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February 2025

Donna Cournoyer
In Financial Planning

Medicare Advantage Open Enrollment

Our founder Susan Moore contributed the following update for Medicare planning

The Medicare Advantage Open Enrollment Period (MA OEP) is currently underway and runs from January 1 to March 31, 2025.

This is an important time for individuals enrolled in Medicare Advantage plans to review their coverage and make any necessary changes.

What is Different about the 2025 MA OEP?

For the 2025 MA OEP, there are no significant changes to the enrollment process itself. However, it’s important to be aware of broader updates affecting Medicare coverage in 2025:

  1. Changes in Plan Availability: There is a reduction in the number of Medicare Advantage plans available in 2025. Some insurers that previously offered Medicare Advantage have left the market. Additionally, some healthcare providers have stopped accepting certain Medicare Advantage plans, so it’s critical to verify that your preferred providers are still in-network.
  2. Adjustments in Premiums and Benefits: While the average monthly premium for Medicare Advantage plans has decreased to $17.00 in 2025 from $18.23 in 2024, some plans may have adjusted their core benefits or reduced supplemental offerings like gym memberships. It’s essential to review any changes to your plan’s benefits and costs.
  3. Introduction of a $2,000 Out-of-Pocket Cap for Part D: Starting in 2025, Medicare Part D plans will implement a $2,000 annual cap on out-of-pocket prescription drug expenses. Once you reach this limit, you won’t have to pay additional costs for covered drugs for the remainder of the year.

What You Can Do During MA OEP

During this period, if you are currently enrolled in a Medicare Advantage plan, you have the following options:

  1. Switch to a different Medicare Advantage Plan: If your current plan no longer meets your needs, you can change to a different Medicare Advantage plan.
  2. Drop your Medicare Advantage plan and return to Original Medicare: You can disenroll from your Medicare Advantage plan and switch back to Original Medicare (Parts A and B). You can also enroll in a standalone Part D prescription drug plan if needed. Note that in most states when someone switches to Original Medicare from Medicare Advantage, insurers can require medical underwriting in order to purchase a Medigap (Medicare Supplement) policy. This means the insurer can deny Medigap coverage if you have certain health conditions. Four states (CT, MA, ME, and NY) have implemented protections that prohibit underwriting in these situations.
  3. Adjust Prescription Drug Coverage: If your Medicare Advantage plan includes drug coverage, you can change to another MA plan that better suits your medication needs.

Key Considerations

When evaluating your Medicare Advantage options, here are some factors to consider:

  • Provider Network: Ensure your preferred doctors, specialists, and hospitals are included in the network of any plan you are considering.
  • Drug Coverage: Check whether your medications are covered and if there are changes to the formulary or pricing.
  • Out-of-Pocket Costs: Review premiums, deductibles, and co-pays to understand your total potential expenses.
  • Additional Benefits: Some plans offer extra benefits such as vision, dental, hearing, and fitness memberships. Compare these benefits to see if they align with your needs.

Common Questions

  • Can I switch plans multiple times during this period? No, you are allowed to make only one change during the MA OEP.
  • What if I miss the deadline? After March 31, you generally cannot make changes until the next Annual Enrollment Period (October 15 – December 7), unless you qualify for a Special Enrollment Period due to specific life events.

Next Steps

If you’re considering a change to your Medicare Advantage coverage, we encourage you to act early to avoid delays.

Two important resources for help and more information are the Medicare web site, and a State Health Insurance Assistance Program (SHIP) counselor, available at your local senior center.

-SM

Donna Cournoyer
In Financial Planning

Becoming Averse to Loss Aversion

For most of us, when markets go down, anxiety goes up.

And since markets haven’t gone down substantially for some time, it’s possible that angst is waiting in the wings for a lot of us and could be set loose by the next downturn.

I am not anticipating an imminent demise of the bull run in stocks. But after two great years of returns, it’s important to remember that corrections are normal occurrences.

On average, we can expect stocks to drop 14% from recent peaks in any given year, according to research from JP Morgan Asset Management (recoveries typically follow closely on the heels of these declines).

And it’s important to remember that we as humans are hard wired to disproportionately fear financial losses relative to appreciating similarly sized gains.

We obviously can’t control what happens in the financial markets. But we can control how we respond to financial market developments.

The goal of this article is to provide more information about the concept of loss aversion; explain how it affects investors; and share strategies to overcome it.

Learning to become averse to loss aversion is a strategy that should yield positive results over the long term for your portfolio.

What is Loss Aversion?

