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Posted: 8.16.19

Market Update


Volatility and fear have returned to the stock market with a vengeance. The up and down daily moves we have been experiencing in the equity markets since the beginning of August are anything but normal. The Dow Jones Industrial Average has seen swings greater than 100 points a majority of these days. While volatility and negative markets are not comfortable, we have anticipated a correction in the markets following the strength we have seen during the first seven months of the year. At the time of this writing, the major indices, which were up about 20% for the year, have declined approximately 6 to 7% from their recent highs. Some retracement of those previous gains is not unusual. At this time, we don’t believe this is the beginning of a bear market in equities.

What is causing this volatility? There are several concerns facing investors.

  1. Trade discussions (war) are ongoing, and there has been no resolution. Currently, it doesn’t appear that there will be a deal in the next few months. Continued bantering and threatening tariffs have been a drag on business spending. This environment, along with an upcoming U.S. election, does not give businesses confidence to invest in new equipment due to the uncertainty of the future landscape of global trade.
  2. Global economic growth has slowed dramatically. Germany posted negative GDP growth in the second quarter. China continues to slow and was on this path prior to any trade discussions. Stimulus across the globe has failed to spur much in the way of economic growth. While the services side of these economies remain in growth territory, the manufacturing component has declined dramatically.
  3. Brexit appears to be going forward with no deal. What impact will this have on growth in the United Kingdom and the overall international markets? This situation just adds to the global uncertainties.
  4. Almost $16 trillion in global bonds have negative interest rates. U.S. Treasury yields in the intermediate and longer end of the curve have declined leading to an inversion between the 3 month and 10 year and most recently, the 2 year and 10 year. Is this move in yields due to large demand from global investors or is there a recession on the horizon in the U.S.? An inverted curve has preceded every recession, but every inversion has not led to a recession. We will need to see how long the curve remains inverted for it to be predictive of recession.

While we have addressed the global slowing in previous communications, the domestic economy continues to exhibit signs of growth albeit at a slower pace than in 2018. Trend growth has been about 2% during this extended expansionary period, and we believe we are back to trend growth. While we do not believe a recession is imminent, there are more risks today than exhibited during the last three to four years.

This year we have maintained a neutral asset allocation in our portfolios with a slightly higher exposure to money markets. With the current interest rate structure and a Federal Reserve that will more than likely continue to lower short-term rates, we are lowering our money market position and investing those funds into bonds. We remain cautiously optimistic on the equity markets at this time and believe this is a correction in a continued bull market. We intend to remain at a neutral allocation to equities. Recognizing that risks of a recession have increased, we will continue to monitor the current business environment.

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Posted: 7.3.18

Financial Interdependence


With the fourth of July right around the corner, everyone is ready to celebrate our Nation’s independence. There are many benefits of independence, not the least of which is the opportunity to improve our standard of living. But is there another type of dependence that can help us achieve more than just relying on our own independence?

One of the 21st century’s most respected leadership minds, Stephen R. Covey, explained the idea of interdependence. Interdependence is understanding your own capabilities, but also choosing to work with others to achieve much more than if working on your own. To create your own financial interdependence, we are immediately drawn to the idea of assembling a financial team. Below are a few of the important “players” on anyone’s financial team and a brief description of their roles:

Wealth Advisor: A wealth advisor can help in many different areas. Their purpose is to ensure your assets are managed in an appropriate manner based on your risk tolerance. A wealth advisor can help create a plan to achieve your specific goals for the assets you have acquired. There are different options based on the type of account, such as IRAs, Roth IRAs, 401(K)s and individual accounts. Having a plan to maximize each type of accounts strength can help put you in a better position.

Attorney: Two things in life are constant, death and taxes. When going through life, you will inevitably need an attorney for a contract review, such as a purchase of a home or business, or for estate planning advice and document preparation. Attorneys are very beneficial because they can create a plan for the disposition of your assets based on your desires. Each individual is different, and making sure you have an attorney to help plan for your property during your life and at death is critical to a seamless transition.

Certified Public Accountant (CPA): Everyone is subject to taxes throughout their life, in the form of sales tax, income tax and real estate tax. Typically people are looking for a CPA during tax time, but having this member on your team during other parts of the year will ensure you are covered at all times, including unusual life events.

Insurance Representative: Let’s face it, we live in a litigious society and we all risk being hit by the proverbial bus, leading to our premature death. In either cases, an insurance representative can help illuminate personal liabilities and how to best protect one’s family and future. Insurance can impact the estate plan drafted by the attorney as well as the necessary cash flow in the financial plan the wealth advisor created. It is best to achieve interdependence and make sure your service team is working together.

Commercial/Mortgage Lender: Throughout life you may purchase a home, or two, or maybe buy a business. In either case, having a trusted lender can make sure you are taken care of. Also, the relationship is important in discussing the varieties of risks and opportunities before making a life-changing purchase.

Each person might have the baseline skills to handle each role described above. However, assembling a team of specialists responsible for one aspect of your financial picture will help ensure you meet your financial goals and achieve more of your dreams than when working on your own. We would encourage you to review your team of professionals and make sure they are working holistically and in sync to create the best outcome for you and your family. Just think, am I interdependent?