Investing at Market Highs

Blog post #482

At the end of April, 2021, most US stock market indices are near their all-time highs.

What does that mean for your current, and future, investments?

As Exhibit 1 below indicates, when the S & P 500 has reached highs in the past (for data from 1926-2018), the S & P 500 went on to provide positive average annualized returns over the one, three, and five years following new market highs. And those returns were significant, averaging over 14% during the subsequent one year and around 10% over the subsequent three and five year time periods.

Please see Exhibit Disclosures below.*

What does that mean for you today? It means there is justification, based on historical financial data of almost 100 years, that new market highs today are NOT a sign of negative returns to come over the next 1-5 years, on average. While none of us can predict what will occur in the next few weeks, months or years, this type of rational optimism is the basis for remaining invested for the future.

We believe in broadly diversified portfolios, investing in much more than just the S & P 500, which represents only large, US based companies. However, we feel this data should give you confidence to remain invested for the long-term, with a stock allocation that is appropriate for your personal circumstances and time frame.

While some asset classes are at high levels, other asset classes may not be at highs or have valuations which are significantly below the valuations of US large stocks. This is where our discipline and planning can benefit you.

When you begin as a client with us, we develop a target asset allocation plan, based on your personal goals and time horizon, say 65% stocks and 35% fixed income. As stocks have increased, your stock allocation may have grown from 65% to near 70%. As this occurs, we are disciplined. We would review your account and consider selling some asset classes of stocks to bring your stock allocation back to 65%.

This is called rebalancing. It is the discipline to sell when stocks increase and buy when they decline. We review this on an overall basis, on a US and International level, as well as at each asset class level. We balance the tax ramifications of selling versus the increased risk of allowing your stock allocation to grow way higher than the risk target level we planned with you.

As stocks have recovered since March 2020 and are now significantly higher, in general, we are actively reviewing client accounts that need to be rebalanced. This is the discipline and one of the values we provide to you. We will take profits and keep your stock allocation in line with your asset allocation target.

In addition to our rebalancing discipline, we want to remind you about expected volatility that is normal with investing in stocks.

You should expect that in most year’s there will be a decline of around 10% in stock values, from a peak. This does not mean that the full year will be negative, it just means that at some time during most years there are declines of around 10% and then recoveries. This is the normal volatility we must endure to reap the longer-terms rewards of investing in stocks.

In other periods, usually every 3-5 years, there are major stock market declines of more than 30%. These may be fast or take a few years to go down and many years to recover. These are normal and should also be expected.

A few mornings ago, the CNBC screen read something like: Analyst: brace for 10-20% decline. I thought to myself, investors in stocks should always be prepared for that type of decline. It is normal. We just don’t know when it will occur. Remember, declines are temporary on the long-term upward trend of stocks. 

If you can handle the volatility, the positive news is that you don’t need to be able to time markets to have a good investment experience. Over time, capital markets have rewarded investors who have taken a long-term perspective and remain disciplined in the face of short-term noise.

By focusing on the things you can control (like having an appropriate asset allocation, being diversified and managing expenses, turnover and taxes), you can be better positioned to make the most of what global stock markets have to offer.

Talk to us.  We want to listen.  We want to assist you, your family members and friends.  

*Exhibit 1 Notes:

In US dollars.  Past performance is no guarantee of future results.  New market highs are defined as months ending with the market above all previous levels for the sample period.  Annualized compound returns are computed for the relevant time periods subsequent to new market highs and averaged across all new market high observations.  There were 1,115 observation months in the sample.  January 1990–Present: S&P 500 Total Returns Index. S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926–December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only.  Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the managment of an actual portfolio.  There is always a risk that an investor may lose money.

“Timing Isn’t Everything”, Dimensional Funds, July 1, 2019

Investing for Long Run

Blog post #461

We invest for the long run. For long-term financial goals like college and your retirement.

Think of your investment horizon as nearing and then crossing a bridge, such as the Mackinaw Bridge or Golden Gate Bridge.

The investment horizon while you are saving is the period while you drive towards the bridge.

When your kids enter college or you near/begin retirement are comparable to after you have crossed the bridge.

