I can count the number of times I have golfed on my fingers. Before taking a swing, I look over the various clubs at my disposal. I think to myself, each club has an extremely important purpose and I must choose very carefully. No matter which club I choose a triple bogey lies in my future. You can in a sense think of ETFs and Mutual funds as different golf clubs. They are almost the same tool but can have times when one makes more sense than the other. Both ETFs and mutual funds are pooled investments that can hold a variety of investments inside of them. Most ETFs are passively managed, with fewer moves occurring inside relative to Mutual Funds. One difference is that ETFs trade like a stock, so you can buy and sell during the trading day. Mutual Funds calculate their NAV or Net Asset Value after the close of the market each day. In golf terms, if a round of nine holes was a trading day and I was a mutual fund, I would only know my score after the round was done. My friend ETF would keep track as we played. Another differentiator is the cost. ETFs are cheaper on average than mutual funds. As you may suspect there is more than just cost to consider here. Mutual fund’s higher expenses come with the benefit of teams of industry professionals and researchers looking to enhance their fund’s return and protect it from any holdings that become undesirable. In essence, the ETFs take more of a set it and forget it approach. ETF managers pick a target like a large stock index and try to replicate it as closely as possible. Mutual Funds can be a little more flexible in their strategy as they are not strictly trying to keep the same weighting as an index. So which fund should I put with which type of… | Read More »
Investing
Still fertile ground in the equity markets
Interest rate cuts and rising hopes for a trade deal between the United States and China are boosting confidence in the financial markets and creating fertile ground for investors who have stayed the course in the equity markets. As earnings season wraps up, the Winch Financial investment team is pleased with its current portfolios, which are well-positioned to take advantage of this extended bull market. The S&P 500, Dow Jones Industrial Average and NASDAQ Composite all have been trading at record highs recently as investors get a more positive picture of American corporations’ health. Additionally, the fact that the U.S. and China are close to finalizing a Phase One trade deal is a positive step and has changed market perceptions regarding the trade war. The low interest rate environment is also providing a bullish backdrop for stocks. After underperforming during the year, emerging markets are also starting to perform better. Although stock valuations are starting to extend, many still offer favorable risk/reward tradeoffs, which allow tactical investors like us to find even more solid investment opportunities. Of course, a pullback is always possible, especially when so much of investor sentiment is driven by headlines. We will be monitoring those factors carefully. It is equally likely that those investors who have trailed the market this year will be playing catch up before the end of the year, which will lead to some performance-chasing support for the market and a potential year-end rally. As always, our team will be analyzing these market factors closely and adjusting our portfolios as they deem necessary.
Time to check your financial and emotional resources
After 2018’s roller coaster ride through the financial markets, the New Year presents an excellent opportunity to take stock of your retirement plan and maybe reallocate a resource or two. Portfolio managers commonly reallocate accounts by shifting investments based on both technical and fundamental indicators and retirement timelines. They do this throughout the year in an effort to find a prudent balance of safety and growth. But, a fresh year also offers inspiration to analyze your emotional resources and distribute them appropriately as well. If you haven’t taken a risk tolerance test in a while, now would be a good time to do that. Any investor’s ability to withstand market volatility can be affected by many variables including age, income level, budget, retirement timeline, personality and family situation. A person confident in his or her ability to absorb risk might view a steep market decline as a buying opportunity and a necessary correction of a healthy market, while another person might look at the exact same numbers and want to flee the equity market entirely in favor of cash and/or treasuries. The financial conundrum we all face is that both reactions could be correct. The age old admonishment to sell down to your sleeping point means a different alarm clock for every investor. Nervous investors with a strict retirement timetable tend to choose the slickest clock with the loudest alarm, while those who have a looser timeline and a mellower attitude might even sleep in. The point is, you have to ask yourself what type of investor you are. If volatility keeps you up at night and you’re willing to forego growth opportunities to lessen the likelihood of losing money, you may want to stick to cash or bonds. (Of course, with that choice you face another kind of risk, inflation, in which you could end up losing value in your accounts because they aren’t earning enough to keep up… | Read More »
Several factors support an optimistic view of 2018
As stocks markets around the globe soared on accelerating corporate profits and strong economic growth, 2017 turned out to be a stellar year for investors. It was the third best showing for the U.S. stock market since the 2008 financial crisis, with only 2009 and 2013 having higher average returns. What was different about 2017, though, was that the prodigious stock market returns were, for the first time since 2008, attended by strong underlying economic fundamentals. Fourth quarter earnings won’t be reported for a few weeks, but based on the first three quarters, together with Wall Street’s best estimates for this quarter, earnings growth for the 500 companies that comprise the S&P 500 are expected to be about 10 percent for the full year. That would be the best earnings growth we’ve seen since 2011. During the slow, arduous crawl out of the global recession corporations managed to grow their earnings, primarily, by cutting costs and reorganizing their business models. But in 2017 businesses finally saw a sustained pickup in demand, both at the consumer level and in business-to-business transactions. As economic activity accelerated during the year we began to see in the financial press a new phrase that, by December, had become the defining theme of 2017. That phrase is: synchronized global growth. Europe, Japan, China and emerging market economies such as Brazil, India and the Pacific Rim have all experienced some of the highest GDP rates in a decade, creating a virtuous cycle of growth that has provided an extra boost to the U.S. economy. Consider that somewhere between 30 to 38 percent of revenue generated by the largest corporations in America comes from these foreign countries. All indications are that this “synchronized global growth” should continue well into 2018. Indeed, the latest Purchasing Managers Index for Europe showed “robust intakes of new business” that “tested capacity.” As current capacity gets squeezed, businesses likely will have to invest… | Read More »