Break The Fear That Won't Let You Enjoy What You Built
There's a point in retirement planning when the question changes.
For most of your working life, the question is straightforward: Am I saving enough?
You work. You save. You invest. You avoid unnecessary risks. And, over time, those habits help you build something substantial.
Then retirement arrives, and the question becomes very different: Can I actually use this money without worrying that I'll regret it later?
For some retirees, that question is surprisingly difficult to answer.
The financial plan may say they're fine. Their investments may be substantial. Social Security and pension income may cover a meaningful portion of their expenses.
Even after accounting for healthcare, inflation, taxes, market downturns, and a long retirement, the numbers may still show plenty of financial flexibility.
Yet the fear remains.
What if we live longer than expected?
What if the market falls?
What if healthcare becomes more expensive?
What if our kids eventually need help?
What if something happens that we haven't thought about yet?
Those aren't unreasonable questions. In fact, asking them is part of responsible retirement planning.
Research from the Society of Actuaries continues to show that running out of assets, inflation, healthcare costs, and unexpected financial shocks remain meaningful concerns for retirees.
However, there comes a point when prudence can quietly turn into paralysis.
And when that happens, the biggest risk to your retirement may no longer be running out of money.
It may be reaching the end of retirement with plenty of money left, but too many things you never gave yourself permission to do.
The Habit That Built Your Wealth Doesn't Automatically Retire With You
There's a reason this transition can be so difficult.
The behaviors that helped many successful families accumulate wealth are almost the exact opposite of the behaviors retirement eventually requires.
For decades, the formula was simple.
Earn more than you spend. Save the difference. Invest it. Leave it alone. Repeat.
Every dollar you didn't spend strengthened your financial position.
Then one day, retirement asks you to reverse a habit that may have been reinforced for 30 or 40 years.
Now you're supposed to withdraw money from accounts you spent decades filling.
You're supposed to book the trip rather than save for someday.
You're supposed to help your children or grandchildren while you're alive rather than simply leave everything behind.
And you're supposed to trust that spending money today won't somehow jeopardize tomorrow.
That's a big psychological shift.
One useful way to understand that tension comes from research on what psychologists and financial therapists call money scripts.
Money scripts are underlying beliefs about money that can influence the financial decisions we make.
Researchers Bradley Klontz, Sonya Britt, Jennifer Mentzer, and Ted Klontz originally identified four broad patterns: money avoidance, money worship, money status, and money vigilance.
More recent research examining the revised Money Script Inventory continues to find support for those four categories.
For the kind of retiree we're talking about here, money vigilance is particularly interesting.
Being vigilant about money isn't inherently bad.
Quite the opposite.
Being careful, prepared, private about finances, and concerned about maintaining adequate savings can support many of the behaviors that help someone build wealth in the first place.
That's why I wouldn't look at this as something that suddenly needs to be "fixed" when you retire.
The problem is that a belief can continue doing its old job long after your circumstances have changed.
The voice that once said, We need to save because we don't have enough yet, may still be saying the same thing after you've accumulated enough to fund the retirement you planned.
The circumstances changed.
The script didn't.
The Numbers Can Say Yes While Your Instincts Still Say No
I see variations of this tension regularly in financial planning conversations.
Someone will tell me that one of their primary goals is making sure they never run out of money.
That makes sense.
So, we build the plan around that concern. We model retirement income.
We evaluate investment risk.
We account for healthcare.
We build cash reserves. We examine taxes and withdrawal strategies. Then we stress-test the plan against different assumptions.
And once we've established what needs to be protected, we can begin asking a different set of questions.
Could you travel more?
Could you comfortably spend a little more each month?
Could you take the bigger family vacation?
Could you help your children or grandchildren today?
Could you replace the car, renovate the house, or make another large purchase without undermining the rest of the plan?
Sometimes we'll model those scenarios too.
And occasionally, something interesting happens.
The plan still works.
Yet the client remains hesitant.
At that point, we're no longer dealing primarily with a math problem.
We're dealing with the emotional residue of a lifetime spent protecting against the possibility of not having enough.
That's where the money-script concept becomes useful.
A projection can show us whether a particular level of spending appears financially sustainable. However, it can't automatically erase a belief about money that's been reinforced for most of someone's adult life.
That's an important distinction because another spreadsheet may not solve a problem the spreadsheet has already answered.
When "Enough" Never Feels Like Enough
One of the most difficult questions in wealth management is deceptively simple: How much is enough?
There's almost always another level of financial security available.
If $2 million feels safe, perhaps $3 million would feel safer.
If $3 million feels comfortable, perhaps $4 million would remove the uncertainty.
Then $4 million becomes $5 million.
The finish line can keep moving because the real objective was never a particular portfolio value. It was the feeling of certainty that the portfolio was supposed to provide.
Unfortunately, money can reduce uncertainty, but it can't eliminate it.
You can't know exactly how long you'll live.
You can't know what markets will do every year.
You can't know exactly what healthcare will cost.
And you certainly can't anticipate every financial need your family may have over the next several decades.
A good financial plan accounts for uncertainty. It doesn't pretend uncertainty can be eliminated.
That distinction matters.
Otherwise, you can continue accumulating more financial security while never actually feeling more secure.
Why Spending From the Portfolio Can Feel So Different
There's another wrinkle here.
Not all money feels the same when it's time to spend it.
Research by David Blanchett and Michael Finke using Health and Retirement Study data found that retirees consumed a much larger percentage of available lifetime income, such as Social Security and pension income, than they did from accumulated savings.
Their findings suggest that retirees' willingness to spend can depend partly on how the money reaches them.
That makes intuitive sense.
A Social Security check arrives and feels like income.
A pension payment arrives and feels like income.
But taking $10,000 out of an IRA can feel very different.
You've watched that account grow for decades. You've been taught not to touch it. You've probably celebrated when the balance went up and worried when it went down.
Now your retirement plan is telling you that the account exists, at least in part, to be spent.
Financially, that may be completely rational.
Emotionally, it can feel like moving backward.
And that's why the transition from accumulation to retirement can't be treated as purely a portfolio-management exercise.
Consider the Couple Who Keeps Saying "Maybe Next Year"
Imagine a retired couple who has done almost everything right.
They saved consistently.
They invested prudently.
They avoided excessive debt.
Their retirement income is coordinated. They maintain appropriate reserves. And their portfolio gives them considerably more flexibility than their basic lifestyle requires.
For years, they've talked about traveling more in retirement.
They've also talked about helping their grandchildren while they're young enough to see what that help makes possible.
Yet every year, the conversation sounds roughly the same.
Maybe we'll take the trip next year.
Maybe we should wait before giving the kids anything.
Maybe the market will be better.
Maybe we should keep a little more in reserve.
So, the money stays invested.
Another year passes.
Then another.
Nothing is necessarily wrong with that decision. Some people genuinely prefer spending less. Others intentionally want to leave a larger estate. Those are perfectly legitimate choices.
The question is why the decision is being made.
Is keeping the money part of the plan?
Or does spending it simply feel dangerous?
Those are two very different things.
This is a composite example based on recurring themes I've encountered in financial planning conversations. It doesn't represent the circumstances of any one client.
Your Financial Plan Should Help Separate Fear From Fact
This is where I think financial planning can play a role that goes beyond calculating a withdrawal rate.
The purpose isn't to convince someone to spend more money.
It's to help separate three things that can easily get mixed together: what needs to be protected, what the financial plan can reasonably support, and what fear is preventing you from doing.
First, we have to protect what matters.
That means understanding your recurring lifestyle needs, maintaining appropriate reserves, considering healthcare and long-term care risks, evaluating taxes, testing the portfolio against difficult markets, and accounting for the legacy you actually want to leave.
Those aren't fears to dismiss.
They're planning problems to address.
Then, once we've established those guardrails, we can test what's possible.
What happens if travel spending increases?
What happens if you help the family today instead of leaving all of the money later?
What happens if you spend more during the early years of retirement?
What happens if markets disappoint us?
What happens if inflation remains higher than expected?
The objective isn't to figure out the maximum amount you could possibly spend.
It's to understand the range of choices available to you without putting the priorities we've already protected at unnecessary risk.
Then comes the harder part.
If the plan says you can afford something and you still can't bring yourself to do it, it's worth asking:
What am I actually afraid will happen?
That's a different question than, "Can I afford it?"
And sometimes, it's the more important one.
The Goal Wasn't Just to Accumulate
This matters because retirement isn't simply the final stage of an accumulation plan.
It's the stage when some of the money finally gets to do the job you spent decades preparing it to do.
Perhaps that job is providing financial independence.
Perhaps it's creating experiences with your spouse while you're both healthy.
Perhaps it's helping children or grandchildren at a time when the money could materially change their lives.
Perhaps it's giving more to organizations you care about.
Or perhaps it's simply creating the ability to make ordinary financial decisions without worrying that one purchase will somehow undo 40 years of disciplined saving.
Research on retirement spending gives us some reason to pay attention to this issue.