These are serious financial goals and we make our investment recommendations accordingly. We don’t take unnecessary risks. We diversify. We recommend building a globally diversified portfolio that contains thousands of stocks, across industry sectors and geographic regions. We invest in large and small companies, in the US and across the globe.

As we build your portfolio, if you consider it like driving over the bridge, we think it is better to drive in the middle (having a broadly diversified portfolio) than riding the edges of the bridge with no guardrails (owning few stocks or very risky stocks concentrated in one sector or region).*


Why do we structure our portfolios in this diversified manner? Wouldn’t it be better to just load up on high tech stocks? Because the less diversified you are, the closer you may get to the edge of the bridge. Sometimes, this can mean higher returns, but it also may mean greater losses. Owning huge positions in individual stocks can lead to large losses which are unnecessary and hard to recover from.

With a globally diversified portfolio, you will have fewer reasons to worry about poor returns from a single stock or asset class. This does not mean that we recommend 50% or more outside of the US. We generally recommend holding 20-30% of your stocks outside of the US, depending on your personal circumstances. Because there have been many time periods in the past when non-US (International stocks) outperform US stocks for long periods of time, we feel this is prudent in the long-term. And that will keep you in the center of your financial road.

As you approach a bridge, there is frequently a backup. You are stuck in traffic. You may want to change lanes to get in the best toll booth lane. But once you switch lanes, your new lane becomes the slow lane. If you keep changing lanes, you will usually get more and more frustrated.

Investors do similar things. They can be impatient. They may want to get out of the stock market when the road gets scary. They may want to eliminate certain sectors of the stock market from their portfolio (such as small value and International stocks) because they are underperforming other asset classes, even though long-term historical data shows that they outperform or add important diversification benefits over long periods of time.

While we do not have a clear roadmap of the future, we feel that being disciplined and relying on historical financial evidence is better than guessing and continuously changing lanes.

We provide you with objective, rational advice. We do not give in to panic or make hasty, emotional decisions.

For most of us, whether crossing a bridge or investing, we want to follow a safer and prudent path. Your future is too important to risk.

Talk to us. We want to listen. We want to assist you, your family members and friends.


Source:  *27 Principles Every Investor Should Know, by Steven J. Atkinson (Illustrations by Dan Roam) July 2019

Market update – June 2019

Blog post #397

We always advise you to focus on the long-term and today is no different.

Years from now, the market moves of the past 6 weeks or few months will not be remembered and will likely be irrelevant to your long-term financial future.

However, at times it is important to review what has been occurring in the financial markets, so you can have a better understanding and perspective of the financial world.

We feel the main factors that have influenced stock market and economic movements in recent months are:

  • trade war and tariffs
  • interest rates
  • oil prices
  • still solid economic figures, such as generally strong earnings and employment numbers.

Trade and tariff issues: Over the past 6 weeks, since May 5th when President Trump announced new trade tariffs on China and more recently potential new tariffs on Mexico, global stock markets have declined. We cannot forecast how these trade matters will play out, as to who will win and who the losers will be.

We generally are in favor of free trade, if the playing field is considered fair to all parties. As many observers of International trade matters feel that China does not treat US companies fairly, the longer term goals and objectives of the Trump administration may be worth pursuing, even if they cause some near-term problems.

As in most situations, businesses and markets adjust to new realities. Already, we are reading that major companies that produce goods in China are implementing and making plans to change where they manufacture these products, away from China to avoid these tariffs. This will likely cause/force China to be more willing to reach an agreement at some point with the US administration.

While these recent developments have caused declines in broad US and International stock markets in recent weeks, on a year to date basis most major asset classes remain positive for the year, with wide variances between asset classes.

Interest rates: Interest rates within the US and globally remain historically very low and have dropped significantly in recent months. The 10 year US Treasury Note is considered a benchmark for many loans, including mortgages. The 10 year rate peaked at 3.2% in early November, 2018, when fears of rising interest rates caused stock markets to decline.

Since then, the 10 year Note has decreased dramatically to around 2.1%. Some feel the cause of this decline is due to concerns of slowing future economic activity. Others attribute the drop to foreign factors, as interest rates in most of the world remain far below these levels.

