Powers Advisory Group

A Resilient Market

Mon, 20 Apr 2026 19:27:13 GMT

A Resilient Market…But Not a Simple One

Markets have a way of reminding you how quickly sentiment can shift.

What we just saw was almost textbook: a geopolitical shock, a sharp selloff, and then a rapid recovery. The kind of V-shaped move that tends to follow these events. What stood out, though, wasn’t just the pattern…it was the speed. The S&P 500 was back near highs in roughly a couple of weeks, despite war headlines and a spike in oil. For the month of April (as of April 17) we saw the S&P 500 +8.05%, DJIA +6.03% and the Nasdaq Composite +11.61%.

That kind of response tells you something important: the underlying trend is still strong. A lot of the macro risk that spooked investors may have already been priced in. But - under the surface, the rally isn’t as broad as it might appear.

A significant portion of the move off the lows has been driven by a handful of mega-cap names: Nvidia, Microsoft, Apple, Amazon, and Alphabet. When a small group is doing most of the heavy lifting, it raises questions about how durable the move really is. We’ve seen this dynamic before. Large-cap tech can carry the index for a while, but it’s not the healthiest foundation for a sustained rally. For this market to continue higher in a meaningful way, participation needs to expand.

Interestingly, earlier this year gave us a glimpse of what a healthier setup looks like. Stock return leadership broadened out. Industrials and materials started to step up. Meanwhile, the sectors that had dominated for years - tech, communication services, lagged for a stretch. That kind of rotation is typically healthy. It shows that more parts of the market are contributing, which tends to create a stronger base. More recently, tech has taken the lead again coming out of volatility. That’s fine in the short term, but longer-term sustainability still depends on broader participation.

A Market with Two Clear Narratives

Right now, you can make a credible bull case and a credible bear case.

On the cautious side: oil remains elevated, inflation is still lingering around 3%, and the Fed isn’t in a hurry to cut rates. Add in geopolitical uncertainty and upcoming election dynamics, and there are plenty of variables that could disrupt things.

On the other hand, company fundamentals have held up better than many expected. Earnings remain solid, and the consumer, still the backbone of the economy, continues to show resilience.

If you’re looking for reassurance, bank earnings have been one of the clearest signals so far. Across the 6 major banks, the message has been consistent: consumer spending is steady, credit quality remains solid, and delinquency trends are still relatively low. Financials aren’t getting a lot of attention, but they’re quietly confirming that the underlying economy is in decent shape. And as long as the consumer remains stable, that provides an important foundation for the broader market.

What Could Actually Disrupt This?

The biggest risk isn’t what we already know…it’s something new. What hasn’t been fully priced in is a re-acceleration, particularly in energy. Oil remains the key swing factor. We’ve seen the initial impact at the gas pump, but the bigger concern is what comes next: higher transportation costs, pressure on supply chains, and broader inflation effects that tend to show up with a lag. If oil were to move meaningfully higher, that’s when it becomes a larger economic issue and potentially forces a more complicated response from the Fed.

What to do Next

Importantly, investor behavior remains steady.

Right now, there’s no widespread panic. Investors aren’t rushing to cash, they’re staying invested. Historically, that’s critical, especially during periods driven by geopolitical events. Some of the market’s strongest days tend to come right after its weakest ones. Matt mentioned this on CNBC's "Squawk Box" last Friday morning ( link to the clip here ). Missing even a few of those can have a meaningful impact on long-term returns. We’ve just seen another example of that dynamic play out.

We simply wanted to provide our thoughts on what is happening with the markets in general. As always, if you have any questions, we’re here. Thanks for your continued support.

The PAG Team

Short Term Volatility > Long Term Clarity

Tue, 03 Mar 2026 17:45:58 GMT

Short Term Volatility > Long Term Clarity

Everyone is fully aware that over the weekend, Israel and the U.S. launched military strikes against Iran, killing senior leadership including Ayatollah Ali Khamenei. Market reactions were muted on Monday except for a spike in oil prices. With the fears of a more prolonged and spreading conflict, volatility is following suit. Concerns of increased inflation - wars are overwhelmingly inflationary due to increased government spending, resource scarcity and supply chain disruptions - add fuel to the fire.

As we write this, the major indexes - the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite - have all been choppy. International equity markets are reacting more negatively, as those economies are more reliant on oil from the Middle East. Oil (Brent crude) spiked 20% over the past month, with most of the increase in the last several days. The VIX volatility index moved back above 20. Energy and defensive sectors, like consumer staples and utilities, have led early in 2026, while some of last year’s high-flying tech names have cooled off.

It feels like a lot. Because it is.

We’re dealing with trade and tariff uncertainty, Ongoing AI valuation questions, Middle East tensions, Sticky inflation conversations. It’s not just one thing…it’s everything happening at once and that’s the backdrop where “boring” works.

A Little Perspective

There’s an old line from Warren Buffett that’s worth revisiting:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Moments like this test that discipline.

Historically, geopolitical shocks create near-term volatility, sometimes sharp volatility. But when the underlying economy is stable, markets have typically recovered in the months that follow. In most past crises, the median return for the S&P 500 six to twelve months later has been positive. That doesn’t mean markets can’t fall further in the short run, they absolutely can. It reminds us that reacting emotionally to headlines has rarely been a winning long-term strategy.

What Actually Matters for Markets

The real primary driver here isn’t the headlines, it’s energy and uncertainty. If oil were to surge and stay well above $100 for a sustained period, that could meaningfully pressure inflation and interest rates. That’s something we’re watching closely.

It’s also important to remember:

The U.S. is now a net energy exporter, very different from the 1970s.
Domestic production can ramp faster than it once could.
Much of this conflict had been partially priced in as tensions built over the past month.

Meanwhile, the broader U.S. economic backdrop remains reasonably solid. The labor market continues to hold up, corporate earnings have been resilient, fiscal policy still provides some tailwind and growth is steady.

Our Positioning: Stay Invested, Reduce Volatility, Get Paid to Wait

In this type of geopolitical climate, this is not the time to play offense.

Matt said this verbatim on CNBC last week…our approach is simple: stay invested, reduce volatility, lean defensive where appropriate, and get paid to wait. Link below:

https://www.cnbc.com/video/2026/02/25/take-a-defensive-posture-on-stocks-amid-geopolitical-pressures-powers-advisorys-matt-powers.html?&qsearchterm=matt%20powers

We’ve already seen rotation this year toward energy, staples, and other more defensive areas. When uncertainty rises, capital tends to move toward cash flow, dividends, and real assets.

Our base case for 2026: mid-single to low double digit equity returns remains intact. The conflict does not fundamentally alter our long-term outlook. We expect increased volatility until more clarity is seen with the Iran conflicts.

The Bigger Picture

There are always geopolitical risks…always. From wars to assassinations to financial crises, markets have faced decades of elevated tension and yet over time, they’ve continued to grind higher. Often the bigger damage comes not from the geopolitical event itself, but from an underlying economic downturn that was already forming.

Scoping out, it’s possible that near-term instability leads to longer-term regional stabilization. That would come with short-term market costs, but potentially longer-term benefits. We’ll continue to assess that as events unfold.

Final Thought

We know volatility is uncomfortable. It’s supposed to be, it’s the price of admission for long-term returns. Our job isn’t to predict every headline. It’s to build portfolios that can navigate uncertainty…whether it’s geopolitical tension, AI disruption, inflation debates, or all of the above at once.

We won’t always get every call perfectly right, but we will stay disciplined, will stay diversified, and will stay focused on long-term outcomes.

As always, if you have questions, reach out. That’s what we’re here for.

Source: Bloomberg. Data as of January 26, 2026. If the market was closed on the event date, the date of the previous market close was referenced. The one-day return for the 9/11 attacks

after reopening of the market was on 9/17/2001. The one-day return for the JFK assassination after the reopening of the market was on 11/26/1963. FOR INFORMATIONAL PURPOSES ONLY.

Indexes are unmanaged and do not take into account fees or expenses. Past performance is no guarantee of future results. Please refer to important disclosures at the end of this report.

How 2025 Wrapped Up, And What We’re Watching Next

Mon, 05 Jan 2026 21:22:57 GMT

How 2025 Wrapped Up, And What We’re Watching Next

We hope everyone had a great New Year and is off to a productive start to 2026! Below is our outlook on the year, along with some other housekeeping items…

As 2025 came to a close, markets showed a little hesitation right at the finish line. The final trading sessions were mildly lower, and we didn’t get the classic year-end “Santa Claus rally” many investors look for. But zoom out, and the bigger picture was still very positive. The S&P 500 finished the year up roughly 16%, marking its third straight year of double-digit gains. That puts this run among the stronger multi-year stretches we’ve seen in quite some time.

So even though things felt choppy at the end, investors who stayed focused on fundamentals were rewarded. Tech and AI-related names drove much of the upside early, but as the year went on, participation broadened and more cyclical areas joined the rally. That’s a theme worth carrying into 2026.

Summarizing 2025 is easy: Markets delivered strong returns, earnings held up, and the economy avoided the slowdown many feared. The more interesting question looking ahead is this: Can the market repeat it, and what actually has to change under the surface for that to happen? History tells us markets can keep going, but rarely in the same way. That idea shapes how we’re thinking about the year ahead.

Theme #1: Returns Likely Moderate and That’s Normal

After several strong years, moderation is often the next phase. A few reminders from history:

We’ve had a bull market in every decade for the past 100 years
Nearly half of bull markets make it into a fourth year
Fewer than 40% post strong gains in that fourth year
Pullbacks of 10–15% are common even in healthy bull markets

In other words, slower returns and occasional drawdowns are often the cost of extending a bull market. For 2026, returns are likely to be more earned, more selective, and more dependent on fundamentals and not broad multiple expansion.

Theme #2: Leadership Will Change

Leadership is how bull markets survive. Historically, about three-quarters of bull markets see leadership shift after the first three years. That shift usually extends the cycle rather than ending it. We’re seeing signs of that already:

More sectors gaining traction
Less reliance on a small group of mega-cap names
Improving participation across healthcare, industrials, materials, and other cyclical areas

This kind of rotation is healthy. It refreshes the market and creates new opportunities beyond the higher valuation areas.

Theme #3: Volatility Picks Up

As market transition phases, volatility usually follows. Why?

Valuations are higher, leaving less room for disappointment
Policy headlines and macro noise aren’t going away
Expectations reset, which leads to sharper short-term swings

Two additional factors matter in 2026:

Midterm elections . Historically, midterm election years tend to bring more volatility as markets price in uncertainty around fiscal policy, taxes, regulation, and government spending. While outcomes often resolve positively over time, the path there is rarely smooth.

High earnings expectations. When expectations are elevated, even “good” results can lead to pullbacks if companies miss slightly or guide conservatively.

What Still Supports a Constructive 2026

Even with moderation and volatility, the foundation is still solid:

Earnings remain the anchor
Participation continues to broaden
Rate pressure is no longer tightening - the Fed is now more of a tailwind than a headwind
Margins and profitability are improving, helped by productivity gains

The Economy: Slowing, Not Stalling

Economic data in 2025 quietly surprised to the upside. Growth held up even as the labor market cooled. Unemployment levels moved higher but remained consistent with a slowing economy and not one of the verge of recession. The biggest story was and still is productivity. Companies continued to grow profits even as hiring slowed. That productivity backdrop helped support margins and earnings and is a key reason the economic foundation remains intact. The argument can be made that this is the AI effect.

Where AI Fits Now

AI is still a major investment theme, but the market’s focus is evolving. Capital spending topped $400 billion in 2025 and could approach $600 billion next year, largely tied to infrastructure and data centers. The shift now is this: The market is less interested in who is spending and more interested in who is benefiting. Moving from builders to adopters, simply companies that can translate AI investment into productivity, margin expansion, and real earnings growth.

Venezuela

We’re all aware of the capture of Venezuelan President Nicolas Maduro…an event that has broad geopolitical ramifications. Venezuela currently has the largest proven oil reserves in the world. The practical reality is that Venezuela currently produces a fraction of its potential because of years of underinvestment, sanctions, and infrastructure decay. Bringing production back online will take billions of dollars and years of work, it’s not an overnight fix or like turning on a faucet.

Near term, expect some choppiness in oil as headlines drive volatility. Longer term, if Venezuelan production actually makes it back into global markets, it could shift supply and benefit U.S. energy players. Either way, geopolitics stays part of the backdrop for both commodities and equities.

Retirement Contribution Limits Have Changed

401(k), 403(b), and most 457(b) plans: Contribution limit rises to $24,500 in 2026 (up from $23,500).
IRA (Traditional & Roth): Annual contribution limit increases to $7,500 (up from $7,000).
Catch-up contributions (age 50+): Up to $8,600 (up from $8,000).
“Super” catch-up (ages 60–63): Up to $11,250 if your plan allows.

We look forward to a great 2026 and navigating the year together. As always, don't hesitate to reach out if you have any questions or concerns.

The Hidden Risk of Market Concentration

Fri, 10 Oct 2025 18:30:40 GMT

The Hidden Risk of Market Concentration

Why remembering market history matters when enthusiasm runs high

Markets have a way of convincing us that what’s working now will keep working forever, until they remind us otherwise. Every decade tells a story about what investors value most.

In the 1960s and 1970s, the world’s largest companies were industrial and oil powerhouses like IBM and General Motors. Manufacturing defined the economy, and scale was the ultimate advantage. IBM’s market value, roughly $75 billion in the mid-1960s, made it a symbol of innovation and stability with unimaginable in size at the time.

By the 1990s, the digital revolution had arrived. Microsoft, Intel, and Cisco defined a new era of growth and optimism. At its 2000 peak, Cisco traded near 200x earnings and briefly became the world’s most valuable company...before losing more than 80% of its value when the dot-com bubble burst.

The 2000s brought a return to tangible assets. Oil prices soared above $140 a barrel, and ExxonMobil topped global rankings. Yet, quietly, Apple, Amazon, and Google were building the platforms that would dominate the next decade.

By the 2010s, technology wasn’t just a sector, it was the market. Apple became the first trillion-dollar company in 2018, and the top five U.S. tech firms...Apple, Microsoft, Amazon, Alphabet, and Meta made up nearly 20% of the S&P 500 by decade’s end.

Now, in 2025, we’ve entered the AI era. Nvidia, once a niche chipmaker, has become the world’s most valuable company at roughly $4.5 trillion, with Microsoft and Apple close behind near $3.9 trillion each. The top 10 companies now account for more than one-third of the entire S&P 500’s value, the highest level of concentration in over 60 years.

