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Diversifying Your Investments May Lead To Better Outcomes

By | 2018, Money Moxie, Viewpoint | No Comments

Is this as good as the U.S. economy is going to get? This is the question investors have been asking as storm clouds have settled over the stock market. During all this commotion, a silver lining can be seen with a strategy that may be helpful.

The paradigm shift for stocks, which began in October, is reminiscent of a change in early 2000 when a positive run for technology stocks abruptly ended. Unnoticed by some in 2000, the economy was still growing and a rotation of leadership in the stock market presented investors with new opportunities. This is where diversification can help.

Take a look at the graphic below. Diversification lost when the market lost and made less when the market gained. Despite these disappointing facts, the diversified portfolio would have made more money!

Why does diversification make a difference?

  1. Limiting your losses helps.
  2. No one knows when the market will rise or fall, so any strategy attempting to capture the up and avoid the down is unlikely to do well.
  3. While there is no way to accurately predict the future of any one company, the market tends to rise over long periods of time – making losses temporary for those who stay diversified and invested.

As the storms arise, think of diversification as your umbrella. You may still get a little wet, but it will help. Your long-term perspective and optimism will help you hang on until the sun shines – and it will shine again.

The new year will continue to bring many opportunities for investors, especially with positive economic growth. There are no guarantees, but the current forecast calls for a 2.5 percent increase.

*Diversification History data provided by Blackrock. Diversified portfolio consists of 60 percent stocks and 40 percent bonds. The S&P 500 is often used to represent the U.S. stock market. One cannot invest directly in an index. Past performance does not guarantee future results.

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How Can I Stay Calm When the Market Isn’t?

By | 2018, Money Moxie, Newsletter | No Comments

2018 has been a year of market volatility, and that can be scary at times. When market volatility hits, here are three things that can help you stay calm.

1. Focus on the Long-Term
When we create financial plans, we focus on your long-term goals. When market volatility strikes, think to yourself, “Have my goals changed? Do I want anything different out of my investments than I wanted before?” If your long-term goals haven’t changed, then you are still okay. If your long-term goals have changed, talk to your financial advisor and see what the best course of action is.

Before you make any knee-jerk reactions to market volatility, focus on the long-term. We don’t want to sell out, lock in losses, and not have the opportunity to benefit from the market growth that will come later.

2. Trust Diversification
Investing in a diversified portfolio is even more critical when market volatility is high. We keep our portfolios diversified to help lessen the effects of market volatility. The basic idea of diversification is to spread your investments across many different areas of the market in order to reduce the risk. It usually works when things get rough because you don’t have all of your money in the part of the market that is losing the most.

With your diversified investments, you are likely to still lose in a down market, but you should lose a little less. Most of the time, a diversified portfolio will come out ahead of a non-diversified portfolio after enduring the ups and downs of a market cycle. Remember, diversification works!

3. Volatility = Opportunity
You’ve probably heard this saying your whole life: “Buy low, sell high.” That is the right mindset to have when it comes to investing, and we all know it. However, as humans, our emotions get in the way, and we convince ourselves to do the exact opposite.

Why would we ever be tempted to buy high and sell low? It is common to feel comfortable investing into something that has been going up because we assume it will continue. Again, we believe the trend will continue when the market is falling and is at a low point. As an investor, it is helpful to remember that changing our strategy based on how we feel can often be counter-productive.

Market volatility can create major opportunities to buy in at lower points. Try looking at it this way: if you find a nice coat, you’d be more likely to buy it at 10% off, right? It’s the same way with investing. We want to buy at a “discount” to maximize the value we can get out of an investment. It can be hard to remember this in volatile times, which is why it is essential to have a professional who is experienced and educated in your corner to help you make sound investment
decisions.

 

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Why We Are Watching Oil In 2018

By | 2018, Money Moxie | No Comments

Despite record U.S. oil production, the price of a barrel has been climbing in 2018. The ripple effects can and will be seen throughout the economy in the coming months.

The average price of regular gasoline in the United States is nearly $3.00 per gallon. One year ago, it was $2.35.1 That’s a 25 percent increase at a time when few expected such a rise.

Most Americans spend between 2 and 4 percent of their income on gasoline,2 so the direct impact on our spending may not seem like a big deal at first.

Americans, accustomed to the lower prices over the last couple years, have also been buying larger and larger cars.