Earlier this week, Fed Chair Jay Powell stated that the Federal Reserve “did not know how or when the trade issues will be resolved….(but) as always, we will act as appropriate to sustain the expansion (of the US economy).” This was interpreted as another step towards the Fed decreasing/cutting short-term interest rates, and certainly not increasing them, as the Fed was projecting in the fall of 2018 for most of 2019.

Whatever the cause, many economists and forecasters are now predicting the Fed to decrease short-term interest rates later in 2019, which is a complete reversal from what most were predicting a year ago, or even 4-6 months ago.

This change in the Fed’s position in Tuesday’s speech led to one of the largest daily gains of 2019 for the US stock market. On Monday afternoon, stock market analysts were gloomy and pessimistic. And then on Tuesday, markets had their best day since January 4th. This is just another example why we advocate not trying to time the stock market.

Oil prices: Interestingly, oil prices peaked in early October, 2018, about a month earlier than the interest rate peak. Oil prices, as defined by WTI price per barrel, peaked at $76.41 on October 3, 2018 and have dropped to nearly $51 per barrel, a decline of over 30%.

The huge oil price drop can be attributed to many factors, including a perceived decline in demand due to a potentially slowing global economy, as well as increased supply in oil due primarily to US production increases.

Demand will always fluctuate based on changing needs and economic swings. The more important long-term trend that has had a major impact on oil prices is the huge increase in US oil production over the past years. We think this is a significant positive, which will have an ongoing positive influence for corporations and consumers alike, as it will provide for a cap/limit on oil prices. If overseas oil producers reduce production to limit supply, that would temporarily drive oil prices higher. And those higher prices will induce even greater US production, which would then drive oil prices back down.


  • The trade tariff issue will cause short term volatility and the outcome cannot be predicted in advance. There are likely to be settlements at some point, but there will also be new threats, new tariffs and unexpected surprises along the way, both positive and negative.
    • These issues should not cause you to change your investment policy or strategy.
  • The decline in interest rates and oils prices are good for the economy and may in fact prevent a recession or economic slow down, if one was even going to occur.
  • Cheaper oil prices and lower interest rates are good for consumers and companies, as it makes buying and producing products cheaper. It makes house purchasing cheaper, transportation less costly…..all positive factors.

We hope this information is helpful to you.

Again, it is in your best interest that your investment policy for the long term should not be influenced by short term trends and issues.

But understanding why markets have reacted over the last few days or months may be important for you to be aware of. If this can provide you with that knowledge and comfort, than our guidance and insights are valuable.

Will you even remember this occurred?

Late last year, most global stock markets dropped sharply. On Christmas Eve, the US markets had their worst Christmas Eve ever.*

Since Christmas, 2018, worldwide stock markets have risen dramatically and have recouped a large portion of the late 2018 decline.

In 66 trading days leading up to Christmas Eve, the S&P 500 declined 19.8%. However, in the 33 trading days December 26th to February 13, 2019, the S&P 500 has increased 16.6%.**

The chart below represents the above trading period, from 09/20/2018 to 02/13/2019.***

 While we believe that holding a broadly diversified global portfolio is in the best interest for most long term investors, I’m using the S&P 500 only for the illustrative purposes in this blog post, even though the S&P 500 consists of only US based large companies.

Global stock markets have increased significantly over the past 7 weeks despite many concerns about trade issues, the US government shutdown and worries about slowing economies in the US and globally.

This is a good reminder that even though you and others may be worried, and rightfully so, it does not mean that the stock market has to decline at that same time you have worries. The past few months are a terrific example of why we often remind you to focus on the long term, and not on the short term.

We believe it is nearly impossible to consistently and accurately time the stock market, to know when to get out and then when to get back in. You have to be right twice. To be a profitable market timer, you have to be able to do that over and over, and be correct to time the high and low points. This is not a game we advise you to play.

Though it can be difficult to handle markets when they decline quickly and sharply, we recommend that you adhere to your personal stock allocation plan, and not react to short term fluctuations and volatility.

Do you remember the decline in stocks which occurred in early 2016? Do you remember what caused this….3 short years ago? I assume that most of you do not remember that decline.

