What if I said that people who try to invest for retirement on their own have almost 50% less in their accounts than those who use an experienced financial advisor? Would you be surprised? The proof is in the numbers.
Over the past several months, you’ve most likely heard or seen some combination of the following predictions:
If someone was forced to do nothing but read headlines and predictions, they would probably get whiplash. That’s because there’s always so much conflicting analysis and information out there about what’s happening, or what’s going to happen. The result is a lot of uncertainty – and if there’s one thing the markets hate, it’s uncertainty.
In this letter, I want to briefly recap a few of the stories behind that uncertainty. Then, I want to tell you exactly what my team and I are doing about it.
Trade War
The long-running Trade War with China blew up in a big way last month – and then expanded into a twofront war with our neighbors to the south.
Early in May, President Trump placed a new 25% tariff on all Chinese imports that had been previously been spared.1 Soon after, China responded with more tariffs of their own. Then, just as the smoke started to clear from that announcement, the White House announced a new set of tariffs – this time on Mexico.
Why does this matter to the markets? In the short term, it all goes back to uncertainty. Remember, a tariff is essentially a tax on imported goods. With over $50 billion a month moving back and forth across the border every month, higher prices on Mexican products could potentially have a major impact on the economy.2 After all, American businesses rely heavily on everything from Mexican cars to Mexican cables; from food to appliances. Tariffs could lead to longer and more costly supply chains, which in turn can eat into corporate profits.
When that happens, the markets hurt.
On the other hand, recent history suggests the markets can be remarkably resilient to the Trade War’s effects. Often, when new tariffs are announced, the markets will dip and then rise again. Furthermore, the news broke out on Friday, June 7, that the tariffs on Mexico will not come to pass – at least for the time being.3 That’s why the only thing we can be certain of is, well, uncertainty.
The Economy
After roughly a decade of growth, signs of a slowing economy continue to stack up.
Economists use various indicators to forecast where the economy will go. One indicator is the job market. While the nation’s unemployment rate remains historically low at 3.6%, fewer and fewer new jobs are being added. In May for example, the economy added only 75,000 new jobs, which seems like a lot but was far less than the 180,000 most experts predicted.4
Another indicator is the yield on U.S. Treasury bonds. To put it simply, the yield is the return you get on a bond. Bond yields will fall when bond prices – the amount you pay when you purchase a bond – go up. Bonds are often perceived by investors as being less risky than stocks, so during times of uncertainty, more and more investors will pile into bonds, driving up the price and driving down the yield.
Got all that? If not, that’s okay, because here’s what really matters. When the yield on short-term Treasury bonds rises higher than the yield on long-term bonds, economists tend to sit up and push their glasses further up their noses. That’s because this “inverted yield curve”, as it’s often known, is rare, and sometimes signals an impending recession.
An inverted yield curve is happening now.5
I could go on for pages and pages on how bonds and the overall economy intersect, but time is precious, and you shouldn’t have to spend yours reading about things like inverted yield curves. (That’s what you pay me for!) The point is, there are a number of indicators suggesting that the economy is weakening. On the other hand, optimists can point to other, equally compelling data – like the unemployment rate, the country’s GDP, and high consumer confidence reports – that says the economy is doing just fine.
So, how do we know what’s going to happen?
We don’t. Nobody does. Experts can make educated guesses. Analysts can make data-driven predictions. Some of those will undoubtedly come true. Most will be wrong. Nobody has a crystal ball. The greatest financial advisor in the world can’t tell you what will happen in the markets tomorrow, let alone next month or next quarter.
In the world of finance, uncertainty rules. Sometimes its influence is greater or lesser, but it’s always there.
But that doesn’t mean we can’t do anything about it.
I said at the beginning of this letter that I would tell you what my team and I are doing. I can sum it up in two words: Risk Management.
Risk management is the process of identifying, analyzing, accepting, and then working to mitigate the risks that come with uncertainty. It’s one of the most important things I do for clients like you!
Standard disclaimer: All investing involves some risk. It’s impossible to get rid of it entirely –nor would we want to! (It’s a truism that no risk means no reward.) But we can take steps to manage your risk, and that’s what my team and I do every day.
It’s true, I can’t tell you exactly what the markets will do. So, here’s what I can do instead:
Use rules-based investing and a sell-side discipline
These are just fancy terms for something very simple. While many investors practice something called “buy-and-hold”, where they pick some investments and then hold onto them no matter what, we put rules in place that determine when to sell an investment if it falls below a certain price, or is likely to. While we can’t control whether an investment will grow or not, we can take steps to protect you from losing your principal. The ancient Greek physician, Hippocrates, had a maxim: “First, do no harm.” I take a similar view. While we want to help you grow your money, we’re dead set on protecting your money.
