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Registered Investment Advisor
900 Walt Whitman Road, Suite 208
Melville, NY 11747
(631) 923-2485
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Investment Newsletter - Q2 2021 |
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Greetings!
As always, we hope this finds you well. With the vaccinations being rolled out, and winter officially behind us, (with fingers crossed) we believe we are seeing light at the proverbial end of the tunnel.
On that subject, specifically to our clients, we know that COVID-19 has potentially affected your ability to meet with us over the last year. As a reminder, if you do not feel comfortable coming into our office, we recommend that we possibly set up a Zoom or teleconference call to update your planning numbers. Plus of course you have the opportunity to come in if/when you feel comfortable in doing so. Please feel free to reach out.
Regarding the economy and the stock market, we give you our thoughts, specifically on the past quarter and outlook further below. If you would like, we also have links to the Q2 2021 Global Market Outlook by Russell Investments, one being a detailed report, and the other an "Executive Summary". To access either of those, please click here*. *Please note, when you click, you may need to wait about 5 seconds for the screen to load, and then scroll and click the url underneath the Russell Investments picture.
In this issue of our Investment Newsletter:
- Our current investment topic is: Savings options in a near zero interest rate environment
- We welcome a new addition to the team!
- Access to our updated ADV brochure for year-end 2020
- An overview of recent market activity, along with Our Perspective...
- A recap of the performance of major market indices from the past quarter
- Upcoming Economic Calendar
You will find past investment articles, by clicking the Articles tab above, or directly on our website, found under Periodicals.
If there is a topic of interest you would like to see covered in the future, please reply back to this email to let us know, or click here. Likewise, if you have any questions on this or anything else, feel free to reply back.
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Investment Topic
For our investment topic, "Savings options in a near zero interest rate environment" we attempt to give a high-level overview of the topic. To learn more, please click here.
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We welcome a new addition to our team - Jim Millington, CFP®
Landmark Wealth Management was started 10 years ago this September by Joe Favorito. Brian Cohen and Chris Congema merged their firm into Landmark over 6 years ago. All of us came from large, well-respected industry leading financial firms. The reason for our wanting to be independent was to provide comprehensive financial planning, in a boutique style environment, away from conflicts of interest, and where we could spend quality time with each and every client, and give them the attention that they deserve.
We know that our clients have come to appreciate the level of service that we provide. As such they have helped us grow very nicely by trusting us not only with their financial situation, but with friends and family as well, as we have received numerous referrals, for which we are extremely grateful for!
To that point, we have been actively looking to have someone join us so that we can continue to take new clients. We also want to make sure that we continue to give the same amount of time and attention that our clients have come to rely on and expect from us, and we want to still be able to offer what we feel is a winning formula: a primary point of contact so that you know who to reach out to and will get back to you right away, along with a team of people to assist you on an ongoing basis.
We are thrilled to add James Millington, CFP® to the Landmark team. A CERTIFIED FINANCIAL PLANNER™ since 2003 (www.cfp.net), Jim has been in the financial services industry since 1998. He has worked for several New York Stock Exchange members in various wealth management roles, including Prudential Securities, TD Waterhouse, JPMorgan Chase, and Fidelity Investments.
Over the course of more than two decades Jim has helped both families and small businesses with financial planning topics including retirement planning, investment management, college planning, insurance, estate planning strategies, and tax efficient investment strategies. In addition to earning his CFP® designation, he has held FINRA licenses Series 7, Series 63, Series 65, Series 9 and Series 10. He has been a licensed agent in numerous states including New York and Florida for life, health and variable annuities. Additionally, Jim was a Certified College Funding Specialist CCFS®. Jim graduated from the University at Albany with a Bachelor’s Degree in Economics, and a Minor in Business Administration.
Jim has been an active member of the Financial Planning Association since 2002 and held the position of the Government Relations Director. In addition, he was also the Career Development Director where he served as a mentor to CFP® certificate candidates by teaching and proctoring review classes to prepare them for the CFP® exam. He has been invited to numerous engagements to speak on various different financial topics including, but not limited to, banking and lending, retirement planning, investment planning and annuities.
Jim joined Landmark to partner with clients and help understand their short and long-term goals while assisting them in building a financial plan that is more personally customized to meet their needs. One of Jim’s top priorities is forming strong relationships with our clients and their families as he works hard to maintain a deep level of trust, reliability, and competency.
Jim currently resides in Smithtown, New York with his wife Suzanne, and their two children Zachary and Hannah.
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Our Annual ADV
As per Securities and Exchange Commission (SEC) requirements, attached is our annual ADV brochure. To access this, please click here. If you would like us to email or mail a hard copy, please feel free to call/email us to let us know.
