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Three Best Practices to Handle Market Corrections

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman

One of the more unnerving parts of being an investor is experiencing the market pullback or market correction. Watching your investments fall by 10% (or more) is undeniably stressful, but the truth is: these events are as cyclical as the market itself, as long as there’s a stock market, there are going to be corrections. So, what can you do about it?

Humans hate losing more than they love winning, and for this reason, mistakes are often made when the market starts to dip. Just because market corrections are cyclical, doesn’t mean they’re predictable. Trying to time the market won’t work either, it’s impossible to know how long these things will last, how far the market will drop, or how quickly it will recover.

According to a table created by Merrill, timing the market could prove to be more damaging than holding, aka not touching your investments at all. Merrill evaluated the growth of $1,000 to see what happens when you leave an investment untouched over a 20-year period (Row 1); when you pull it out during the top 10 performing months (Row 2); and when you pull it out during the top 20 performing months (Row 3).

The Risk of Missing Out

  1990-2019 2000-2019 2010-2019
[1] Untouched $17,281 $3,242 $3,567
[2] Miss 10 top-performing months $7,000 $1,380 $1,723
[3] Miss 20 top-performing months $3,363 $722 $1,097

As you can see from the chart above the best overall strategy is leaving your $1,000 investment untouched for as many years as possible.

The fact of the matter is that the longer you’re investing in the market, the more likely you’ll experience a drop. The question is: how will the market correction affect you? Well, there are three different potential outcomes: 1.) You’re negatively impacted by it, 2.) There is no lasting impact on your portfolio, 3.) You actually benefit from the market correction. The outcome is largely up to you, but I’m guessing you’d like it to be outcome three and would at least accept outcome two.

Let’s go over the ways to prepare for, and take advantage of, a market correction so the next time one comes around you’ll be able to benefit from it.

Best Practice #1: Reduce Panic, Increase Planning

As with everything in life, making rash decisions while panicking leads to mistakes. Unfortunately, after decades of watching negative headlines create market volatility, combined with the increasingly hysteric nature of modern-day journalism, it can be tough not to live in a perpetual state of panic these days. You should not allow this panic to translate into how you do your financial planning. Do not make rash decisions in place of planned decisions.

To reduce panic, you must equip yourself with information. Luckily, there are plenty of cases analyzing years of data which can help investors gain perspective on market corrections. For example, when looking at post-World War II market declines, you can see that an overwhelming majority of dips occur in the 5-10% range and take about a month to recover from. This means that if you’re experiencing a dip in your portfolio, there is a non-negligible chance that you’ll recover your losses in a month or so.

Additionally, any decline between 5-20% also only takes a few months to recover from, while a decline between 20-40% takes a little over a year to recover from—this data demonstrates that patience is your friend when it comes to the market.

DECLINES

% # Avg % Avg Length (Mo.) Avg Recover Time (Mo.)
5-10 84 7 1 1
10-20 29 14 4 4
20-40 9 28 11 14
40+ 3 51 23 58

(source)

Obviously, all this data is gathered retrospectively after there’s been time to digest the decline but still, these figures provide a powerful perspective and encouragement. There’s no need to panic when you hear rumors of a market correction looming.

Best Practice #2: Diversify Your Portfolio

It’s not a question of if a market correction is coming, the question is when. Having cash in hand and a list of stocks you’ve been wanting to buy can turn a stressful time into an exciting one. A market correction is the perfect time to diversify your portfolio and an opportunity to buy in at lower rates. Think of it as a sale.

There are a few things to consider while you’re reevaluating your portfolio:

  • Consider your stock/bond mix. It’s always good to have a mix of cash, equity, and fixed income. The amount you have invested in each category largely depends on where you are in life, as well as your long-term/short-term financial goals. Market fluctuations shouldn’t cause you to move all your money into bonds just to avoid risk, but should instead be used as an opportunity to see if the reason you purchased certain stocks are valid in regards to your lifestyle.
  • Reevaluate your stock allocation. Using the cyclical nature of the stock market to your advantage can help you research which sectors you’d like to move into, and which ones are no longer useful to your financial goals. Overall, it’s best to broadly diversify your stocks, but with so many sectors to choose from, it can be hard to figure out where to invest. Using a market pullback to invest in some exciting sectors can help you take full advantage of the recovery.

Checking in with your portfolio during a market correction is the best way to prepare to make smart money moves when the market recovers.

Best Practice #3: Work with a trusted advisor

Having someone in your corner with an unbiased view will help immensely when it comes to harnessing market corrections to your advantage.  Our team has loads of experience with market corrections and is less likely to be emotionally triggered by the twists and turns of the market. Plus, with more than 250 years of combined experience, our team can help separate panic and emotion from financial decisions.

Your financial advisor will also be able to review both short-term and long-term goals, to give you options which complement your risk tolerance. They will provide you with a roadmap to help you from getting lost during turbulent times in the market.

Our firm has more than 30 years of experience in helping clients. I’ve seen every kind of market and every kind of reaction to it. There have been dozens of events in the past year that have been deemed “unprecedented” and scared people into thinking things were “different this time.” While I don’t want to downplay the tumultuousness of these times, I do want to reassure you that just because things feel unnaturally difficult, doesn’t mean that we can’t base our actions on what has worked in the past. The events may be different, but they always yield the same cause and effect.

I have experienced, first hand, almost 35 years of enormous societal changes, both amazing and horrendous. Even though the cyclical market is hard to pin down, and impossible to time, the fundamental financial decisions that add up to sound investments are not. Our team is here for you, along with our decades of experience, to help make sense of what’s the best financial plan for your personal vision.

Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of August 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement, or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

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 ABCs of ESGs

Environmental and social issues are dominating headlines. Increasingly we are hearing about environmental, social governance (ESG) investing. Is this just a marketing ploy or is there validity to ESG-focused brands? In order to answer those questions, let’s first break down what “ESG investing” actually means.

ESG in A Nutshell

ESG stands for environmental, social, and governance—these are a grouping of non-financial factors that evaluate the sustainability of a company or fund. The goal of ESG investments is to utilize capital assets to find ways that positively impact society at large, whether it be through social means or environmental ones. ESG investing gives individuals the opportunity to conscientiously grow their portfolios in ways that might better align with their social values.

