Q2 Letter To Clients

Market Summary: A Look Back at the Last Quarter

 

As we wrap up another quarter, it’s essential to reflect on the stock market’s performance and how it has impacted our investment strategies. The last three months have been a period of moderate volatility, influenced by various global economic factors, including adjustments in monetary policies by central banks, geopolitical tensions, and ongoing adjustments to the post-pandemic economic recovery. Despite these challenges, certain sectors have shown resilience and even growth, presenting new opportunities for diversified portfolios. As always, our focus remains more on making sure your financial plan stays on track rather than focusing on short term market movements.

 

The Upcoming Tax Deadline: Act Now

 

With the tax filing deadline swiftly approaching, we want to remind everyone of the importance of either filing your tax return or securing an extension on time. This year, the deadline for submitting your taxes is April 15. Early preparation can not only save you from last-minute stress but also provide ample time to explore potential tax-saving strategies. Our team is ready to assist with any questions or concerns you may have about your tax situation. Remember, being proactive with your taxes is not just about meeting deadlines; it’s about optimizing your financial health.

 

Spring Into Nature: The Adventure Awaits

 

As financial planners, we often emphasize the health of your investments and financial well-being. However, your personal health and happiness are just as crucial. This spring, we encourage you to be intentional about spending time in nature. Immersing yourself in the great outdoors is not only refreshing but is also a fantastic way to recharge your mental and emotional batteries. When planning your adventure, consider three key components: preparation, presence, and preservation.

  • Preparation involves choosing the right gear and understanding the environment you’ll be exploring.
  • Presence is about fully experiencing the moment, whether it’s a quiet walk through the woods or a challenging hike up a mountain.
  • Preservation means respecting the natural beauty around you, ensuring it remains untouched for future adventurers. Let’s embrace the spring season with a sense of adventure and a commitment to our well-being.

I also want to make a point to highlight our recent office move.  You can find our team at 7500 Six Forks Rd, Suite 100, Raleigh, NC 27615.  Thankfully, we didn’t have to go far as we are just across the street from our old address.

As we move forward, let’s remember that our financial goals are not just about numbers on a page; they’re about enabling the life we want to lead and the adventures we wish to embark upon. Our team is here to support you in all aspects of your financial journey, from navigating market trends to planning your next nature getaway. Here’s to a prosperous and adventure-filled spring!

 

What To Teach Your Kids (and Adults) About Investing

Providing for your children’s education is an important part of your financial plan. But, for the most part, that education won’t teach your children very much about basic financial literacy. The money lessons that kids learn from their parents can help to fill that gap and instill habits that will improve their Return on Life.

 

You can teach these three simple financial lessons to your kids with activities that illustrate the basics of financial planning.  And remember the quip, ‘Everything I need to know, I learned in Kindergarten’?  Same goes for the principals of good financial planning, so these lessons are still good for us adults to hear regularly as well.

 

  1. “Pay yourself first.”

 

Many families have a rule that X percent of any money a child earns for chores or receives as a gift has to go into a custodial account. This is a good way of helping kids understand the importance of investing in their futures.

 

However, many parents don’t take the essential next step of showing kids how their savings have grown over time. This can create awkward feelings around money and make it hard for kids to appreciate the end result of their responsible behavior. Just updating a simple spreadsheet together after a big birthday deposit can give kids a greater sense of control and deeper feelings of satisfaction around how they’re handling their money.

 

  1. “Money makes money.”

 

Your kids have probably learned about Ben Franklin flying a kite in a lightning storm. You can teach them Franklin’s lesson about the magic of compound interest: “Money makes money. And the money that money makes, makes money.”

 

Thanks to higher-than-usual interest rates, your child’s custodial savings account might be providing a good lesson on compounding right now. It’s also a great time to shop around for a new savings account as many banks are offering higher rates to entice new customers — especially online.

 

Most financial institutions also allow parents to open custodial brokerage accounts for their children, which can be another option for those special self-payments. Some brokerages also sell shares of companies that kids will recognize, like Disney, as a physical framed certificate. These gifts can help kids connect how they spend their time and money with an understanding of how the stock market creates and compounds wealth for shareholders.