Blanchett's more recent work finds that inflation-adjusted household spending generally declines as retirement progresses, including among relatively well-funded households.
That doesn't mean every retiree will spend less or that early retirement spending should automatically be increased.
However, it does challenge the assumption that every dollar preserved for later will necessarily have the same value to your life when later finally arrives.
At the same time, caution still matters. Research from EBRI shows that retirees face legitimate longevity and late-life financial risks, and asset-decumulation patterns vary considerably from household to household.
That's why this isn't an argument for reckless spending.
It's an argument for intentional spending.
Give Yourself Permission to Trust the Plan
For some people, the hard part of retirement planning isn't building the portfolio.
They've already done that.
The hard part is believing they no longer have to approach every dollar as though they're still preparing for an uncertain future.
And that's where I think good planning earns its keep.
The goal isn't simply to produce a probability-of-success number and hand you a report.
It's to help you understand what you can control, prepare for what you can't, and make informed decisions about the life you want to live with the resources you've built.
Sometimes the plan will tell us to be careful.
Sometimes it will tell us to wait.
Sometimes we'll need to change the investment strategy, reduce spending, increase reserves, or rethink a goal.
But sometimes the analysis has already done its job.
The risks have been considered.
The contingencies have been modeled.
The money is there.
And the thing standing between you and the life you planned isn't the portfolio anymore.
It's the fear that the portfolio was supposed to solve.
The goal was never to hold on tightest.
It was the freedom to use what you built.
So, name the fear. Understand where it may be coming from. Hold it up against the facts. Then give your financial plan permission to do something more than protect the money.
Let it help you use the money with purpose.
Because there comes a point when financial security isn't just having enough.
It's trusting that enough can finally be enough.
Sources
Klontz, Bradley T., Sonya L. Britt, Jennifer Mentzer, and Ted Klontz. "Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory." Journal of Financial Therapy, Vol. 2, Issue 1, 2011.
https://journals.newprairiepress.org/jft/article/id/5669/download/pdf/
Reiter, Miranda, Jesse B. Jurgenson, and Dee Warmath. "Evaluating the Klontz Money Script Inventory-Revised (KMSI-R): Factorial Validity, Internal Consistency, and Measurement Invariance with a Diverse Sample." Journal of Family and Economic Issues, 2025.
https://link.springer.com/article/10.1007/s10834-025-10055-7
Blanchett, David, and Michael Finke. "Retirees Spend Lifetime Income, Not Savings." Financial Planning Review, Vol. 8, Issue 3, 2025.
https://onlinelibrary.wiley.com/doi/full/10.1002/cfp2.70010
Blanchett, David. "How Spending Evolves in Retirement: A Smile, a Smirk, or Something Else?" Financial Planning Review, 2026.
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.70032
Society of Actuaries Research Institute. "2024 Retirement Risk Survey: Report of Findings." Published 2026.
https://www.soa.org/globalassets/assets/files/resources/research-report/2024/2024-retirement-risk-survey-series-final-report.pd
Employee Benefit Research Institute. "Asset Decumulation Over Retirement and the Role of Guaranteed Income Streams." EBRI Issue Brief, 2026.
https://www.ebri.org/content/asset-decumulation-over-retirement-and-the-role-of-guaranteed-income-streams
Weekly Market Update: Stocks Set Records as Tensions Ease and Oil Retreats
Markets rebounded this week as geopolitical tensions eased and oil prices declined. The S&P 500 gained nearly 4% and set a new all-time high, with the Dow Jones, S&P 500 Equal Weight, and Russell 2000 also setting records.
Technology, Consumer Discretionary, and Communication Services led all sectors, as the mega cap tech stocks known as the Magnificent 7 gained nearly 6.5%.
Energy was the worst-performing sector as oil prices fell nearly 7%, with defensive sectors also lagging the rally.
Bonds gained as oil and Treasury yields fell. Shorter-maturity bonds outperformed as easing inflation fears trimmed the odds of a rate hike, while high-yield corporates outperformed as credit spreads re-tightened, a sign of risk appetite.
The U.S. dollar strengthened slightly, the VIX declined, and gold rose to its highest level since mid-June.
Key Takeaways
Fed Holds Rates Steady for a Fifth Meeting
The Fed held its benchmark rate at 3.50% to 3.75% for a fifth consecutive meeting, the second under Chair Kevin Warsh. Three officials dissented in favor of a quarter-point increase, the most in that direction since 2016, and Warsh offered little guidance on the path ahead.
Stocks declined and Treasury yields rose to multi-year highs after the decision, with the 30-year yield trading near a 19-year high, on concern the Fed was not moving fast enough on inflation and might have to raise rates more later. Markets place around a 60% probability on a hike at the September meeting.
Why it matters: The Fed is providing less guidance about its intentions, which makes its policy path harder to forecast and, in turn, has made interest rates more volatile.
Oil Whipsaws on Middle East Tensions
Oil spiked more than 30% in July as the U.S.-Iran conflict escalated again, with West Texas Intermediate crude above $90 a barrel. It has since reversed by nearly 20% as a planned U.S. strike was paused and talks turned to reopening the Strait of Hormuz, a critical route for global oil trade.
Crude now trades near $75, roughly where it stood before the latest flare-up in early July. The headlines and move in oil prices are the latest in a pattern that has repeated multiple times this year, with each escalation followed by a round of de-escalation and one set of headlines countered by the next.
Why it matters: The conflict and swings in oil prices have added to interest-rate volatility and uncertainty about Fed policy.
Big Tech Earnings Split on AI Payoff
Several of the Magnificent 7 reported quarterly results this week, and investor reactions diverged sharply. The difference came down to how much growth each could show in return for its AI spending.
Microsoft rose 16% after its Azure cloud business grew 43%, the biggest one-day market-value gain for a stock on record, and Amazon gained 10% after its cloud division drove the first ever $200 billion quarter. In contrast, Meta declined as its heavy AI spending and a profit miss weighed on its ad business.
Why it matters: Investors are differentiating among the big tech companies, rewarding clear returns on AI spending and turning more cautious on the rest.
Q2 Growth Slowed but Core Demand Held Firm
The U.S. economy grew at a 1.5% annualized rate from April through June, down from 2.1% in Q1. The slowdown traced mainly to an increase in imports, which count against GDP, and a decline in government spending.
A measure of private demand that combines consumer spending and business investment rose 3.9%, more than double the 1.7% pace of the first quarter, as consumers continued to spend.
Why it matters: The economy's core held up despite the slowdown, with consumer and business demand still growing even as the headline number cooled.
Manufacturing Hit a Four-Year High in July
A widely followed gauge of factory activity, the ISM's manufacturing index, rose to 55.6 in July from 53.3 in June, its strongest reading since 2022. A level above 50 signals expansion.
The improvement was broad: production led the gain, new orders held firm, factory hiring expanded for the first time in nearly three years, and cost pressures eased.
Why it matters: Manufacturing continues to strengthen after several sluggish years, when elevated interest rates and reduced capital spending weighed on activity.
The Market Does Not Need a Recession to Correct
When markets fall, investors often assume something must be wrong with the economy.
They start looking for evidence of a recession, weakening employment, falling consumer spending, or deteriorating corporate profits.
However, markets don't need an economic contraction to experience a meaningful decline.
Sometimes prices simply get ahead of fundamentals.
Indeed, according to Ned Davis Research, moderate corrections of 10% or more happen, on average, once per year. Market declines greater than 15-20% happen once every 2-3 years according to their research.
That’s because valuations can become stretched, interest-rate expectations can change, or investors can crowd into the same companies or sectors.
Additionally, sentiment can shift after a modest earnings disappointment.
And when markets are priced for an unusually favorable outcome, it doesn't take a crisis to force a reset.
That distinction matters because markets and the economy aren't the same thing.
The economy measures activity across businesses, consumers, employment, and production. Markets, on the other hand, reflect what investors are willing to pay today for the cash flows they expect to receive in the future.
As a result, the economy can remain relatively stable while stock prices decline. Corporate earnings may still be growing. Consumers may still be spending. Businesses may still be investing. Yet markets can fall if those outcomes are weaker than investors expected or if the price attached to those outcomes becomes harder to justify.
To be sure, we're seeing some of the forces that can create that vulnerability today.
For example, investors have become more selective about whether artificial-intelligence spending will translate into revenue, cash flow, and profits.
At the same time, higher oil prices and Treasury yields have brought inflation and interest-rate risk back into focus. None of this means a broad correction is underway.
However, it does illustrate how expectations can become more fragile even when the economy isn't falling apart.
In other words, a correction doesn't require a recession. It only requires the market's expectations to change.
Markets Trade on Expectations, Not Just Economic Conditions
One of the most important distinctions we make when evaluating markets is the difference between what's happening in the economy and what investors had already assumed would happen.
The economy tells us what's happening today. Markets are forward-looking, meaning they attempt to price what may happen next.