While “socially responsible investing” may seem like a trendy concept plucked from the Twitter feeds of today, the idea to allocate money for ESG-like securities dates back to the 1950s. During this post-World War II boom, trade unions began investing their considerably large pension funds in altruistic areas like affordable housing projects and health facilities.

In fact, so many individuals and institutions are shifting focus to ESG-considerations that global sustainable fund flows hit a record high of $45.6 billion in Q1 of 2020. The United States was responsible for contributing a whopping $10.4 billion to that total.

Is ESG Investing Right For You?

Okay, so sustainable investing is popular, but does it work? Various studies have shown that ESG investments are becoming more competitive both in price and performance. An article released by The Forum for Sustainable and Responsible Investing curated studies from many reputable sources, stating that, “investors do not have to pay more to align their investments with their values, or to avoid companies with poor environmental, social or governance practices.”

Another recent report published by Money Management Institute and The Investment Integration Project summarizes why investors are beginning to consider ESG-inclusive portfolios:

  • Companies with sustainability in mind are better at managing risk and have “less systemic volatility than their conventional peers.”
  • Capital costs are lower at companies that participate in sustainability practices, which encourages growth, shareholder returns, and often positively impacts the value of the company.
  • Private equity and debt-focused sustainable investments are shown to achieve market-rate returns.

With sustainable investing growing in popularity, it’s important to work with a knowledgeable advisor who has experience and knowledge in the area of ESG investing to see if it is right for you. Unfortunately, there are a lot of companies that may falsely use the ESG label to attract more investors, when in reality they are not sustainable brands. This misleading behavior is called “Greenwashing.”

Don’t Get Fooled by Greenwashing

It can be hard to spot which companies are actually invested in making sustainable change and which companies are taking advantage of a trend. Without concrete regulations and/or definitions of sustainable criteria, it’s up to the company to decide whether or not they fall under the ESG classification—which means there’s lots of room for interpretation. As the popularity of ESG investing grows there is a growing movement to standardize metrics for ESG and put in place requirements to use this term.

Given the ambiguity of the term ESG, here are a few things to help you do your due diligence and look out for and avoid Greenwashing in your funds. Of course, working with a trusted advisor is the best way to make sure the funds truly meet your personal goals.

  1. Do your research. If a company or fund makes a claim about their ESG-practices, check their website and certifications to make sure this claim is backed up. Vague or inconsistent claims are a red flag. Actual ESG companies should be completely transparent and proud to share their data.
  1. Watch what they do, not how they market. A popular greenwashing practice is using buzzwords on product packaging, such as “all-natural,” “earth-friendly,” “non-toxic,” “100% organic”, etc. These words are useless without actions to back up their existence. Just because a house cleaning brand has a product with the word “green” on the label, doesn’t mean the company falls into the ESG category.
  1. Be familiar with the rules. For example, many products are quick to point out that they are CFC-free. CFCs are gaseous compounds that can be found in refrigerants, cleaning solvents, and aerosol propellants. While getting rid of toxic gas is certainly an environmental win, CFCs are now banned. So, the claim “CFC-free” may look good on paper, but in reality, it’s required by law and therefore not a good indicator of sustainability.

Morningstar offers a Sustainability Rating tool to help you figure out if a company you’re interested in investing in has a strong background in sustainability. Using an objective facts-based tool such as Morningstar may help you avoid falling victim to false marketing.

Overall, the growing interest in ESG investing marks an opportunity for those who are interested in taking on a more socially and environmentally, conscientious investing strategy. However, data is key when parsing through all the investments claiming to be socially responsible. While there aren’t universal metrics to measure sustainability, regulators are looking at creating standards for labeling investments as such.

Whether you work with a trusted advisor or on your own, ESG investing is yet another option to grow your wealth. Many investors may not be concerned about environmental or social compliance and simply want to grow their portfolios; ultimately, ESG may still make sense as part of a well-diversified plan offering potentially more stability than non-ESG offerings.

With the current push for the use of electric vehicles, alternative energy, and reductions in carbon emissions, ESG investing will continue to receive more attention.

Since 1990 the mission of Carver Financial Services has been to Make People Lives’ Better. As part of this mission, we offer ESG compliant strategies. ESG is certainly not for everyone and continues to evolve. We can discuss what is important to you and figure out how to invest your overall portfolio in a way that meets both your needs and personal values whether that includes ESG or not.

Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.1 billion in assets for clients globally, as of July 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement, or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this report 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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.

Incorporating sustainable investing criteria into the investment selection process may result in investment performance deviating from other investment strategies or broad market benchmarks. 

Pandemics & Portfolios: Fear & Facts

We understand that market volatility, and uncertainty with the response to the Coronavirus (COVID-19) can be unsettling. We want to remind you that we are here for you, your family and your friends. Part of this is to provide resources to help you feel ready and safe in the days, weeks and months ahead. We will continue to provide resources via the internet, including our Coronavirus Covid-19 Resources Page and Recording of the March 12th Don Connelly event. As always, please reach out to us with any questions, concerns or if we can otherwise be of service.

There is a lot of information, and misinformation, floating around regarding the Coronavirus, the broad markets, and the economic outlook. This is a rapidly evolving situation. As always, we are here for you and your family and are happy to answer any questions and address any concerns.

Below we review some of the main questions people are asking us. Before we get into the details, our team wants to thank everyone for their kind words of support and well wishes. 

Carver Financial Services, Inc. has been in business for 30 years and has weathered many storms by keeping our focus on the well-being of our clients, our team and our community. Our firm was founded with the vision of making lives better. One of the primary ways we do that is living by the mantra of Always Be Prepared—whether in our planning, our training or our mindset. In light of the recent developments around Coronavirus, the necessity for preparedness is clear. We are doing everything possible to provide information to help you feel ready and safe in the days, weeks and months ahead.

We will continue to reach out to you for your regular reviews. These may be done in person, or if you prefer not to come in person, we can do reviews via Skype, Zoom or phone. We are closely following all guidelines and recommendations laid forth by the Center for Disease Control (CDC), the World Health Organization (WHO) and other national and local government organizations to protect our employees and those who visit our office.

