The economic expansion over the past nine years is the second longest the U.S. has ever experienced. If it continues past July 2019, it will officially become the longest in U.S. history. However, many experts are starting to see warning signs of a slowdown.

Specifically, the real estate housing market appears to be at or near its peak. According to the National Association of Realtors, prices have increased exponentially in recent years due to low supply. It appears that lessons from the last recession have stuck with many homeowners, who appreciate the fact that they simply have a home they can afford and are less interested in trading up.

There are other factors to consider. A recent survey of real estate experts revealed that if the economy does experience a setback, it will likely be due to an increase in interest rates set by the Federal Reserve.

Over the last 10 years, interest rates have hovered at or just slightly above historic lows. The Fed typically increases interest rates when growth and employment levels trigger higher inflation. By raising rates, money becomes more expensive to borrow and consumption is reduced, tamping down rising prices. This year, in response the country’s continued economic growth, the Fed has raised interest rates three times and is expected to make one more hike by the end of the year.

“A combination of high home values and rising interest rates has sparked concerns that the housing market may be due for a slowdown.”

Mortgage Rates

The Federal Reserve began raising short-term interest rates in 2015. Despite this defensive move, long-term rates remained surprising low. It has been primarily during the last year that rates have increased significantly, currently posting a full percentage point higher than a year ago, at around 5 percent for a 30-year mortgage.

Higher mortgage rates may discourage new and younger homebuyers, which is likely to stall overheated home prices and leave more homes on the market longer. Overall, home sales this year are expected to be lower than 2017 numbers.

A lot of this may sound familiar, as if recent history is starting to repeat itself. We are only 10 years out from the last financial crisis, and wounds still run deep. In fact, mortgage values of more than 1 million American homes are still under water, and there are foreclosures from that period yet to be settled.

Investment Opportunities

Investors have several options even in the wake of a declining real estate market. Those with available capital can purchase rental properties. Rents have been on the rise for years, to the point of making home ownership a more viable option. Rising interest rates may keep more potential buyers out of the market, offering up lucrative rental opportunities.

Owning rental properties is a viable long-term investment that generally poses less volatility than stocks. However, they have less liquidity, and building equity can take many years. It’s important to invest in properties that generate enough income to cover taxes, insurance and maintenance so that investors aren’t forced to pay those expenses out-of-pocket.

Investors can step back a bit further and invest in real estate investment trusts (REITS). These are fixed-income investments that invest in residential or commercial properties, or mortgage-backed securities. REITs are publicly traded, so they are as liquid as stocks and bonds. Note that their value is tied to interest rates, so income may fall when rates increase.

Relaxed Lending Standards

Much of the rise and fall of the real estate market is tied to bank lending criteria. When standards are tight, only well-qualified borrowers can get capital, so there are fewer buyers in the market. During periods when lending criteria is less rigid, more people are able to buy homes. Unfortunately, it is during these more lax periods that more homeowners default on mortgage loans and foreclosures increase.

It’s worth noting that lending criteria became more stringent in the years following the Great Recession. However, in the summer of 2017, high home prices and fewer homebuyers led Fannie Mae to once again relax its lending standards for prime loans. This enabled homebuyers with higher debt and lower credit scores to obtain loans without requiring a large down payment or excess cash reserves, which significantly increased the number of approved mortgages. There is also a trend to provide mortgages to people with credit scores as low as 500. While featuring higher interest rates and higher down payments, these “nonprime” loans may be offered to borrowers with recent negative credit events, such as a foreclosure or bankruptcy.

These “covenant lite” loans are frequently securitized and packaged for sale to investors in the corporate bond market. Today, nearly 80 percent of newly issued loans are covenant lite, compared to fewer than 25 percent in 2006 and 2007. Many of America’s employees are already unwittingly invested in these higher risk corporate bonds through their employer pension funds.

Final Thoughts

There are several ways to view a real estate investment. If you’re a homeowner, rising values mean you build more equity and can sell your home for a higher price. However, if you don’t sell, higher values could trigger higher property taxes. After the last real estate decline, many experts encouraged home buyers to view their homes less as financial investments and more as components of their lifestyles. If you stay put, you are likely to build equity over time and, since you have to live somewhere, your home serves a dual purpose.

If you’re interested in buying and selling homes to accumulate assets, this strategy is reliant on timing within the real estate market and possibly contractor skills. Depending on your experience and savvy, flipping can be a high-risk investment strategy.

Then there are packaged real estate investments managed by professional money managers. It’s important to recognize that even the pros experience significant losses, because no one can actually control the direction of the markets.

If you’re looking to participate in the real estate market, consult with an experienced advisor who understands both the options available and your financial situation to help you choose the best scenario for your circumstances.



A correction is technically defined as when the market declines by 10 percent from a recent peak. It’s worth noting that corrections are a very normal part of the market life cycle. There has been at least one correction in each bull market of the last 40 years and a correction can occur in any asset class.

Investors should understand that corrections are unavoidable and to be expected. In a normal market, it is not unusual to experience at least one correction a year. However, recognize that the market hasn’t been very normal recently. There hasn’t been a correction in the S&P 500 index since early 2016. Prior to that, there had been nine market corrections between 2010 and 2015.

Whenever the market takes a precipitous drop, we often see emotional reactions such as fear, confusion, panic and loss of trust. Investors begin to second-guess their advisors. They make rash decisions. They might ask themselves:

  • “Do I hold the right investments?”

  • “Should I even be in the stock market at all?”

  • “Should I just convert my entire portfolio to gold and bury it in the backyard?”

Emotional Rollercoaster

Emotional effects tend to occur when people get fearful or greedy. Investors can even accelerate the movement of the market based on one of those two emotions. However, there may not be anything inherently wrong with the market; the crowd is just acting based on feelings. It’s important to be able to distinguish between how our investments are performing relative to our goals and how we feel about the market environment.

These are factors that generally cannot be controlled by investors or the entities in which they invest. That’s why it’s important to be guided by personal goals rather than chase performance. It’s important to be able to distinguish between what is a temporary setback and what is a market fundamental.

External Factors

Securities markets also may be impacted by external factors. These can include rising oil prices, a change in the direction of interest rates, political fallout, bad news affecting a major market player or industry, a global crisis or even a severe natural disaster.

These are factors that generally cannot be controlled by investors or the entities in which they invest. That’s why it’s important to be guided by personal goals rather than chase performance. It’s important to be able to distinguish between what is a temporary setback and what is a market fundamental.

Market Fundamentals

Corrections can occur when there are market fundamentals at play that affect the value of underlying investments. A classic example is the dot-com bubble of the early 2000s. At the time, investors began putting money into all types of tech companies — large, medium, small; growth, value and even start-up. They were seduced by the idea that tech companies were “the next big thing” and did not pay close attention to that market sector’s fundamentals.

Many of these venture-capital-funded entities increased exponentially in value, peaking at nearly 80 times their earnings. At the time, that was more than three times the valuation of the rest of the equity market.

An individual company’s fundamentals are typically measured by components such as its balance sheet, income statement, overall management and cash flow. Many of the tech companies of this period did not have the company fundamentals to support this level of valuation. Eventually, when investors realized this fundamental flaw in the market, they ran for the exit, which caused the market to collapse.

What Action Should You Take?

One of the first things investors tend to want to do after a market correction is take action. Sometimes this is appropriate; other times it may not be. The first task is to determine the cause of the downturn. Today, the economy is demonstrating many favorable characteristics, such as low unemployment and benign inflation.

Market fundamentals are also positive. Since the last recession, companies have reduced debt, increased profits and improved their overall balance sheets. These are all clues that indicate the market itself is in good shape.

Therefore, a downturn could result from either disruptive news or simply the natural course of the market life cycle. Neither of these events is likely to be long term. As such, investors should check their emotions at the door and review their portfolio from a fundamental point of view.

Consider Your Risk

A diversified portfolio balances financial vehicles that carry more risk, like stocks, with others that carry less risk, such as annuities. The question is whether you should adjust your asset allocation to reduce your risk of loss.

Consider that an investor who is behind in his savings efforts may be willing to trade higher risks for greater rewards. On the other hand, an investor who has a more balanced allocation, such as 50 percent in stocks and the rest in more conservative assets, will likely experience less loss due to market volatility, but he may not be well positioned to meet his longer-term financial goals.

Stick to Your Plan

This is where working with a financial advisor is key. Having assessed an investor’s objectives, timeline and tolerance for risk, an advisor should recommend a plan designed to meet those goals factoring in a variety of market conditions. It’s safe to assume the market will always be changing, but an investor’s plan for his or her money usually does not change very often, if at all. If the original asset allocation plan is sound, and a market correction is based on factors that are temporary or cyclical, sticking to the plan is often the best course of action.

Portfolio Tips: Discuss With Your Advisor

In the event of a market downturn, there are steps you can take to help ride out the storm — whether you’re caught in the middle of it or anticipate it on the horizon.

  • To keep retirement savings on track, continue to invest automatically, even during periods of declining prices

  • Remember, investing when prices drop means new contributions will buy more shares.

  • If you’re not comfortable continuing to invest when prices are declining, consider using excess cash to pay down debt, as this will help reduce your liabilities while waiting for your assets to recover. Once they do, your overall net worth may well increase despite the market correction.

  • Consider whether to rebalance your portfolio once the market has recovered.

“I will tell you how to become rich… Be fearful when others are greedy. Be greedy when others are fearful.” - Warren Buffett

Final Thoughts

Much like other aspects of financial planning, getting through a market correction is largely about sticking to fundamentals.

Try to avoid letting a market correction stoke your emotions. In the history of the securities markets, corrections are considered both normal and inevitable. In fact, they offer an opportunity to capitalize on low-priced investments.



To build a diversified portfolio, it is key to combine investments whose historical returns have not moved in lockstep together. For example, when stocks outperform, different types of bonds may underperform, and vice versa. This strategy helps provide the opportunity for continued growth in some portion of the portfolio with the goal of offsetting declines among other assets. If everything works according to plan, the total portfolio is less likely to suffer significant loss.

Diversification has long been recognized as a risk-management tactic for retirement portfolios. In fact, the Employee Retirement Income Security Act of 1974 mandates that fiduciaries who manage retirement assets diversify plan investments in order to minimize the risk of extensive losses.

Here are three reasons it is a wise idea to have a diversified portfolio:

1. Prudent, Balanced Approach

Diversification helps provide a more balanced approach to investing. Too often, investors seek to chase performance when prices are on the rise and retreat to lower-risk investments during a market downturn. This latter strategy can cause a drain on long-term investment performance for many reasons, such as:

  • No one is consistently successful at market timing

  • Buying high and selling low

  • Trading costs

  • Tax liabilities

By diversifying across a mix of both higher and lower-risk securities, portfolio performance is generally more restrained from both the highs and lows of market swings and may provide more consistent returns.

A study conducted by Morningstar revealed that, over time, the average performance of an investor prone to buy and sell based on market conditions tended to trail that of a well-balanced buy-and-hold investor.

“Well-diversified portfolios minimize ‘variance drain’ which contributes to less risk (less volatility) and more gain.”

2. Recovery: Pure Math

A second reason to invest in a diversified portfolio is to reduce the recovery time after a market downturn. After all, the worse the losses, the longer it takes a portfolio to recover. This can be illustrated through a simple mathematical calculation.

The accompanying bar chart shows how bigger losses require bigger gains to recover. In contrast, a diversified portfolio is likely to lose less ground and thus need less outperformance or time to rebound. Looking at this strictly from a loss perspective:

  • A portfolio that has decreased in value by 5% will have to post a 5.2% gain to recover its original value

  • A portfolio that has decreased in value by 20% will have to post a 25% gain to recover

  • A portfolio that has decreased in value by 35% needs to achieve a 54% gain to recover

  • A portfolio that has decreased in value by 50% needs to achieve a 100% gain to recover

    Gains Needed to Recover from a Market Decline

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3. How You Reach Your Goals Matters

A third reason advisors frequently recommend diversifying as an investment strategy is that, from a psychological point of few, the pain people feel when losing money is typically more pronounced than the joy they feel with portfolio gains. Even people who are comfortable investing aggressively are bound to be aggrieved by losses. Therefore, diversification is not just an investment strategy; it’s a way to help investors control mood swings that may parallel the direction of the markets.

