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