Our Personal Vision Planning® process includes holding cash for near-term needs. While this can lead to a portfolio underperforming the index when things go straight up, it can help lower volatility when things go down. We believe the current market environment is offering smart investors three potential opportunities to benefit, which we discuss below.

The Stock Market Is Up More Often than It Is Down

The volatility we are seeing is not unexpected, although the speed at which it has happened is. This is why we have worked with you to have fixed income and cash available to help balance your portfolio. Our Personal Vision Planning process takes into account market and portfolio corrections like the one we are experiencing now—even though we understand that the drop in values may be unsettling.

A market correction is often defined as a 10 percent pullback from a recent peak. A bear market is a period when the market falls by 20 percent or more. Yet a correction doesn’t necessarily mean a bear market is imminent. In fact, history shows us that selloffs are nothing out of the norm. Data from the Schwab Center for Financial Research show that there have been 22 market corrections since 1974, and only four of them—occurring in 1980, 1987, 2000 and 2007—eventually ended up as bear markets.

How the Current Volatility Compares to Past Situations

The recent market volatility is attributed to concern about the Coronavirus. Although we don’t know what the human or financial impact will be at this point, we can look at other recent epidemics and the longer-term impact they have had.

The 2009–10 flu pandemic, or Swine Flu, began on March 17, 2009, in Mexico. At that time, the United States was emerging from the 2008 financial crisis. The virus peaked in this country in October 2009, before officially ending on August 11, 2010. From the start of the virus to its finish, the Dow had risen more than 40 percent (First Trust chart).

March 9, 2020, was the eleventh anniversary of the crescendo of global panic that marked the bottom of the bear market of 2007–09. There are, however, stark differences between 2008–2009 and now. In 2008, there were serious challenges to our economy with the sub-prime loan crisis. Today the economy is showing some of the best numbers in more than 50 years, on everything from unemployment to corporate profits. The recent drop in oil prices will likely help today’s situation, as will the proactive steps the government is taking to bolster the economy.

Another big difference between now and 2008, is the prevalence of social media and the increased number of media outlets, private blogs, and social media, all of which are competing for attention. This causes a lot of dramatic and often incorrect information to be put out.

Look for the Current Opportunities

One upside to uncertainty is that it can create an opportunity. Here are four facts to consider:

  1. Markets move on perceptions and uncertainty in the short run, but on fundamentals in the longer-term. We believe that the fundamentals are very strong, and this will reflect in the valuations over the longer-term. As such, the current environment can be a good opportunity to explore if it fits your individual situation.
  2. The volatility we are seeing is not unexpected; that is why we have worked with you to have fixed income and cash on hand to help balance your portfolio. Our Personal Vision Planning process takes into account market and portfolio corrections like the one we are experiencing now. Therefore, we are not recommending any major adjustments.
  3. Market corrections may provide opportunities for investors, including an opportunity to rebalance or invest at lower valuations, to make tax swaps, to convert IRAs to Roth IRAs with less tax impact on the lower valuations, and to rebalance your portfolio, if appropriate.
  4. Although there is concern about a global slowdown due to the Coronavirus, we have seen a typical pattern with other epidemics, where markets dip and then rebound significantly within 12 months. While the past does not guarantee future results, it can be instructive.

We Must Respond to Uncertainty with Calmness

The common thread between the past and the present market volatility is uncertainty—we simply don’t know where, when or how these phenomena will play out. In our experience, markets can handle bad news, but uncertainty is the one thing in this world that markets hate and fear the most. We have no control over the uncertainty, but we can and should have perfect control over how we respond to it.

Part of what drives feelings of anxiety is lack of information. Because the Coronavirus is new, many questions remain about the illness it causes. The more people learn, the better they feel. We have filled-in some of the blanks, it seems, like who it affects and how it spreads. We know who is more vulnerable and who is less vulnerable.

There have been at least four precipitants of the current decline:

  1. The outbreak of a new strain of virus, the extent of which can’t be predicted
  2. The economic impact of that outbreak, which is equally unknown
  3. The onset of a price war in oil
  4. Uncertainty about the 2020 election, both for president and also for the House and Senate

When a danger or threat is approaching gradually, it tends to be more frightening than when it shows up all at once. The good news is that, for most people, the Coronavirus is generally mild, and its flu-like symptoms of fever and cough do not last long.

We will ride this out together and stay calm. The last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is—you guessed it again—sell. We understand that sometimes the inclination is to ‘stop the bleeding’ or to ‘wait for it to get better’. Ultimately this can cause far more harm than good. If you have concerns, please reach out to us. We will contact you if we feel adjustments are needed.

We Are Here for You

As always, we welcome your questions around this issue or any other matters. While we expect continued volatility in the broader markets, we also know that missing just a few of the best days has a very negative impact on returns over time. It is impossible to time markets and so we encourage you to stick with your long-term plan, while we continue to rebalance and reallocate as necessary. The mainstream media, social media and sometimes our friends will continue to focus on the negative, short-term and often speculative information. The media’s role is to sell advertising and not to inform. We will continue to provide resources and information via our website, personal calls, and planning meetings.

Thank you, our clients and friends, for being the most important part of Carver Financial Services. We are here for you and look forward to speaking with you in the near future. We recognize that the uncertainty with the spread of the Coronavirus and the current market volatility and can be distressing to many. We are also happy to speak to your friends or family, without cost or obligation, if they have questions or concerns—whether or not they are clients. We are always stronger together and look forward to working through this current situation with you.

For more resources, please visit our Coronavirus Covid-19 Resources page.

The information contained in this report 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 Carver Financial Team, 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. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The S&P 500 is an unmanaged index of 500 widely held stocks that is 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. Converting a traditional IRA into a Roth IRA has tax implications. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion.

This Time It’s Different

After more than 30 years in the financial services industry, it is clear that the Media will always focus on the short-term, negative and sensational. 2020 is no different – the media would have you believe that we are facing new issues ranging from Coronavirus to the impact of social media.  

