Special Message

Special Message

Pandemics – Protests – Wildfires – Market Crashes – Recession

If someone ever tries to tell the story of 2020 on film, it will take more movies than Star Wars. At one point, we even had to worry about murder hornets. Murder hornets! There’s no question this year has been a crazy one. But it’s about to get even crazier. After all, a new presidential election is only a week away.

Over the last few weeks, several clients have asked me what the election could mean for the markets. At a time when there is so much uncertainty to deal with, the thought of adding an election to the mix can seem overwhelming. So, I thought I’d write about how we should prepare for both the run-up and aftermath of the election.

What exactly does the upcoming election mean for the markets?

Short-Term View: Prepare for Volatility

Uncertainty: That’s the key word. Investors hate it, the year has been full of it, and the lead-up to a presidential election just brings more of it. As a result, the markets often see increased turbulence just before an election. For example, in October of the last four presidential election years, the markets fell.1 I don’t ever try to predict the future, but we should be especially prepared for volatility this year. That’s because there are still so many question marks surrounding our economy and the pandemic.

Pandemic. It is showing no signs of stopping, and indeed cases may climb again as winter sets in. The economy has improved, but is still on thin ice, with unemployment rates still stubbornly high. Investors are watching Congress with bated breath, waiting to see whether they’ll enact a new stimulus package. If not, that could spell trouble, as many economists believe more stimulus is needed for the economy to recover.

Election Turmoil. There’s another reason why we should prepare for volatility: The possibility of delayed—or worse, disputed—election results. Thanks to the pandemic, more people are likely to vote by mail than ever before. Mail-in ballots take longer to count than traditional ones, and some states “will count ballots that are delivered after the election if they are postmarked by a deadline.”2 Because election officials are more concerned with counting votes correctly than quickly, we may not have a winner declared for several days or even weeks. In fact, earlier this year, during primary season, several states needed more than a week before they could declare a winner.

Remember 2000? If the losing candidate feels there are grounds to contest the results, that could delay the process even further, leading to—you guessed it—more uncertainty and thus more volatility. We don’t have to look far back in history to see what the markets did the last time results were delayed. Remember the drama surrounding the 2000 election? On election night, Florida’s results were considered too close to call. Over the next month, Americans learned more than they ever wanted about things like dimpled chads and butterfly ballots. The S&P 500, meanwhile, dropped over 8% between election day and December 15 when the result was finally decided.3

Now, none of this is to say that pre- and post-election volatility is guaranteed. It’s not. We should, however, prepare ourselves for it. Because the more mentally prepared we are to weather short-term uncertainty, the better equipped we are to remember…

The Long-Term View: Follow the Indicators of the Market

Every four years, I hear people say, “If the Democrats/Republicans win, I’m going to sell (or buy) because that means the markets will fall (or rise).” It’s understandable why people think this way. After all, politics play an increasingly large role in our daily lives. Why wouldn’t they impact our portfolio, too? But the truth is, presidential elections are relatively unimportant when it comes to the markets, at least in the long-term.

A quick look at history bears this out. Historically, the S&P 500 has gone up 10.8% under Democratic presidents and 5.6% under Republican presidents.4  That’s not a large difference and can be attributed to a whole range of factors besides politics.

Either way, the markets tend to go up over time. One thing I’ve noted in recent years is that as elections get more partisan, so too does the rhetoric about how the candidates will impact the markets. For example, here’s the opening sentence from a CNBC article published on November 3, 2016, shortly before the election:

Wall Street’s long-running view that Hillary Clinton would easily become the next president has been replaced by a new fear that Donald Trump could win, and it probably won’t be a pretty picture for stocks if he does.5

Here’s a snippet from an article in the New York Post written a few months before Barack Obama was first elected:

…it’s hard to see how a President Obama would be good for Wall Street. He wants to raise the capital-gains tax…[which] would be great for the tax-shelter business, but stocks would tank…in other words, the markets could fall further from their already-beaten down levels once the street begins to focus on an Obama presidency.6

Both these predictions ended up being wide of the mark. In the first year of President Obama’s presidency, the markets rose 23.45%.7 In President Trump’s first year, the markets gained 19.42%.8

Doom and gloom is predicted more and more with each election. Yet the markets keep going up over time. This is exactly why, overall, we are long-term investors.