The innovation behind this is real - but so is the froth. We’re seeing valuations stretch well beyond long-term averages, fueled by enthusiasm that assumes growth will continue indefinitely. It’s an exciting story, but history reminds us that even the best companies can become over-owned and overvalued when optimism runs unchecked - and - you probably already own more big tech than you think.

We’ve had a lot of conversations lately about companies like Nvidia, Microsoft, and Broadcom which are the names driving much of this year’s market performance. They’ve been incredible performers, and it’s easy to look at the headlines and wonder if you should be adding more. But here’s what surprises most investors: if you own index funds or large-cap mutual funds, you already own them - and quite a bit of them. That’s because most indexes are weighted by size, which means the biggest companies make up the biggest portion of your portfolio. The S&P 500 isn’t divided evenly across 500 companies. The top 10 names led by Nvidia, Apple, and Microsoft now account for more than one-third of the entire index. Nvidia alone recently represents over 8% of the S&P 500, contributing an outsized share of this year’s returns. So while you might feel diversified across hundreds of holdings, much of your return is really being driven by a handful of companies. That’s what we mean by concentration.

None of this is necessarily bad. These are strong, profitable, innovative companies that have earned their place. But it’s worth remembering that market leadership always changes. The same pattern has repeated for decades...industrials to oil, oil to software, software to platforms, and now platforms to AI. Every era has its giants, and every cycle brings new ones. That’s why we stay focused on balance. We want your portfolio to participate in the growth of today’s leaders, but not become dependent on them. It’s easy to think, “I don’t own Nvidia,” when in reality, you likely do - through your S&P 500 fund, total market fund, or large-cap growth fund.

We're not saying avoid these names or overhaul your strategy. This is just a simple reminder to recognize that even broad market exposure today comes with a lot of concentration in a few big winners and to make sure your portfolio stays diversified enough for whatever comes next.

So when you see Nvidia or Microsoft dominating the headlines, know that you’re probably already along for the ride. Keep perspective, stay disciplined, and remember that markets always change faster than we expect.

Market Resilience

Wed, 02 Jul 2025 19:22:43 GMT

Markets Are Up - Even If the Headlines Don’t Feel That Way

It’s been really easy to miss since it happened so fast, but our job is to keep you in the loop. Over the last few months, the U.S. stock market demonstrated remarkable resilience as it rebounded sharply from the tariff driven lows in April to setting fresh record highs for the S&P 500 the last few trading days. Climbing more than 20% from its recent bottom, the rally has surprised many investors and once again highlighted the market's ability to recover, even when there is plenty in the news to give you pause.

While markets can be prone to irrational swings in the short run, over time, they often reflect broader economic trends. Right now, investors seem to be looking past daily headlines and focusing instead on longer-term drivers: the AI transformation, central bank support, gradual progress on trade, and a generally stable global economic outlook.

So far, the only formal trade agreement signed this year has been with the U.K., one of America’s strongest allies. An important step, but a limited one. With the broader trade picture still evolving and a July 9th tariff deadline hanging in the background, trade policy remains a wildcard that could reintroduce volatility.

On top of that, economic data is mixed. First-quarter GDP showed contraction, consumer spending has been uneven, and the federal deficit continues to grow. Moody’s recent downgrade of U.S. government debt added to the concern, raising the potential for higher borrowing costs for US taxpayers. Additionally, tensions in the Middle East, particularly the escalation between Israel and Iran, create more geopolitical risk.

Still, investors have largely stayed the course. Bond markets, unlike in 2022, are doing their part to stabilize portfolios. International equities have awakened from their decade-long slumber and are showing signs of leadership, suggesting that investors are beginning to look more globally for opportunities.

As we all know, markets don’t move in a straight line, and plenty of risks remain. But this recent rally is a useful reminder: staying invested, especially during periods of uncertainty, often proves to be the right call. Maintaining a long-term perspective, diversifying across asset classes, and resisting the urge to react emotionally remain cornerstones of investing. Stay invested, even when it doesn’t “feel good” in the moment. Here's why...

If you invested $10,000 in the S&P 500 from 2005 to 2024, you would’ve returned over 10% per year. But if you missed the best 10 days, your return would have averaged 6.1% annually. Six of the seven best days for the S&P 500, over that 20-year period, occurred after one of the worst 10 days. That is truly the power of staying invested.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Just Don't Do It - Nike and Tariffs

Thu, 17 Apr 2025 19:52:01 GMT

Below is a link to a recent BBC article - that we had the honor of being interviewed for - with commentary from us on what the tariffs could mean to Nike and the footwear industry:

BBC - Nike and Tariffs

What a Week...

Fri, 11 Apr 2025 20:33:10 GMT

What a Week: Let’s Unpack It

It’s been a roller coaster in the markets this week - sharp declines, sharp rebounds, and a fair bit of investor whiplash. But amid the headlines and volatility, there are a few key themes worth highlighting.

Equity Markets

The biggest jolt came midweek when markets staged a strong bounce on Wednesday. What changed? President Trump announced a 90-day pause on proposed tariffs, easing tensions and giving the market a breather. That news helped shift sentiment, and we saw equities snap back after several tough sessions.

This week, the S&P 500 surged over 9%. However, since the tariff announcement after market close on April 2nd, the index remains down more than 5%.

Bond Market

On the fixed income side, the bond market is telling its own story. The 10-year Treasury yield has been rising, signaling renewed expectations around inflation, future Fed moves, or simply a re-pricing of risk. For investors with balanced portfolios, this matters - rising yields affect not just bonds, but also equity valuations and borrowing costs.

Volatility

Finally, it’s worth remembering that volatility, while uncomfortable, has often paved the way for strong market recoveries. Historically, when the CBOE Volatility Index ’VIX’ (which simply shows how concerned investors are about the stock market going up and down in the near future) spikes above 40, a level it hit earlier this week, the S&P 500 has averaged a 30% gain over the following 12 months, with a 95% likelihood of a positive return. The VIX reached as high as 60 midweek before pulling back to around 44 by early Friday.

While past performance doesn’t guarantee future results, it does offer helpful perspective during turbulent times.

Keeping Perspective

At times like these, it’s important to remember that market volatility is not unusual and it’s part of the investing. As always, we’re keeping a pulse on the market, keeping our long-term view in mind while watching for short-term shifts.

If the recent swings have raised questions or you’d just like to talk through your portfolio, we’re here. Don’t hesitate to reach out. Sometimes a quick conversation can go a long way in bringing clarity and confidence.

We also know this kind of market movement can feel unsettling - and you're not alone in that. Just know that we’re here for you, and we’re always ready to talk things through whenever you need.

Tariff Uncertainty

Fri, 04 Apr 2025 17:08:59 GMT

Markets Took a Hit Yesterday and They're Still Sliding Today. Here's What to Know.

The markets had a tough day yesterday and unfortunately, the selling hasn’t let up much today either.

To recap: on Thursday, the Dow fell about 1,500 points (roughly 3.5%), while the S&P 500 and Nasdaq were down 4% and 5%, respectively. The Russell 2000, which tracks smaller companies, dropped nearly 6% and officially dipped into bear market territory.

Today, markets are still under pressure as investors digest the impact of what sparked all this: a sweeping new round of tariffs announced by President Trump.

What’s Going On?

President Trump rolled out a plan to impose “reciprocal tariffs” on imports from over 180 countries. The goal, according to the administration, is to level the playing field claiming that many countries charge the U.S. more to import goods than we charge them.

Here’s the short version:

A 10% baseline tariff applies broadly, but many countries are facing much higher rates.
China is now subject to a 54% total tariff when you include previous rounds.
The EU is hit with a 20% tariff, Japan 24%, India 26%, and Vietnam tops the list at 46%.
Others, like the U.K., Brazil, Singapore, and Australia, are seeing the baseline 10%.

The market wasn’t expecting anything this aggressive, and the sharp reaction reflects concerns about rising costs, slower global trade, and the potential for an economic slowdown.

Who’s Getting Hit the Hardest?

Some sectors and companies are feeling the pain more than others:

Retailers that rely on cheap imports saw massive drops
Big international players like Apple fell hard as well, even if their direct exposure to tariffs is limited. Tech in general is having a rough stretch, as it usually does during high-volatility periods.
Smaller companies, especially those more exposed to cost swings, were heavily sold off.

That said, not everything was red:

Real estate investment trusts (REITs) held up better than most. With bond yields falling, some investors shifted into interest rate–sensitive sectors like real estate.
International companies with minimal exposure to the U.S. weathered the storm relatively well.
Fixed income has held up relatively well considering a drop in the 10-year treasury rate touching 4%.

What Happens Next?

That’s the big question and part of the reason markets are still sliding today. There’s a lot of uncertainty around how long these tariffs will last, whether other countries will retaliate (China already has with a 34% tariff announced today) and how all of this plays into inflation, interest rates, and the broader economy.

Bottom line: we’re in wait-and-see mode, and markets don’t love uncertainty.

What Should Investors Do?

Here’s our advice: don’t panic. Sharp drops like this can be unsettling, but they’re not unusual and reacting emotionally usually does more harm than good.

During times like this, it can be difficult to see through the uncertainty. Something to keep in mind….Since 1975, the 50 best stock market days were preceded by an average market decline of 6.7% over one month and 10.2% over two months.

If you’re a long-term investor, days like these are part of the journey. And if you’ve got cash on the sidelines, there may be some solid buying opportunities emerging.

And if you’re unsure what your next move should be? That’s okay, too. Sometimes the smartest play is to sit tight, stay diversified, and not let short-term noise throw you off your long-term plan.

As always, if you want to talk through what’s going on or explore any opportunities, we’re just a call or message away.

Shifting Tides

Wed, 12 Mar 2025 20:30:55 GMT

Volatility Returns: What’s Driving the Market Swings?

After a period of relative calm, stock market volatility has surged to levels not seen since late 2020. Last Friday marked the end of a streak of six consecutive trading days where the S&P 500 moved up or down by more than 1%. What’s causing this stock market whiplash, and what should investors make of it?

Tariff & Trade Uncertainty

In the run-up to the 2024 Presidential Election, now-President Trump considered import tariffs to be a central part of his economic plan. The implementation of tariffs - targeting both allies (Canada & Mexico) and rivals (China) - has introduced significant uncertainty, fueling market instability.

Whether these tariffs serve as a negotiation tactic for fairer trade or a means to pressure bordering nations on immigration and drug control, the lack of clarity is breeding concerns about economic growth and stock market volatility.

Each day, and sometimes each hour, brings another curveball. Investors remember Trump’s first term when U.S./China trade tensions in 2018 led to a turbulent market. In Q4 2018, the S&P 500 dropped 13.5%, wiping out healthy year-to-date gains.

Stock Market Impact

The S&P 500 has already experienced a 10% drawdown from its February 18th peak. Last week, the Nasdaq entered correction territory, and now sits 12% off its recent high as investors sought alternatives such as fixed income, dividend-paying equities, and international markets.

The correlation between tariff discussions and market pullbacks is no coincidence. The uncertainty surrounding these policies has led investors to take a more defensive stance, shifting toward value-oriented stocks and away from high growth sectors.

Historically, the S&P 500 experiences declines of 5% roughly once per year, while 10% corrections happen about every other year. While the triggers for these declines may change -this time, tariffs and geopolitics - the pattern of market corrections remains a normal part of investing.

Shifting Tides - The Case for Diversification

Following is something we frequently discuss on CNBC - in fact we did so yesterday on Power Lunch. Watch Matt’s latest appearance here:

Over the past two years, market gains have been concentrated in a handful of stocks, with the “Mag 7” driving returns. Meanwhile, in 2022, fixed income failed to provide its expected risk-reducing role in portfolios.

However, today’s market is shifting. Higher real interest rates are making fixed income more attractive, broader participation among S&P 500 stocks is emerging, and international equities are trading at appealing valuations.

As evidence of this shift, the cap-weighted S&P 500 is down 5.02% year-to-date through March 12th, while the equal-weighted S&P 500 is up 2.45%.

How Long Will the Volatility Last?

No one knows for sure. Market pundits often ask, “Is the bottom in?” only to admit they don’t have the answer.

When volatility strikes, it’s essential to revisit your investment goals and time horizon. During a long bull market, it’s easy to lose sight of long-term objectives, as gains seem effortless. But in today’s world of instant news and constant updates, staying grounded in your strategy is key.

Whether you choose to tune out the noise or embrace the ride, remember: volatility is a feature of the market, not a flaw.

If you have any questions or concerns about your individual situation, please don’t hesitate to contact us.

What a Start

Tue, 04 Feb 2025 20:54:32 GMT

Deepseek and its Low Cost Claims

The final week of January was a whirlwind for the stock market, with tech stocks taking center stage. On Monday, the Nasdaq saw its sharpest decline in over a month following news from China about DeepSeek, a ChatGPT competitor. NVIDIA, a dominant force in AI infrastructure, faced a staggering setback, losing nearly $600 billion in market value - the largest single-day dollar loss in U.S. stock market history. DeepSeek claims to operate at a fraction of the cost of U.S. competitors, requiring less processing memory to train and run. While the long-term implications remain uncertain, this development introduces increased volatility and uncertainty in the near term.

Earnings Sensitivity

Last week also brought earnings reports from four of the Magnificent Seven, along with other key U.S. companies. So far, 77% of S&P 500 companies that have reported Q4 2024 earnings have exceeded expectations, while 63% have surpassed revenue estimates (FACTSET). Historically, positive earnings surprises have led to modest stock price increases, while negative surprises resulted in declines. However, recent quarters have shown heightened market sensitivity to earnings results. For example, IBM exceeded expectations and issued a strong outlook, leading to a 13% one-day gain. Conversely, Lockheed Martin fell 9% after reporting lower-than-expected revenue and offering cautious guidance.

Recently, S&P 500 companies that beat both sales and earnings expectations saw an average stock price gain of 3.6% post-announcement, well above the five-year average of 0.9%. Meanwhile, companies that missed estimates saw an average 5% decline, compared to the historical average of 3.1%.

Market Concentration

With the S&P 500 trading at above-average earnings multiples, investors are watching earnings reports closely. All 11 sectors of the index are expected to see earnings growth in 2024. Why does this matter? The Magnificent Seven currently make up 30% of the S&P 500’s value and accounted for 50% of the index’s gains in 2024. To sustain market growth, the remaining 493 companies will need to contribute more significantly. While the market has reached new highs over the past two years, those gains have been driven by a small group of companies. For context, the only other time such a limited number of stocks dominated performance over a two-year period was during the late-90s dot-com bubble.

