You may have heard the Fed cut interest rates last week. Please read on HERE to see what that could mean for the markets.
Author: David Goldberg
Markets Hit New Highs by The End of The Second Quarter
Stocks see-sawed through the last quarter, first rallying in April to new highs, then dropping over 6.4% in May due to trade war tensions. Changing course with prospects of a trade war agreement and Fed easing on the horizon bonds and stocks both appreciated in the last quarter to post new highs. Bonds beat stocks globally. Gold was the top asset class breaking out to a six-year high and energy was the only sector to post losses. In the first half of the year, both stocks and bonds returned double-digit returns. This is only the 10th time going back to 1945 where both assets delivered double-digit returns over the same six-month period.
Since 2009 the financial markets have followed monetary policy’s lead and as investors, we’re celebrating the tenth-year anniversary of this bull market. Robust job gains, low inflation, lower corporate tax rates, and Fed easing have been good for the markets. The U.S. economic data does not point to a recession and we’re not likely to see a global recession soon. There are signs of fatigue with short term interest rates higher than long term rates and an uninspiring forecast of earnings growth. The biggest uncertainty is the trade wars’ impact on growth.
Second Half Outlook
According to Ned Davis Research when stock and bond returns are both up 10% or more over a six-month-period, stocks tend to perform better than bonds over the following 12 months. Tactically, we’ll continue our cautious but optimistic allocation in the portfolios. We prefer growth over value, dividends over non-payers, short duration high quality fixed income, and tax-exempt fixed income for investors in high tax brackets. In our opinion, the market’s valuation is not unreasonable and this bull market is not over. Valuations will rise, but at a choppier rate. We endure the volatility with high quality diversified investments.
We invest your money using a combination of active and passively managed mutual funds and ETF’s to allocate money among different asset classes and to drive returns. Morningstar, a global investment research firm that rates investments, has chosen two of your active portfolio managers to receive the 2019 Morningstar Award for investing excellence. To qualify, the nominees distinguish themselves by delivering excellent returns to their investors. James Marchetti is a manager of Primecap Odyssey Growth Fund. He joined Primecap in 2005, as a biotech analyst following graduate school at MIT. His outstanding biotech picks have been a major factor in the outstanding performance of the fund. David Giroux has managed the Gold-rated T. Rowe Price Capital Appreciation Fund for the last 13 years. He is a two-time winner of Morningstar’s Fund Manager of the Year award and has also won 13 “Best Fund” awards from Lipper.
With the economy doing so well and the market making new highs it’s a good time to review the progress of your children’s 529 education accounts. Often, funding college is a shared effort by parents and grandparents to systematically save for the future. The best gift you can give your children is an education with no debt to weigh them down as they enter adulthood.
Cash is An Asset Class
Earning a competitive interest rate on your bank savings is important and we’re seeing many instances in which banks are simply underpaying on savings and deposits. At Snow Creek Wealth Management, we have short-term fixed income investment vehicles that pay substantially more than what you may be getting at your bank. If you have cash reserves sitting in bank accounts we suggest you see what interest you are earning. Call us and we will be happy to see if you are receiving a competitive rate.
We believe in holistic planning as an integral part of our practice. We like to hear from you as often as possible so we can integrate any life changes into your financial plan. A new baby, house, job, and changes in your expected retirement date are all opportunities to review your plan. It’s important to see and speak with our clients as often as possible. Please give us a call to schedule a time to meet.
We thank you for your trust and confidence.
David Goldberg & Larry Sacks
It’s always important to maintain a long-term perspective, but especially when markets are declining. Although stocks rise and fall in the short term, they have tended to reward investors over longer periods of time. May was a tough month for the stock market and it’s natural for emotions to bubble up during periods of volatility. You wouldn’t be human if you didn’t fear loss.
Nobel Prize-winning psychologist Daniel Kahneman demonstrated this with his loss aversion theory, showing that people feel the pain of losing money more than they enjoy gains. Thus, investors’ natural instinct is to flee the market when it starts to plummet, just as greed prompts people to jump back in when stocks are skyrocketing. Both can have negative impacts.
