March 2026 Newsletter

Happy spring and happy long evenings thanks to Daylight Saving Time!

It’s been a little while since my last update, and I hope the start of the year has been a good one for you. We skipped the usual year-end note, which, in hindsight, may not have been the worst thing—sometimes a bit of quiet space is welcome before everything gets moving again.

As we settle into the rhythm of the year, it feels like a good time to reconnect and share a few thoughts on what we’re seeing in the markets and how we’re thinking about positioning portfolios today. There’s certainly no shortage of headlines, but as always, our focus remains on what matters most over the long term.

You’ll find my annual, full-blown portfolio update below, along with a few observations on current conditions. If you have any questions, or would simply like to catch up, I’m always happy to connect. You can reach me anytime at e.imley@soaringinvestmentmanagement.com or 424-772-1682. If you’d like to schedule a Zoom meeting or an in-person conversation, you can always schedule a time using my calendar link.

Best,

Eric

Spotlight: History, Perspective, and Times Like These

Many of my recent conversations have begun with the same question: “What does the escalating conflict in the Middle East might mean for the markets—and for my portfolio?” The answer, of course, is not a simple one, but in times like these, it’s always wise to look to history for some much-needed perspective.

Whenever geopolitical events dominate the headlines, it’s natural to feel like the world has suddenly entered uncharted territory. In reality, moments like this are far more common in history than we often remember. Here’s an observation I heard recently that paints the picture quite clearly:

Large nations that are just past the peak of their global influence sometimes become tempted by the allure of small wars. Leaders often believe a quick victory will restore prestige or reinforce power. Instead, those conflicts frequently become more complicate—and more costly—than expected.

This isn’t meant as a political observation. It’s simply a historical truism. For centuries, nations have entered conflicts believing they would be short and decisive, only to discover that events unfold in ways no one anticipated. Napoleon’s invasion of Russia in 1812 is one example. European leaders entering the First World War expecting a brief conflict is another. History rarely unfolds exactly the way leaders or markets expect.

Another historical truism is that markets tend to react quickly whenever uncertainty rises. Oil prices spike, investors seek safety, and headlines grow more dramatic. But markets are also remarkably forward-looking. Even as events are unfolding, investors begin adjusting expectations and pricing in the long-term economic impact. Over time economies adapt, businesses adjust, and markets continue their long-term progression.

This does not mean geopolitical events don’t matter. They absolutely do. Wars reshape alliances, disrupt trade, and sometimes create real economic hardship. But they also remind us of an important principle in long-term investing: periods of uncertainty often create opportunity.

We structure our portfolios specifically to prepare for moments like this. We never place money that might be needed in the near term into the stock market. Instead, we create three distinct ‘buckets’ of stability.

• Bucket #1 holds cash and cash-like investments. These assets support any immediate or near-term cash flow needs, regardless of what markets happen to be doing.
• Bucket #2 is generally invested in high-quality bonds or similar assets. This bucket is designed to provide stability over a multi-year period.
• Bucket #3 is invested primarily in stocks. Dedicated to the longest-term capital, these are assets that are not expected to be needed for many years and benefit from the longest runway to growth.

There is a reason for this structure. Over one- or two-year periods, markets can be highly volatile and unpredictable. Over periods of two to seven years, outcomes tend to become more stable. And over longer periods — seven years and beyond — market returns have historically shown a strong tendency to move back toward their long-term averages. This structure allows investors to remain calm during volatile periods, and it also allows us to act when opportunities arise. Periods of market stress often create the most attractive long-term investment opportunities, and having capital available allows investors to take advantage of those moments rather than being forced to react emotionally.

It is also worth remembering that even before this latest conflict began, the S&P 500 was trading roughly 30% above its long-term central tendency — a reminder that markets rarely move in straight lines. Over the past few days, I’ve spoken with several clients who understandably had questions about what all of this might mean. The headlines can be unsettling, but the fundamental principles that guide long-term investing have not changed. Maintaining discipline, maintaining perspective, and remaining prepared to act when opportunities appear continue to be the most important advantages investors can have.

History doesn’t remove the uncertainty of the present moment, but it does offer something valuable: perspective. And once again, history reminds us how important that perspective can be.