Newsweek wrote a post-recession article that said:

“The economy is booming, and Americans revel in prosperity after bouncing back from a recession, although not everyone is participating. Advancements in technology are changing the way we live, and there is hope that the new century will bring even more progress. But anxiety lurks beneath the New Year’s optimism. Will these new technologies change the world beyond recognition? Has the environment been dangerously damaged? A global epidemic is raging, with no cure in sight. And in the business world, the public wavers about whether to admire or hate a tycoon who’s somehow gained control of one of the most important economic engines of the century.”

Sound familiar? Did you think the reporter was writing about social media and the Coronavirus?  This article was actually written in December of 1899, 121 years ago! The business titan mentioned was John D. Rockefeller (not Donald Trump), the technology concerns that were discussed had to do with the Industrial Revolution, not social media and the internet. The “global epidemic” was Polio, not Coronavirus.

Sir John Templeton famously said, “The four most dangerous words for investors are ‘This Time It’s Different.’” Markets move up when people are investing and move down when there is a concern. Not only does the pattern, repeat but the types of events and concerns do as well – whether fear of a pandemic or concerns about new technology or immigration. The issues people worried about 121 years ago, and farther back, are not that different from those that people are concerned about today- technology, pandemics and even immigration. The more things change, the more they stay the same.

In addition to the concerns of the Polio pandemic, Immigration was also a concern in 1899. Many were concerned with the large influx of immigrants. The cities were rapidly filling up with settlers from Poland, Russia, Germany, Ireland and Italy and many viewed this as a threat.

Increased Volatility Is Likely

As we move toward the November 2020 election, we expect to see increased volatility in the broader markets, which is reflected in your portfolio. We have developed and refined a process that accounts for this volatility. Although many firms have moved to standard models, we continue to take a customized approach to your planning, so we are prepared for any expected needs you may have.

It’s important to note that as portfolios and the level of the broad indices have increased in size, relatively small changes reflect as larger dollar or point swings.

No doubt the media will focus on the larger point swings with apocalyptic headlines portending doom and gloom and that the changes may not be more than normal movements.

For example, on August 14, 2019, the headlines were dire:
  • “Dow Plummets 800 Points on Worsening Global Recession Fears” (Fox Business)
  • “Dow Plummets More Than 800 Points on Recession Red Flag” (New York Post)
  • “Dow Tanks 800 Points in Worst Day of 2019 After Bond Market Sends Recession Warning” (CNBC)

Yet the drop was only about 3% – If we look at market corrections over the 90 years from 1928–2018 we see that corrections of 5% – 10% are very common:

  • 5 percent—About every 2 months
  • 10 percent—About every 8 months
  • 20 percent—About every 30 months
    (Source: DOW Jones/ Wikipedia)

The recent market volatility is attributed to concern about the Coronavirus. While we don’t know what the human or financial impact will be at this point, we can look at other more recent epidemics and the longer-term impact they have had. 

While market dips can be disconcerting, they can also provide several opportunities for longer-term investors:

  1. Dips may provide the chance to add to investments or purchase new ones at lower prices.
  2. Dips may provide the opportunity to convert IRAs to Roths with less tax impact.
  3. Dips may allow for tax swaps to generate write-offs while remaining invested.

Politics as Usual

We saw an increased onslaught of media attention for the 2018 midterm election. We expect to continue to see this, with regard to politics, in general, this year, with a continuation of polarized and partisan reporting.

We believe the economy is strong, as reflected by record-low unemployment, high corporate profits, and growth of the economy.

We are often asked what we feel the markets will do. We believe this may not be the right question. A more appropriate question is, “How will what the markets are doing affect me?” With proper planning, the month-to-month swings in broader markets, regardless of how extreme, should not impact your ability to live the life you want.

Keep Your Eye on the Prize — Your Dream for the Future

You have heard me say, “Never has the pace of change been this fast, and never will be it be this slow again.” We are being inundated with information and are required to make more decisions than ever as we face new challenges, both financially and personally. When our firm was founded 30 years ago, a large part of what we did was provide access to information. Now a large part of what we do is sort through massive amounts of information and provide access to what is relevant to you.

Our team is here to help you achieve your personal vision, while simplifying your life. As always, we are here to discuss any questions, concerns or ideas you may have.

We believe in a proactive approach to wealth management, tax planning and helping you achieve your vision. Although we do not have a crystal ball about the markets—no one does—we plan based on your personal goals and vision. We call this Personal Vision Planning®.  This process takes into account the type of volatility we are experiencing and expect in the coming months.  

We will continue to face a number of challenges in the future, including a more complex tax and investment-planning climate, potentially higher interest rates, inflation, pandemics, to name just a few. Regardless of what happens, we stand by the simple vision on which our firm was founded in 1990: making people’s lives better. Although much has changed with the world, the economy and investments, our commitment to this important goal remains steadfast.

Please contact our team whenever we may be of service to you, your family or your friends.  We look forward to speaking with you.

This 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. The performance shown is not indicative of any particular investment. Past performance is not a guarantee of future results. Individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is 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 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Where Are We, and Where Are We Going? A Mid Year Update on Markets & The Economy

As the volume and pace of news continue to increase, it’s easy to get distracted from the opportunities and also the pitfalls that are before us. To help you keep your focus on your long-term financial plan, our team has developed and refined an investment process that is not dependent on forecasts, predictions or market timing.

Our process is focused on a customized asset allocation based on your current needs and long-term vision. Still, it is interesting, if not psychologically important, to get a sense of where we are and where we are going with regard to financial markets, the political landscape and the economy.

The Markets: We Predict a Correction

We believe a near-term correction is likely in the broader equity markets as people (ironically) become concerned about how well the economy is doing. Fear of higher inflation due to better corporate earnings, low unemployment and higher FED funds rates could be the trigger for this correction. We view this as healthy and not a reason for concern if you are invested properly.

We believe the coming drop could be 5 to 10 percent of the broader equity markets, followed by a strong rebound in the fourth quarter. Overall, we believe 2018 will be a good year for broader equity markets when all is said and done.

Over the years, one common mantra has been “Sell in May, and go away.” The idea is that the stock market goes into a slump in the summer, and activity picks up again after Labor Day. We do not believe in market timing or that you should adjust your portfolio in anticipation of a correction.

