The first and most important step toward financial health is education. All other steps follow that one. As retirement options become increasingly sophisticated, fine print consequently more lengthy, and pensions decidedly rare, investors need to work harder to understand the impact of the important choices they make. Fortunately, access to quality financial education has improved. Podcasts, blogs, books, seminars and financial education classes all offer plenty of valuable information, most literally available at your fingertips. Of course, you need to check your sources and be leery of sales pitches, but that still leaves a wide variety of legitimate options. Winch Financial offers financial classes in several locations through the University of Wisconsin continuing education system and, while we cover the information in our syllabus, we also tailor each class to its participants because finances are personal and everyone’s risk/reward profile is unique. We also send out a weekly commentary, which not only covers what happens in the stock market each week, but also offers some explanations behind the moves. Many of us subscribe to a variety of financial podcasts. We also follow Dave Ramsey and have taken his Financial Peace University course. If you do one thing for your retirement this year, we urge you to educate yourself. That education is going to lead to other tasks, so here are a few more steps you can take to get financially fit this year: Track you expenses. This may seem like a tedious task (because it is), but you can make it easier by making it part of your daily routine. Digital banking has made it easier to categorize expenses and we find that seeing where your money goes makes you much more intentional about your spending. Once you’ve tracked your expenses for a few months, you can set a realistic budget pretty easily. Random budgets waste time. The best budgets develop from your own spending habits. Change your passwords. This… | Read More »
Investment Management
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 »
Choose volatile investments
When it comes to investing, high risk and high returns usually go hand in hand. Riskier, more volatile investments — those that tend to bounce up and down in value — will generally earn greater profits over the long haul than investments that slowly, but steadily, gain in value. If you’re saving well before you actually need the money, you can take advantage of this rule by investing in more volatile assets (typically stocks) and getting a higher return on your money. If you are in your forties, or even fifties, you probably won’t actually need the money for decades, so it won’t matter if your portfolio loses value this year, it’ll likely rebound in the next. That can lead to some pretty heart-palpitating moments as your investments see-saw up and down, but just grit your teeth and remind yourself that it doesn’t matter how much those stocks are worth today, what matters is how much they’ll be worth when you need them. The fact is, since the first American stock market opened in Philadelphia in 1817, the stock market has always gone up more than it has gone down. Think about it. There has never been a time when the stock market went down and just stayed there. It has always recovered – always. And here we are, in 2017, after the crash of 1929, after the crash of 1987, after the dot.com crash of 2000-2001, after the crash of 2008, and the stock market has posted a string of new record highs. Yes, you can lose money in the stock market, but those losses are always only temporary. After a time, the market recovers and your investment gains return. We tend to overlook these facts because of something psychologists call “loss aversion.” Consider again the age-old investing axiom, “The greater the risk, the greater the reward.” When we hear this we are likely to fixate on the risk… | Read More »
How tactical investing can maximize a bull market
Yesterday’s record setting performance in the stock markets provided a prime example of how tactical investing can be used to capitalize on market momentum. When the Dow Jones Industrial Average surpassed the 21,000 mark for the first time ever, we reaped the benefit. The S&P 500 was up 1.37% for the day. Approximately 80 – 90 percent of our client’s assets remain invested in global stocks with specific concentration in the US stock market. (A typical allocation within our industry is 50% stocks, 40% bonds and 10% cash). We have maintained a very bullish stance towards stocks since early fall and this positioning has benefited client accounts. In anticipation of President Trump’s first address to the joint sessions of Congress, in which he vowed to increase infrastructure spending, we positioned our accounts to be overweight stocks that would benefit specifically from this pledge, including those related to building and maintaining new roads, bridges, railways and highways. We reasoned that, after years of only monetary stimulus, the markets would be positively encouraged by the Trump Administration’s plan for a large fiscal stimulus plan. President Trump also discussed the de-regulation process already in play, which had a very positive impact on the Financial Sector. Also boosting this sector were increased expectations of a Federal Reserve interest rate hike due to favorable economic data, and positive takeaways on economic growth. We have been overweight financial stocks since the beginning of November and we continue to benefit from this positioning. In addition to the President’s speech, the markets rose on positive economic news from three fronts: China’s manufacturing PMI came in higher than expected European markets closed up significantly, helped by some strong company earnings and economic data The majority of yesterday morning’s earnings reports were positive Energy stocks also got a boost from a very bullish analyst meeting held by Exxon Mobil, whose outlook for the energy industry and, specifically, shale oil assets… | Read More »
Diversification is the key, even in a bull market
While most financial news reports focus almost entirely on the equity market, the real value in a retirement portfolio lies in its diversification. That’s because Newton’s third law relates to investing as seamlessly as it applies to motion. What goes up, must come down. For this reason, diversification remains a critical component of any investment plan, even during a bull market. Diversification adds two key layers to a portfolio; it increases the opportunity for profit and reduces the chances of loss. It may seem counterintuitive to dilute the resources you can direct to a rising equity, but what happens when that stock price falls? The best defense against inevitable downsides in the equity markets is exposure to multiple asset classes, each with unique returns, risks, and correlations to one another. We like to include dividend stocks in our diversified portfolios because they add an income source that transcends the stock market. Whether a dividend stock is currently in a rising trend or a falling trend, the dividend payment per share never changes. Having this kind of reliable income source as a portion of your investment portfolio allows you more freedom to take risks in other asset classes. We also like to diversify across sectors within the market. The overall portfolio retains its value because while one sector may be falling, another sector may be rising. We saw this just recently when, after the election, Technology and traditional “growth” stocks fell while the Materials sector and traditional “value” stocks gained ground. Due to the portfolio’s diversification among all the sectors, the rise in Materials offset the drawdown in Technology. Additionally, we use exchange traded funds (ETFs), which offer the diversification of mutual funds with the agility of stocks, all for a relatively low cost. The judicious selection of all these elements leads to a well-balanced portfolio positioned for the long term goal of making your assets last your whole life.