Your 1040, Simplified

As April 15 approaches, your tax return is making its way toward the finish line. For many of you, that means reviewing a draft from your CPA. For a few of you, it may mean putting the final touches on it yourself. Either way, this time of year tends to bring a familiar question: “Can you take a look at this and tell me what matters?”

Tax returns can easily run 100 pages or more, and while I do think it’s worth at least skimming the full document, there are a handful of areas I tend to focus on first when reviewing a return. These are often the places where your situation may differ from a more “typical” filing and where a bit of clarity can go a long way.

I like to think about the 1040 as a “Choose Your Own Adventure” (a great activity book from the ‘80s if you’re old enough to remember!). On the form, you’ll see a number on one line, and then a reference to another part of the return where that number was calculated, and then another. Once you start to follow those threads, the return begins to feel a little less like a black box and a little more like the intuitive, connected system that it is. Here are a few key areas that may be helpful to understand when you review your own 1040 this year:

• Qualified Business Income Deduction (Page 1, Line 15)
  For KP Physicians and others with partnership or business income, one of the more important areas is the Qualified Business Income (QBI) deduction. In simple terms, if your taxable income falls within certain ranges, you may be eligible for a deduction of up to 20% of that business income. For 2025 (approximate ranges, adjusted annually) the ranges are ~$400,000–$550,000 when Married Filing Jointly, and ~$200,000–$275,000 for Single Filers. It sounds straightforward, but in practice it pulls information from several different places in the return, including your K-1, which is why it often benefits from a second look.
• State and Local Tax (SALT) Deduction
  This is another area that has evolved quite a bit in recent years. If you’re unfamiliar, the SALT deduction allows you to deduct a combination of state income taxes and property taxes, currently capped at $40,000 (subject to income limitations). The rules around what you can deduct and how much depend, in part, on your income. This calculation is based on your Modified Adjusted Gross Income (MAGI). To determine your range, start with your Adjusted Gross Income (Page 1, Line 11); that number will likely be fairly close to your MAGI. If your income is below certain thresholds (currently around $500,000–$600,000, depending on filing status and how the rules ultimately settle), you may be able to take full advantage of that $40,000 deduction. Above those levels, the benefit may be reduced or phased out.
• Schedule E (Partnership & Income Expenses)
  If you receive partnership income (which includes many SCPMG physicians), Schedule E is where both your income and any related deductions are reported. This is an area that’s often overlooked. Many expenses related to your work may be deductible against partnership income if they are:
  • Ordinary and necessary
  • Not reimbursed by the partnership

Examples can include licensing, CME, professional dues, and certain business-related costs. We maintain a list of commonly missed deductions for partner physicians and are always happy to share it if helpful.

• California AB 150 (PTE Tax Credits)
  The AB 150 program was originally set to expire after 2025, but it was recently extended through 2030. While the rules have evolved slightly, the core benefit—allowing certain state taxes to be paid at the entity level—remains in place.

  If you have unused credits, they continue to carry forward and can be used to offset future California tax liability. You can find your available credit on FTB Form 3804 (Part II, Line 5) titled “Credit carryover available for future years.”

  As always, we are monitoring how these rules interact with potential changes at the federal level, and we will continue to evaluate how this fits into your overall tax and investment strategy.

The goal isn’t to turn you into a tax expert. It’s simply to help you feel more comfortable with what you’re looking at and how the pieces—or threads—fit together. Your return is a reflection of a lot of moving parts, income, investments, benefits, and decisions made throughout the year, and understanding it, even at a high level, can be valuable.

If you have questions or if something doesn’t quite make sense, I’m happy to take a look and talk it through with you, as well as coordinate directly with your CPA. That’s often where a short conversation can make things much clearer.