But we will not sit by and watch your assets deteriorate. As usual, we’ll be watching our indicators like a hawk, and when we see trouble brewing, we will act. On the 22nd, for example, a signal alerted us to weakness developing in our TQQQ position (an ETF, based on the Nasdaq’s top 100 companies, we hold in our growth-oriented portfolios). ​​  We sold that position and now wait for further evidence of weakness, at which time we’ll take on defensive positions and lighten up on long positions.

As a rule, we like to keep politics out of your portfolio and instead focus on our technical indicators. It’s true that Trump and Biden have different economic policies, and some of their policies will affect the markets to a degree. But the markets reflect millions of investment decisions by millions of investors. The president is just one ingredient. Far more important are supply and demand, innovation and invention, mergers and acquisitions, the ebb and tide of trade, and a host of other economic developments both large and small.

Making major investment decisions based on politics alone makes little sense. Instead, we’ll make our decisions based on what the market has to say. 

So, what does the election mean for the markets? In the short-term, potentially a lot. In the long term, probably not much.

After Trump and Biden Are Gone

2020 has been a long, crazy year. It’s possible the next few months could be even crazier. But in the grand scheme of things, they are still just a few months, and this is still just one year. We’ll be investing long after Trump and Biden are both names in the history books.

In the meantime, always remember that my team and I are here for you. We’re happy to review your portfolio, answer your questions, and address your concerns.

Thank you for the trust you’ve placed in us, and please let us know if we can ever be of service. Be well, stay safe, and enjoy the rest of your year!

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Sources
1 “S&P 500 Historical Prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/SPX/historical-prices
2 “When Will We Know the 2020 Presidential Election Results? A Guide to Possible Delays,” The Wall Street Journal, https://www.wsj.com/articles/will-we-know-who-is-elected-president-on-election-night-a-guide-to-possible-delays-11596629410
3 “Why stock market investors are starting to freak out about the 2020 election,” MarketWatch. https://www.marketwatch.com/story/why-stock-market-investors-are-starting-to-freak-out-about-the-2020-election-11600964863
4 “Democratic presidents are better for the stock market and economy than Republicans, one study shows,” Business Insider. https://markets.businessinsider.com/news/stocks/stock-market-election-democratic-republican-presidents-better-performanceeconomy-gdp-2020-8-1029528932#
5 “This is what could happen not the stock market if Donald Trump wins,” CNBC. https://www.cnbc.com/2016/11/02/this-is-whatcould-happen-to-the-stock-market-if-donald-trump-wins.html
6 “Wall St. Death Wish,” The New York Post. https://nypost.com/2008/08/04/wall-st-death-wish/\
7 https://tickertape.tdameritrade.com/investing/can-election-predict-market-performance-15555
8 “S&P 500 Historical Annual Returns,” Macrotrends, https://www.macrotrends.net/2526/sp-500-historical-annual-returns

​ 

 

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Weekly Financial Market Commentary

December 9, 2020

Our Mission Is To Create And Preserve Client Wealth

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

Market Commentary 10/19/2020

Market Commentary 10/19/2020

Weekly Financial Market Commentary

October 19, 2020

Our Mission Is To Create And Preserve Client Wealth

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

It was a turbulent week for investors.

Waves of positive and negative news buffeted financial markets last week:

The financial sector delivered upbeat earnings news
Currently, many financial companies in the Standard & Poor’s 500 Index have reported third quarter earnings and have done better than expected. Despite upbeat earnings, some companies’ shares declined because of uncertainty about the path of economic recovery. If recovery continues, some banks may have excess reserves; however, if recovery falters and a double-dip recession occurs, banks may need to add to reserves, reported Barron’s.

Coronavirus cases surged across the United States and Europe
A rapid rise in the number of COVID-19 cases worried investors at home and in Europe. New restrictions intended to slow the spread of the virus were implemented in France and the United Kingdom. A source cited by Financial Times reported, “…economists and investors had not expected governments to allow the virus to reach the point it has now.”

Two treatment and vaccine trials paused
The surge of new cases was compounded by setbacks in the search for effective coronavirus treatments and vaccines. Two COVID-19 trials, one for a treatment and one for a vaccine, were temporarily put on hold because of safety concerns.