This narrow market leadership presents a double-edged sword. On one hand, it raises concerns about whether a handful of companies can continue to outperform. On the other, it creates an opportunity for broader market participation, with the rest of the S&P 500 looking more attractive from a valuation and diversification perspective.

Periods of concentrated market leadership often lead to increased volatility as investors weigh sticking with what has worked - the Magnificent Seven - versus diversifying to reduce risk. The S&P 500 is currently top-heavy, with its 10 largest companies accounting for 30% of the index. January managed to post gains, but not without some turbulence. We expect market volatility to rise in 2025, compared to the relative calm of the past two years.

Last but not Least - Tariffs

Additionally, tariffs have recently moved to the forefront. While new tariffs on Mexico and Canada were announced and then delayed by a month, the U.S. moved forward with tariffs on China. The uncertainty surrounding potential tariff impacts adds another layer of market unpredictability.

In summary, markets face increasing uncertainty from new AI competition, earnings sensitivity, narrow leadership, and trade policy developments. While diversification may not have been "in style" in recent years, it remains a valuable tool for managing volatility. As always, investors should maintain a long-term perspective and avoid getting caught up in short-term market swings.

If you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Understanding the S&P 500

Mon, 15 Jul 2024 04:27:00 GMT

Understanding the S&P 500

We found the graphic below quite interesting and wanted to share.

Over the past few years, the breakdown of the S&P 500 has changed drastically. Although the visual is over a year old, today Nvidia alone makes up over 6% of the index. Currently, the top seven companies comprise over 30% of the entire 500-stock index. It’s clear that there is heavy concentration at the top with companies like Apple, Microsoft, and Nvidia leading the way...

Buyback Surge

Fri, 28 Jun 2024 06:58:00 GMT

Buyback Surge

Over the years, we’ve consistently highlighted the importance of dividends. Today, let's look at another strategy companies use to create value for shareholders: stock buybacks. Until 1982, stock buybacks were illegal because they were considered a form of stock market manipulation. Now they're highly popular and a convincing way for a company to show its commitment to returning capital to shareholders beyond paying a dividend.

So, what is a share buyback? It occurs when a company uses excess cash or debt to purchase its own shares. Buybacks are popular because they reduce the number of shares outstanding, boosting the company's earnings per share. While buybacks don’t directly put cash into shareholders' hands, they can lead to a higher stock price. They are also flexible since companies can implement them at their discretion, unlike dividends, which can be hard to cut once started.

Why discuss this now? Share buybacks surged in the first quarter of 2024, up 16% from the first quarter of 2023, according to the Wall Street Journal. Annual buybacks declined from 2022 to 2023 by the second-largest amount since the 2008 financial crisis due to recession fears and a 1% buyback tax introduced by the Inflation Reduction Act of 2022. This tax, effective in 2023, prompted some companies to accelerate buybacks in 2022. Economic uncertainty in 2023 made companies cautious with cash, but optimism in 2024 led over 400 companies to announce buyback plans.

Recently, many companies, including Apple, Nvidia, Caterpillar, and Altria, announced buyback plans. This continues the trend of increasing share buybacks, which have grown from $300 billion annually for S&P 500 companies in 2010 to a projected $1 trillion in 2025. Buyback announcements are often well-received by shareholders, boosting stock prices. However, the actual implementation can be scrutinized. Just because a company can buy back shares doesn’t mean it should do so immediately. The timing is crucial. If the stock is overvalued, it might not be the best use of capital. Companies should aim to purchase shares at an attractive price.

In conclusion, share repurchases can enhance shareholder value. Along with dividends and reinvesting in the company, they aim to benefit shareholders in the long run.

If you have questions or concerns about your situation, please don’t hesitate to contact us.

Where Do We Go From Here?

Mon, 08 Apr 2024 03:29:00 GMT

Where Do We Go From Here?

In recent weeks, we’ve been asked several times about how to invest given the significant climb in the stock market over the last 5 months. Let’s look back at the recent quarter performance as well as the overall market performance since the October 2023 lows…

The S&P 500 registered a gain of 10.6% in the first 3 months of 2024. This followed historically strong performance in November and December and from its low in October to the end of Q1, the S&P 500 rose an impressive 28%. Year-to-date alone, the S&P 500 has reached a record closing high on 22 separate occasions.

It's interesting how when the stock market hits record highs or experiences downturns, it triggers mixed emotions known as behavioral finance. Investors tend to feel happy seeing their account balances rise during highs, yet fear the possibility of a downturn. Consequently, they become cautious with new investments. Similarly, during market downturns, investors feel anxious about investing more, fearing further declines. Despite the opportunity to buy stocks at lower prices, seeing their account balances decrease often makes them hesitant.

Should this rally suggest caution or concern?

During periods like this, it's wise to examine historical market trends following significant short-term gains. Over the past 50 years, whenever the S&P 500 has surged at least 25% in a 100-day span, it has typically risen another 15% on average over the next 12 months (Bloomberg Finance). Remarkably, in 98% of these instances, the index generated positive returns. While past performance doesn't guarantee future results, this track record is compelling. This year, the performance of the S&P 500 has started to diversify beyond the "Magnificent 7." In 2023, these top stocks contributed 60% to the index's gains, while the remaining 493 stocks only accounted for 40%. However, so far this year, these percentages have flipped.

Despite the market's impressive gains of over 20% in a year, we actually saw an earnings recession from late 2022 to the middle of 2023. However, earnings of the S&P 500 began improving in the middle of 2023 and reported year-over-year growth in Q3 2023 for the first time in a year. In Q4 of 2023, S&P 500 earnings increased by 4% compared to the prior year, showing continued improvement. This trend is set to continue as the S&P 500 is poised for its third consecutive quarter of year-over-year earnings growth in Q1 2024. Although earnings have rebounded, they still heavily favor the top 10 companies, mostly in the Technology and Communications Services sectors. Nevertheless, earnings are now starting to spread across various sectors.

FactSet predicts S&P 500 earnings to grow by close to 11% in 2024, a significant improvement from the 1% growth seen in 2023. Sectors like Healthcare, Materials, and Energy were major drags on earnings in 2023 but are expected to see substantial improvement in 2024. Interestingly, these sectors led the market surge in March.

At the beginning of 2024, many expected interest rate cuts to support market performance. However, despite the Federal Reserve maintaining interest rates, significant rate cuts for the remainder of the year are unlikely. While more rate cuts were anticipated, this isn't necessarily negative. The resilience of the US economy against higher rates and inflation has allowed rates to remain higher for longer. Moreover, market gains seem to be driven more by improving corporate fundamentals than by the Fed slashing interest rates, which is viewed positively.

Given the improved corporate earnings outlook, potential for rate cuts, and broader participation in the S&P 500, our overall perspective remains optimistic. However, we still anticipate some natural market volatility. Historically, there has been an average of one market correction (10% downturn) every other year. Additionally, pullbacks of 5% or more by the S&P 500 are more common, typically occurring a few times each year. While the timing of these events is unpredictable, they should not necessarily come as a surprise. Maintaining a disciplined asset allocation, focused on long-term goals helps navigate the unpredictable nature of financial markets.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Is Facebook Growing Up?

Fri, 02 Feb 2024 09:14:00 GMT

Is Facebook Growing Up?

While most know “Facebook” by its given name, it trades as a stock under the name “Meta”. Years after changing its corporate name to Meta, it still resonates as Facebook to us and likely most of you reading this post. As we write this, Meta’s stock is surging for a few reasons - big earnings beat, share buybacks, and most importantly it announced that it will pay a quarterly dividend for the first time as it approaches its 20th anniversary. The $2.00 annualized dividend represents a yield of 0.40% based on the current price of $472 a share as of this morning’s stock price. Compared to the current yield of 1.47% for the S&P 500, Meta’s payout would be considered relatively low by industry standards.

Why start paying a dividend now? Let’s go back to 2022, where Meta’s stock was down a staggering -63.31% for the year. Interest rates rose at a historical pace, causing growth stocks such as Meta along with broader equity markets to sink. It wasn’t just macro pressures that caused the stock to fall - many in the investment community questioned Meta’s piling tens of billions of dollars into the virtual reality portion of the company. Additionally, their founder, Mark Zuckerberg, has never really been considered a sympathetic figure. Like him or not, he’s taken the company to heights most thought to be unattainable. As Meta faced more scrutiny from a business perspective, they were challenged to make changes. While some of the spending questions still exist to this day, they’ve made significant strides in the operational efficiency of the company.

Large tech companies are not known for their capital discipline but more often for lavish employee perks and “pet projects”. 2022 forced Meta, along with other tech companies, to rethink some of these business strategies. Zuckerberg called 2023, “the year of efficiency”. This meant spending less on infrastructure, removing layers of management and killing dead-end projects. Specifically, Meta reduced their employee headcount by 22% in 2023. They were not the only ones to do so, as Amazon, Alphabet and Microsoft each announced plans to layoff over 10,000 employees in late 2022 and early 2023.

So back to the original question - why the dividend? With this increased financial accountability, comes higher profits and increased free cash flow. With a market cap of $1.2 trillion, Meta’s cash in the business has leaped year-over-year from $40.7 billion to $65.4 Billion. In other words, Meta is becoming a “grown-up” in the eyes of shareholders.

Meta’s peers in the “Mega-Cap Tech” area playout like this:

Microsoft declared its first dividend in 2003 and has grown the payout +11.8% on average per year over the last decade. Apple restarted their dividend payment in 2013 that has grown over 8% per year. Alphabet (Google), Amazon, and Tesla don’t pay a dividend. Nvidia’s dividend barely qualifies as a payout with a .03% yield, which is to be expected - free cash flow needs to be normalized following the demand in AI before a dividend is its focus.

It’s yet to be seen where the recent (albeit rare for high growth technology) dividend payment will lead. For now, we’re happy to see them join the crowd of companies that have committed to reward shareholders with a quarterly payout…and hope others follow suit.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

6 One Way, Half a Dozen the Other

Sat, 16 Dec 2023 05:16:00 GMT

6 One Way, Half a Dozen the Other

Looking back on our previous post about historical 4th quarter performance, after October it looked like we were staring down a 4th quarter with negative returns. Refreshing everyone’s memory, only about 20% of the time does the market produce negative returns during the 4th quarter of the year. Well, things have changed quite a bit since November 1st, assuming the stock market gains hold through the end of the year. As we write this, the Dow hit a new record high, closing over 37,000 for the first time while the S&P 500 and Nasdaq are within shouting distance of new highs.

After having three consecutive months (August thru October) of negative returns for the first time since the onset of Covid, we received numerous questions and inquiries on whether it was time to make some changes. The last two years - 2022 and 2023 - were quite different from each other in terms of what did well, relatively speaking of course, and what did not.

As 2022 began, the Fed was just beginning to raise interest rates. They would go on to increase the Fed Funds rate by 425 basis points through the year. Dividend stocks significantly outperformed growth stocks in 2022, while 2023 was the exact opposite. As the market moved sideways for the better part of two years, most investors ended up with a similar result whether they were growth focused or dividend focused…regardless of how they were invested..

How they got there was radically different though. The S&P dropped almost -20% in 2022 while the growthier Nasdaq closed down more than -33%. In contrast, the Morningstar Dividend Composite fell only -3.88% in 2022.

The roles reversed in 2023, where the S&P 500 and Nasdaq Composite posted gains of +22.60% and +40.77%, respectively through December 13th while the Morningstar Dividend Composite rose a more modest +9.33% over the same period.

In 2022, dividend investors enjoyed stability within their stock portfolio. Subsequently, one of the reasons for muted returns from dividend paying equities in 2023 was the ability of investors to obtain returns of close to 5% on cash-like investments. We saw a record number of flows into money market funds, cash deposits, etc. Even though those rates remain for now, they will likely be in the rear-view mirror not too far into the future.

Additionally, higher rates tend to negatively impact numerous sectors such as Real Estate, Utilities and Financial which contain many dividend payers. Not coincidentally, stocks in these sectors moved upward significantly in the last month. For most of 2023, a vast majority of the S&P 500’s gains came from the “Magnificent 7” - Amazon, Apple, Alphabet, Meta, Nvidia, Microsoft, and Tesla. Yet, since November 15th the S&P 500 rallied about 7% while the “Magnificent 7” barely budged, inching up about 1% over the same time period. Is the pendulum swinging? This is yet to be seen.

The past two years tested investors' patience and resolve. Whether it was stomaching a significant downturn with growth stocks in 2022 or seeing dividend payers move sideways for the better part of the last 24 months before their latest surge. Most times, when investors show patience and stick to their plan, they are rewarded.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Tune Out the Noise

Tue, 17 Oct 2023 05:25:00 GMT

Tune Out the Noise

As we enter the early stages of the fourth quarter of the year, the month of September reared its ugly head again in the markets. Historically, September has been the worst month of the year for stock market performance and this year was no exception. Going back to 2019, the S&P 500 Index posted losses in 4 of the last 5 Septembers. Looking back even further, September has been the worst performing month of the year - on average - for the S&P 500 since 1950.

That’s the “bad news”...now comes the “good news”...

Each year since 2019, the S&P 500 Index reported healthy gains during the 4th quarter. Since 1950, stocks have gone up in the 4th quarter almost 80% of the time - the highest success rate of any quarter.

After month’s like September, we often get questions from clients asking if we should make any changes. We usually respond with a couple of (really important) questions of our own:

Have your goals changed?

Has your risk tolerance changed?

If the answer is “Yes”, then changes to the investment portfolio are typically recommended. On the other hand, if the answer is “No’”, significant changes are often detrimental to overall investment goals. These are more along the lines of emotional changes, as opposed to fundamental / objective decisions.

Will the 4th quarter of 2023 follow historical trends? No one knows for sure. There are numerous challenges that create volatility in the market such as - higher-for-longer (buzz word of the moment) interest rates, the wars in Israel and Ukraine, and energy prices and labor strikes…let’s not forget political dysfunction in Washington. Even good news, such as the latest jobs report in September that the US economy added a robust 336,000 new jobs compared with estimates of 170,000 jobs, can be viewed in a negative lens. While good for the economy, it’s not exactly what the Fed wants in terms of keeping inflation in check.

