Markets in Motion – Managing Through Volatility

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By Sharon Allen, CFP®, CTFA and Daly Andersson, CFA, CFP®

Investing in the stock market can be a humbling experience.

Time and time again, studies show us that acting on our natural human instincts and emotions is often detrimental to our investment outcomes. But in the face of uncertainty and fear, many of us feel the need to “do something”. Tolerating this discomfort requires us to have patience, discipline, and some level of hope or optimism for the future. So, how do you fight the urge to “do something” when you know you can’t control the market (or much of anything else on the grand stage)?

At Sterling, we are both disciplined in the discomfort, and optimistic about the future when investing on your behalf. Given the current investment environment, we want to take a moment to share what we have already done and what we are doing for you right now.

What Sterling Has Already Done for You

The most impactful work is done early on and monitored and adjusted as you go. As Alexander Graham Bell put it, “Before anything else, preparation is the key to success.” From the start of our work together, we have been helping you build resilience throughout your financial life. Starting by evaluating your entire financial house, we identify the areas where improvement is necessary, and we work to grow and bolster your financial foundation. An integral part of this foundation is your investment portfolio.

  • Designing and Growing Your Financial Foundation – One of the most important decisions that we make together is the mix of stocks, bonds, and cash to target within your portfolio – a decision that is determined through understanding your investment time horizon, the timing and amounts of anticipated withdrawal needs, and your ability to withstand volatility among other factors. Your asset allocation is designed and tailored in an effort to balance a level of long-term defensiveness and growth necessary for your unique financial situation. Empirical evidence has supported the thesis that asset allocation is one of the most important determinants of the variation in portfolio returns over time, demonstrating more impact on portfolio variation than other factors like security selection and market timing (Ibbotson & Kaplan, 2000). So once this optimal starting block is in place, we work to build the portfolio using a wide and diversified range of investment opportunities.
  • Ongoing Proactive Management of Cash Needs – As part of our disciplined strategy, your team at Sterling regularly reviews upcoming and anticipated future cash needs to ensure that there is sufficient cash and or fixed income resources on-hand to accommodate up to two years of regular distributions. In addition, if we know that you have large cash needs, we are proactively planning for that, as well.
  • Implementing the Best Ideas in Financial Science – Our in-house Investment Committee reviews client portfolios regularly to verify adherence to your unique target allocation, portfolio needs, and circumstances.  Your Sterling team regularly invests time to enhance their knowledge and competence in the field of investment and wealth management, curating and incorporating some of the best ideas within the industry to your portfolio design. Within the last 12 months, we have focused on including additional complementary strategies within client portfolios with the intention of enhancing risk-adjusted returns over time. Some of the adjustments we have made to portfolios over the last year include adding an additional factor-based approach called “High Profitability” to our equity allocation and re-working the weightings of some of the diversifying asset classes like Emerging Market Equity and Real Estate to maintain a market-neutral exposure.

What Sterling Is Doing for You Now

What are the smart things that we are doing today to navigate through the current volatility in markets?

  • Maintain Discipline – The most important thing that we can do now – and the smartest – is maintain the course and stay disciplined. To do otherwise runs the risk of undermining long-term financial success. We want to ensure that temporary paper losses do not become permanent ones. The market does not announce when challenging times have “ended”. As you can see from the chart below, trying to wait out market volatility on the sidelines often leads to significant underperformance. Many of the best consecutive days of market returns are achieved in periods following market lows. 

The Cost of Trying to Time the Market

Source: Dimensional Fund Advisors 2024

  • Seeking Out Planning Opportunities – Our team is working diligently to find opportunities within these market environments – whether in the form of tax loss harvesting, accelerating cash investments, Roth conversion, or increasing taxable gifting strategies. We desire to support you in making your financial house stronger and stewarding your resources in a savvy way.

Next Steps

Warren Buffet eloquently put it this way: “Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.” This statement is as true today as it ever was.

Any meaningful drawdown may be different from another, but it’s never different enough to permanently impact the long-term innovation and financial performance of American growth in aggregate. Whatever the tumult and challenge that Americans face, there is always a path forward. It may not always be readily apparent or easy (and it usually isn’t), but time and progress have a way of bringing us through to the other end. When limits are tested, ingenuity kicks in. Strive to find your hopefulness despite the uncertainty that abounds.  And know that you are not alone.

Sources & Disclosures

Dimensional Fund Advisors (2024). The Cost of Trying to Time the Market Dimensional Quick Take.

