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Is There Growing Optimism in US Economy?

By Posted on In Economy, Uncategorized

For the last few weeks, we’ve all been distracted with important issues. To name a few, completing tax returns, listening to the debate on guns, and following the news on the rising tensions in North Korea.

If you think back, you may have missed a headline about the Dow Jones Industrial Average breaking its all-time high. That happened on March 5th, a little less than 2 months ago. It’s a worthy milestone to reach. But what does that mean for your investments or the future?

Everyone has an opinion. When asked “What do you see happening next in the economy”, a well respected economist responded “If I had a crystal ball and knew the answer to that question, I wouldn’t be here. I’d be sitting on the beach.” Some look at this event and say that we’ve reached a high water mark and that we should expect to see the market decline. Others look at this and see it as an indication that the bull market is continuing along. Is the glass half empty or half full? Are you optimistic or pessimistic about the future?

We continue to be optimistic in our approach. We see the looming clouds as bumps and obstacles, but not significant enough to derail the recovery. We see issue after issue being wrestled with and slowly pushed down the road, resulting in near-term clarity, but few long-term solutions

If you’re on the fence, not sure what to make of this recovery, the following link offers a great case for being optimistic about the future.

The Case for Optimism

 

Recap of a Letter Written Before the Election

By Posted on In Economy, Politics & the Economy, Uncategorized

The following comment was included in the newsletter we sent to our clients at the end of September. It was written during a period where many were unsure how the election would affect their portfolio.

“It’s actually been a pretty good year for most investors. So here we are about 45 days away from the election, and it appears to me, with the recent surge (both US and global), that the markets are picking up steam.

What explains this improvement, considering the dark clouds apparently forming? Could it be possible that the markets would actually strengthen after the election, regardless of who wins it, simply because one huge uncertainty will have been removed? We’re already at the point where, here in the US, corporate earnings, cash flows, cash positions, and dividend yields are all near record levels.

How did this happen when the investor class is full of dread (a looming fiscal cliff or taxmageddon are being discussed by the talking heads all the time)? Can the gulf of relative value between the US bond market and the US stock market, which has been growing almost unabated for 30 years, grow still wider? Or, could it be that John Templeton is right again, and that it is exactly in times like these that bull markets are born?

I don’t discount the volatility that comes with the cyclic nature of the economy, especially one impacted by globalization. The tough months / quarters / years happen for all sorts of reasons and will probably continue. But there are great companies out there that will continue to sell mass quantities of cola, diapers, and the hottest cell phone, and sell those around the world, even if Greece leaves the Euro, or Spain defaults, or if the wrong person wins the presidential election.”

Trend Updates

By Posted on In Trend Updates, Uncategorized

The Active Asset Allocation Portfolio utilizes a trend following strategy by buying and selling securities based on established price trends in each asset class, which is determined by comparing the current price with the 200 day simple moving average.  Below is a snapshot of the current trends we are following:

 

US Equities:

We have been fully invested in this asset class since August. Trends have remained positive.

Foreign Equities:

If we were to slice this asset class into emerging markets and developed markets, we would see two different stories unfold (see other post) or this simple chart from Financial Times.  We are watching some emerging market trends break down and hit the moving average.  These positive trends were not very convincing in the first place and our holdings in this area are limited. Time will tell if the negative trends continue or if they will bounce off the 200-day moving average.  Developed markets have a slightly better story although their trends remain flat to slightly positive. It should be noted, that these comments are generalizations. There are countries that are bucking the trends – we are looking at this asset class on a country by country basis. (Link to Finding a trend in Emerging Market Equities)

Bonds:

The trend continues to remain flat for the most part, which we noted at the end of the 1st quarter.  The only exception are some securities that invest in emerging market debt which have been flat for several months, resulting in the moving average catching up to the current price.  The trend is not conclusive, but it is a sign that it could turn negative.

Real Estate:

One of our longest held positions continues to perform very well.  This asset class has had a few bumps in an otherwise positive trend that has existed for a few years.

Commodities:

Up until last week, many of the trends were flat to slightly negative. Then during last week, the price of gold and silver dropped. This had ramifications throughout the commodity market. Most of the securities we are tracking in this asset class are now below their average. Our positions at the time were minimal given most trends were already negative.

Why Is It So Hard to Make a Tax Deductible Contribution to a Traditional IRA?

By Posted on In Retirement, Rule of Thumb, Uncategorized

During tax season, we had dozens of conversation with clients that begin with the client asking, “can I make a tax deductible contribution to my IRA, so I can lower my tax bill?”

Unfortunately, the answer isn’t a straightforward “yes” or “no”. Rather, we have to drill into each client’s specific situation to make sure we follow the in’s and out’s associated with IRA contributions on a case by case basis. The below infographic does a pretty good job at capturing the complexity of answering the question. Bottom line, before making a contribution to your IRA, consult with a financial advisor or tax professional because it’s complicated.

IRA Contribution Flow Chart

Are You Addicted to News?

By Posted on In Finding Confidence, Investment Behavior, Uncategorized

A recent article by the Guardian discusses 10 reasons why news can harm you. It’s an interesting read, one that reinforces a message that we regularly communicate to our clients: news is sensationalized to draw viewers but it should be taken with a grain of salt and not relied on to make investment decisions without doing your own research.

