can be secreted through breast milk, so target 200mg per day or less.10, 12
  • Teens and Kids- Due to differences in brain development and body size, teens should limit their caffeine intake to just 100mg per day, and ideally kids should consume as little as possible.10

Keep in mind that two cans of soda or one 8-ounce cup of coffee is about equivalent to 100mg of caffeine, although not every cup is brewed equally!)11 It is also important to remember that not everyone responds to caffeine in the same way - depending on your genetics, and how much caffeine you are used  to consuming, your sensitivity may be higher.12

How Much Is Too Much?

Ultimately, the best way to figure out if your consumption level is right for you is to listen to your body. If you regularly experience any of the following symptoms, you may want to consider cutting back.

  • Headache - I'm sure you've heard that a headache can be a sign of withdrawal from caffeine, but did you know it can also trigger or intensify a headache in some cases?13 If you are experiencing regular headaches without a change in your caffeine consumption, it might be worthwhile to try less instead of more.
  • Anxiety - Caffeine stimulates the central nervous system and activity in the brain. When consumed in moderation it can contribute to feelings of happiness, but as the amount you intake increases, it can also leave you feeling jittery, anxious, or irritable. If you have been diagnosed with an anxiety disorder you may find your symptoms are exacerbated and you may want to avoid caffeine altogether.11
  • Sleep Disruptions - After a tough night's sleep you may think caffeine is exactly what you need to get through the day, but unless you want the cycle to continue, remember to cut yourself off by the afternoon. Levels of caffeine in your blood stream peak around an hour after consumption, but it will take closer to 6 hours to reduce those levels to half the original amount, and up to 10 hours to completely clear it from your bloodstream.14
  • Irregular Heartbeat - Caffeine can cause a mild increase in both your heart rate and raise your blood pressure. While on the surface it doesn't necessarily have to be alarming, it can give you the sensation that your heart is fluttering or skipping a beat, so people who already have anxiety, high blood pressure, or other heart conditions should be extra mindful of these symptoms and aim to reduce their caffeine intake.11
  • Dehydration- Given its diuretic properties, caffeine will increase urine production and your need to use the restroom. Without a proper replacement of other liquids, particularly water, it's easy to get dehydrated. In addition to the loss of urine, also goes important nutrients. One study of those who consume four cups of coffee per day (the maximum end of recommended daily guidelines) showed reduced levels of calcium, B12, magnesium, potassium and other key nutrients, many of which are essential for good bone health.13
  • Stomach Issues - Caffeine can accelerate your metabolism, but it also can increase your stomach's natural acid production, which can lead to uncomfortable heartburn symptoms, and also worsen existing problems such as stomach ulcers.10, 11

Tips for Cutting Back Successfully

If you recognize some of the aforementioned symptoms in yourself, you may want to take measures to cut back on your caffeine consumption.

  • Take Stock- A great first step is to recognize how much caffeine you are currently consuming. Bear in mind it isn't just coffee or energy drinks that contain caffeine, consider other sources such as soda, tea, chocolate, and some over-the-counter medications.11
  • Take it Slow- The best way to avoid withdrawal symptoms when cutting back on caffeine is to do it gradually. Aim to decrease your intake over the course of a month, cutting the amount by half each week.10
  • Take Advantage of the Alternatives- Opt for "half-caf" coffee, or perhaps one of your servings with decaf to still enjoy the taste without the extra dose of caffeine. If you are a soda drinker, check out some 'fizzy water' alternatives to mix into your rotation.
  • Take Extra Good Care of Yourself- There are a number of alternative, natural ways to increase your energy and mood besides caffeine. As you are cutting back, be extra mindful of exercising more, eating a diet rich in nutrients, getting plenty of sleep, and especially drinking more water in place of caffeinated beverages.10


Want More? Try Less.


Take a look at the Lego structure pictured above. If someone were to ask you to "Improve this project so that it can hold a brick above the storm trooper's head without collapsing,"- how would you go about it?

If you are like the majority of participants who were asked in a study to do exactly that, your first inclination was likely to add more Legos to prop up the roof as it stands, not to take away the one block that is destabilizing the roof.15

Enter Leidy Klotz, author of the book Subtract: The Untapped Science of Less. Klotz asserts that when faced with the opportunity to improve upon something, whether it be engineering physical spaces or even designing our lives, our default setting is to add. We systematically overlook subtraction as an option, even when it could be the most efficient pathway to an even better outcome.16

"Subtraction is the act of getting to less, but it is not the same as doing less," says Klotz. He flips the whole notion of piling on to your To-Do list to feel productive, and instead suggests creating a "Stop-Doing" list to make space in your life for things that align with your values and where you want to be in life.

Counter to the way our "wired to acquire" society works, Klotz writes "Less may be the key to more good, for more people, for more time." Since we here at GTS Financial are always interested in ways to do more good, for more people, for more time, we thought we'd share this video about the Science of Less:


Footnotes and Sources

1. The Wall Street Journal, March 2, 2022

2. CapitalGroup.com, March 7, 2022

3. NYTimes.com, Feb 27, 2022

4. LPLresearch.com, January 2020

5. Reuters.com, February 18, 2022

6. IRS.gov, 2020

7. IRS.gov, 2021

8. NealSchaffer.com, December 18, 2021

9. PopSci.com, October 25. 2020

10. Kuakini.org, February 2022

11. Health.ClevelandClinic.org, September 28, 2021

12. MayoClinic.org, March 6, 2020

13. VeryWellHealth.com, December 6, 2021 

14. My.ClevelandClinic.org, December 13, 2020

15. Weforum.org, April 21, 2021

16. BehavioralScientist.org, April 12, 2021


Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

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