We also believe that interest rates will continue to rise and that we will see long-term taxable bond prices drop. Tax-exempts might be less impacted as the supply of quality tax-exempt bonds continues to be reduced.

Politics: November Will Be Key

It will be interesting to see what the outcome of the mid-term elections is. As we get closer to the mid-terms on November 6th, we will no doubt hear more from both sides about all the problems we have — the candidates and political parties all want to justify their bid for election.

Elections will be held for all 435 seats in the House of Representatives, the lower chamber of Congress. These are contested every two years, both alongside the presidential race and in mid-term elections. Also, 35 seats are up for grabs in the Senate, the upper chamber, which holds elections every two years for about one-third of its six-year positions.

In early May, six months ahead of midterm elections, data from registered voters across the country suggested that Republicans held a slight edge on the generic ballot in key Democratic states, including Florida, Indiana and Missouri. That indicates that voters in those states are ready to replace incumbent Democrat Senators. Slightly more voters said they would vote for a Democratic candidate (40 percent), compared to 35 percent for a Republican candidate, according to a report by Morning Consult, a company that specializes in online survey and market research.[1]

However, pundits who are prognosticating about the midterm results seem to make predictions based on their political leanings. So you can find just as many articles predicting that the Democrats will come out ahead in November as you can find predicting that the Republicans will prevail.

 “Politics is not worrying this country one-tenth
as much as where to find a parking space.”   —Will Rogers

The Economy: It’s All Good!

The indicators are some of the best we have seen in years. The one area that concerns some is the level of the federal deficit and debt. In our opinion, this is not a threat to the growth of the broader equity markets over the next few years because we have already seen massive tax cuts and regulatory reduction, which should help offset the debt as they begin to have an impact later this year.

The unemployment rate is the lowest since 1969, while inflation, as measured by the consumer price index, or CPI, remains low. The gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. GDP growth appears to be accelerating, and in our opinion, will move up as the tax and regulatory cuts have an impact. S&P 500 earnings per share jumped by more than 9 percent in 2017, according to FactSet, and are expected to grow even more in 2018. We are seeing record foreign investment in the United States. We expect U.S. companies to continue to repatriate funds that have been held overseas.

Global companies cashed in on newfound economic strength in Europe and Latin America as well as relative stability in China. For the first time in years, virtually all major global economies are growing at the same time. “During 2017, the global synchronized recovery turned into a global synchronized boom that is likely to continue in 2018,” Ed Yardeni, president of investment advisory Yardeni Research, wrote.[2]

Companies continue to accumulate record levels of cash, which can be deployed as higher dividends, bonuses and capital investments or stock buybacks. Any and all of those can help the broader markets and economy grow. Non-financial U.S. companies are sitting on an estimated $1.9 trillion in cash, more than double their 2008 totals, according to Moody’s. Corporate earnings were up 25 percent in the first quarter of 2018 versus the first quarter of 2017.

In May, jobless claims fell to the lowest rate since 1969. At the same time, continuing claims have averaged the lowest since 1973. In the past year, non-farm payrolls are up an average of 190,000 per month, matching the pace of the year ending in April 2017. Assuming a real GDP growth rate of 3.0 percent this year and next, we think the jobless rate could finish 2018 at 3.7 percent and then drop to 3.2 percent in 2019,  the lowest since 1953.

Two Areas of Concern: Debt and Trade Wars

Two areas of concern that continue to be highlighted by the media and doomsday soothsayers are the federal debt and the possibility of a trade war due to tariffs.

We have heard that the federal debt is growing to growing to unsustainable levels and destroying the U.S. economy for more than 30 years. While the absolute dollar amount of the debt continues to rise, the impact remains benign. Back in 1981, the public debt of the federal government was $1 trillion; today it’s more than $21 trillion. At some point, the theory goes, additional debt is going to be the fiscal straw that breaks the camel’s back. The problem with this theory is that, in spite of the record-high debt, the net interest on the debt — the cost to our government to satisfy interest payment obligations — was only 1.4 percent of GDP last year, hovering near the lowest levels in the past 50 years.

We believe that GDP will grow 3 to 4 percent, given the tax and regulatory cuts. Even if this is not the case and interest rates double on the debt, we would be well within historic norms. Doubling the interest rate to 4 percent would mean net interest relative to GDP would double as well, going from 1.4 percent to 2.8 percent. That certainly wouldn’t be pleasant, but it would be no different than the average net interest on the national debt from 1981 through 1999.

We also are hearing more concerns about a trade war due to the threat of tariffs by the United States. No doubt as we approach the midterm elections, this refrain will continue. We believe this is simply a negotiating tactic that might cause short-term volatility but will not have any longer-term impact. Other countries need the United States, and we do not foresee a trade war.

“No nation was ever ruined by trade.”—Benjamin Franklin

Protect Yourself from Inflation with Increased Income

We are not saying everything will be perfect. There is often a difference between good economics and social impact. We believe that higher inflation and a drop in fixed income values will impact many who are not invested properly. Those who react to any short-term market corrections and/or have too much fixed income will not benefit, and might even lose, despite the strong markets we expect. We will continue to hear more about technology replacing jobs and all the problems due to either a stronger or weaker U.S. dollar.

We have seen a decades-long trend of relatively low inflation, and now we might be at a point where this reverses. The 40-year trend of falling inflation was primarily generated by healthy global demographics, globalization, automation and central bank policy. Falling inflation translated directly to lower bond yields and provided fuel to rising equity and credit markets.

As inflation rises, the cost of everything, from food to utilities, goes up. To help protect your standard of living, your income must rise commensurately. It is important that your portfolio is positioned to generate growing income rather than fixed income. In this regard, we believe that fixed-income investments such as CDs and bonds might pose significant risk to people’s ability to maintain their lifestyles as the cost of goods and services increases and, in some cases, bonds lose value.

This is why we monitor and update your portfolio —we must recommend adjustments to help  meet your changing personal needs that are not based on past assumptions or rules of thumb.