We should also remember that oil is a major ingredient in many products we purchase (as illustrated in the adjacent graphic). While U.S. supply is growing, it has fallen globally.

Oil prices are still far from their all-time high of $136.31 in June of 2008. The domino effect of rising prices has also not been a major concern yet.

Global oil supply is the wildcard. If it increases (a real possibility), prices are unlikely to rise significantly. If it falls, rising prices may spread. Eventually, it could impact our spending.

Remember, consumers, drive 70 percent of the economy. So, if we cut back in our spending then the U.S. economic engine may slow as well. That’s why we are watching oil more closely in 2018.

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(1) GasBuddy.com
(2) U.S. Energy Information Administration
*Research by SFS. Graphic from Visual Capitalist. Investing involves risk, including potential loss of principal. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon
changing conditions. This is not a recommendation to purchase any type of investment.

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Stocks Stand Alone

By | 2018, Money Moxie | No Comments

If you could go back in time 100 years and pick an asset in which to invest, which would you choose? Knowing of events like the Wall Street Crash of 1929 and the Great Depression, 7% inflation in the 1970’s, and the stock market crash of 2008, would you still choose to put your money in stocks? If so, you would be making a wise decision.

I recently came across an article posted in the March 2018 issue of The Wall Street Journal regarding the average annual returns of 10 popular investments over the last century. (I included a graph showing these investments and their average historical returns above inflation.)

At first glance, I noticed the negative returns of diamonds. Although diamonds are quite popular, especially on the finger of a loved one, they have been a poor investment if appreciation is the goal.

Bonds, which happen to be fifth on the list behind collectable stamps and high-end violins, show an average annual return of 2%.

Gold, a popular investment among some investors, has historically fallen short when compared to fine art and fine wine; the latter of which post returns over 500% more than that of gold.

Stocks have had the highest returns, and by a large margin. Despite the crashes, recessions, and economic contractions, stocks have had the best return in the last 117 years.

As we face volatility in the markets in 2018, we know that a diversified portfolio of stocks and bonds has weathered the storms of years past.

Despite the risks of recession and downturn in the future, I plan to keep my diamonds on my wife’s finger and my long-term investments in stocks.

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2017: Record Breaking Year

By | 2018, Money Moxie, Newsletter | No Comments

Entering 2017, I was more optimistic about the potential growth in stocks. In fact, my expectations were higher than 13 of 15 major investment companies. This optimism became a basis for staying invested throughout the year whether the market went up or down. The results were very positive.

I also assumed that at some point in 2017 we would wake up to some major down days. This never happened. The market just continued to climb all year long.

The S&P 500 (with dividends) rose every month last year for the first time ever! A positive return in January 2018 would bring the streak to 15 months in a row. Second place goes to a streak of 10 months stretching from December 1994 to September 1995.

These are powerful trends, considering the probability of any month being positive is around 60 percent. Strong momentum like this typically continues even after the streak is broken.

A second record was set that began in the final days of December. The Dow Jones Industrial Average had its quickest 1,000 point gain ever!

For three consecutive years I have accurately predicted the major actions of the Federal Reserve. I wrote: “This year, I am going to try something new: accepting the Federal Reserve’s forecast that it will raise rates 3 times in 2017.” That is exactly what happened.

I believe that keeping an eye on the Fed this year will be even more important than it was in 2017. You can see my analysis for 2018 here.

 

*Research by SFS. Investing involves risk, including potential loss of principal. Dow and S&P 500 indexes are widely considered to represent the overall stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

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2018: FOMO In the Stock Market

By | 2018, Money Moxie | No Comments

Protecting profit is profitable. Protecting fear is not. I keep this phrase on a sticky note below my computer to remind me that investment decisions based upon fear lead to mistakes. I have seen it during the major market meltdowns of 2000-2002 and 2008-2009. I have seen it in smaller drops, like January 2016.

There seems to be little fear of a market drop in 2018. I believe investors may now be protecting from another kind of fear and the consequences may again be surprising.

The Fear Of Missing Out (FOMO)—popular among youth today—describes investors worldwide. Stock markets have been so good people are asking, “Am I aggressive enough?”

Excitement and expectations have been rising and there has been a lot of money to be made. In just the first 10 trading days of 2018, the S&P 500 returned almost 5 percent! Worldwide averages were even higher! That is after returning over 30 percent over the last two years for U.S. large company averages. It is as though investors have accepted the massively positive moves as the new normal.