In short, a diversified investor may feel more confident about his or her long-term prospects for meeting financial goals. For some folks, it’s not just about meeting their investment objectives — but doing so with less market-induced stress.

Final Thoughts

While spreading out investments across a wide selection of financial products offers the benefits of diversification, recognize that this is not a one-time event. You should monitor the progress of all of your financial assets to help ensure they stay on track to meet your goals. Because market returns often throw a prescribed asset allocation strategy out of whack, you should maintain the careful mix of asset class percentages aligned with your tolerance for risk, and don’t be afraid to periodically rebalance your assets (sell out-performers) to retain your strategy.

Also, you will want to assess your diversification strategy across all of your investment accounts (e.g., 401(k), IRA or investment portfolio, etc.) to ensure that many of your holdings do not overlap — which can negate the benefits of diversifying. It is generally a good idea to work with a financial advisor to help you keep track of all of the moving parts in your financial portfolio.



It’s no secret that Google’s search function yields a wealth of information associated with nearly every facet of finance. A search with the words “financial planning” will reveal more than a billion items to explore. While investors can immerse themselves in this sea of information, they may find that practical wisdom is in short supply.

The unfortunate reality of this information overload is that it is very difficult for the average person to decipher good information from bad. There are no disclaimers or flashing warning signs on web pages to let you know whether the authors are truly knowledgeable about their subject matter. Just as there is “fake news” on many Facebook feeds, there is plenty of bad financial advice shared all over the Internet.

While the effort to educate oneself on all things finance and investment related is applaudable, be aware that such activities can be plagued by inaccurate information, inappropriate applications and downright pitfalls that can lead to the loss of wealth.

The Cost of Bad Advice

Investment advisors must pass certain exams and meet criteria for both industry certification and state licensing requirements. Moreover, it takes years of experience to become a well-rounded, well-informed advisor. It usually helps to have lived (and invested) through some market downturns to truly understand the relationship between risk and reward.

Even with education and experience, investment advisors — and investors who make financial decisions on their own — can make miscalculations that put assets at unnecessary risk. Many a portfolio has been reduced as the result of expensive investment and/or administrative fees as well as tax and estate planning blunders.

“You must first focus on the return of your capital, and only second concern yourself with the return on your capital.”

Due Diligence

First and foremost, even if you choose an investment advisor based on a personal referral, it’s important to conduct your own due diligence to ensure he or she is licensed and knowledgeable and does not have a “checkered past.” To investigate a prospective advisor, consider tapping the following resources:

Evaluate Your Investment Decisions

Once you are confident in the knowledge, experience and trustworthiness of your financial advisor, your job is not over. Even if you don’t have time to learn all aspects of investing, it’s a good idea to evaluate the recommendations and strategies you and your advisor develop for your portfolio.

To help perform this evaluation, ask yourself the following questions.

1. Will this investment help me achieve my personal and portfolio objectives?

At the end of the day, portfolio strategy for many people isn’t about return of investment but rather meeting personal goals. For some, that’s about achieving the lifestyle they want and continuing it throughout their lifetime. For others, it’s about leaving a legacy. Every person is different. That’s why one of the first things a financial advisor will do is ask questions about your family, your finances and your goals for the future. Once your investment strategy is established, revisit these goals to evaluate if your chosen path is likely to get you there, if the path is likely to be smooth or bumpy and if you’re comfortable with that level of risk.

2. Does this investment option make business sense?

If it sounds too good to be true, it often is. This is a particularly important question if you’re inclined to act on a “hot tip” — be it from your broker or your golf partner. At any point, a stock tip might be a good idea, but there are lots of screens through which you should evaluate that investment. For example:

  • Do the company fundamentals (e.g., earnings, valuation) support it?

  • Is the overall industry or sector strong, or is this one investment an anomaly?

  • Does the level of risk of this investment complement the rest of your portfolio?

  • What is the likelihood of this investment meeting its projected performance within the current market and/or economic environment?

3. Is this investment aligned with my risk profile and timeline for meeting my objectives?

A wealth manager may attempt to quantify an investment strategy through a complex series of measures, such as the efficient frontier or modern portfolio theory. But for the layperson, consider whether an investment will reduce your portfolio’s risk or potentially raise its return. Ideally, it will do one or both.

4. How might I lose money with this investment?

It’s important to identify, from the outset, all the major risks associated with a particular investment or strategy. These may include market risk, credit risk, interest rate risk, inflation risk, foreign currency risk, foreign market risk (e.g., lack of regulation; social, political or economic instability) and liquidity risk.

Also evaluate your personal circumstances by determining how much money you can afford to lose. One way to manage your risks is to diversify investments and/or include financial products that provide guaranteed income.

5. What is my exit strategy?

Buy and hold is a tried-and-true strategy, but it should be periodically reviewed. Company management and fundamentals change. Industries change. The economic environment and market conditions change. Investor goals change. Once you establish specific objectives for your portfolio, it’s important to monitor performance against periodic benchmarks to gauge whether those investments are meeting them.

An exit strategy can be a minimum distribution plan, reverse dollar cost averaging, annuitizing, the outright sale of assets or transferring/rolling over to more conservative holdings. How you exit may depend upon your investment strategy, but it’s a good idea to consider how you plan to tap your investments once you reach your goals.

Final Thoughts

Many folks have expertise and knowledge in their respective fields, as well as plenty of life experience. The same can be said for most investment advisors. Often the best way to create an investment strategy is to combine professional financial advice with our personal understanding of what’s at stake and good old common sense.

It’s your money. If an investment recommendation triggers red flags that make you uncomfortable, ask your advisor to consider other options. There is a vast and complex world of investment advice out there; more than a billion sources to explore. You should feel confident that your advisor understands not just your investment goals but also your comfort level with the risks you take with your money.

The more you learn, the more confident you will be about your investment decisions.



While health insurance covers expenses related to acute care, like a trip to the hospital, it does not cover the cost of assistance over a long period of time — such as the rest of your life. Longer term care must be paid for out of pocket unless you qualify for government benefits or purchase some form of long-term care insurance.

While fees vary based on location and other criteria, long-term care can be pricey. To give you a general idea of the cost, the following are national medians for various types of long-term care services, according to Genworth’s 2017 Cost of Care Survey.

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Long-term care insurance can help protect a household’s assets so that the care of one family member does not devastate a lifetime of savings and the financial future of other members. The following is an overview of some of the options available to help pay for long-term care.

Medicaid and Medicare

Until recently, Medicaid was the only government-sponsored plan that paid for long-term care. It requires that beneficiaries first spend down their own assets to no more than $2,000 in order to qualify for coverage. Medicaid provides coverage only at traditional nursing homes, and not every facility accepts Medicaid patients.

Medicare, on the other hand, may pay for up to 100 days in a skilled nursing facility per benefit period and the first 20 days are paid up to 100%. Day 21-100 required a co-payment. However, in March of this year, the Centers for Medicare and Medicaid Services (CMS) issued a final rule giving Medicare Advantage (MA) plans the option to pay for certain long-term care services starting in 2019. Coverage specifics will be decided by individual insurers, but they may include home aides to help with daily living activities, including dressing, eating and other personal care needs, as deemed medically appropriate by a licensed health care provider. Note that this new rule pertains only to MA plans, not original Medicare.

“Medicare Advantage beneficiaries will have more supplemental benefits, making it easier for them to lead healthier, more independent lives.”

– CMS Administrator Seema Verma

Veterans Benefits

Veterans who served at least 90 days in the military during a time of war may qualify for long-term care benefits from the Veterans Aid and Attendance program. This lesser-known VA benefit provides up to $1,830 per month for long-term care assistance to a qualifying veteran and up to $1,176 for a surviving spouse. Note that the veteran must meet specific income and asset limit requirements.

Qualifying veterans who do not need daily assistance but have a permanent disability that leaves them mostly shut in at home may qualify for the Housebound benefit. This is an additional stipend paid to veterans who receive a monthly pension.

Long-Term Care Insurance

Long-term care (LTC) insurance generally pays for daily assistance due to chronic illness, disability or conditions associated with aging. Coverage is issued either as an indemnity policy — a fixed sum paid regularly for any use — or as a reimbursement policy for payments made to a long-term care facility, up to contractual limits.

The criteria that determines when a policy-owner qualifies for LTC benefits is based on specific “activities of daily living” (ADLs). To qualify, the policy-owner must need help with at least two of the following ADLs:

  • Personal hygiene — bathing, grooming, oral, nail and hair care

  • Continence management — physical ability to properly use the bathroom

  • Dressing — select and wear the proper clothes for different occasions

  • Feeding — food preparation and the ability to feed oneself

  • Mobility — the ability to transfer from one position to another and walk independently

An LTC policy typically pays a fixed per diem for a nursing home, assisted living facility, home health care or some combination thereof. It may feature a waiting period before coverage kicks in (e.g., 90 days), and there is generally a limit to how long coverage lasts (e.g., three years).

Non-Traditional Insurance Options

Certain types of life insurance policies have evolved to include long-term care coverage options. LTC payouts may be available through a variety of plan models, such as:

  • Asset-based Long-Term Care: This type of insurance product combines a life insurance contract with a long-term care policy providing benefits for a long-term care need, and if not needed, then a death benefit will be paid out upon the insured's death.

  • Long-term-care rider: This may be added to a whole or universal life insurance policy for an additional fee and subject to separate underwriting. This coverage enables the policyholder to utilize the death benefit to help cover costs associated with long-term care should certain requirements be met.

  • Chronic Illness Rider: This coverage can be purchased as optional protection to provide additional coverage should a chronic/non-recoverable illness occur.

  • Terminal illness/Accelerated death benefits: These pay out a portion of the policy’s death if the policyholder is diagnosed with a terminal illness or cognitive impairment.

In all instances, the riders will reduce the death benefit, meaning that anything paid out for long-term care is deducted from the amount given to beneficiaries after the policyholder passes away. A rider for accelerated benefits generally adds five to 10 percent to the life insurance policy’s premium, although some insurers have begun to include this as a standard benefit. It is also important to note that most life insurance proceeds are paid out on an income tax-free basis. Please check individual carriers and policy for full details.

Annuity Options

Over the years, annuity contracts also have evolved to allow distributions to help with the expenses associated with long-term care, either from the cash account value or income account value benefits. Some may oer a provision referred to as a Long-Term Care Doubler or a Home Health Care Doubler. This feature permits the lifetime income benefit to be doubled and paid out for a limited time or for the duration of the long-term care stay.

Be aware that insurance policy guarantees are backed by the financial strength of the issuer. Life insurance and annuity contracts may include conditions and penalty fees, such as surrender charges, that can impact policy values. Also note that some insurance contracts may require medical underwriting for LTC benefits, possibly including but not limited to a health questionnaire and/or physical examination. To help stabilize prices, some insurers limit eligibility criteria to exclude people with multiple chronic health conditions or cognitive impairments.

Final Thoughts

The way we use a traditional long-term care insurance plan is similar to how we use auto insurance. You pay a premium and either use the coverage or not. If you don’t use it, that money is lost. If you do use it, you could save quite a bit of money.

Today, there are plans that combine insurance goals such as coverage for long-term care expenses, a steady stream of retirement income and/or a death benefit for heirs. Chances are good we’ll need one to all three benefits, so many people find there is less risk of paying for something you do not use. However, generally, the more benefits offered, the higher the cost, so it’s important to work with an experienced professional to select an affordable solution that meets your specific needs.



Congressional midterms tend to have lower voter turnout than presidential elections, but the current partisan nature of the electorate could have far-reaching repercussions, particularly in light of recent felony convictions of members of President Trump’s campaign and inner circle.

If Democrats take control of one of the lawmaking groups, the legislative branch will be divided, which puts things in a stalemate. Interestingly, this is generally good news for the investment markets. The markets hate uncertainty, and a stalemate helps ensure there will be no major legislation for the foreseeable future.

If Democrats take control of both sides of the legislature, it is likely significant changes could be made — including possible removal of the president and perhaps members of his Cabinet. Impeachment proceedings are likely to unsettle the market, at least temporarily. However, the first order of business is likely to be a restoration of many of the previous administration’s policies and an end to the current trade war. These are all known outcomes that are not likely to shake the investment markets significantly.

