Every day, innovations and advancement in technology alter our human experiences and how we relate to the outer world. From the way, we create our daily schedules, to the manner in which we communicate with loved ones, send and receive money, preserve memories and access healthcare. Groundbreaking technologies have brought us ease of life, faster and better ways of getting things done. They have also brought us new challenges with regard to privacy and secuirty.

The incessant security breaches, including most recently Equifax and Capital One, has become the gravest of threats online users face daily. Many people only use a username and passwords, which can be easily unraveled by cybercriminals. We recommend an extra layer of security that further confirms a user’s claimed identity to help protect oneself. 2-factor Authentication (also known as 2FA) offers users a higher level of security that helps prevent access to their accounts, even when their usernames and passwords have been compromised.

What’s the buzzword?

You’re familiar with the need for passwords and usernames when seeking entry into your online platforms like Facebook and Instagram. If you’ve ever had to provide additional information, such as a code sent to your mobile phone or an answer to your security question, then you’ve actually gone through a 2-factor authentication. A 2-factor authentication is a security layer that grants you access to your online account only after you must have proven your identity, by providing answers to 2 or 3 modeled questions or inputting a code.

Why does it make sense?

Think of it this way: some intruders got the details to your bank account, but before they can access it, they need to provide a code sent to your phone or the name of the place where you first had your first date? To access your information someone would need your mobile device or be able to read your mind! 2FA makes illegal access difficult, and that is why it makes more sense than just having a username and a password. Raymond James now requires 2FA for their Client Access system, but we also recommend turning this on for any and all online services you utilize.

How Do I Use 2FA

Turning 2FA on doesn’t have to be a difficult task depending on your device and the application you’re working on. Devices with the iOS operating system can have the 2FA feature turned on from the Security Setting. Social media accounts can also have their 2FA turned on from the account/security settings. You’ll usually be required to fill in the phone number or email you would want an access code to be sent in case of a security breach or any suspicious activities. 2-factor authentication avails you a greater security and higher level of control on your internet activities. Turning it on can be your gateway to a safer online experience. You can see if a website has 2FA, and get information on how to turn it on at:  https://twofactorauth.org/

Carver Financial Services, Inc. and Raymond James view the security of your personal information as critical and take steps every date to protect it.  2FA is something you can do to help yourself.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Carver Financial Services, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

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When broader markets drop, many investors are understandably concerned. When markets move up, as they have done in 2017, many investors worry about when they will drop. After being a financial advisor more than 30 years, I have noticed that people like to worry, whether the markets are moving up or down.

Given the onslaught of media negativity and fear tactics being used to sell everything from newsletters to precious metals, the perception that we are constantly on the verge of economic collapse is not surprising. When we get past the hype and rhetoric, we see that now is one of the best times in history to be an investor — and really, just to be alive.

The Facts Dispel Negative Perceptions About the Economy

We have all heard famous phrases that are attributed to people who never uttered them: Marie Antoinette and “Let them eat cake” or Sherlock Holmes and “Elementary, my dear Watson.” Sometimes the phrases are made up, and sometimes they’re corruptions or rephrasing of something that was actually said. “Just the facts, ma’am” is a case of the latter. Jack Webb’s “Joe Friday” character typically used the phrase, “All we want are the facts, ma’am” and sometimes “All we know are the facts, ma’am” when questioning women in the course of police investigations. But he never said, “Just the facts, ma’am.”

When we look at just the facts regarding our economy, we get a very different picture than the broader perception many have based on what we hear in the press and via social media. We must move away from politics, media hype and social commentary to see where we are, based on just the facts. Once we look at just the facts, we may have an entirely different picture of where we are and where we are going.