Monitor trends by tracking supply and demand
Risk management is sort of like buying strawberries. When you go to the store, you might ask yourself, “Is it worth it to buy strawberries today?” The answer would depend on lots of things. Are strawberries in season? Are they more or less expensive than usual? Do they look ripe?
That’s how you determine whether buying strawberries is worth the risk or not.
We do the same thing with the investments in your portfolio. We look at whether there’s more supply or more demand for an investment – more buyers or more sellers – to determine whether that investment is trending up or down. We look at how strong or weak an investment is relative to other investments that are similar to it. We look at how close it is to the buy/sell price we’ve already established. (That’s rulesbased investing.)
That’s how we determine whether the investments in your portfolio are worth the risk or not.
Here’s why I’m telling you all this. While we can’t know for certain how the Trade War will affect the markets, or whether the economy will veer into a recession, that doesn’t mean we’re sitting idle. I want you to know that my team and I are working constantly to analyze how these stories could affect your hard-earned money. We’re always working to manage the risk in your portfolio. To keep you on track to your financial goals. Sometimes, we try to speed up the journey. Sometimes, we may slow down, or move off the road entirely. But we always try to keep you pointed in the right direction.
If you ever have any questions or concerns, please contact us. In the meantime, I hope you enjoy a wonderful summer!
1 “Trump Renews Trade War as China Talks End Without a Deal,” The NY Times, May 10, 2019.
2 “Tariffs on Mexican imports will ripple across the US economy,” CNN Business, June 3, 2019.
3 “US, Mexico Reach Deal to Avoid Tariffs,” The Wall Street Journal, June 8, 2019.
4 “U.S. Added 75,000 Jobs in May as Hiring Slowed,” The Wall Street Journal, June 7, 2019.
5 “Bond Yields Extend Drop Toward 2%,” The Wall Street Journal, June 7, 2019.
It’s June, and that means Father’s Day!
As you know, Father’s Day is a chance to tell our dads how much we love and appreciate them. A chance to say “thanks” for providing for us, protecting us, and teaching us – this last above all.
The older I get, the more I realize how important my dad’s lessons were in shaping my life. Now, as a financial advisor, I also realize how important fathers can be in shaping a child’s financial future. That’s because they’re often the first people to teach us good financial habits and principles – principles that remain with us for the rest of our lives.
So, in honor of Father’s Day, I would like to highlight:
Three Financial Principles our Fathers Taught Us
1. The importance of budgeting and saving
Did you ever plan a family vacation and see your dad sit down to budget everything from the plane tickets to the hotel to the cost of food and souvenirs?
Did you ever go to the carnival and get tempted to spend all your money on games and prizes – only for your dad to warn you that if you did, you wouldn’t have enough to go on that one ride you’d been salivating over?
Did you ever spend all summer delivering newspapers, babysitting, or mowing lawns, so you could buy those new shoes that all the cool kids were wearing? Only for your dad to insist you set the money aside for college, or your first car?
Life is a constant battle between choosing between what you want the most and what you only want right now. As a financial advisor, a big part of my job is helping clients achieve the former.
But when it comes to saving for what you want the most, there’s often no better financial advisor than a father.
2. Staying out of debt
When I was a kid, I remember asking my dad, “Why can’t we just use the credit card?” That’s when my dad sat me down and explained exactly how debt works, and how we should never buy what we can’t afford.
It’s almost impossible to achieve what you want the most if you have a lot of debt. Think of it like trying to sail in a leaky boat. No matter how much water you bail out, it will continue to sink. That’s what debt does to our finances.
Of course, it’s virtually impossible not to take on some debt, some time. But paying for college, or buying a house is a lot different than maxing out your credit card or buying a car you don’t have money for. The former is investing in your own future. The latter is robbing it.
Because fathers have so much to take care of, and so many people to be responsible for, they are often the first who teach us this crucial lesson. Which is why, for many of us, the only debt we owe is the debt we owe our dads.
A debt of gratitude.
3. When it comes to life – and finances – you get out what you put in
Sometimes in life, we all will fail a test, miss an opportunity, or get cut from the team. Sometimes, we’ll come home from school with a report card that’s less than ideal. During those times, it’s easy to think, “This is stupid, why should I bother, I hate this anyway.”
