Three Cuts and They’re Out-For Now

Blog post #418

The US Federal Reserve cut short term interest rates on Wednesday, for the third time since July, 2019. They signaled that this is likely to be the last reduction for now, unless the economy slows sharply.

“The current stance of (interest rate) policy is likely to remain appropriate” as long as the economy expands moderately and the labor market remains strong, said Fed Chairman Jerome Powell in a press conference after the Fed’s two day meeting.*

This rate cut reduces the federal funds range by .25%, to a range between 1.50%-1.75%. This impacts short term interest rates, but long term interest rates have also declined in 2019.

Analysts interpreted the Fed’s statement and press conference answers to indicate that the bar has been raised for the next increase or decrease, meaning it is likely that short term rates will remain at these levels for a number of quarters into the future.

Major change since last year

These actions are in sharp contrast to the Fed’s actions in 2018, when they raised short term interest rates 4 times, and had expectations for further increases well into 2019 and 2020.

A year ago, the Fed funds range was 2-2.25% and were expected to be in range of 2.75%-3.25% by the end of 2019, as our blog post dated November 8, 2018 discussed.

Due to weakening global growth, continued trade-policy uncertainty and muted inflation, the Fed felt it was necessary to cut rates during 2019. Current short term interest rates are 1%-1.5% less than the Federal Reserve expected at this time last year. This shows how difficult it is to predict the direction of interest rates and financial markets.

Longer term interest rates have also dropped significantly over the past year. The 10 year US Treasury Note yield was 3.214% at the end of October, 2018 (last year). Today, that rate is 1.70%, a drop of more than 1.5%. This has had the impact of reducing mortgage rates and other borrowing costs during the past year.

How is the economy doing?

We remain positive about the economy and growth in the US. Throughout 2019, many analysts and financial commentators have expressed recession concerns in the US and globally. There is still no sign of that occurring now.

Economic data continues to show that companies and US consumers are doing well. US GDP, an indication of economic growth, grew at an annual rate of 1.9% in the last quarter. This was stronger than economists expected, but less than than the growth in the prior quarter of 2.0%. Business spending did decline, but consumer spending remains strong, as does housing and unemployment remains at 50 year lows.**

Corporate earnings continue to beat analysts expectations. While overall earnings for the S&P 500 are on track to decline for the 3rd straight quarter, about 75% of the 342 companies that have reported earnings as of the morning of October 30th have beaten Wall Street expectations. The energy sector accounts for most of the reason for the decline in corporate profits, and along with utilities, have the most earnings misses.***

Based on this information, if the energy sector was excluded, it appears that corporate profits continue to grow. The growth in corporate earnings, and their future expectations, is what causes stock prices to increase in the long run. Earnings are expected to grow 5.7% and 7.1%, respectively, in the first and second quarters of 2020.***

The Fed has acted to prevent or minimize the risk of a recession. The US consumer is feeling good, secure about their job prospects and continues to spend. Corporate earnings remain solid. These are some of the reasons why we continue to remain positive for the long term.

We hope you find this analysis to be timely, helpful and provides you with clarity and information that is understandable.

We want you to focus on your long term financial goals, not on short term moves in interest rates or stocks. However, this type of information can be helpful in keeping you on track and sticking with the financial plan that we have developed for you.


* “Fed Cuts Rates, Signals a Pause,” Wall Street Journal, October 31, 2019, page 1

** “Consumer Spending Bolsters Growth,” Wall Street Journal, October 31, 2019, page 2

*** “Better-Than-Expected Earnings Ease Growth Fears -for Now,”, October 31, 2019

Investing in ourselves….for you

Blog post #417



Full of ideas.

These are some of the feelings I have after concluding a weekend learning group session I had with advisors from across the country and from our back office firm’s Annual National Conference, which Michelle Graham and Bradford Newsome also attended.

I am also feeling a bit overwhelmed, for a good reason.

We all brought back lots of ideas….ranging from technology tools we will be using in the near future, thoughts on portfolio management, how to build closer relationships with you, our clients, and conversations you could be having with your family members about money and wealth.

Gaining exposure to a wide range of speakers and a diverse set of issues was the reason we had three attendees at this conference.  We strongly believe it is important to invest in ourselves and our firm, as continuous learners, to strive to improve and continuously get better.

Over the weekend, a presenter encouraged us to review various processes and systems in our office and how we interact with our clients. How can we make things easier for you? How can we reduce friction, so you can implement and move things forward? How can paperwork and interactions with our firm be made easier? How can we be more hands on in helping you with certain tasks, such as linking your 401(k) with our firm or helping you to deal with updating your estate planning documents?

People do not want to deal with certain tasks that are unpleasant, multi-step, take a long time to complete or have a lot of uncertainty. We can help with these. We want to help you tackle things like insurance needs, 401(k) investment choices, long term care assessments and any other financially related item in your life. We encourage you to reach out to us. With our assistance, we want to make issues and projects like these easier for you to deal with.

  • These are ways we can save you time and effort, help you deal with something you know you should be doing and add value, all as part of our comprehensive relationship.