We believe demographics will play a role in pushing inflation higher. Census data mark 2018 as the year that inflation demographics turn in favor of higher inflation as dependency ratios finally begin to rise after falling for several decades. The “age dependency ratio” is the ratio of dependents (people younger than 15 or older than 64) to the working-age population (ages 15 to 64). A growing body of research suggests a strong causal link between demographics and inflation. For instance, a recent Bank of International Settlements (BIS) study found a direct relationship among the working-age population, the number of dependents (both young and old) and the underlying trend of inflation.

The study strongly suggests that inflation retreats as the number of dependents decreases, relative to the working age population. This demographic condition is known as a “falling dependency ratio,” and it characterizes the U.S. experience since the 1970s, as the baby boomer generation moved through their work/life cycle.

Conversely, as the dependency ratio increases — as it did through the 1950s, ’60s and ’70s — there is a strong likelihood that the underlying inflation rate will increase.

As Always, We Are Focused on Your Current Needs and Future Vision

Our entire team continues to focus on helping to provide you with the income you need to do what you want today while working to  grow your portfolio to help you maintain and enhance your lifestyle in the future. We monitor and update your personal and customized portfolio allocation based on your needs and on changing tax laws. We are focused on net returns after fees, expenses and taxes, and we take a very proactive approach. It is important to have realistic expectations with regard to both income and return. We are here to help you craft a long-term plan to assist in meeting both your current goals and your long-term needs and vision.

Never has the pace of change, or volume of news, been this great, nor will it ever be this slow again. Our experienced team is here for you, whatever the future brings. Although we might not contact you, we are monitoring both your portfolio and events that might impact you. Our team is committed to continuing education so we can provide you with cutting-edge salutations. We use a team-based approach with highly qualified people who have both the training and experience to help you develop your vision plan.

We meet with thought leaders personally so we can understand what might impact you, without going through the filter of the media or other third parties. Other companies use cookie-cutter solutions for portfolios and rely on third-party information and research. Some companies are even using technology to replace staff and reduce personal contact with their clients. We believe that you should have a fully customized experience, so we continue to grow our team and use technology to provide a more personal experience, not less.

We appreciate being your partner and look forward to continuing to serve you. Please contact us whenever we can be of service to you, your family and friends. We are taking clients only by referral but are happy to meet, without cost or obligation, with someone you feel would benefit from our personal vision planning™ process. We are here for you.   Please contact us without cost or obligation to discuss your personal goals, to provide a second opinion on current financial and wealth planning or if we can otherwise be of service.

Randy Carver – randy.carver@raymondjames.com

www.carverfinancialservices.com   7473 Center St.  Mentor OH  44060

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 the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you might incur a profit or loss, regardless of strategy selected.  These calculators are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Please note that Raymond James does not provide tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

[1]. Caroline Tanner, “Survey: On the Generic Ballot, Republicans Hold Slight Edge in Key Senate Races,” USA Today, May 4, 2018, https://www.usatoday.com/story/news/politics/onpolitics/2018/05/04/ahead-midterms-voters-indicate-they-vote-republican-key-states/581373002/.

[2]. Thomas Heath, “It Was a Year of Wins for Investors. Will Stocks Keep Climbing in 2018?” The Washington Post, December 29, 2017, https://www.washingtonpost.com/news/get-there/wp/2017/12/29/it-was-a-year-of-wins-for-investors-will-stocks-keep-climbing-in-2018/?noredirect=on&utm_term=.00c023a627d7.

ELECTIONS, MARKETS & YOU – Is this Alice in Wonderland?

Every four years the pundits and talking heads like to discuss the impact of elections on markets.  While we always need to keep in mind that past performance doesn’t guarantee future results this is perhaps truer with this election cycle than ever before.

This year’s election seems like Alice in Wonderland as we have two very non-traditional candidates in Bernie Sanders and Donald Trump who strangely share some similar ideas despite being polar political opposites as a self-proclaimed socialist and ultra-capitalist.   Both candidates, especially Donald Trump, make comments that would in the past have eliminated them from the election but this year seem to increase their popularity.

“But I don’t want to go among mad people,” Alice remarked.
“Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.”
“How do you know I’m mad?” said Alice.
“You must be,” said the Cat, “or you wouldn’t have come here.”
― Lewis Carroll, Alice in Wonderland

As Mark Twin is attributed for saying “History doesn’t repeat itself but it often rhymes”.  So before looking at where we are today here is some historical perspective.  

Wars,  bear markets and recessions tend to start in the first two years of a president’s term, says The Stock Trader’s Almanac; bull markets mark the latter half.  Since 1833, the Dow Jones industrial average has gained an average of 10.4% in the year before a presidential election, and nearly 6%, on average, in the election year.  By contrast, the first and second years of a president’s term see average gains of 2.5% and 4.2%, respectively. A notable recent exception to decent election-year returns: 2008, when the Dow sank nearly 34%. (Returns are based on price only and exclude dividends.)  In the 22 president elections since 1928, 14 were preceded by gains in the three months prior. In 12 of those 14 instances, the incumbent (or the incumbent party) won the White House. In seven of eight elections preceded by three months of stock market losses, incumbents were sent packing. Exceptions to this correlation occurred in 1956, 1968 and 1980.

Having said all of that not only is this Presidential race is unique but the entire election cycle is not consistent with past experience.  The Dow Jones Industrial Average was up 27% in the first year of President Obama’s second term, and 7.5% in year two. Last year (2015), which was supposed to be the strongest of the cycle, saw the Dow industrials drop 2% helping to prove why past performance doesn’t guarantee future results.

In terms of which party may be better for the markets conventional wisdom might suggest that Republicans, who are supposedly more business-friendly than the Democrats, would be more beneficial.   In fact, looking back to 1900, Democrats have been slightly better for stocks, with the Dow up an average of nearly 9% annually when the Democrats are in control, compared with nearly 6% per year during Republican administrations.

One popular theory suggests that the incumbent party leverages economic policies to give the market a slight nudge just before election time, then allows the market to appropriately correct itself once elections are over. Another theory proposes that investor confidence tends to rise based on the lofty promises of candidates vying for office, then tapers off as some of those promises fall by the wayside.