Just to refresh your memory, it was because of worries about China’s economy in January of that year. By early February, 2016, worldwide stocks began to climb again.

Three to five years from now, most investors will likely not clearly remember the late 2018 drop in stocks. It may have been worrisome for you to experience, as most major declines are scary to experience. But over time, the markets generally recover and go higher. And the memory of these declines fade.

But if your focus is on your long term future and long term financial plan, you will realize that declines like this are normal.

If you are in retirement, this is why we discuss with you the amount of fixed income savings that you have, and how long that can last you. We refer to this as your “Foundation.” For example, assume you are withdrawing around $80,000 annually from a $2 million portfolio. If you have $1 million of that portfolio in fixed income investments (50%), then you have over 12 years of annual withdrawals which are not subject to the volatility of the stock market….and that is without even including any interest on the fixed income investments. So you would really have 13 or more years of safe funds to rely on for your annual living.

If you think like this, you will hopefully be better able to tolerate the down periods in the financial markets, as you would know that you don’t actually need the stock portion of your savings for many, many years, for at least a decade in the example above. Thus, while the decline of 2018 was not pleasant for anyone, with this type of framework, you would realize that it is not directly impacting your current ability to live or your future standard of living.

It is this type of perspective and planning that we strive to develop with you, based on your age, income, expenses and savings.

We cannot predict when future major declines will occur, but we know there will be major declines in the future. On average, a major decline of around 20% or more occurs at least once every 5 years.

We want to work with you to develop a financial plan that begins to resolve your financial issues and concerns, such as how much money you may need to retire. And then we want to provide you with a plan and solution to live through your retirement years with the goal of reducing your stress that is related to financial issues.

We cannot eliminate down periods of the stock market. But we can work with you so you can strive to better handle down periods.

Let’s Talk.

*“The Stock Market just booked its ugliest Christmas Eve plunge-Ever”, by Mark Decambre, 12/24/2018

**“Stock Market Counterfactuals”, by Ben Carlson, 2/08/2019

***S&P 500

Trade wars, volatility and the stock market

As President Trump and his administration have discussed placing tariffs on various products, and China has reacted with similar tactics, worldwide stock markets have generally gone down.

First, a quick example of what you should not do. You should not over-react.

Wednesday morning I woke to CNBC reporting that the futures for the DJIA 30 stock index were down more than 600 points in pre-market trading. That represented a decline of 2.5% from the prior day’s close of 24,033.

However, by the end of Wednesday, the DJIA increased nearly 1% for the day. Other indexes were up even more. The broader large company S&P 500 was up 1.16% and the small company Russell 2000 gained 1.42%.

Those who reacted and sold stocks before 2 pm on Wednesday likely lost real money. Those who were patient and did not react to the early am news of the intensifying trade dispute ended the day with nice gains.

What is going on with International trade?

Irrespective of your politics, we are going to start with the assumption that trade should generally be fair and free between all companies and countries. Unfortunately, there is currently not a level playing field between countries. We are not going to deal with the specifics in this post.

How President Trump and other worldwide leaders resolve this issue remains to be seen. There is no way to predict an outcome. US leaders have threatened, but not yet actually imposed any new tariffs. This is an important distinction. No tariff changes have yet to be imposed by either the US or China. Each side has developed lists of products and potential tariffs, but these are all subject to negotiations which could take months to resolve. They will likely continue to add or modify these lists and threats for strategic purposes. For further reading on the topic, see below.***

Whether the actions by the Trump administration are successful in improving the US trading position with China, as well as addressing intellectual property rights, remains to be seen.

In the short term, the loss in stock market value has been significant, but not devastating. No one can accurately predict the long term impact to stocks from the trade battle which is brewing.The trade dispute is causing the stock market to be more volatile.

But let’s look at the word volatility. Volatility actually means when something changes quickly or unpredictably. You didn’t see the words “down,” “loss” or “gain” in that definition.

Volatility does not just mean when the markets suddenly go down.

Most people thought 2017 was NOT volatile because markets generally only went up. Last year was technically quite volatile, based on the true definition, as stocks did change a lot and few predicted the large increases.