If the Republicans retain control of both houses in Congress, this will strengthen GOP resolve and likely lead to more changes in both social and economic policies moving forward. More tax cuts, a stronger stance on immigration and trade, and renewed confidence among the majority of Americans could propel the historically long bull market even further. However, these activities represent a significant departure from past administrations so, again, how the markets react to uncertainty remains uncertain.

“Although a Republican majority in Washington, D.C., historically has been accompanied by strong equity-market performance, a potential split in Congress is unlikely to derail the U.S. equity bull market (in our view).” – Wells Fargo Bank

Historical Perspective

Historically, the S&P 500 has experienced a correction averaging about 18 percent during mid-term election years. However, the markets tend to rally immediately after the election once clarity of leadership is re-established. As a result, every mid-term election year since the 1940s has yielded a positive return.


1930-2014: Midterm Election Outcomes and Stock Performance

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Presidential Election Cycle

Investment analysts have accrued data and made observations about patterns that tend to emerge during election years. One of the trends is termed the Presidential Election Cycle, which projects the following trends based on historical patterns:

  • Years 1 and 2 – Returns are lowest in the first half of a president’s term, based on the premise that a president moves quickly to implement new policies to make good on campaign promises and to front-load any negative repercussions so as not to impact his/the party’s chances for re-election. 
  • Years 3 and 4 – The stock market typically produces its best returns in response to those policies or in anticipation of replacing the president.

Halloween Indicator

This pattern is also known as “Sell in May and Go Away.” It purports that the stock market produces higher returns between Halloween and May — presumably when both companies and investors are more active and productive (whereas people tend to take their vacation time during summer months). This seasonal trend is usually more conspicuous during the winter of a president’s third year. For President Trump, the cycle would begin this November.


Some market analysts predict gridlock no matter how the midterm elections pan out, mainly because both the Republican and Democratic parties incorporate a significant range of policy stances. No matter which party takes the majority, the idea of heavy infighting actually favors market performance. Otherwise, consensus could trigger significant legislative changes, and Wall Street does not like change.

It is worth noting that the U.S. markets have not experienced a negative third year of a president’s term since 1939. In fact, with the exception of World War II, since the 1920s, stocks have risen 87 percent of the time in each of the three quarters that followed a midterm.

Risk Factors

While history can be a helpful guide in anticipating how the markets will react after the midterm elections, it is important to view the upcoming midterm elections in context of the current economic environment. Over the past six months, President Trump has embarked on highly unpopular trade tariffs that threaten potential corporate profitability in certain industries. Furthermore, continued low unemployment and the threat of rising inflation increases the likelihood of more Fed interest rate hikes.

Additional risk factors to market performance include:

  • The rising dollar poses a potentially negative environment for earnings
  • Geopolitical risks
  • Rising oil prices and a possible shortfall given U.S. sanctions on Iran
  • Consumer confidence could drop in the midst of a political crisis

Sector Strengths and Weaknesses

If Republicans retain their majority, the party is poised to support Trump’s effort to prop up the coal industry, with further gains likely in cyclically oriented sectors including consumer discretionary, financials and industrials.

If Democrats achieve a majority in both Houses, their focus is likely to be in the health care sector in an effort to improve upon the current Affordable Care Act. They also are likely to ramp up policies supporting alternative energy companies, while market under-performers would likely be in the financial, energy and defense sectors.

Final Thoughts

There are a couple of key points worth considering with this year’s midterm elections. First, this hasn’t been a normal, run-of-the-mill presidency, so country and party divisions point to a highly combative period of uncertainty. The second issue has to do with putting too much emphasis on historical applications in general, and cause and effect applications in particular.

In other words, just because two scenarios correlate doesn’t mean they are linked. One financial industry executive pointed out that “the annual number of people who drowned by falling into a swimming pool is highly correlated with the number of films Nicolas Cage appeared in during that year. ... One must remember that there is a dramatic difference between correlation and causality.”

With that said, one trend that does tend to be consistent is that political uncertainty leading up to a midterm election generally generates greater market volatility. If you have concerns, don’t hesitate to contact your financial advisor for specific advice. As for general recommendations, remember that past performance is not indicative of future results; periods of volatility often present good buying opportunities; and broad portfolio diversification can help mitigate temporary declines. In addition, since November signals the approach of year-end, a discussion with your advisor about rebalancing your portfolio to harvest gains and reposition some assets for better stability in the future may be worth considering.



Lifetime income sources generally provide minimum payouts to help cover everyday expenses. In most cases, these benefits are not impacted by fluctuations in the investment markets.

For example, Social Security benefits are based on one’s lifetime earnings, so they reflect a proportionate amount of income based on your assumed standard of living. To maximize benefits, it’s best to delay drawing them until full retirement age or later. It’s also important for married couples to strategize on the best way to maximize spousal benefits. In 2018, the highest Social Security benefit — based on earning the maximum-taxable earnings since age 22 and waiting until age 70 to draw benefits — is $3,698 a month ($44,376/year).

In post-World War II America, many employers began offering defined benefit pensions to workers at age 60 who had given at least 20 years of service. By 1960, approximately half of the private sector workforce had one.

Today, only 23 percent of private-sector, state and local government workers have pension plans. According to the Pension Rights Center, the following are annual median pension benefits (2016) for adults over age 65:

  • Federal government: $22,172
  • State and local government: $17,576
  • Private sector: $9,262

For those seeking a higher level of lifetime income throughout retirement, they may need to use their own savings and investments to create additional streams of income. Those who opt to supplement income from interest and dividends from their portfolio will need to accumulate significant assets to produce a high level of income. Even then, this income may be subject to market and economic factors that could cause those streams to fluctuate. This strategy also poses the risk of outliving assets.

Currently, the only other vehicle available to produce lifetime income during retirement is an annuity, which offers guarantees based on the financial strength of the insurer. Depending on the type of annuity contract purchased, the owner has options as to when and how much of the annuity value to convert into a lifetime income stream.

“A recent academic study — “Putting the Pension Back in 401(k) Plans” — shows how taking a piece of your nest egg and deferring it into a lifetime annuity is a cost-effective way to hedge longevity risk, and that overall it provides people with substantially higher consumption levels, particularly at older ages.”

Annuities for Lifetime Income

There are two main categories of annuities: fixed and variable. A fixed annuity earns a guaranteed rate of interest and, once income payments are started, guaranteed income amount for a certain time period or for life, depending on the options selected

A variable annuity provides income subject to underlying investment performance, so even though the interest credits may not be guaranteed during the accumulation phase, it does offer the potential for higher payouts over time. Once income payments start, they are guaranteed for either the time period or for life, depending on the options selected.

There are also annuities that offer both fixed and indexed interest crediting. For example, depending on the interest crediting options chosen, an indexed annuity provides a guaranteed interest crediting rate with the opportunity to enhance accumulation and therefore income payouts based on the performance of a market index, such as the S&P 500. If the S&P has a good year, the annuity owner will receive higher interest credits, up to a predetermined limit, based on a proportionate calculation of index earnings. If the S&P performs poorly, there will be no additional interest credit, but the annuity owner will continue to receive the guaranteed minimum benefit. Unlike variable annuities, fixed index annuities do not actually participate in the market; they only track the index as a means of determining interest credits.

It is important to note that all annuities offer the option of guaranteed payouts. The type of annuity chosen dictates the type of interest credits the account value will receive, and ultimately, the amount of interest credited combined with the underlying principal determines income payouts once income is elected.


Annuity Misperceptions

Opinions vary regarding annuities. For a long time, they were considered effective vehicles for only a select group of investors. Now, however, many retirement strategists are recommending them more widely to help retirees secure an additional stream of lifetime income.

Annuities have evolved over time to meet the needs of a broader population. As such, there are still some misperceptions about what they offer. Things that used to be true aren’t necessarily in force anymore, or only in limited circumstances

For example, there’s the practice of an insurance company keeping your money if you pass away before receiving a full return of premium via income payouts. First of all, this only happens if you “annuitize” your contract, which isn’t all that common. These days, many annuities offer a lifetime income rider (in some instances for an additional fee), which allows you to select a lifetime income payout option without giving up control of your account. In many cases, the annuity will offer a guaranteed death benefit to the contract beneficiary (which, in some cases, may be offered for an additional fee).

There is also a perception that the annuity owner may not make withdrawals from his annuity the way he can an investment or savings account. And while annuities do have surrender charges associated with them during an initial period, in most cases, the annuity merely caps the amount the owner can withdraw, such as no more than 10 percent a year. Bear in mind that withdrawals will impact the amount of benefit the annuity pays out at a later date.


Annuity Realities

One common perception is that annuities are difficult to understand. This, in fact, is true — largely because there are so many options available in today’s market. Bear in mind that annuity strategies are not designed to be one-size-fits-all; many offer a plethora of options and features to help individuals and couples tailor a retirement income plan suited for their specific needs. Because of this, it’s important to work with an experienced insurance professional to help navigate which type of annuity to choose and which options are most appropriate for your financial situation.


Lifetime Guarantee

Another reality is that despite an annuity’s guarantee, it is possible to miss out on lifetime income. This feature is determined by actuarial calculations based on the amount of money initially used to purchase the contract. Therefore, if the owner violates any of the withdrawal limits or other contract rules, it could result in a reduction of benefits or even void the guarantee altogether. This is another reason to work with a qualified advisor and read the policy literature to understand the features, risks, charges and expenses — including the tax status for when you receive distributions.

Also be aware that all annuity guarantees are subject to the claims-paying ability of the issuing company.



There is also the perception that annuities are expensive. In reality, there are low-cost annuities and others with more expensive bells and whistles. In many cases, an annuity can be tailored so you pay only for features and benefits that match your needs.



This is one of the areas where annuities shine. Unlike 401(k) plans and IRAs, the IRS does not impose contribution limits on a non-qualified annuity (although some insurers may require pre-approval for extremely high purchase premiums). This means you can maximize post-tax income contributions to grow tax-deferred until you are ready to withdraw income. And although Social Security and pension payouts are capped, an annuity can help you develop a higher stream of guaranteed income using personal assets.


Final Thoughts

Lifetime income is not an easy thing to provide. In recent years, there has been increasing concern about the ability for both underfunded pension plans and Social Security to provide guaranteed lifetime income at their current levels. People looking for more predictability during retirement may need to be proactive about developing their own stream of guaranteed income using a portion of their savings and/or invested assets.

Annuities offer important retirement planning features such as tax-deferred growth opportunity, guaranteed income riders and a death benefit for beneficiaries — but it’s important to choose the appropriate type of annuity for your situation. For many people, designing a personally funded plan for guaranteed lifetime income is certainly worth exploring.



At the heart of President Trump’s policy is his conviction that China has used predatory tactics to challenge American technological dominance. He has accused the country of obliging U.S. corporations to trade technology for access to the Chinese market, as well as outright cybertheft.

Initially, the Trump administration placed tariffs on industrial products so that American consumers would not be impacted. However, the list of Chinese imports has subsequently expanded to a wide range of household products, from electric lamps to fish sticks.

Note that import tariffs affect entire supply chains in addition to the specific goods taxed. Ultimately, this could lead to the distribution of cheaper raw materials that could impact the quality of consumer goods and manufactured commercial products.

“Although tariffs could cause prices for consumer products ranging from cars to washing machines to rise, ‘the U.S. does not need China as much as China needs the U.S.’”

— Barry Bannister, head of institutional equity strategy at Stifel

Hardball Strategy With China

It is fortunate for the current administration that the U.S. economy is performing extremely well. Corporate profits were projected to increase by more than 20 percent for two quarters in a row this year, yielding the best consecutive performance since 2010. Unemployment is at an 18-year low, and wages are starting to pick up. GDP growth hit 4.1 percent for the second quarter of 2018, reflecting the fastest pace in four years. All of this gives Trump the advantage to negotiate with other nations from a position of strength.

On the other side of the bargaining table, China, Europe and Japan are all experiencing slowing growth. China is particularly vulnerable because the country exports three times more goods to the U.S. than the U.S. sends to China (measured in dollars). Given its $280 billion trade surplus with the U.S., China has much more to lose in the current trade dispute.

While a trade war could escalate to the point of slowing global growth and inhibiting confidence among businesses and investors worldwide, many Wall Street analysts believe that Trump’s tariff strategy to position the U.S. ahead of trade deficits will be successful.

