Visit our website at: www.tudorfinancial.com
What a Year:
2017 was a cake walk for investors. Most equity categories did very well with double-digit, smooth returns throughout the year. The past year provided the best of both worlds: significant gains with incredibly low volatility. Those that stayed on the sidelines missed out on stellar late stage bull market returns. The S&P 500 was up approximately 20% on a price basis. Several asset categories lagged in the year: bonds at 3.3%, gold at 12.8%, commodities (think oil prices) at 3.9%. Bank certificates of deposit are yielding 1.7%. International and emerging markets did much better than our domestic stock market so it paid to have international exposure. Our international exposure increased early in the year. (1)
Market Forecasting: Not Even Close:
Investment firms paid 100's of millions have an extraordinary poor record of forecasting investment markets. Studies consistently show educated, credentialed professionals are no better at divining markets than a coin flip. The average large Wall Street investment firm predicted 5% returns in 2017, well below actual returns.
They are predicting, on average, 4.3% returns in 2018. In the midst of the financial challenges of 2009, Bill Gross (at the time with PIMCO) suggested that the "new normal" for stocks would be much lower than average returns; however, the "new normal" since 2009 has been much higher than average returns. Large financial firm forecasts add no value to investment outcomes. (3)
Notching up Long-Term Returns:
With 2017 in the history books, the long-term 50-year annualized return of the S&P 500 increases from 9.8% to 10.1%. (Source: BTN Research)
I Went to College for What?
Only 36% of all jobs in the United States require education beyond
, i.e., 64% of American jobs require a
high school diploma
or less. 27% of jobs do not require
any formal educational credential.
(Source: Department of Labor)
Not the Best, Not the Worst: The S&P 500 return in 2017 was only the 8th best in the last 25 years. The highest return was in 1995 when the S&P 500 gained 37.6%. Final stage bull market returns are often higher than average. (Source: BTN Research)
Who's got the Energy?: The USA imports 22% less oil than it did just a decade ago. Oil imports averaged 7.9 million barrels a day in 2016, down from 10.1 million barrels a day in 2006. Total petroleum exports from the United States have quadrupled over the last decade, rising from 1.3 million barrels a day in 2006 to 5.2 million barrels a day
in 2016. (Source: Department of Energy)
We Owe a Lot...
The national debt of the United States was $20.493 trillion as of 12/28/17, an increase of $11.4 trillion (from $9.121 trillion) in ten years from 12/28/07 (Source: Treasury Department)
1 out of every 4 Americans who reach age 65 will live at least another 25 years to age 90
(Source: Social Security)
Your Financial Quote:
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett
What Have We Done?
Strategies determine outcome - securities are merely tools
Asset allocation (designed for conservative, pension and 401(k) investors): Our Spectrum Asset Allocation Strategy (designed to migrate to and invest in the top-performing third of a broad basket of ten asset classes) is a heavily researched, well-diversified and excellent risk-adjusted approach for long-term investors. This strategy is based on extensive Tudor research.
We have not made significant allocation changes to this strategy for most of 2017 into 2018. The strategy continues to be successfully invested in large domestic and emerging and developed international stocks.
ETF Strategies (designed for conservative to aggressive investors): Tudor ETF Strategies can satisfy the goals of a wide range of clients. ETF securities are selected from a filtered universe of 130 choices which are evaluated based on well-researched ranking formulas. ETF's are very inexpensive and tradable investment index vehicles.
Tudor ETF Strategies had some very good outcomes in 2017. (2) The ETF strategies have largely held the same positions for the last year or longer as those positions continue to perform well. The current mix is a blend of large domestic and international stocks, some emerging market exposure and high-yielding income securities.
Legacy Growth quality individual stock strategy (desi
gned for established, equity-oriented growth investors):
Legacy Growth Strategy
lagged for a period of many months in 2017 as growth stocks dominated the market mindset. However, this strategy fired up in late 2017, finishing strong for the year as conservative quality stocks came into vogue once again. This successful strategy filters for undervalued stocks; however, there are virtually no candidates in the quality universe for new purchases as most stocks generally (and high quality stocks specifically) have now become overvalued. We will put new cash to work in this strategy when we have better entry points.
Legacy Growth Strategy has a stellar multi-year
successful investment performance.
This strategy is a testament to the philosophy that investors can achieve excellent returns from the highest quality companies in the stock universe without taking excessive risks.
What are we doing now?:
Tudor had a successful year in 2017 serving a record level of clients and their important investment and retirement assets.
As new client assets arrived, investment market levels and the absence of even minor corrections since January 2016 made it challenging to put new cash to work in late 2017. While it has been challenging to find good entry points for new invested funds, t
his does not suggest that markets cannot continue marching along.
It is important to remember that, for investors with new cash to invest, market pullbacks are a blessing.
The missing ingredient normally embedded in markets is volatility, and that will return at some point. Investors should mentally prepare themselves for that certain likelihood.
We Don't Move Much:
After 25 years of service, we are moving our custodian relationship from Pershing to Fidelity, and this change will occur in February. Our firm has grown significantly over time, so our goal with this custodial relationship change is to tap into the deeper and richer resources available to us at Fidelity. Clients will benefit from a wider menu of services offered by Fidelity. Existing clients will note no changes in their securities held, the management of their accounts or the services our firm currently offers.
Enjoy the week...
Grant S. Donaldson, MS, CPA
(1) yahoofinance.com, S&P500 historical data, Barron, Morningstar.com, Vanguard benchmark returns
(2) Information available upon request
(3) Ken Fisher - USA Today