That means a company can continue growing revenue and profits while its stock declines. If investors expected faster growth, stronger margins, or a clearer return on investment, otherwise respectable results may still disappoint.
Suppose a company reports that earnings increased 10 percent from the prior year. On its own, that sounds like a good result, right?
Well, if the market had expected earnings to grow 15 percent, the stock may still decline. The company hasn't stopped growing, and the business may not be fundamentally impaired. Its results simply weren't strong enough to support the assumptions already reflected in its share price.
The same principle applies to the broader market.
Prices don't fall only when economic conditions become bad. They can also fall when conditions remain good but no longer appear good enough to support current valuations.
That's why a correction can occur before a recession becomes visible in the economic data. It's also why a correction can happen without a recession ever arriving.
Valuation Determines the Margin for Error
Now, a key factor we look at when it comes to market corrections valuations.
That’s because valuation affects how forgiving the market will be when expectations aren't met.
When investors are paying relatively modest prices for future earnings, some uncertainty may already be reflected in stock prices. A company may be able to report a mixed quarter or lower its outlook without producing an extreme reaction.
However, that dynamic changes when valuations become elevated.
A higher valuation often reflects confidence that revenue will keep growing, profit margins will remain strong, interest rates will cooperate, and management will execute with few setbacks. The more favorable assumptions already included in the price, the less room there is for disappointment.
The Federal Reserve describes elevated valuation pressure as a condition in which asset prices are high relative to economic fundamentals or historical norms, often alongside a greater willingness by investors to accept risk.
To be sure, elevated valuations don't tell us exactly when prices will decline, but they can increase the potential for larger losses when expectations change.
That's why a market priced for perfection doesn't need a recession to decline. It may only require the future to look slightly less perfect.
A company might still report higher revenue, but investors may become concerned that expenses are rising faster. A new product may continue attracting customers, but the path to profitability may take longer than anticipated.
An industry may still have a compelling long-term future, but investors may decide they've already paid too much for that potential.
None of those developments requires an economic collapse. They simply require investors to reconsider what they're willing to pay.
Interest Rates Can Reset Prices Without Breaking the Economy
Interest rates can create another source of market pressure.
The value of an investment partly depends on the cash flows investors expect to receive in the future. When the return available elsewhere in the market rises, investors may apply a higher required return to those future cash flows. That can reduce what they're willing to pay today.
At the same time, higher bond yields give investors a more competitive alternative to stocks. Investors may become less willing to accept equity risk when high-quality fixed-income investments offer more attractive yields.
Consequently, the market may demand a lower stock price, a higher expected return, or both.
This effect can be particularly significant for growth companies whose valuations depend heavily on profits expected many years from now. Even when the underlying business outlook remains positive, a change in rates can reduce what investors are willing to pay for those distant earnings.
Bonds can also decline as interest rates rise. Therefore, a period of higher yields can place pressure on both stocks and fixed income without signaling that a recession has begun.
The market may simply be adapting to a different cost of capital.
That's also why inflation matters to investors even when economic growth remains intact. If inflation causes interest rates to stay higher than investors expected, asset prices may need to adjust around that new reality.
Again, the economy doesn't have to contract for that adjustment to take place.
Positioning Can Magnify an Otherwise Ordinary Disappointment
Market corrections aren't driven by fundamentals alone. They're also influenced by how investors are positioned.
When enthusiasm builds around a company, sector, or investment theme, more investors begin owning the same assets for many of the same reasons. Rising prices attract additional capital, recent performance reinforces confidence, and the trade can become increasingly crowded. That process can continue longer than many investors expect.
However, crowded positioning can work in reverse.
A modest disappointment may lead some investors to reduce exposure. Those initial sales push prices lower, which can encourage additional selling from investors who were comfortable with the risk only while prices were rising. Before long, the decline can appear disproportionate to the news that caused it.
The headline may be the catalyst, but valuation, positioning, and sentiment often determine the size of the reaction.
That's another reason markets don't need a recession to correct. A crowded trade can unwind because the expectations supporting it have changed, even when the broader economy remains relatively stable.
Today's Environment Shows the Ingredients, Not the Outcome
The current market environment helps illustrate these forces, but it's important not to overstate what the recent data tells us.
The market hasn't experienced a broad correction simply because some growth and technology investments have come under pressure. Instead, investors have started applying greater scrutiny to companies making large artificial-intelligence investments. The question is shifting from how much those companies can spend to whether that spending can generate sufficient growth, cash flow, and profitability.
Meanwhile, renewed inflation concerns and higher interest rates have complicated the valuation backdrop. These developments don't prove that a correction is coming, and they certainly don't tell us when one might occur. They do, however, show how the assumptions supporting market prices can change.
A company can remain profitable while investors become less willing to pay a premium for its future growth. The economy can remain intact while interest rates force investors to reconsider valuations. A popular investment theme can continue having long-term potential while the stocks associated with it experience a short-term reset.
The current environment makes the subject timely. It doesn't serve as evidence that a broad correction has already occurred.
For evidence of the thesis itself, history provides a cleaner example.
The Fourth Quarter of 2018 Offers a Useful Example
During much of 2018, the Federal Reserve described asset valuations and investor appetite for risk as elevated. The economy, meanwhile, remained in an expansion.
Then, during the fourth quarter, market volatility rose sharply and equity prices declined. That drop reduced valuation pressure in stocks and corporate bonds, even though the underlying economic expansion continued.
The Federal Reserve later reported that economic growth remained solid during the second half of the year, with real gross domestic product growing a little less than 3 percent for 2018 as a whole.
The economy didn't enter a recession in 2018. According to the National Bureau of Economic Research, the expansion that began in June 2009 continued until economic activity peaked in February 2020.
That doesn't mean the 2018 decline was unimportant or that investors knew the economy would continue expanding. It means a meaningful market reset occurred without a concurrent recession.
Investors reassessed valuations, interest rates, global growth expectations, and their appetite for risk. Stock prices adjusted even though the economic expansion still had more than a year to run.
That's the distinction investors often miss.
A market decline may reflect concern about what could happen next. It may reflect a lower price investors are willing to pay for the same earnings. Or it may simply reverse some of the optimism that had already been built into prices. It doesn't automatically mean the economy has entered a recession.
How We Read a Market Decline
In our investment process, we don't treat every pullback as evidence that the long-term plan is broken. Over the years, we've learned to ask the same question first, before anything else. Is the market repricing expectations, or is the economy actually deteriorating?
That single question does most of the work. The market can reprice for all the reasons we've described, stretched valuations, higher rates, crowded positioning, a modest earnings disappointment, without the economy changing at all. So the first thing we look for isn't a headline. It's evidence of genuine financial stress.
Credit conditions tend to tell us the most. When investors grow truly concerned about borrowers' ability to repay, that worry shows up in credit markets before it appears almost anywhere else. When credit spreads stay calm while stocks fall, the decline usually looks more like repositioning than a fundamental break.
When spreads widen meaningfully, we pay closer attention. That's the same signal we've relied on through past pullbacks, and it rarely misleads us.
From there, the rest of the read fills in around that question. We look at whether weakness is broad or concentrated, because a decline led by a handful of highly valued companies tells us something different from weakness spreading across most sectors and company sizes.
We look at whether corporate fundamentals are deteriorating across the market or whether a smaller group of companies is simply failing to meet elevated expectations, because there's a real difference between profits falling throughout the economy and a profitable company disappointing investors who wanted more.
And we consider whether interest rates are changing the return investors demand, because a higher discount rate can lower prices even when the expected cash flows haven't weakened at all.
None of those readings, though, answers the only question that ultimately matters to you. Does this decline change your plan?
That's where we finish, every time. We return to the purpose of the money.
Has your time horizon changed?
Have your near-term spending needs increased?
Is there enough liquidity in place?
Has your willingness or ability to accept risk changed?
We also look at whether prior performance has quietly left the portfolio more concentrated than intended, because an investment that did well can grow into a larger position and leave you more dependent on one company, one sector, or one outcome than you meant to be.
A correction that doesn't change your goals, time horizon, or cash-flow needs may not require any change to the long-term strategy.
However, a portfolio that was too concentrated, too aggressive, or too dependent on near-term withdrawals may reveal a weakness that deserves attention.
This approach doesn't let us predict the market's exact bottom.
Nothing does.
But it does help us tell the difference between normal repricing, broader financial stress, and a portfolio problem that actually requires action. That distinction is the one that protects the plan.
Diversification Matters When Leadership Changes
The purpose of portfolio construction isn't to eliminate every decline. That isn't realistic.
Instead, the goal is to build a portfolio that doesn't require every part of the market to perform well at the same time.
Market leadership changes. Growth can outperform value for an extended period before the relationship reverses. Domestic stocks can lead international markets until valuation differences begin to matter. Longer-term bonds can provide diversification in one environment and struggle when inflation and interest rates rise. No allocation works best under every condition.
That's why diversification isn't simply about owning more investments. It's about reducing the portfolio's dependence on one company, one investment style, or one economic outcome.
