Urban legends, urban myths, and the latest that’s on everyone’s lips–fake news. Whatever you call it, in our age of information, claims of dubious repute can go viral in minutes. Anyone with a computer can start a blog and offer up opinions on just about any subject, whether he or she is an authority or not. Sources? Who needs sources?
Alright, please excuse the sarcasm, but hopefully you know where we're going.
When it comes to retirement, there are plenty of misleading thoughts, opinions and fake news floating around out there. With that in mind, we'd like to clear up some misconceptions that surround the retirement years.
Myth #1: I’ll never see a penny of the money I put into Social Security.
If we had a nickel for every time we've heard someone utter that phrase, we'd have a lot of nickels. Sadly, if a 40-something says he is confident he will receive monthly checks, he sets himself up for ridicule among his contemporaries.
We wouldn’t disagree with the hypothesis that young people getting started in the workforce will receive a low return on contributions into Social Security, but this is a completely different argument.
Contrary to popular assertions, Social Security is not on the verge of bankruptcy, and we fully believe even those who are many years from retirement will be collecting monthly benefits when it’s their turn.
According to the 2017 annual report from the Social Security and Medicare Board of Trustees, Social Security “has collected roughly $19.9 trillion and paid out $17.1 trillion,” in its storied 82-year history, “leaving asset reserves of more than $2.8 trillion at the end of 2016 in its two trust funds.”
As an ever-larger number of baby boomers continue to retire and collect benefits, the trustees expect the trust funds to be depleted by 2034.
Thereafter, expected-tax-income receipts are projected to be sufficient to pay about three-quarters of scheduled benefits. Put another way, recipients of Social Security would receive about a 25% cut in benefits, if no changes are made to the current structure.
Of course, these are simply projections and much will depend on economic growth, job creation, and wages. Yet, it’s a far cry from, “I won’t see a penny of Social Security.”
We suspect that politicians will eventually settle on some type of compromise that will extend the life of the current system, but it may take a catalyst event that would generate enough political pressure for this to happen.
That said, we recognize that timing and strategies that can be implemented for Social Security may be complex. If you have questions, please give us a call or shoot us an email. We would be happy to discuss your options with you.
Myth #2: The stock market is too risky.
There’s no question about it, the bear markets that followed the dot.com bubble and the 2008 financial crisis were unprecedented in that we saw two steep declines in less than 10 years.
Made fearful by what they see as too much risk, millennials have shied away from stocks, according to a Bankrate survey. There has always been a degree of risk in stocks, even with a fully diversified portfolio. Yet, a well-diversified portfolio is akin to a stake in the U.S. and global economy. Moreover, the U.S. and global economy has been expanding for many decades and history tells us it will likely be bigger in 10 or 20 years.
When it comes to investing in stocks, the only resistance we typically come across is from folks who haven’t seriously entertained the idea before. We listen to their concerns, and answer with an array of factual data that’s not designed to win an argument, but simply to educate. When you have all the facts, then you can make an educated decision about what's best for you.
Myth #3: Medicare will handle all my health care needs in retirement.
If only Medicare did cover everything. But then, the cost to finance it would be much higher.
Medicare doesn’t cover the full cost of skilled nursing or rehabilitative care, according to AARP. Yes, the first 20 days of a stay in a nursing home is covered, but you’ll pay over $160 per day for days 21 through 100. And Medicare doesn’t cover stays past 100 days.
You may be paying out of pocket for personal care assistance, too. The same holds true for miscellaneous hospital costs, routine eye exams, hearing, foot and dental care.
Myth #4: Why save today when you can start tomorrow—there’s plenty of time.
This section is designed for millennials and those who are just beginning their journey in the workforce. There’s no better day to begin saving than today and we can’t stress this enough!
Here's a simple example:
Source: JP Morgan Asset Management
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
In other words, Susan begins 10 years earlier than Bill, saves 20 years less than Bill, and saves $100,000 less than Bill, but winds up with $61,329 more.
For every parent or grandparent reading this, we encourage you to forward this powerful example to your kids and grandkids that are near or have already entered the workforce. It's a teachable opportunity with a simple lesson: The sooner you begin; the better off you may be as you approach retirement.
Take full advantage of your company’s retirement program. If your company doesn’t have a savings plan, there are many simple ways that you can get started. Feel free to reach out to us and we can assist.
Myth #5: Retirement is easy.
Many look forward to the day when they will no longer prepare for Monday mornings at the office. For those who face the work challenges that crop up daily, retirement may seem like a welcome oasis in the distance.