All that said, times of volatility and uncertainty provide long-term opportunities. Even though the fixed income market has been ugly of late, the future of it looks very appealing from a total return perspective (coupon payments plus the potential for price appreciation). While the “Magnificent Seven” - Tesla, Apple, Meta, Amazon, Nvidia, Microsoft and Alphabet- have generated most of the markets’ gains this year, the vast majority of stocks in the S&P 500 are struggling. If the S&P 500 was equally weighted amongst the 500 stocks, it would actually be down for the year as of the end of September. While this year looks great for those 7 stocks, no one was calling them “Magnificent” in 2022, when they were down an average of 40%. The relative struggles of those outside the “Magnificent Seven” are creating opportunities for patient investors in certain sectors of the market. Utilities are trading at their lowest price-to-earnings multiple since exiting the 2008-2009 recession. Real Estate Investment Trusts, Financial, Consumer Staples and Industrial sector stocks all hold promise in the long-term. Things can change quickly and it is best not to get caught up in all the headlines and noise.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Cash Trap

Mon, 28 Aug 2023 08:56:00 GMT

Cash Trap

Trying to avoid having a “short-term memory” when it comes to investing isn’t always easy. Look at last year (2022) - as uncertainty filled the markets, many investors sought refuge in conservative investments such as CD’s and money market funds. Major equity indices such as the S&P 500 and the NASDAQ Composite experienced losses of -19.44% and -33.1% respectively, and the aggressive increase in rates shocked bond markets (as rates rise, current bond values drop) which led to a historically poor performance for bond prices in 2022. Because of this, some investors chose the path of least resistance and grasped for cash-like investments such as CDs and Money Market Funds as a safety net against stocks and bonds.

Over the last decade, the idea of obtaining a fixed rate of 4+% in short-term CDs and close to that in variable interest rate money market funds was a dream which recently became a reality.

In the current environment - which is unusual - short-term rates are higher than longer-term rates, complicating matters as investors find it difficult to pass on the short term higher rates even though they might not last long.

So, how long will the high rates last? Looking back on previous interest rate cycles, when the Federal Reserve starts cutting rates, they’ve averaged a 200 basis point reduction within the first year. This would bring rates from around 5% closer to 3%. If you selected a one-year maturity for your CD, you’ll be faced with a potential reduction in your returns at maturity if you decide to reinvest in another CD.

With the above being said, It is always important to tie back your investment goals with the use of particular products…i.e. short term maturity CDs aren’t a great substitute for long term investments. If the money set aside in money market and short-term investments is there for a specific reason such as paying off a debt, tuition payments, or a real estate purchase - then money market or other cash-like investments are still appropriate even with a reduction in interest rates.

It’s natural for investors to want to shy away from stocks, bonds, real estate, etc. when they experience a major downturn, but more often than not, these downturns present opportunities as conditions change. Clearly, this is evident by the recent increase in stock prices year-to-date.

In short, CD’s (especially when rates are relatively higher) are a nice alternative to parking your funds in cash if there is a short term need. Be cautious of getting “trapped” in the cycle of using these types of products as an equity and/or bond substitute.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Up Against the Ceiling

Fri, 26 May 2023 05:40:00 GMT

Up Against the Ceiling

As the Debt Ceiling deadline approaches, we thought it would be timely to discuss what this means and potential implications to the economy and the financial markets. To start, the debt ceiling is the amount of federal debt allowed to be outstanding as authorized by law. In terms of your household, think of it as a credit card limit that is maxed out and does not allow for future borrowing unless you request a limit increase. The debt ceiling is currently set at $31.4 trillion and our national debt actually hit that limit in January. Since then, the Treasury Department has been taking so-called "extraordinary measures", which actually just means spending cuts to make sure the government can continue to pay it's bills. If the debt ceiling is not increased in the next few weeks, there is a risk of the government defaulting on their debt.

Raising the debt ceiling is not unusual. It's been raised 45 times over the last 40 years. Recently, it was raised in 2011, 2013 and 2021. Most everyone agrees the debt ceiling issue will get resolved but not without much wrangling over the issues; i.e. spending cuts, what to do with excess covid relief funds, etc. A much greater concern is a potential downgrade of U.S. government debt by one of the ratings agencies, Moody's or Standard & Poor's. A downgrade occurred in 2011 when the US lost its AAA credit rating for the first time and the stock market did not handle it particularly well.

With the deadline approaching, the markets have latched on to the "what if" scenarios increasing overall volatility. Given the other macro issues the markets are currently facing, inflation being the most prominent, it would be wise for the politicians to come together and get something approved to resolve the current situation but to also keep an eye toward future implications. Government debt interest obligations are increasing due to an increasing amount of debt coupled by higher interest rates being used in an attempt to tame the "transitory" inflation. It is our belief that the debt ceiling will be resolved and the markets will find something else to worry about. It might be inflation, the Russia-Ukraine conflict, banks or something else not currently at the forefront but rest assured the pundits will find something.

It is our recommendation to take a long-term approach as there is an endless stream of economic and political uncertainty. It has always been that way; however our access to information has never been greater. There is an old saying, "Sometimes, less is more". The constant flow of information can be overwhelming and to be honest, exhausting. Focus on your goals and let's leave the worrying to the markets.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Warren Buffet...

Thu, 09 Mar 2023 03:52:00 GMT

Warren Buffet...

A client shared a great article on the power of dividend investing, worth a read...

https://www.wsj.com/articles/warren-buffetts-secret-sauce-involves-one-of-investings-most-basic-strategies-f96c4894

A Look Back and Ahead

Mon, 23 Jan 2023 04:16:00 GMT

A Look Back and Ahead

To start, we want to notify everyone of a few changes to retirement funding guidelines, courtesy of the recently passed SECURE 2.0 Act of 2022 and other updated regulations. Below are some of the highlights:

Relaxed RMD rules - The age at which required minimum distributions from tax-deferred retirement accounts must begin has increased from 72 to 73 in 2023 and will increase to 75 in 2033.

Roth & Traditional IRA contribution limits have increased from $6,000/year for those under 50 years of age to $6,500/year in 2023. If you’re over 50 years of age, you can now contribute $7,500/year.

Enhanced access to Roth contributions - potential for employer matching to a Roth within a 401k

Individuals can now contribute $22,500 to their 401k throughout the year, up from $20,500 in 2022.

Additional updates to retirement plans will take place in 2024 and future years. These changes will have an impact on student loans, 529 plans and even a retirement savings lost & found website.

Quickly turning back to 2022 - it was a year where there were few places for investors to hide as nearly every corner of the financial markets posted sizable losses. Of note:

The S&P 500 dropped 19.44% - the biggest annual loss since 2008

Growth stocks, largely represented in the NASDAQ 100 index, fell 33.10%

Aggregate US Bond funds fell 12.9% - the worst calendar year in modern history. Going back to 1976, the lowest previous performance was a 3% loss. Since 1976, US Aggregate bond annual returns have been positive in 42 of the 47 years. This was caused by the following…

The Federal funds rate increased at the fastest pace in history rising from near zero in January to 4.25%-4.50% at the end of the year.

Lastly, cryptocurrency experienced record losses with the value of Bitcoin dropping 64.7% (ouch). Numerous crypto-related companies went bankrupt, most infamously FTX.

Inflation and higher interest rates were the main culprit of the financial market losses. While we covered the ugly above, dividend stocks significantly outperformed the broader markets. This outperformance was a shift from the previous decade where growth stocks - think most tech companies - fared better.

While 2022 presented historical challenges, 2023 began with a good amount of risk already reduced in equity markets as asset prices were reset last year. For bonds, it’s hard to imagine the fixed income sector experiencing losses (especially to the extent they did last year) in back-to-back years and we are now seeing a significant increase in interest received from these securities.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

I Bonds

Mon, 24 Oct 2022 08:17:00 GMT

I Bonds

We've seen significant interest (no pun intended) in series I Bonds as of late...especially with the 6 month rate due to change October 28th. With record high rates, due to inflation, we consider these an attractive "safe" alternative to park cash. Below are links to multiple articles that explain these in detail, with instructions on how to purchase. Please note, I Bonds must be purchased directly through the treasury.

https://time.com/nextadvisor/banking/savings/series-i-savings-bonds-questions-answers/

https://www.fool.com/investing/how-to-invest/bonds/how-to-buy-ibonds/

https://www.cnbc.com/2022/10/18/how-to-get-9point62percent-annual-interest-for-series-i-bonds-before-november.html

Treasury Direct:

https://www.treasurydirect.gov/

As always, feel free to reach out with any questions.

What do higher interest rates mean for me?

Fri, 09 Sep 2022 07:19:00 GMT

What do higher interest rates mean for me?

We are currently experiencing interest rate hikes at a pace not seen since the early 1980’s. Year-to-date the Federal Reserve has raised the Federal Funds Rate - the interest rate that banks charge each other to borrow or lend excess reserves overnight - from 0.25% to 2.50%, with another 0.75% increase expected this month. As was the case in the 80’s, the Fed is trying to bring down inflation by reducing demand with rising rates. While the reason was the same, the Federal Funds Rate reached a high of 20% (that’s not a typo) in 1980 and 1981, compared to under 3% today.

As mentioned above, inflation is the driver of the rate increases. Many factors have contributed to the onset of inflation including supply chain issues related to Covid, the war in Ukraine, and labor shortages. Without question, the primary cause was the $5 Trillion Pandemic Stimulus authorized under US government programs. This massive influx of cash created a prime opportunity for inflation to gather steam.

Now that the Fed is taking action to bring inflation down, what do the rising rates mean to everyday people?

Let’s start with the positive. For most of the last decade, yields on conservative investments such as money markets, CDs and Treasuries were next to nothing. Today, you can find money market funds yielding over 2.2% and likely to rise in the short-run. Anyone willing to lock into an FDIC insured CD with a one-year maturity can see rates approaching 3.4%. Treasury Bonds - considered to be risk-free due to the “full faith and credit” backing of the US government - have yields of approximately 3.5% for a one-year maturity.

Rising interest rates typically have a negative impact on housing values. Most people borrow when purchasing a home, and the higher the rate on one’s mortgage the less affordable houses become. 30-year mortgage rates have almost doubled from the beginning of 2022 to today where they stand close to 6%. This has and will continue to drive down demand for new housing and in turn bring down prices. We would argue rising rates were necessary to moderate the housing market which has seen significant (and unsustainable) price gains since the Covid Pandemic.

Effects on the stock market remain unknown - however interest rate hikes typically add volatility and have the potential to reduce earnings expectations for companies due to reduced demand and higher borrowing costs. As the Fed continues to work towards its goal of taming inflation, we expect continued volatility in the market. The takeaway is that many analysts believe we’re nearing the end of this cycle as we are starting to see some positive inflation indicators in recent weeks - with lower gas prices being the most notable.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Officially a "Bear Market"

Tue, 21 Jun 2022 09:47:00 GMT

Officially a "Bear Market"

As the S&P 500 descended and we approached the end of the first half of 2022, it successfully tiptoed around a bear market until last week. For starters, a bear market occurs when a broad market index such as the S&P 500 falls by 20% or more from its most recent high. The index’s peak was on January 3, 2022, and has fallen over 22% year-to-date as of June 17.

To put this into perspective, if the year were to end as of June 17th, this would be the sixth worst annual performance for the S&P 500 dating back to 1926. While the S&P 500 just recently hit bear market status, the tech heavy Nasdaq 100 began its bear market on March 7, 2022, and has declined more than 30% since the beginning of the year.

Rising interest rates, along with a multitude of factors including, but not limited to, inflation, energy issues linked to the Russia-Ukraine War, Covid lockdowns in China, increasing chances of an economic recession and a much less confident U.S. consumer, contributed to the decline in equity prices. While rising interest rates are partially to blame for the slide in equities, they are the primary reason for the simultaneous decline in bond prices. Generally, when interest rates rise, it drives down the value of existing bonds with lower interest rates as investors can purchase a newly issued bond with a higher coupon rate. In most market environments, bonds serve as a counter weight to stocks, not moving much in value and offsetting the risk of owning stocks. This year has been different as bonds have not provided the historical counterbalance to date.

Now that we have hit you with plenty of bad news, let’s move forward on to the positive note. After more than a decade of paltry yields on cash and short-term investments, investors are presented with the opportunity to acquire low-risk US Treasuries and even CDs yielding close to 3% for a one-year maturity. Dating back to 1928, there have been 26 bear markets. After each bear market, a bull market (increase of 20% or more from the low) emerged, all 27 different times. On average, a bear market lasts 289 days. First Trust illustrates bear market / bull market performance and duration below:

Markets in the short-run can be a little bit of a popularity contest but in the long-run, they eventually reward businesses that are profitable, return capital to shareholders and have proven ability to adapt their business to changing economic conditions.

Have we reached the bottom? No one knows for sure, but in times like this, drastically changing your course of action is not a prudent nor recommended investment strategy. Keep your eye on the prize (i.e. long-term goals) and more often than not, investors with patience will be rewarded.

As always, we welcome calls and emails and completely understand if any client has any questions or concerns. Please do not hesitate to reach out to discuss your personal situation and we will continue to provide updates as we move forward.

Investing Through a Down Market

Fri, 20 May 2022 16:29:00 GMT

Investing Through a Down Market

Clearly, 2022 hasn't been off to a great start in the markets. Much, if not all, of the recent declines can be attributed to record inflation among other factors. While we don't have a crystal ball, we're also not surprised to see a pullback, regardless of circumstances. In the past 20 years, we've seen only 3 negative return years in the market and within every calendar year, including the positive years, there was a decline intra-year...2020 was a great example of this. It's important to invest through periods like we're currently in, as opposed to investing for a point in time.

Below is a perspective article by Dimensional Fund Advisors that illustrates this well:

https://www.dimensional.com/us-en/insights/do-downturns-lead-to-down-years

As always, reach out to us with any questions and concerns.

Then and Now

Fri, 06 May 2022 16:18:00 GMT

Then and Now

After a historic lack of volatility last year in the equity markets, the beginning of 2022 has been choppy to say the least. In April alone, the S&P 500 experienced its worst monthly performance (down 8.80%) since March of 2020, while the Nasdaq (down 13.2%) had its worst monthly performance dating back to October of 2008. Even traditionally conservative assets, such as bonds, did not escape the turmoil. Existing bonds declined in value, as interest rates have risen significantly since the beginning of the year. To give some perspective, the average 30-year fixed mortgage rate at the end of the month of April stood at 5.53% compared to 3.37% at the end of the year in 2021. The 5-year Treasury note yield increased from 1.26% to 2.92% over the same time period.

Below are the major market indices Year-To-Date Performance thru April:

Dow Jones Industrial Average: -8.7%

S&P 500: -12.9%

NASDAQ: -21.0%

Inflation and rising interest rates, along with the Russian invasion of Ukraine and supply chain issues, are the root cause of the volatility. While we understand the anxiousness of seeing the market drop, it is also a common occurrence. Decisions guided by the short-term can have long-term implications.

