"Helping You Navigate the Course to Financial Freedom"
 September 2015

The Dumb Money

By Leslie T. Beck, CFP®

Last month's newsletter was entitled "It's All Greek to Me."  This month Greece is long forgotten - it's now all about broken China.  Whatever the headline, it's easy to to joke about them when stocks are holding up or moving higher. But a jarring correction may create uneasiness, as some of you have shared with me.
I can't help but be reminded of a comment by John Bogle, retired CEO and founder of the mutual fund giant, The Vanguard Group. "Don't pay a lot of attention to the volatility in the market place.  All these noises and jumping up and down along the way are really just emotions that confuse you."
The question shouldn't be, "Will my investments go up or down?" The answer is a definite "They will".  Instead, ask, "Will the fact that investments go up and down bother me enough to do something dumb?"
In other words, Bogle is saying that volatility is part of the DNA of the market. Stocks go up, and stocks go down. Historically, stocks have gone up a lot more than they have gone down. But from time to time, they do go down.
Stock market corrections, defined as a decline of 10% to 20% of a major market index-typically the S&P 500 Index-are a normal part of the investment landscape. In the context of an expanding economy, they are healthy when valuations get a bit extended, as they wipe out excess enthusiasm, reduce valuations, and set the foundation for another round of gains.
Yes, I know it sounds a bit clinical, and recent volatility has been unsettling. I recognize that. But swings in the market are normal.
But let's be clear: Volatility can be lessened by investing in a diversified portfolio that seeks out long-term capital appreciation, a modest degree of stability, and income.
Since the May 21 peak in the S&P 500 Index, shares were down 12.35% at their low point in August. That fits neatly into the definition of a stock market correction.
But it's been four years since shares have lost more than 10%, which is an unusually long period.
Such instances may lull an investor into complacency, which adds to the angst when shares fall. Historically, however, 10% declines are more common.
In fact, since WWII, a correction has occurred about every 20 months (Dow Jones, Morningstar, Bloomberg, Reformed Broker) so we were long overdue. Moreover, the average correction (a 10-20% decline) lasts 71 days, recording a 13.3% decline.
But, you may say, the most recent decline has been sudden and quite potent. Yes, that's true, with the S&P 500 falling more than 10% in just four days!
However, since 1940, there were 10 other times when stocks fell at least 10% over a four-day period. Though the S&P 500 sometimes struggled to regain its footing in the immediate aftermath of the decline, the measure of 500 large U.S. firms was up 5.2% on average after 50 trading days and averaged a 20.1% rise within 250 trading days (Charles Schwab).
Market Performance
MTD* %
3-year** %
Dow Jones Industrial Average
NASDAQ Composite
S&P 500 Index
Russell 2000 Index
MSCI World ex-USA***
+ 4.69
MSCI Emerging Markets***
Source: Wall Street Journal, MSCI.com
*July 31, 2015 - August 31, 2015
What's going on? China and the Fed
It's a question that has come up often in recent meetings and discussions with clients. In reality, it's hard to pinpoint the exact cause for the recent selloff, but first I'll cover some of the negative headwinds. Read more


In This Issue

Beware the Zero COLA

No, we're not talking about the soft drink - this COLA is the annual Social Security Cost of Living Adjustment.  The Social Security Administration recently announced that there will be no cost of living adjustment for social security payments in 2016, due to continued low levels of inflation.  This is only the third time since 1975 social security payments will not adjust for inflation.

While this is bad news for recipients of social security (many argue the inflation indicator used by SSA is flawed and does not reflect the true level of inflation in the economy), the negative is offset somewhat for those currently on Medicare - no COLA means no increase in Medicare Part B payments for 70% of Medicare recipients under the "hold harmless" rule.  However, no increase in premiums doesn't mean Medicare program costs won't rise in 2016- they most definitely will.   Read more


Penny-wise, Pound Foolish

By Leslie Beck, CFP®

The use of the British term "penny wise, pound foolish" dates back to at least 1607, and refers to actions that might save a little in the short term, but in the long term wind up costing you much more than you saved.  As a planner, I see this type of behavior time after time, especially in younger clients: short term strategies used to save on expenditures are viewed as financially savvy, but often wind up costing much more than expected.  Read more

Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA), Member FINRA, SIPC. Supervising office at 678-954-4000. Financial planning offered by Compass Wealth Management LLC. Leslie Beck and Martin Siesta are registered representatives and investment advisor representatives of SFA, which is otherwise unaffiliated with Compass Wealth Management. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.  For more information visit www.compasswealthmanagement.net