Market Commentary – December 31, 2018

by | Dec 31, 2018 | Weekly Stock Market Commentary

Investing during the month of December was like traversing an icy mountain stream. It delivered a staggering shock to the senses that triggered the instinct to, “Get Out!”
When it comes to investing, that instinct is called loss aversion. For many people avoiding a loss is more important than realizing a gain. Simply put, not losing $100 is more important than gaining $100.  Erica Goode of The New York Times talked with psychologists Daniel Kahneman and Amos Tversky about a series of experiments they had conducted to measure loss aversion. The pair found relatively few people would bet money on a flip of a coin unless they stood to win at least twice as much as they might lose. The desire to avoid losses is the reason many people sell stocks when the value of the stock market is declining. Unfortunately, it may be a poor choice for a variety of reasons. For example,

  • Downturns are temporary. The Schwab Center for Financial Research evaluated the performance of the Standard & Poor’s 500 Index since 1966 and found, “the average bull ran for more than four years, delivering an average return of nearly 140 percent. The average bear market lasted a little longer than a year, delivering an average loss of 34.7 percent.”

While past performance is no guarantee of future results, understanding the history of gains and losses in bull and bear markets is critical because it can help investors avoid potentially costly mistakes.

  • Markets rebound. Consider December 26. It was the best day for stocks in nearly a decade. The Dow Jones Industrial Average rose 1,000 points, posting its biggest daily gain in history.

Investors who were not invested in stocks missed an opportunity to participate in a market rebound. Despite significant gains late in the month, there is a chance this will be the worst December performance since 1931, reported MarketWatch.

  • Your long-term life and financial goals haven’t changed. Sometimes, investors have to traverse an icy stream, or muck across a muddy patch, as they move toward their goals. Your portfolio should be built to help you pursue specific life and financial goals. It may be well diversified to help moderate losses when you encounter challenging market conditions. Consequently, if your long-term goals have not changed, selling during a downturn could make it more difficult to reach your goals.

However, if you’re experiencing a high level of discomfort as the stock market fluctuates, it may be important for you to re-evaluate your risk tolerance and make any changes necessary to your asset allocation.

One of the most important aspects of our work as financial advisors has little to do with asset management or investment selection. It has everything to do with helping our clients make better financial decisions. We try to provide information and advice – coaching, if you will – that may help our clients avoid mistakes that may make it more difficult to achieve their goals. We also encourage clients to embrace choices which are likely to help them work toward their goals.

If you find yourself debating whether to hold your investments or sell them, please give us a call before you do anything. We welcome the opportunity to talk with you about what’s happening and offer some context which may help set your mind at ease.

If changes are necessary, we can help you identify options and weigh the pros and cons of each. Our goal is to help you work toward your goals.

synaptic pruning and habit stacking…If you have some New Year’s resolutions you would really like to keep then you may want to try habit stacking. It’s an idea that harnesses brainpower to help you achieve your goals.

Brains are powerful tools. They help us form connections and, when those connections are no longer used, our brains conduct synaptic pruning to get rid of the connections, according to James Clear author of Atomic Habits.

As a result, our brains are full of strong connections that support certain skills. That’s the good news. The bad news is, by a certain age, we’ve trimmed a lot of neurons, which can make it challenging to form new habits. Clear wrote,

“When it comes to building new habits, you can use the connectedness of behavior to your advantage. One of the best ways to build a new habit is to identify a current habit you already do each day and then stack your new behavior on top. This is called habit stacking… For example:

  • After I pour my cup of coffee each morning, I will meditate for one minute.
  • After I take off my work shoes, I will immediately change into my workout clothes.
  • After I sit down to dinner, I will say one thing I’m grateful for that happened today…”

Once you’ve mastered habit stacking, you can begin to form chains of habits. Imagine where that could take you!

Weekly Focus – Think About It
“Excellence is an art won by training and habituation: we do not act rightly because we have virtue or excellence, but we rather have these because we have acted rightly…”
–Will Durant, American philosopher

 Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

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

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

* This newsletter and commentary expressed should not be construed as investment advice.
* There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* 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. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95percent 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.
* You cannot invest directly in an index.
* Stock 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.
* 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.