Here are some positive facts that demonstrate the current health of the U.S. economy:

• Foreign investments, both in terms of cash and infrastructure, continue to pour into the United States, and corporate cash and profits are at record levels.
• As of November 8^th, 2017, the Dow was up 19 percent, the S&P 500 was up 16 percent and the NASDAQ was up 26 percent on a year-to-date basis.
• Factset estimates that the S&P 500’s earnings will grow from $131.58 in 2017 to $145.87 in 2018, up another 11 percent after growing about 10 percent in 2017.
• GDP has grown at 3 percent for the past two quarters, and with  tax legislation passed, it is expected to accelerate.
• At 4.1 percent, the unemployment rate is at a 16-plus-year low, which continues an eight-year trend, from 10 percent at the worst point of the Great Recession Manufacturing jobs have rebounded this year back to the levels of 2012 to 2014, and we continue to see re-shoring as companies bring jobs back to the United States that were moved overseas.
• In November, the U.S. economy added 228,000 jobs, which was more than economists expected. Wall Street economists were forecasting payroll gains of 195,000 following the 261,000 jobs added in October. The unemployment rate is at its lowest level in more than 16 years!

While much of the market growth has been attributed to anticipated reductions in tax rates and regulation, we will have to see what actually transpires in the next six months. Having said that, there are not a lot of alternatives to the broader equity markets as fixed income and bank accounts continue to offer nominal returns, overseas investments present their own set of risk and real estate is not a viable alternative for many investors.

We See Strong Potential for Continued Growth

As we continue to see record earnings by companies and large amounts of cash overseas that potentially could be repatriated if there is a favorable tax situation, we believe there is strong potential for continued market growth. As always. we recommend a diversified investment approach based on your personal needs, objectives and risk tolerance. We have developed and refined an investment process that takes into account unexpected changes in the markets and economy so that you can maintain and enhance your standard of living.

If we take a broader view of the world today, we see how great a time it is to be alive and to be an investor. Technology continues to create opportunities that never existed for those who have the courage and insight to move behind all the negative hype.

Our Lives Have Improved Drastically — And Will Get Even Better

“The world has never been a better place to live in,” says science writer Matt Ridley, “and it will keep on getting better.” He provides these facts to back up his statement:

Compared with 50 years ago, when I was just four years old, the average human now earns nearly three times as much money (corrected for inflation), eats one-third more calories, buries two-thirds fewer children and can expect to live one-third longer. One reason we are richer, healthier, taller, cleverer, longer-lived and freer than ever before is that the four most basic human needs — food, clothing, fuel and shelter — have grown markedly cheaper. Take one example: In 1800, a candle providing one hour’s light cost six hours’ work. In the 1880s, the same light from a kerosene lamp took 15 minutes’ work to pay for. In 1950, it was eight seconds. Today, it’s half a second. In these terms, we are 43,200 times better off than in 1800.[1]

The reality is that humans are actually safer, wealthier, healthier, freer, less hungry and more literate than ever before, Johan Norberg argues in his 2017 book Progress: 10 Reason to Look Forward to the Future. We all have access to better technology, health care and standard of living than ever before.

As we approach the mid-term elections, we will no doubt hear more political rhetoric presented as economic facts.  It is important to note that what is good economic policy is not necessary good social policy and therefore we must differentiate between the two when making wealth management decisions.

We are here to help separate fact from fiction and assess what is important to you. We do believe that there are great investment opportunities for those who are prepared, and as always, there are potential pitfalls for those who are not. As always we are here for you to help sort through the noise to determine what is relevant to your situation. Feel free to contact us any time, without cost or obligation.

Randy Carver, RJFS registered principal  and President of CFS.,  Randy.carver@raymondjames.com  or (440) 974-0808.

[1]. Matt Ridley, “Cheer Up! 17 Reasons It’s a Great Time to Be Alive,” Reader’s Digest, https://www.rd.com/health/healthy-eating/cheer-up-17-reasons-its-a-great-time-to-be-alive/.

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ Composite Index is an unmanaged index of securities traded on the NASDAQ system. Index performance does not include transaction costs or other fees, which will affect actual investment performance. You cannot invest directly in any index and past performance doesn’t guarantee future results. Raymond James is not affiliated with any of the entities or individuals mentioned herein.