Loss aversion is a key principle in behavioral finance introduced by Daniel Kahneman and Amos Tversky in Prospect Theory. Our friends at research outfit DataTrek have this to say about Loss Aversion:

  • Classical economics has it that the gain or loss of $1 has the same “utility”, both on the upside and downside.
  • Daniel Kahneman and Amos Tversky proved this was not the case with their work on Prospect Theory, published in 1979, with Kahneman winning the Nobel Prize in 2002.
  • The possibility (or “prospect”) of losing a particular amount of money weighs about twice as heavily on the human psyche as the prospect of gaining that same amount of money is welcoming.
  • Simply put, we are hard coded to be risk-averse, which is probably biologically optimal but not when it comes to investing.

This asymmetry – that people experience the pain of losses about twice as intensely as they experience the pleasure of equivalent gains – can lead investors to behave irrationally, often making suboptimal decisions due to an emotional response rather than a rational evaluation of risk and return.

How Loss Aversion Affects Investors

  • Excessive Conservatism: Investors may hold too much cash or invest heavily in low-risk assets, such as bonds, due to an outsized fear of losses. This risk aversion can cause them to miss out on long-term market growth.
  • Holding onto Losing Investments Too Long: Investors often refuse to sell losing stocks because doing so would “lock in” a loss. This can lead to further declines in portfolio value if the asset continues to underperform.
  • Selling Winners Too Soon: The fear of losing unrealized gains can prompt investors to sell winning stocks too early, limiting their upside potential while holding onto losing positions in the hope of a rebound.
  • Panic Selling in Downturns: During market downturns, loss-averse investors may sell off assets at a loss to avoid further perceived pain. This often results in missing out on the subsequent recovery.

Strategies to Overcome Loss Aversion

Investors can take several steps to mitigate the negative effects of loss aversion.

  1. Maintain a Long-Term Perspective
  • Historical Context:Market downturns are normal and historically temporary. The S&P 500, for instance, has endured numerous recessions, bear markets, and crashes but has always recovered over time.
  • Review Past Recoveries: Looking at previous downturns (e.g., 2008 financial crisis, 2020 COVID-19 crash) can provide reassurance that patient investors tend to be rewarded.
  1. Avoid Emotional Decision-Making
  • Recognize Emotional Triggers: Fear and anxiety can drive investors to sell at the worst possible time. Understanding that these emotions are natural but not always rational can help maintain discipline.
  • Pause Before Making Major Moves: Implement a 24- or 48-hour rule before making significant financial decisions to avoid impulsive reactions.
  1. Stick to a Predefined Investment Plan
  • Set Portfolio Rules in Advance: Establish clear rules for buying, selling, and rebalancing to avoid making decisions based on market noise.
  1. Use Mental Accounting to Categorize Risk
  • Investors can separate their portfolios into different “buckets,”such as:
    • A short-term stability bucket (cash, bonds) for near-term needs.
    • A growth bucket (stocks, real estate) for long-term wealth building.
  • This mental separation reduces the fear of short-term lossesaffecting immediate financial security.
  1. Rebalance Rather Than Panic-Sell
  • Automatic Rebalancing:If stock prices fall, rebalancing forces investors to sell overperforming assets (like bonds) and buy underperforming assets (stocks) at a discount.
  • Stay within Target Allocations:Keeping the portfolio’s stock-to-bond ratio aligned with the original strategy ensures disciplined investing.
  1. Use Dollar-Cost Averaging (DCA)
  • Invest Regularly Regardless of Market Conditions: Investing a fixed amount regularly reduces the emotional burden of market timing.
  • Buy More Shares at Lower Prices:Instead of fearing lower prices, DCA allows investors to accumulate more shares when prices are low, boosting returns when markets recover.
  1. Maintain Cash Reserves
  • Emergency Fund:Having 6–12 months of living expenses in cash reduces the need to liquidate investments during downturns.
  • Dry Powder Strategy:Investors who keep some cash on hand can take advantage of market downturns by buying assets at depressed prices.
  1. Diversify to Reduce Portfolio Volatility
  • Asset Allocation: Spreading investments across stocks, bonds, real estate, and alternative assets helps mitigate losses.
  • Low-Correlation Assets:Investments like Treasury Bills and Treasury bonds can provide balance when equities decline.
  1. Avoid Market Timing
  • Missing the Best Days Hurts Returns:Data shows that missing just a few of the best market days (which often occur after the worst days) significantly lowers long-term returns.
  • Stay Invested:Rather than guessing market bottoms, staying in the market increases the likelihood of benefiting from recovery.
  1. Turn Market Declines into Tax-Saving Opportunities
  • Tax-Loss Harvesting: Selling losing investments to offset capital gains taxes can improve after-tax returns.
  • Roth Conversions:Converting traditional IRA funds to a Roth IRA during downturns allows investors to pay taxes at lower asset values, leading to greater tax-free growth.