Sources:
[1] https://www.nytimes.com/2002/11/05/health/a-conversation-with-daniel-kahneman-on-profit-loss-and-the-mysteries-of-the-mind.html?pagewanted=all&src=pm&module=inline
[2] https://www.schwab.com/active-trader/insights/content/7-tips-weathering-bear-market
[3] https://www.cnbc.com/2018/12/26/us-futures-following-christmas-eve-plunge.html
[4] https://www.marketwatch.com/story/stock-market-ends-wild-week-in-negative-territory-as-dow-sp-500-set-for-worst-december-since-1931-2018-12-28
[5] https://jamesclear.com/habit-stacking
[6] http://blogs.umb.edu/quoteunquote/2012/05/08/its-a-much-more-effective-quotation-to-attribute-it-to-aristotle-rather-than-to-will-durant/

How Do You Celebrate the New Year?

by | Dec 30, 2018 | Noteworthy

From early Babylonians to present-day Americans, people have been celebrating the beginning of every New Year for almost four thousand years!1 Here are a few ways people celebrate the holiday in the United States:2

  • 61 percent of American adults say a prayer on New Year’s Eve
  • 44 percent plan to kiss someone at midnight
  • 22 percent fall asleep before the New Year arrives
  • 45 percent make resolutions to lose weight, spend less, save more, etc.
  • 73 percent keep their resolutions for less than two days

One million people gather in Times Square and 2,000 pounds of confetti fall on their heads. One billion people around the world watch festivities on television. Ushering in the New Year is a momentous event.2

In the United States, we usher in the New Year with champagne, Auld Lang Syne, and a midnight kiss to ensure that our affections will last throughout the year. Not everybody celebrates the way we do, though.

  • In England, the first person to cross your threshold in the New Year is your First Footer, or Lucky Bird, and will determine what kind of luck you’ll have throughout the year.
  • In India, Hindus celebrate the New Year four times each year to welcome each of the four seasons. During Diwali, children light mustard oil lamps to attract the Goddess of Fortune to their homes.
  • In France, the celebration lasts for a month. Friends exchange cards and enjoy Papillottes – chocolates or candies with wrappers that pop like firecrackers when they are opened.
  • In Denmark, people save china dishes to break on friends’ thresholds during the New Year. A pile of broken dishes outside your home on New Year’s Day is a good sign, showing that you have many friends.

If you have any momentous events in your life, please let us know. We want you to be secure financially as momentous changes can alter financial plans.

We wish you a Happy New Year!

Sources:
1 http://www.history.com/topics/holidays/new-years
2 http://www.history.com/topics/holidays/new-years/interactives/new-years-by-the-numbers

The Three Key Challenges of Retirement

by | Dec 12, 2018 | Learning

The Three Key Challenges of Retirement

Planning for your retirement can be challenging. It can be scary, and it can be frustrating. I have seen many clients who felt their plan was a disaster waiting to happen. As an advisor, I am here to say that you can handle it. Planning for retirement doesn’t have to be difficult—in fact, it can be fun! But in order to achieve the retirement of your dreams, you must prepare for three major challenges that every retiree is likely to face.

Challenge #1: Ensuring a Long Retirement Savings Lifespan

One of the greatest fears people have in retirement is that they will outlive their savings. Fortunately, by taking steps now, you can ensure this doesn’t happen to you.

The first step is to budget your expected expenses based on your normal day-to-day costs and any activities you want to pursue during retirement. Things like travel, hobbies, remodeling your home, etc.
Next, take a hard look at your current savings and level of income. How much are you setting aside for retirement? How much more do you need to be saving or investing in order to meet your expected budget? This is where working with a financial advisor can come in handy, because an advisor can help you determine
• how much your savings need to grow to meet your needs;
• how long you can expect your savings to last, based on when you plan on retiring, your general health, and activities;
• how to maximize your income opportunities after retirement; and
• what the ideal rate of withdrawal will be from any retirement accounts you have so you don’t run out of savings.

Once you have a plan for your retirement savings, you can move onto the next challenge:

Challenge #2: Planning for Health Care Expenses

As we age, health care becomes a bigger concern, and a more difficult one to deal with. It can be hard to find a plan that provides the coverage you need at a price you can afford. All the politics and legislation affecting the healthcare industry don’t make it easier, either.
The answer, again, is to plan ahead.