But smart investing can overcome the power of emotion by focusing on relevant research, solid data, and proven strategies. Here are three principles that can help fight the urge to make emotional decisions in times of market turmoil.
Market Declines Are Part of Investing
Stocks have risen steadily for a decade, but history tells us that stock market declines are an inevitable part of investing. The good news is that corrections (defined as a 10% or more decline), bear markets (an extended 20% or more decline) and other challenging patches haven’t lasted forever.
The Standard & Poor’s 500 Composite Index has typically dipped at least 10% about once a year, and 20% or more about every four years, according to data from 1949 to 2018. While past results are not predictive of future results, each downturn has been followed by a recovery and a new market high.
Markets Tend to Reward Long-Term Investors
No one can accurately predict short-term market moves, and investors who sit on the sidelines risk losing out on periods of meaningful price appreciation that follow downturns.
Every S&P 500 decline of 15% or more, from 1929 through 2018, has been followed by a recovery. The average return in the first year after each of these declines was nearly 55%.
Emotional investing can be hazardous.
Kahneman won his Nobel Prize in 2002 for his work in behavioral economics, a field that investigates how individuals make financial decisions. A key finding of behavioral economists is that people often act irrationally when making such choices.
Emotional reactions to market events are perfectly normal. Investors should expect to feel nervous when markets decline, but it’s the actions taken during such periods that can mean the difference between investment success and shortfall.
Our investment strategy for 2019 has been to be defensive, yet optimistic. We thought stock prices might fall in the midst of a global slowdown, but there was the possibility of resolution in trade talks and positive earnings. To balance this risk and reward outlook, we diversified our portfolios further by adding more growth stocks and emerging markets.
What Are Growth Stocks?
Growth stocks are shares in a company that grows at a higher rate than the average for the market. Recently we moved money away from value stocks, those that trade at a lower value to their fundamentals (a.k.a. data that can impact the value of a stock), and moved it to growth stocks, which trade at a higher value.
What Are Emerging Markets?
Emerging markets are countries trying to grow their economy to become a developed nation. When we think of developed countries, we may think of Canada, The UK, and Japan. However, China, Malaysia, Brazil, and India are types of emerging markets, but they’re not all equal investment opportunities.
You Can’t Get Rid of Risk, But You Can Limit It
Investing in different equity types can reduce risk over time. One of the limits to performance is the tendency to invest with a hometown bias, that is to only invest in only what you know, like in the company you work for or in the country you live in. Home bias is a risk that can be avoided by owning different stocks in different industries and in other countries.
We have learned that over time having a diverse asset allocation also helps investors reduce risk. As long as the global economic conditions putter along in the slow lane, we’ll emphasize growth stocks over value stocks and we’ll stay diversified with a mix of stocks and bonds while holding a cash reserve for opportunities.
How We Help You Succeed
A comprehensive financial review is an important resource to help you to reach your goals. Come in and we’ll review the components of our services with you. Each of you has a unique financial plan which revolves around an investment strategy, cash flow, tax planning, retirement needs analysis and possibly your estate plan. We’ll answer your questions and address any concerns.
2019 Stock Market Returns Should Be Much Better Than 2018
After a long period of market calm, volatility came back in 2018, and we saw daily declines of 1% or greater on 32 separate days plus declines by more than 3% on five days. On Christmas Eve the S&P 500 closed within an eyelash of its first 20% decline since 2009. It was the second-worst December drop on record, after 1931.
Recall our strategy in July when we recognized the signs of a global slowdown and began shifting the portfolios away from risk assets into more stable assets like bonds and short-term fixed income. We downshifted from stocks to bonds again in November, December and so far this month. Tactically, we are at the lowest stock exposure since 2009, being underweighted in stocks, over-weighted in bonds, and market weighted in cash.