The SEC describes asset allocation as dividing investments among categories such as stocks, bonds, and cash. It also emphasizes that investors should look beneath fund labels and examine underlying holdings, because owning several funds doesn't necessarily create meaningful diversification.
Diversification can't prevent losses or guarantee better returns. However, it can reduce the risk that weakness in one narrow part of the market disrupts the entire plan.
Rebalancing provides another layer of discipline. When one area has risen far beyond its intended allocation, rebalancing can reduce unintended concentration.
When another area has fallen below its target, the process can create a systematic way to restore exposure without relying entirely on emotion or short-term predictions.
The SEC identifies asset allocation, diversification, and rebalancing as related tools for managing portfolio risk over time.
Adequate liquidity matters as well. Investors who have their near-term spending needs covered are generally in a better position to tolerate volatility. They're less likely to become forced sellers during a decline and less dependent on correctly predicting when the correction will end.
In our experience, these decisions are best made before markets become unsettled. It's far easier to build discipline into a portfolio when nothing is going wrong than to manufacture it in the middle of a selloff.
Build for the Reset Before It Arrives
Corrections are uncomfortable because they create uncertainty without providing a clear endpoint.
Nevertheless, they're a normal part of investing.
A durable investment plan shouldn't depend on the economy avoiding every slowdown, interest rates moving exactly as expected, or investors remaining permanently enthusiastic about the same companies.
It should assume that valuations will occasionally reset, market leadership will change, and prices will sometimes decline even when the economic backdrop remains relatively stable.
Therefore, the important question isn't whether the market will experience another correction. It will.
The more important question is whether your portfolio was built to withstand one.
A pullback isn't automatically evidence that the plan has failed. Sometimes it's simply the market adjusting expectations, demanding greater discipline, and returning prices to a level that better reflects the risks ahead.
The market doesn't need a recession to correct. Likewise, a disciplined investor doesn't need to predict every correction to be prepared for one.
So the real question isn't whether you can see the next correction coming. It's whether your plan is ready when it does.
Sources
Federal Reserve Board, Financial Stability Report: Asset Valuation Pressures, November 2018; https://www.federalreserve.gov/publications/2018-november-financial-stability-report-asset-valuation-pressures.htm
Federal Reserve Board, 2018 Annual Report: Monetary Policy and Economic Developments; https://www.federalreserve.gov/publications/2018-ar-monetary-policy.htm
National Bureau of Economic Research, Determination of the February 2020 Peak in US Economic Activity, June 8, 2020; https://www.nber.org/news/business-cycle-dating-committee-announcement-june-8-2020
U.S. Securities and Exchange Commission, Investor.gov, Asset Allocation and Diversification; https://www.investor.gov/introduction-investing/getting-started/asset-allocation
Stock Market Corrections Are Normal — Ned Davis Research (PDF); https://www.ndr.com/hubfs/NDR/Business%20Developer/pdfs/EDU_8_WM_public.pdf?hsLang=en
July Market Update: A Loud Month, a Quiet Market
July gave investors plenty to think about.
Geopolitical tensions flared again in the Middle East. AI stocks pulled back after a strong start to the year. And the Federal Reserve had another rate decision to make.
Yet when the month was over, the market had barely moved.
The S&P 500 returned -0.1%.
Beneath that flat headline, though, there was quite a bit going on. Energy led every sector with a +12.6% return as geopolitical tensions pushed oil prices higher. Financials followed at +6.2%. The more defensive corners of the market held up well too, with Real Estate (+2.5%), Health Care (+2.4%), and Consumer Staples (+2.1%) all gaining ground.
Technology was the outlier. The sector fell -3.4% as AI stocks gave back some of the gains they'd built up earlier in the year.
Bonds had a tougher month.
The U.S. Aggregate Bond Index returned -1.3% as Treasury yields moved higher. The culprit was familiar: rising oil prices, tied to the renewed U.S.-Iran conflict, brought inflation concerns back to the surface. Investment-grade corporate bonds lagged with a -1.5% return, while high-yield corporates held up a bit better at -0.3%.
Overseas, the picture was mixed. Developed international markets gained +2.0% and outperformed the S&P 500. Emerging markets went the other way, returning -3.0%, as the same U.S. tech selloff weighed on South Korean stocks.
Markets Turn Back to the Middle East as Tensions Resurface
The ceasefire from earlier this spring didn't hold.
Renewed conflict between the U.S. and Iran brought back the same headlines and the same concerns we saw earlier in the year. Once again, uncertainty around the Strait of Hormuz raised the risk of reduced oil supply. Late in the month, there were signs of another round of de-escalation, but the situation remains fluid.
This matters for the same reason it did the first time around.
After all, energy prices feed directly into inflation. And inflation, in turn, shapes what the Federal Reserve decides to do next.
In July, the Fed held interest rates steady for the fifth consecutive meeting. But it wasn't a unanimous call. A handful of officials pushed for a +0.25% rate hike, pointing to the renewed inflation risk.
If this feels familiar, that's because it is.
We've now moved through this same cycle several times this year. Conflict escalates. Oil prices rise. Tensions ease. And then the pattern repeats. The specific headlines shift from week to week, but the market has absorbed this same shock more than once.
The Fed's split decision reflects that uncertainty. Officials are debating their next move, but for now they're choosing to gather more information rather than react to the latest headline.
And here's the part worth remembering: despite all the noise, the net impact on markets has been limited. Stocks rebounded from the March selloff, and the S&P 500 has returned nearly +10% this year.
AI Stocks Trade Lower as Investors Shift Focus from Growth to Discipline
Second-quarter earnings season kicked off in July, and the biggest names in AI all reported: Alphabet, Microsoft, Meta, Apple, and Amazon.
These are the companies pouring money into data centers and the other infrastructure needed to power artificial intelligence. This quarter, they laid out their forecasts and their spending plans.
Something had changed in how investors received them.
For the past two years, the AI conversation was all about scale. How much are these companies spending? How fast are they building? How big could the opportunity get? This quarter, the focus shifted to a different question: profitability and return on investment.
In plain English, investors started pushing back on the spending.
Companies whose investments are clearly translating into growth, like Microsoft's cloud business, were rewarded. Companies whose spending has outpaced their cash flow, or started to weigh on profit margins, saw their stocks move lower.
The market is no longer content to reward growth and big spending numbers on their own. It's asking a harder question: is the spending actually profitable, or are expenses climbing faster than revenue?
This is a healthy development.
Every major technological buildout eventually reaches a point where investors stop rewarding growth for its own sake and start looking for results to match. July was the month that question arrived for AI.
As that scrutiny set in, semiconductor stocks and other parts of the AI trade gave back some of their earlier gains, with investors questioning whether the current pace of spending could last.
But it's worth keeping the pullback in perspective.
The volatility stayed relatively contained. For instance, the equal-weight S&P 500, a proxy for the average S&P 500 stock, set a new all-time high late in the month, and seven of the eleven sectors finished higher. Credit spreads, which measure how worried the market is about credit risk, widened only modestly and remain very tight by historical standards. And even after the pullback, semiconductor stocks are still up nearly +60% for the year.
As for the companies doing the spending? They're forecasting even higher spending levels in the quarters ahead.
What This Means for Investors
July was a busy month that, on the surface, went almost nowhere.
Geopolitical tension returned. AI leadership wobbled. The Fed stood pat, but not without disagreement. And through all of it, the S&P 500 finished essentially flat.
That's a useful reminder.
A lot can happen in a month without much of it showing up in your account balance. The headlines were loud, but the market's response was measured, and in some ways more disciplined than it's been in a while.
That discipline is the theme worth holding onto. Whether it's a geopolitical shock the market has already learned to absorb, or a shift toward asking harder questions about AI spending, the through-line is the same. Markets are starting to separate noise from results.
For long-term investors, that's not something to fear. It's something to build around.
Weekly Market Update: The Bigger Picture Behind July's Turn
July delivered the third major shift in financial markets this year, following the turns in March and April. The AI and semiconductor trade that had led all year reversed sharply, sliding into a bear market as investors moved from rewarding capital spending to scrutinizing it.
At the same time, the re-escalation of the U.S.-Iran conflict reopened the channel that runs from oil to inflation to Fed policy. Major indices pulled back from record highs, the VIX drifted toward 20, and the Fed turned more hawkish. The damage, though, has been relatively concentrated.
AI stocks have entered correction territory, but credit spreads remain near cycle lows and breadth has improved, making this something close to a mirror image of early in the second quarter.
Our base case is for volatility to stay elevated, with wide dispersion and continual rotations as the market works through two open questions: whether the AI pullback is the first crack or a healthy mid-cycle reset, and whether the oil-inflation-Fed risk builds or fades.
The setup carries wide tails in both directions, and we are positioned to stay flexible.
Looking further out is harder given the pace at which markets are moving. Yet for all the swings in sentiment this year, major indices remain near record highs, and the consensus still calls for a soft landing, a reflection of the economy's resilience even through a global oil supply disruption.