Once again, tax simplification and cuts are being debated. There is general agreement that the tax code needs to be simplified, but there are a lot of differing opinions and perceptions about how to do this. Moreover, the impact of tax policy is counter intuitive. This is further complicated by political considerations and comments by the media, politicians and so-called experts.

To get past the politics and perception, we need to look at the facts.

Lowering top marginal tax rates to increase tax revenue is counter intuitive and portrayed as a break for the wealthy. One would think that if you have higher taxes, you have higher revenues, yet this is not always the case. Certainly there is a point at which lowering marginal rates too much causes revenues to dip. However, there can be no disagreement about how lowering personal marginal rates in the past has increased revenue and GDP.

There is bipartisan agreement that the corporate tax rate is too high. The sticking point with cutting the corporate rate is disagreement on what else this may be tied to and what to do with funds that have already been earned but are offshore.

The other factor that is being debated, primarily along political lines, is that lower tax rates can increase the growth of the economy, and  therefore the government actually takes in more dollars. This has been shown to be the case, so the only reason that some want to debate this is political.  Essentially as tax rates go down the government is getting a smaller piece of of a larger pie. Just the prospect of lower taxes has helped GDP growth increase since the election in 2016.

Just over a year ago, on September 25^th, 2016, Donald Trump spoke at the Economic Club of New York. He joined the ranks of John F. Kennedy and Ronald Reagan in espousing a plan of reducing marginal tax rates for both individuals and corporations.

JFK’s Tax Cuts Increased GDP in the 1960s

On December 14, 1962, then-President John F. Kennedy unveiled a tax-cut plan to revive the long-stagnant U.S. economy in a speech at the same Economic Club. President Kennedy proposed lowering marginal tax rates for all taxpayers and reducing the corporate tax. He advised lowering the top tax rate from 91 to 65 percent and closing tax loopholes. He understood the counter intuitive nature of this plan, stating, “In short, it is a paradoxical truth that tax rates are too high today and tax revenues too low, and the soundest way to raise revenues in the long run is to cut rates now.” Then, as now, critics (and the uninformed) contended that lower tax rates would result in lower tax revenue. Then, as now, they were wrong.

In 1962, corporate rates were dropped. In 1964, Kennedy’s broader tax cuts were passed into law, after his assassination. In 1965, GDP grew by 10.7 percent and in 1966 by 7.99 percent.[1]

Reagan’s Tax Cuts Grew the Economy in the 1980s

By the late 1970s and early 1980s, we were once again faced with high unemployment and, paradoxically, also high inflation—so-called “stagflation.” Ronald Reagan acknowledged many times that he was following in Kennedy’s footsteps in proposing, and ultimately cutting, personal tax rates from 70 percent to 28 percent. He also cut corporate taxes and closed numerous loopholes. Once again, the American economy grew, unemployment went down and the broader equity markets moved up. Critics had claimed these cuts would be a break for the wealthy (as today’s critics also claim) and that they would reduce tax revenue. Once again, they were wrong.

According to U.S. Treasury statistics, The Tax Equity and Fiscal Responsibility Act of 1982, also known as TEFRA, increased revenues by $130 billion in its first four years. The bulk of these revenue increases came from the wealthiest Americans. In 1981, when the top marginal rate was 70 percent, the top 10 percent of income earners paid 48 percent of all income tax, and the bottom 50 percent paid 7.5 percent of all tax (source: Joint Economic Committee for the US Congress report, 1996).