Investing in stocks inherently involves volatility, both down and up. You must be prepared for this, for all sorts of reasons, both expected and unexpected. We work with you and structure your portfolio and asset allocation so that you can handle the volatility.

For more on handling volatility, you may want to watch this videoTuning Out the Noise.

Our general investment philosophy emphasizes smaller companies over larger companies more than most traditional financial advisors. We recommend this because historical financial and academic data shows that smaller company stocks outperform larger company stocks, though small companies are inherently more risky.

In terms of the current trade issues, our tilt toward smaller companies could be beneficial, as the impact of the trade dispute, real or threatened, could be a greater negative to larger companies than small companies. Only as an example, a smaller company which sells products primarily in the US or not to China may be impacted less than Boeing, which would be directly affected by potential tariffs on aerospace.

As we often say, it is not beneficial to try to time the markets. That is not a winning long term strategy. So, we do not recommend any significant asset allocation changes in response to these trade issues if your portfolio is properly structured and globally diversified.

Whatever occurs in this trade dispute, we hope that the leaders of all sides consider the impact of their words, positions and actions on their citizens and companies, as well as the global community.

You can be assured that we will provide you with updates, advice and commentary, as it is needed.

If you found this helpful, please feel free to share it with your friends and colleagues.


***I highly recommend the WSJ  article”Tariff Showdown Shifts to Intense Negotiation Period,” dated April 4, 2018.

What are you earning on your cash?

You should no longer be satisfied with earning next to nothing on your cash sitting at the bank.

After years of very low short term interest rates, you can now earn meaningful interest on cash and short term money.

Unfortunately, the interest rate at your bank may not have increased and may not increase much in the near future.

Thus, this is a simple but important item you should review and possibly take some action on. It could be worth a decent amount of money.

The 90 day US Treasury bill is currently yielding around 1.75%.

If you have excess cash that you do not immediately need and you are not earning at least 1% on your funds at the bank, you should be contacting us to discuss this.

For example, if you have $100,000 in your bank earning a .01-.05% (which is likely your bank’s current interest rate), you could earn $1,750 annually, based on current interest rates, less our investment management fees, rather than a few dollars.

If you have significant funds in the bank, the money could be invested in short term fixed income investments and the interest rate could be higher than stated above if you may not need the money in the next 90 days.

A few factors to consider:

  • The Federal Reserve is likely to increase short term interest rates by .25% at least twice more this year, with additional increases most likely in 2019.
    • Thus, it is reasonable that the 90 day Treasury bill and other very short term investments will be yielding 2-2.50% by late 2018 or during 2019.
  • If you do not need the money in the immediate future, your cash could be invested in various short term conservative investments, such as Treasury instruments, CDs or corporate bonds.
  • As always, we act in a fiduciary manner.  This means that we would only recommend you take these steps if it will be financially beneficial to you and make sense for your overall situation.
  • For the short term investments we recommend, they can generally be easily liquidated within a few days.  So there is no reason not to take advantage of these better interest rates if your bank is not offering interest rates on your excess cash funds of greater than 1%.

Monitoring your short term interest income is not something that most people have focused on in recent years.

Now is the time to review and take action.

Don’t be content with earning pennies on your cash.

Give us a call or send us an e-mail and let’s talk about this!


Traveling and Investing Successfully

To be successful at both investing and travel, you should….
  • Be open minded and adaptable
  • Be willing to try new things
  • Plan
  • Be patient
  • Seek out the advice of experts.

If you want to go on a two week trip to a foreign country, most people would develop a plan before they leave. You would likely consult an experienced travel agent, even in today’s internet age, if you are going somewhere you are not familiar with. Working with a travel agent, you would set an itinerary, pick the cities you want to visit and possibly things you may do during the trip.

In planning for your investment future, this longer journey requires goal setting, discipline and should include using a skilled navigator to advise you and your family, as advice will frequently be needed. If investing is not your area of expertise, a trusted advisor will help you handle volatility and constantly changing markets.

While traveling, you may incur challenges that require adjustments. You may be hit with bad weather. You may have flight problems. Have you planned for these kinds of contingencies? How well do you handle change?