 

Again, check in on these accounts every month or every quarter and show your child how their money is doing. Down periods are an opportunity to introduce the concept of volatility. Even modest losses might sting at first. But seeing their ROI move up and down over the course of a year will eventually help your kids get comfortable with managed risk. And if they start eying their toy shelf for other companies they might want to invest in, you can start talking to them about the power of diversification.

 

  1. “Plan ahead.”

 

Kids often think money works like a vending machine: swipe, tap, punch in some numbers, and what they want magically appears. Instant gratification is such a basic part of their lives that they rarely stop to think about where money comes from or how adults manage it to fulfill so many different needs. They see the end result, but not the plan.

 

Reviewing your monthly budget probably won’t hold your kids’ attention for very long. Instead, create new budgets that provide for both short-term and long-term goals that will interest your kids. Break down the cost of a new bike or video game over a couple weeks of allowance money. Or, show them your saving plan towards a big family vacation to illustrate how your financial plan provides for current needs while also progressing towards bigger goals.

We are always happy to help our clients have life-centered planning conversations with their children, especially older teens who are starting to earn their own money. Give us a call and let’s start your kids on a path towards a healthy relationship with their money.

 

February Market Update

For the investor looking for market details and explanations, this February Market Update article is for you.  Broad market index and tech stock investors were in command throughout January, even as the month ended with a Federal Reserve (Fed) meeting taming some potentially over-enthusiastic March rate cut bulls. 

 

With the tech and major market index rally continuing its run since November, I thought now would be a good time to inform you of the latest developments set to impact Americans in the months ahead. 

 

Major Stock Indexes

 

January was good for long-term investors in U.S. stocks, especially in large tech with AI exposure.  If you haven’t heard of Nvidia before, you will from now on.  Market bulls (ie, investors expecting the market to continue its run upward) were cheering the prospects of a more accommodating Fed in 2024, with the rate decision and Fed statement happening on the last day of the month. 

 

For the month of January, the S&P 500 added 1.59%, the Nasdaq 100 tacked on 1.82%, and the Dow Jones Industrial Average rose by 1.22%.

 

Mixed/Slowing Inflation Signals

 

The overall trend for inflation was mixed in January, even as Consumer Price Index (CPI) data came in a bit hot.

 

CPI: The December Consumer Price Index showed a 0.3% monthly increase in December and a 3.4% increase versus one year ago. Estimates were for a 0.2% monthly gain in December and a 3.2% gain year-over-year. Shelter and services pricing remained sticky.

 

PPI: For December, the Producer Price Index report came in below expectations, indicating mixed signals on the inflation front.

 

According to the report, wholesale prices declined by 0.1% month-over-month in December, lower than the expected gain of 0.1% estimated by Dow Jones economists.

 

PCE: According to the most recent Core Personal Consumption Expenditures (PCE) release, the rate of price increases slowed down as 2023 came to a close. 

 

The Fed’s preferred inflation indicator showed that prices were higher by 0.2% month-over-month in December and by 2.9% year-over-year. Dow Jones economists had expected respective increases of 0.2% and 3%. However, digging a little deeper and looking at the three and six-month averages of Core PCE on an annualized basis, we see it running under 2% (note: the Fed’s Target is 2%). This data, noted by former Vice Chair of the Federal Reserve Lael Brainard and provided by the Bureau of Economic Analysis, has inflation watchers cheering the current market environment.

 

Fed Put?

 

In plain English, a “Fed put” means that the Fed is standing by to change policy if needed, should the equity markets experience declines.  At present, it feels like there are the makings of a Fed put under the market. If storm clouds arise, the market is expecting the Fed to “come to the rescue” with rate cuts in 2024 if needed.  The market was expecting six rate cuts in 2024 before the January Fed meeting, even though the economy has been performing well as of late. This outlook is not the norm. Historically, rate cuts are seen in struggling or downtrodden economies that need stimulation.  The January Fed meeting tempered expectations for a March rate cut, with probabilities declining from 50% to 35.5% on January 31. However, it is still early in this election year, so pay attention.