President Trump’s Tax-Cut Plan Should Benefit the Economy

Currently the top 1 percent of income earners in the United States are paying 49 percent of all taxes, and the top 10 percent of earners are paying 82 percent of all income tax.[2] There is a limit to how much more the government can tax the top 1 percent to 10 percent of earners. The tax system is already unduly progressive, and there is only so much the government can take without hindering growth further. Increasing taxes thwarts economic growth and entrepreneurial spirit, whereas reducing taxes can accelerate growth and ironically shift the tax burden from low- and middle-class earners to higher-income people. Donald Trump set a goal of 4 percent economic growth, which would double the rate of growth over the past 15 years. Critics called the growth goal unrealistic and the plan a break for the wealthy. We have seen that a 4 percent growth rate is not only possible; when looking at the impact of previous cuts, we believe this figure may be very conservative, especially when combined with decreased regulation, which stimulates economic growth. Because a number of so-called loopholes are closed in all plans being proposed, lower- and middle-income tax payers would likely  see a reduction in taxes, while the bulk of the taxes are paid by the top 1 percent to 10 percent of income earners. The ultimate goal is to help all Americans, especially those who have lower incomes. The centerpiece of the Trump plan is a reduction in business tax rates for large and small firms, to 15 percent from the current uncompetitive 35 to 40 percent. He offered a 10 percent repatriation rate to incentivize American firms overseas to bring $2.5 trillion home. While we believe the actual rate will be somewhat higher, we believe that the corporate rate will be reduced and that this will greatly benefit the economy and country. An article in the National Review indicates similar optimism in Trump’s plan. The article states, “While such large cuts would lead to an immediate revenue shortfall, the difference could be at least partially made up by eliminating damaging deductions and exemptions in other parts of the federal tax code. A corporate rate cut could also be expected to broaden the tax base, further offsetting its own costs by spurring more investment, the repatriation of profits, the relocation of business headquarters… Cutting the corporate-tax rate in itself will increase GDP, and evidence suggests it will lead to higher wages for workers, too.”[3] Once we move beyond politics and perception and look at the facts, it is clear that cutting taxes helps the country, especially lower- and middle-income Americans. Regardless of which plan you believe in, there is no question that the top 10 percent of income earners are paying more income tax than ever before, both in terms of dollars and total percentage of taxes being paid. Finally, generating revenue is only half of the issue. The other part is what the government spends. Less than 15 percent of the government budget is for discretionary spending, and more than 65 percent is for entitlements such as Medicare, Medicaid, Social Security, welfare, etc. At some point, the government is going to have to look at these items and make some tough decisions.  But that’s another discussion.

Join Us for a Tax Legislation Review at Breakfast on January 13th, 2018 

We will be reviewing actual tax legislation at our 22^nd Annual Resource Breakfast on Saturday, January 13^th, 2018. You are welcome to join us, without cost or obligation, to hear about the new tax rules and a number of other timely topics such as cybersecurity.  To RSVP just give our office a call (440) 974-0808 or click here.

We Are Here to Help You on Your Financial Journey

Our role at Carver Financial Services Inc. is to help you prepare for whatever may transpire with taxes, the economy, benefits or otherwise. We are here to help you achieve your personal vision for the future and your life, whatever that may be. Change is always difficult and is often politicized. This can present an opportunity for those who are informed and prepared.

We are always happy to meet with you to discuss your vison and wealth planning — without cost or obligation. Each person’s needs and objectives are unique; therefore, your planning should be as well.   This is a dynamic process as regulations, the economy and your needs change.

We appreciate the opportunity to be your partner on this interesting journey. Please contact us whenever we may be of service at Randy.carver@raymondjames.com or (440) 974-0808.

__________

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

[1]. “U.S. GDP Growth Rate by Year,” http://www.multpl.com/us-gdp-growth-rate/table/by-year.

[2]. “Fairness and Tax Policy,” Joint Committee on Taxation, March 2015, file:///C:/Users/Libbye/Downloads/x-48-15%20(2).pdf.

[3]. Ryan Bourne, “Evidence Suggests That Lower Corporate-Tax Rates Increase GDP and Boost Worker Wages,” National Review, September 27, 2017, http://www.nationalreview.com/article/451811/corporate-tax-cuts-benefit-ordinary-workers.

The vision of Carver Financial Services Inc. has always been making people’s lives better. A big part of this vision is protecting and enhancing your lifestyle. We cannot always be prepared for the unforeseen, but we can take steps to protect the quality of our lives and our future when disaster strikes. We never know when we could be impacted by a natural disaster, a financial crisis or a man-made issue. This month we experienced two major hurricanes and a huge hack of personal data.