Retail sales were strong, but manufacturing and industrial production weren’t
Last week, economic data provided a mixed picture of the economy. On the plus side, September’s retail sales were stronger than expected despite the tapering of unemployment benefits. On the negative side, U.S. manufacturing and industrial production both came in below expectations, reported Financial Times.

The number of Americans filing for unemployment benefits increased
The number of people filing for first-time unemployment benefits was higher than expected, and higher than it had been for the past two weeks, even though California had temporarily stopped processing new claims. Almost 3 million people filed for extended benefits, meaning they’d been unemployed for 26 weeks or more­­­. Overall, more than 25 million people relied on unemployment benefits last week.

Major U.S. stock indices eked out gains last week.

One dollar is a lot like another, isn’t it?
In theory, we think of all money in the same way. In practice, we don’t.

Money is fungible. That means one dollar has the same value as another dollar or four quarters or ten dimes or 100 pennies. If you are buying something valued at $1.00, you can purchase it with $1.00 in bills or coins.

However, when making financial decisions, people tend to engage in something called mental accounting. One aspect of mental accounting is assigning labels that identify the intended purpose of money. Sometimes this decision-making shortcut can improve financial choices. Other times, it can produce a financial setback.

Mental accounting often guides spending and saving decisions
A common mental shortcut is budgeting. People and companies rely on budgets to help them make sound financial decisions. Typically, budgets allot specific amounts of income to spending and saving. For an individual:

·         Spendable money may go to housing, food, utilities, clothing, entertainment, and other expenses.

·         Saved money may go into emergency, vacation, retirement, or other savings accounts.

When people categorize money, they are reluctant to spend it on other things. Behavioral Economics reported, “When a resource [in this case, money] is divided into smaller units…consumers encounter additional decision points – a psychological hurdle encouraging them to stop and think…opening a partitioned pool of resources incurs a psychological transgression cost, such as feelings of guilt.”

In other words, your brain will be reluctant to spend your retirement savings on a vacation.

Some shortcuts lead to irrational financial decisions
Mental accounting is a double-edged sword. If people do not think flexibly then mental accounting can cost them. For instance, focusing too intensely on labels can result in decisions that hurt your financial position rather than help it. Kiplinger’s provided an example:

“Mental accounting leads us to hoard money in a savings account that earns 0.3 percent interest while keeping a high balance on a 15 percent-interest credit card. We like the psychological comfort we get from having money in the bank, even though transferring cash from savings to pay off a credit-card balance can essentially ‘earn’ us a quick 14.7 percent.”

Like many things, mental accounting can be helpful or hurtful, depending on how it’s applied.

Weekly Focus – Think About It 
“A long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”
–Thomas Paine, Author of ‘Common Sense’

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

 

Sources:
https://insight.factset.com/sp-500-earnings-season-update-october-16-2020
https://www.barrons.com/articles/jpmorgans-earnings-were-better-than-expected-heres-how-the-bank-did-51602589612 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-19-20_Barrons-JPMorgans_Earnings_were_Better_than_Expected-Heres_How_the_Bank_Did-Footnote_2.pdf)
https://www.ft.com/content/93cffd8f-84ce-4160-a22e-b7d168620875 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-19-20_FinancialTimes-US_and_European_Stocks_Fall_as_COVID_Cases_Climb-Footnote_3.pdf)
https://www.webmd.com/lung/news/20201013/johnson-johnson-pauses-covid-19-vaccine-trial
https://www.ft.com/content/b28b3c3a-8745-47ab-964c-20e09334a62a (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-19-20_FinancialTimes-Global_Stocks_Regain_Ground_as_Earnings_Results_Provide_Cheer-Footnote_5.pdf)
https://www.dol.gov/ui/data.pdf
https://www.reuters.com/article/usa-economy/persistently-high-u-s-weekly-jobless-claims-point-to-labor-market-scarring-idUSKBN2701S9
https://www.cbpp.org/research/economy/policy-basics-how-many-weeks-of-unemployment-compensation-are-available
https://www.barrons.com/articles/dow-jones-industrial-average-edges-higher-on-week-as-stock-market-navigates-mixes-messages-51602894380?mod=hp_INTERESTS_technology&refsec=hp_INTERESTS_technology (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-19-20_Barrons-Make_Up_Your_Mind_Already-Inside_the_Stock_Markets_Indecisive_Week-Footnote_9.pdf)
https://www.merriam-webster.com/dictionary/fungible
https://www.kiplinger.com/article/investing/t031-c000-s002-mental-accounting-how-math-mind-games-bust-our-bud.html
https://onlinelibrary.wiley.com/doi/full/10.1002/cfp2.1011
https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/partitioning/
https://www.goodreads.com/author/quotes/57639.Thomas_Paine