 

This idea of a Fed put is a concept, not a guarantee, and seemed to be on the mind of many market participants at the start of February, indicating that the collective market mindset could be that any pullbacks may be short-lived.

 

Treasury Yields Steady in January

 

The widely monitored 10-year Treasury note yield was close to unchanged for the month of January, closing the month near 3.966% — about 10 basis points higher than December’s closing level near 3.865%.  This is the yield most closely tied to the movement of mortgage rates, so it is watched closely.  January marks two consecutive monthly closes below 4.00% in the 10-year yield.  The steadiness in rates is good news for sidelined prospective mortgage borrowers and great news for long-term investors in U.S. equities.

 

Fed Rate Decision

 

The last day of January gave us the first Fed meeting of 2024, as the Fed left interest rates unchanged in line with market expectations.  There were some changes to the Fed’s statement, however, as Federal Reserve Chair Jerome Powell seemed to want to tame the market’s excitement for a March rate cut.  “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to cut rates,” Powell said.  The verbal statement indicating that a March rate cut is not likely poured some water on the fire of potentially overly enthusiastic stock market bulls as the major averages pulled back during and after Powell’s commentary.  Powell did signal rate cuts at some point in 2024, however.  “It will likely be appropriate to begin dialing back policy restraint at some point this year,” said Powell.

 

Pretty vague, huh?  Fed-speak is one of the hardest languages to learn!

 

Consumer & Employment Strong

 

Consumer health metrics remained strong during January, even as many analysts expect the consumer to “tap out”.  At the same time, labor market data exceeded expectations for December, showing 216,000 jobs created. Government jobs and health-care-related fields led the way.

 

Starting the month of February, the latest employment report blew away all expectations, showing 353,000 jobs created in January versus 185,000 estimates by Dow Jones. The labor market continues to surprise to the upside, and the market reaction was an interesting one.

 

January Labor Data Market Reaction

 

While the massively better-than-expected January jobs data indicates a stronger economy, it also shows that the economy may still be running hotter than the Fed wants to see. This reinforces the logical probability that a March rate cut could be off the table.

 

Major U.S. stock indexes didn’t seem to mind, though, as they cheered the data by trading to the upside on the day of. The jobs report was released the morning after positive earnings results from Meta (Facebook), Microsoft, and Amazon. So, perhaps this earnings effect outshined the March rate cut odds everyone seemed to be so fixated upon just a day before.

 

The probability for a March 25-basis-point cut was all over the place at the end of January and beginning of February, resting at a 20% chance on February 1 after sitting at a 46.2% chance on January 26th, according to the CME FedWatch Tool.

 

Is the economy still too hot? What do the continuing and massive upside surprises in the job market mean for inflation?  This is interesting data for short term speculation, but as you have heard many times in the past, short term data is not very helpful in making long term decisions with your investments.  Pay attention to these data points, if you find it interesting, but don’t let any of it sway you from your financial planning course.

 

4 Financial Best Practices for Year-End 2023

Scan the financial headlines these days, and you’ll see plenty of potential action items vying for your year-end attention. Some may be particular to 2023. Others are timeless traditions. If your wealth were a garden, which actions would actually deserve your attention? Here are our four favorite items worth tending to as 2024 approaches … plus a thoughtful reflection on how to make the most of the remaining year.  

 

1.     Feed Your Cash Reserves

With basic savings accounts currently offering 5%+ annual interest rates, your fallow cash is finally able to earn a nice little bit while it sits. Sweet! Two thoughts here:

Mind Where You’ve Stashed Your Cash: If your spending money is still sitting in low- or no-interest accounts, consider taking advantage of the attractive rates available in basic money market accounts, or similar savings vehicles such as short-term CDs, or U.S. Series I Saving Bonds (“I Bonds”). Your cash savings typically includes money you intend to spend within the next year or so, as well as your emergency, “rainy day” reserves. (Note: I Bonds require you to hold them for at least a year.)