The market does not have to follow the economy perfectly. The market’s performance is also determined by how reality measures up to expectations. So, the most likely thing to go wrong this year may be a failure to meet lofty expectations.

Consider the awesome year-to-date returns. If the “5 percent in 10 trading days” were to continue for the rest of the year, then we would have a return in the S&P 500 of 217 percent! It’s not going to happen.

The best way to prevent a mistake is by not getting caught up in the FOMO. Don’t get too aggressive right when things could slow down.

While I believe a few surprises may cost those throwing caution to the wind, the market is unlikely to experience a major hiccup while the economy is still growing. That leaves us with plenty of reasons to stay invested in 2018.

*Research by SFS. Investing involves risk, including potential loss of principal. Dow and S&P 500 indexes are widely considered to represent the overall stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

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2017 A Banner Year! Where to from Here?

By | 2018, Money Moxie | No Comments

The following is quoted from WealthTrack with Consuelo Mack.

“For answers about the 2018 stock market (S&P 500) we turn to Ed Hyman, Founder, Chairman, Head of Economic Research at Evercore, ISI, a top-ranked macro and investment firm. Hyman was voted #1 Wall Street Economist by Institutional Investor’s survey of professional investors for an incredible 37 years. His comprehensive, but succinct and easily digestible daily macro research is considered a must-read by professional investors.”

“To understand where we are growing, it helps to understand where we have been. A central thesis of Hyman’s is that the stock market drives economic activity. Since 1968–that’s a 50-year stretch–the S&P 500 has increased 20 percent or more only 12 times. Last year (2017) it came within a hair of doing so with its 19.4 percent gain.”

“In 10 of those 12 times, the economy was strong the following year. Taking out the effects of inflation, real GDP increased 2.7 percent or more. So 83 percent of the time economic activity was robust. The average for the 12 years after market advances of 20 percent or more was 3.4 percent real GDP growth.”

“The S&P 500 last year had another distinction. According to Hyman’s team, 2017 was the first year ever that the S&P 500 posted positive total returns–that’s including dividends–every month. The previous closest perfect year was 1995, which had only one down month. The market that year (1995) was up 34 percent. The following year (1996) it gained 23 percent, dividends included, and real GDP was a gang buster 4.5 percent.”

Bullish Best Wishes in 2018,

Roger M. Smedley, CFP®
CEO

The S&P 500 is widely considered to represent the U.S. stock market. One cannot invest directly in an index. Investing involves risk, including potential loss of principal. Past performance does not guarantee future results. The opinions and forecasts expressed are those of
the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not
a recommendation to purchase any type of investment.

Source: WealthTrack, Episode #1429, Broadcast January 5, 2018

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What’s Up with the Stock Market?

By | 2017, Executive Message, Money Moxie, Newsletter | No Comments

Dear Friends and Financial Partners!

In spite of turmoil, tragedy, and terror, the U.S. stock market has not been suppressed during the last 12 months. Rising jobs and wages continue to support strong economic growth. In the U.S. we are experiencing the lowest unemployment in 17 years, according to the Bureau of Labor Statistics. Simultaneously, we have the highest consumer confidence in 17 years, according to The Conference Board Consumer Confidence Index®. Keep in mind that seventy percent of the U.S. economy is driven by consumer spending.

This rise in the stock market is not limited to the United States. It is a global phenomenon. The stock markets of Britain, France, Germany, and a host of other countries are also performing well.

Here’s how the S&P 500 has performed in the last two years. In 2016, the S&P 500 reached 18 new highs and was up 9.54 percent. This year, through November 30th, there have already been 57 record highs for a return of 18.26 percent. The Dow Jones Industrial Average and the NASDAQ have also set new record highs this year.

Dealing with the Wall of Worry
Many of us will readily recall Black Monday, October 19, 1987 when the Dow Jones Industrial Average (DJIA) dropped 508 points and finished the day at 1,738.74. That’s a decline of 22.61 percent. Thirty years later, on October 19, 2017, the DJIA finished the day at 23,557.99 points. That’s a compounded interest rate of 9.08 percent per year. (By the way, most people forget that even with that large of a drop in 1987, the year finished up a positive 2.26 percent.)