But that oasis sometimes turns out to be a mirage. Often, the transition from decades of working to retirement isn’t so simple.
For a better retirement, set goals, and not simply financial ones. Can you transition to part-time in your job? Consider part-time employment or consulting. It will ease the transition, keep you busy, and extend your savings.
Volunteer with your local church or local community organizations. Look for groups with similar interests. You’ll not only derive an enormous amount of satisfaction from helping others, but you’ll meet like-minded folks and make new friends.
Try something new. Keep up any exercise routines—and it's never too late to start a new one. Check with your doctor, who will be happy to prescribe a fitness plan that’s suited to you.
Have you ever considered taking a class? How about writing a book or mentoring someone young? Expanding your knowledge or sharing your ideas can be quite fulfilling. We've heard of retirees writing books and personal autobiographies for their kids – talk about a legacy!
The most important thing you can do to make retirement enjoyable is to stay active and keep your mind and body sharp.
This research material has been prepared by Horsesmouth
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
By Michael Howell
This last October, 2017 marked the 30 year anniversary of what famously became dubbed, Black Monday. For those unfamiliar with what took place on October 19, 1987, the Dow Jones Industrial Average plummeted by a then-record 508 points—a 22% decline in a single day.
Thirty years later, we look at a very different market as we begin 2018. This market has been anything but volatile and the secular bull market we're currently in now pushes into its ninth year with the last significant market pullback taking place in late 2015-early 2016.
Let's acknowledge this market for what it is. Times are good!
But what about when they're not? We all know the axiom, "What goes up, must come down." If you think rationally, you may be observing this market wondering: How long can we expect this to last?
Even though it's Winter at the time of this writing (and cold outside), from a market standpoint we're figuratively sitting in the sun lounging about on a nice boat in clear waters, and most of us are enjoying this market for what it is. For these reasons, we feel now is a great time to examine where we are in the business cycle and look back on history to draw lessons from days when waters weren't so smooth. Doing so helps us to better prepare for the next storm that inevitably passes.
We begin with today's forecast.
Even as we stand today, many market forecasters are predicting sunny weather going into 2018. American corporations reported strong profits in 2017 and the outlook may be getting better. Many onerous government regulations have been rolled back under the Trump administration, tax cuts have now been passed, economic growth has been accelerating, interest rates (though rising) still remain low, and strong corporate earnings continue to support rising stock prices.
Despite being in the ninth year of this economic recovery out of the Great Recession, if corporate earnings continue to impress, it is very possible for the market to continue rising further.
BUT – we all know the day will come when this market makes a turn. In fact, it's inevitable. Ironic as it may seem, market downturns are a healthy and necessary part of the business cycle. When markets rise, it causes demand for products and services to increase, which in time causes inflation to ensue. Practically speaking, inflation makes every dollar you own less valuable as the prices of homes, cars, and various goods you purchase increases relative to your net income.
To illustrate, can you remember what gas prices were back in the day? Some of you may remember when gas prices were less than 50 cents a gallon. If you do, that means you lived through the 1970's when gas prices were last at this level. It also means you remember when disco, station wagons and 8-tracks were a thing! Of course the days of 50 cents per gallon of gasoline are long behind us, but in the big picture, what matters is price inflation relative to growth in your wages and investments. In other words, if the costs of goods like gasoline or food begins increasing at a rate that’s faster than the growth of your wages or investments (and the same holds true for your friends and neighbors), our economy has a problem.
This is why the business cycle is important – it ultimately helps keep various market forces in check. For those reasons, it's necessary to understand how the cycle revolves.
How does the business cycle keep market forces in check?
In every business cycle, what inevitably happens is the economy over-expands and eventually reaches a peak, where consumers develop a lesser appetite (or ability) for spending and borrowing. When this occurs, demand for products and goods decreases and sets the stage for the economy and market to contract.
This period of contraction typically reduces inflation, affords consumers and businesses opportunities to repay debt, and helps stimulate greater demand for goods once again – which then begins a new business cycle for the next leg. Though the cycle expands and contracts, historically the contractions set the stage for another leg higher.
Where are we in the current cycle?
Overall, we've moved into the maturing phases of the current expansion, but we're still experiencing some areas of recovery. According to LPL Financial Research, we currently sit in a business cycle that has displayed elements of multiple stages all at the same time.