Global Trade Response

Although China may be the primary trade partner in Trump’s crosshairs, his initial proposal called for global tariffs across the board pending new agreements negotiated with individual trade partners. While the knee-jerk reaction by some countries has been to retaliate with their own import tariffs, this may not be the most prudent response from both a political and financial perspective. In fact, smaller countries are likely to feel the most impact, as they lack the bargaining power of, for example, 500 million consumers in the European Union (EU).

To wit, President Trump and European Commission chief Jean-Claude Juncker announced an agreement to stay tariffs until they negotiate a more mutually amenable trade agreement. This follows a heated exchange over Trump’s initial steel and aluminum tariffs and the EU’s threat for subsequent countermeasures.

Although Canada is one of the more vulnerable smaller economies, it has already responded with 25 percent tariffs on $12 billion in U.S. imports. One analyst has suggested that Canada could take the extreme step of barring trade in banking and insurance services, restricting foreign investments or energy exports, or denying U.S. patent protection for intellectual property.

Mexico is actually in a stronger walk-away position than Canada, as its foreign investment is growing due to separate trade deals with countries that have expanded export markets in recent years.

South Korea has already accepted restricted import quotas in order to avoid steel tariffs and modified its bilateral trade deal with U.S.-placed quotas on Korean cars.

Several emerging-market countries play an active role in global supply chains and are most impacted by the tariffs on imports from China. Consequently, collective export volumes year-to-date are down by about 6 percent from a year ago.

Impact on Investment Markets

Despite turbulence in the global trade market, U.S. stocks have remained resilient. There is currently $3.4 trillion invested in S&P 500 index funds across a myriad of 401(k) plans, IRAs, mutual funds and ETFs.

Should Trump’s trade gambit prove successful, especially with China and/or the EU, enhanced trade agreements would be a boon for the already booming health of U.S. companies, with residual benefits for investors. In the meantime, much of U.S. growth is driven by sectors such as health care, which are less impacted by trade disputes.

Final Thoughts

Trade wars involving significant tariffs can produce several trickle impacts. First, higher costs are passed on to consumers, which can cause higher overall inflation. Higher prices also can bring about reduced demand for goods, which can lead to lower production and job losses. Ultimately, higher tariffs on U.S. imports and retaliatory tariffs on exports could slow global growth.

However, that’s a worst-case scenario. Trump is using America’s economic dominance as a tool to threaten tariffs in order to negotiate trade agreements that position the U.S. for more expansive growth in the future. Should his strategy pay off, U.S. investors are well-positioned to benefit.



Life insurance policies fall under two broad categories: term and permanent. With a term policy, you purchase a death benefit amount and determine how long you want to hold the policy; it pays out a death benefit if the owner passes away during the specified term. Permanent insurance policies, in addition to providing a death benefit, feature a cash value account that, over time, builds up a balance you can access.

While a term life policy offers a death benefit only during the selected term, a permanent life policy provides a death benefit that covers your entire life, as long as you keep paying the premiums. Neither term nor permanent life insurance death proceeds are subject to the beneficiary’s income tax, but they may be subject to federal estate taxes.

It’s worth mentioning that older life policies, generally prior to 2001, may actually mature when the policy owner turns 100 and will pay out the face value of the policy — which is taxable to the extent it exceeds the sum of after-tax premiums paid into the policy — while he or she is still alive. Newer policies, generally after 2001, extend to a maximum age of 121.

“What type of life insurance is best for you depends on a variety of factors, including how long you want the policy to last and how much you want to pay.”

Term Insurance

Term insurance is a temporary policy, generally sold in durations of five, 10, 15, 20, 25 or 30 years. Once the period ends, premiums end as does the death benefit.

Term life insurance is suitable for most people looking to help provide financial protection to loved ones should they pass away. As a general rule, it is easier to understand and tends to be a less expensive form of life insurance. However, it’s important to point out that you can outlive your policy. If you still need to provide financial protection after the term expires, you’ll need to purchase a new policy. Since premiums are based on age, health and competitive rates at the time, it’s very likely you will pay more for a new policy purchased later.

Term life insurance is sold by what’s called the “face value,” which is how much the policy will pay out upon your death. Policies can vary dramatically in face value coverage, from less than $50,000 into the millions.

“Level premium” term life insurance policies offer fixed payments, meaning you’ll pay the same premium amount throughout the term. The premium will not increase. You may have the option to renew or extend the policy term, but the premium amount is no longer locked in at that point.

Permanent Insurance

Permanent insurance remains in force until the policy owner either dies, cancels the policy or allows it to lapse by no longer paying premiums. Because this type of policy is designed for a longer time horizon and potential cash value accumulation, this type of policy generally costs more than a term policy.

There are several types of permanent life insurance. Below is a brief synopsis of each type and the benefits provided.

Whole Life Insurance

Whole Life insurance (WL) provides permanent coverage that is guaranteed to remain in force for the policy owner’s lifetime, provided premiums are paid, or to the maturity date. Premium payments are fixed, based on the policy owner’s age at issuance, and usually do not increase with age. In addition to providing a death benefit, whole life policies build cash value that grows on a tax-deferred basis and can be accessed during your lifetime. Policy loans accrue interest, and policy loans may reduce the available cash value and death benefit.

Universal Life Insurance

Universal life insurance (UL) is a form of permanent coverage with more flexibility than regular whole life. The policy owner can choose to increase (or reduce) the death benefit and even the amount and frequency of premium payments, subject to policy limits. A portion of the premium is allocated for tax-deferred growth and credited to the policy as cash value. You can use this accumulated cash value to pay premiums or to take out a loan. With this type of policy, it is important to make sure the policy is funded correctly and to review your annual statements to make sure the product is performing as intended; if not, evaluate your options with your financial professional.

Variable Life Insurance

Variable life insurance (VL) is a permanent life insurance policy with an investment component that features premium payment flexibility. The cash value portion of the premium payment can be invested in a range of options (e.g., fixed-income investments, stocks, mutual funds, bonds, money market funds, etc.). The cash value and death benefit can fluctuate based on performance of the investment portfolio. Some policies offer a guaranteed death benefit, which will not fall below a minimum amount, for an additional premium. Similar to other permanent life insurance policies, your accumulated cash value grows on a tax-deferred basis and can be borrowed against, however there may be some restrictions due to market volatility.

Variable Universal Life Insurance

Variable universal life insurance (VUL) combines the premium payment and death benefit flexibility of universal life with the cash account investment growth options of variable life.

Indexed Universal Life Insurance

An indexed universal life insurance (IUL) policy is a permanent life insurance policy that features a cash value account, which is linked to a stock market index like the Standard & Poor’s 500. The cash account grows in step with the market index and accrues a portion of its gains, without the risk of loss of premium due to market downturns or fluctuation. If the linked index declines in any given year, the cash value does not drop. In some policies, the insurer offers a low guaranteed interest rate to ensure there is always some growth.

An IUL offers the potential for the cash value to grow significantly over time. The policy owner can access the cash for his or her own needs and even use it to cover premiums.

This type of policy features significant flexibility, as the cash value enables the owner to reduce or even skip a premium payment. Some policies allow the owner to adjust the death benefit, as well, when family needs change.

Compare Benefits

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Final Thoughts

Both term and permanent life insurance options have their advantages, and depending on your situation you may benefit from one or the other.

If you’re looking to minimize your spending and cover yourself when you need it most, a term insurance policy could be a good option. This tends to be a better option for younger people who may not want to be locked in to premium payments for 60 or 70 years.

On the other hand, if you’re looking to make a long-term investment and guarantee that your beneficiaries will receive a legacy after you die, a permanent insurance policy might make more sense.



Basically, life insurance is there in case you ever are not. In exchange for a one-time or ongoing premium, a beneficiary(s) receives proceeds upon the death of the policy owner. This money can be used in any way the recipient sees fit. For the policy owner, life insurance can provide a sense of confidence that his or her loved ones will be financially provided for should something happen to him or her. Although life insurance can be used to address a wide variety of financial issues, family financial well-being is generally its most important feature.

When determining whether you should purchase life insurance to replace income, ask yourself this question: “Does anyone rely on me financially?” If the answer is yes, then you should own life insurance. If the answer is no, then you don’t necessarily need life insurance for this purpose.

When you purchase life insurance, you are essentially making a deal with an insurance company to trade payment — known as a premium — for the guarantee that it will pay your beneficiaries a set amount upon your passing. This is known as the death benefit, and all guarantees are based on the claims-paying ability of the insurer.

One of the primary questions a buyer should address is how much life insurance to purchase. The best way to determine this is to work with a qualified insurance professional. If your goal is long-term financial well-being for your loved ones, be sure to consider leaving enough money for them to:

  • Maintain their current lifestyle
  • Pay off debt, such as the mortgage
  • Attend college
  • Have a retirement nest egg

Every situation is different. Working with a licensed insurance professional is the best way we know of to balance the coverage you need at a cost that you can afford.

“We love our spouses, we love our children, we love our grandchildren, so obviously we should care about what happens to them if we die.”

How Life Insurance Needs Can Change Over Time

 Here Are Three Reasons to Own Life Insurance:

Here Are Three Reasons to Own Life Insurance:

Here Are Three Reasons to Own Life Insurance:

No. 1: Replace Lost Income in the Future

As much as we’d like to believe life is invaluable, it is possible — and prudent — to attach an economic value to our lives — both breadwinners and caregivers. The term “economic lifetime value” (ELV) refers to the lifetime sum of earned income you would receive if you do not pass away before retirement. Replacing lost future income is probably the No. 1 reason someone would consider buying life insurance.

For example, if you make $60,000 a year and plan to work for another 30 years, your base ELV is $60,000 x 30 years, which equals $1.8 million. While that level of earned income is a base ELV, you may have more expenses to consider. To get an accurate idea of the amount of life insurance coverage you may need, consider additional variables such as long-term inflation, future raises and other available assets you may have.

No. 2: Pay Off Expenses

The next reason to consider purchasing life insurance is to pay o liabilities after you pass away. Initially, you should have enough coverage to pay for final expenses. Funeral arrangements can easily run to $11,000 or more, so life insurance can leave your heirs with a hefty sum to handle those expenses and more.

Besides final expenses, you may wish for your beneficiary to pay off the mortgage or fund the purchase of a home. Maybe you’d like to pay for college tuition for your children or grandchildren. Perhaps you had always planned to pay for your daughter’s wedding — or your four daughters’ weddings. Calculate the sum of all of these extra costs to determine the face value of your life insurance policy.

Another common scenario is for business owners to use life insurance to pay off business debts in the event of their passing. Business partners will often create what’s called a buy-sell agreement. This agreement simply asserts that if one partner were to pass away, the other one would buy the deceased’s portion so that the business can remain viable.

By using a life insurance policy to facilitate that transaction, not only can the surviving partner continue to earn a living, but proceeds from the sale go to the deceased’s loved ones to help secure their financial future. It also avoids the situation of the partner trying to co-manage the business with the deceased’s family.


No. 3: Asset Management Tool

A third reason to purchase life insurance is one of the most overlooked and lesser-known uses. Life insurance can be used as an asset management tool as part of your savings or investment portfolio.

When most people think of accumulating wealth, they think of stocks, bonds, mutual funds, ETFs, etc., but life insurance can be used to enhance wealth as well. Here is a hypothetical example in which a 65-year old woman uses a life insurance policy to augment her financial portfolio.

Let’s say she has accumulated roughly $1 million in her investment portfolio. She decides to withdraw $15,000 a year to pay annual premiums toward a $1 million life insurance policy.

Imagine this woman lives for another 20 years and therefore pays a total of $300,000 in premiums ($15,000 x 20). Bear in mind that when she passes away after 20 years, her beneficiaries will receive $1 million from this policy alone.

If it seems questionable to withdraw that much money over 20 years, consider what she might have otherwise done with the money. In fact, had she contributed the $15,000 every year into a traditional investment, she would have needed about an 11 percent annualized rate of return to reach $1 million after 20 years. To reach that sum after taxes and fees, she would need to earn an even higher rate of return.

First of all, while possible, that’s not an entirely realistic rate of return. Historically speaking, rolling 20-year returns of the S&P Index from January 1979 to December 2016 ranged from 6.4 percent to 18 percent a year.

Second, her investment performance is by no means guaranteed. Not only are life insurance proceeds not subject to income taxes (although they may be included as part of the policy owner’s estate for estate tax purposes) but they also are guaranteed by the insurance company.