The article references the sensational and shocking stories we see. These stories are designed to scare us into doing something (or not doing something). The article fails to recognize, that there is a lot of insightful, objective, and thoroughly-researched journalism produced every single day that readers should be reading. Length does not necessarily indicate quality. Long articles can be sensationalized just as much as a tweet. And a tweet can be more insightful than a long article.

The problem becomes: How to determine quality news from an eye catching headline with regurgitated content. Second, where do we find quality news and who can we trust?

We will cover those questions in a later post.

 

A New Strategy. A New Approach.

By Posted on In Investment Strategies, Uncategorized

This is the final part of a series (Part 1, Part 2, Part 3)

If your portfolio is still sitting on the sidelines in cash as you wait for the right time to enter the market, you may want to consider a new strategy. There is always a headline out there to suggest that the market is about to go down. Here are a few strategies we suggest you consider:

1) Turn off the TV. 95% of what you hear and read about the economy is noise. A recent article on the front page of Yahoo.com reports that actress “Mila Kunis Rotates From Cash to Stocks”. We’re not putting the link there, because that’s the noise we’re talking about.

2) Put a multi-year plan together. Step 1 – Decide what the funds will be used for and when you expect to need them. Step 2 – Determine the amount of risk you need to take in order to reach your goals. If not, there are many strategies that can be used to help you. Maybe you need to save more, or maybe you need a new investment portfolio and investment strategies.

3) Stick to it. It’s important to remain committed to the plan, with periodic tweaks and changes. All to often, we see plans used for only a short period of time before old habits come back.

4) Get a second opinion. It’s important to remember to tap the expertise of a financial advisor when developing your plan. When prospective clients ask us for help, we dig deep to make sure all their investments and assets (including their 401(k), IRA, ROTH IRA, bank accounts) are working well together. We look at a few key areas for each portfolio: proper diversification, fees & expenses, performance, and volatility within the portfolio. Each of these is important and is driven by a client’s personal situation and risk tolerance. Most importantly, we look to see if this portfolio could achieve the client’s financial goal.

Growing complexity of retirement

By Posted on In Retirement, Uncategorized

This piece was written about a year ago, but the two statistics from Sloan should be read again. During the past year, we have plenty of anecdotal evidence to support their findings:

There are a lot of options and factors to consider when preparing for retirement. It’s no longer just about the size of your nest egg. It’s about adequate insurance coverage, strategies to maximize your social security benefits (interesting story here), strategies to minimize taxes, and weighing your needs for Long Term Care insurance. And that’s just to name a few.

Of course, another option to consider is when to retire. Given the state of the economy and the fact that people are healthier and living longer than ever before, more and more people are pushing retirement back. Here are a few interesting statistics coming from the Sloan Center on Aging & Work at Boston College:

“Fewer Older Workers Expect to Retire at 62 or 65. According to a 2012 analysis of data from the Health and Retirement Survey, ‘a declining percentage of Americans are expecting to retire at 62 and 65. In 2006, 7.4 percent of people [over the age of 50] said they plan to stop working at 62, but by 2010 it had dropped to 4.9 percent. In 2006, 16.1 percent people expected to retire at 65, but in 2010, 14.6 percent planned to do so. Conversely, expected retirement at 66 has increased from 2.9 percent in 2006 to 4 percent in 2010.'”

And coming from the same outfit:

“One-fifth of U.S. Workers Say They Don’t Plan to Stop Working According to the 2011 Sun-Life Unretirement Index, when asked at what age they plan to stop working, 20% of American workers stated ‘Never. I think I’ll always work in some capacity.'”

Bad News Begets Bad Behavior

By Posted on In Finding Confidence, Uncategorized

This is the third part of a series (Part 1, Part 2, Part 3, Part 4)

For many investors, the bad news was cause for them to pull their money out, sit on the sidelines and wait for conditions to improve. They waited for the situation to turn around and to feel confident again in the markets.

We all remember the infamous day of September 29, 2008 when the markets dropped so much. But the very next day, the markets had one of the best days ever.

And for the past three years, the economy has been growing and growing. Many investors who stayed invested are back to where they were before the 2008 recession.

Unfortunately, many are still sitting on the sidelines watching the news and seeing one headline

The Search for Bad News: Instinct or Addiction

By Posted on In Finding Confidence, Uncategorized

This is the second part of a series (Part 1, Part 2, Part 3, Part 4)

Numerous studies suggest people are more interested in bad news than good news. It’s easier to scare someone into reading or watching a news story than any other way. But some psychologists think they can explain why we have a desire to learn more about the bad, rather than the good.

Scientists suggest this search for bad news can be traced back to our hunter-gather roots since anything that was perceived as threatening had to be dealt with immediately for survival.

But in today’s environment, when we hear about bad news we hop on Twitter, the internet, or the TV. Take September 29, 2008 when the markets faced one of the worst days in decades. CNBC had the highest ratings ever on that same day. Or take a few months earlier – January 22, 2008, the day the Fed cut interest rates by the highest amount in its history. On that day, the search term “Recession” was searched at a rate of more than five times the day before!

There is something, possibly instinctual, that pulls us to learn more about the negative news.

The Team

H.L. Rives III, CPA
Cliff Jarvis
Michael Lecours, CFP®
Ronald G. Lecours, CFP®

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