Source: LPL Financial Research Outlook 2018 Chartbook
One of the remarkable elements of the economic growth we've seen over the last eight years is that the primary driver of economic growth was largely dictated by the actions of the Federal Reserve through extraordinarily accommodative monetary policy (via quantitative easing). Through this period, our economy and markets have certainly grown, but the rate of growth has been slow in comparison to prior economic expansions. Today, these forces are no longer as influential and the forces that have historically supported economic and market growth, such as deregulation, infrastructure investment, and entrepreneurial risk taking have moved into the driver's seat.
What does the business cycle have to do with my investment portfolio?
As we've stated in multiple writings, over time, stock markets will follow where corporate earnings lead. Stocks are shares of ownership in businesses, and since businesses expand and contract through these cycles, any ownership you have in stocks will see its price action expand and contract along this cycle. More importantly, it's these contractions or downturns that ultimately create the conditions necessary for the market to move into its next leg of growth.
In a way, think of it similarly to a forest fire. Though destructive, fires are also a natural and healthy part of an ecosystem. Its fire that kills off dead trees and decaying matter in the forest, and the ashes add nutrients back into the soil to support new growth.
Those of us Californians know we can't control the dry wind and periodic drought conditions that occur in our state. Similarly, it behooves us as investors to recognize we can't control the expansion and contractions of the business cycle—we can only control our behavior along the ride as we go through them.
Back to Black Monday
Taking us back to where we started, Black Monday was a terrifying day for many investors. You can even watch old news footage to get a feel for the sentiment on October 19, 1987. Nobody had ever seen a 22% drop in the stock market in a single day, and it caused widespread panic and selling of stock shares. On that day, more than 595 million shares were traded (the prior record was 302 million). To give you a comparison, the crash that occurred on Tuesday, October 24, 1929 (dubbed Black Tuesday) that preceded the Great Depression dropped only 13%. Needless to say, many felt like the sky was falling and pandemonium ensued. Many people wanted nothing to do with the stock market at that point and sold off the investments they held.
What caused the market to drop so significantly? Various reasons have been cited, but the consensus reporting on the 1987 crash was that it occurred as a result of a combination of forces: Exacerbated selling activity, ill-equipped computer trading systems, a weak dollar, inflation, the trade deficit, and Middle East conflict.
Putting it all in perspective.
Oppenheimer Funds did an analysis of someone receiving a $100,000 inheritance and investing it in the U.S. market on the eve of the crash. After Monday's 22% decline, the investment would have dropped in value to $77,420. However, by the following October 20th of 1988, the investment would have once again grown and surpassed $100,000 and 30 years later (today), would be worth more than $2.1 million.
Putting it in visual form and to scale, the 1987 Black Monday crash looks like a blip on the radar from where we are today.
In fact, the Dow Jones Industrial Average has increased more than 1,400% since that day 30 years ago. When looking at a mountain chart like this, it's clear a long-term perspective is essential and necessary for us to make wise investment decisions. Even so, we don't minimize the risks involved with stocks, particularly for those nearing retirement. Why? Because it takes time to recover from downturns.
For example, if someone had an investment that declined 50% in value, a 50% gain would not bring the portfolio back to break-even—rather a 100% gain would be needed to get the portfolio back to where it started. Historically, this recovery can take several years, time a pre-retiree or retiree may not have to wait.
Four Lessons to be Learned from Turbulent Markets
1. Recognize that pursuing a successful outcome in investing has more to do with our behavior than the return on our investments. We are, human, after all. When markets are rising, the human response is to have a high tolerance for taking risk. When markets turn south and stocks are tanking, the emotional response is to sell everything and go to cash. Unfortunately, these knee-jerk reactions rarely result in positive outcomes and time after time, we've historically seen markets go through the cycle and lead on to another leg of recovery.
2. View your investments in mutual funds, ETF's, stocks and bonds similarly to how you view ownership in a home—as an asset. Picture owning a home that's worth $400,000 today, but the following year changes in value to $350,000 due to a downturn in the real estate market. Though you're probably not happy about it, you likely don't look at your circumstances thinking you lost $50,000. After all, you don't lose $50,000 in this scenario unless you were to sell your home.
Yet for many, the opposite mentality is true with their investments in stocks. If the same $50,000 drop in value were to occur in a person's stock or mutual fund portfolio, many would claim they had lost $50,000. Remember, the only time you take a loss is when you sell your investment, and if you can wait on touching your investment dollars for enough time to give the market a chance to recover, the best decision is often to sit tight.