Put Your Cash in Context: While current rates across many savings accounts are appealing, don’t let this distract you from your greater investment goals. Even at today’s higher rates, your cash reserves are eventually expected to lose their spending power in the face of inflation. Today’s rates don’t eliminate this issue … remember, inflation is also on the high side, so that 5% isn’t as amazing as it may seem. Once you’ve got your cash stashed in those high-interest savings accounts, we believe you’re better off allocating your remaining assets into your investment portfolio—and leaving the dollars there for pursuing your long game.  

 

2.     Prune Your Portfolio

While we don’t advocate using your investment reserves to chase money market rates, there are still plenty of other actions you can take to maintain a tidy portfolio mix. For this, it’s prudent to perform an annual review of how your proverbial garden is growing. Year-end is as good a milestone as any for this activity. For example, you can:

Rebalance: In 2023, relatively strong year-to-date stock returns may warrant rebalancing back to plan, especially if you can do so within your tax-sheltered accounts.

Relocate: With your annual earnings coming into focus, you may wish to shift some of your investments from taxable to tax-sheltered accounts, such as traditional or Roth IRAs, HSAs, and 529 College Savings Plans. For many of these, you have until next April 15, 2024 to make your 2023 contributions. But you don’t have to wait if the assets are available today, and it otherwise makes tax-wise sense.

Revise: As you rebalance, relocate, or add new holdings according to plan, you may also be able to take advantage of the latest science-based ETF solutions.  We’re not necessarily suggesting major overhauls, especially where embedded taxable gains may negate the benefits of a new offering. But as you’re reallocating or adding new assets anyway, it’s worth noting there may be new, potentially improved resources available.

Redirect: Year-end can also be a great time to redirect excess wealth toward personal or charitable giving. Whether directly or through a Donor Advised Fund, you can donate highly appreciated investments out of your taxable accounts and into worthy causes. You stand to reduce current and future taxes, and your recipients get to put the assets to work right away. This can be a slam dunk strategy to avoid an embedded capital gain and get a tax deduction for the full value going to the charity of your choice.  If you have appreciated assets, considering gifting these and holding on to your cash.

 

3.     Train Those Taxes

Speaking of taxes, there are always plenty of ways to manage your current and lifetime tax burdens—especially as your financial numbers and various tax-related deadlines come into focus toward year-end. For example:

RMDs and QCDs: Retirees and IRA inheritors should continue making any obligatory Required Minimum Distributions (RMDs) out of their IRAs and similar tax-sheltered accounts. With the 2022 Secure Act 2.0, the penalty for missing an RMD will no longer exceed 25% of any underpayment, rather than the former 50%. But even 25% is a painful penalty if you miss the December 31 deadline. If you’re charitably inclined, you may prefer to make a year-end Qualified Charitable Distribution (QCD), to offset or potentially eliminate your RMD burden.

Harvesting Losses … and Gains: Depending on market conditions and your own portfolio, there may still be opportunities to perform some tax-loss harvesting in 2023, to offset current or future taxable gains from your account. As long as long-term capital gains rates remain in the relatively low range of 0%–20%, tax-gain harvesting might be of interest as well. Work with your tax-planning team to determine what makes sense for you.

Keeping an Eye on the 2025 Sunset: Nobody can predict what the future holds. But if Congress does not act, a number of tax-friendly 2017 Tax Cuts and Jobs Act provisions are set to sunset on December 31, 2025. If they do, we might experience higher ordinary income and capital gains tax rates after that. Let’s be clear: A lot could change before then, so we’re not necessarily suggesting you shape all your plans around this one potential future. However, if it’s in your overall best interests to engage in various taxable transactions anyway, 2023 may be a relatively tax-friendly year in which to complete them. Examples include doing a Roth conversion, harvesting long-term capital gains, taking extra retirement plan withdrawals, exercising taxable stock options, gifting to loved ones, and more.

 

4.     Weed Out Your To-Do List

I love this one…it is at the top of my improvement goals.  Doing less instead of staying busy with more.  This year, we’re intentionally keeping our list of year-end financial best practices on the short side. Not for lack of ideas, mind you; there are plenty more we could cover.