A Defensive — But Optimistic — Strategy
In this turbulent environment, our strategy right now is to be defensive with your money. Our goal is to be in the middle of the road when it comes to risk. On one side is the ditch with the turbulence of the global trade war, trillion-dollar budget deficits putting pressure on interest rates and weakening earnings. These headwinds may lead to market declines, and if that’s the case we want to limit the drawdown.
And on the other side is the upside possibility of a resolution to the ongoing trade dispute and a compromise for Europe and Great Britain in the Brexit talks. These resolutions may lead to renewed earnings growth and higher markets.
Expect to see more turbulence in the early part of this year and perhaps a retest of the market lows in the first or second quarter. The volatility usually creates extreme pessimism among investors. This pessimism and a clearer view of future earnings may be the green light to upshift to more stocks. If this scenario works out, we are looking for a year-end target of 2,950 for the S&P 500, a rise of 13% from the current level of around 2,600.
Key Financial Planning Trends in 2018
- Financial Health is defined by these eight indicators: spend less than income, pay all bills on time, sufficient liquid savings, sufficient long-term savings, manageable debt load, prime credit score, appropriate insurance and a plan for expenses.
- A study by the Life Insurance Institute found that showing projected monthly retirement income increases savings plan contributions. The more you save over time the more you have for future expenses.
- Women age 65 plus have a life expectancy of 85.6 versus 83 for men. An increase in drug-related deaths among younger adults has contributed to a drop in overall U.S. life expectancy.
- Social Security reached a worrisome tipping point in 2018. For the first year since 1982, the program’s costs will exceed its income, forcing the program to dip into its $3 trillion trust fund to pay benefits. The trust fund will be depleted by 2034, resulting in reduced benefit payments unless Congress makes changes.
- Elder “orphans” will need to develop proactive plans with their financial and legal advisers. It is estimated that 22% of older adults are (or will be) growing older without the “safety net” of a spouse or children.
- A study by Age Wave found that many parents provide some sort of support to adult children, putting their children’s interest above theirs. In our opinion, if you have your financial house in order, no debt, and if your retirement income needs are covered, it’s okay to advance an inheritance to your children.
- Home ownership rose for the first time since 2004, to 64%, driven by young adults entering the housing market for the first time. A shortage of homes available for sale has led to price increases in many areas and an overall seller’s market.
Free Safe Haven Kit
There is a feeling of inner satisfaction and confidence that things are under control when you can find your important financial papers when you need them. Being organized saves you time and is critical when you go looking for your medical records.
The SafeHaven kit is perfect for organizing your important document — emergency contacts, living will, durable power of attorney, and lists of prescription medications, bank accounts and more. The kit includes hanging folders organized by category and forms to capture medical, financial and personal information.
We are offering you this FREE SafeHaven kit to get organized and have your affairs in order. Contact Michele Reid (firstname.lastname@example.org) and schedule an appointment to get this free kit.
Come Talk to Us
There are many trends and government policy changes related to personal finance — some are positive and some create financial insecurity. As financial practitioners, we strive to stay current on the ever-changing financial landscape and how it affects personal finance for our clients. This year we want to have a conversation with each of you to talk about your financial wellness. Call Leona Edwards (email@example.com) to schedule an appointment.
Once again, thank you for your ongoing trust and confidence,
Larry Sacks and David Goldberg
Year-end is a good time for us to lower our clients’ taxes by carefully structuring your capital gains and losses. The volatility in the market has created opportunities to generate (“harvest” as we sometimes say) losses which can be used to offset gains. Capital gains taxes can apply on investments, such as stocks or bonds, real estate (usually not your home), cars and other tangible items.
Losses Can Be Good
Losses offset gains. These losses carry over on your Federal Income Tax return, which can be used in the future. It’s possible you may use up to $3,000 of total capital losses in excess of capital gains as a deduction against ordinary income.
Many of you may see trading activity in your taxable accounts. As part of our process, we will frequently sell a position at a loss and buy a similar position to maintain the strategic allocation in your account.
Everyone wants to avoid a big tax bill. By harvesting losses from the sale of stocks or bonds, we can work to help you keep more of what you make. If you have any question or concerns about your strategic allocation, please don’t hesitate to call us with your concerns.