3. Be realistic about your investment risk tolerance. We recognize the advice to sit tight in circumstances similar to the above might not sit well for the retiree or soon-to-be retiree, but that's only if they're invested in a portfolio that's too volatile and aggressive for their needs. A mixed portfolio of stocks and bonds can help weather these inevitable storms and allow for enough principal growth in the portfolio to last a 20-30 year retirement.
Similarly, if you claim to have a high tolerance for risk in rising markets (because you want to maximize your returns), this means you also need to tolerate the downside during recessionary periods of the cycle. Trying to time when to be in the market and when to be out is attempted by many, but is difficult to accomplish consistently. Be realistic about how much risk you can really tolerate.
4. A financial plan will help you respond to turbulent markets rationally instead of emotionally. When you see your overall financial picture at a 30,000 foot level, your perspective changes. Depending on what you want your financial future to look like and what season of life you're in, a good financial plan will help you make wise decisions. For the retiree, it will help you draw income from the resources you have more efficiently. For the working family, it will help you see if you're on pace to maintain a similar standard of living for a future retirement.
Seeing your financial life at this level helps you balance saving for the future and spending on the present. It helps you know if you need to be saving more, but also can help you determine what rate of return you need on your investments to experience the financial future you'd like to see.
Remember, financial planning is not a science—rather it is a fluid activity. From saving money for the future, managing life after the loss of a family member, living out your retirement, and all of the life events in-between, we're here to help guide our clients through these decisions.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Successfully Managing A Financial Windfall
We’ve all heard the stories. If not first hand, at least in various news reports and anecdotes.
Some “lucky” person picks the winning numbers, prances before the cameras in what can only be described as a media lovefest, and lives happily ever after, free of financial worries.
OK, the first two points are correct, but the happily ever after doesn’t always materialize. In fact, in most cases, sudden money leaves the winner worse off than prior to their windfall.
Many winners, who aren’t used to managing a large sum of money, mismanage the funds and wreck their lives in the process. As it turns out, it’s a variation on the theme of the Prodigal Son. Only the names and the details change. Of course, odds of winning life-changing cash in a lottery are incredibly low.
We are more likely to be the recipient of an inheritance or an insurance settlement. And it’s the unexpected pile of cash that may create an initial sense of euphoria and a false sense of security.
“The vast majority of people blow through [a financial windfall or inheritance] quickly,” said Jay Zagorsky, an economist and research scientist at The Ohio State University and author of a study on receiving an inheritance.
Whether large or small, it can seem like “play money.” And that is where the danger may lurk. So, that brings us to the next question. What should you do if you happen to be the beneficiary of a financial windfall?
10 steps to creating a firewall around your newfound stash of cash
1. First, do nothing. That’s right, do nothing. The temptation may be to buy a new car, take a luxury cruise, or upgrade your living arrangements. That can begin an unwise cascade of purchases that will likely leave you feeling regret. A suggestion is to wait at least six months before embarking on any life-changing decisions. The time spent waiting and planning allows the “shock” of your newfound wealth to wear off.
Besides, you need to take time to learn exactly what you’ve inherited. Is it all cash? Is it stocks and bonds? Have you just become the owner of a business or real estate?
2. Talk to a trusted advisor. Find someone who has your interests at heart, not his or hers. If you are expecting to receive a windfall or have already received an unexpected inflow of assets, let’s talk and see how we can incorporate it into your overall financial plan.
The suggestions we provide below are basic fundamentals. They may not apply directly to you, but they are common sense tools designed to help you make smart decisions and prevent an expected or unexpected windfall from being squandered.
3. Doing nothing also means not quitting your job. It may be tempting, but lost wages and the lack of social interaction from your coworkers may lead to remorse, even if you don’t especially enjoy your job. Besides, without work, you run the risk of blowing through your money much quicker than you had anticipated.
4. Reduce debt. We’ve always provided a holistic approach to financial planning. Once things have settled down and you have a better understanding of your inheritance, it may be time to pay down or pay off high-interest debt. Once eliminated, you no longer have that onerous outflow of interest payments on your loans.
5. If you don’t have an emergency fund, now is the time. Set aside reserves of at least three to six months' worth of your expenses, preferably the latter. The future can sometimes throw you an unexpected curve ball. Having reserves set aside will reduce your financial stress.
6. Additionally, you may decide to allocate additional funds toward savings and retirement. Again, every one of our clients is unique, with various goals, personal circumstances, and financial resources. What our team recommends for one person may vary significantly from what's best for another.