But consider these words of wisdom from Atomic Habits author James Clear:

“Instead of asking yourself, ‘What should I do first?’ Try asking, ‘What should I neglect first?’ Trim, edit, cull. Make space for better performance.”

— JamesClear.com

 

Let’s combine Clear’s tip with sentiments from a Farnam Street piece, “How to Think Better.” Here, a Stanford University study has suggested that multitasking may not only make it harder for us to do our best thinking, it may impair our efforts. 

“The best way to improve your ability to think is to spend large chunks of time thinking. … Good decision-makers understand a simple truth: you can’t make good decisions without good thinking, and good thinking requires time.”

— Farnam Street

 

In short, how do you really want to spend the rest of your year? Instead of trying to tackle everything at once, why not pick your favorite, most applicable best practice out of our short list of favorites? Take the time to think it through. Maybe save the rest for some other time.

Quarterly Letter to Clients

The first three months of the year would not be described as boring by any stretch of the imagination.  With the war in Ukraine continuing to create global uncertainty and the government-assisted closing of two of the largest regional banks in history, there is plenty to capture our short-term focus.  But even with these and other events, many stock indexes are up since early January and bond prices have seen some recovery as interest rate pressure has eased a bit. The point is that sometimes investment returns can tell a different story than does the current headlines.

However, whether the numbers are up or down in any given year, we caution against letting them alter your mood, or as importantly, your portfolio mix. Because, when it comes to future expected returns, short term performance is among the least significant determinants available.

Thumbs Down…Thumbs Up

In the thumbs-down category, U.S. stock market indexes1  turned in annual lows not seen since 2008, with most of the heaviest big tech stocks2 taking a bath. Bonds fared no better, as the U.S. Federal
Reserve raised rates to tamp down inflation. The U.K.’s economic policies3 resulted in Liz Truss becoming its shortest-tenured prime minister ever, while Russia’s invasion of Ukraine and China’s continued COVID woes kept the global economy in a tailspin. Cryptocurrency exchanges like FTX4… well, you know what happened there.

On the plus side, inflation has appeared to be easing slightly, and so far, a recession has yet to materialize. A globally diversified, value-tilted strategy5 has helped protect against some (certainly
not all) of the worst returns. An 8.7% Cost-of-Living Adjustment (COLA)6 for Social Security recipients has helped ease some of the spending sting, as should some of the provisions within the newly enacted SECURE 2.0 Act of 2022.

Recency Bias

Now, how much of this did you see coming last January? Given the unique blend of social, political, and economic news that defined the year, it’s unlikely anything but blind luck could have led to accurate
expectations at the outset.

 In fact, even if you believe you knew we were in for trouble back then, it’s entirely possible you are altering reality, thanks to recency and hindsight bias. The Wall Street Journal’s Jason Zweig7 ran an experiment to demonstrate how our memories can deceive us like that. Last January, he asked readers to send in their market predictions for 2022. Then, toward year-end, he asked them to recall their predictions (without peeking). The conclusion: “[Respondents] remembered being much less bullish than they had been in real time.”

In other words, just after most markets had experienced a banner year of high returns in 2021, many people were predicting more of the same. Then, the reality of a demoralizing year rewrote their memories; they subconsciously overlaid their original optimism with today’s pessimism.

What have we learned?

Where does this leave us? Clearly, there are better ways to prepare for the future than being influenced by current market conditions, and how we’re feeling about them today. Instead, everything we cannot yet know will shape near-term market returns, while everything we’ve learned from decades of disciplined investing should shape our long-range investment plans. 

In other words, stay informed but be careful to not be swayed into a reactive decision. Keep your long-term lenses on and your future self will thank you for it.
 

As we head into a new quarter, always know that we are here to help and are grateful for your
continued trust.