Regardless of which theory, if any, you choose to believe, it’s important to remember that traditional fundamentals, and public perception, always impact markets. Isolated factors such as political elections never explain the whole story.  More importantly, in our opinion, predicting what the broader markets will do is not only difficult but not relevant for people who have a strong comprehensive plan.   Proper proactive planning should take into account both anticipated volatility and unforeseen events so that they will not affect your ability to maintain and enhance your lifestyle.  We have developed and refined a proprietary process for doing this called Personal Vision Planning ™  .  This is what we utilize with our clients to help simplify their lives while protecting and enhancing their lifestyles.

So where do we go from here?  Ultimately who wins the Whitehouse may matter less than the overall political landscape of the House and Senate once the dust settles.  Broad markets can handle bad news and also good news but become very volatile when there is uncertainty.  Until we have more clarity on the political landscape, and policy direction of whomever prevails, we anticipate continued broad market volatility.  Regardless of the outcome we believe there will be strong growth for the domestic equity markets over the next three to five years.  As interest rates rise long term fixed income investments will under-perform.  Many may miss the opportunity for growth as they focus on negative social issues such as higher inflation and unemployment.   As always we recommend a broadly diversified asset allocation that includes cash and short term fixed investment for any near term needs to so that market and portfolio fluctuations do not impact you or your lifestyle.   If nothing else the election will be good political theatre!

“Have I gone mad?
“I’m afraid so, but let me tell you something, the best people usually are.”
― Lewis Carroll, Alice in Wonderland

Please note that will be hosting Andy Friedman for two exclusive events on September 7th (7 pm) and 8th (8:30 am) at LaMalfa Center in Mentor OH.    According to CNBC, Andy Friedman is “one of the nation’s most sought-after speakers on all things political.”    If you would like to attend there is neither a cost nor any obligation; however due to limited space reservations are required.  Please contact our office (440) 974-0808 or click here to reserve space.

 

 

The information contained in this report 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. 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. Past performance may not be indicative of future results. 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. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.

An Amazing Week with Alan Greenspan, Sir John Sawers, Cokie Roberts and more

Our team strongly believes in continuing education and meeting directly with world and thought leaders so that we can provide you with timely, unbiased and relevant information.   The week of February 1st, 2016 was a  truly amazing week as I had the opportunity to meet with Alan Greenspan (former FED chairman), Sir John Sawers (former head of MI6), Cokie Roberts and more than a dozen other influential leaders  to hear their thoughts.  We had more than a dozen meetings over five days in two cities.  What is very interesting is that there are some common themes and insights which I outline below.  As always please feel free to contact me, or your advisor, with questions, comments or if we can otherwise be of service.

There is a consensus that both the United States and world as a whole are facing some new challenges and threats which we discuss in more detail below including an existential threat from Russia and a more direct threat of cyber-attacks.   With  that being said, all of the leaders that I spoke with were very optimistic about the outlook for the United States and its place in the world – and more specifically our equity markets over the next three to five years.   They believe we will remain the dominant super power and our currency will continue to be the reserve currency at least for the relative near term.  As is generally the case in life there are some great opportunities for the country, and individuals,  who have the courage to take advantage of them but also some significant challenges and risks ahead.  There was general acknowledgement that it is virtually impossible to predict what will happen over very short periods of time (one to six months) and that ultimately if someone plans properly it really doesn’t matter.

Low oil prices are helping some poorer countries like India and will benefit the United States over the next few years.  While there are some who have said that low oil prices could lead to a recession we believe the opposite is true- that this will lead to more inflation .  In the near term the lower oil prices are helping put more dollars in the hands of individuals and the only ones really suffering are large oil companies.  The impact on our economy of people having more cash is not likely to be seen in the statistics for another six to twelve months.

Nobody has a crystal ball and we believe that with proper planning short term market and interest rate changes should not matter.   Having said that there is some consensus about the longer term outlook.   We agree that over the next five to ten years interest rates will go up, inflation will go up, unemployment will go up and that the broader domestic markets will move up strongly.   There will be increased volatility that will cause some to miss the potential for  growth due to fear.   Interestingly Mr. Greenspan expressed a different perspective.

“We are at this moment faced with a number of serious long term economic problems, all in a sense having to do with the underinvesting in our economic future.  My most worrisome concern is our broken political system”, Alan Greenspan

One of largest global change factors in the world is China. China is struggling now as they transition from a command and control economy to more of a market economy.  They also face challenges as they move from a net exporter to a domestic economy.  China has a choice to essentially compete with the west or to partner.  They are moving in the direction of a partnership but this presents challenges for several reasons including the planning perspective of our respective countries.  In the United States things are planned for the next quarter, year or often at most the next election cycle.  The Chinese think in terms of decade’s even centuries and plan as such.

While it was expressed that the biggest existential threat right now for the world is Russia – it was not felt that they are a direct threat to the United States.

The largest disrupter today is technology.  Technology will help create efficiencies and reduce expenses but will also eliminate jobs both in the near term and more so in the future.  One upside to increased technology is that ‘big data’ should  expose any fraud, deception or discrepancies in markets or accounts creating more transparency and efficiency.   With an increasingly connected world cyber security at a personal, corporate and National level is critical.   There is consensus that cyber-attacks are the single biggest threat to the nation at this time which we are seeing currently addressed in Washington.

It is believed that while we  hear a lot about government and tax reform but little will be done by Congress or the Senate before the Presidential election this fall.  There is a need to address the Federal Debt which will continue to grow until there is entitlement reform as entitlements (Social Security, Medicare, Welfare, Medicaid, etc.) account for almost 60% of the federal budget.  As interest rates rise so too will the interest on the debt which will need to be paid.  The leaders that we spoke to feel that this will be resolved but it will be a long and painful process which will result in cuts to entitlements and most likely means testing. This is unlikely to affect anyone who is 55 – 60 year old today but will be directed towards the next generation and will take effect long after today’s politicians are out of office.  This is why personal planning, rather than reliance on government programs will be critical.

In the US we have many baby boomers whose wealth planning is shifting from focusing on growth to generating income as they retire.  The challenge is that they are living longer and will need their funds to last.   This emphasizes the need for proper planning based on each person’s situation – not the previous generations or some rule of thumb.  Our Personal Vision Planning® process address’ each person’s needs, resources and goals with a plan based on their situation – not a model or rule of thumb.