Market Commentary 10/19/2020

Weekly Market Commentary 10/12/2020

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Weekly Financial Market Commentary

October 12, 2020

Our Mission Is To Create And Preserve Client Wealth

Yes. No. Maybe?

Markets were sharply focused on the status of stimulus last week. First, it was on. Then, it was off. Then, it might be on. Then, it was off again. There was a big bill. There was a smaller bill. There were stand-alone options.

‘Maybe’ was enough for investors
Major U.S. stock indices finished the week higher, per Barron’s, and global indices were bullish on Friday because of U.S. stimulus talks, reported Financial Times.

“Markets are dizzy from all the talk on both sides about what they want from a deal but believe that something will inevitably happen anyway…Markets are essentially drunk on massive government spending just as they are inebriated from all the Fed quantitative easing and zero-interest rate policy,” said an advisory group chief investment officer cited by Financial Times.

Earnings season is upon us
Another factor that influences investors is earnings season, which begins this week. During earnings season, companies communicate how profitable they were during the previous quarter.

Third-quarter earnings estimates for companies in the Standard & Poor’s 500 Index remain subdued. John Butters of FactSet reported, “For Q3 2020, the estimated earnings decline for the S& P 500 is -20.5 percent.”

While that is a significant decline, it is an improvement on -25.3 percent, which was the June 2020 estimate for third quarter earnings. It is also an improvement on second quarter’s -31.9 percent.

Some companies haven’t provided guidance
It’s notable one of four companies in the S&P 500 did not provide earnings per share (EPS) guidance for 2020 or 2021. (Guidance is a forward-looking statement that tells investors what the company expects will happen in the near future.) “Almost all of these companies cited the uncertainty of the future economic impacts of COVID-19 as the reason for not providing or withdrawing EPS guidance for the full year,” reported FactSet.

Certainty about earnings may improve when a treatment or vaccine for the virus becomes available. The Milken Institute reported there are 318 treatments for COVID-19 and 213 vaccines in the works. Thirty-five of the vaccines are in clinical trials.

Where is everyone going?
You may have read Americans are moving out of cities to escape the coronavirus or violent protests. During the past few months, pundits have said things like, “…the coronavirus pandemic has shifted attitudes about city living, altering the dynamics of the real estate market for years ahead.”

Marie Patino of Bloomberg CityLab decided to look at the data and see if it was true. She gathered information from moving companies, real estate aggregators, and real estate consultants.

As it turns out, people are leaving cities – two cities in particular.

Patino wrote, “According to [moving company] data, between May and August 2020, move requests out of New York City to any destination were up 45 percent, and in San Francisco, up 23 percent, compared to the same time last year.”

Where were people moving?

Some were moving to other cities, continuing trends that had been identified before the pandemic arrived. For instance, San Franciscans began to migrate to Seattle before 2020. Other top destinations for San Franciscans this year have included:

·         Austin, TX
·         Chicago, IL
·         New York, NY
·         Boston, MA

Likewise, New Yorkers had been moving to Los Angeles and the west coast prior to 2020. This year, they also have favored:

·         Atlanta, GA
·         Tampa-St. Petersburg-Clearwater, FL
·         West Palm Beach-Boca Raton, FL
·         Orlando, FL

One real estate aggregator’s 2020 Urban-Suburban Market Report found, “Both urban homes and suburban homes are selling more quickly now than they were in February, and the percent change in time on market has been nearly equal for both classifications. The share of homes selling above their list price in suburban areas vs. urban areas exhibit the same trend nationally.”

