This Week in Review | Market Volatility, Cryptocurrencies, Roth Conversions

Transcript

Hello and welcome to This Week in Review.

This weekly segment is designed to highlight a few things you may have missed this week, what they could mean for financial markets and why they matter to investors like you. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, market volatility.

Stocks got a nice boost early in the week, but then saw renewed downward pressure as fears around AI and bond yields continued to concern investors. Some argue elevated government bond yields are taking the shine off stocks around the world, claiming higher bond yields reduce the appetite for more volatile stocks. Additionally, stocks related to AI infrastructure have faced uncertainty as President Donald Trump and industry insiders have continued to weigh in on the debate over the pace of development. Despite recent concerns, equities remain around record highs while bond yields remain historically normal. For bonds, much of the concern centers on inflation fears tied to higher oil prices amid the ongoing Middle East conflict, as well as worries about ballooning government debt in the United States, the United Kingdom and across Europe. Yet, we think these fears are largely overstated. And, while headlines focus on bond yields, we believe what matters more for the markets is the relationship, or spread, between short- and long-term rates. Long rates are set by the bond market, while short rates are set by central banks. Right now, spreads across the US and other developed markets are positive and have actually widened this year, which is supportive of economic growth and a continued bull market. Returning to stock concerns. While headlines focus on AI, this bull market hasn't been limited to technology, heavy markets or just a handful of stocks. It's been broad-based across developed markets, some with little or no tech exposure. For example, Spain has gained nearly 14% this year despite having virtually no tech stocks. The silver lining? Headlines blaring about market risk show there is still at least some skepticism left in markets. That's a good thing. A lack of headline market fears can signal euphoria. Once investors become euphoric, they can begin to ignore market risks, making stocks vulnerable to negative surprises. Today's steady drumbeat of fearful headlines suggests we're not there yet.

Next, Bitcoin and other cryptocurrencies.

Earlier this week, Bitcoin climbed above $86,000, reaching its highest price since January. This recent performance has some investors reevaluating Bitcoin and other cryptocurrencies as potential investments. But, despite its latest rally, Bitcoin is still well below its peak of $124,000 set last October, illustrating how short-term moves can change the narrative around a highly volatile asset. Some investors cite diversification as a reason to invest in cryptocurrency. But diversification isn't simply about owning more types of investments. The proper way to diversify your portfolio is to blend assets with long-term risk and return profiles that best fit your goals, cash flow needs and investment time horizon. While diversification is important, Bitcoin's risk and return profiles are largely unknown, meaning you don't have fundamentals to guide you in forecasting where prices may go. Also, unlike stocks, Bitcoin doesn't generate profits, produce financial statements or innovate the way publicly traded companies do. The bottom line is that the price of cryptocurrencies is largely speculative and based on what people believe they are worth. And, when it comes to volatility, Bitcoin is far more volatile than stocks. Since 2017, Bitcoin has experienced over 200 days with declines greater than 5%, while the MSCI World Index has only had five such days. To us, Bitcoin and other cryptocurrencies behave more like speculative commodities than traditional investments. While we don't rule out any investment option entirely, we believe stocks and bonds are better suited to meet most investors' long-term financial goals than alternative assets like Bitcoin.

Finally, Roth conversions.

Fall is here, which means it's a great time to take another look at your finances and make any necessary adjustments before the year ends. This is especially important for any actions you take that could have tax implications. A common question we hear from investors is whether they should consider a Roth IRA conversion. It can be a valuable retirement planning strategy for some investors, but it doesn't make sense for everyone. Roth conversions move funds from a tax-deferred traditional IRA into a Roth account, where qualified withdrawals are tax-free. While this process triggers taxes in the year of conversion, it can be advantageous if you're in a lower tax bracket now than you expect to be in the future. After a Roth conversion, assets can grow tax-free, qualified withdrawals in retirement are tax-free and the original account owner isn't subject to required minimum distributions. For high-net-worth investors with significant assets, Roth IRAs can also play a role in estate planning. The tax-exempt nature of these accounts makes them an attractive vehicle for transferring wealth to heirs. However, before converting, it's crucial to assess factors such as your current and future tax rates, your time horizon and your long-term goals. We suggest consulting with a trusted financial adviser and tax adviser to ensure a Roth conversion aligns with your unique financial situation.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, don't miss our other series Three Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets. We'll see you next time. Thanks again for joining us, and don't forget to hit Like and Subscribe.