You could face a local problem, such as being stuck in your car in a snowstorm, or you could be affected by something as widespread as a weather event like Hurricanes Harvey or Irma. All kinds of natural, and financial, disasters can occur. The key is to be prepared for whatever may happen.

As always, please contact us with questions, and let us know if we can be of service in any other way.

Here are 10 tips for getting yourself and your family prepared for various types of disasters.

Ensure Your Personal Comfort and Safety

• If there is a warning of a hurricane, tornado, earthquake or other natural disasters, get your cars, pets and personal property out of the expected path well ahead of the storm.

• Keep a three- to five-day supply of water in your home. A gallon of fresh water per family member per day is a rule of thumb. Keep nonperishable food in your home. If there is a power outage, your refrigerator won’t work unless you have a generator at home. Nuts, dried fruit, energy bars and canned goods are good choices. Make sure you have a manual can opener!

• If you live in an area where there are power outages or where the loss of power (such as a very cold climate) can be dangerous, consider buying a whole-house generator.

• Keep a small amount of cash at home, not a large sum, but enough for a couple of days in case credit cards and ATMs are not working because of a power outage.

• Buy a spare power source for your cell phone and/or a hand-crank light charger.

• Buy a manually powered or battery-operated radio so you can listen to developments in your area concerning evacuations.

• Tools to use in case you need to turn off utilities, such as pliers or a wrench.

• Sanitary wipes and trash bags with ties. If you lose all your utilities, you need to handle your family’s bathroom needs in a sanitary way so no one gets sick.

• Put together a survival kit that includes first-aid supplies, dust masks, a flashlight with extra batteries and heat-reflective blankets.

• Utilize a credit monitoring service to alert you to potential identity theft and credit issues.

Protect Your Stuff

Robert Hunter, director of insurance at the Consumer Federation of America, estimates that only 2 in 10 homeowners whose homes were damaged by Hurricane Harvey have flood insurance coverage. Those who now have flooded basements, soaked furniture, water-damaged walls, and collapsed roofs will have significant out-of-pocket expenses.[1]

Don’t let this happen to you! If you haven’t done so already, do a full insurance review and make sure you have proper insurance coverage for your home, jewelry, and other valuables so you can be reimbursed in case of theft or a natural disaster. Also get flood and/or earthquake insurance if you live in areas that experience these types of disasters.

Work closely with your insurance agent or financial advisor to make sure your insurance coverage fits your needs. Many people make costly assumptions. For example, you cannot assume that a standard policy will protect you if your house develops mold or sewage-backup problems. Many homeowners’ policies do not cover this type of damage. Another costly assumption is that if you live outside California, you don’t need earthquake coverage. The truth is that Alaska, Hawaii, Nevada, and Washington all have more earthquakes than California.[2]

We recommend that you take a video of your home and all the furniture and other items in it. This can be very helpful in remembering what you had and in documenting the contents of your home for insurance purposes in the event of a complete loss. Upload this list to cloud-based storage.

Equip Your Vehicle

Even if there is not a widespread disaster, you could be stranded in your car. If you live in a very cold climate, keep a blanket, some water, and a jump-start kit in your car.

Here are some items you will need if you get stranded in your car: a spare tire in good condition, a tire inflator and sealer, jumper cables, a tire-pressure gauge, your car’s operating manual, duct tape, WD-40, a first-aid kit, a flashlight with good batteries, a multi-tool, matches, a candle in a can for winter emergencies, energy bars, bottled water, a weather radio, a seat-belt cutter and window breaker, flares or a reflective triangle, printed maps, an ice scraper, a Mylar space blanket and a carpet remnant you can put under your tires to gain traction in the snow.[3]

Protect Your Identity and Personal Information

In early September, credit-monitoring service Equifax announced that 143 million Americans’ personal information had been compromised five weeks earlier. This massive data breach of consumers’ personal information is one of the worst data breaches in history.  One way to protect yourself after this latest breach is to place a credit freeze on your security file with Equifax at https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp and also with the other credit bureaus’ Transunion and Experion. While a deterrent, credit freezes do not prevent thieves from gaining access to existing accounts.