So as you can see, life insurance can be leveraged to expand the return on an investment portfolio. This strategy is best utilized by people with excess wealth who would like to increase the value of their estate or increase the amount of money they can pass on to heirs.


Concerns and Caveats

When it comes to purchasing life insurance, there are caveats. The older you are, the more expensive the premiums. Life insurance also requires medical underwriting, so people who suer from certain health conditions may be denied coverage. Premium rates are determined by the applicant's age, lifestyle and current health status. For permanent life insurance policies, there could be penalties should you need to withdraw or access the funds prior to beneficiaries receiving the death benefit. Withdrawals or surrenders made during a surrender charge period may be subject to surrender charges and may reduce the ultimate death benefit and cash value.

Many employers offer life insurance coverage, generally at competitive group rates. However, the coverage is typically limited to one to three times the employee’s annual salary. Therefore, it is recommended that most households purchase an additional policy separate from work. This also is a good idea because employer coverage almost always terminates when you leave your job.


Final Thoughts

If you do not currently own life insurance, consider the many reasons why it may be a good idea for your situation. If you do have a policy, recognize that this is a complex financial tool that should be monitored and potentially adjusted periodically to reflect your changing life circumstances and objectives.

Consult with an experienced life insurance professional for advice and recommendations. It is critical not only to identify any gaps in your coverage, but also to discover ways different forms of life insurance could potentially help increase your family’s financial well-being — both now and in the future.



Things to Consider About Mutual Funds

American capitalism boomed in the early part of the 20th century. The nation was smack dab in the middle of the Industrial Revolution, ordinary citizens enjoyed newfound wealth and the stock market soared. Everyone wanted a piece of the action.

There was just one problem though: Investing wasn’t that accessible. Online brokerage companies like E-Trade didn’t exist in the 1920s. Good money managers were hard to find and typically had high account minimums. Trading took place on the floors of stock exchanges, and big-ticket orders went to the top of the stack. So, the ordinary investor had very few options.

This changed in 1924, when Massachusetts Investment Trust had an idea for normal investors to “mutually” pool their money together in a common “fund.” Collective buying power meant they could hire a top-notch money management team and get stock traders to take them seriously.

Voila! Just like that, the first mutual fund was born.

Today, mutual funds are one of the most widely held investment vehicles in the world. In the U.S. alone, over $18 trillion is held in mutual fund accounts. As with any investment, there are pros and cons to mutual funds.

The Good

1. You Get Help

If you are not sure what investments you want to buy or sell, or when to buy or sell them, there is help. A mutual fund comes with a seasoned team of analysts, traders and money managers to guide those decisions on your behalf. Sure, they charge a fee for this service, but it is usually charged as a percentage of assets, so smaller investors can get on board without some of the excessive fixed costs.

2. Investment Boundaries

Mutual funds all come with a clear directive the management team must follow while running the fund. For example, one fund might have a directive to find the best U.S. large company stocks. Another might only invest in short-term government bonds. This gives the investor a level of comfort surrounding the decisions made on behalf of his or her money. For example, conservative investors might feel more comfortable with a government bond fund manager who can’t buy risky stocks.

3. Quick Access to Cash

It’s important to be able to turn your investments back into cash when you need the money. Some investments can be easily sold, and others are tougher to liquidate. Mutual funds are highly liquid and can provide daily access from the mutual fund parent company. However, for all the great aspects of mutual funds, there is a downside filled with hidden costs and potential conflicts of interest.

The Bad

1. Closet Indexers

There are two primary types of mutual funds: indexed and active. Indexed funds are built to mimic a major market index like the S&P 500 or the DOW. They don’t bet on individual investments — they just follow the index.

The internal fees are generally low, as the management team doesn’t have to do much when they take this passive approach. The majority of mutual funds, however, are “active,” meaning the team is actively looking for investments that have the opportunity to beat their corresponding index. Logically, these funds should have a higher fee to cover the cost of these additional efforts.

Here’s the problem. Many of the active mutual funds on the market today are really just “closet indexers,” meaning you are overpaying for what is essentially an index fund. How can you tell if this is happening to you? Ask to see the “tracking error and ”active share of your mutual fund. The higher these numbers are, the more active the management. Our investment monitoring process is always mindful of these numbers to help ensure active funds stay active.

2. Hidden Fees

You might assume that all the costs of owning a mutual fund are fully disclosed. After all, that’s what the fund management fee is, right? Well, it isn’t quite that simple. Mutual funds are legally allowed to charge expenses to the fund over and above the standard expense ratio. The fees must be disclosed in the prospectus, but to the average investor, it could be difficult to pinpoint all the associated fees.

One such expense is the cost of trading securities inside the fund. Research by the University of California, Davis showed the average fund on the market has 1.44 percent of additional trading costs on top of the standard management fee. This is significant. As an investor, you might think you are only paying .5 percent to a fund when in fact you are paying nearly four times this amount.

Part of our due diligence process is to combine what we believe to be the best funds moving forward at the absolute best cost available.

3. Share Classes

This is one commonly misunderstood aspect of mutual funds. Each individual fund can be packaged up into different “share classes.” It is the same fund, just packaged multiple different ways. Imagine a 12-ounce can of Coca-Cola. It could be packaged in a standard can, a Christmas collection can, an Elvis memorabilia can, etc., but, regardless of its packaging, it’s still a Coke.

Mutual funds work in a similar way and can have a significant expense to the investor. Take, for example, the American Funds Growth Fund of America. It is offered in 17 different share classes, at a wide variety of costs. Remember, this is the same fund, with the same investments, with the same management team. So, why would you pay more? A common answer is because you didn’t know any different, and someone told you it was the best thing since salted pretzels.

An important item to consider is that each class will have different services, distribution arrangements, fees and expenses, which will result in different performance results. Our investment management team is always focused on accessing the best share class available for our investors. There is no reason to overpay for nearly the exact same service.

Final Thoughts

Knowing how to identify these potential issues may help you benefit from the good funds while avoiding the bad ones. It will help you know where to look in order to make sure that your interests are best represented at all times.



Every investor has an asset allocation within his or her investment portfolio, whether intentional or not. This basically describes how the invested funds are divided among various asset classes — broadly, stocks, bonds and cash. An investor’s asset allocation is designed to help manage risk and work toward certain performance goals.

A sample allocation might be a 50/50 allocation: 50 percent invested in stocks and 50 percent invested in bonds. Within this allocation, funds may be categorized into domestic or international stocks, and subdivided further into large, medium or small capitalization companies, or growth and value-oriented equities. The following pie chart illustrates how a sample strategic asset allocation might break down.


Traditional Recommendation

Because stocks tend to be more volatile, the typical advice in the past was to move money predominantly into cash and fixed income holdings as an investor approached retirement.

In fact, one potential recommendation would be to determine an investor’s asset allocation by his or her age. Specifically, subtract the investor’s age from 100 to determine the percentage of his or her portfolio that should be invested in stocks. For example, under this scenario, a 30-year-old would invest 70 percent of his or her portfolio in stocks. By the time the investor turned age 70, the stock allocation would be reduced to 30 percent.

Today’s Challenges

However, today’s investors face a different set of circumstances from previous generations. There is the concern that Social Security will become underfunded in the future and forced to reduce benefits. Furthermore, fewer companies offer pension plans to retirees, so workers must diligently save on their own to provide retirement income.

Perhaps the biggest threat to income security during retirement is that people are living longer than ever. This means they may need to adjust their asset allocation more slowly than in the past. Instead of moving assets to more conservative holdings before or at retirement, they may want to keep a substantial allocation in equities throughout their 60s and even 70s. After all, if an investor (and/or spouse) lives to 90 and beyond, he or she may need this portfolio to continue growing to provide income throughout his or her lifetime.

In addition, the impact of inflation over three decades of retirement can create a higher cost of living. And finally, people who live longer may incur more health care expenses, so their income needs to stretch even further to help cover these costs.

“It’s good to use 30 years of retirement as a general guideline. And when you are making projections, you should always err on the conservative side — maybe even going all the way to 100 or 110.”

Reliability Allocation

While investors may spend most of their time thinking about performance returns, retirees are generally more focused on income. Stock market returns are prone to move up and down, but that’s the last thing retirees want to experience with their household budget.

That’s why it may be important for retirees to consider different ways to diversify their asset allocation to include growth opportunity, steady sources of regular income and even the potential for income growth among those payout streams.

To help minimize volatility within a portfolio, it may be worth considering investments that provide income regardless of share price fluctuation, such as dividend stocks. These stocks are generally offered by well-established companies in low-growth sectors such as utilities, energy, telecom and real estate. Dividend stocks typically offer reasonably high yields and tend to increase shareholder payouts over time.

Another option may be to reposition a portion of assets to provide a guaranteed stream of income by purchasing an income annuity. There are a wide variety of annuity types depending on investor need, and all guarantees are backed by the issuing company. In fact, indexed and variable annuities are two types that provide the opportunity for income growth throughout retirement.

Tax Allocation

Another consideration for retirement allocations is the mix of taxable, tax-deferred and tax-free investments. It may be a good idea to diversify portfolio allocations across these options so that all of your retirement income is not taxable, which could push you into a higher tax bracket.

Bear in mind that although a general portfolio of stocks and bonds is taxable, investments made through a traditional IRA or employer-sponsored retirement plan are tax-deferred. Both of these allocations will contribute to your tax bill when you withdraw funds during retirement. Even if you don’t need the money, tax-deferred accounts will require you to withdraw a certain minimum amount each year after age 70½, and those distributions will be taxable.

Therefore, it may be worth considering placing some of your retirement assets in tax-free accounts. One such investment is the Roth IRA, in which withdrawals, including earnings, are generally tax-free in retirement.

Another option is to maximize contributions to a Health Savings Account (HSA) if one is available as part of your health insurance options while you’re still working. Interest on money within an HSA grows tax-free. Withdrawals made to pay for qualified medical expenses are tax-free, and after age 65, withdrawals made for any reason other than medical expenses — even just regular household income — will not incur a 20 percent penalty tax but will still be considered taxable income. And unlike a tax-deferred account, there are no required minimum distributions as you age, so interest can continue compounding tax-free.

By diversifying your retirement asset allocation across a variety of accounts, you can optimize the tax efficiency of your overall portfolio. According to an analysis conducted by Morningstar, a well-executed tax allocation strategy can boost your bottom line each year by as much as a half-percent. In dollar terms, that’s $500 a year for every $100,000 invested.

Strategic Allocation Adjustments

Some people follow the traditional advice and transfer investments to more conservative holdings when they retire. Others don’t bother; they maintain the same equity-rich allocation throughout retirement in hopes of ramping up gains, making up for previous losses, or maybe they just don’t bother to make changes at all.

Given the challenges of today’s longer-living seniors, it’s a good idea to work with a financial advisor to develop a pre-retirement asset allocation strategy. But the work doesn’t end there. Once you retire, you should continue to monitor your portfolio’s performance and adjust the allocation periodically to reflect your age, health status and income needs.

Over time, you may want to transfer investments to a more conservative allocation. However, it’s important to do this strategically. For example, use periodic rebalancing opportunities to evolve your allocation.

Final Thoughts

One reason it may be helpful to make these allocation decisions with a financial advisor is that there may come a time when you are less interested in your portfolio and/or incapable of making allocation decisions on your own. If you are the primary investment manager in your household, these may not be decisions your spouse can take over. It’s important to appoint someone fairly early in the process to be your proxy in this situation, whether it’s your trusted investment advisor or perhaps an informed family member.

The key is to make this decision while you still can, for the sake of loved ones and maintaining the household income. After all, when we get to the point where we’re no longer able to make investment allocation decisions, we may be at the point that we don’t even realize it.



The Trump Administration is poised to reimpose sanctions on Iran six months from its May decision to withdraw from the Iran nuclear deal. The agreement stated that Tehran would curb its nuclear activities in exchange for removing previous sanctions by the U.S. and Europe. Once the U.S. sanctions are back in play, they have the potential to disrupt oil shipments from Iran by as much as 1 million barrels a day.

This constraint in oil supply will likely send prices even higher. In fact, some analysts are predicting prices could rise as high as $100 a barrel — nearly a 300 percent increase from $26 a barrel just two years ago.

