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Looks Spot On:
Our domestic stock market moved vigorously/relentlessly higher from late 2016 to new highs in early 2017. If you were privy to our last commentary, you may recall that we viewed this parabolic rise as unsustainable. Our assessment at the time has now been confirmed as markets currently vacillate at nearly identical levels. The Dow has trotted around the 21,000 level now for several months.
In the meantime, investors have been spoiled with much lower than historical volatility and we suggest that this calmer than average environment will not continue. Markets have marvelous capacities for behaving as they have historically; therefore, investors should mentally prepare for "normal" volatility in the coming year. Relative to historical annual returns, t
he major averages (Dow and S&P 500) are well ahead of their year-to-date annual pace.
And just as investors trotted out of international securities due to volatility and under-performance in 2016, this segment is out-performing domestic stocks year-to-date. Early in 2017, we increased international allocations, a move that has provided incremental return benefits for clients. (1)
Department of Labor
suggests that only 36% of jobs nationwide require a college degree while reporting that 70% of high school graduates choose to attend college. One might suspect that this is a recipe for severe imbalance and may explain the high number of graduates unsuccessfully seeking employment in their chosen fields.
On the Other Hand:
In April 2017, the U.S. unemployment rate was 4.4%. Alternatively, the unemployment rate of the 19-nation Eurozone in March 2017 was 9.5% - twice as high as the U.S. rate. (Source: Department of Labor)
Health Care Drain:
A mere 1% of the U.S. population is responsible for 21% of health care costs, and just 20% of Americans are responsible for 82% of overall healthcare costs. Warren Buffett suggests that while corporate taxes have fallen from 4% of U.S. tax receipts nationally in the 1960's to 2% currently, the burden of healthcare costs for corporations has risen from 5% of the economy in the 1960's to 17% currently.
ource: Kaiser Family Foundation)
Looking for Reliable Advice:
Surveys suggest that 57% of people without an adviser would like to work with one.(Northwestern Mutual) Hesitation to locate a reliable advisory firm includes consumer concerns about being sold inappropriate products, not understanding costs and not having sufficient assets. From our perspective, to properly evaluate advisory firms, consumers should review the level of advisory services rendered, evaluate experience levels and credentials of adviser professionals and scrutinize costs.
Thanks so Much:
Wow - another successful year for our annual seminar. We had record attendance and participation at our 2017 annual seminar, and based on attendee surveys, presentations were well-received. We covered a lot of ground discussing economic issues, changes in the business landscape and we provided a number of financial tips for attendees. The seminar's country club venue created a warm ambiance and we appreciate the interest expressed by our wonderful attendees.
(Source: National Bureau of Economic Research)
Your Financial Quote: ""I love to go to Washington, if only to be nearer my money." - Bob Hope
What have we done?:
We have been satisfied to simply hold most existing investment allocations for much of 2017 since many continue to perform well. In addition, we have added international exposure as noted above. We have a cash position in client portfolios to provide purchasing power when markets pull back a bit.
Asset allocation (designed for conservative, pension and 401(k) investors): Our Spectrum Asset Allocation Strategy (designed to invest in a broad basket of asset classes) is currently invested in both large and small domestic stocks, and an international allocation that was added several months back. Other asset classes have been under-performers year-to-date. (2)
ETF Strategies (designed for conservative to aggressive investors):
Our ETF Strategies have performed very well year-to-date. These strategies currently hold a mix of income securities and large domestic stock and international ETF's. We recently locked in gains on a large value ETF, which raised cash for a market pullback.
(2) The ETF Strategies can satisfy the goals of a wide range of clients.
Legacy Growth quality individual stock strategy (desi
gned for established, equity-oriented growth investors):
Legacy Growth Strategy
has lagged a bit year-to-date as growth stocks dominate the market mindset at the moment. Think Amazon and Apple (which are potential positions for this portfolio, but are too expensive as new additions.
Legacy Growth Strategy performed well in 2016 and 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?:
Market averages are at multi-year highs, but that says nothing about what markets will do. Markets are often at multi-year highs and continue to move higher. Historically, they always have. As noted above, our perception is that markets require some resting time to regroup...
...however, we continue to believe that 2017 will result in a positive market outcome and may catch many investors off guard with further gains.
Enjoy the week...
Grant S. Donaldson, MS, CPA
(1) yahoofinance.com, S&P500 historical data, Barron, Morningstar.com
(2) Information available upon request
(3) Oppenheimer: Compelling Conversations