We strongly recommend that you use a credit-monitoring service such as Lifelock or Identity Guard. You can see a list of such services at:

http://www.nextadvisor.com/credit_report_monitoring/compare.php

In addition, to make it more difficult for criminals to hack into your accounts, we recommend using two-factor authentication (2FA) where available. This adds a second level of authentication to an account login. Raymond James Investor access offers this service, as do widely used companies such as Google, Apple, and Microsoft. When you enter only your username and one password, that is considered single-factor authentication. In contrast, 2FA requires you to use two out of three types of credentials before you can access an account. This can include the following:

• Something you know, such as a personal identification number (PIN), password or a pattern

• Something you have, such as an ATM card, phone or vehicle key fob

• Something you are, such as a biometric like a fingerprint or voice print

• Something that is texted to your phone

According to the website SecurityIntelligence, public adoption of 2FA has been slow. For example, a Dropbox official recently reported that less than 1 percent of the company’s customers had taken advantage of its 2FA option. Online services are often reluctant to introduce any inconvenience into the login process. But attitudes are beginning to change because of recent, well-publicized thefts of large password files.[4]

Please note that two-factor authentication is not the same as two-form authentication. The latter technique uses a second login gate, such as a challenge question, to validate a user’s identity. It is the least effective form of two-factor security, although it’s better than nothing.

Prevent a Financial Crisis

Finally, let’s talk about how to protect yourself from a future financial crisis.

Markets can and do fluctuate sometimes to extremes. It is important to have enough cash and cash equivalents on hand for near-term needs while having a portfolio that is allocated in a way that meets both your long-term goals and your risk tolerance.

We are not referring to cash in the home but rather in a money market or bank account. In this regard, we recommend a six-month reserve plus any funds you anticipate taking out for larger purchases. Your portfolio should be proactively reviewed and updated with an eye to the future, rather than the past. Your planning should take a holistic approach that looks at your tax status, estate planning goals, insurance, and income needs now and in the future. As we are often told, past performance does not guarantee future results.

Moreover, it is not how much you make that is important, but how much you keep after taxes, fees, and expenses. We are always focused on your net return and meeting your needs, not on beating a random index.

We are happy to discuss your personal vision and review your portfolio to make sure it aligns with your goals and objectives. We also have a very powerful planning tool that will analyze the probability that your current portfolio will achieve your stated goals, and more importantly, provide a guide for making adjustments.

There is neither a cost nor any obligation for us to review your situation. Please contact us at (440) 974-0808 or me at randy.carver@raymondjames.com.

[1]. Bernard Condon and Ken Sweet, USA Today, “About 80% of Hurricane Harvey Victims Do Not Have Flood Insurance, Face Big Bills,” August 29, 2017, https://www.usatoday.com/story/money/2017/08/29/hurricane-harvey-houston-flood-insurance-damages-claims/611910001/.

[2]. Bryan Ochalla, “16 Common Homeowners’ Insurance Mistakes,” June 4, 2017. QuoteWizard, https://quotewizard.com/home-insurance/homeowners-insurance-mistakes.

[3]. Melanie Pinola, “30 Essential Things You Should Keep in Your Car,” Lifehacker, September 6, 2013, http://lifehacker.com/30-essential-things-you-should-keep-in-your-car-1263514115.

[4]. Paul Gillin, “Two-Factor Authentication: A Little Goes a Long Way,” SecurityIntelligence, January 30, 2017, https://securityintelligence.com/two-factor-authentication-a-little-goes-a-long-way/.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  Investing involves risk and you may incur a profit or loss regardless of strategy selected. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

We’ve learned from Hurricane Harvey and other devastating storms that when the authorities tell you to evacuate, it’s best to get out of town, where there is no threat of catastrophe. But this is not the strategy we need to use for stock-market storms.

