2nd Quarter Updates and Commentary from IEM
Now that the warm weather has finally arrived and is here to stay, the IEM team hopes everyone has a wonderful holiday weekend and enjoys the rest of their summer. In this edition, Daniel Schoenecker provides a Q2 market update, Danica Goshert shares a message on Jam, Transitions, and the Paradox of Choice, as well as a reflection on our participation with Start Reading Now this past May.
Q2 Market Commentary
The second quarter of 2019 built on a positive first quarter, with major stock and bond indices finishing in the green. The S&P 500 returned approximately +4.3% and the MSCI ACWX (international stocks) returned approximately +3.0%. On the fixed income side, the Barclay’s U.S. Aggregate Bond index returned approximately 3.1%.

Still, though, there were episodes of volatility surrounding investor nervousness on two fronts – the threat of protectionist trade policies from the United States and other countries, as well as the course of monetary policy as it relates to the U.S. Federal Reserve and interest rate hikes/cuts.
Trade negotiations between the U.S. and China remain an on-going gamesmanship between the sides but finished the quarter hopeful as the presidents of the countries met at the G20 Summit with positive rhetoric thereafter. Regarding monetary policy, the big news has been a ‘U-turn’ from U.S. Federal Reserve. In recent years, as the economy as improved, the Federal Reserve has been hiking the federal funds interest rate. It was fairly accepted that this would continue in 2019. However, due to concerns about the aforementioned trade policies as well as generally slowing global growth, the market is now pricing up to three federal funds rate cuts this year.

As it relates to an investment portfolio, when the risk-free interest rate is lower, investors are faced with a tough decision: accept lower forward expected rates of return in their portfolios, or take more risk to earn an acceptable rate of return. In our IEM portfolios, we philosophically believe in maintaining disciplined, strategic long-term allocations for the majority of the portfolio, along with infrequent but prudent, tactical adjustments as a result of economic or market developments.

In this instance, at the beginning of this quarter, we will rebalance the portfolios including taking profits from REITS (Real Estate Investment Trusts) and reducing the allocation to Treasuries, shifting more towards Corporate Bonds. The primarily goal of rebalancing is to minimize drift between the stock and bond parts of the portfolio, with a secondary goal of adjusting to market opportunities.

We often conclude with a reminder that in up-markets it is often a great time to reconfirm that your portfolio’s allocation matches your need, ability, and willingness to take risk. We encourage you to call, email, or use our online portal with any questions you have related to this or anything else.


Daniel Schoenecker, CFA
Director of Financial Planning and Investment Management
Disclosure:   Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI ACWX Index is a float-adjusted market capitalization index designed to track the investment results of an index composed of large and mid-capitalization non-U.S. equities. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.
A Message From Danica Goshert on Jam, Transitions, and the Paradox of Choice
There’s a well-known science experiment involving a grocery store display and jam samples, where people were invited to taste the jam before purchasing.

The researchers found that on the days when their display offered 24 jam flavors to sample – instead of six -- the display attracted more attention, but the larger selection meant that people were less likely to purchase jam. A lot less: 10% of the amount purchased by the people who had only six flavors to choose from. This experiment introduced a concept known as the “paradox of choice,” meaning that more options aren’t necessarily better when it comes to making decisions.

What does this have to do with financial planning? Actually, a lot.

Many of our meetings with clients are focused on transition planning – retirement, death of family member, divorce, change in health status, job change, income change, child leaving for college, and so on. Transitions themselves can be a source of stress, and the multitude of decisions that accompany transitions can lead us to feeling paralyzed.

When this occurs, we help clients to break things down into smaller pieces, aka “eating the elephant one bite at a time.” (With apologies to the elephant, of course!) Typically, this involves prioritizing issues based upon risk or opportunity, time-sensitivity, or the one critical decision that needs to drive everything else that happens.

For example, when evaluating the offer of a severance package factors to consider could include your age, vesting status, health care costs, pension status, ability (or need) to replace income, and so on. The overwhelming volume of information to gather and consider could be paralyzing. In reality, the most important question to ask is “Can I afford to stop working for a while, and if so, how will I meet my income needs?” The answer to this question (with the guidance of your Private Wealth Manager if needed) could instruct whether or not you even have any further decisions.

We’ve all had that experience when we say, “Wow – that was simple!” after completing a task that was expected to be difficult and complex. It’s not that the complexity isn’t still there – transitions, by their nature, are complicated – but if the first steps are the right ones, the next steps are simplified and become more clear and actionable. Because sometimes, the best approach is to do the next thing, then the next, and so on.

Danica Goshert, CFP, AIF, MBA
Vice President / Private Wealth Manager

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services offered through CES Insurance Agency or Integrated Equity Management

Start Reading Now

Aggressive Investing… in our Community!

For the second year, IEM took a day off in May, to go to four under-served area elementary schools with Start Reading Now ( https://www.startreadingnow.org/ .

Thousands of first-through-third graders each chose ten new books from the Scholastic library to keep, with the goal of helping those kids avoid summer reading set back and start the next school year strong. The energy, excitement and smiles from the kids was contagious as they sorted through 300 titles to choose their very own books.

Start Reading Now received a generous donation from IEM as well, to help put books in the hands and homes of these children. We look forward to May, 2020 when we team up with SRN to support our community’s kids again!
What Did You Do This Summer?