Another tax filing season is quickly drawing to a close, and for many people that means the anticipation of a sizable refund headed their way. The IRS indicates that about 80% of taxpayers receive a refund, with the average being around $3,000. That’s a nice chunk of cash! What’s not to be excited about?
Below, we submit our latest quarterly installment of Nvest Nsights. The first article reviews how chaotic, volatile, and disappointing was the market’s performance during 2018. But more important from our perspective is how swift selloffs like witnessed during the 4Q can cause one to suddenly feel confused and uncertain about the future; in these times it is most critical to step back and consider facts and fundamentals to avoid short-term action based on emotion. The article “Shilly-Shally Prone” reminds how long-term investment success accrues to those who remain steadfast to a repeatable and disciplined process. There are two remarkably similar historical backdrops which suggest it is very possible that present-day concerns could resolve or fade quickly against a still-sound economy, providing swift relief to recent market volatility here in 2019. Finally, “We Work With Rock Stars” provides insight into our investment selection philosophy with rationale motivating several portfolio adjustments being executed over recent weeks and as we enter the New Year.
The full printer-friendly version of our newsletter, including data tables for selected mutual fund and ETF performance as well as portfolio benchmarking, can be downloaded here: NVEST NSIGHTS 4Q.
According to a recent study, 90% of Americans will spend more time planning for vacation than they spend planning for retirement. Similarly, we often observe firsthand how many do not truly know where their money is spent; and they do not devote time to gain more clarity about it. Life becomes a foggy trip without rich meaning.
No one purposely sets out to have an undefined financial life… it just happens to us as we become a part of the culture in which we live. It’s human nature which spans all of time; we repeat actions generation after generation. One of the wisest men to ever live, Solomon, offers sage points in the Bible’s Ecclesiastes which can be simplified to these thoughts:
In our quarterly newsletter that follows, the two feature articles are titled: “A Great Story Never Told” and “Flying on One Engine”. The first discusses the prevailing skepticism, or even outright pessimism, that may best characterize the consensus of investors’ psychological mindset relating to what is now the longest bull market in US history. The second article explores what are the polarized and opposing views of how the economic and corporate fundamental “tea leaves” are being interpreted and highlights what we see are the biggest risks threatening to halt the progressing bull market. We encourage you to review the full articles contained in our quarterly newsletter below. The full printer-friendly document can be downloaded here: NVEST NSIGHTS 3Q
A GREAT STORY NEVER TOLD
Following a tug-of-war market experience during the first 6 months of 2018, stocks surged ahead during the 3Q with the S&P500 up +7.2%. It was the fastest advance since late 2013. Combined with the first half, the accumulation brings the YTD rise to just over +10%. Company earnings and economic growth are rising at the fastest pace of this current cycle and expanding the current Bull Market run, yet these facts remain a great story never told. Few want to acknowledge this Bull Market is now the longest running ever. Also, few will acknowledge that the current economic rebound will shortly become the longest running ever. This current run approaching 10 years remains unloved for a variety of reasons, including the fact that many investors experienced 2 Bear Markets in 15 years. Those two experiences eroded investor portfolio values and family wealth, and wreaked havoc with investor confidence. In reality, the only situation where the length of this economic rebound and/or market advance is cited is when stating its age as a compelling reason to anticipate the current trends must soon end. Many continue to hold a keen aversion to owning risk assets even today.
It’s often said that “no matter how carefully something is planned, things may still go awry”. The saying is adapted from a well-known line in the Poem “To a Mouse” by Robert Burns. Perhaps Mr. Burns was in the process of retirement planning when crafting this poem? Regardless, its cautionary tone can be applied. As we work with clients helping them articulate and achieve financial goals, there are a number of areas that can be underestimated relative to actual spending.
Combining the two commentary thoughts within Nvest Nsights this quarter, there are two watch points: the Fed tightening until something breaks, and tariffs until the market shakes. Of these two, the former worries us the most, longer-term. We are historically reminded about 1984 and 1994 – strong economies and slow markets to be followed by 1985 and 1995. Maybe 2018 (strong economy and slow market) is the bridge for 2019 when stocks advance faster than the economy. Keep watchful and stay invested. We encourage you to review the full articles contained in our quarterly newsletter below. The full printer-friendly document can be downloaded here: NVEST NSIGHTS Q2
TARIFFS UNTIL THE MARKET SHAKES
The US economy is still growing and will enjoy its 10th anniversary in July. Shortly, it will become the longest expansion on record. Its progress helped unemployment reach its lowest in 18 years, at 3.8%. And, the second quarter should produce double-digit earnings growth again, for the 3rd consecutive quarter. So far, the US economy and corporate earnings provide the underlying fundamentals to support the current bull market growing older (since 3/9/2009 or 112 months, or 9.3 years). US consumer confidence remains solid which is important since consumers drive about 70% of the US economy.
Did you ever write and share your “family love letter?” It’s probably safe to say that each of us is aware of tragic situations where a loved one died at too young an age, maybe suddenly and unexpectedly. These experiences are shocking, and it is natural to catch yourself wondering how those closest to the deceased will be cared for or work through the situation. Loved ones often find they are ill-prepared to attend to many aspects of another’s life.
On the topic of estate planning, we are regularly encouraged to plan properly for a sudden incapacitation and/or death. Unfortunately, the focus begins and ends with the execution of proper documents, titling of assets, and naming beneficiaries to various financial accounts. Often overlooked however, is ensuring that appropriate family members and decision makers can access adequate information about their loved one’s assets, liabilities, and intentions. And, even if deliberate thought was given to these matters, is information available and quickly accessible?
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The stock market ended the quarter much different than it began. Stocks roared in January with the S&P500 jumping more than 5% to set repeated records; until January 26th. Then, it’s as though the electrician changed the direction of the wall switch. As we wrote in our March commentary, “Agitation Overdone”, the current pullback is the first drawdown exceeding -5% since February 2016 (almost 2 years), or 404 trading days. The February drawdown took 10 days to erase -10%, wherein 83% of stocks declined -10% or more and the average stock gave up -14%. March vibrated back and forth, retesting the February lows. Corrections (-10% decline or more) are never comfortable, but most evolve into new rallies. The evolution process typically involves 3 components – price, time, and emotion. Price action can be quick, while emotional change takes time before playing out. It seems probable that additional time and the evaporation of bullish emotion (sentiment) are needed before the Bull run continues. An important part of any corrective process is converting optimism to pessimism. Today, we are closer than at the early-February lows, which were retested in late March/April – now almost 30% of stocks are down 20% from their highs.
If you are at the doorsteps to retirement, you might regularly receive invitations to enjoy a free lunch/dinner as part of an “educational” seminar on various retirement, estate planning, or trust topics. Often these invitations are made extra enticing by featuring a fancy restaurant for the presentation. Yet as the saying goes, few of us believe these meals/events are without any strings attached; we know there will be some “catch” or pitch of a product or service.
One topic we regularly encounter with new clients approaching us for help is in the area of annuities. While there are advantages and disadvantages to these complex products, in our experience, they are often sold without full and adequate explanation. While we prefer and advocate the use of more customizable, and traditional investment structures (wherein you retain full control of your time horizon, investment options, and access to money), we would stop short of saying or suggesting that annuities are never appropriate. So let’s objectively review one of the most misunderstood financial products available.