What should you do now?

As the pace of change accelerates and factors affecting become increasingly complex it’s important that your planning is monitored and updated on a regular basis.  We do not advocate market timing or short term trading for investments but do believe it is critical to actively monitor and rebalance.  In our opinion the idea of simply buying and holding a generic portfolio does not make sense  as this must be a dynamic process based on both your evolving needs and changes to markets, interest rates and regulation.    We believe that inflation and the ability to maintain and enhance our standard of living is a major risk for many people which may be negated by properly allocating your portfolio.  Finally, it is critical to make decisions based on your situation and looking forward – not based on past performance or experience.   Planning based on the past is like driving down the road looking in the rear view mirror – it’s fine unless the road turns. For example we have not seen interest rates rise for more than 20 years – planning based on bond performance over the last decade will not, in our opinion, produce similar results going forward.

The only things we can say with certainly are  that change will continue and we cannot predict the future.  Your overall planning is a process that is continually evolving – not a static onetime event.  We appreciate the opportunity to partner with a select group to bring you timely and relevant information while being a partner to you and your family for generations to come.  Please contact our team with any questions or whenever we may be of service to you or your friends.  There are exciting times ahead and we look forward to helping you benefit from them.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any opinions are those of the Randy Carver and not necessarily those of RJFS or Raymond James.   Investors should consult with a financial advisor and consider their investment goals, risk tolerance and time horizon before making any investment decision. Past performance is not a guarantee of future results.  There is no guarantee that these statements, opinions or forecasts provided will prove to be correct. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Keep in mind that individuals cannot invest directly in any index. Diversification and asset allocation do not ensure a profit or protect against a loss.

Asking the right questions about the Market and a Correction

It is not a matter of if general equity markets will correct but when and by how much. The real question we need to ask ourselves is how it will impact me and my investments and are we prepared.  If we are properly allocated for our needs, and our risk tolerance, than market volatility – either up or down – should not affect us financially. Properly planning, however, is not just about allocation and analysis but also being psychologically prepared for the inevitable portfolio fluctuations.

We are inundated with information on the radio, TV, internet, newspapers and other media. All of these sources are competing for our attention and will generally focus on the dramatic, short term and negative. Much of the information may be misleading, incomplete or totally false. Ultimately the goal for much of the media is to sell advertising, not to provide us with unbiased information.

We are planning and investing for the rest of our lives, and in many cases beyond our lifetime, as we plan for our children. Your financial planning must be based on your needs and objectives not short term market or economic changes. A proper financial plan takes into consideration the normal market gyrations and even unforeseen issues that arise both personally and also more generally. Your financial advisor plays a key role in helping you define what your vision is and then developing a plan to meet it. But this is just the start – your plan is a dynamic document and must continually be monitored and updated as your needs and goals change.

We work with you to help figure out what is important and then develop, monitor and update a plan to achieve your goals. Your planning is based on you and your vision – not short term market conditions.

This month we have heard about the issues with China, a flood of refugees from Syria in Europe, potential interest rate increases by the FED and terrorism abroad and at home just to name a few of the news items. As we get closer to the 2016 election we believe politicians will focus on all that is wrong, or potentially wrong, to help promote themselves and their solutions. The media will shout the refrain – ‘This time it’s different’. The reality is that there have always been challenges for individuals and our society and as we become more global both in terms of information and as a society we will hear about new issues. Ultimately, those who succeed will rise above the noise and focus on what’s important to them. There are things we can control, and things we cannot. By utilizing a disciplined approach to planning, monitoring and updating our portfolios we can rise above the noise. As always please contact us with questions or whenever we may be of service to you, your family or your friends.

 

 

 

Any opinions are those of Randy Carver and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The Economy Continues To Do Well

The day-to-day market volatility and melodramatic news from the media would lead one to believe that the economy is floundering. Yet, by most objective measures the, U.S. economy continues to improve and strengthen.

The Commerce Department has announced that gross domestic product increased by a 3% annual rate January through March. The data also showed corporate profits picking up. After-tax earnings climbed 9.7%, better than 8.2% during the fourth quarter. Year over year, profits were 42.7% higher, as the economy recovers from its deep recession. Certainly the unemployment remains elevated, however, this number is somewhat skewed by the extension and expansion of benefits for many. Moreover, the situation appears to be improving.

Reuters reported that Monster U.S. online jobs index, a gauge of online demand for labor in the United States, rose in April for a third straight month and posted its largest year-on-year percentage gain since July 2007. The data adds to signs of a rebound in the labor market with a growing trend of job demand from private companies, while plans for layoffs fell to their lowest level in four years in May. In the last five months almost 2 million new jobs have been created – 1.6 million in the private sector.

Finally, and perhaps most indicative of the strength of the economy, is that consumption is at an all time high. That’s right – people are spending more in the United States than ever before in history!

Certainly questions remain about the state of global markets. With that being said concerns about the euro have helped the U.S. dollar strengthen and have lead to additional foreign investment in the United States. On May 25 Federal Reserve Bank of St. Louis President James Bullard commented: “In the United States and globally, the recovery remains on track.”

He rested his confidence that growth will withstand the trouble now reverberating across financial markets on the stance of governments. Leaders “have made it very clear over the course of the last two years that they will not allow major financial institutions to fail outright at this juncture,” Bullard said. “Because these too-big-to-fail guarantees are in place, the contagion effects are much less likely to occur.”

We expect continued market volatility as we approach the mid-term elections and that inflation and income taxes will start to increase next year. Longer term, we also expect the general equity markets to grow. As always we recommend keeping any funds that you anticipate needing in the next 12 months in cash and/or short fixed income investments in addition to an emergency reserve. Longer-term savings should be invested in a diversified portfolio of equities and fixed income investments that are both domestic and foreign. The specific mix is dependent upon your individual needs, objectives and risk tolerance.

We hope that you are enjoying your summer and the good ecnomomy. The only thing worse than being upset about a bad economy is being worried when things are really good.

Please contact any of the financial advisors in the office if you would like to discuss your portfolio or if we can otherwise be of service to you, your family or friends. We are taking new clients on by referral only so please make sure that anyone who calls mentions your name.