The key to overcoming loss aversion during a market downturn is sticking to a well-thought-out plan, staying diversified, and avoiding knee-jerk reactions.

Implementing these strategies can help you manage their emotions, take advantage of market opportunities, and build long-term wealth.

-RK

Donna Cournoyer
In Market Updates

January 2025 Market Recap: Tech & Tariffs Turbulence

Stock and bond market performance for the first month of 2025 was pleasing.

Foreign stocks gained 4.8%, US small company stocks climbed 3.9%, US large company stocks went up 2.7%, and technology shares rose by 2.1%. Bonds were in the black, too: high-quality, intermediate-term debt returned 0.5%.

However, there was turbulence beneath the surface of the stock market, mainly due to developments in the technology sector.

One part of the Artificial Intelligence environment is Large Language Models (LLMs). These AI-powered systems are trained on massive amounts of text data, which facilitate human-like text responses to a wide range of prompts and questions.

ChatGPT is a widely recognized and utilized LLM. It was developed by OpenAI, of which Microsoft holds a minority ownership stake.

All the big tech companies, including Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft and Tesla are spending huge amounts of money investing in LLMs and anticipating big future payoffs on this invested capital.

In addition to these well-recognized firms, a constellation of lesser-known US companies (big and small) that supply software, equipment, storage, and energy to support AI initiatives have been riding the AI wave higher.

In mid-January, a new chatbot called DeepSeek caught the attention of tech investors for several reasons: it was developed cheaply; it runs on less-expensive equipment; it is fast; and it is good. Also, its maker is a small Chinese company, not a Silicon Valley behemoth.

Whether or not DeepSeek becomes a true competitive threat to US technology companies is yet to be seen.

But it was a shot fired across the bow of US technology companies, and some US tech stocks swooned for a few days at the end of the month.

Why does this matter for US investors? The main reason is that the US stock market has become more dependent on ever-higher profits, and ever-higher stock prices, from big tech.

The information technology sector has grown from about a quarter of the US stock market a few years ago to more than one-third today.

When the future profitability of US tech companies is called into question, and when tech stocks slip, it’s harder now for stocks in other sectors to pick up the slack.

This also means that even US investors who hold well-diversified portfolios are likely to feel pain if a correction in tech stocks materializes.

In January, tech turbulence was contained to a few days, and stocks generally finished higher at the end of the month.

However, the DeepSeek tremor was a reminder that troubles for technology companies, if sustained, would probably have far reaching effects for all investors.

Regarding the safer side of investing, the “big news” in the bond market for January was: no news.

The Federal Reserve held their first FOMC meeting of 2025, where interest rate policy is reviewed and discussed, and… nothing happened.

Market participants are now expecting the Fed to stand pat for a while, and to keep the target for short-term interest rates steady for the next six months. This contrasts with the “rate cuts” that occurred during the second half of 2024.

Why is no news from the Fed big news?

It likely means savers will continue to enjoy a satisfactory rate of return on their guaranteed money that is kept in high-yield bank savings accounts and bank CDs.

With the lower bound of the Fed Funds target rate at 4.25%, this probably means short-term CDs are likely to provide a 4%+ annual percentage yield (APR) during the first half of 2025.

It also means that the Fed remains vigilant in their fight against inflation.

If the Fed is successful in convincing market participants that inflation is indeed under control, it should translate to a hospitable environment for investors who own intermediate- and longer-term bonds.

With 10-Year Treasuries yielding about 4.5%, it’s reasonable to expect 5%-plus returns for 2025 from bond allocations in investment portfolios, if inflation, and inflation expectations, remain contained in 2025.

But a trade war could be problematic for financial markets.

An emerging risk, especially to the bond market, is a new tariff regime. On February 1, President Trump announced new tariffs on a range of goods coming into the US from Canada, Mexico, and China.

Trade is huge, diverse, and complex, so the ultimate impact of higher duties isn’t easy to know. A lot depends on size, width, and length: how high tariffs go, how broadly they’re applied, and how long they last.

If tariffs come and go quickly, the inflationary impact will be minimal. But a new regime with high tariffs applied to many trade partners that lasts for an extended period could usher in higher inflation.

If expectations about future inflation go up substantially, this will likely mean higher bond yields, with lower prices and lower returns for bonds – especially for intermediate and longer-term bonds and bond funds.

And if history does rhyme (to paraphrase Mark Twain) then resurgent inflation may well prove to be a challenge for stocks, too.

Performance for the month of January is pictured below:

Note: Foreign Stocks: MSCI EAFE International Index; US Small Co: CRSP US Small Cap Index; US Large Co = S&P 500 Index; US Tech Stocks: Nasdaq 100 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

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