Another speaker gave a very impactful and moving talk about how family members handle the topic of money within their family relationships. He recommended that we should all be more vulnerable, to be more open with our relatives, whether that is with our parents, siblings or children.

To practice this type of vulnerability, he made a suggestion that really hit home with many attendees. He encouraged us to ask our children how we are doing as parents (not necessarily about money, but as parents in general)….and listen to the feedback we get. This could really be an interesting and eye opening discussion. If you try this one out, let me know how this goes! As my kids sometimes read these posts, I wonder how this will go for me!

This speaker primarily works with affluent families. He defined this as “when you have more than you need…and you have to think about what to do with it….you are wealthy.” This is obviously a fortunate position to be in, but as he explained, many families struggle with the issues of wealth. We can help you work through and resolve some of these issues.

We heard from numerous speakers on investment topics, including current research and thoughts about the financial markets. While value company stocks have underperformed growth stocks for many years, many speakers provided evidence and confidence that the value premium still exists and is valid throughout the world. Bradford and I spent a lengthy time, one on one, with one of the top Investment Policy Committee members to discuss these matters in depth. Continuing to review, and further analysis from these discussions, is one of our top near-term priorities. The access to high level financial and research professionals, and their research, is a major reason we attend these conferences.

The last speaker of the conference was one of the best speakers I have ever heard, Tommy Spaulding. The emphasis of his talk was on the importance of relationships and how we all need to deepen our relationships. He encouraged us to go from talking about NWS (news, weather and sports), to much deeper relationships with our clients and others in our lives. His message was important, and something we will be making a priority.

This ties in closely with another speaker, who encouraged us to focus more of our conversations with you, our clients, to be more about your life, and not just money. He feels an important aspect of the client/advisor relationship should be about your ability to live out your life dreams.

  • What are your dreams?
  • How can we help you to accomplish more of them?
  • Is there more risk in the next really big market decline, such as in 2008-09, or is there more risk that you will not live out your life dreams and goals?

These are great questions for future conversations.

You can see we returned home with many to-do’s, concepts to further explore and ideas to implement.

We want your input and your suggestions. We may ask you about these during future calls and meetings.

  • What do you value from us?
  • What can we do better?
  • How can we improve?
  • Do you value this weekly blog that we write, which is significant time commitment?
  • Please share your thoughts with us at We want to hear from you!

We are committed to providing you with excellent service, solid long term investment guidance and the planning necessary so that you can reach your financial and life goals.

We feel that we can provide the same valuable benefits to your friends and family members. We are committed to providing these services to you, as well as growing our firm with referrals of friends and family, from people like you.

Let’s Talk. There is a lot to talk about!

2020 Social Security Benefit and Payroll Tax Increases

Blog post #416

Social Security is still vital for nearly all Americans. Annual payments can be $15,000-$36,000 per year, which is the equivalent of withdrawing 4% per year from an account value of $400,000-$900,000.

Social Security recipients will be receiving a 1.6% increase in 2020 benefits. This benefit increase will likely be partially offset by slightly higher Medicare health premiums in 2020.

The increase in gross benefits would be the smallest annual COLA change since 2017. Recent changes have been: 2019 – 2.8%, 2018 – 2.0%, 2017 – 0.3% and 2016 – no increase.

A 1.6% COLA increase in 2020 would raise the average monthly Social Security retirement benefit by about $32, to $1,503. The 1.6% COLA increase would also increase the maximum retirement benefit, currently $2,861 per month, by about $150 per month, to $3,011 for someone at full retirement age in 2020.

In 2020, the maximum wage base subject to Social Security and Medicare taxes will increase $4,800, from $132,900 to $137,700, a 3.6% increase. This will cost employees and employers each $367.20. Additionally, all earnings, even those above the $137,700 Social Security maximum, are subject to a 1.45% Medicare tax. Plus, individuals with earned income above $200,000 and married filers with earned income above $250,000 pay an additional .9% in Medicare taxes.

The earnings limit for those who claim Social Security benefits before their full retirement age will increase from $17,040 to $18,240 in 2020. If this applies to you, you lose $1 benefit for every $2 earned in wages or earned income over $18,240.

We hope this information is helpful to you.  Regardless of your other assets, Social Security benefits are an important aspect of your financial future.  Please contact us if you have questions about Social Security or related planning matters.

“Social Security COLA for 2020 will be 1.6 percent”, InvestmentNews.comby Mary Beth Franklin, October 10, 2019

The Value of Fixed Income

Blog post #415

What is the importance of fixed income to your overall portfolio?

How do we add value to your fixed income allocation?

Are you paying proper attention to the interest you are receiving on your cash, particularly at your bank?

The part of your portfolio that is invested in fixed income is primarily to provide you with stability and safety, as well as income. We determine your fixed income allocation based on your age, your need and ability to take risk, as well as your time horizon, for various goals. High quality fixed income investments, such as investment grade individual corporate and government bonds, CDs, municipal bonds and bond mutual funds do not experience the same type of short-term volatility that comes with investing in stocks.