“Europe and China will not fight against the U.S. sanctions. They will grumble and accept it. There is no one who will realistically choose Iran over the U.S.”


Iran currently produces about 4 percent of global oil supplies. Although the U.S. sanctions have a 180-day grace period, the Department of the Treasury predicts other countries will begin reducing their Iranian oil purchases sooner, as this will increase their chances of obtaining a waiver from U.S. sanctions. The present assumption is that the U.S. will try to isolate Iran from global oil sales by potentially hundreds of thousands of barrels per day.


The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 14 nations founded in 1960. As of May 2018, OPEC member nations were Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, Angola, Gabon and Equatorial Guinea.

OPEC’s objectives are to: 

  • Coordinate and unify petroleum policies among member countries
  • Secure fair and stable prices for petroleum producers
  • Provide an efficient, economic and reliable supply of petroleum to consuming nations
  • Offer a profitable return to investors who help support the oil industry

Note that the intent of the OPEC agreement is to not have any one country dominate the market, controlling both prices and output. Should any one OPEC member step up its current distribution to replace all of the oil that Iran currently supplies, it would likely violate the spirit of the pact.


The key to maintaining lower oil prices is to replace the Iranian supply line. There are several nations poised to do this. For example, the United States is now considered the fastest-growing energy superpower, largely due to the prevalence of the fracking process used to drill for oil domestically. In fact, the U.S. Energy Information Administration (EIA) recently raised its forecast for U.S. production to 12 million barrels per day by late next year. This level of output would catapult the United States to becoming the world’s largest producer, ahead of both Russia and Saudi Arabia.

However, the United States is not likely to bear the brunt of replacing Iranian oil supplies.

Russia and Saudi Arabia

Russia is the No. 1 producer of oil in the world, and it also stands poised to benefit from increased oil prices. Together, Russia and Saudi Arabia have been working to tighten the oil market for the express purpose of increasing prices.

In fact, the biggest beneficiary of Trump’s decision could be Saudi Arabia, which has the largest capability to meet demand once Iran’s oil is out of the market. Supplementing the market will help reduce the chance of further price hikes. Regardless, prices are expected to increase to some extent, and those countries picking up the slack in oil production will realize the most benefit.

Saudi Arabia is in favor of higher oil prices to help its flailing economy, with rumors circulating that it is targeting $80 to $100 per barrel. However, some analysts believe that the U.S. abandoned the Iran deal in an arrangement with Saudi Arabia to step up its volume of oil distribution but keep prices restrained.

Consumer Impact

As a general rule, consumers end up paying higher prices at the pump and for air travel, cruises, etc. when oil prices rise. However, thanks to the increase in U.S. oil production in recent years, we have become less reliant on petroleum imports. As a result, higher oil prices aren’t likely to have as significant an impact on the U.S. economy as in the past.

Unfortunately, Americans who’ve experienced little wage growth and maintain high debt may find even a marginal increase in gas prices hard to manage. According to AAA, the national average in May was about $2.81 a gallon, up from $2.34 a year ago. The Oil Price Information Service predicts that the typical American family will spend about $200 more on gas this summer. While this is a jump from what we’ve been paying over the last couple of years, so far no one is predicting the $3.50-gallon range from six or seven years ago.

Another caveat is that when a higher portion of the household budget is spent at the gas pump, less money is spent elsewhere. This lower consumer spending can have an impact on the country’s overall economic growth.

Investor Impact

On the flip side, higher gas prices tend to benefit oil producers, distributors, equipment manufacturers and related companies in the supply chain. Investments in big oil stocks have ramped up in expectation of higher profits and bigger share buybacks. In May, the price of oil reached $70 per barrel, leading the stock market to its best week in two months.

Both in the U.S. and all over the globe, higher oil prices are a positive for the highly volatile oil industry and its millions of workers.

Final Thoughts

Investors interested in the oil industry should recognize that it can be both lucrative and volatile. It is one of those sectors in which high risk teeters with the opportunity for high reward — but it’s difficult to capture that balance.

It’s important to work with an experienced financial advisor to find appropriate ways to invest in oil stocks, often by taking a balanced approach and diversifying appropriately across a wide range of assets — international and domestic — to help offset risk.

As always, consider your tolerance for high-risk volatility, your investment timeline and your ultimate financial objectives.



In the U.S., interest rates have remained relatively low for about a decade — since the Great Recession. Low rates are a problem for conservative bonds, traditionally a preferred investment for retirees. Because of low income yields, retirees have sought supplementary income from more aggressive holdings. One such security is the dividend stock.

The typical profile for a dividend stock investor is someone seeking income payouts over the long term, with principal preservation and modest growth.

On the scale of risk, dividend stocks rank pretty low for equities. They tend to be offered by well-established companies in low-growth sectors such as utilities, energy, telecom real estate. They feature relatively high yields and a general increase in shareholder payouts over time. This has enabled income-seeking retirees to have a means to keep pace with long-term inflation.

“Although retirees should have less exposure to equities than, say, a 35-year-old, stocks are an important component of a well-rounded portfolio for investors of any age.”

Principal Preservation

There are two main advantages to investing in dividend stocks: principal preservation and current income. However, dividend stocks may represent a high-risk allocation for a retirement portfolio and should be carefully considered as part of a well-diversified strategy.

When evaluating specific dividend stocks, check out their long-term track record for dividend growth in addition to the quality of the issue and current price. Companies that issue dividend stocks tend to be more focused on providing long-term shareholder value than growth and expansion.

Passive Income

The primary goal of dividend stocks is current income; equity growth is secondary. Therefore, one of the key components to measure is the stock’s track record for dividend growth.

  • First, see if the stock has a strong track record for issuing payouts.
  • Next, evaluate whether the stock’s current yield is “timely” — paying out income that is meaningfully above its five-year average.
  • Finally, assess if the company itself is positioned for long-term growth.

When a dividend stock meets these three criteria, it may be a good candidate to provide passive income in a retirement portfolio.

Capital Appreciation

Companies that issue high-dividend stocks tend to be well-established and more value than growth oriented. As a result, they tend to sell at a discount compared to other stocks. Generally speaking, when an investor purchases the stock and holds on to it for the long-term, he has a better chance of building up price equity.

It’s important to remember, however, that the true measure of performance includes both capital appreciation and income payouts to gauge total return. Also, be aware that dividend stocks are just as likely to experience periodic fluctuations as more growth-oriented securities.

DRIP Strategy

More than 650 companies offer their current investors a Dividend Reinvestment Plan (DRIP). This plan enables dividends to be automatically reinvested instead of distributed to the investor. The investor can then continue building his or her stock position in the company without having to invest new money. The DRIP program automatically purchases fractional or additional shares of the same stock with little to no trading fees. This strategy offers the potential to generate higher dividend payouts in the future, as well as greater capital appreciation.

Once the investor retires, he or she can stop the DRIP program and begin taking dividend payouts as retirement income.

Hypothetical Long-Term Investment Example

Let’s say Karen is 28 years old with a high-paying job and low cost of living. She is able to invest $20,000 a year in dividend-paying stocks that yield 5 percent annually and grow by the same amount each year. However, instead of taking this income, she reinvests all of her dividends back into those same stocks. Assuming a 4 percent average annual return and an average inflation rate of 3.2 percent, she will have nearly $1.7 million by age 60. (Note that this illustration does not factor in capital gains taxes).

Interest Rates

Given increasing economic growth and consistently low unemployment levels, the Federal Reserve is anticipating higher levels of inflation in the near future. As such, committee members have already voted for one interest rate hike this year and are projecting at least two more incremental increases in 2018 and three in 2019.

It’s important to consider current and future dividend stock investments as they relate to a rising interest rate environment. Higher interest rates tend to increase the yield on new bond issues, which in turn makes bonds more appealing. Both government and corporate bonds tend to be less risky than stock holdings and traditionally have been considered more appropriate for a retirement portfolio. Thus, retirees may wish to reconsider their asset mix in the wake of higher bond yields going forward.

Bear in mind that a changing interest rate environment is a good time to consider rebalancing your portfolio. If, in search of income over the last decade, your investment portfolio has become more heavily tilted toward equities than may be appropriate for your age and timeline, it could be a good time to sell and rebalance with a heavier bond allocation.

However, before making any changes to portfolio composition, consider a couple different factors. First, consider whether your personal financial goals have changed. Second, consider whether your current allocation strategy is providing the income you need at the level of risk with which you are comfortable. If both of these objectives are being met, it may not be necessary to make any changes, particularly if your retirement portfolio is well diversified.

Final Thoughts

As always, it’s best to consult with an experienced financial advisor who is familiar with your personal situation. Remember that dividend stocks are typically very stable income providers, with long-term potential for income growth. They may well be appropriate for retirees who continue to need a growth component in addition to income.



There’s no question that 2017 was the year of the bitcoin. In just 12 months, the digital currency rose from under $1,000 in price to nearly $20,000. Before its meteoric rise in value that year, most people had never heard of the digital currency and probably thought it was a gaming app you could download on a smartphone.

Now, however, it seems everyone is talking about bitcoin. You hear stories of people who threw away a hard drive years ago containing bitcoins, when the cryptocurrency was almost worthless. At one point last year, that junked-out hard drive would have been worth millions. Conversely, though, the currency had a dicult first quarter in 2018, falling 48 percent in value.

Just what is bitcoin? Bitcoin is an electronic currency. Without getting too far into the technical aspects, a bitcoin is created by a computer (or a bank of computers) completing an extremely complex algorithm in a process called “bitcoin mining.” The number of bitcoins that are created depends on how quickly the computer can complete this process — it is lengthy and takes a lot of computer processing power. Bitcoin mining is being done around the clock by people all over the world, and you could even do it yourself if you were so inclined — although there is a lot of technical know-how involved.

What makes bitcoin a unique currency is that it is decentralized and completely digital. There are no physical coins. There’s no central bank like the Federal Reserve or administrator like a commercial bank that controls how many bitcoins are created; no one is backing them up with gold or something of actual value. In fact, there’s no guarantee that the bitcoin you just bought or produced holds any value at all. The value is arbitrary, and it can change in the blink of an eye — which it does, constantly.

“You can’t value bitcoin because it’s not a value-producing asset.” — Warren Buffett

Emotional Decision Making

Certainly, bitcoin has gained a lot of popularity recently with its astronomical rise (and fall) in value. What has fueled this fame? Analysts could probably write master’s level theses on that question, so we won’t really get into that here.

But this is what we think: People become emotionally driven in their decision making. Many thought bitcoins would make them rich, and they didn’t even understand what they were buying. When this kind of thinking happens, we start to get into bubble territory, where prices are moving upward not for fundamental reasons but for emotional reasons.

And at some point, the fundamentals return.

So, if you want to try to make money in these bubbles, it’s a bit like musical chairs. You might hop in, ride the wave for a little bit and then get out before the music stops. But this isn’t being an investor — this is being a speculator.

And sometimes speculating is OK. But you must understand what you’re putting your money into, and you must be willing to lose all of the money that you put in. In the same vein, you also must be ready to potentially miss out on a lot of money. For example, you may have decided to pull out of bitcoin a week before it doubled in value. You just missed out on a lot of potential money because you sold too early. It can be nerve-wracking.

Importance of Fundamentals

Let’s take our bitcoin example and compare it with investing in an actual company — a tried-and-true company like Coca-Cola. This is a company that’s been around for a long time and makes products that people consume on a regular basis — soft drinks, bottled water, fitness drinks, etc.

Coca-Cola is more than 125 years old. The people who run the company bring in real revenue, they operate their business effectively, and most of the time, they generate a profit. They’ve been doing this for a while; they know the drill.

When you buy stock in Coca-Cola, you know what you’re getting into. You’re making a fundamental decision that is based on a lot of information. You’re coming into it with a certain degree of confidence that the company will do what it says it will do. Of course, there are no guarantees, but this is a fundamental investment that is based on logic, research, and high-quality information.

When it comes to bitcoin, it’s nearly impossible — no, it’s actually impossible — to get the same level of confidence as you would when investing in a company like Coca-Cola.

In other words, as an investor, you need to be careful. You are going to see many opportunities like bitcoin. Maybe it’s a “no-lose” business opportunity your brother-in-law is pitching to you; maybe it’s a penny stock tip you got at work hanging out by the water cooler; maybe it’s something you heard on a late-night infomercial. But remember, don’t get so emotionally sucked in that you become blind to the fundamentals. Know what you’re looking at. You should be saying to yourself, “Can I make a good decision to buy this based on sound information?”