As always, we welcome calls and emails and completely understand if any client has questions or concerns. Please do not hesitate to reach out to discuss your personal situation and we will continue to keep you updated as we move forward.

Escalation of Russia / Ukraine Conflict

Tue, 01 Mar 2022 16:36:00 GMT

Escalation of Russia / Ukraine Conflict

As you're well aware, following weeks of speculation, Russia removed all doubt about their intentions as they began the military conflict in recent days. In the weeks leading up to the attack, European leaders attempted to diplomatically resolve the issues between the two nations without success. As President Putin ordered troops into two separatist regions of Eastern Ukraine and recognized their independence, the European Union, United States and their allies announced new trade, investment and financial sanctions aimed at deterring Russian aggression. The stock market, which already was digesting uncertainty around the amount of interest rate hikes expected to try and tame inflation, added more unpredictability with this conflict and potential implications across the globe.

While our portfolios have extremely limited exposure to emerging markets where you would find Russian investments, in recent weeks the escalation of tensions between Russia and the Ukraine spilled into the broader US and Developed International indices. While last year was unusually calm for the stock market, the beginning of this year brought a return of volatility, some expected (interest rate discussion) and some unexpected (Russia-Ukraine).

How will the invasion impact our lives and the lives of those in Europe in the near-term? The most obvious impact could be the acceleration of inflationary pressures, particularly on food and energy costs. While the US is much less reliant on Russian oil & gas imports for their energy needs, European countries are much more vulnerable to Russian energy supplies as they account for more than a third of their natural gas consumption. A disruption of natural gas supply would further exacerbate the already high energy prices currently experienced in Europe. You could also expect the price at the pump in the US to continue to climb as the conflict persists. Ukraine is known as the “breadbasket of Europe” for good reason. They account for 12% of global wheat exports and are major exporters of corn and barley. Russia and Ukraine, combined, account for more than 25% of the world’s wheat exports and almost 20% of corn exports. Food prices which have already felt the impacts of inflation, could further rise with grain supply issues caused by the conflict. Now is a good time to focus on the core principles of portfolio management and prudent investing that are specific to your situation.

Time Horizon - For most, your time horizon is measured in decades rather than weeks, months, or years. While it is completely understandable for investors to experience anxiety when a correction or bear market occurs, they are a normal occurrence in the markets. These pullbacks also provide the opportunity to put excess cash to work and take advantage of the lower prices.

Asset Allocation - The blend of stocks, bonds and cash in your accounts, which aims to balance the risk and reward of your investments. While this governs potential returns when equity markets are doing well, it minimizes the impact of market corrections.

Cash Flow - Many of our clients invest in high quality, dividend paying stocks with growing dividend payments. These stocks tend to act as a safe haven during times of uncertainty. Whether you are taking the dividend payments as income or allowing them to reinvest and purchase additional shares at a reduced price, you are not solely reliant on the price of the stock going up for your investment performance.

As always, it’s important to focus on your long-term goals and not get caught up in things you can’t control. We can’t control interest rates, Vladimir Putin or supply chain issues. However, factors we can control - such as asset allocation, can improve your chances of reaching your goals and reducing stress.

If you have specific concerns or questions regarding your accounts, please feel free to email or call anytime.

Well...That Didn't Take Long

Mon, 24 Jan 2022 10:03:00 GMT

Well...That Didn't Take Long

In one of our 2021 blog posts, we spoke about how the S&P 500 had not experienced a 5% drop throughout the year. Eventually, in late September it did, but quickly rallied and finished 2021 with a gain of 26.9%. Unfortunately, the S&P 500 was not as patient in 2022; achieving a 7% drop within the first 15 trading days of the year. Now that we have that out of the way, let’s discuss the recent choppiness of the market. What’s driving it?

Inflation has taken hold after years of historically low inflation readings. The ten years preceding 2021, inflation averaged a 1.73% annual increase in Consumer Price Index, which measures consumer prices for a variety of items including vehicles, gas, groceries, housing…etc. In 2021, the Consumer Price Index measured 7%. Anyone who went to the grocery store, a car lot or looked to purchase a house felt the brunt of this increase. A multitude of factors converged to ignite the increase - money supply growth by the Federal Reserve in response to the Coronavirus Pandemic, supply chain issues related to the pandemic and increased demand; to name a few.

Rising interest rates are another culprit as the Fed prepares to combat inflation by raising interest rates and reducing bond purchases. The 10-year Treasury yield increased year-over-year as of January 19th, 2021 from 1.10% to 1.83%. While this does not seem like much, it equates to a 66% increase. This is prior to the expectation of several rate hikes by the Fed during the course of 2022. Growth-oriented companies that typically aim to deliver profit growth in the future, tend to be more sensitive to rising interest rates, hence the quick decline of the NASDAQ index. This has played out in the beginning of 2022, as the NASDAQ is down over 12% since January 3rd.

With the increased volatility and expectation of higher interest rates, we are positioning the fixed income portion of our model portfolios with a capital preservation mind-set. Long-term bonds tend to react negatively to an increase in interest rates which leads to our preference for shorter-term fixed income securities which are less sensitive to rate hikes.

We will not be making drastic changes as our mind-set remains long-term; especially with the equity portion of our portfolios. We generally view volatility as an opportunity to take advantage of rebalancing to keep your risk in check and instill discipline to stick to a long-term financial strategy. Also, our dividend equity strategy provides somewhat of a relative safeguard to rising rates, inflation, and the exact environment we’re currently in.

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Predictably Unpredictable

Thu, 16 Sep 2021 06:50:00 GMT

Predictably Unpredictable

While the US stock market indices have enjoyed a spectacular run since April of 2020, we sense the rise has given investors a false sense of security. For a majority of the last 10 years, stock indices - particularly in the US - climbed steadily with minimal pullbacks. As an investor, seeing the bottom line of your monthly/quarterly account statement seemingly climb each time you open it creates the perception of certainty. “Investment experts” provide forecasts and suggest the markets will reach certain levels by a specific time. Are these forecasts and predictions worth the paper they are written on? Our suggestion is that while they can have value and help shape your opinion, oftentimes they meet resistance in the form of unexpected events and circumstances not materializing as predicted. Are the “talking heads” held responsible for their inaccurate predictions? The answer is...no.

A great example of predictability is currently playing out in the stock market. Going back to 1950, there have only been 2 years where there wasn’t a 5% drop in the S&P 500 throughout the course of the year. Guess what hasn’t happened in 2021? Does this mean it will happen before the end of the year? We don’t know and in the grand scheme of things, it does not change our investment philosophy for our clients. Market adjustments should be expected...but what makes a correction unpredictable is its timing. This does, however, provide the opportunity to re-balance investments and re-invest dividends, in turn accumulating more shares and generating more income - investing’s best friend, compounding. See below:

We're investing, not trading, in terms of years or decades rather than next week or the year-end. It's very easy to get caught up in the news media frenzy, especially when CNBC shows headlines such as ‘The S&P 500 Index recently experienced 5 straight days of losses and the worst weekly performance since’ ----wait for it---- ‘June’. When you invest according to your goals and have reasonable expectations of returns over time, things tend to work out.

As always, never hesitate to reach out with any questions or concerns.

Investing in a 'Record High Market'

Thu, 22 Apr 2021 15:38:00 GMT

Investing in a 'Record High Market'

As the S&P 500 reaches another record high, investors with significant sums of cash often wonder if they are investing at the wrong time. Having an abundance of cash during periods of impressive stock market performance can lead to “FOMO” - Fear of Missing Out - or bring indecisiveness to entering the market due to fears of buying at too high a price. While these concerns are understandable, they are rooted in guessing or speculation. Timing the market is difficult for even the most savvy investors. For those fortunate enough to have been sitting on excess cash during the 2020 pandemic, they were provided the opportunity of a lifetime to purchase equities at dollar store prices. However, in the moment, many investors aren’t willing to take on the additional risk as they see the value of their existing investments fall.

How do you overcome the temptation created by “FOMO” or the hesitancy due to the “high prices”? Rather than guessing when it’s the right time to move into stocks in one fell swoop, consider a dollar-cost averaging approach. Systematically choose a time to invest a certain portion of your investable cash over a specified period of time. This approach helps take the emotion out of investing and allows one to participate in the market upswing as well as capitalize on market lows while you enter the market. With the occurrence of another record high, investors sometimes are inclined to cash out, in doing so trading one risk (market volatility) for another (lack of growth potential). If your investment goals are long-term in nature, such as retirement, the focus of your portfolio should be on what is occurring 5, 10, or 20 years in the future not what is happening at the present.

2018 through 2019 provided a wonderful example of the potential dangers of market timing. As the S&P 500 soared to new record highs in 2018, closing at a peak of 2,930.75 on September 20th, up +8.72% for the year at that point. The market seemingly hit its ceiling. If an investor cashed out that day, they were probably feeling pretty good about their decision as the S&P 500 went on to experience its worst December loss dating back to 1931 and finished the year down -6.2%. The investor who capitalized by selling at a record high and didn’t re-enter the market until 2020 would have missed out on 35 record highs for the S&P 500 in 2019. Moving forward, while 2020 was both extraordinarily challenging and positive for the stock market, numerous highs were experienced pre and post pandemic. Stock market indices continue to experience new highs in 2021. We’ve seen new record highs throughout the history of the stock market and anticipate new highs in the future - enter your normal investing disclosure that past performance does not indicate future results. The key is to have a plan and be mindful of risk with diversification as a centerpiece of one’s investment philosophy.

Friendly reminders as the extended tax season winds down:

Contributions to your Roth IRA or Traditional IRA, up to $6,000 per person or ($7,000 if you are 50 or older), can still be made for 2020 until May 17th. This is due to the IRS extending 2020 tax filing dates to May 17th as well.

Required minimum distributions (RMDs) from your IRA will resume in 2021 for those who turned 72 by the end of 2020. For those who are charitably inclined, a qualified charitable distribution from your IRA as a result of your RMD, benefits both the charity and is generally non-taxable to the IRA owner.

The information provided above should not be considered an individualized recommendation or tax advice. Consult your tax advisor for more information regarding your particular situation.

If you have questions or concerns about your individual situation, please don’t hesitate to contact us.

2021 Update

Thu, 28 Jan 2021 17:45:00 GMT

2021 Update

A New Beginning...

2020 was a year to remember and in a lot of cases, a year to forget. While the stock market achieved record highs - in the end, it took a roller coaster of a ride to get there. The equity markets soared 14.2% in the 4th quarter alone as multiple vaccines were introduced to thwart Covid-19, a Presidential election was decided, and expectations of further fiscal stimulus brought some predictability in the economy. Although markets rose to new heights - with technology and growth stocks being the leader(s) - numerous sectors including Energy, Financial Services, Hospitality and Real Estate lagged behind.

What will the new year bring? With the Democratic party taking control of the Senate, House and the seat of the President, it’s yet to be seen what the future will hold. As more vaccines get distributed and the number of people who’ve already been infected with the coronavirus increases, you can see the light at the end of the tunnel regarding pandemic-induced restrictions on economic activity. The eventual return to a normal world, whatever that looks like, will benefit the industries most impacted by Covid-19 in the short-run.

Interest Rates and Bonds - the ‘Boring’ Part of the Portfolio…

We do not expect meaningful increases with interest rates over the next couple of years as the Fed ‘s economic forecasts suggest short-term interest rates will remain close to zero. However, better than anticipated growth and an accelerated re-opening process could eventually lead to higher interest rates.

With the above being said, the yield on bank accounts and / or CD’s is noticeably low. It’s natural to search for an alternative and most times this includes dividend paying equities. A prime example is the consumer products behemoth Procter & Gamble (PG). The current yield on PG is 2.46% - which if you earn .25% in a bank account, PG equates to roughly 10x the income received from the bank on an annual basis. All of this considering that PG has increased their payout for 67 consecutive years, and there's an opportunity for principal growth (or loss) when owning the stock. Below is a graphic that stretches from 06/1972 - 06/2020, the top section is the share price of PG and the bottom section illustrates the dividends that were paid in the same time period. Each line represents a separate dividend payment. Clearly, regardless of stock price moving up or down the dividends are consistent and increase annually.

The GameStop / Reddit Circus....

Lastly, we’d be remiss - because of the timing of this - not to mention the insanity of GameStop. It’s finally hitting the mainstream news cycle, but we aren’t going to place an opinion on it. Rather, below is a link to an article explaining the situation...simplified.

CNBC GameStop Explanation

Moving Forward...

If 2020 taught us anything (and we assume you’d agree it taught us a lot), is that the market focuses on the future and not necessarily what is happening today. One of the tragedies of the pandemic is the disproportionate impact it had on small businesses compared to large, publicly traded companies. While most portfolios benefited from this occurrence, those small to medium size businesses need our support. Our hope is that 2021 will bring health, less divisiveness and the ability for small businesses to function at a level they need to be successful.

Pre-Election Check In

Fri, 30 Oct 2020 07:39:00 GMT

Pre-Election Check In

As we approach the Election this coming Tuesday, it’s important to reflect on what’s happened since the beginning of 2019. In 2019, the markets seemingly went straight up with very little volatility (not normal) and the beginning of 2020 continued that trend. Then Covid-19 happened and turned our world upside down. As the Market battled back from the historic downturn earlier this year, those in the investment community expected continued volatility. Rising Coronavirus cases both in the US and Europe, the delay on additional stimulus from the government and the uncertainty over the Presidential Election converged as we approach November.

Historically, October’s been the most volatile month for stocks. This year is no exception. While the market climbed early in the month, it stumbled recently as the S&P 500 shed 4.15% over the last 5 days and went negative for the month. The primary driver of the Market's upswing after Covid was Technology, and is also the primary cause of the recent downturn. As Tech valuations were stretched, earnings results came into focus. Of the four major Technology companies (Apple, Amazon, Google and Facebook) only Google’s earnings results were met with a positive reaction.

To say this election cycle is the most polarizing we’ve seen in recent years would be an understatement. Total 2020 election spending topped a colossal $14 billion - which doubled the amount spent in 2016. With the amount of funds being poured into ads - whether it be social media or network TV commercials - it’s obviously difficult to avoid being distracted and emotional.

Primarily, we want you to know if you have concerns or just want to have a conversation, by all means, call us. We are in front of this all day, every day and our collective experience can help you keep perspective. If you have friends or family that want to reach out, we’re always appreciative of referrals from clients - it’s the biggest compliment we can receive.

How Much Impact Does the President Have on Stocks?

Fri, 09 Oct 2020 16:04:00 GMT

How Much Impact Does the President Have on Stocks?