In investing, we know that the unexpected should be expected, but most investors don’t plan for this. Our philosophy and investment strategy alleviates a lot of these types of issues, as we recommend broadly diversified portfolios and discuss your tolerance for risk in advance.

In the last week, two events occurred which significantly affected certain investors.  The unexpected did occur.

Some investors who desire high current income from their portfolio (they focus on yield) invest in energy master limited partnerships (MLPs). Last week, many of these MLPs lost 10% because of a federal regulatory decision which will significantly reduce their cash flow. This was not expected and the underlying investments not only incurred large losses in value, but their future income distributions may be cut. These investors have been hit with a double whammy, as they lost principal and their income may be reduced.

Facebook lost approximately 10% of its value in the past week due to the disclosure that certain data was released to other companies.  While Facebook has been an outstanding stock and is held within the large company mutual fund which we recommend, a decline like this shows the risk of owning just a few stocks, rather than many.

Some people purchase vacation homes or are attracted to buying a time share after only a few visits to an area. Years after buying the time share or 2nd residence, the initial luster may wear off. You may tire of visiting the same place every year. The beach that once seemed exciting becomes routine. The restaurants don’t change. You miss the variety of seeing new things and having new experiences. While the logic of acquiring the vacation home may have made sense initially, after many years, it may no longer be optimal for you. But now you are stuck with real estate that may not be so easy to sell. In this case, change may be hard.

We see a similar pattern with many others we meet with (non-clients) who have held what we refer to as “legacy stocks” for decades. These are stocks which may have performed well for many years, but have significantly underperformed broad stock market averages for numerous years. Some of these stocks have not grown or even declined over the past 5-10 years, while the broad US and global stock markets have increased dramatically. They may no longer be optimal investments. Examples of these would be companies like GE, Proctor & Gamble, General Mills, IBM, many retailers and others in industries which have faced stiff new competition or have not adapted to change in the economy. Companies like Ford, Coca-Cola, Pfizer and Merck have either hardly increased in value over the past 5 years or have increased, but far less than broad market averages.

This is where adaptability and being open minded is vital. Are you willing to consider new or different investment approaches? To our valued clients, we appreciate that you were willing to consider our investment strategy, which at one time was new to you.

For those who hold these types of legacy stocks, or focus mainly on the dividend or yield of their investments, we encourage you to be open minded to other investment strategies. You may have unrealized capital gains and don’t want to incur capital gains taxes. You may like the dividends you receive, but they may decline in the future, as has occurred with GE. As we will discuss in a future blog post, focusing on your capital and the total return of your investments is much more important than your annual dividend income.

As your travel plans may have to change mid-trip and you may need to adapt for the duration of the trip, it is important to be open to reviewing your investment strategy. You should be willing to review if the companies you own have adapted and will be optimal as the economy is always evolving and changing. What may have been a solid strategy 10 or 20 years ago may not be the optimal strategy for the future. Our globally diversified investment strategy is structured so that you can benefit from changes in the economy, without subjecting your portfolio to unnecessary risk.






Uncertainty and Financial Planning

The future is always uncertain.

A simple concept. But it can be difficult to live with and can make financial planning challenging.

However, a close relationship with a skilled and trusted financial advisory firm can reduce your concerns and anxiety about future uncertainty.

Our role as a financial advisor is to assist you, through conversations, information and analysis you can clearly understand, so you can effectively deal with the realities of investing and your future. We want you to be able to live (and sleep) comfortably with the uncertainties of the financial world.

If you want to benefit from the rewards of the stock market, you will always have to deal with uncertainty. You will have to become comfortable with volatility. Our diversified, rationale and understandable investment strategy can help you deal with investment uncertainty.

We are pleased that we have clients who tell us they have been able to experience market ups and downs without worry. This tells us we have succeeded in helping them.

Uncertainty can take various forms, depending on what occurs in your life as well as in the world.

Let’s look at retirement. For many people, this is a potential source of uncertainty and anxiety.

Consider all the unknowns. You don’t know how long you or your spouse will live. You don’t know what future investment returns will be. You don’t know what your cost of living will be and how much it will increase every year. You don’t know what health care or senior living costs you will incur. You may want, or need to, assist your children or grandchildren in the future.