Ibbotson, R. G., & Kaplan, P. D. (2000). Does Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance? Financial Analysts Journal, 56(1), 26–33. https://doi.org/10.2469/faj.v56.n1.2327

The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Sterling to be reliable, and Sterling has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Sterling accepts no responsibility for loss arising from the use of the information contained herein.

Risks: Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful. Diversification neither assures a profit nor guarantees against loss in a declining market.

Navigating the Tempest

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By Sharon Allen, CFP®, CTFA and Daly Andersson, CFA, CFP®

You’re caught driving in the middle of a ferocious storm. The windshield wipers are moving at a frenetic pace allowing you just a glimpse at the road ahead. You move slowly and intentionally forward, though it’s hard to even see the lines on the road alerting you to when you begin to veer out of your lane. White-knuckled, you pray you can just get to where you’re going in one piece. 

Anyone who has been driving for any length of time has likely had this kind of moment. It’s scary and not the kind of environment one goes searching for. Today, many feel caught in this storm as the daily events in the U.S. and abroad continue challenging our status quo.

In the tempest of social, fiscal, and global uncertainty that seems to threaten our financial security, each of us has the opportunity to be a source of tranquility for ourselves and those we care about through simple daily choices. As financial stewards, keeping a level head and clear-sightedness is both our opportunity and responsibility to ensure we are making financial choices based on what we know versus reacting and creating permanent negative results to our thoughtfully constructed financial house.

It’s Your Choice. Choose Wisely.

The most “weather-resilient” investment strategies in the world are based upon observed data through decades. These observations support crafting a portfolio of investments – using both growth focused and more stable strategies – to accomplish your most important goals. Financial data and research tell us that these investment choices start with controlling what you can control. The smartest people we know do this through thoughtful diversification, targeting investments that have historically provided excess return to investors, while managing risk and costs.

Intelligent portfolio design also includes investing in companies from small to large and located in the US as well as abroad. At Sterling, we also target several other factors of strong portfolio design in client portfolios including:

  • Value companies (low price-to-book ratios, high dividend yields, and lower price-to-earnings)
  • High Profitability companies (stocks with high relative operating profits measured by operating profits divided by book equity)
  • Small-Cap companies

Below is an illustration of how some of these different design factors have performed for investors over time. We illustrate below the performance of both U.S. and International stock markets as well as short term fixed income and the Consumer Price Index from November 1998 through February 2025. In grey, you will see highlighted the three recessions we have experienced in the U.S. during this time frame. Now, if you close your eyes and remember the times described below (the “Dot Com Bubble”, the “Great Recession”, COVID), you will recall that the world felt like it was caught in a deluge with no path forward. But hindsight is always 20/20. What felt like a fork in the road with neither path leading to a viable solution proved that indeed there was a path forward out of each of these storms.  Time and time again, over the long-term span of an investor’s lifetime, the commitment to a growth allocation has historically shown positive returns.

Exhibit 1 – Global and Factor Annualized Returns from November 1998 to February 2025

Navigating Through the Storm

Investments are a necessary tool to build and fortify a solid foundation for your financial house. A financial plan tailored to your unique life provides clear guidance through both the sunniest of days and the darkest of nights.  This plan both beckons and reminds you that in any storm there is a path forward. Not unlike the instrument panel a captain would rely on when the environment feels like the craft is going in the wrong direction, your financial life plan is your guide.

Throughout history, we have experienced (and not infrequently) ups and downs in the stock market. The events that spur market movements change from day to day and decade to decade, but the learning a savvy investor must take is this: market declines are messy but necessary for a healthy, functioning market. Strive to maintain the course.

Referring again to the graph above (Exhibit 1) notice that through some enormous storms, the long-term growth for stock investors has historically resulted in higher returns and growth of invested dollars. What history has shown us is that for investors, it’s about time in the market and not timing the market.

Be Great

As the Bard in Shakespeare’s Twelfth Night decried, “Some are born great, some achieve greatness, and some have greatness thrust upon them.” When you find yourself in the middle of a tempest, you have the opportunity to be great and steward financial stability for yourself and those you care about for generations to come. Our advice is to control what you can control and stay on course. We are here with you every step of the way.

Sources & Disclosures

2025 YCharts, Inc.

The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Sterling to be reliable, and Sterling has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Sterling accepts no responsibility for loss arising from the use of the information contained herein.

Risks: Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful. Diversification neither assures a profit nor guarantees against loss in a declining market.

