What is FANG and The Social Security Cliff
By: Kevin Dombrowski
As of 5/31/18
Past performance is not an indication, prediction or guarantee of future results.
Weekly Update
Markets were up this week due to solid job growth in the US, eased concerns with the political situation in Italy, confidence in the European Central Bank’s quantitative easing plan, and several other strengthened labor market metrics in the US. 

The initial concerns around the announcement of US tariffs on imports from China, the EU, and NAFTA partners have at least momentarily dissipated. Investors are patiently awaiting the results of the G-7 summit taking place on June 8 th and 9 th as well as any news that comes from the highly anticipated June 12 th North Korean summit. Much of the focus of the G-7 summit will be on the announced tariffs and the response may send markets up or down.

Technologically Challenged
Technology companies have garnered much press lately with many at all-time high stock prices and valuation. Technology companies are usually “growth stocks” – public companies associated with low dividend payments and high price to earnings valuations. With all the excitement around these companies as of late, even many traditional “value” investors are following the crowd and investing in mevany of the largest technology companies to boost performance.

If you haven’t heard about ‘FANG’ on TV these past six months, you likely will. FANG is an acronym used in the investment world for Facebook, Amazon, Netflix, and Google. These four stocks have been the Wall Street sweethearts of this bull market, and as a result, many investors remain smitten with their performances.  However, with a recent shake-up in sector identification by S&P Dow Jones, Facebook, Netflix, and Alphabet (Google’s parent) will now be listed under a ‘communications’ sector and will no longer be listed under ‘technology’.

This may not seem like a big deal but many sector specific funds may change significantly as a result. To evaluate portfolio risk, it’s important to understand excess exposure to specific companies like for instance over allocating to FANG. This is an excellent opportunity to ask a trusted professional to evaluate your portfolio to ensure your allocation is tailored to meet your goals and objectives.  

Social Security Taps into Reserves
The Social Security program’s costs will exceed income in 2018 – the first time since 1982 – forcing it to dip into its reserves to cover benefits. This is three years sooner than many expected projections. At this rate, if nothing changes, the reserves will be depleted by 2034 and Social Security will not be able to pay its full scheduled benefits. Why is this happening? Simply put, people are living longer and young families are having fewer children, in turn creating a smaller labor force. These have been consistent trends since the 1960s.  
Another troubling trend adding to this issue is that the share of prime-age population (25-54 years old) in the labor force has declined steadily from 2008 (83.3%) to 2015 (80.7%).
What does this all mean for investors? It may be prudent to prepare for your retirement without any expectations of social security. The younger you and more affluent you are, the less likely it seems that you will be able to count on the program that exists today. Additionally, the full social security age (currently 66) should increase over time. Plan accordingly and save as much as you can as early as you can to build financial independence from Social Security.
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kdombrowski@mainlineco.com
MainLine Private Wealth 308 E Lancaster Avenue Suite 300 Wynnewood PA 19096