Wishing you the best of the New Year,
Back in July, we became more concerned about economic conditions: rising interest rates, trade tariffs, and a split Congress. We then acted to reposition investment portfolios to be more defensive. As we scaled back stocks we increased short-term fixed income and cash reserves.
For a few months, it seemed we prepared a bit early for a downturn. But the stock markets changed direction in October, with the U.S. averages falling over 10% from their peak and global markets falling over 20%. While there are no signs of an imminent recession in the U.S., it is clear that this sell down is broadening.
Market declines are part of investing, and they haven’t lasted forever. The Dow Jones Industrial Average has typically dipped at least 10% once a year, and 20% or more every 3.75 years, according to data derived from 1900-2017. Bear in mind there has never been a time when markets declined and haven’t recovered to advance to higher levels.
Wall Street is on Sale
A lesson that I have learned is to seek and take advantage of market weakness. Declining markets give you a chance to invest in world-class companies at lower prices. Good companies find a way to prosper regardless of the environment. Our process is to rely on research, experience, and judgment to buy good companies at attractive prices.
If you want to make money over time, add to your investment portfolios in this period of volatility and lower prices. Invest systematically. We can help you to be set up with monthly electronic bank drafts into your accounts, which can be started, stopped, increased or decreased at any time.
Supercharge your accounts by moving larger chunks of excess cash which may be earning a low-interest rate to your investment account. Add to your children’s and grandchildren’s 529 accounts now, since college costs never seem to go down and your family will appreciate the gift of an education.
No one can predict short-term markets, and investors who sit on the sidelines risk losing out on periods of meaningful price appreciation that follow market downturns. Focus on the benefit of long-term investing and be decisive while this price decline presents the opportunity. Stay on the road with your investment plan, and feel free to talk with us to voice your concerns.
Seminar: Three Winning Strategies
Over the years we have helped you to plan, invest and protect your wealth. We have helped you with your tax planning and tax returns, and we counsel many of you to prepare an estate plan. Now, we want to help you to organize your personal data, have constructive conversations about intergenerational family finances and make the best decisions you can for your current healthcare coverage.
Join us on Thursday, November 15, 2018, from 10 am-1pm at Scarritt Bennet Center. We’ll be hosting an event we call “Three Winning Retirement Strategies.”
You’ll learn from experts what happens within families as they talk about money and plan for the future. You’ll learn about the most current Medicare and healthcare plans. And we’ll tell you stories about what individuals and families need to do prepare for medical emergencies that happen in all our lives.
Get a Free ICE Key
Everyone attending our seminar will receive a free Ice Key, a portable, easy-to-use USB flash drive that goes right on your keychain. We’ll help you to fill out the pre-loaded PDF forms with your important medical information. In a medical emergency, first responders are trained to look for the acronym ICE (In Case of Emergency) so doctors have the information they need to make life-saving medical decisions.
Lunch and parking passes will be provided to those who RSVP. Who else do you know that might benefit from a key? Feel free to bring a friend.
To RSVP please call Liz Clay at 615-673-7795 or CLICK HERE
At this point we are thankful for the financial gains that have come in this current bull market. Starting in March of 2009 we have had over 3,400 calendar days of gains, the second-longest growth run on record since WW2. In most accounts, we have held firm to the growth story keeping our foot on the gas and “overweighting” stocks in the investment portfolios.
This year I set a goal for myself to learn more about new technologies that are being offered to financial planning and wealth management businesses like ours. I have always thought if I could take knowledge and turn it into value then it would be good for all concerned. Our goal is to offer comprehensive strategies and give advice on how to use financial planning to set a course for the investment process.
I wanted to learn if and how these new technologies could help our clients. New trends like big data, artificial intelligence, behavioral finance, digital wallets, e-documents, and smart portfolios are mixing in with the reliable old rules like diversification, tax-efficiency, and ethical behavior.