Here are a few things you can do:
1. Learn about your various Medicare options. If you are one of the lucky few who will have employer-provided health care coverage even after retirement, congratulations. But if not, start familiarizing yourself with the intricacies of Medicare now. The Federal government’s health insurance program for seniors is often referred to as a single plan, but in reality, it’s many types of plans rolled into one. From the basic level of coverage (Part A), to “Medicare medical insurance” (Part B) which covers outpatient hospital care, physical therapy, and home health care, to the more elaborate “Medicare Advantage” plans, most retirees are confronted with too many options, some of which are more appropriate than others. Choosing the best type of coverage for you will be crucial when it comes to paying for your medical expenses.
2. Look at Medigap. Medigap supplemental insurance is sold by private insurance companies, and is designed to help pay those costs not covered by Medicare. Medigap isn’t free, and certain criteria must be met before you can purchase it, but it’s definitely a route to consider.
3. Consider long-term care insurance. Important disclaimer: not everyone will need long-term care or assisted living in their lives. That said, many people do, and long-term care (LTC) insurance is one of the best ways to pay for it. It can be beneficial to purchase LTC insurance sooner rather than later, as premiums often grow higher as you grow older. However, LTC is expensive in and of itself, so give the subject a lot of careful consideration before making a decision. As you can see, paying for health care expenses is a huge part of retirement. As you create your retirement plan, make sure you give the subject all the attention it deserves.

Challenge #3: Planning for Unexpected Expenses

While health concerns are a major source of unexpected costs, there are many other types of expenses that could impact your retirement. For instance
• Car repairs. You know it will happen one day: the strange clunk-clunk sound you start hearing from your engine ends up being a problem that will cost hundreds, maybe even thousands, to fix. And if it happens more than once …
• Your bills keep going up. What goes up does not necessarily go down. Anyone who has ever paid for an internet connection or satellite TV knows that prices tend to rise over the years. Your basic utilities are prone to price fluctuation as well. A really cold winter means your gas bill will go up. If you have children in the house who keep leaving the lights on, your electricity bill will go up. You get the picture
• Household repairs. When the toilet clogs or the faucet leaks; when a window breaks or the roof starts to degrade; when wood-boring beetles infest the tree in the backyard; unless you really like to DIY, that means paying for a professional … who usually aren’t cheap.

The point of all this is to show that unexpected expenses can come at any time, in many different forms. What’s more, they can really pile up.
So, what’s the solution? Start a rainy-day fund! When most people save, they tend to just throw everything into one savings account and withdraw money whenever they either need or want to. Instead, I suggest creating a separate type of savings account: one that can only be touched whenever the unexpected happens. Every month, devote a set percentage of your income to the rainy-day fund in addition to your regular savings. Then, when your car inevitably breaks down, you won’t have to worry about it interfering with that vacation you’ve been dreaming about for years, because you’ve already set aside the funds to deal with it.

The key to starting a rainy-day fund is to do it now. If you wait until after retirement, you’ll probably have waited too long. Plus, once you’re retired, you’ll likely have less to set aside for those unexpected expenses.
Which brings us to the single most important thing you can do to meet these three key challenges of retirement. Have you guessed what it is yet?
That’s right: plan ahead.
By being proactive, by starting now, you can mitigate these challenges and prevent them from derailing your dream retirement.

As always, if you’d like any assistance with creating a retirement plan, or if you have questions about how to maximize your savings and cover your expenses, feel free to contact us.

Market Commentary – December 10, 2018

by | Dec 10, 2018 | Weekly Stock Market Commentary

We’re off to a slow start.
December is usually the best month of the year for the stock market. It has been since 1950, according to Randall Forsyth of Barron’s, but not so far this year.

Two issues made investors particularly uncomfortable last week which helped trigger a sell-off that pushed major U.S. stock indices lower.

  1. Fading optimism about an easing of trade tensions with China. It looked like the relationship between the United States and China might thaw, and Americans were feeling pretty optimistic about a trade truce. In fact, markets moved higher Monday in anticipation.

Unfortunately, on the same day that Presidents Trump and Xi Jinping shared a cordial dinner, the chief financial officer of a major Chinese telecommunications firm was arrested at the request of the United States. The Economist reported, “[The company] is a pillar of the Chinese economy – and Ms. Meng is the founder’s daughter. The fate of the trade talks could hinge on her encounter with the law.”