How can you resolve all of these issues and uncertainties?

We provide information, starting points. Understanding. Have discussions. Run projections. Evaluate different options, such as when you will retire and when to begin taking Social Security.

We work through these issues and factors with you. Over time, we analyze your sources of income, your assets and other variables and prepare financial projections. Through discussions and meetings, you will develop greater comfort and confidence….and have less stress about your retirement planning. You will get more comfortable dealing with the uncertainty of the future.

No matter what stage of life you are at, you will face financial decisions which we can assist you with. We can help you make better and more informed decisions, even in a world filled with uncertainty.

We can help you with your 401(k) investment selections. We can advise you on house decisions and mortgage options. As you save for college for a future generation, as a parent or grandparent, we can guide you on the best saving methods and investment choices (and there are many).

We integrate tax planning with investment management. This is a unique strength of our firm, as we are CPAs as well as experienced financial advisors.

As you get older, we help you deal with estate planning laws, which are frequently changing. What happens to your money and other assets in the future is vital and we have worked closely with many clients in this area. We provide significant value to clients in helping them with their estate planning and charitable giving.

If we advise the future generations of your family with their investments, you will have the additional sense of comfort of knowing that their investments are being well managed, now and in the future.

The financial world is continually changing. Tax laws change. Investments are inherently uncertain and volatile. We strive to provide you with advice and guidance so that you can effectively deal with all these forms of uncertainty.

Handling Market Gains

The first few weeks of January, 2018 have begun with strong gains in nearly all global stock asset classes. This follows the significant gains of US and International stock markets in 2016 and 2017. These gains have rewarded many investors.

We want to remind you of some important statistics and how we handle market increases for our clients.

Over the long term, it is normal for the S & P 500 (large US stocks) and many other markets to decline more than 20% in 1 out of every 5 calendar years.

  • However, the S&P 500 has not had a down calendar year since 2008. So there certainly has not been a 20% decline in the past 5 years. While we recommend a globally diversified portfolio which owns many more asset classes than the S&P 500, this data is still very useful for informational purposes.
  • This does not mean that we expect a major decline in the near term, but we want you to be prepared for such a decline.
  • A major decline, such as 20% or more, is not an “if”…. it is a matter of “when” the next large decline will occur.
  • Historically, these declines are temporary, as the markets eventually climb higher.

It is historically normal for the S & P 500 (large US stocks) and many other markets to decline approximately 14% at some point during most calendar years. This is called an intra-year decline.

  • While the market may rise for a calendar year, there is usually a peak to bottom decline averaging 14% at some point during most years.
  • There has not been such a decline since early 2016.
  • We cannot predict if there will be such an intra-year decline in 2018, but we want you to be prepared for it.

We provide advice to our clients for the long-term. We determine your individual stock allocation based on your personal goals, as well as your need, ability and willingness to take risk.

By having a stock allocation suitable to your circumstances, we enable you to benefit from the gains of the stock market as well as limit the downside risk of exposure to losses. Further, through the discipline of rebalancing, we do not allow the gains of the market to dramatically increase your risk. We feel this is a significant differentiator of our firm, on your behalf.

For example, if we agree that your target stock allocation should be 50% of your portfolio, we would invest 50% of your portfolio into globally diversified asset class stocks funds. As the markets increased, we would not allow the stock percentage of your portfolio to increase far beyond your desired stock %, such as to 60-70%, or even higher, keeping in mind tax and other personal considerations.

We saw clients of our past CPA firm whose advisors permitted their stock allocations to grow unrestrained during the late 1990s (we were not yet investment advisors at that time). People would not sell their hot tech stocks and allowed their stock allocation to grow far beyond what they intended (or what was really in their long term best interest). Then they faced huge declines in the early 2000s, when these stocks plummeted.

To allow your stock percentage to grow unchecked would be subjecting you to more risk than we agreed was necessary. We are very disciplined and unemotional about this concept. As the market gains increase the value of your portfolio, we monitor this and gradually recognize gains by selling the best performing stock funds and invest those proceeds into fixed income (generally less volatile investments).