The bull case is now driven more by corporate earnings than by expectations for lower rates, with AI-related investment the dominant structural force behind earnings growth. Much of that is already viewed as priced in, and expensive valuations paired with unresolved tensions in the Middle East introduce real downside risk.
The next twelve months likely turn on whether earnings can grow into elevated valuations and whether inflation and energy prices stay contained.
Current Market Themes
Federal Reserve Policy: The Fed remains on hold but continues to shift hawkish, with markets now pricing in two rate hikes (September 2026 and early 2027).
Corporate Earnings: A strong second quarter, with the S&P 500 posting its seventh straight quarter of double-digit year-over-year growth and record margins.
Artificial Intelligence: AI capex is powering both economic and EPS growth, though expectations are very high and the industry looks set to stay volatile.
Economic Factors
U.S. GDP Growth: Q2 growth slowed from the first quarter, though core growth (real final sales to private purchasers) held up solidly despite the oil disruption.
Inflation: The oil supply disruption pushed inflation higher, and with oil prices still volatile, there is a risk it stays above target.
Employment: Labor conditions are improving after weakening in late 2025, with the market still relatively tight and "low-fire, low-hire."
U.S. Consumer: Supported by strong equity and labor markets, but facing headwinds from slowing income growth and inflation pressure.
Interest Rates: Rate volatility has come down from recent years, though rates should stay volatile given oil prices and economic uncertainty.
Long Duration Bonds: Neutral to modestly overweight, driven mainly by inflation risk and economic uncertainty; favor Treasuries over corporates.
Why the First Five Years of Retirement Decide the Next Twenty-Five
Most people think the biggest retirement risk shows up late, the fear of running out of money in your eighties or nineties.
However, the conditions that create that risk usually show up much earlier.
The first five years of retirement are a genuine hinge point. Your paycheck stops, withdrawals begin, and decisions about Social Security, taxes, healthcare, investments, and spending all start colliding with one another in ways they never did while you were working.
Those five years don't literally dictate everything that follows. Still, they have an outsized effect on how much flexibility your plan keeps for the twenty that come after.
That's why retirement shouldn't start with a portfolio balance and a withdrawal percentage. Instead, it should start with a plan for the stretch when your financial life is most exposed to change.
Retirement Changes the Math
While you're working, a market decline is uncomfortable, but it's survivable. You're still earning, still contributing, and you have time to let markets recover.
Retirement rewrites that equation.
Once withdrawals begin, your portfolio has to absorb two things at once, the market's swings and the money you're pulling out to live on. As a result, a decline in the first year or two can do far more damage than the same decline fifteen or twenty years later.
That's sequence-of-returns risk.
Two retirees can earn the exact same average return over their retirement and still end up in completely different places, depending on when their best and worst years land. In fact, the decumulation research keeps showing the same thing, that losses early in retirement, paired with ongoing withdrawals, can meaningfully shorten how long a portfolio lasts.
In other words, the average return in your projection doesn't tell the whole story. The order of those returns does.
Why an Early Loss Is So Hard to Recover From
Say you retire with $3 million and plan to draw $150,000 in your first year.
If the portfolio drops 20 percent before you take anything out, it falls to about $2.4 million. After that first $150,000 withdrawal, you're at roughly $2.25 million.
Now the portfolio has to recover from the loss and keep funding every withdrawal that follows.
By contrast, put that same 20 percent decline in year twenty, and the picture changes. By then you may have banked years of positive returns, shortened the horizon the money has to cover, or adjusted your spending. The drop still stings, but the plan is built to take it.
That's why, in our planning work, we don't just ask whether a portfolio can support a given withdrawal over thirty years. We also ask what happens if the bad years show up first.
What if the market falls in year one?
What if inflation stays hot?
What if the roof, the car, and a round of dental work all land in the same twelve months?
What if a large Roth conversion quietly triggers a Medicare premium increase?
A good plan answers those questions before you're forced to answer them in real time, under pressure.
The First Five Years Are About More Than Markets
Sequence risk matters, but markets are only half the story.
The early years of retirement are also when the big, hard-to-reverse decisions get made.
For example, take Social Security. Benefits generally grow for each year you delay claiming past full retirement age, up to age 70. That doesn't make delaying right for everyone, health, marital status, survivor needs, other income, and your withdrawal strategy all weigh in. However, once you claim, your options narrow.
Similarly, consider the window between retiring and the start of required minimum distributions. Your earned income may be lower in those years, which can open room for Roth conversions, capital-gain harvesting, charitable planning, or deliberate withdrawals from tax-deferred accounts. Under current rules, most retirees begin RMDs at age 73, though the exact age depends on your birth year.
Here's where it all ties together, and where a lot of plans go wrong. A Roth conversion can't be judged only by comparing today's tax rate to a future one. Higher income in a single year can raise your Medicare Part B and Part D premiums through IRMAA, pull more of your capital gains into tax, and reshape the tax bill your surviving spouse will one day face. These moves live in the same retirement tax window I've written about before, so I won't rebuild that case here.
The problem isn't that retirees make these decisions. Instead, it's that they too often make them one at a time, when the entire point is to coordinate them.
Two Couples, One Market, Two Outcomes
Picture two couples. Each retires at 65 with $3 million and needs about $150,000 a year to live the life they've planned for. In their first three years, both run into the same rough market.
The first couple keeps taking the full, inflation-adjusted withdrawal straight from the portfolio. They claim Social Security right away, because watching their investments fall makes them nervous. And they go ahead with a big travel year and a major renovation.
No single one of those choices is unreasonable. However, stacked together, in a down market, they pile pressure on a portfolio that's already shrinking.
The second couple runs a different play. They lean on a near-term cash reserve, so they're not selling growth investments into the decline. They separate essential spending from discretionary, and push part of the travel budget out a year. They rebalance back to their policy instead of reacting to the headlines. Finally, they revisit Social Security and Roth conversions in light of the new market and tax picture.
Same returns. Different retirement. The difference wasn't the market, it was the decisions they made around it.
The point isn't that every retiree needs that exact reserve or withdrawal order. Instead, it's that retirement resilience comes from having more than one way to respond.
Flexibility Might Be Your Most Valuable Retirement Asset
In planning conversations, I keep coming back to one distinction, the line between essential spending and flexible spending.
Essential is housing, food, insurance, healthcare, taxes, basic transportation. You can't cut those quickly.
Flexible is travel, gifts, renovations, the vehicle upgrade, the discretionary purchases. Those matter too, retirement is meant to be enjoyed, not endured. However, having some room to shift their timing can keep a temporary market drop from hardening into a permanent setback.
The withdrawal research backs this up. Dynamic strategies that adjust spending when the portfolio moves outside preset guardrails tend to hold up better than mechanically raising withdrawals every year, no matter what markets are doing.
That doesn't mean slashing spending every time the market has a bad month. Instead, it means deciding in advance what would actually trigger a change. For example, ordinary spending might continue through normal volatility, while the big discretionary items get a second look if the portfolio falls past a line you set ahead of time.
The value is in making that call while everyone's calm, not after fear has taken the wheel.
A Five-Year Retirement Stress Test
Before you retire, you want to know the plan can handle more than the expected case. Five tests get you most of the way there.
Test an early market decline
Instead of assuming smooth average returns, model a real drop in year one or two. Then map out exactly how you'd fund spending without abandoning your long-term strategy, whether that's cash, short-term fixed income, trimmed discretionary spending, or another income source. "We'll figure it out when it happens" isn't a strategy.
Separate recurring and irregular spending
A monthly budget is necessary but not sufficient. Roofs, cars, family support, big trips, and uncovered healthcare arrive in lumps, and they belong in the model separately from ordinary lifestyle spending. Otherwise, a plan can look sustainable while quietly ignoring the retirement spending blind spot most likely to derail it.
Build a multiyear tax map
Retirement tax planning shouldn't be done one April at a time. Instead, project your income out through the start of RMDs and beyond, find the years when taxable income dips, and test whether Roth conversions or other moves improve your lifetime tax position, not just this year's return. Then check how each move ripples into IRMAA, capital gains, charitable goals, and your surviving spouse.
Name the permanent decisions
Social Security claiming, pension elections, selling the house, large gifts, certain insurance choices. Some of these can't be undone. Before you act, get clear on what's reversible and what isn't. When uncertainty is high, keeping your options open is often worth more than locking in a permanent answer early.
Set your guardrails
Finally, decide ahead of time how the plan responds when things move. What happens if spending runs 10 percent over plan? If the portfolio drops? If one spouse dies earlier than expected? If a child needs help? If you want a second home? A plan is far more useful when it holds decision rules, not just projections.
The Goal Isn't to Predict the First Five Years
Nobody knows what markets, inflation, tax law, healthcare, or your family will do in your first five years of retirement.
Fortunately, a strong retirement plan never required a crystal ball. It requires preparation.