It’s during those times that dads often shine.
“All you can control in life,” the best dads often say, “is your own attitude. Your own work ethic. Your own time.” And that’s when we realize that maybe there was a reason we didn’t get the grades we were capable of. There was a reason we missed out on that job or got cut from the team. That’s when we realize that attitude determines effort, and effort determines our results.
In short, dads teach us that you only get as much out of life as you have put in.
As a financial advisor, I rely on this lesson every day. I teach people that if they want to grow their money, they have to invest their money. If they want to retire, they have to save for retirement. And the only reason I can teach it is because my dad taught me.
It’s possible, of course, that your own dad taught you vastly different lessons than the ones I’ve listed here. But whatever your dad taught you, let’s make sure we all take the time to tell our dads “Thanks.” Thanks for every lesson – about money, life, and everything.
May we continue to learn those lessons well.
On behalf of everyone at Research Financial Strategies, we wish you a Happy Father’s Day!
We can manage your 401K, TSA, TSP, Simple Plan or Pension Plan. If your portfolio lost more than 10% in the last recession, you need to take another look at how you are managing risk.
Jim Streight James Streight Chief Marketing Officer
Normandy. D-Day. Operation Overlord. The events of June 6, 1944 are known by many names, and have been commemorated in countless books, dramas, and documentaries. You’ve seen the pictures of GIs wading through rough, freezing water onto a murderous, mine-strewn beach. You’ve heard the stories of those who braved smoke and shell to scale the cliffs beyond. But most of the stories we hear were told by the survivors – the lucky ones who made it to the top and saw France on the other side.
What about the others?
As you know, Memorial Day is just around the corner. It’s a day for remembering those who didn’t make it. The ones who gave their lives so that others might live. And since this Memorial Day coincides with the 75th anniversary of Normandy, I think it’s an especially good opportunity to remember the men who couldn’t tell their stories afterwards.
Men like the soldiers of Able Company.
The First Wave
Picture it: Roughly two-hundred soldiers packed like sardines in tiny boats that sway with the choppy sea. This is Company A – “Able Company” – of the 116th Infantry Regiment. Most are in their early twenties and barely into manhood, yet men they are. Long before they land, they are already fighting fear and the worst seasickness any of them has ever known. If they lift their heads above the sides, they can see the imposing cliffs of Normandy in the distance – and the 200-yard beach they’ll have to cross just to get there. A beach that offers no shelter or protection.
But when the order comes – “This is it men, you’ve got a one-way ticket and this is the end of the line,” – they shoulder their packs and lift their weapons, ready to do their duty.1
Until everything starts going wrong.
First, water begins spilling over the sides of the boats, and many are swamped completely. Those that stay afloat do so only because the men of Able Company use their helmets to bail the water out. Other boats, hit by German artillery, catch fire and sink. The noise is deafening.
Then, at 6:36 A.M, the boat ramps are lowered, and it’s time.2
One by one, the men jump into the frigid ocean. They are not yet on the beach at all, but on a sandbar that stretches up to 100 yards out. To even get to the beach, they’ll have to wade through water that often comes up to their necks. Many soldiers, weighed down by heavy jackets, packs, and equipment, start to sink. Those who can’t shed the weight, drown. Those who can come up gasping for air – only to be greeted by a hail of bullets.
From the cliffs, German machine guns pepper the ocean, decimating Able Company before they even reach the shore. But still they advance. One pair of boots makes it to dry land. Then a second, and a third. They are the first wave, and they know what’s expected of them. What’s required. Despite fire and water, despite mine and mortar, they are the first liberators to step onto the shore.
The first free men to set foot on the beaches of France. But in the meantime, they have more work to do. Medics do what they can for the wounded, pulling anyone who might still be alive from the ocean. Minutes pass. No one from Able Company has yet fired a shot, and almost every officer – the men who give commands, who know the plans and have studied the maps – is dead. The others, leaderless and bloodied, continue anyway. It’s no glorious charge, but a desperate crawl. Liberating France inch by inch, foot by foot.
Thirty minutes later, over half the Company is dead. Most of the survivors are wounded and exhausted. But still they continue. Those who fall lift their heads to shout encouragement one final time. For they are the first wave. This is their job, their mission, their calling. To pave the way for waves to come.