Valuable Courses, Conferences and Continuing Education
Each of us at Snow Creek has attended online courses, conferences, and conventions where Business School Professors, Money Managers, Economists, Mathematicians, and Research Scientists gave us their opinion on many trends, strategies, and techniques. Luckily for our pocketbooks, Nashville is now a popular convention destination, and we could sit and listen for hours while educators and sponsors from the International Association of Advisors in Philanthropy and the Investments and Wealth Institute came here to deliver almost five days of presentations.
We went for two days to an advisor summit in New Orleans to learn about intelligent systems for wealth management and personal financial wellness. We chatted with many software vendors for wealth advisors and subsequently looked at many “demos” of the newest and smartest iterations of their software. I went to NYC to attend a JPMorgan conference for advisors and listened for two days to world-class money managers who bring big data economic analytics to bear on investment decisions for enormous pools of money.
Professionally I have to complete continuing education requirements every two years to maintain my Certified Financial Planning Designation. Being a Certified Financial Planner, CFP® is about extensive training and experience along with professional integrity. This year our learning honed in on our obligation to always act in the best interest of our clients as a fiduciary.
Better Tools, Better Planning
In my opinion, it’s a good idea to constantly work on your professional skills, learn continuously, finding mentors and resources that guide you to carefully use knowledge and experience to make decisions. Our investment values are clear, and our work begins collaboratively with each individual, family, estate or trust in a one-on-one Financial Planning process.
Once we establish your objectives we must gather your data, organize it, analyze it and use the results to establish a course to achieve long-term financial goals. To facilitate that we can now offer you convenient financial data aggregation tools that consolidate and simplify your various accounts.
From there we can analyze the data and then deliver detailed reports that are easy to read on most smartphones, tablets or computers. These reports will clearly show you what you want to know about your money.
No Substitute for Face-to-Face
But, unless we regularly sit down and talk eye-to-eye about all this data, the information may not be of much use or of much comfort to you. Everyone’s lives are forever changing — maybe it is a job or career change, your family or your marital situation, big purchases like houses or an investment opportunity arise, planning for retirement, and the big ones — health care and estate planning. We can all make smarter decisions by modeling hypothetical outcomes of financial choices and the long-term outcomes may very well be closer to what you want.
The economy is forever changing as are the harvests of investments. It’s important that we get your unique situation right, and without your ongoing input that’s a pretty difficult task. I suggest everyone re-commit to attending regular meetings with us to talk about your accounts, tell us your concerns and adapt to the new data aggregation tools. Then we can use our new understandings and experience to set your financial goals and invest accordingly.
Call us and make an appointment to review, let us hear about what’s on your mind. It’s your money and it’s important to communicate regularly. We prefer to review in person, but if that’s not convenient we can show you how to use the internet to share information and have a proper conversation.
I wanted to bring your attention to the most recent activity in your investment accounts. We are generating trades in the fixed-income portion to move money from a strategy that is not doing as well as we expect.
As you know, the economy has been sluggish for years and the Federal Reserve had a policy of low-interest rates to encourage growth. The economy is now growing at a faster rate than before and the Fed has decided to raise interest rates to moderate growth. Whenever things change there is a period of friction and dislocation as market participants try to adjust to the new paradigm. We are finding that our active U.S. fixed managers are doing better and they see more opportunity ahead as we go through the new interest rate cycle.
The Move to U.S. Fixed Income
For several years we used Global fixed income as a key component of our strategy but the performance of that strategy has lagged for the last six to 18 months. Conversely, the performance of our U.S. fixed income has performed up to and above our expectations, therefore we are closing out the Global fixed income and repositioning that money to the performing funds.
Fixed income is an important piece of the investment portfolio because it can preserve principal, generate income and provide stability. We want to encourage our investors to stay invested in stocks for the long term because you can make more money in stocks while you have the relative safety of the fixed income.
We encourage you to review your accounts through the Snow Creek Web portal https://snowcreekwealth.portal.tamaracinc.com and call us with any questions or concerns.
Once again, thank you for your trust and confidence.