Portfolio performance (my annual, full-blown edition)

Once again, it’s time to take a comprehensive look at how our portfolio is faring and share my thoughts on the prospects for the market overall as we continue into the new year. As a reminder, here are three key, long-term core beliefs about investing that I apply to our investment models:

1. Over time, stocks will go up. Though picking which stocks will go up—and when—in a systematic, repeatable process is almost impossible, companies that tend to perform better than average over long periods of time share certain traits. They don’t always work in the short term and they are not correlated, but over time they usually do better than average and help smooth out the ride. We mainly use Exchange Traded Funds (ETFs) to capture these traits (or, in investment speak, ‘factors’).
2. A portion of the portfolio should be designed to act as a safety net during market downturns. This is achieved by holding lower-risk assets that can be strategically deployed when markets decline, allowing the portfolio to buy assets at lower prices and recover faster. But it’s not just about defense. During periods of outsized market gains, we gradually increase that portion by selling stocks at higher prices. This proactive approach helps lock in profits and ensures we have a strong buffer to deploy in the next downturn, making the portfolio more resilient across different market cycles.
3. A strategic approach to selecting bond managers can drive long-term success. While picking individual stocks (especially stocks of US-based companies) is very hard, using systems to pick managers to choose fixed income holdings (like bonds) tends to pay off over the long term.

We run three portfolios, all named after cities: Barcelona, Boise, and Omaha. While you may think I was just being overly creative, I chose this naming convention for an important reason: I wanted to prevent any unconscious bias toward a name like ‘prudent growth’ or ‘cheap value’ from influencing my trading decisions. To further support the real objective for each portfolio, we benchmark each one to an index or fund with similar objectives (growth, income, or both). This makes it easy to compare the specific performance to a benchmark, and we report returns net of all fees.

In some cases, we can’t implement the model directly, either because an employer (like SCPMG) only allows us to select 401(k) investments from their own menu of options, or because capital gains taxes would offset the risk/reward strategy. In both of these scenarios, we do our best to select similar alternatives. We don’t believe this differential is a significant impediment to our clients receiving similar returns.

I’m happy to report that, largely due to that strategy, all three portfolios delivered as expected in 2025:

• Barcelona
  In 2025, Barcelona significantly outperformed its benchmark, the Vanguard Target Date Fund aligned with a 2037 timeframe (still our “just right” comparison point). How did that happen?

  Tariffs played a significant role. While the S&P 500 ultimately finished up nearly 18%, it experienced a sharp decline of about 15% in the spring following tariff announcements before recovering later in the year. It was during this period that one of the key benefits of Barcelona came into play. Because the portfolio is diversified across small-cap value, quality companies, total market exposure, and international stocks, it did not simply mirror the ups and downs of the S&P 500. Instead, different parts of the portfolio contributed at different times, helping smooth the ride while still participating in the recovery. We also took advantage of the cheap prices an equities during this time to increase our equity exposure (though as you will read in a moment we have since returned to neutral, harvesting those gains).

  Our continued emphasis on quality, diversification, and long-term discipline were important drivers of results. As always, the goal of Barcelona is not to win every short-term comparison, but to provide a consistent framework that can perform across a wide range of market environments. In 2025, that approach served us well.

• Boise
  Our fixed-income portfolio slightly outperformed its own benchmark, the Barclays Aggregate Bond Index. This was led by a tilt towards an active (rather than passive) investment strategy. (Note that many of our clients start in the Barcelona portfolio, and then gradually move into the Boise portfolio to reduce risk in retirement.) We were slightly hampered by our short duration but it was allowing us to play the appropriate amount of defense given the uncertainty of the policy strategies from both the president and congress and subsequently the federal reserve.

• Omaha
  Our real estate portfolio also outperformed its benchmark, reflecting one of our core tenants: when possible, do not sell low. Given the expected stabilization in real estate prices and improved market liquidity, we remain optimistic about long-term opportunities in this sector.

Market Outlook for 2026

I remain concerned about market valuation being high, which is why we reduced our exposure to equity markets in early January, bringing us back to a neutral posture after we were buying stocks when the market dipped from the tariff announcements in April. With the S&P 500 currently 30% above its long-term trend. I believe that, given the current geopolitical tension and a political focus on affordability, neutrality is the best posture for now.

That said, Barcelona is still holding 80% of its allocation in stocks, Boise continues capitalizing on high interest rates, and Omaha is positioned for a slow but steady recovery in the real estate sector.

One of my joys in life is talking with my clients about our strategies in detail! If you want to schedule a call to discuss our portfolios, your own strategy, or anything else that’s on your mind, please reach out. I am always here to help!