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Our Perspective on Recent Market News and Activity |
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Our synopsis of the past quarter, a look ahead, and putting it all in perspective: |
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We often start our newsletters with words to the effect of, “What a difference a year makes”. Well there can be no better time to re-use that expression once again, because there rarely has been a more stark contrast to where we were a year ago to where we are today. Not to rehash painful memories, but the markets bottomed on March 23rd of 2020. Fast forward a year later and the market is back to hitting all-time highs. Clearly with vaccines, therapeutics, and getting closer to some level of herd-immunity, our future is looking brighter, and the markets have shown confidence that things will be improving.
Over the last quarter, interest rates have accelerated higher as the yield on the 10-year US Treasury bond has moved from under 1% to over 1.75%. On a percentage basis, that was a fairly significant move and the bond market adjusted quickly in the face of the new rate environment. The concern is of increasing inflation and will the Fed make a policy mistake by attempting to keep interest rates lower for longer, to help aid in the economic recovery? The Federal Reserve has stated that their plan is to keep supporting markets with low interest rates and in buying $120 billion of bonds a month. The goal is to see a much stronger economy, an improved labor market, and higher inflation before they even consider raising interest rates. Their point is that a healthy economy should be able to thrive with interest rates rising over 2% and certainly not stuck at zero. This willingness to allow inflation to go above the previously stated 2% threshold is a big change from their policy in the past.
We have often discussed that when looked at from a long-term historical lens, stocks are positive 75% of the time, and bonds are positive 92% of the time. The markets however, are and always will be sensitive to interest rates. Lower rates tend to lead investors to shift to more risky assets to capture some form of return, while higher rates can affect corporate borrowing, earnings, and overall economic growth. There is an inverse relationship between interest rates and bond prices. When rates go up, bond prices come down and when rates go down, bond prices go up. The first quarter saw the former, and for bond holders it was a quarter to forget. Municipal bonds held up better than taxable bonds, so depending upon if bonds were in an IRA vs. in a non-qualified account, bond performance was a bit more disjointed than normal. Corporate bonds on average were down 3-4% during the quarter, while municipal bonds were down less than 1%. With the prospects of stimulus going to help out some of the struggling state and city budgets in places like New York, Illinois, California, etc., coupled with the prospects of higher tax brackets down the road, demand for tax free municipal bonds helped to offset some of the effects of rising interest rates.
You may see some articles questioning owning bonds in a portfolio, and of course the media always needs a hot new story to talk about in attempts to alarm investors to try and capture some ratings. If we take a step back and look to give this some proper perspective, the pace of this move has been noticeable, but it is important to note from where rates have come. After the COVID market decline last March, interest rates went right back down to zero, with the Fed’s goal to help stimulate the economy during the lockdowns. With the 10-year Treasury moving to 1.75% and even possibly going up to 2%, this should not be too much of a shock especially given the supposed economic growth that is coming back as businesses re-open. Simply put, a healthier economy should not have interest rates at or near zero! There was some pushback when the Fed was raising interest rates prior to the Pandemic, and of course it was a good thing that they did, because it gave them room to cut when it was needed. The same thing applies now. When we have a future recession, it is important for the Fed to have some ammunition to be able to cut rates to help handle these future recessions when they occur.
As U.S. rates move higher, U.S. bonds become much more attractive to the rest of the world. As more buyers come in, prices rise and yields fall. And right now, as Europe deals with negative rates and Japan is flat, 1.75%--on a relative basis-- looks incredibly attractive. If you want to buy a home in Germany, you can get a 0% interest rate mortgage!
We will continue to own bonds in our portfolios, for the same exact reasons that we have always owned them:
1. Portfolio Diversification
2. Steady Income
3. Lower correlations to stocks
When we go through a period of rising interest rates, unfortunately it becomes a necessary evil to watch the prices of bonds come down a bit, but the reward is that the bonds will now have higher interest payments and for more conservative clients, it will reduce their need to chase riskier assets to capture some form of return. I think we all long for days when savers and conservative investors can obtain a decent rate of return on their bonds and cash.
On the stock side, the first quarter of 2021 is a great example of why you never want to give up on or exclude asset classes in your portfolio. The rotation that many have been waiting for has begun, and that has led to a shift away from some of the growth and technology names of the past, and we have seen a cycle shift back into value companies, and small-cap and mid-cap companies that had lagged over the last few years. One never knows when the cycle will change, so having proper asset allocation and portfolio diversification will ensure that you will always have exposure to these asset classes, in varying percentages.