Those first five years matter because that's when withdrawals begin, the big elections get made, and the portfolio has the least room for an avoidable mistake. However, they don't have to dictate the rest of your retirement. A coordinated plan gives you room to respond, through appropriate reserves, flexibility in your discretionary spending, coordinated tax decisions, a disciplined portfolio, and a plan you actually revisit as life changes.
So before you circle a retirement date, don't ask only whether you've saved enough. Ask whether the plan can survive an unfavorable start.
Because the strength of a retirement plan isn't how well it works when everything goes right. It's how much flexibility you've still got when something goes wrong. That's where clarity, confidence, and peace of mind actually come from.
If you'd like to pressure-test your own first five years, especially how your withdrawals, Social Security timing, and Roth conversions interact before the difficult years get a vote, that's the conversation we have every day. We'd be glad to have it with you.
Sources
Social Security Administration. "Delayed Retirement Credits."
https://www.ssa.gov/benefits/retirement/planner/delayret.html
Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."
https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
Social Security Administration. "Medicare Premiums: Rules for Higher-Income Beneficiaries" (income-related monthly adjustment amounts for Part B and Part D).
https://www.ssa.gov/benefits/medicare/medicare-premiums.html
Jonathan Guyton and William Klinger. "Decision Rules and Maximum Initial Withdrawal Rates." Journal of Financial Planning, March 2006.
https://www.financialplanningassociation.org/article/journal/MAR06-decision-rules-and-maximum-initial-withdrawal-rates
Morningstar. "The State of Retirement Income."
https://www.morningstar.com/retirement/morningstars-retirement-income-research-finding-your-safe-withdrawal-rate
Weekly Market Update: Oil Shock Pushes Yields to Fresh Highs
Markets traded lower this week as the conflict in the Middle East intensified and oil prices surged 17%.
The S&P 500 and Nasdaq each declined roughly 2%, while the Russell 2000 finished the week down about 1.5%. Most equity factors also moved lower, including Growth, Value, and Equal Weight, as market participation weakened.
Momentum and High Beta were the two exceptions. Both outperformed after lagging in recent weeks, helped in part by continued weakness across semiconductor stocks.
At the sector level, Energy and Utilities led the market higher. Meanwhile, Consumer Discretionary declined nearly 7% as investors considered how higher fuel and transportation costs could affect household spending and corporate profit margins.
Bonds also traded lower as interest rates rose across the yield curve. Longer-maturity bonds underperformed, which is typically what we’d expect when investors become more concerned about inflation. The VIX climbed back toward 20 late in the week, while the U.S. dollar strengthened as interest rates rose and market volatility increased.
Key Takeaways
Oil Prices Rise as the U.S.-Iran Conflict Escalates
The United States carried out a twelfth consecutive night of strikes this week, while Iran continued targeting tankers traveling through the Strait of Hormuz. The strait is one of the world’s most important energy corridors and carries a significant share of the global oil trade.
Meanwhile, Yemen’s Houthi rebels added another layer of uncertainty by threatening a naval blockade against Saudi Arabia. That threat raises the possibility of disruption not only in the Strait of Hormuz, but also across shipping routes in the Red Sea.
Oil prices responded quickly. West Texas Intermediate crude climbed above $90 per barrel, while Brent crude, the international benchmark, briefly touched $100. Both reached their highest levels in roughly six weeks.
At the same time, there’s been little visible diplomatic progress. Secretary of State Marco Rubio said Iran was “not serious about talks,” reducing near-term expectations for a negotiated resolution.
Why It Matters: The conflict had shown signs of stabilizing, but each additional strike, tanker attack, or threat to shipping routes introduces a new risk premium into oil prices.
The issue isn’t simply whether oil reaches a particular price. What matters is how long prices remain elevated and whether those higher costs begin working their way through transportation, manufacturing, utilities, and consumer spending.
In other words, the longer the conflict continues, the greater the chance that an overseas geopolitical event turns into a broader inflation and economic-growth concern for the United States.
Rising Oil Prices Push Treasury Yields to Fresh 52-Week Highs and Revive Expectations for a Fed Rate Hike
This week’s move in Treasury yields was a direct extension of the Middle East story.
The 10-year Treasury yield rose above 4.70%, reaching a new 52-week high, as investors began pricing a greater risk that higher energy costs could keep inflation elevated.
Expectations for Federal Reserve policy also shifted. Fed funds futures now assign a greater than 80% probability to an interest-rate increase at the Fed’s September meeting, up from approximately 50% one week ago.
That’s a meaningful change in a short period of time. It suggests that investors are no longer viewing the rise in oil prices as an isolated market event. Instead, they’re considering whether higher energy costs could affect the Fed’s broader inflation outlook.
Why It Matters: Treasury yields are now closely tracking developments in the Middle East, which highlights how interconnected energy markets, inflation expectations, and interest rates have become.
Higher yields can create pressure across several parts of the economy. They can raise borrowing costs for households and businesses, weigh on bond prices, and make it more difficult for highly valued stocks to justify their current prices.
However, the key question for the Fed is whether the rise in energy prices is temporary or whether it begins affecting wages, consumer expectations, and the prices of other goods and services.
A short-lived oil shock may not change the Fed’s plans. A prolonged inflationary shock could.
Alphabet’s Strong Quarter Was Overshadowed by a Growing AI Capital-Spending Commitment
Alphabet reported second-quarter results Wednesday that exceeded expectations across several major areas.
Revenue increased 24% to $120 billion, Google Cloud revenue jumped 82%, and operating margins expanded. By most traditional measures, it was a strong quarter.
However, Alphabet shares still declined approximately 5% in after-hours trading as investors focused on the amount of spending required to produce that growth.
The company increased its 2026 capital-expenditure guidance to between $195 billion and $205 billion, up from its previous range of $180 billion to $190 billion. Management also indicated that spending would increase again in 2027.
Meanwhile, quarterly free cash flow turned negative for the first time in the company’s history as capital spending exceeded the cash generated by its operating businesses.
Why It Matters: The market doesn’t appear to be questioning whether artificial intelligence is contributing to growth. Alphabet’s results provide strong evidence that it is.
Instead, investors are asking a more difficult question: How much will companies have to spend to generate that growth, and when will those investments begin producing an attractive return?
That distinction matters because revenue growth alone doesn’t necessarily create shareholder value. Companies also need to demonstrate that the cash invested in data centers, chips, energy, and other AI infrastructure can eventually produce sustainable profits and free cash flow.
For now, the market appears willing to support substantial AI investment. However, investors are becoming less willing to accept an unlimited spending commitment without clearer evidence of the eventual payoff.
Next Week’s Calendar Could Answer Many of These Questions
Several of the market’s biggest current debates will be tested within a two-day period next week.
The Federal Reserve’s two-day meeting concludes Wednesday, July 29, with an interest-rate decision and press conference. Investors will be listening closely for signs that officials view higher energy prices as a temporary disruption or as a reason to reconsider the path of monetary policy.
Microsoft and Meta will report earnings after the market closes that same day. Their results will provide two more important data points in the debate over AI-related spending, revenue growth, and investment returns.
Then, on Thursday, investors will receive the advance estimate of second-quarter gross domestic product and the June Personal Consumption Expenditures Index, the Fed’s preferred inflation gauge.
Apple and Amazon will report earnings after Thursday’s closing bell, adding additional information about consumer demand, cloud computing, and corporate technology spending.
Why It Matters: Nearly every major question discussed this week will face a real-world test next week.
The inflation data may show whether price pressures were already building before the latest rise in oil. The Fed’s comments may clarify whether officials are prepared to respond to energy-driven inflation. Meanwhile, the technology earnings reports may reveal whether AI spending is continuing to generate enough growth to justify its rapidly rising cost.
Any one of these events could move markets. Taken together, they could determine whether this week’s volatility was a temporary response to geopolitical uncertainty or the beginning of a more meaningful shift in the market’s outlook for inflation, interest rates, and corporate profits.
The Tax Bill You're Leaving Your Kids
One of the most common things I hear in a Roth conversion conversation is, "I don't want to pay the tax until I have to."
That sounds conservative. Why create a tax bill today when you could leave the money invested?
But for families with more retirement money than they're likely to spend, delaying the tax doesn't avoid it. It moves it. Off the parents' return, onto the children's.
Your kids may inherit that account in their forties or fifties, in the highest-earning years of their careers. So the dollars you declined to convert at a 22 percent marginal rate could come out later while they're paying 32 percent or more.
The family pays the tax either way.
The only real question is whether you decide whose return the income lands on, or whether you let that get decided for you.
A Traditional IRA Is More Than an Investment Account
A traditional IRA isn't just an investment account. It's an investment account with a deferred tax liability attached.
The balance on the statement isn't the amount your family gets to spend.