Following up on our previous post regarding the election and subsequent market reaction(s) - we thought the article in the link below would provide more color. Dimensional Funds created an interactive view of unemployment, inflation, GDP, and market growth, historically throughout presidential terms. Feel free to contact us with any questions.

https://www.dimensional.com/us-en/insights/how-much-impact-does-the-president-have-on-stocks

Election Speculation

Tue, 15 Sep 2020 05:04:00 GMT

Election Speculation

As the Presidential Election approaches, many of our clients have concerns and understandably so. We’ve fielded numerous questions about how the markets will react depending on who gets elected. This is a sensitive subject to approach, and we’ll stay away from opinions in general, however, it’s important to separate personal and political feelings from financial plans and investments.

Is the current political environment more contentious than any we’ve seen in prior history? There’s no way to quantify that, but what isn’t in question - the ability to distribute information quickly to the masses has never been greater. Twitter, Facebook, Instagram, etc. can be great tools to connect with friends, family, your favorite artists or sports team but they also provide a platform for propaganda. Information (often better termed ‘opinions’) can be spread quickly and there certainly appears to be more emphasis on being first, than there does on being right. More often than not, social media is conducive to extreme, emotionally charged content rather than rational, principled discourse. A well-thought perspective often leads to name-calling and bruised feelings. To think that America hasn’t experienced divisiveness over the course of its history would be inaccurate, but there was more of an ability to “escape” from it, than there is in the technological age we now live.

Long-term investors should be wary in reacting to what the effect one candidate or another will have on the financial markets. Looking back a little more than 4 years ago, initial reactions from the markets to Donald Trump’s election in 2016 were decidedly negative, however the Dow and S&P 500 quickly reached new highs by the end of that year and rallied until the Covid-19 crises. The common opinion among political analysts is that with a Biden win, there is an expectation of higher tax rates and increased government regulation, which could negatively impact corporate profits. However, these analysts also believe a potentially less confrontational stance on China, and investment in clean energy and infrastructure could be considered positives. If Trump stays in office, you should expect tax rates to remain low and regulation to be minimized - which could give a continued rise in our economy from pre-Coronavirus times.

So, how has the S&P 500 (excluding dividends) fared during presidential terms?

Throughout history and dating back to the mid 1930’s, gains or losses in the stock market can be driven by factors outside of the respective administration’s control - i.e. WW2 and 9/11. Considering this, returns have been fairly similar between both parties and regardless of who is in office, the stock market has fared well over the long term.

One factor neither candidate has control over is the interest rate environment. Today’s historically low interest rates, which are expected to remain low for the foreseeable future, are a boon to the equity markets. First, they allow businesses to finance their operations and expansions at lower costs thus increasing their earnings potential. Consumers are more likely to buy more expensive houses, remodel existing ones or buy a new vehicle in a low rate environment. Additionally, lower rates make it difficult to find safe, decent yielding investments with fixed income, CDs and money market funds. Investors seeking yield are more apt to head to the equity markets. Financial markets are driven by many factors outside the control of politicians, such as supply and demand (domestically as well as internationally), monetary policy, geopolitical events and exchange rates.

It can be a dangerous game to attribute the results of the financial markets (positive or negative) to one individual. Economic health and expectations for future success are a melting pot of factors, many of which are out of control of the President. One could make the case that the Federal Reserve Chairman, Jerome Powell and the monetary policies he oversees, has the most impact on the financial markets.

Regardless of Covid-19, social unrest, the election, etc. our advice is to have a defined strategy, stay with it and don’t deviate based on the environment surrounding us. Update and adjust your investment strategy should your own goals change. Timing when to invest and when not to invest is more akin to speculation, which by definition is - “investment in stocks, property, or other ventures in the hope of significant gain but with the risk of significant loss”. The traditional idea of having an appropriate asset allocation strategy (your portfolio’s mix of stocks, bonds...etc) for your specific risk appetite is still sound advice. Deviating from your long-term strategy based on guessing the market’s reaction to a specific event can lead to unintended consequences.

If you have questions or concerns about your individual situation, please don’t hesitate to contact us.

Mid-Year Recap 2020

Wed, 15 Jul 2020 05:05:00 GMT

Mid-Year Recap 2020

Coming into this year, it was our expectation there would be plenty of volatility given the market had reached record highs in 2019, an ongoing trade war with China, and the election looming over us in November. Well, there was plenty of volatility but not for any of the reasons listed above...enter Covid-19. It’s hard to believe only 4 months ago was the beginning of “social distancing, masks, quarantine, herd immunity and flatten the curve” becoming buzzwords and part of our daily lives. It seems as if the last 4 months represented years, not just 120 days.

From an investing perspective, you saw a historic drop in the 1st quarter of the year and a historic rally in the 2nd quarter of 2020. The sector chart below illustrates 2nd quarter / 1-year / 3-year returns as of the end of June:

The Fed’s intervention - with unprecedented monetary force - created some stability in the markets, both equity and fixed income, and propelled the recovery. While the financial markets stabilized, unemployment ravaged the US economy and we saw a loss (albeit many temporary) of over 20 million jobs in April alone. Labor-intensive industries, such as restaurants and hospitality, were among the hardest hit.

The current stock market rally is not wide spread among industries and to many investor’s surprise it’s very concentrated. Technology has buoyed the wider market as has the consumer discretionary sector (primarily the anomaly that is Amazon). As of July 8th, nearly all other sectors including Consumer Staples, Healthcare, Utilities, Financials and Energy are down, some significantly (15-40%). The shutdown of the economy has disproportionately impacted certain sectors but the question remains if that is for the short-run or long-term. The balance sheets of many companies that were affected by Covid-19 will allow them to weather the current storm, but there will be (and already has been) plenty of casualties.

One of the winners of the pandemic so far...Zoom comes to mind. The growth and evolution of this video-conferencing platform will be interesting to watch over time as they compete with established players like Microsoft-Teams and Cisco-Webex. There is no doubt adoption of technology is occurring at a rapid pace but what will become a part of our daily lives in the future - or - something that we look back on as a distant memory is unknown.

So what will the 2nd half of the year bring? No one knows exactly, but further volatility is likely given the push and pull of the current economic re-opening related to Covid. Further, social unrest in the US and the upcoming presidential election cloud the future. In the best of times it is difficult to make an accurate prediction, in today’s environment it is almost impossible. The traditional advice of maintaining a diverse portfolio with proper asset allocation are keys to navigating these challenging times.

Mid-May Update / New Office

Fri, 15 May 2020 08:50:00 GMT

Mid-May Update / New Office

Why is the market going up when unemployment is so bad?

This is a question we have received several times over the last couple of weeks. When you watch the news or check your favorite social media feed, you’re fed a steady diet of information regarding the historic job losses incurred due to Covid-19. While we shelter-in-place, there’s been plenty of time to ponder the implications of unemployment rates not seen since the Great Depression, among other things. US economic contraction in the 2nd quarter will dwarf what we experienced in 2008 and would be the most severe since the 1930s. That being said, economists expect the economy to build momentum in the 3rd quarter as the US re-opens for business. Government intervention with the current crisis is unparalleled to their actions undertaken during prior crises, both in the size and scope of the fiscal support. During the Great Depression, the US monetary policy was based on the gold standard and the ability of the government to assist in limiting the downturn and subsequent recovery were minimal. Responses to the Coronavirus include Fed rate reductions, direct stimulus to individuals and businesses and intervention in the municipal and corporate bond markets...and those are just the well-known responses.

Lower interest rates, while frustrating for investors looking for yield in CDs, money markets and new bond issues, make equity markets more attractive. By introducing such a robust stimulus response, the US government has tied itself to low interest rates for the foreseeable future. In April, the S&P 500 gained 12.68%, the Nasdaq gained 15.45% and the Dow rose 11.1%. While these monthly gains were some of the best in history for each respective index, the S&P 500 remains down 12.71% YTD through May 13th.

Well, so far you’ve said quite a bit without answering the question: With unemployment so high, why are we seeing a rebound in the market? Unemployment figures are a lagging indicator, focusing on what has already happened (as recent as it may be) whereas the stock market is a leading indicator which looks at future earnings expectations of companies. To quote the title of a memorable 80’s movie, the Market is “Back to the Future”. In no way are we trying to minimize the unemployment problem, debt, stress and other issues brought about by the virus. Rather, we’re optimistic that in the end we will eventually come back stronger and hopefully wiser. We expect continued market volatility while we navigate the re-opening process. How willing are people going to be to resume pre-quarantine routines such as going out to eat, traveling and going into work? All of this remains to be seen, but history shows that we tend to adapt to the challenges we’ve faced.

New Office Location

Another question we’ve received a lot of is when are we moving into our new office? Many are aware that we’ve purchased and renovated an office building in Highland. In the next few weeks we’ll be planning to relocate to the new space at 2603 Plaza Drive in Highland. While we are still under “shelter in place” orders - with modifications recently in Madison County - we will begin face-to-face meetings with clients in the near future which as a firm, we’re very excited about. As things progress, we’ll plan an open house and client appreciation event at the new location. In the meantime, we’ll remain by appointment only out of respect to all of our clients. If you need anything, have concerns or questions - of course call or email anytime.

Mid April Update - 2020

Wed, 15 Apr 2020 05:10:00 GMT

Mid April Update - 2020

It's an understatement to say that a lot has happened in the past 2 weeks and information is coming at us in every direction. As today would be the traditional tax-filing deadline (which has been pushed back to July 15th) we wanted to get some updates out to our clients. On that note, keep in mind that the IRA contribution deadline for 2019 has been extended to July 15th as well.

While we're not out of the woods yet, we'd like to touch on some positive news and progress being made in certain areas:

- The Fed has thrown everything including the proverbial “kitchen sink” at economic issues caused by the coronavirus. Included are rate cuts, credit and lending programs with potential injections of $6 Trillion into the economy. Furthermore, they intervened in the bond markets allowing them to purchase High Yield Bonds, State and Municipal bonds helping to stabilize those markets. The actions taken by the Fed during this crisis dwarf their actions during the 2008-2009 Financial Crisis.

- The Paycheck Protection Program administered by the SBA authorized $349 Billion in forgivable loans for small businesses to pay their employees over an 8-week period during the Covid-19 crisis.

- The stock market had it's best week since 1974, thanks to a decline in new coronavirus cases globally and increasing optimism that measures being put in place are taking effect. Last week, the S&P 500 was up more than 11%, the Dow +12% and the NASDAQ almost 10% in a short week of trading.

- Market volatility has decreased - we've moved away from daily shifts of 1,000 points or more on the Dow. For reference, the graphic below shows just how sharp the swings of the S&P 500 have been compared to normal market activity over the past year:

- Talks of re-opening the economy sooner rather than later are in the forefront. Treasury Secretary Steven Mnuchin believes the US economy will be up and running by next month but that would most likely be a staggered opening. Germany announced today that they will be opening small retailers next Monday and schools on May 4th but will refrain from large public events until the end of August. How to re-open the economy, while protecting the health of the American people, will be the topic of conversation for the foreseeable future. Schwab has an interesting take on what the economic recovery could look like:

https://www.schwab.com/resource-center/insights/content/what-will-recovery-look-like

Coupled with the above positive information comes the concern of earnings season, which is currently underway. Earnings season by definition is the period of time in which a large number of publicly traded companies release their quarterly earnings reports. While it's expected that results will be disappointing, it's not possible to predict how the markets will respond. We'll, of course, pay close attention to this and the effects on our equity holdings.

Lastly, we want to say thank you to all of our clients. Our clients have been wonderful to work with through this pandemic, and we couldn't be happier with the response we've received. As always, please reach out to us anytime you have a specific concern or want to have a conversation about your investments or financial plan.

Again, thank you.

March 28th, 2020 Commentary

Sat, 28 Mar 2020 05:11:00 GMT

March 28th, 2020 Commentary

As mentioned previously, we'll continue to send out a weekly email with updates from us, and articles from our trusted research partners. This week felt as long as a year with all that occurred.

Volatility reigned, as the week started out and ended with negative days on the averages, but we saw some the largest one day gains in the history of the stock market, as the S&P 500 rose 17.6% over a 3-day period from Tuesday through Thursday. The Dow rose 12.84% in total last week, in large part due to the performance of Boeing (BA) which rose 70.50% during the week. While Boeing’s performance sounds impressive, it is still down over 50% YTD. Here is the 2020 YTD (versus 2019 full-year) performance of the major U.S. equity indices (as of the close on 3/27/20):

2020 YTD 2019 Final

S&P 500 -21.25% +28.90%

Dow Jones Industrial Average -24.18% +22.30%

Nasdaq Composite -16.38% +35.20%

Russell 2000 -29.26% +23.70%

The best performing sectors YTD are Utilities, Information Technology and Consumer Staples (all with returns of -13.78 or worse) while Energy, Financial and Industrials have felt the brunt of the downturn. Bond markets were not immune to the volatility, as corporate and municipal bonds fell due to concerns related to the impact of COVID-19.

The major focus of the week was the $2.2 Trillion dollar economic stimulus package which made its way through the Senate, both Congress and the president signed on Friday. The 880 page bill is meant to cushion the economic blow from the impact of the coronavirus. Major features of the bill include:

direct payments of $1,200 to individuals ($2,400 to couples), plus an additional $500 per child, for individuals earning less than $75,000 ($150,000 for couples);

increased and extended unemployment benefits;

more than $375 billion in grants and loans for small businesses;

up to $500 billion in aid for large businesses, including $25 billion set aside for airlines;

Another provision that could impact some of you is the waiver of Required Minimum Distributions for IRAs and 401(k)s for 2020. Additionally, the Act waives early-withdrawal penalties on coronavirus-related distributions from retirement accounts up to $100,000. It would allow tax payments on distributions to be spread out over three years and would allow individuals to return distributions to the retirement account over three years, with such redeposits not subject to annual contribution limits.

We continue to expect volatility in the markets with the uncertainty of the length of the lock-downs, business disruptions and economic impact of the coronavirus. We'll continue to keep you up to date as we move forward.

Pro Tip: If you are planning to travel this summer, you may want to check out Southwest Airlines flights :)

Schwab's Market Update as of 03/20/20

Sat, 21 Mar 2020 05:12:00 GMT

Schwab's Market Update as of 03/20/20

Most of our clients know we're huge basketball fans, which would mean that this weekend - the NCAA tournament opening weekend - would be like a holiday to us. Without basketball on TV and most everything shut down, we thought we'd share some easy reading - Schwab's market update as of the end of the week which we feel is on point and very well written by the some of the absolute very best in the industry. The final paragraph in the article simplistically explains the market rebound from the financial crisis in 2008/09 which is great perspective:

https://www.schwab.com/resource-center/insights/content/market-volatility

As mentioned in our previous email, we'll be sending out weekly market summaries at the end of each Friday for the foreseeable future, most of the time they'll be very short and direct. We derive most of our research through what we feel is the best in our industry including Schwab, Morningstar, WidsomTree, etc. Throughout the week / weekend, you'll see a variety of articles and pertinent commentary from these sources...a productive way to occupy your time while you're stuck at home.