Gross Domestic Product (GDP) is one of the most important indicators used to gauge the health of our economy. GDP is the value of all finished goods and services produced by the U.S. Here’s the GDP by quarter in 2017: 1st Quarter—1.6 percent, 2nd Quarter—3.1 percent, and 3rd Quarter—3.3 percent. Wow! It has been several years since GDP has been this high. Researching money managers around the country, most managers believe that this climb in the stock market can continue and, yes, that there may be a Santa Claus rally in the works.

Bullish Best Wishes in 2018,

Roger M. Smedley, CFP
CEO

*Consumer Confidence Index is a registered trademark of The Conference Board.
**The S&P 500, NASDAQ and Dow Jones Industrial Average indexes are widely considered to represent the U.S. stock market. One cannot invest directly in an index. Investing involves risk, including potential loss of principal. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

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How Financially Disastrous Are Natural Disasters?

By | 2017, Money Moxie, Newsletter | No Comments

Since our last Money Moxie®, we have seen two massive hurricanes lash the U.S. coast. In spite of these and other risks, the stock market has continued to add to its 2017 gains. What’s going on? Is the market’s response rational?

Counting on rational behavior —or even reasonable behavior—from investors during a crisis could be costly. So, even if you don’t expect to be directly impacted by a hurricane or other disaster, you may still feel some financial fallout.

Gas Prices: Hurricane Harvey pushed gasoline futures up 10 percent in trading on the New York Mercantile Exchange as investors anticipated refineries would shut down. The increase soon spread. According to AAA, the national average rose from $2.35 to $2.66 a gallon—a 13 percent increase.

Employment: Economic suffering is also evident in employment. Following Hurricane Harvey, the Labor Department reported the largest one-week jump in initial jobless claims since superstorm Sandy. Two weeks after Sandy (2012) and Katrina (2005), jobless claims soared higher by 23 percent and 30 percent, respectively. So, the full impact of Hurricane Irma on this measurement is still coming.

Consumer Spending: Nearly 70 percent of the U.S. economy is driven by stable consumer spending. When gas prices rise nationally and employment falls locally, there is less money for discretionary spending. The city of Houston, for example, has nearly 3 million workers and contributes around $500 billion to the economy. (Internationally, that places Houston’s economic value above that of the entire country of Sweden.)

Destruction and Reconstruction: Destruction is not counted in economic output. It shows up only as falling wealth. Reconstruction, often financed by debt, will eventually have a large impact on growth and cause a bump for inflation.

The overall impact could subtract around one half of a percent from U.S. growth. Fast forward 6 months and there should be a boost that approximately evens things out.

Investors concerned with natural disasters would be wise to maintain perspective. The lasting impact will be evident in the higher debt and human costs. Ultimately, this impact on individual lives is the most devastating.

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2017 Predictions

By | 2017, Money Moxie, Newsletter | No Comments

Market movement since Election Day has been massive and investors see this as confirmation of just how good Republicans are going to be for the economy. How could so many investors be wrong? Actually, fairly easily.

Right or wrong, investors should be careful not to get carried away. There is a high amount of uncertainty and no way to know what the future will bring.

(1) Trump Rally
The big move in stocks in November and December has been an acceleration of the positive momentum already taking place in the economy. It has been characteristic of many presidential election years with a good economy.

It is completely normal to get excited, but don’t let it lead to overconfidence. Few things last forever and most years have their ups and downs.

It is not unusual to see inauguration day (Friday, January 20, 2017) mark a change for investors as they realize the new president does not have a magic wand.

(2) Dow 20K
The Dow stock index has been flirting with 20,000. It just could not quite get there in 2016. In 2017, I believe it will! And it will likely cross that mark many times.

The first time the Dow reached 10,000 came in March of 1999. Over the next 11 years, it crossed that level on 34 days until it surpassed it a final time in the summer of 2010.

It’s hard to fight gravity and it’s hard to turn a large ship. There is so much positive momentum right now that I expect it to continue. Unemployment is falling. Wages are rising. Confidence is climbing.

One unknown is the impact of policy changes on global trade, which may decline this year as the United States turns its focus inward.

(3) Fed Does Its Job
The Federal Reserve is likely to “take away the punch bowl just as the party is getting started.”

For two consecutive years I have accurately predicted that the Fed would be more cautious than its own forecast. This year, I am accepting the Fed’s forecast that it will raise rates 3 times in 2017.

Of course, no one knows with certainty because with each rate hike, I expect investors will become more concerned.

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