"Helping You Navigate the Course to Financial Freedom"
 September 2016
The Ides of September?

There is something about October that spooks investors. Maybe it's the market crash of 1929 or the one-day crash that happened in 1987.
More recently, shares were pummeled in October 2008 after Lehman's collapse roiled global credit markets.
Though it has been a while, modest corrections in the late 1970s ruffled feathers in October. Almost 20 years ago, the mini-crash of 1997 that was tied to the economic crisis in Asia played out shortly before Halloween.
However, October's scary reputation belies reality. Since 1970, the S&P 500 Index has averaged a monthly advance of 0.99% (St. Louis Federal Reserve data). So much for October's spooky reputation.
But let's get back to the month at hand - September. For reasons that aren't fully understood, it has historically been a tough month for investors. And you can't just pin September's lousy performance on a few bad years.
Some explanations seem plausible, though they can't be conclusively proven.
According to Investopedia, one theory suggests that summer is usually marked by lighter volume, as investors typically go on vacation and refrain from selling stocks. When they return, they exit shares they had planned to sell.
Another camp puts the blame on mutual funds. You see, many mutual funds set their fiscal year end in September. Therefore, fund managers, on average, may decide to sell losing positions before the end of the fiscal year, which leads to September's subpar performance.
That theory may hold some water. When the index (in this case, the Dow) has been up for the year-as it is now-it usually means September finishes up, though returns are "still not great," according to Bespoke Investment Group.
In any case, here's the next question that typically comes to mind: "Should I sell in September and re-enter when the long-term averages suggest we'll be in a more favorable climate for stocks?"
As I often tell clients, if I knew what was going to happen in the markets in any given year/month/day, I would be sitting on a beach at my private island right now sipping frozen daiqueris, rather than writing this newsletter!
Attempting to time the markets, especially short-term ins and outs...and then back-ins - is incredibly difficult to do. In addition, it can create a taxable event in nonretirement accounts.
I'm reminded of a comment made by Peter Lynch, who successfully ran Fidelity's Magellan Fund during a long period of explosive returns. He noted, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
I'm not saying that we don't try to find value or bargains or beneficial entry points when managing your investments. We do try to anticipate changes in investment and economic cycles and position accordingly. But using market timing as an overall investment strategy is a losing proposition in the long run.
Turn the page and close the chapter on a dull August
How boring is boring, LPL Research Group asked recently? We may be near a record high, but using closing prices, the S&P 500 traded in a 1.54% range in August-the smallest monthly range since August 1995.
In fact, only six months have had a narrower monthly span, going all the way back to 1928!
Table 1: Key Index Returns - August 2016
 
MTD %
YTD %
3-year* %
Dow Jones Industrial Average
-0.2
+5.6
+7.5
NASDAQ Composite
+1.0
+4.1
+13.2
S&P 500 Index
-0.1
+6.2
+10.0
Russell 2000 Index
+1.6
+9.2
+7.0
MSCI World ex-USA**
-0.2
-0.4
-0.4
MSCI Emerging Markets**
+2.3
+12.5
-1.3
Source: Wall Street Journal, MSCI.com
MTD returns: July 29, 2016-August 31, 2016
YTD returns: December 31, 2015-August 31, 2016
*Annualized
**in US dollars
In This Issue

confused_accountant.jpg

Changes in the Financial Advice Industry

O n April 6th, the US Department of Labor (DOL) issued new rules that are designed to enhance consumer protection and ensure that all advisors and financial institutions put their clients' best interests first.  This is a principle we can all support.  And as CFP(r) certificants, Martin and I have always been held to a fiduciary (best interest) standard.

However, as with all government regulation, the "devil is in the details", and details on these new rules have been sparse (despite a rule announcement exceeding 1,000 pages!).

What we do know is that this rule change will definitely affect how investors get financial advice.  As a firm, we are exploring what adjustments in our practice model may be needed so that we can continue doing what is in our clients' best interest, while adhering to these new requirements.

What hasn't changed, however, is our view on the importance of financial advice.  In a recent survey conducted by the respected investment firm Franklin Templeton, the majority (60%) of respondents consider a financial advisor to be an important part of the planning process.  Interestingly, the age group most likely to reflect this attitude is Millennials (69%)!

We will keep you posted as we work to adjust our practice to this significant rule update.  We appreciate your loyalty and patience as we work through this process.

Please feel free to contact us if you would like more information on the rule change.  ##
 

Our privacy policy has been updated. For more information   Click Here.  To request a printed copy call the office at 201-933-1790.
But in keeping with our theme, let's review potential shorter-term risks that may lie before us in this first month of autumn.
We've been hearing some chatter the Federal Reserve might hike interest rates as soon as September.
As we finalize this newsletter, the Fed announced no interest hike at their September meeting, while signaling a strong possibility of an increase after the November elections.  Markets rallied on the news.
So if rates are unlikely to rock the boat, what else is out there? Recent market highs signal investors aren't particularly fretting over the upcoming election. With the exception of the political junkies, voters historically don't really get engaged until well after Labor Day.
Yet, a tightening in the race could create additional uncertainty as we head toward November.
Then there is the ever-present possibility that international woes could wash up on our shores, as demonstrated recently by events in China and the Brexit.
But once investors realized overseas worries weren't mucking up the shores of the U.S. economy, cooler heads prevailed.
These are just some of our more recent concerns. I won't belabor the point by lifting up every rock that might provide a September surprise, but now is a good reminder during the market's recent calm that volatility can strike. When it does (note, I say "when" not "if"), remember to keep your focus on the long term.
Economy - the good news
A quick review of the economic data reveals an economy that has recently gained a bit of momentum. It's not the fast-paced growth we experienced during the 1980s or the "brimming with confidence" economy of the late 1990s. But the improvements are cautiously encouraging.
Though business spending remains weak, employment growth has accelerated (U.S. Bureau of Labor Statistics), weekly first-time jobless claims are holding at historically low levels (Dept. of Labor), and consumer spending has come out of its winter hibernation (U.S. Bureau of Economic Analysis).
While I'm the first to counsel against taking on needless debt for what are needless purchases, consumer spending accounts for 70% of GDP (U.S. BEA). Therefore, a more engaged consumer helps lift the economy.
Why does this matter? As I've pointed out before, the biggest long-term driver of stock prices is corporate profits, and a growing economy creates a tailwind for profits.
Summary
You've heard me say this before-stick to the plan. From a behavioral standpoint, it's usually easier to adhere to the financial plan when markets are moving higher.
If your circumstances have changed, we should talk, as adjustments may be in order. But in any case, you must be comfortable with the level of risk in your portfolio. If you are not, let's talk and recalibrate.


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