4 Key Truths That Lead to Investing SUCCESS

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Many of us have heard the phrase, “Luck favors the prepared.” I suggest a different idea:

“SUCCESS favors the prepared.”

Every person defines success differently… whether it means the open doors of opportunity, personal accolades, a substantial financial foundation, wealth in the form of relationships. The one common theme among these varying definitions of success is the intentional planning and action required to realize that success. Strong relationships don’t materialize because you wish them to. They are the product of time invested in people. The same is true of a strong financial house. It is the product of intentional action toward stated financial goals. And that requires a thoughtful plan.

Core Elements of a Solid Plan

As wealth advisors, we have seen a fair number of financial plans. The most successful ones – the ones that withstand whatever is thrown at them – have a few commonalities:

  • Stated Measurable Goals
  • A Diversified Financial Foundation Built on a Disciplined Investment Strategy
  • Support from Experts to Assess & Develop Solutions to Key Challenges

It is exceptionally difficult to avoid all turmoil in life. Trials, tribulations, and unsteadiness are around us at every corner. Yet, success in our financial journey requires that we have a strategy to combat this turmoil and maintain resilience in the face of it.

During this particular season, the turmoil du jour is in the form of political uncertainty. Like many things in life, this challenge is merely a variation on an age-old theme: unchecked fear and anxiety over upsetting events can activate our most human instincts of “fight or flight”. When it comes to experiencing fear around investing – even the most seasoned investor can be moved to “flight” if their emotions take the driver’s seat. This is almost always to their financial peril and lasting regret. This is why it is important to have a disciplined investment strategy in place to guide and keep you seated throughout all market cycles.

Enter: The Disciplined Investment Strategy

“The first rule of compounding is to never interrupt it unnecessarily.” – Charlie Munger

TRUTH #1: Negative events cannot have lasting impact if your plan remains intact.

  • Your stated, measurable goals are the guiding light of your plan.
  • The plan is designed to aim toward your most important goals.
  • Once an investment plan is designed and implemented, it will work most effectively if you have the patience and discipline to stick with it.

TRUTH #2: Significant market declines are a normal and expected part of investing. Your disciplined investment strategy incorporates the expectation that market declines may be precipitous at times.

  • 1 in every 5 years since WWII, broad stock markets (as measured by the S&P 500) have declined an average of nearly 30%, so we expect stock markets to go down roughly 30% every 5 years.
  • Three times in the last 50 years, markets have declined by about 50%.
  • The stock market has compounded at 10.7% per year since January 1973.

Our conclusion? Broad market declines are temporary (and necessary) for long-term advances.

TRUTH #3: Historically, it has been far more fruitful for long-term growth to be an owner versus a lender.

  • To be an investor in the stock of a company is to be an owner. To be an investor in the bonds of a company is to be a lender.
  • Historically, long-term investors have been rewarded for taking on the risk that comes with stock ownership. Owners of companies have compounded their wealth at rates that far outpace those that lenders have grown their wealth. For example, over the last two decades $10,000 invested in the US Stock Market (via the Russell 3000) would have grown to $51,870 versus an investment in US Bonds (via the US Bloomberg Aggregate Bond Index) that would have grown to only $18,860. That’s nearly three times the growth!

TRUTH #4: Prepare to be an opportunist, not a victim.

  • If we know that market declines are a part of investing, come regularly, and are planned for, the smart investment strategy provides for an approach that capitalizes on the opportunity a down market provides.
  • Historically, the stock market’s very best days come very quickly on the heels of the worst and most highly panicked days.
  • As institutional investors, we understand that there are greater factors at play when the market moves. We are able to help our clients maintain their disciplined strategy because we see the playing field without emotion. Our approach has planned for these times and see them as opportunities to buy shares of the good companies when they are ‘on sale’.

How does one experience a successful financial life journey? Preparation.

And your Sterling Team is here with you all along the way providing expert guidance, solutions and collaboration. Thank you for being part of our family.

Smart Tax Planning: A Primer on Tax Loss Harvesting

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A key element to the effective management of your taxable investment portfolio is the implementation of “tax loss harvest” opportunities. While we know it is harvest time here in Central Illinois, this strategy has nothing to do with corn and beans and everything to do with your income taxes. We thought we’d take a moment to highlight exactly what it is and how it is of benefit to you and your long-term wealth management plan.

What is tax loss harvesting?

Tax loss harvesting is a strategy used to potentially lower or defer tax bills by realizing losses on certain investments and utilizing those losses to offset gains or income in other areas of an investment portfolio.