Josh

 

Quarterly Letter to Clients

Well, we made it to 2021 so how are you feeling?  The start of a new year can breed hope for new possibilities.  Even though 2020 was oppressive to most in so many ways, I do think we can still hold hope for the new year.  I have never been one to focus on New Year’s resolutions as they always felt like a recipe for disappointment (I know that is not the case for everyone, though).  What I am striving for this year is not new resolutions, but rather strengthening routines.  Routines feel more in my control, and if 2020 taught anything, it is to control what we can control.  One of these areas for me is to practice gratitude.  I have begun by thinking of 3 things I am grateful for each night before I go to sleep.  It is refreshing and encouraging to think on these things.  When we talk later this year, feel free to check on my progress with this.  This is just one small example, and I am sure that you have others that jump to your mind.  Let me encourage you to pursue practices like this for the sake of your own mental health in 2021.

Speaking of control…

You likely have heard us say in the past that market performance is not an area that any of us have control.  Because of this, it is wasted energy to focus and worry about market movements.  You should spend that energy doing things you can control: spend less than what you make, avoid debt, build cash reserves, plan your generosity and plan your future – practical principals that have an outsized impact on your life.

Small, quiet acts

Whether the temptation is to abandon a free-falling market (like the one we encountered less than a year ago), or chase after winning streaks, an investor’s best move remains the same.  Concentrated bets on hot hands generate erratic outcomes, which makes them far closer to being dicey gambles than sturdy investments.  Trust instead in the durability of your carefully planned investment portfolio. Focus instead on small, quiet acts.  That is what we are here for, for example, to:  
  • – Remind you that your globally diversified portfolio already holds an appropriate allocation to Tesla stock (which may be a lot, a little, or none, depending on your financial goals.
 
  • – Guide you in rebalancing your portfolio if recent gains have overexposed it to market risks.
 
  • – Help you interpret the 5,600 pages of the newly passed Consolidated Appropriations Act, 2021, so you can manage your next financial moves accordingly.
 
  • – Assess potential ramifications of the Biden tax proposals and advise you on any additional defensive tax planning that may be warranted for you in the years ahead.
 
  •  -Remain by your side as you encounter whatever other challenges and opportunities 2021 has in store for you and your family.
  These are not loud acts that you will read about in the paper, but they are the stuff financial dreams are made of.  2021 will be interesting to say the least, but let’s hold onto the hope and possibility that a new year brings.  Stay healthy, stay grateful and know that we are here to help.   Josh, Mike, Matt and Sandra  

April 2020 – Quarterly Update: Covid-19 Edition

This will be the quarter that we look back on and never forget.  It was the time that a virus spread with a silent vengeance, and the world came to a screeching halt.  You may be feeling quite disoriented, fearful or even anxious as you read this note since ‘normal’ for all of us has been shaken to its core due to Covid-19. You are likely hunkering down at home, which is what you should do, with little of your regular activities to keep you busy.  If you are like me, it literally feels like the earth has stopped spinning on its axis.  Up is down, and right is left.  Trust me when I say that it is completely normal to feel this way in the context of what we are dealing with as a human species.

I do not come to you with answers or any conclusions that will change the world…there are people that are much smarter than me working on that now, and I have confidence that they will figure it out.  But I can bring some encouragement and suggest some small actions that might, just maybe, help us feel like planet earth is starting to rotate once again.

What can you do?

The spread of Covid-19 has impacted the global economy with a speed and impact that is unlike anything seen in our lifetime.  This does not mean that happiness and contentment are totally out of your control, however.  Mindset is key…start by realizing that the sun still rises every morning like the picture at the top of the article.  There is new hope with each new day.  I am sure you have found, as have I, that there is now more time to watch movies, read a book, take a distance-appropriate walk to enjoy the spring weather or call someone (yes, actually call them rather than text) to see how they are doing.

If you are sheltering at home with loved ones, you have probably seen them more in the last two weeks than you have for months.  We should all continue to do more of these things, and the more we do, the more connected we will stay.  I am not a loquacious extrovert, but I have thoroughly enjoyed being around and talking with the ones I care most about.  And the more connected we stay, the more human we will feel.  This is where happiness and contentment hide, not in your investment portfolio or the latest round of news.

What are we doing?