Weekly Focus – Think About It
“Information is the oil of the 21st century, and analytics is the combustion engine.”
–Peter Sondergaard, Business executive

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
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* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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Investment advice offered through Research Financial Strategies, a registered investment advisor.

Sources:
https://www.ft.com/content/338035bb-dfea-4bea-97c1-be2bb74088a5 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-12-20_FinancialTimes-Wall_Street_has_Best_Week_Since_July_on_Stimulus_Hopes-Footnote_1.pdf)
https://www.cnet.com/personal-finance/white-houses-1-8-trillion-stimulus-bill-and-more-everything-in-it-including-a-1200-check/
https://www.barrons.com/market-data/stocks?mod=md_subnav (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-12-20_Barrons-Market_Data-Footnote_3.pdf)
https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_100920.pdf
https://insight.factset.com/earnings-insight-q2-20-by-the-numbers-infographic (Scroll through the infographic)
https://insight.factset.com/more-than-one-in-four-sp-500-companies-are-still-not-providing-eps-guidance-for-2020-or-2021
https://covid-19tracker.milkeninstitute.org
https://www.covid-19vaccinetracker.org
https://www.cnbc.com/2020/07/09/shark-tank-investor-herjavec-were-about-to-see-biggest-exodus-from-cities-in-50-years.html
https://www.cnbc.com/2020/08/25/barry-sternlicht-hundreds-of-thousands-looking-for-suburban-homes.html
https://www.npr.org/transcripts/921769579
https://www.bloomberg.com/news/articles/2020-09-16/the-truth-about-american-migration-during-covid (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-12-20_BloombergCityLab-What_We_Actually_Know_About_How_Americans_are_Moving_During_COVID-Footnote_12.pdf)
https://www.zillow.com/research/2020-urb-suburb-market-report-27712/
https://www.springboard.com/blog/41-shareable-data-quotes/

Special Message

Forgotten 401Ks

Zombies
They’ll eat you alive!

Failure to Rebalance – Zombie Sign #1

When was the last time you rebalanced your 401(k) or other retirement account? When you set it up, you took a fairly conservative approach and bought 60% stock mutual funds and 40% bond mutual funds. Over time, the values of those funds have changed, perhaps significantly. Right now, your stock funds might comprise 85% of your account. Great. Excellent gain. But . . . . you are now subjecting yourself to greater risk. You need to rebalance. Now. And at least every six months.

If you’re sitting on an out-of-balance retirement account—or several different retirement accounts—then you are sitting on a Zombie Account. That’s right. That’s what investment advisors call it: an account left for dead, an account that might just rise up (at night, of course) and devour your net worth.

Not a pretty sight, these Zombie accounts . . . .

iStock by Getty Images

Failure to Increase Contributions to Retirement Accounts – Zombie Sign #2

When was the last time you increased your contributions to your retirement account? You’re making more money now. Shouldn’t you be saving more? Yet many people set up retirement accounts in their youth and establish relatively small automatic contributions. But as your income increases, so should your retirement allocations. Under current federal tax law, you can contribute $19,500 to your 401(k) or similar workplace plan; that’s up from $19,000 in 2019. If you’re 50 or older, the catch-up contribution limit is $6,500, up from $6,000 in 2019. “If your employer allows after-tax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $57,000 [in 2020], from $56,000 [in 2019].”[i]

Ask any rich person, “What’s your secret?” One answer they always give: “Save as much as you can. Compounding investment amounts in tax-free accounts can result in large returns when you reach your 60s.”

So any retirement account you have sitting around growing with contributions you made when you were young . . . . Well, that’s a Zombie Account.

Failure to Move Old Retirement Accounts – Zombie Sign #3

Oops, what about that account you set up when you worked for Acme Widgets? Great job, that was. But your current position pays a boatload more. Did you have a retirement account at Acme? The stats should make any working American sit up and take notice. Get this:

A 2013 survey by ING Direct USA showed half of American adults who participated in an employer-sponsored retirement plan, such as a 401(k), have left an account at a previous employer. These “orphaned” accounts represented more than $1 trillion in investment dollars in 2010.[ii] (emphasis added)

You need to launch a search for any Zombie accounts sitting around with previous employers. You can call the Human Resource people at those companies for assistance. You might also get in touch with the Pension Benefit Guaranty Corporation. Or you can check the National Registry of Unclaimed Retirement Benefits at unclaimedretirementbenefits.com. According to the website, “The National Registry is a nationwide, secure database listing of retirement plan account balances that have been left unclaimed by former participants of retirement plans.”