7. Think about tax and estate planning. No one is sure what may or may not happen to the tax code this year or next. But it’s critical that you get a handle on the tax ramifications of your inheritance in order to maximize the financial benefit.
For example, did you know that you may be required to take distributions if you inherit an IRA? What if you are already taking required mandatory distributions? You see, things can get tricky rapidly, but sound advice can quickly ease any concerns. Additionally, life changes are a great time to update your estate plan, especially if the inheritance increases the complexity of your financial situation.
8. Be cautious. Less-than-reputable salespeople and relatives may suddenly warm up to you, with the unspoken goal of separating you from your cash. That’s why a trusted advisor is critical. If you have a well-thought-out financial plan, it’s much easier to pass on potentially exploitative offers.
9. Consider charitable giving. Do you have a favorite charity? Would you like to help a niece or nephew finance their education? Now is the opportunity to explore the possibility of helping others.
10. Have some fun. There’s nothing wrong with treating yourself. As we provide counsel, we would like to leave some room for self-indulgence. Do you like to travel? Have you thought about an addition to you home, finishing your basement, remodeling your kitchen, or upgrading appliances? Maybe it’s those top-of-the-line golf clubs you’ve been eyeing, or a new car.
Or, maybe you’d like to spend money catching up on the everyday things of life you’ve been putting off. Everyone has a hot button.
With a financial plan in place that manages your windfall, you’ll feel much more secure enjoying the benefits of your wealth without the nagging worries that you might run through your nest egg with not much to show for it.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation
Happy New Year to you! We hope you and your family had a truly joyous Christmas and holiday season.
The world in motion.
As we put 2016 behind us, we head into 2017 recognizing life is continually on the move. In a matter of days, Donald Trump will be inaugurated the 45th President of the United States. On the world stage, the media is intently focused on Trump's cabinet, policy matters, Russia, hacking, foreign policy, race relations and of course the buzz phrase of 2016—fake news.
We're certainly not diminishing the significance of what's taking place in the world today, but we think everyone can collectively agree the news cycle over this last year has simply been exhausting! Amidst all the voices and the magnitude of the noise, we know these matters can create anxiety, uncertainty, and cause you to perhaps look at the future with apprehension rather than anticipation.
So we hope to put some matters into perspective and encourage you in this – stay focused on the vision for your future and don't let any of the tumultuous events of the day derail you from that vision. You may be encouraged or discouraged by the outcome of the election season, but know that investment success has historically depended more on the strength and resilience of the American economy than on which candidate was in office.
The good news is there are many reasons for optimism about the economy.
Remember, we are not market timers. Market corrections, friction, and uncertainty come with the territory of investing, but corrections and market volatility historically have always come and gone.
Overall, we're encouraged by the prospect of an economy going forward that will be driven less by Federal Reserve policy and more on free market principles.
Your future will be determined by what transpires in your own home.
Most importantly, putting aside the market and economy, recognize your success in life has more to do with what takes place in your own house than any external forces. Your dreams for your family, your occupational goals, how you serve your community, and what you aspire to do recreationally are not fake news – they're real aspirations.
Thank you for allowing us to guide you in your vision for your future!
Truly, this is what drives us to work every day. Picture your financial life as a puzzle with pieces you put together as life unfolds. We recognize our role is to use our financial planning process to help you put these financial puzzle pieces together as needs evolve. It gives us great joy to serve you in this way and we wish you a happy, fulfilling and prosperous year ahead!
Gary Blom & Michael Howell
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Have you ever met or approached a professional at a social event and been tempted to ask a personal question that relates specifically to your circumstances?
We know we have.
Whether it’s a physician, attorney, or CPA, when in need of assistance, we benefit from receiving additional insight from the experts. Of course, you typically want to shy away from any direct questions. But the temptation sometimes arises.
While reluctant to pry a bit of free information from someone who has painstakingly developed their specialized skill set, we find most are very open to discussing financial planning when we are out and about. For starters, we truly enjoy what we do and receive a tremendous amount of satisfaction assisting those who seek our advice.
However, there is one topic we’ll shy away from–and it’s one we get questions about quite often: Where do we believe the market is headed?
Long term, stocks are an integral part of most portfolios, and the historical data bear this out. But many folks who ask for our opinion want to know the market’s direction over a much shorter period.
Questions such as: “What’s going to happen after the U.K.’s Brexit vote?” Or, “how will stocks perform before and after the election?”