Let’s consider a recent real-life example – going back in time to March of 2020, the S&P 500 dropped abruptly by 34% between February 19th and March 23rd. This precipitous drop presented a huge opportunity for tax loss harvesting whereby investors with loss positions could sell at the lowest point of the market while immediately purchasing replacement investments so that they did not lose out on the swift recovery. On paper, many investors were able to realize “taxable losses” while they reinvested their positions to maintain market exposure thereby not losing out on the recovery growth. These “taxable losses” could then be used to offset capital gains (in current and future years) and on a smaller scale to offset taxable income.

Tax Loss Harvesting involves four important steps:

1. Monitoring investments to identify positions with losses

2. Selling positions with losses

3. Immediately replacing the positions sold with a suitable replacement . The replacement position cannot be too similar to the position that was sold to realize the loss. For example, if you were invested in an ETF tracking the S&P 500, you should not replace your loss position with another S&P 500 index fund. The IRS would see this replacement as “substantially identical” and the loss would be disqualified. 

4. After a period of 31 days, you would be eligible to sell the replacement security and re-purchase your original position. If you buy back the same position (or substantially identical) before the end of the 31 days, you will trigger the “Wash Sale Rule,” which again would make your loss disqualified.

Why tax loss harvest?

This strategy may help lower tax bills by reducing or deferring capital gains, reducing taxable income, and offsetting future gains and income. It can only be utilized for taxable investments (assets held outside of retirement accounts). Using this strategy to defer taxes today may achieve higher ending wealth through the potential growth of assets not used to pay taxes.

Tax Loss Harvesting is a strategy that we implement when the market provides opportunities – whether the stock market pulls back broadly or there is a correction in a particular asset class, we are ready to act. These opportunities often arise at times where investor sentiment is at its lowest (remember March 23, 2020?) and it may be difficult to see the opportunity through the fog of pessimism that surrounds the situation. But hindsight has shown us time and time again that uncertainty creates opportunity for the disciplined and we have seen the benefits of this strategy realized over time for our clients.     

While this is an important tool in our professional toolbelt, it is one that we implement with great caution. The IRS has published much guidance on the issue and there are many nuances (which we have not gone into great detail here) that can make this strategy very tricky for individual investors. We advise that this is a strategy to be considered after consultation with your Sterling Wealth Advisor and tax advisor.

Sources: yCharts. Cruz, Ashley. “Tax Loss Harvesting: A Primer for Investors”, research paper, Dimensional Fund Advisors, October 2024.

Launching the Younger Generation to Financial Success

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There are many personal finance activities that we engage in as adults that are almost second nature, from working to saving to borrowing and building credit. We’ve compiled some simple actions you can take (and when) to increase your child’s financial success as they mature.

Grade School Age +
1. Encourage them to get experience with a job (in or outside the house)
> Let children get experience managing their own cash flow – learning about how much money comes in (and when), how to spend wisely, and how to save for future expenses both large and small.

Junior High/High School Age
1. Help them open their own checking & savings account (& obtain a debit card)
> In addition to learning about how to manage money with a bank, this is a critical step before engaging in any future lending.
> Provide experience for managing money the way most of us do today (digitally).

2. Open a secured credit card (or make them an authorized user on your card) – build credit!
> Building credit is an often-overlooked aspect of setting young people up for financial success.
> A secured credit card allows you to build your credit with significant guardrails in place
– Allows for building credit with very low (and secured) credit limits
– Available to people with poor or no credit
> To start, authorizing a child as a user on your card may be a good way to allow them to learn to make purchases, build & manage credit, while still allowing you to monitor their spending and ensure their success.

3. Go through a tax return with your teen
> At school, kids learn a lot – however, as you may have experienced in your own life, the intricacies of a tax return is not one of them. Help your younger generation understand what taxes they are paying & why.

College Age
1. Understand the difference between “good” debt & “bad” debt
> With credit, comes the need to discern how to use credit wisely. Teaching young people the difference between high interest rate credit cards, auto loans, and federal/private education loans is critical to making informed decisions about debt.
> Review the costs and benefits of particular schools & majors when determining when (and how much) to borrow for school – it’s critically important as college costs & student loan debt continues to balloon.

2. Take them to a meeting with your financial advisor
> Be open about your financial journey & allow them to learn from your successes & failures.
> Make the most of the resources available to you – we would be more than happy to help be a part of your young person’s financial success.