Actions taken during times of fear in the markets will have implications for years to come.  The question is whether they will be positive or negative.  For the long-term investors, which are clients that we serve, volatility creates opportunity.  We have taken advantage of this opportunity by tax loss harvesting, which allows us to realize the losses for tax savings, but then invest the proceeds right back in something else so the money is never out of the market.  The tax savings for our clients this year will be significant.  We have also looked to strategically rebalance portfolios.  Because some of the fixed income assets have gains over the last year, we have sold those gains to go buy equity funds that are now at a discount.  It rebalances the ship and holds to the strategy of selling high and buying low.

What is next?

The fact is, I don’t know.  No one does, but that’s OK.  We are still waiting on the details of the massive Stimulus bill that was signed into law on March 27th.  There are too many details for me to summarize here.  If you want a deep dive in to the details, you can find that here.  I plan to write more on this soon, but if you have any questions about this, please do not hesitate to call our office.  We are all working remotely, but the extensions still ring right to us.  Know that we are here to help in this time of uncertainty.  Your well-being is of greatest concern to us, and not just financially.  Be safe, be smart, and be part of the global solution for everyone by staying home.

We will see you soon,

 

Josh, Mike, Matt and Sandra

Global Diversification is Your Investment Antacid

Let’s be clear: We did not wish for, nor in any way cause a tumble in the markets, especially among tech stocks. That said, we could not have come up with a more telling illustration to underscore the perennial value of building – and maintaining – a globally diversified investment portfolio for achieving your greatest financial goals.

Global diversification is such a powerful antacid for when (not if!) we experience market turbulence, it’s why we’ve long recommended spreading your market risks:

  • According to your personal goals and risk tolerances
  • Between stock and bond markets
  • Among evidence-based sources of expected long-term returns
  • Around the world

In short, broad, global diversification never goes out of style.

Breaking news shows us why.

Just a few short days ago, third quarter market performance numbers were rolling in, and we were fielding questions about the wisdom of continuing to participate in worldwide stock and bond markets. Some globally diversified investors were beginning to question their resolve after comparing their year-to-date returns to the U.S. stock market’s seemingly interminable ability to whistle past the graveyards of disappointing, portfolio-dampening performance found elsewhere.

Some were asking: “Should we dump diversification, and head for the ‘obviously’ greener pastures watered by U.S. stocks?”

We aren’t the only ones advising investors against reacting to hot runs by turning a cold shoulder to their well-structured portfolio. In his timely September 28 column, Wall Street Journal personal finance columnist Jason Zweig commented: “Looking back in time from today, U.S. stocks seem to have dominated over the long run only because they have done so extraordinarily well over the past few years.”

As current conditions starkly show, there’s a reason for the expression, “Things can turn on a dime.” Whether it’s U.S. stocks, international bonds, emerging markets or any other sources of expected return, the evidence is clear: Trends rise and fall among them all. This we know. But precisely when, where, how much, and why is anybody’s guess. As Zweig suggests in his piece, “Markets tend to lose their dominance right around the time it seems most irresistible.”

What’s next?

We’re drafting this message to you Wednesday evening, October 10, in advance of what may be a wild ride for the next little while. By the time you’re reading this, prices may still be tumbling, or they may already have recovered their footing. We can’t say.

Come what may, we hope we can be particularly helpful to you at this time.

Have current conditions left you troubled, unsure of where you stand?

Let’s talk. We’ll explore whether you’re able to sit tight with your existing strategy, or whether we can help you think through any next steps you may be considering. Most of all, know you are not alone! We are here as your sounding board and fiduciary advisor. Your best interests remain our top priority.

Are you reflecting calmly on current events, recognizing that market volatility happens?

Allow us to applaud you for your stamina, and remind you: Current conditions likely represent a time for continued quietude, along with ongoing attention to managing your tailored portfolio.

Regardless of your temperament, we’d like to share a sentiment from Behavior Gap author Carl Richards’ 2015 New York Times column.  His point remains as relevant as ever:

“On a scale of 1-10, with 10 being abject misery, I’m willing to bet your unhappiness with a diversified portfolio comes in at about a 5, maybe a 6. But your unhappiness if you guess wrong on your one and only investment for the year? That goes to 11.”

Let’s be in touch if we can answer any questions or scale down any angst you may be experiencing.

Regards,

Your PLC Wealth Team