We strongly urge you to reach out to us if you have anything on your mind you'd like to discuss.

Regards,

Powers Advisory Group

Update for Week Ending March 20

Fri, 20 Mar 2020 05:14:00 GMT

Update for Week Ending March 20

As you are likely aware, the governor of Illinois issued a “shelter in place” order, requiring non-essential businesses to close through April 7th. Operating under the assumption that we are considered an essential business, we will remain open through this time. Given the circumstances, we are readily available at our office by phone, email and by appointment only in-person.

In an effort to keep clients up to date, we will be sending a weekly email on Friday afternoon(s) following the close of the market. While we adhere to the philosophy that investing is long term and not week-to-week regardless of the situation, we do feel that direct, honest communication during this time is important.

A brief summary: the stock market saw a volatile week leading to all three major indices (S&P 500, Dow and Nasdaq) down at least 11% for the week. While lawmakers work on a substantial stimulus package for American businesses and individuals, the Federal Reserve took aggressive steps to provide liquidity to the financial system and took interest rates even lower in an attempt to minimize the economic impact.

As always, do not hesitate to reach out to us with any specific questions you may have during this time.

Lastly, we encourage you to support small businesses in your community as they need your support. Stay safe and healthy.

Market Update

Mon, 16 Mar 2020 06:45:00 GMT

Market Update

Please note, our office will be open without interruption and should you have any questions specifically or generally, we're available. We understand any concerns you have.

While we wish we didn't feel the need to send out any more commentary regarding the markets, this has been an unprecedented few weeks. As we type this, Most stock indices have declined sharply this year anywhere from 25-30%. The intensity of this decline appears to fall more in line with speculation, less with actual underlying fundamentals. Last week was a wild ride for the Dow Jones Industrial Average which played out accordingly:

Monday 3/9: -2,013

Tuesday 3/10: +1,167

Wednesday 3/11 -1,464

Thursday 3/12: -2,352

Friday 3/13: +1,985

With a week like that, and the volatile nature of the swings, it can be easy for investors to lose focus. Our responsibility as your advisor is to help you make the informed decisions with your money in both good times as well as challenging times. It is easy to want to let emotions set in and be reactive, which can lead to making choices you may regret in a year or two...or even worse - long term. That being said, we do not proclaim to "know the bottom" nor are we minimizing the effect on the economy of the current situation, but we do see light at the end of the tunnel. Below is Morningstar historical data illustrating U.S. stock market history downturns and the subsequent recoveries that followed. Following that is an illustration of one-year returns as well as 5 and 15-year annualized returns. Note that 73% of the one-year returns, 87% of 5-year and 100% of 15-year returns were positive. We share this because it’s powerful information that puts things in perspective for long-term investors.

From corrections, bear markets, even recessions come opportunities. Here's what we're doing now:

-Every single client account has been reviewed for their cash allocation. When appropriate we'll look to take advantage of this and increase stock positions when appropriate.

-Many of our clients have portfolios built with specific allocations to stocks / bonds and we will be re-allocating this blend to take advantage of depressed prices and keep our client’s risk levels in check.

-For clients with individual dividend paying stocks, we are allowing compounding to take effect and accumulating more shares at a lower price through reinvestment. We'll also be looking to upgrade these portfolios with the goal of purchasing companies we feel are suitable for your portfolio and offer a good long-term outlook.

We realize that markets like what we've experienced in the past few weeks are unsettling without question. While corrections like this can be stressful, they do happen. Usually the circumstances are unknown in advance, as is the case with the unique situation we now face.

Of course we welcome calls and emails and completely understand if any client has concerns. Please do not hesitate to reach out to discuss your personal situation and we’ll continue to keep you updated as we move forward.

Regards,

Powers Advisory Group

Market Update - Keeping Perspective Amidst the Headlines

Mon, 09 Mar 2020 06:45:00 GMT

Market Update - Keeping Perspective Amidst the Headlines

Unless you gave up electronic devices for Lent, you know that the spread of the coronavirus and the corresponding fear that’s been created is front and center on all news media outlets. The barrage of headlines has sent the market on a wild ride over the past 2 weeks - with the week ending Feb 28th seeing a decline on the Dow of -12% and last week seeing the market swing up and down daily 3% to 5% but actually squeaking out a slight gain for the week. Interest rates have nosedived, with 10-year Treasuries dropping below 0.4% and 30-year notes falling below 1%, resulting in existing bonds increasing in value. Over the weekend, Saudi Arabia and Russia further complicated matters by flooding the oil markets with increased supply in a time where demand was already an issue due to the coronavirus. The supply glut sent oil prices and energy related stocks tumbling.

Perspective is difficult to maintain as an investor when volatility sets in. The Dow, S&P and NASDAQ all recently reached all-time highs. While we’re not minimizing the sharp decline, we also know that it’s unreasonable to expect the market to move straight up. We came off a year (2019) where most investors experienced double digit returns and while a decline doesn’t feel good, retracting is something to be expected and a normal occurrence.

Instead of drowning you in historical data and opinions, this is a great time to revisit the foundations of portfolio management and prudent investing. As a firm, we are proud of the conservative approach we take to investing, which is a short way of explaining how we address each of the following:

Time Horizon – Simply stated, if you’re planning to use ALL of your money in the near term, you likely shouldn’t have it invested. For someone planning for retirement, your time horizon for investing isn’t the day you retire and start taking draws from your account, it’s a 15-30 year period. Equity investing is a long-term proposition where recommendations are made based on several years out, not days, weeks or months.

Asset Allocation – The basis of any well-crafted investment plan involves a form of asset allocation - or - the blend of stocks, bonds and cash. This obviously dictates your risk level and corresponding upside returns in the good times. While stocks have taken a sharp decline, bonds have seen a rise in value as interest rates drop. As stated above, now is a great time to revisit your overall allocation.

Cash Flow – many of our clients invest in high quality, blue chip stocks and stock funds that pay growing dividend payments. The purpose of this form of investing focuses on accumulating shares or generating cash for distributions, regardless of how the market is performing in the short run. Reinvestment of dividends allows you to acquire more shares when prices fall. If you are utilizing the dividends to fund distributions, it minimizes the probability of having to sell investments at depressed prices to fund the distributions.

Let’s circle back to perspective. As an investor, you aren’t able to control the stock market, interest rates, oil prices, etc. The things we can control are listed above, and if done properly, historically have led to the desired results in the long run. We’re not minimizing the fact that it doesn’t feel good to open a statement or pull up your account online and see a decline - as a fee-only firm we feel the impact as well - but it is also important to take a deep breath and not be a prisoner of the moment (in good times and not so good).

If you have any specific concerns regarding your accounts, by all means we want you to reach out to us. Feel free to email or call anytime, we’re here to help you make good decisions with your investment portfolio.

What a Difference a Year Makes

Tue, 28 Jan 2020 07:46:00 GMT

What a Difference a Year Makes

As 2019 began, investors feared what the markets would provide as an encore to the historic 4th quarter of 2018, which featured the worst December since the Great Depression. Well, it did not take long for the market to recoup its losses in 2019 and then some, actually, quite a bit more. The S&P 500 soared, gaining 31.49% and bond returns were excellent driven by a healthy economy, the technology sector and an accommodative Federal Reserve, which lowered the benchmark rate on 3 separate occasions during the course of the year. While the cloud of US-China trade talks hung over the markets, it did little to slow the markets.

“I’m not here to talk about the past” (Mark McGwire once stated in front of Congress-- it didn’t go so well)... so, what will 2020 bring? As almost every financial legal disclaimer states, past results do not guarantee future performance. However, election years tend to provide uncertainty, which is typically not a friend of the markets. In the political environment we now live in and the impeachment process commencing, it makes it difficult to make predictions. Unemployment is at record lows, the stock market is coming off a great year, trade tensions with China seem to be easing however, US government debt continues to balloon, stability in the Middle East is a concern and PE ratios expanding provides a challenging mix. The one guarantee we have for you is that you will be sick and tired of political ads by late summer. With the reduction in interest rates, equities are expected to lead as bonds provide reduced appreciation upside. We can’t predict when the Bull Run will end, but proper asset allocation of your portfolio will help buffer the downside when that time comes.

A couple of items we want you to be aware of as the year kicks off:

The age at which required minimum distributions (RMDs) from your IRA must generally begin, increased to age 72 from age 70 ½ . This change is effective for distributions required in 2020 and later years for those who reach 70 ½ in 2020 or a later year.

Contributions to your Roth IRA or Traditional IRA, up to $6,000 per person or ($7,000 if you are 50 or older), can still be made for 2019 until April 15th.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or tax advice. Consult your tax advisor for more information regarding your particular situation.

For more information regarding Powers Advisory Group, LLC, please visit our website at www.powersinvest.com or call us at 618-654-6262.

How to Maximize Charitable Donations

Fri, 15 Nov 2019 07:47:00 GMT

How to Maximize Charitable Donations

People give of their time, talent and treasure for a variety of reasons. Some see it as a moral duty to use what they have to help others regardless of the type of charity they support. Having the ability to improve the lives of others is viewed by many as a privilege as well as a responsibility. The knowledge that you’re helping others is empowering, typically making the donor feel happier and more fulfilled. Others see charitable giving as a way to encourage their children, family and friends to help make a positive change in the world.

Separate from the benefit of giving financially is the potential to minimize taxes on appreciated assets and tax-deferred accounts. As the bull run continues, many people are faced with the question of “what to do with appreciated assets in taxable investment accounts?

For investors who are philanthropically-minded, donating appreciated stock (or ETFs, Mutual Funds..etc) from a taxable investment account can be one of the most tax-advantaged methods of giving. Doing so may eliminate capital gains tax liability on the sale of assets and provide a current year tax deduction if you itemize, while allowing the supported charity to receive the most money possible. For example, assume you purchased 100 shares of stock priced at $50/share, for a total of $5,000. Over the years the stock rose in value to $150/share and you are wanting to make a significant donation to your favorite charity. If you decided to fund the donation with the sale of the stock for $15,000, you would likely owe capital gains tax on the $10,000 gain. If you donate the stock directly to the charity instead of selling the stock and then donating cash, you can potentially eliminate the capital gain on the sale and deduct the fair market value of the stock donation, in this case $15,000, if you itemize. Once the charity receives the stock, they will liquidate it to generate cash. You will want to confirm with your charity of choice to determine if they accept securities as a donation before proceeding with the donation.

For most investors, a 401(k) or rollover IRA, is their largest retirement asset. Beginning at age 70 ½, you are required to take minimum distributions (RMDs) annually from your IRA. Since you didn’t pay taxes on your contributions to the IRA, you are taxed when you take a distribution. You may be able to avoid taxes by making qualified distributions directly to a charity (must be a qualified 501(c)3 organization) from your IRA. You wouldn’t receive a tax deduction for your donation, alternatively you won’t be taxed on the distribution. This is an excellent choice for donating if you are not intending to spend your entire required minimum distribution or don’t itemize your deductions. Helping to make an impact with a local charity while potentially reducing your tax bill is beneficial to all parties. Do you remember the old adage “It’s better to give than to receive”? With proper planning, it’s possible to do both at the same time.

Thinking About Retirement?

Tue, 17 Sep 2019 08:50:00 GMT

Thinking About Retirement?

Stock market returns are up significantly year-to-date, over a 17% increase for the Dow and a 20% increase for the S&P 500. Additionally, bond funds are up considerably as well with the Federal Reserve beginning to lower interest rates making existing, higher yielding bonds worth more than new bond issuances. With these increases you should be experiencing in your investment accounts - the light (retirement) at the end of the tunnel may appear brighter and more realistic. You have spent your working life accumulating money in your 401(k) and other investment accounts, have an expectation of social security or a traditional pension but are not sure if you have enough money to retire. So, how do you determine if you can retire and stay retired?

Retirement planning or financial planning is an excellent place to start. This is the process of assessing your readiness-to-retire given your desired lifestyle and retirement age. There is not a “one size fits all” solution as everyone’s situation is different. The retirement planning process takes a holistic approach considering such factors as: fixed income (social security/pensions), investment assets, insurance, real estate holdings, healthcare, risk tolerance, liquidity events and debt amongst others things. As you approach your hopeful retirement age (2-5 years out) it is a good idea to seek out guidance from financial advisors who have significant experience helping people navigate the financial uncertainty of an impending retiree.

Before you meet with a financial advisor, ask yourself a few questions:

When would I like to retire?

Do I plan to work in retirement?

Do I have an estimated monthly or annual budget to fit my lifestyle?

Are you intending to leave a legacy to your children or charity?

How will I pay for potential healthcare needs?

When you meet with your financial advisor, you will want to provide them with some basic information that may include the following:

401(k) statement and other investment statements

Recent Social Security and/or pension information

Information about your mortgage or any other debt you may have

Life insurance policies, especially those with cash value

Your spending expectations

Along with this information, there should be conversations where goals and expectations are shared. Do you want to travel? Spend more time with grandkids? What are the tax implications of accessing certain investments? What is a reasonable expectation of income coming from my investments without running out of money? These are examples of items that can impact the specific advice given and help guide your plan.

With all this information, the financial advisor will generate projections using historical data and computer modeling to show what retirement might look like financially for you. Feedback on your plan can relieve the stress of the unknown and confirm you are on the right track. The results may also open your eyes to how realistic your goals are or if tweaks are necessary to achieve the retirement you desire. Our hope is that you gain comfort in having the flexibility to enjoy the things you want in retirement, at your pace and with those you hold dear.

This may seem overwhelming, but the process is broken down and simplified with the help of a well experienced financial Advisor...we happen to know of one. Feel free to contact us anytime.

Why is the Fed Cutting Interest Rates?

Mon, 19 Aug 2019 06:48:00 GMT

Why is the Fed Cutting Interest Rates?

The stock market has experienced a 10-year bull run, unemployment is under 4%, the most recent 12-month inflation rate through June 2019 measured at 1.6%, and the housing market in most of the country is healthy with increasing home values. Under normal circumstances, these statistics sound great. So why did the Federal Reserve cut interest rates for the first time in 11 years and additional rate reductions are anticipated?