If the account holds mostly deductible contributions and tax-deferred growth, distributions are generally taxable income. During your lifetime, required minimum distributions eventually force some of that income onto your return. If you die with money still in the account, your beneficiaries inherit the assets and the tax obligation that rides along with them.[1]
There are exceptions worth knowing. Part of an IRA may represent after-tax basis. A qualifying charity can generally receive the account without paying the income tax an individual beneficiary would owe. A surviving spouse has options an adult child doesn't.[1]
But when a parent leaves a largely pretax IRA to adult children, the tax liability doesn't disappear.
It changes taxpayers.
The SECURE Act Compressed the Window
Before the SECURE Act, many non-spouse beneficiaries could stretch inherited IRA distributions over their life expectancy. Depending on the beneficiary's age, that could spread the taxable income across decades.
For most adult children today, that's gone.
Most adult children are designated beneficiaries, but not "eligible designated beneficiaries." They generally have to empty the inherited IRA by December 31 of the year containing the tenth anniversary of the owner's death.[1][3]
The main exceptions are a surviving spouse, the owner's minor child, a disabled or chronically ill beneficiary, and someone who isn't more than ten years younger than the account owner.[1]
What happens inside those ten years depends on when the owner died.
If the owner died before the required beginning date for minimum distributions, the beneficiary generally doesn't have to take annual distributions in years one through nine. The account still has to be empty by the end of year ten.[1][3]
If the owner died on or after the required beginning date, the beneficiary generally has to keep taking annual required distributions during the ten-year period, and still empty the account by the end of year ten.[1][3]
Either way, the window is a lot shorter than most families expect.
Your Children May Inherit the IRA at the Worst Possible Time
The problem with the ten-year rule isn't that ten years is short.
It's which ten years they turn out to be.
Your children might inherit this account while they're earning peak salaries, taking bonuses, exercising options, selling company stock, running a business, or writing tuition checks for your grandchildren.
Then, on top of all of that, they have to empty an inherited IRA.
Those distributions can push part of the account into a higher federal bracket. They can also reach state income taxes, deductions, credits, and capital-gain rates.
That's why I don't evaluate a conversion by asking only, "How much tax would you pay this year?"
I ask a different question. Which family member is most likely to report these dollars as income, in which years, and at what incremental rate?
That turns a one-year tax calculation into a multigenerational planning decision.
Consider a 74-Year-Old Widow With a $1.4 Million IRA
Say a 74-year-old widow has $1.4 million in a traditional IRA.
She's already taking required minimum distributions. After her other income and deductions, additional taxable income still falls in the 22 percent federal bracket.
She passes on Roth conversions. Her tax bill already feels high enough, and paying more on purpose doesn't seem necessary.
Now say she dies several years later and leaves the remaining IRA equally to her two adult children.
Both are in their late forties. Both are already earning well. Once the inherited distributions stack on top of their existing income, assume those incremental dollars land in the 32 percent bracket.
For illustration, each child inherits $700,000 and takes $70,000 a year over ten years. Before any growth, the family recognizes $1.4 million of inherited IRA income during that period.
At an assumed 32 percent marginal rate, that's roughly $448,000 of federal income tax.
Apply an assumed 22 percent rate to the same $1.4 million and you get roughly $308,000.
A simplified difference of $140,000.
The family pays the tax either way. It just paid ten points more, and nobody chose it.
One qualification matters here. This doesn't mean the widow could have converted the whole $1.4 million at 22 percent. A conversion that size would cross several brackets. Federal brackets also apply in layers, so not every dollar a beneficiary withdraws is taxed at their top rate. The illustration compares two incremental rates on the same dollars. It isn't a forecast.
The real opportunity would have been a series of partial conversions over several years. Some might happen after retirement but before required distributions begin. Others could happen after RMDs start, as long as the required distribution comes out first, because an RMD itself can't be converted to a Roth IRA.[4]
So the credible question was never whether she could convert everything at 22 percent.
It's how much of the account she could move over time at a lower family tax rate than her children may eventually pay.
What I'd Actually Model
A useful conversion analysis has to do more than compare today's bracket against a child's assumed future bracket.
In our planning process, I want to see at least five scenarios.
- The parent's tax bill with no conversions.
We need a baseline first. That means projecting IRA growth, required distributions, Social Security, pensions, deductions, filing status, and other taxable income.
Without it, we don't know whether the IRA is likely to shrink, hold steady, or keep growing even while distributions come out. In a lot of cases it keeps growing, and that surprises people.
- A series of partial conversions.
Then we model several amounts instead of an all-or-nothing decision. We might compare converting enough to stay inside a target bracket against pushing into the next rate on purpose.
The goal isn't to minimize this year's tax bill. It's to find out whether paying more now lowers the family's projected lifetime tax cost.
This is also where we settle how the conversion tax gets paid. Outside assets or withholding from the IRA. Paying from the IRA leaves fewer dollars inside the Roth and can shrink the benefit you're converting to capture.
- The surviving spouse.
For married couples, the children usually aren't the first tax problem. The first problem shows up when one spouse dies.
The survivor may keep most of the same income and file as a single taxpayer, which means reaching higher brackets on less income.
Conversions can protect the spouse who lives longer, not just the next generation.
- The beneficiaries' likely tax range.
Nobody knows what your children will earn twenty years from now. No projection fixes that.
We can still make reasonable estimates. Are they early in high-income careers? Do they own businesses? Might they retire before they inherit? Does one live in a high-tax state while the other lives somewhere with no income tax?
We aren't trying to predict their returns. We're trying to see whether there's a meaningful chance they pay a higher incremental rate than you could pay today.
- Where the IRA is actually headed.
Finally, who's getting this account?
If it's going to charity, a conversion is usually less attractive, since a qualifying charity can generally receive traditional IRA assets without the income tax an individual beneficiary would owe. Someone already making qualified charitable distributions may be shrinking the IRA and meeting charitable goals at the same time.
If it's headed to high-earning children, the beneficiary tax cost deserves more weight.
A Roth IRA Changes the Character of the Inheritance
Converting doesn't get your children out of the ten-year rule. They'll still generally need to empty an inherited Roth by the end of the tenth year.[1]
Two things change, though.
Qualified Roth distributions can generally come out free of federal income tax.[5] A child can take a large withdrawal without adding the same amount to taxable income, so it doesn't push wages, bonuses, business income, or capital gains into higher brackets.
And because a Roth owner is never treated as dying after a required beginning date, an inherited Roth generally doesn't carry the annual distribution requirement that an inherited traditional IRA can.[1] That's the mechanism behind the flexibility. Your child can leave the account invested and take it near the end of the ten years, on their own timing.
The five-year rule still matters. Death is itself a qualifying event, so for a beneficiary the holding period is the remaining hurdle. If the applicable five-tax-year period has been satisfied, distributions after the owner's death are generally qualified. If it hasn't, earnings distributed from the inherited Roth can still be taxable until that period is complete.[1][5]
Which is one more reason this planning works better when it starts years before the account is expected to change hands.
When a Conversion Isn't the Answer
A credible analysis has to say when the answer is no.
Conversions get less compelling when your children are likely to be in lower brackets than you are, or when most of the IRA is headed to charity. They get less compelling when the tax would trigger a Medicare premium increase you aren't willing to absorb, when you're planning to move from a high-tax state to a low-tax one, or when paying the bill would cut into liquidity you actually need. If you'd have to use a large slice of the IRA itself to cover the tax, that's a warning sign too. Substantial after-tax basis inside the account changes the math. So does having other deductions or charitable strategies that could reduce future IRA income more efficiently.
Tax rates change. So do account values, spending needs, beneficiaries, and estate plans.
So a conversion projection isn't a one-time answer. It's a document you update as the family changes.
The Decision Is Bigger Than This Year's Bracket
The traditional IRA you decide not to convert doesn't escape taxation.
For most families leaving pretax retirement assets to individual heirs, the decision just determines who pays it later.
That could be you, through required distributions.
It could be a surviving spouse, filing single.
Or it could be your children, emptying the account during the highest-earning years of their lives.
So the question isn't whether you're comfortable paying 22 percent today.
The question is whether 22 percent is the lowest rate your family will ever see.
The IRA gets taxed eventually. What's still up to you is whose return it lands on, what rate applies, and whether anybody chose it on purpose.
Build the projection while you still have the choice.
Then decide on purpose. That's what clarity, confidence, and peace of mind look like on a tax return.
Sources
- Internal Revenue Service, Publication 590-B, "Distributions from Individual Retirement Arrangements (IRAs)," including beneficiary categories, the ten-year rule, and inherited Roth IRA distribution rules. https://www.irs.gov/publications/p590b
- Internal Revenue Service, "Retirement Topics: Beneficiary." https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
- U.S. Department of the Treasury and Internal Revenue Service, "Required Minimum Distributions," final regulations, July 19, 2024. https://www.govinfo.gov/content/pkg/FR-2024-07-19/pdf/2024-14542.pdf
- Internal Revenue Service, Publication 590-A, "Contributions to Individual Retirement Arrangements (IRAs)," including the taxation of conversions and the rule that a required minimum distribution can't be converted. https://www.irs.gov/publications/p590a
- Internal Revenue Service, "Roth IRAs," including qualified distributions and the five-year holding period. https://www.irs.gov/retirement-plans/roth-iras
Weekly Market Update: Tech Stumbles, but the Broader Market Holds Steady
Markets finished the week mixed as leadership continued to rotate beneath the surface.