The less willing you are to have volatile swings in your portfolio, the greater we would recommend your allocation to fixed income. The fixed income investments provide you with stability, like the foundation to a house. 

When we structure the fixed income portfolio for you, our objective is for these investments to provide a market rate of interest for a high-quality security, with the primary objective being the return of your principal. For example, if a typical investment grade, high quality 5 year corporate bond is paying 3.5%, we would not purchase a 5 year bond that is paying 6.5%, as the financial markets are saying that the second issuer is much riskier, as it is paying a large premium to attract investors.

Risk and reward are correlated. If you don’t get paid back on the bond at maturity, the benefit of the higher interest yield would not be worth it in the long run. In fixed income, we do not want to take on that additional risk. That is why we do not buy junk or high yield bonds and recommend that you don’t either. If you have accounts elsewhere, are you sure that you do not have any junk bonds in your portfolio?

When clients have adequate funds for us to structure a diversified portfolio of individual fixed income securities, we do that. We evaluate their tax rate, to see if municipal bonds would make sense for their taxable accounts. We would evaluate the financial markets, comparing the various interest rates and risk factors, such as corporate bonds v government bonds and CDs. To purchase an investment grade corporate bond, the issuer must be paying a greater interest rate, as the government bonds and CDs have minimal default risk.

When we structure individual securities for a fixed income portfolio, we have many guidelines and principles, all with the goal of striving to reduce your risk. We only invest in high quality, investment grade instruments. We strongly believe in diversification. We strive to diversify across issuers, and limit how much of any bonds would be held by any single issuer. There are certain sectors, industries and states that we avoid, as we perceive them to be too risky. When we purchase municipal bonds, we diversify across many states, to spread your risk geographically. We purchase these securities with the objective of holding them to maturity. We are not trying to make bets on the direction of interest rate rates, as that is very difficult to predict.

If we are able to purchase individual securities in this manner, we can eliminate a tier of fees you may incur, which is the expense ratio of bond mutual funds. There are also other benefits we provide, as you are not exposed to gains that may be incurred when others sell the bond fund, as well as permanent losses that can be incurred in bond mutual funds, when interest rates rise.

Through our back-office firm, we closely monitor the credit ratings of all the fixed income securities that are held on behalf of our clients. If securities are downgraded, due to a deterioration of the financial quality of the issuer, we would consider selling the bond prior to maturity, to reduce or minimize a loss of principal.

For accounts that do not have adequate assets to develop a diversified individual fixed income portfolio, we would use a bond mutual fund, as having adequate diversification is of primary importance.

The fixed income portfolios we have discussed above is usually part of your long term savings. For your short term cash or savings, you should still carefully monitor what interest rate you are receiving at your bank or other accounts. Many banks are still paying close to nothing on many checking, savings or money market accounts. Unlike Fidelity Investments, our primary custodian, many brokerage firms are not paying money market rates on cash or sweep accounts. 

We can provide you with money market accounts or alternatives to cash, as well as fixed income investments that offer liquidity, generally within a few days, on conservative fixed income investments. We strive to be as efficient as possible with your assets, including your cash. Together, let’s determine what the right amount of cash and fixed income is best for you.

Financial Markets Don’t Come with Traffic Signals

Blog post #414

It is unfortunate, but true.  There are not financial traffic lights that signal “green,” it’s all clear now…you can proceed to enter the stock market with no risk.

There are no reliable financial traffic lights that signal “red” and tell you accurately and repeatedly when you should be exiting the stock market.

There are not even “yellow” caution traffic lights, that can accurately and consistently warn you of impending downturns in the stock market.

So, how can you handle the volatility that comes with investing in stocks?

We discuss this topic with you, as clients.  As your advisor and guide, we want you to be prepared for market downturns, as they can occur at any time.  While we don’t have traffic lights, we can help you deal with the volatility you experience on your investment journey.

You should have a written financial plan. It does not need to be fancy. Working with us, we will prepare a financial plan for you and help you adhere to the plan, through the ups and downs of the financial markets. Your written financial plan should provide an asset allocation that makes sense for you and your family, for whatever short and long term financial goals you have. We develop this plan for you, and decide how much to allocate to fixed income (cash, bonds, CDs) and how much to invest in stocks, and where, such as US, international, emerging markets and real estate.

So what about now? What is going on? What should you do?

Part of our philosophy is recognizing that we do not have a crystal ball and that we cannot predict the future. That being said, we are realistic and optimistic, for the long term. History teaches us that if you are a patient, globally diversified investor, you will be rewarded. Companies, people and countries innovate and are resilient.

As Warren Buffett has stated, “Mr. Market” is usually too optimistic or too pessimistic. Some type of uncertainty always exists. That will not change. We focus on what we can control. We plan and focus for the long term.

Timing the market does not work. We wish we had a crystal ball. We wish we had the perfect financial traffic light. But that is not reality.

Instead, we have a solid investment philosophy (which is not based on predictions and guess work) and financial planning skills that can provide you, our clients, with a sense of comfort and financial security to help you reach and maintain your financial and lifestyle goals.

Talk to us.