Warren Buffett once said, “The market is there to serve you and not instruct you.” What he meant is that a smart investor doesn’t look at a price — say, for example, $11,000 for one bitcoin — and say, “Well, that must be what it’s worth.” He looks at what the actual value is according to his own fundamental research.

If he knows that the value of a bitcoin is $1,000, he will never buy it at $11,000 because it’s overpriced. He believes it will eventually fall to its real value of $1,000. At the same time, if he knows the value of a bitcoin is $30,000, he will buy a ton of them at $11,000 because he is confident that it will continue to rise in price, and then he can sell them at a profit.

But that is probably why a guy like Warren Buffett — an investor, not a speculator — has gone on record saying he doesn’t own bitcoins. He says he can’t determine what the value of a bitcoin truly is — it’s all speculation. If Buffett can’t determine the value, he doesn’t invest. He has to know the value of the investment before he invests, and if he can’t, he’s going to stay away. There are plenty of other more logical and predictable investments to consider.

So just be careful. If you feel as if you have a handle on things and you have some money to lose, speculation can be fine now and then — just as going to a casino might be fun every once in a while. But if it starts to consume you and you’re spending money that you can’t afford to lose, then it is becoming a problem. And that’s what speculation ultimately is — it’s glorified gambling.

Don’t get sucked in. Make sure you’re sticking with the fundamentals of investing before you start going out on a limb. Slow and steady is the way to financial freedom.

Be an investor. Don’t be a speculator.



In an effort to establish a new global trade policy, the Trump Administration announced it would impose a 25 percent tariff on imported steel and 10 percent on aluminum. That dictum was shortly followed up with an additional 25 percent tariff on approximately 1,300 Chinese exports worth about $50 billion annually.

Free Trade

These new policies mark a departure from the global free trade movement over the last two decades. Free trade enables goods and services worldwide to compete with domestic products and services without imposing taxes. The increased competition is designed to lower prices and enhance productivity and efficiency, creating better value for both manufacturers and consumers. Free trade has long been a favored policy within the Republican party.

However, when the global economy started taking off around the turn of the millennium, many facets of American industry began to suffer. In an effort to reduce costs and generate higher profit margins, some U.S. companies moved their manufacturing operations to other countries for reduced labor and overhead costs. This resulted in the loss of many American jobs, particularly those represented by labor unions.

The goal of the Trump Administration is to reduce the number of imported goods — via high tariffs — in an effort to return manufacturing jobs to the U.S.

“I don’t think people should overreact right now. This is a negotiation using all the tools.” - Larry Kudlow, White House chief economic adviser

Impact of Tariffs

For context, note that a tari is simply a tax levied on foreign imports. For example, if imported steel normally costs $10 per pound, it would cost $12.50 per pound once the tariff is imposed. Major steel and aluminum consumers include auto, heavy equipment, and airline manufacturers, among others.

According to The Brookings Institution, there are several possible outcomes that could emerge from the U.S. levying these tariffs.

To date, other countries are taking a wait-and-see approach before initiating efforts to negotiate new trade agreements with the U.S. or launch their own retaliatory tariffs.

1. The tariffs are designed to thwart foreign producers of aluminum and steel from continuing to flood the U.S. market, and thus may provide a boost to American companies that produce these products.

2. However, American companies do not produce enough steel and aluminum to meet domestic demand across a wide spectrum of industries. Therefore, tariffs will likely create a ripple effect in terms of higher prices charged to consumers to make up the difference. Higher prices on American products also will make them less competitive with foreign rivals.

3. Texas, California, Illinois, Michigan, Louisiana, Pennsylvania, Ohio and New York combined import more than $2 billion annually in steel and aluminum products, representing more than half (60 percent) of the nation’s total consumption. Given the size of these state economies, trade disruptions could result in lower national economic growth in key industries such as automotive manufacturing, chemicals, and oil and gas production.

4. Retaliatory tariffs from other countries would serve to increase consumer prices on key American export industries, notably agriculture. Canada, China and the European Union (EU) have indicated that they plan to respond with their own retaliatory measures on American-made products, potentially curbing the export market.

Retaliation: Chinese

Imports The Trump Administration is particularly focused on reversing the U.S. trade deficit with China. In 2017, Chinese goods imported into the U.S. totaled $505 billion, while U.S. goods exported to China totaled $130 billion, leaving the U.S. with a $375 billion deficit on goods. A portion of that is further offset by America’s surplus in services trade of about $38.5 billion, shrinking our total deficit to about $336.5 billion.

By early April, China’s finance ministry announced it would impose tariffs on $50 billion in American exports to China, escalating the trade war. The list of more than 200 affected products includes soybeans, automobiles and certain types of beef, corn, and wheat.

Economic Impact

Tariffs are nothing new in America or other countries. In recent history, Presidents Richard Nixon, Ronald Reagan, George W. Bush and Barack Obama all instituted tariffs with varying degrees of effectiveness. Part of President Trump’s strategy is to use tariffs as a negotiating tool with our largest trading partners for the North American Free Trade Agreement (NAFTA) and with other countries to procure trade agreements that are more beneficial for the U.S.

As for the initial steel and aluminum tariffs, Trump indicated he was open to excluding certain countries willing to strike a deal with the U.S. There also have been indications that China is in talks with U.S. officials to create a mutually beneficial accord that would ease the impact of the trade war, if not eliminate tariffs altogether.

To date, other countries are taking a wait-and-see approach before initiating efforts to negotiate new trade agreements with the U.S. or launch their own retaliatory tariffs.

Investment Impact

The investment markets experienced some initial fluctuation, but volatility eased, and trading returned to normal levels in the first days and weeks of the tariff announcements. It is important to be aware that, as tariffs are implemented, there likely will be an impact in market performance, with some industries more affected than others.

With that said, the equity markets have proven remarkably resilient despite a slew of political shocks over the last year and a half, demonstrating that fundamentals remain strong. The bond market, however, could see more impact. The recent tax cut bill was designed to stimulate consumer spending and spur higher economic growth. The Federal Reserve Board has already responded with small interest rate hikes. However, the new tariffs and the threat of a global trade war could push prices up further, causing higher inflation. This could lead the Fed to accelerate its planned increase for interest rates.

In this scenario, new bond issues will have higher coupon rates, so existing bonds with lower yields would then sell at a discount rate. Note that as long as an investor holds on to his bond investment until maturity, it will continue to pay out its current yield and will receive 100 percent of its original value.

Final Thoughts

The United States economy generally relies little on exports and, as the world’s largest consumer of final goods, tariffs have been effective at reducing imports in certain instances. In the past, America’s largest trading partners usually paid them without responding in kind.


However, as we have seen in recent months, the market is waking up to the fact that trade spats may become more frequent. While we don’t want to understate the potential risks of trade disputes in the long run, it’s important to recognize that all of these moves have played out in the past.

What is most important for today’s investors, particularly retirees, is to stay on course with their long-term investment strategy. Appropriate asset allocations and vetted investment managers should be able to manage tariff and trade war risks over the long run.

In other words: Stick to your plan.



Widespread tax cuts generally result in a marked decline in government revenues and/or cutbacks in services or other areas. One area Congress considered cutting back was the amount of tax-deferred contributions that workers could make to employer-sponsored retirement plans. One proposal recommended scaling back contributions from the current limit of $18,000 a year to as little as $2,400.

As one recent survey confirmed, it is likely that Americans would save even less for retirement than current levels if not for the tax-deferred status of their 401(k) plan contributions. Indeed, proposals that discourage retirement savings are probably not in the best interest of Americans or the government itself — which would inevitably bear the burden of providing more Social Security benefits for those who do not save enough.

With that being said, there are several ways in which the new tax legislation could impact retirement plans moving forward.

“The Wells Fargo/Gallup Investor and Retirement Optimism Index found nearly half of U.S. investors would save less or stop saving if the tax-deferred status of their 401(k) plans was removed.”

Roth IRA

Conversion Recharacterization

The Tax Cuts and Jobs Act eliminated Roth IRA conversion recharacterizations, which permitted Roth assets to be returned to a traditional IRA before the tax return date (plus extensions) in the year of the original conversion. The conversion recharacterization rule enabled an investor to basically change his mind about transferring pre-tax savings to a Roth IRA and paying income taxes in the year converted. Going forward, investors who convert a traditional IRA to a Roth IRA no longer have the option to reverse that decision.

Note, however, that conversions made in 2017 can still be recharacterized by as late as Oct. 15, 2018.

IRA recharacterizations in the past were used as a tool to convert just enough assets to stay within an investor’s current income bracket. A traditional IRA owner could transfer a portion of assets to a Roth IRA in order to offet his future tax bill during retirement. However, if his income at the end of the year tipped over into the next tax bracket, he could recharacterize some of those IRA assets so as to walk back to a lower income bracket.

Now that recharacterizations are no longer permitted, investors need to be more precise in the amount converted in any one year, possibly waiting till the end of the year — but before the deadline of Dec. 31.

Roth Contributions

One reason a Roth IRA can be an attractive alternative to a traditional IRA is because it enables income tax diversification during retirement. So many retirement savings vehicles are qualified — meaning the investor defers paying taxes on contributions and/or earnings until retirement. As a result, retirees who have saved diligently may be surprised at how big their tax bill is after they stop working.

Because of the new Tax Cuts and Jobs Act, more investors may find they are paying lower taxes on their income. With current taxes less of an issue, it may be worth considering stashing more money in a Roth at this point in order to reduce the future tax burden in retirement.

Presently, about 52 percent of retirement plan sponsors in the U.S. offer a Roth 401(k) investment option.4 Note that by diverting after-tax income to a Roth 401(k), investors can take advantage of a higher annual contribution limit (in 2018: $18,500; $24,500 for age 50 and up) than a separate Roth IRA.

Qualified Retirement Plans

Loan Repayment

The new tax law also extends the time required to repay money borrowed from a 401(k) plan before it becomes taxed as immediate income. Prior to this year, if a participant left his employer before paying of the loan, he would have only 60 days to repay the loan before it became taxable. The new law extends that window to the tax return deadline — plus any extensions filed — for the tax year the employee terminated employment.

Charitable Distributions

People who make charitable contributions can claim a deduction for those amounts by itemizing on their tax return. The new tax law, however, has raised the standard deduction to the point where itemizing may no longer be an advantage.

IRA owners age 70½ or older are still permitted to make qualified charitable distributions (QCDs) directly from their IRAs to charities. Not only does this strategy exclude the distribution from the owner’s taxable income, but it also qualifies as all or a part of the IRA’s required minimum distribution (RMD).

In light of fewer people itemizing going forward (estimated between 5 and 10 percent of filers), these qualified distributions may become more popular. That’s because the QCDs are shielded from taxes and do not impact the taxpayer’s reported AGI. In turn, this keeps his tax bracket low, possibly avoiding taxes on Social Security benefits and keeping Medicare premiums down.

Medical Deduction

The new tax law extended the 7.5 percent medical deduction for seniors and increased the deduction to 10 percent in 2019. However, with the increase in standard deduction, it is estimated that fewer seniors will be able to use the deduction because they no longer need to itemize.

Estate Taxes

Under the new law, the estate tax exemption increased from $5.6 million to $11.2 million per individual until 2025, indexed for inflation. Each person may gift up to $15,000 each year without intruding on that “lifetime” (2025) gift tax exemption.

This means that ultra high net worth households may want to take advantage of this window to give away up to $22.4 million (for a married couple) to heirs before 2025. Strategic gifting tactics may include:

  • Gifts to existing or new irrevocable trusts, including generation-skipping trusts
  • Leveraging a gift to fund a life insurance policy
  • Using a gift to leverage an inheritance with philanthropy, via vehicles such as a charitable lead trust

Final Thoughts

The new tax law went into effect on Jan. 1, 2018, which means it will impact our 2018 tax returns — to be filed by April 15, 2019. While there are no major changes required for retirement planning as a result of the new legislation, the provisions and strategies discussed in this report could impact your situation, such as:

  • Improved opportunities for tax diversification
  • Decisions related to itemizing
  • Leveraging charitable contributions to keep income taxes low
  • Taking advantage of the seven-year window to gift substantial wealth to heirs without triggering estate taxes

As always, it’s a good idea to consult with your financial advisor and/or tax professional before making any significant moves. When it comes to assets and taxes, it’s always best to view your financial picture holistically because one move can impact others.