An addiction to low interest rates is not healthy for the overall markets and can cause asset bubbles to appear. We have seen how there are parts of the market that seemed to be highly overvalued. With the rise in rates, we are finally seeing valuations adjust. The trend in place now has been if rates are up, tech stocks are down. Many of the high-priced, expensive growth names in the market have experienced a sharp pullback in their share prices. From our newsletter last quarter, “From an investment standpoint, we remain firm believers that there will be a cyclical rotation from growth to value, as historical numbers bear the proof that the historical discrepancy between Value vs. Growth witnessed in 2020 was most likely fueled by a COVID type of black swan event that fortunately does not happen too often. Over time, strong balance sheets, company fundamentals, price to earnings ratios, all matter and efficient markets correct where needed. We are willing to remain patient and allow for these rotations to occur”. To date we have seen this rotation occurring, and expect it to continue until some of the previous excess has been corrected. This rotation was long overdue in our opinion.
It is important to note, that those companies that may now be going through a correction in their stock prices are not necessarily suddenly bad companies, but rather just that their valuations may have become a bit stretched. The exact opposite may be said for the stock prices of value companies. These stocks had been out of favor for too long and their valuations became overly depressed. The common mistake that many investors make is to abandon good companies or asset classes that have temporarily fallen out of favor to chase high-fliers whose valuations are not sustainable. Keeping a well-diversified portfolio that encompasses both growth and value as investment styles, should always remain the goal.
As we have always said, predicting the short-term direction of the market is impossible and is a lesson in futility. In any given period of time, the market can act irrationally and make little sense. The market often tends to overshoot to both the upside and the downside. This is why we spend so much time on goal based planning, because if you are truly a long-term investor, then you should not be focusing on the short-run moves. This is called myopic loss aversion; basically meaning having a short term focus on a recent loss on assets that should be for a long term goal.
Having a diversified portfolio is incredibly important for most long-term investors. The reason is simple: Asset classes will differ dramatically in their short-term results. That is, during some periods, some asset classes will fall out of favor, while others will lead. But the trend could easily reverse the next period. Investors should not rely on one asset class if they want to avoid huge drawdowns, which can meaningfully impact returns over time. Remember, if you are down 10% you only need 11% to get back to breakeven. If you are down 50%, you don’t need 51% to get back to breakeven, you need 100%! Protecting the downside is very important, especially for those in retirement who are systematically withdrawing a portion of their assets each year.
Wishing you all an enjoyable spring. Be safe and healthy, the finish line is hopefully approaching on this pandemic. The wish for our next newsletter is that you are all too busy on vacation to even think about the markets! That is our job and we are watching and acting on your behalf, and for that we always appreciate your confidence, trust, and loyalty. Enjoy!
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
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Below is the Q1 '21 price return performance of some of the major indices: |
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On the Investment Horizon |
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Upcoming Key Dates on the Economic Calendar
- First Friday of each month: Unemployment report for the prior month, released at 8:30AM.
- Friday, April 2 - Good Friday: NYSE closed.
- Wednesday, April 7 - Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.
- Tuesday, April 27 - Wednesday, April 28: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
- Wednesday, April 29 at 8:30AM - GDP, 1st quarter (advance estimate).
- Wednesday, May 19 - Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.
- Thursday, May 27 at 8:30AM - GDP, 1st quarter (second estimate).
- Monday, May 31 - Memorial Day: NYSE closed.
- Tuesday, June 15 - Wednesday, June 16 - The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
- Thursday, June 24 at 8:30AM - GDP, 1st quarter (third estimate); Corporate Profits, 1st quarter.
- Monday, July 5 - Independence Day observed: NYSE closed.
- Wednesday, July 7 - Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.
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If you desire an appointment, have any questions on any of this material, or any other financial subjects may relate to your own financial circumstance, please reach out to us at the contact information below:
Sincerely,
Direct phone: 631-923-2485
This communication is from Landmark Wealth Management, LLC, a Securities and Exchange Commission Registered Investment Advisory firm. The information in this email is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax, legal, or investment advice from an independent professional / financial advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Information and use of materials contained in this email, including text and attachments, is confidential and is for the use of the intended recipient(s) only. If received in error, you are hereby notified that any dissemination, distribution, or copying of this communication, or any of its contents, is strictly prohibited. If you have received this communication in error, please reply to the sender and delete the original message and any copy of it from your systems. Be also advised that email communications are not secure. All e-mail sent to or from this address will be recorded by the Landmark Wealth Management, LLC email system and is subject to archival, monitoring, and inspection pursuant to securities regulations. Please direct any matters regarding this policy to [email protected]
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Landmark Wealth Management, LLC
900 Walt Whitman Road, Suite 208
Melville, NY 11747
(631) 923-2485
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