Finally, after an hour, the survivors make it across the sand to the bottom of the cliff. A few join a nearby group of Army Rangers and scale to the top. The others remain behind, holding the beach. Most will remain forever. Behind them comes the second wave.
Seventy-Five Years Later
It may seem like Able Company’s sacrifice was futile, or their assault was a failure. But I don’t think so. Every yard they gained was a yard the next wave wouldn’t have to. Every bullet they attracted was a bullet someone else was saved from. Theirs was the smallest of footholds, yet it was enough – for the next wave, and the one after. For what they did that morning led to everything that followed. By the afternoon, the beach was theirs. By evening, the cliffs were theirs.
And less than one year later, all of Europe was theirs.
History is often written down as the story of great leaders making grand speeches and grander plans. But in truth, history is made up of moments. Moments when normal men and women stared fear in the face and acted. Moments when men and women offered service and sacrifice. Moments that lasted the length of a heartbeat…and yet still affect our lives to this day.
This Memorial Day, I want to remember those men and women. I want to remember the beaches of Normandy. I want to remember the men of Able Company. I hope you can take a moment to remember them, too.
1 “The suicide wave,” The Guardian, June 1, 2003. https://www.theguardian.com/theobserver/2003/jun/01/features.magazine37
2 “First Wave at Omaha Beach,” The Atlantic, November 1960. https://www.theatlantic.com/magazine/archive/1960/11/firstwave-at-omaha-beach/303365
The Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. are warning investors about using social media data to make investment decisions.
In recent years, companies like TickerTags, Social Market Analytics and LikeFolio have launched to turn the massive amounts of data on social media into investment research. The idea is that by aggregating and analyzing posts on Twitter, Facebook and others, one can detect a “social sentiment” that predicts future market or economic performance.
For example, if millions of people are tweeting how much they hate the latest iPhone, it could predict Apple falling short on its next earnings report.
Social sentiment data is increasingly popular among both retail and institutional investors. Several companies are providing earnings predictions to individual investors directly, and is selling data to quantitative fund managers.
But the SEC and FINRA said the information on these tools can be inaccurate, incomplete or misleading. Data can be stale or out-of-date, and social media posts may have hidden agendas. The SEC has actually charged someone for sending false tweets in order to influence stock prices.
FINRA’s The investor alert added that buy or sell indicators driven by social sentiment can lead investors to make emotionally-driven or impulsive investment decisions. The SEC and FINRA advised investors to not rely solely on these tools when making decisions and to stick to a long-term financial plan.
The general consensus is that FINRA is warning investors that if they trade based on social sentiment and lose money, don’t expect FINRA to investigate, even if there is proof there were flaws in the social sentiment provider’s data. Institutions likely will want to develop clear disclosures and disclaimers for any social sentiment data they make available to investors on their platform.
Financial industry insiders applauded the alert and said the SEC and FINRA correctly identified the issues that may arise for investors.
As always, We are here to help you find the best solution for your situation and your needs. Contact us to set up a free, no obligation consultation.
So, should you invest in your employer’s 401K account if you’re confused and looking for help with your retirement? We can manage your 401K, TSA, TSP, Simple Plan or Pension Plan. If your portfolio lost more than 10% in the last recession, you need to take another look at how you are managing risk. Consulting with a professional investment advisor at Research Financial Strategies will help you to make important 401K decisions.
Jim Streight James Streight Chief Marketing Officer
When you think “Mom,” it’s likely your brain conjures up a scent or a story or a song that feels like home. Here are a few inspiring and heartfelt words that have been written about the value and importance of mothers:
“A mother enables you to realize that there are different levels of beauty and therein lie the sources of pleasure, some of which are popular and ordinary, and thus of brief value, and others of which are difficult and rare, and hence worth pursuing.”
—Amy Tan, Saving Fish from Drowning1
“Sometimes the strength of motherhood is greater than natural laws.”
—Barbara Kingsolver, Homeland and Other Stories2
“And from her great and humble position in the family she had taken dignity and a clean calm beauty. From her position as healer, her hands had grown sure and cool and quiet; from her position as arbiter she had become as remote and faultless in judgment as a goddess. She seemed to know that if she swayed the family shook, and if she ever really deeply wavered or despaired the family would fall, the family will to function would be gone.”
—John Steinbeck, The Grapes of Wrath3
“I am sure that if the mothers of various nations could meet, there would be no more wars”
—E.M. Forster, Howards End4
We wish you a very Happy Mother’s Day! Give us a call if you would like to hear a few of our favorite quotes about moms (or financial markets).