Once you locate these Zombie accounts, you need to roll them over into your current 401(k) or IRA. You should check with an investment advisor or your CPA to make sure you’re performing a tax-free rollover and not a taxable distribution.

Act Now

Anyone with Zombie accounts needs to take the steps we’ve outlined above.

Beating the Zombies

There is a better way. No Zombies can arise in the dark of night from funds we manage at Research Financial Advisors. Check us out here: rfsadvisors.com. When you establish an account with us, we ascertain your comfort level of risk. If you’re relatively young, you should probably use our Aggressive Growth Model where we automatically invest your funds in a variety of ETFs we think show the best chance of growth. Right now, as of August 14, 2020, our Aggressive portfolios are up 23.02% year-to-date, net-of-fees. Yes, you read that right. We’re up 23.02%.

Our more conservative portfolio, consisting of 100% bonds, is designed for those who want to reduce risk and increase income. But the market value of our Bond Model is up 1.62% year-to-date, net-of-fees. And that doesn’t count the income the Bond Model has produced.

Many of our clients choose a mix between the Aggressive Model and the Bond Model. The returns on those accounts are less than the Aggressive results but more than the Bond.

Worried about current market volatility? Afraid of another crash just around the corner? Not a problem here at RFS. We know how to play defense. Consider the recent crash. The all-time high of the S&P 500 Index was February 19th. By March 23, the S&P declined 33.92%. Just 8 days after the S&P all-time high, on February 27, 2020, just before the close at 3:56 p.m., we purchased SPXS for all our accounts (larger amounts in the aggressive funds, smaller amounts in the conservative ones). The SPXS ETF produces three times the inverse of drops in the S&P Index. If the S&P goes down 10%, this ETF goes up 30%.

Our purchase price for SPXS: $16.1189 per ETF.

It’s a risky ETF, and we watch it carefully. After all, when the S&P goes up 10%, this ETF drops 30%. But it performed beautifully in March of this year, and shielded our accounts from gut-wrenching market drops. At 1:06 p.m., on March 23, 2020, the exact date of the S&P 33.92% decline, we sold the SPXS positions, banking a significant profit.

Our selling price for SPXS: $26.28 per ETF.

Today, the SPXS is trading at $5.86 or so. The following chart of SPXS shows how we entered our positions at $16.1189 as the rise started to accelerate Notice that we exited our position on March 23 at $26.28, right near the very top of the spike in price.

Each day, we study charts like the one above. We stay alert, ready for the next market rise or the next market plunge. Will the market go down again? Yes. Absolutely. How much? No one knows. When? No one knows. But we’re ready. We’re nimble. We’ll act and play defense when our indicators tell us a drop is about to morph into a plunge.

So say good-bye to Zombies. At RFS, you’ll never experience a failure to rebalance (Zombie Sign #1), for we constantly review your account and make certain it continues to hold those ETFs best suited to your level of risk. Further, we’ll encourage you to increase your contributions to your account as your salary and other remuneration grow (Zombie Sign #2), making sure you comply with all applicable IRS regulations. And we sure as heck won’t let you forget us (Zombie Sign #3), because we stay in touch with you weekly . . . sometimes daily.

In fact, if you need to get in touch with us quickly, we give out our cell phone numbers: There’s no elevator music on our phone system.

Give Us a Call

So look around your financial world and see if some of your accounts qualify as Zombies. Look for the three signs: accounts not rebalanced, retirement accounts receiving low and out-of-date contributions, and accounts sitting at former employers. Or look at your nonretirement accounts. Do any of them qualify as Zombies?

You may call my cell number right now: (240) 401-2355. We can talk about your situation and look at your various accounts.

After all, doing it yourself can sometimes result in doing yourself in.

Best regards,

Jack Reutemann

 

[1] https://www.forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/#7ecdb4e333bb
[1] https://finance.yahoo.com/news/zombie-401-k-131547647.html

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