This is a major advantage of investing in mutual funds over individual stocks. It is frequently difficult for people to sell individual stocks, as they get very emotionally attached to them. When is the right time to sell Netflix, Apple, Amazon or any other stock? Who knows? How can anyone consistently know the right time to sell an individual stock?

We discuss with our clients that we cannot predict the future. We accept this as a reality. We cannot accurately time the market. We do not believe anyone else can successfully predict both the top and bottom of the stock market, consistently and accurately…. over the long term.

But we do accept the reality that the general trend of US and global stock markets is up. So if you put these concepts together (we don’t try to time stock markets and the general trend of stock markets are up), these work to your long-term advantage.

To put it simply, you are far better off having been invested in stocks over the past number of years, at whatever stock allocation made sense for your personal situation, than not having been in the market because you had “concerns” or you were “waiting for a correction” (decline) which has not occurred.

Five years ago, the S&P 500 was around 1,500. Today, it is almost 90% higher, at around 2,840. When (not if) the markets do decline from these or even higher levels than now, and even if it is a temporary decline of 20% or more, you would still be way ahead of where you would have been years ago if you had not invested in stocks. Again, we recommend investing in a globally diversified portfolio of stock funds and not just the S&P 500, so this is not an illustration of our performance.


This week’s takeaway: You will be a more successful long-term investor by being disciplined and generally sticking to a pre-determined stock allocation. When the market increases significantly, and your stock allocation grows, it is best to rebalance back to your stock allocation percentage (usually by selling some stock funds). This is a winning long-term strategy.

Interest rate changes: what you should know and do

Interest rates have been very low for years. But meaningful changes are occurring.

The 2 year US Treasury note yield increased from 1.20% at the end of December, 2016 to over 2% last week. On a relative basis, that is a huge increase.

According to the Wall Street Journal, this is the first time the 2 year Treasury note has been above 2% since 2008.

This means that you should no longer be satisfied with having significant money in the bank earning .01% or some ridiculously low interest rate close to zero.

You can now earn interest on short term bonds or certificates of deposits that should be somewhat meaningful to you.

Importantly, you should make sure that you do not have significant cash that is not earning interest, or hardly any interest, such as in a bank checking or savings account.

If you have money in an account that is earning nothing or next to nothing, you should contact us to discuss whether we can help you to earn more on this money.

Money market fund returns, or accounts where you have immediate access to your money, are still very low. However, we can provide you with alternatives that offer liquidity within a few days on conservative fixed income investments.

Sometimes small numbers, even 2%, can have a material impact. For example, if you have $200,000 earning nothing, you could gain thousand of dollars of interest income per year.

Give us a call and let’s talk.

The general consensus is that the Federal Reserve will increase short term interest rates 3-4 times this year, .25% at a time. This would likely mean that short term rates will be .75% to 1.00% higher a year from now.

The yield curve is flattening, meaning the difference between short term rates and long term interest rates is decreasing.  Currently, the 2 year US Treasury Note yields around 2%, whereas the 10 year US Treasury Note yields 2.55%, a premium of 0.55% for the longer maturity.  We do not know if this will continue, but for today, it means that if you are a borrower, we would still recommend keeping a mortgage and generally not pre-paying your mortgage payments.

If you are in the market for a new house or mortgage, we still consider mortgage rates to be very low historically. We feel that taking a mortgage today at these rates will prove to be an excellent financial decision for the long term.

The tax law that was enacted at the end of 2017 did make some changes to home related borrowing. Home equity loan interest is no longer deductible for 2018 and beyond, even if the loan was obtained prior to the law. If you are considering borrowing money for home renovations, a car purchase or other reasons, we would still recommend considering a home equity loan, as the interest rate may be better than other loans. We also recommend you to have a home equity loan, if you do not have adequate emergency cash reserves, just to be prepared.

Further, the new law limited mortgage interest deductibility to interest on the first $750,000 of a mortgage loan. Depending on your personal circumstances, we may still advise you to borrow more than $750,000 on a mortgage, as rates are historically low.


This week’s takeaway: Financial advice must be given based on the current environment and the factors involved never remain constant. That’s why you should talk with us before you make financial moves, as interest rates and tax laws are always changing.