  1. A section of the yield curve inverted. Normally, Treasury yields are higher for longer maturities of bonds than for shorter maturities of bonds. Last week, yields on three-year and five-year bonds inverted, meaning yields for three-year bonds were higher than those for five-year bonds. Ben Levisohn of Barron’s explained:

“Usually when people talk about an inversion, they’re talking about the difference between two-year and 10-year Treasuries, or three-month and 10-year Treasuries, which have been useful, though not perfect, predictors of recessions and bear markets. Last week, though, everyone was talking about the three-year and the five-year Treasury inverting – something that usually doesn’t get much notice…And for good reason.”

Historically, these maturities have inverted seven times. In one instance, the country was already in recession. On the other six occasions, recession didn’t occur for more than two years. Barron’s reported the Standard & Poor’s 500 Index gained an average of 20 percent over the 24-month periods following these inversions.

Investors’ negative response to last week’s news may have been overdone. Financial Times reported European and Asian markets firmed up a bit Friday “…as buyers stepped back in after some savage falls on Thursday.”

About time and money.
Elizabeth Dunn, associate psychology professor at the University of British Columbia in Vancouver, Canada, and Michael Norton, associate marketing professor at Harvard Business School, have been studying whether people should spend money differently. Their goal is to figure out how to get the most happiness for the dollars spent. In Happy Money: The Science of Happier Spending, they explained their experiments:  “…We started doling out money to strangers. But there was a catch: rather than letting them spend it however they wanted, we made them spend it how we wanted…changing the way people spent their money altered their happiness over the course of the day. And we saw this effect even when people spent as little as $5…Shifting from buying stuff to buying experiences, and from spending on yourself to spending on others, can have a dramatic impact on happiness.”

In addition, buying time can improve happiness. How do you buy time? By paying someone else to do tasks you don’t like to do – cleaning, grocery shopping, home maintenance, and other tasks. This can relieve time pressure and free up time to do what you really want to do – and that can make you happier.

The authors suggest individuals ask a simple question before making any purchase: How will this purchase change the way I use my time? Make sure the answer aligns with the goal of having an abundance of time.

Weekly Focus – Think About It
“Happiness is when what you think, what you say, and what you do are in harmony.”
–Mahatma Gandhi, Leader of Indian independence movement

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

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

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

* 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. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* 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.
* 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.
* You cannot invest directly in an index.
* Stock 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.
* 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.

 

 

Sources:
https://www.barrons.com/articles/the-latest-jobs-report-will-tie-the-feds-hands-next-year-1544208693?mod=hp_DAY_1 (
https://www.economist.com/finance-and-economics/2018/12/08/a-trade-truce-between-america-and-china-is-over-as-soon-as-it-began
https://www.barrons.com/articles/dow-drops-4-5-but-the-market-is-probably-overreacting-1544234320?mod=hp_DAY_6
https://www.ft.com/content/2cda1c8a-f9be-11e8-8b7c-6fa24bd5409c
https://www.simonandschuster.com/books/Happy-Money/Elizabeth-Dunn/9781451665079
https://www.brainyquote.com/quotes/mahatma_gandhi_105593

Social Security Increases Benefits by 2.8% for 2019

by | Dec 5, 2018 | Noteworthy

The pay raise for Social Security recipients is the largest since 2012, and over 67 million Americans will see the increase in their payments beginning in January.

 The Social Security Administration has announced a cost of living adjustment (COLA) to recipients’ monthly Social Security and Supplemental Security Income (SSI) benefits. More than 67 million Americans will see the 2.8% increase in their payments beginning in January of 2019. The increase – the largest seen since 2012 – is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers and was put in place to ensure the purchasing power of these benefits isn’t eroded by inflation.

This figure is an increase from last year’s 2.0% adjustment. According to the Social Security Administration, on average, retired workers currently collect $1,420 a month in Social Security payments, or roughly $17,040 a year. The 2.8% COLA will add about $50 a month to those payments, or $600 for the year.

Keep in mind, all federal benefits must be direct deposited. So, if you haven’t already started receiving benefits, you need to establish electronic transfers to your bank or financial institution.

The agency also announced that for the first time, most people who receive Social Security payments will be able to view their COLA notice online through their “my Social Security” account, which can be created online at www.socialsecurity.gov/myaccount

Happy spending!

 

 

Source: Social Security Administration

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