Human nature sometimes works against us when it comes to putting money in an investment and keeping it there for a while. When many investors watch the news and see that the market is fluctuating, their first instinct can be to panic and move that money out of the stock market and into a different class of investment. But your best bet is to leave it right where it is.

Stocks Grew Even During the 2007 Economic Crisis

Case in point: stocks invested 10 years ago, during one of the worst stock market performances in history, have done better than you might expect. In August 2007, when the global financial crisis began to erupt with the halting of withdrawals from some BNP Paribas funds, it launched an 18-month period of wealth destruction and economic peril.

Many investors bailed out of the stock market. But those who held tight for the next few scary years made out pretty well. In the 10 years since that crisis began, the Standard & Poor’s 500 index has returned 7.8 percent, annualized, including dividends. That’s not far below the very long-term average yearly return of just under 10 percent.[1] In fact, investments left in the stock market during that time did better than some other investments:

Source: FactSet

In this market downturn, investors were helped by “the most aggressive central bank support programs ever conceived, a long corporate profits boom and one of the longest bull markets in history, which has taken equity valuations to the upper end of their historical range.”[2]

From the Calm to the Storm

In the summer of 2007, there was a decent bull market following the tech meltdown of 2000–02. Stocks had been rising nicely for five years, gaining about 12 percent a year with dividends. And the market was reasonably valued, at 15 times forecast earnings for the following year ¾ a similar multiple as a few years earlier and comfortably below the current 17.8 times. Investment gurus often noted the lack of retail-investor participation as a reason that stocks had plenty of room to run higher. On August 9, 2007, the BNP fund closures sparked a swift stock sell-off.

Here is a summary of what happened next. You can see what great restraint it took for the wise investors to keep from bailing out of stocks:

• In December 2007, two months after the market crested, Wall Street strategists still predicted a 10 percent gain for the S&P 500 for 2008. They were wrong!

• The financial strain spread from subprime mortgages, to the entire credit market and then to the real economy. Stocks were liquidated, losing 20 percent from their peak and earning bear market status by mid-September 2008.

• On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman’s bankruptcy filing was the largest in history.[3] The result was unprecedented tumult of the financial system and an all-out liquidation of stocks.

• Stocks bottomed out in March 2009 with the Dow just under 7,000 after a number of erratic rallies. The investor who got into stocks on Aug. 9, 2007, was down 47 percent, and the conservative Vanguard Balanced fund was off 26 percent, in just 17 months.

• At many points up through 2010, the trailing 10-year return on U.S. stocks was negative, making many investors question whether the market would ever be a wise investment again.

• In 2011, the European debt crisis and debt-ceiling standoff, combined with a variety of recession scares and reports of anxiety from the Fed, prolonged investors’ worries.[4]

Yet after all that, a standard portfolio allocated with 60% equity and 40% fixed income returned a decent 6.8 percent over the same span, with roughly half the downside volatility experienced by the S&P 500.

Be Patient!

What can we learn from this? The clear message is to be patient and not let emotional reactions to market fluctuations dictate your moves. The passage of time in the markets can help make up for bad timing. So when your “fight or flight” instinct kicks in, choose “fight” ¾ fight the inclination to flee the market!  A trusted advisor can help navigate this.

We take a proactive approach to managing income and cash so that you should not have to liquidate then we experience corrections.  Please contact us with any questions on your portfolio or if we can otherwise be of service.

Randy Carver (440) 974-0808  or randy.carver@raymondjames.com

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Past performance is not a guarantee of future results.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.

[1]. Michael Santoli, “Investors Posted Solid Returns Even if They Bought Just as Financial Crisis Erupted 10 Years Ago,” CNBC, August 9, 2017, https://www.cnbc.com/2017/08/09/even-if-you-bought-just-as-the-global-financial-crisis-erupted-10-years-ago.html.

[2]. Ibid.

[3] “Case Study: The Collapse of Lehman Brothers,” Investopedia, February 16, 2017, http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp.

[4]. Santoli, “Investors Posted Solid Returns….” CNBC.