We understand the inquiry. Financial advisors have their fingers on the pulse of the market, the economy, and there is this expectation that we have some sort of inside information.
Although we did not expect what happened in Europe to have a lasting impact at home, admittedly, we were surprised by the sharp bounce in stocks and subsequent all-time highs in the Dow Jones Industrials and the broader-based S&P 500 Index.
In some respects, the political earthquake in the U.K. shook up our markets for just two days before cooler heads prevailed and shares began an upward ascent.
While we have reiterated in the past that we have no magic crystal ball (and let us remind you, neither does anyone else), we’d like to take a moment to explain why our approach leans heavily on diversification and eschews market timing.
Irving Fisher was called “the greatest economist the United States has ever produced” by none other than Milton Friedman, who won the 1976 Nobel Prize in economics.
Yet, Fisher’s record is stained by his 1929 remark that “stocks have reached what looks like a permanently high plateau.” Making matters worse, his comment came just three days prior to the crash (CNBC: “Spectacularly Wrong Predictions”).
"By itself, a new high isn't a reason to sell."
Every so often, we’re reminded of another blunder from Business Week.
In 1979, the respected periodical ran a cover story entitled, “The Death of Equities.” The article included this line, “The old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared…The death of equities is a near permanent condition.” (Forbes: “6 Doomsday Predictions That Were Dead Wrong About the Market”).
Three years later, stocks went on an 18-year bull run.
While we could continue with the anecdotes, the above examples illustrate that market timing is ultimately an exercise in frustration and is likely to be a detour that takes you further from your financial goals.
AN ALL-TIME HIGH - HOW SHOULD I REACT?
During July, the S&P 500 Index finally eclipsed its prior all-time closing high set back on May 21, 2015 (St. Louis Federal Reserve).
By itself, a new high isn’t a reason to sell.
Since the bull market started in 2009, there have been 45 record highs for the S&P 500 Index in 2013, 53 in 2014, and 10 in 2015 (LPL Research). Since topping the prior high on July 11, the S&P 500 has gone on to close at six more highs during the month (St. Louis Federal Reserve).
Again, by itself, a new high isn’t a reason to go to cash.
What we do counsel is to avoid emotionally based decisions. In our experience, they rarely work.
A LOOK BEHIND THE CURRENT RALLY
It’s somewhat counterintuitive, but a post-Brexit world may actually be helping stocks in the U.S., as nervous cash in Europe seeks safety in the U.S.
But it’s not all gloom. While the U.S. economy is expanding at a subpar pace, it is growing, and the consumer is leading the way (U.S. BEA), which supports corporate earnings.
Speaking of earnings, once again Q2 earnings are topping a low hurdle (Thomson Reuters). More importantly, analysts are cautiously forecasting that the four-quarter earnings recession appears set to end in the current quarter.
Finally, a cautious Fed has been a plus for equities simply because low interest rates create less competition for stocks. If we were in a recession and profits were sliding, low rates would likely do little to support equities, in our view. But again, the economy is expanding, albeit modestly.
WHAT'S AN INVESTOR TO DO?
We recognize that we are in an uncertain period. As the economic recovery enters its eighth year (National Bureau of Economic Research), the expansion is no longer young.
It’s been a substandard economic recovery, global uncertainty is high, and we are in an unusual election cycle.
One of our goals has always been to assist you as you reach for your financial goals. That is why we strongly encourage a diversified portfolio that encompasses assets in the U.S. and abroad.
As we’ve mentioned in previous writings, we will eventually enter a recession, and recessions have historically brought about a downturn in stocks. We don’t know when it will happen, but it will. It’s an inevitable byproduct of a free market economy.
While declines in the major averages that exceed 20% can be unnerving, they have always run their course historically, setting the stage for another upward cycle that takes shares to new highs.
As always if you have any questions, we encourage you to contact us.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
This research material has been prepared by HorsesMouth
In the markets, recent volatility has caused concern and apprehension for many. As we evaluate the present market environment we're in, we seek to be objective and let the facts and history guide us. If history has been any indication, we can count on economic cycles continuing month after month, and we need to remember that market downturns are part of the natural cycle of investing.
This week we invite you to read the latest from John Cannaly, LPL Financial's Chief Economic Strategist, as we find his thoughts well timed for this current market environment.
As always, please do not hesitate to give us a call if you have any questions or concerns. We are honored to serve you and your families and we're thankful for the trust you exhibit in us as we partner with you and travel this journey together.
Gary & Michael