The S&P 500 slipped -0.1%, while the Nasdaq declined -2.5% as investors moved away from Technology stocks. However, the weakness in the major indexes didn’t tell the full story.
Both value stocks and the equal-weighted S&P 500 outperformed, which suggests that the average stock held up better than the largest companies driving the headline indexes. Meanwhile, high-beta and momentum stocks led the market lower because of their heavy exposure to Technology, which declined -4.3% for the week.
Even so, eight of the eleven S&P 500 sectors finished higher, led by Energy and Consumer Staples. That broader participation helped offset some of the weakness in Technology.
Bonds were mostly unchanged. However, longer-dated Treasury bonds modestly underperformed as oil prices surged nearly +10% following renewed conflict in the Middle East.
Elsewhere, the VIX, a measure of expected market volatility, held steady. The U.S. dollar was little changed, while Bitcoin gained +1.0%.
Key Takeaways
Inflation Cooled Sharply in June as Energy Prices Fell
Consumer inflation declined sharply in June.
The Consumer Price Index, or CPI, fell -0.4% for the month, marking its largest monthly decline in more than six years. As a result, the annual inflation rate slowed to +3.5% from +4.2% in May.
Wholesale inflation eased as well, suggesting that some price pressures were moderating before reaching consumers.
However, much of the improvement came from energy. Gasoline prices declined nearly -10%, which pulled down both consumer prices and wholesale costs.
That distinction matters because June’s report reflects a period when oil prices were falling and were significantly lower than they are today. Since the beginning of July, the U.S.-Iran ceasefire has broken down, and crude oil has climbed back toward $80 per barrel after starting the month below $70.
Why it matters: June’s inflation improvement was real, but it depended heavily on lower energy prices that have already begun to reverse. With inflation still above the Federal Reserve’s 2% target and oil prices climbing again, the central bank has signaled that it may need to raise interest rates.
Wall Street Banks Reported Strong Second-Quarter Earnings
Wall Street banks benefited from a busy and volatile second quarter.
Banks earn fees when companies issue debt or stock, complete mergers, go public, or increase their trading activity. During the second quarter, all of those areas were active.
A wave of dealmaking and initial public offerings, including the roughly $75 billion SpaceX debut, helped drive investment banking revenue higher. At the same time, market volatility tied to the Middle East conflict and the continued AI boom supported trading revenue.
AI-related financing added another source of activity. Companies continued raising debt and equity to fund the construction of data centers and other infrastructure needed to support AI development.
As a result, Goldman Sachs reported the strongest quarter in its history. JPMorgan Chase, the nation’s largest bank, increased earnings by more than +40% compared with the same period a year ago.
Why it matters: The same active and volatile market environment that created uncertainty for investors worked in the banks’ favor. When companies raise capital and investors trade more frequently, banking fees and trading revenue tend to rise.
The Broader Market Held Steady as Technology Turned Volatile
Semiconductor stocks continued to experience sharp day-to-day swings as investors questioned the pace, cost, and potential payoff of the AI buildout.
However, that volatility hasn’t spread across the broader market.
Instead, market leadership has rotated. As investors reduced exposure to chipmakers and other Technology stocks, they moved into areas such as Financials, Industrials, Energy, and Consumer Staples.
Because of that rotation, the S&P 500 remains within 1% of its early June record despite the recent weakness in Technology.
There are also few signs of broader financial stress. The VIX remains in the mid-teens, while credit markets have stayed calm and credit spreads remain extremely tight.
Why it matters: This year’s most popular trade has become more volatile, but the weakness hasn’t pulled the entire market lower. Other sectors have begun to participate, helping offset the decline in semiconductor and Technology stocks.
Consumer Spending Continued to Rise in June
Retail sales increased +0.2% in June. That was slower than May’s revised +1.0% gain, but it was in line with expectations.
Once again, energy prices played an important role.
Lower gasoline prices reduced sales at gas stations, which weighed on the headline retail sales figure. However, those same lower energy costs also helped ease inflation and left consumers with more money to spend elsewhere.
Excluding gasoline, retail sales increased +0.7%. Online shopping contributed to the gain as consumers took advantage of promotions surrounding Amazon’s Prime Day.
Why it matters: Consumer spending drives most of the U.S. economy. June’s report suggests that spending is continuing to hold up rather than stall, particularly once the effect of lower gasoline prices is removed.
Weekly Market Update: Softer Data Cools Rate-Hike Bets
Markets traded higher for a third straight week as participation broadened.
The S&P 500 gained 1.2%, the Nasdaq 100 rose 2.4%, and the Russell 2000 small-cap index rose 1.8%. Both the S&P 500 and Russell 2000 reached new all-time highs.
Growth and high-beta stocks led the market higher, though strength wasn't limited to the largest companies.
The equal-weight S&P 500 gained 1.9%, which suggests participation stayed relatively broad.
Technology rose 2.9%, and Energy was the week's strongest sector as oil prices climbed nearly 5%. International stocks generally kept pace with U.S. equities, while the U.S. dollar was little changed.
Bonds traded higher as investors reduced expectations for another Federal Reserve rate hike, with shorter-maturity bonds outperforming longer-maturity bonds. Gold continued to drift higher, while the VIX fell below 15 and remains near its lowest level of the year.
Key Takeaways
The Labor Market Softened in July
The labor market showed more signs of cooling in July. Employers cut 23,000 jobs, and previously reported gains for May and June were revised lower by a combined 103,000, suggesting hiring had already been weaker than first reported.
Even so, the broader picture hasn't fallen apart. The unemployment rate held relatively low at 4.1%, and private-sector employment rose by 30,000.
The report points to a labor market losing momentum, but not yet the kind of deterioration typically tied to a recession.
Why it matters: A softer labor market weakens one of the arguments for keeping interest rates higher. If employment continues to cool without a meaningful rise in unemployment, the Fed may have less reason to tighten policy further.
Inflation Stayed Contained
The latest inflation reports were relatively encouraging. Consumer prices rose just 0.1% in July, and producer prices were unchanged. Both came in below expectations and helped ease concerns that rising oil prices were pushing inflation broadly higher again.
Energy remains a pressure point. The energy component of CPI is still 14.5% higher than a year ago, but that increase hasn't translated into a similar acceleration across broader inflation measures.
Higher energy prices can squeeze households and businesses without necessarily setting off another broad inflation cycle.
Why it matters: Inflation remains above the Fed's target, but July's reports suggest the recent energy shock hasn't spread meaningfully into the rest of the economy. That reduces some of the immediate pressure on the Fed to respond with higher rates.
September Rate-Hike Odds Fell
The outlook for Fed policy shifted meaningfully over the week. Heading into the employment report, markets were assigning better than a 50% probability to a September hike, with persistent inflation concerns and three dissents at the Fed's July meeting keeping another increase firmly on the table.
Then the data changed the conversation. Expectations for a September hike fell after the weaker payroll report, declined again following Wednesday's CPI release, and moved lower still after Thursday's flat producer-price report. In other words, investors are looking at a different backdrop than they were several weeks ago: a softening labor market alongside relatively contained inflation.
Why it matters: With the Fed offering less forward guidance, each incoming report carries more weight. This week's data shifted the balance away from another near-term increase, though that outlook can change quickly if inflation or employment data surprise again.
AI Demand Stayed Strong
The investment boom around artificial intelligence continues to show up in the companies building its infrastructure. CoreWeave, which buys advanced chips, installs them in data centers, and leases that computing capacity to customers, reported quarterly revenue of $2.58 billion and a backlog that climbed to $104 billion.
Other AI-infrastructure companies also reported strong growth during the week, suggesting demand isn't isolated to a single name.
The story increasingly extends beyond software firms and chipmakers to the data centers, power, networking equipment, and computing capacity needed to train and run more sophisticated AI models.
Why it matters: Questions remain about how much companies will ultimately spend on AI and what returns those investments will generate. Even so, rapid growth in demand for computing capacity suggests the underlying buildout remains strong.
Small-Business Confidence Climbed
Small-business owners grew more optimistic in July. The NFIB Small Business Optimism Index rose to 99.8, its highest reading since August 2025 and above its long-term average.
That's notable given the past several years of higher inflation, elevated borrowing costs, and persistent difficulty finding qualified workers.
Those pressures haven't disappeared, but July's survey showed improvement across several categories, including a meaningful increase in hiring plans.
Since small businesses account for nearly half of private-sector employment, improving sentiment offers a useful read on conditions beneath the surface of the broader economy.
Why it matters: Rising confidence suggests some of the pressures weighing on small businesses may be starting to ease. If that continues, it could support hiring, investment, and activity even as growth elsewhere moderates.