Interest rates are typically lowered to spur growth in the economy. Economists are concerned that US gross domestic product (GDP) growth will continue to slide after it moved from 3.1% in the 1st quarter of this year to 2.1% in the 2nd quarter of 2019. This leads us to our next question - what is causing the economy to slow with fears of recession to creep up on the horizon?

The US trade war with China is the main culprit of the global economic slowdown. Several months ago, the risk of higher tariffs (taxes placed on imported goods) from China seemed to be receding. However, trade negotiations between the 2 countries have soured as the US raised tariffs from 10% to 25% in May on $200 billion dollars of Chinese products...in response China raised tariffs on US goods coming into their country. Recently, the US accused China of devaluing its currency, the yuan. With a weaker yuan, Chinese goods become cheaper overseas and helps to offset the tariffs imposed by the US. The constant retaliation by the world’s two largest economies causes uncertainty and angst for companies and other countries making them think twice before making investments.

While understanding why rates dropped is important, even more pertinent is how this could impact you. For those with a mortgage, it may be a good time to consider refinancing your loan. 30-year mortgage rates were recently at 3.625% after being close to 5% in November, 2018. 15-year mortgage rates dropped to 3.20% in July from their recent high of 4.28% in November, 2018. If you are borrowing money these lower rates are beneficial, however in contrast if you are a saver and have CDs or money markets, you will most likely see the interest rate you receive on your next CD to be lower as banks lower their deposit rates. Money market rates which are not typically guaranteed like a CD rate will most likely fall after approaching 2.3% recently. On a positive note, if you hold bonds or bond funds in your current portfolio, you have most likely seen the value of those bonds rise in 2019 as existing bonds historically gain value when rates are lowered. New bonds coming to market will be less appealing with lower interest rates paid out to the bondholder. Historically, lower interest rates have boosted the stock market as investors shift money from the bond market to the equity markets.

What does the future hold for interest rates? Economists are predicting additional rate cuts by the Federal Reserve in the short-term. Over the long haul, it is difficult to see interest rates increasing dramatically in the US. The US has some of the highest interest rates in the developed world so even though historically our rates are still very low, they are desirable to investors globally.

In short, some will find lower interest rates to be a positive - creating opportunities to save money - others will find the results not be as desirable, especially for those seeking income from their CDs and money market accounts.

Where to Find the Right Financial Advisor

Mon, 22 Jul 2019 15:46:00 GMT

Where to Find the Right Financial Advisor

Searching for the right financial advisor isn’t easy. Urban living has its hurdles as a google search can provide an overwhelming amount of options and the personal connection typically isn’t present. In rural areas, there are few options and sometimes the quality of advisor doesn’t exist. So, where do you start?

We see investors decide to start working with a financial advisor at various ages based on their individual circumstances. Often a new job, an inheritance, life events such as marriage or divorce, preparation for retirement and education funding are the catalyst to search for an investment advisor.

The first and most common way to seek out investment advice is through word of mouth. Talking to friends and family regarding their relationship with their financial advisor can be very insightful. More than likely, they’ll be candid both about the positive and negative experience they may have had. If you lean on someone you trust to give you a reference to their financial advisor, be sure they’re not recommending them based off of investment returns, as they can be fleeting, or the recommendation of a “hot stock”. Investment returns alone will not shed light on the potential risk you may be taking on to achieve those gains.

Most investors who do their homework online look for an advisor held to a fiduciary standard - simply meaning someone who does not sell investment products, but rather advises on a fee-only basis and has a legal responsibility to put your needs in front of their own. Fiduciary advisors tend to provide more comprehensive financial advice - considering things such as estate planning (wills, trusts & beneficiaries), retirement planning, investing, taxes, education funding, life insurance and charitable giving when guiding you.

Understanding how your prospective advisor gets compensated is also important. Traditionally, brokers, insurance agents and registered representatives sell financial products such as mutual funds, annuities and insurance and receive commissions on those products. Because part or in some cases all of what they are paid is based on the products they sell, it can create a conflict of interest. Compensation varies on products and there is a possibility the potential commission could influence their recommendations for you. In contrast, fee-only advisors provide transparent advice and typically are compensated based on a percentage of the assets they manage for you. They cannot earn commissions from selling products or trading securities in their clients’ portfolios. Their only source of compensation is the fee paid by their clients. This type of arrangement removes the conflict of interest and leads to objective advice not centered on financial products.

One detail often overlooked when searching for an advisor is “fit”. You should like and trust your advisor as you will be sharing personal information with them that you don’t often share with others, even those that are close to you. Firms and advisors have different styles and philosophies, so make sure you are comfortable partnering with them as they are typically long-term relationships. Is the potential or current advisor accessible? How quickly do they respond to your requests for guidance? Searching out a firm with a track record of dealing with real-life scenarios is important. Experience and knowledge drive good advice.

Mutual Funds vs Exchange Traded Funds (ETFs)

Tue, 14 May 2019 08:55:00 GMT

Mutual Funds vs Exchange Traded Funds (ETFs)

We’re four months into 2019 and we’ve seen a sharp increase in the major stock market indices with the Dow +13.45% and the S&P 500 +16.56% as of the end of April. Participating in this type of broad-based growth as an investor can be accomplished in a handful of ways - primarily with mutual funds and exchange traded funds (ETFs). There are distinct differences between these two investment products - and it’s not uncommon for us to receive questions on the details of how they work.

Both types of investment products - ETFs and Mutual Funds - were created from the concept of pooled fund investing. Pooled funds bundle securities (stocks, bonds..etc) together to offer investors the benefit of diversification. Typically, a mutual fund or ETF will hold anywhere from 100 to 3,000 different individual securities within the fund. Diversification can help an investor manage risk and reduce volatility associated with individual stocks and bonds. When the value of a single stock or bond drops, it has a smaller effect on the value of a diversified investment than it would if you held the stock or bond individually. Mutual Funds became available in 1924 while ETFs first began trading in 1993 and were originally created to track an index such as the S&P 500.

While both were founded on the same basic concept of diversification, they are very different in many respects. One major difference is that mutual funds trade through the mutual fund company or broker at the end of a trading day while an ETF trades on an exchange and is available to trade at any point during the trading day. Mutual funds typically have higher expense ratios compared to ETFs and can carry an up-front sales load ranging from 3.75% to 5.75% if a Class-A share. Another drawback of mutual funds is the periodic payout of capital gains distributions to the investors causing greater tax implications if held outside an IRA or 401(k). Mutual funds offer more actively-managed portfolios than ETFs since ETFs often track an index, however actively-managed ETFs are becoming more common.

Annual Organic Growth Rate of Mutual Funds vs. ETFs 2008 through 2018 - Morningstar, Inc.

While ETFs carry some distinct advantages, mutual funds still made up about 80% of the $18 Trillion in total assets held between ETFs and mutual funds at the end of 2017. Why is this? First, they have been around much longer but they’re still the primary offering in most corporate retirement plans, such as 401(k) and 403(b) plans. ETFs experienced an organic growth rate of 16.5% per year over a 10-year period spreading from 2008 through 2017 while mutual funds grew at a 2% clip. Organic growth rate does not factor in investment performance but reflects where investors are putting their new investment dollars. As investments in ETFs (with firms such as BlackRock and Vanguard) continue to increase, investors benefit from lower expense ratios. In many cases, mutual fund expenses are being reduced in an attempt to be more competitive with ETFs. We expect to see a continued shift from the use of mutual funds to ETFs due to the numerous advantages of ETFs and the focus on lower investment costs.

Are Unicorns Real?

Thu, 11 Apr 2019 06:55:00 GMT

Are Unicorns Real?

We all know what a unicorn is from the practical sense - a mythical animal typically represented as a horse with a single straight horn projecting from its forehead. In the investment world, a unicorn is a privately held tech startup company with a value of over $1 billion. The term was coined in 2013 as it describes the rarity (1 in every 1,538 tech companies originated from 2003-2013) of a company achieving this status. Some “unicorns” are household names - Airbnb, Uber and Pinterest - and some are not - Jawbone, Domo and Houzz - and then there’s some that are well known but for the wrong reasons (looking at you Theranos).

Often times, these private companies decide to list their stock on public stock exchanges through an IPO (Initial Public Offering) which results in receiving cash for giving up some ownership (shares of stock) in the business. An investor’s success is measured years down the line based on the performance of the stock. Today’s IPO’s are much larger and more established than those that occurred during the dot-com bubble in the late 90’s with an average of 11 years in business today, compared to only 4 years back then. More prominent are the successful IPO’s (Amazon, Google and Facebook to name a few) but more often than not, IPO’s don’t live up to the hype. In the 90’s, some of the biggest disappointments included Pets.com, Garden.com and e.Toys.com. Some of the current crop who have failed to live up to the billing include, Groupon, Fitbit, Blue Apron, Lending Club and Snap Inc (Snapchat).

With technology ever-changing, it’s very difficult to pin down which companies will come out on top and more often than not the tech company issuing the IPO is not profitable. For a company to be sustainable, they need to show consistent profitability over time. Famous investor Warren Buffett hasn't bought an IPO Since 1955 and urges investors to avoid IPOs at all costs...

“I think buying new offerings during hot periods in the market ... I don’t think it’s anything the average person should think about at all,”

- Warren Buffet -

The bottom line is this: Don’t think it’s a stock being purchased, approach an investment like buying a business. In baseball terms, new company stock is similar to the chances of hitting a home run. While there is always a chance that happens, most likely that will not be the outcome.

Do you know what's in your retirement account?

Thu, 14 Mar 2019 08:52:00 GMT

Do you know what's in your retirement account?

Almost anyone that's been employed, owns a company, or is self-employed has some type of retirement savings...whether it be a company sponsored retirement plan such as a 401(k), an IRA, or any other vehicle that provides investment options and is self-directed. If you've taken the steps to save before you get paid and have built up a sizable balance - which for most is their largest asset - do you know what you're investing in?

If you own funds inside of retirement accounts, you're responsible for picking the correct investments according to the level of risk you're willing to take and the potential long-term returns you'd like to earn.Often, we see investment selections within self-directed retirement accounts that don’t match up with the desired risk or the anticipated returns of the individual.

How often do you review your 401(k) investments? If your answer is when you originally set up the account, you are likely past due for a review. Our suggestion is once or twice a year. The “set it and forget it” philosophy can take you from a comfortable risk level with your investments to unknowingly taking on more risk as the market shifts. The stock market experienced an unusual level of fluctuation recently with the past 5 months of S&P 500 returns looking like this:

October -6.94%

November +1.79%

December -9.18

January +7.87%

February +2.97%

If you have exposure to small and mid-sized companies, the returns over the same period showed even greater variance. While the volatility can cause angst in the moment, it also provides opportunity. One way to take advantage of the volatility is to rebalance your retirement account.

Put simply, when you rebalance, you are essentially buying low and selling high. Rebalancing provides you with the opportunity to take gains from higher-performing investments and reinvest them in areas that have not experienced such notable growth. By rebalancing on a consistent schedule, you take the emotion out the process without trying to “time the market.” As history shows, timing the market repeatedly is a difficult strategy to employ and allows emotions to enter the investment process which can lead to poor long-term performance.

If you have questions about your current investment situation, call or email us anytime.

January 2019 - The Tale of Two Months

Mon, 11 Feb 2019 07:58:00 GMT

January 2019 - The Tale of Two Months

If you’ve taken a look at your investment account statements over the past two months you’ve more than likely experienced two completely different outcomes. This is the definition of extreme volatility. The S&P 500 Index and the Dow Jones Industrial Average Index recorded their worst December since 1931, with the S&P 500 dropping -9.18% and the Dow down -8.66% as trade war fears, concerns about interest rates and political dysfunction weighed on the markets. In a complete turn of events, the S&P 500 and Dow rebounded in January, gaining +7.87% and +7.17% respectively, seeing the best one month gain since 1987. Case in point...the following chart of U.S. diversified stock Morningstar Categories from December 2018 to January 2019:

The past 2 months are a great example of why it’s important to keep a long-term focus and disciplined approach with your investments. Short-term price movements and financial news headlines generate emotions (anxiety and joy) but getting caught up in price swings can lead to poor investing decisions. During these times, it is best to do a check-up on your overall asset allocation (blend of stock funds, bonds, cash...etc). Proper asset allocation provides guide rails for your investments, balancing risk and return with your personal short and long-term goals. We do our best to ensure our clients are invested how they should be so they can weather the storm while also participating in market growth.

2018 Market Recap

Wed, 09 Jan 2019 07:54:00 GMT

2018 Market Recap

Happy New Year-

We hope this year is off to a good start for you and your family - we're looking forward to seeing what 2019 brings. There are a few important items that we want you to be aware of this year:

-2018 tax forms from Schwab will be mailed by mid-February

-The limits on 401(k), 403(b), and 457 contributions made on a pre-tax basis will be increased from $18,500 to $19,000 in 2019

-IRA contribution limits have moved up from $5,500 to $6,000 in 2019 with an additional $1,000 catch up contribution for those over 50

As an investor, it's difficult to understand what's happening in the markets, and how and why this effects your money and investments. Clearly 2018 did not follow suit with the previous 9 years of overall positive stock market returns and we'd like to give you a quick summary of how things played out. Keep in mind this is normal and investing takes time, there will always be bumps in the road and down years are to be expected.

2018 Market Performance

S&P 500: -6.24%

Dow: -5.63%

MSCI EAFE: -16.1%

Emerging Mkts: -16.6%

Russell 2000: -12.2%

Data provided by YCharts

To summarize, the S&P 500 (500 largest companies in the US) was down for the year -6.24%, the Dow Jones Industrial Average -5.63%, MSCI EAFE (developed international stocks) -16.1%, Emerging Markets (think China, India, Russia, Brazil) -16.6%, and Russell 2000 (small company index) -12.2%. 2018 was extremely volatile, with both the S&P 500 and Dow hitting their record highs in September and October respectfully, only to see the worst December since 1931 in both major indices. The chart below shows January 1st - December 31st from last year of each of the indexes referenced.

Why did we see these market declines?

-Signs of a global economic slowdown

-Concerns about monetary policy

-Political dysfunction

-Worries about increased regulation of the technology sector

What should you do?

-Keep a long term focus, investing takes time and discipline.

-Do a check-up on your overall asset allocation (blend of various stocks and stock funds, bond, cash, etc). We do our best to be sure every client is invested exactly how they should be and are happy to review your 401k or outside accounts.

-We're not concerned over a down quarter or down year, but if you are - call or email us. Our responsibility is to be sure you're making the right choices, and we're here to answer any questions you have or meet to have a discussion.

Regards,

Our Team