The fact that there is increased focus on volatility this year comes as no surprise. In 2017, the equity markets experienced the lowest volatility levels in 90 years — a scenario that is hardly sustainable.

A common measure of stock market volatility is the Chicago Board Options Exchange (CBOE) Volatility Index, referred to by its ticker symbol VIX. This index tracks expectations of future price fluctuation (called “implied volatility”) in the S&P 500 Index option over the next 12 months. High VIX values indicate high expected volatility, while low values correspond to expectations for stable share prices.

In early February, amid fears of rising inflation, the Dow Jones Industrial Average (DJIA) experienced its biggest one-day drop (4.6 percent) since 2011. At that point, the VIX index rose by more than double, to 37.

Trade Disruptor

After regaining more than half of those February losses, the markets roiled again in early March on news of a potential global trade war. President Trump announced that the U.S. would begin imposing a global-wide 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. When the tariffs were first announced — followed by the resignation of the White House chief economic advisor, Gary Cohn, in opposition to higher tariffs — the event set off a multiday stock market slump:

  • DJIA dropped 420.22 points (1.7%)
  • S&P 500 SPX dropped 36.16 points (1.3%)
  • Nasdaq Composite Index COMP dropped 92 points (1.3%)

One week later, Trump signed a formal executive order to implement the tariffs in 15 days. At that time, Canada and Mexico were excluded pending a successful NAFTA treaty renegotiation.

Many economists believe that imposing higher tariffs could lead to serious damage in large sectors of the economy. A tariff, which is essentially a tax on imported goods from other countries, is designed to discourage sales to the U.S. in order to give domestic manufacturers a more competitive edge. Unfortunately, a smaller supply of U.S. materials and/or higher-priced imported materials generally leads to higher prices passed on to consumers.

This, in turn, is likely to spur higher inflation. That, in turn, will lead the Fed to increase interest rates to make it more expensive to borrow money. Ultimately, higher borrowing costs discourage business investment and expansion, which can change the dynamics of the investment markets — sparking higher volatility.

Frequently enough, the mere hint or speculation of any of these events is enough to trigger market volatility — even before the events happen.

It also is worth noting that when one country imposes higher tariffs, other countries tend to retaliate with tariffs on goods exported from the U.S. When domestic manufacturers must pay more to export goods overseas, the cost is often offset — again — by higher prices to consumers. This rapid-fire chain of events is what is referred to as a trade war and, often enough, consumers are the ones who suffer the most from higher inflation.

Another point worth noting is that Trump has always been a proponent of higher taxes on imports. Therefore, his announcement did not come as a complete surprise. However, what may continue to rattle the markets is the high amount of the steel tariff and ongoing uncertainty over who will replace the top White House economic advisor.

Market Resilience

Despite this “man-made” threat, there are reasons to be optimistic about market stability this year. For starters, the economy has maintained its mid-cycle position and does not appear to be on the brink of another bear market. In fact, thanks to recent tax legislation and the potential for expansion in many industries, the prospects for domestic growth remain positive. Second, the recent price volatility experienced in the equity markets has not managed to infect the credit markets.

And finally, at the moment, inflation appears to remain subdued relative to the plethora of growth factors at play. As long as inflation runs below or around 2 percent, the Fed is expected to maintain its course of raising interest rates slowly and incrementally — which is good news for investment markets.

“During the 2008-2009 stock market rout, boomers on the cusp of retiring called their financial advisers in a panic. … Many investors pulled out. … It took more than five years, but the market did recover, and the boomers who sat tight have gotten their money back — and more.”

Historical Perspective

The accompanying table demonstrates how quickly and dramatically the stock market tends to react to incendiary news events. However, check out the last column — which indicates the relatively swift and often impressive recovery rate within a year.


It’s worth reiterating that market volatility is not always a bad thing. It can sometimes work as a catalyst to reset overvalued stocks and provide room for subsequent growth. Resilient investors who choose to stay the course during volatile times are frequently rewarded with outperformance over the long term.

Final Thoughts

If there is one thing the investment markets do not like, it’s uncertainty. If there’s one trait that predominantly characterizes the Trump administration, it’s uncertainty. The key thing to remember is that while day-to-day market fluctuations can be influenced by headlines, rumors and investor sentiment, long-term performance is generally driven by fundamentals. From a fundamental perspective, economic growth and the number of companies meeting or surpassing their quarterly expectations remain positive.

The lesson here is to expect volatility to continue throughout 2018, but work with your financial advisor to determine if the underlying reasons are superficial or have the potential to change long-term fundamentals. Even then, consider your personal circumstances and financial goals before making any alterations to your portfolio.



Often enough, when we lose a job it comes as a sudden shock. If we have more time to plan, to get used to the idea, we can be more prepared — both emotionally and financially. That’s why it’s a good idea to consider the loss of a job a constant reality, just like we know we want our children to go to college and we plan to retire one day.

Devising a financial plan for job loss isn’t much different. The more prepared we are, the less likely we are to be caught off guard or suffer long-term consequences. The following are tips to help you create a pre-emptive plan:

  • Save an emergency fund equal to three to six months of household expenses.
  • Try to maintain low or no credit card debt (use a credit card but pay off the balance every month).
  • Maintain a good credit score.
  • If you own a home, it may be a good idea to have an approved but unused home equity line of credit (HELOC).
  • Establish a strong relationship with a financial advisor who understands your complete financial situation in order to provide trustworthy advice during both good and bad times.

Once you have these components in place, they can create a safety net to help cushion the fall of a job loss. However, despite preparations, a day may come when you need to adjust your financial plan to account for the lack of income for the foreseeable future. The balance of this report is focused on what to do once you become unemployed.


There are several areas in which you must proactively apply your skills. First, research whether you are eligible for unemployment benefits and, if so, how much you are eligible to receive and how long payments will continue. These factors vary by state.

For example, some states allow for benefits even if a worker is fired or quits voluntarily, depending on the circumstances. Eligibility regarding unemployment compensation can be found on the unemployment office website of the state where you live. As a general rule, payouts continue for a maximum of 26 weeks and equal 50 percent of earnings up to a certain limit. However, specifics vary by state.

Note that unemployment benefits are taxable and may take several weeks to start after you’ve applied for them, so it’s something you don’t want to put off. If you were on your employer’s health insurance plan, another thing you need to apply for is a COBRA extension plan. Your former company is required to provide you with this information, but you also may want to shop for a health insurance plan at a marketplace exchange. Unemployment constitutes one of the exceptions that enable you to purchase a plan outside of the annual enrollment period. Be aware, too, that when you purchase your insurance plan from an exchange, it is yours to retain — you are no longer dependent on an employer to provide for your health insurance needs.

If you do not have a HELOC or an available credit card you can potentially tap for funds going forward, there may be a small window of opportunity to apply for one pending your job loss. For example, if you are given notice two weeks to several months ahead of time, you may be able to cite and verify your current income to qualify for these types of loan accounts.


One of the first things you want to do once your income is reduced or eliminated is establish how much money you need to live on. This means tracking and analyzing expenses to determine how much you must spend and where you can reduce spending. Even though your paychecks or unemployment benefits may continue initially, it is better to reduce spending as quickly as possible. Any money you save now can be used to help defray costs once your income is reduced further.

Here are some ideas to help lower monthly household expenses:

  • Stop dining out, and prepare meals at home. n Consider canceling cable television (just keep internet service).
  • Consider switching your cell phone contract to a cheaper “pay as you go” plan (as long as you don’t incur a contract cancellation fee, in which case you’ll need to figure out which is cheaper).
  • Consider cutting ancillary fees, like canceling a gym or YMCA membership and start working out at home or a local park.
  • Cancel monthly subscription services.
  • Eliminate regular perks, like gourmet coffee runs, hair salon appointments and shopping sprees.
  • Get creative — make homemade items for birthday and holiday gifts.


If you’ve prepared well, hopefully you won’t need to go into debt during a period of unemployment. However, if you’re carrying debt when you lose a job, one thing you might consider is contacting creditors to make arrangements to temporarily reduce payments, including credit cards and auto lender, mortgage company and personal bank loans. It’s best to be honest about your situation and prospects for future income. This is a situation in which a strong, long-term, timely payment record and good credit score will work well in your favor.

How successful you are will depend on your financial situation, policies and tendencies of creditors, and how well you present your case. Bear in mind that the goal for creditors is to get paid, so they may be willing to reduce or defer payments or tack on interest to the back end of a loan rather than have you default.

Finally, recognize that you may need to rely on borrowed funds during your period of unemployment. It is a good idea to evaluate the credit cards you own and determine which are the best to use in terms of interest rates charged on purchases and cash withdrawals. If you have monthly debt, it is very important that you find a way to pay at least the minimum due each month.


If you have an investment portfolio, you should consult with a trusted financial advisor as to whether you should tap investment funds for cash to stay afloat. There are many factors to consider, such as income taxes, capital gains and early withdrawal penalties.

Some investment accounts are better for withdrawals than others. For example, while a Roth IRA is earmarked for retirement, the investor makes contributions with taxed income. This means he can withdraw his contributions tax- and penalty-free at any time, for any reason. Only earnings are subject to a tax penalty under certain circumstances, but they are considered withdrawn last.

However, it’s also worth noting that some investments may be poised for higher gains while others have already achieved gains. This analysis could create a scenario in which a withdrawal is basically a way to rebalance your portfolio. Or, selling certain shares could provide cash while at the same time constitute a loss on paper, which you can claim as a capital loss to offset income taxes.

Again, it’s wise to consult with your investment and/or tax advisor before making any moves.


Bear in mind that if you pick up a temporary job for income while looking for another full-time position, you won’t be able to collect unemployment benefits at the same time. This is a good reason to apply for unemployment as soon as possible — since you may want to look for a part-time position down the road.

Thanks to the “gig” economy, you may be able to use contract work to keep income flowing. If it seems feasible, you might ask the employer you just left if you can continue doing your job on a contract basis. If not, offer your skills and expertise to a competitor.

Or, consider other jobs that can help bring in income without hampering your job search, like bartending or waiting tables at night.

If health insurance is a priority, consider employers that offer coverage to part-timers, such as Starbucks, Whole Foods, Lowe’s and The Home Depot.

Other ways to earn money include selling items, starting a service business like cleaning, child care, etc., or becoming a driver for Uber or Lyft.

“A little financial planning may keep you from having to settle for a job you don’t want simply because you’ve run out of money.”

Final Thoughts

One thing that can sabotage your finances quicker than anything is getting discouraged. Fight negative feelings that can lead to anger, self-doubt and even compromised personal relationships. The ways to combat these feelings do not have to cost much — such as regular exercise, eating healthy, spending quality time with friends and family, and taking time for yourself.

The time between jobs also enables you to take stock of your career and figure out what you want to do next. The more control you exert over your life, the better you’ll feel. Creating a financial plan and career path can provide a strategic road map to help you get back on track without losing ground on your long-term financial goals.



The performance of an individual stock may be driven by company fundamentals, a corporate announcement or developments within its industry. However, broader movements within the stock market more often are driven by changes in the economy, investor sentiment and widespread trends across various market sectors. Dozens of key economic indicators signal changes in the direction of the economy. These regular reports are monitored to help investors, market analysts and wealth managers make day-to-day decisions about when, where and how to invest money.

Leading economic indicators, which include data for employment, company profits, and supply and demand, can forecast the rise and fall of the business cycle. For example, corporate profits tend to increase during an economic expansion, slow down once the economy peaks and decrease as the economy shrinks. By reviewing the economic indicators that reveal when these events begin to take place, investors can decide whether and when to sell as the market ticks upward, hold steady or buy when prices decline.

The following is an overview of the regular data releases generally considered the most reflective of the current economy with indications for the future.

Gross Domestic Product (GDP)

Used as one of the primary indicators to measure the health of a country’s economy, gross domestic product (GDP) reflects the sum total monetary value of all finished goods and services produced within the country during a specific time period.

Price Indexes

The Consumer Price Index (CPI) is published each month by the Bureau of Labor Statistics to gauge inflation by tracking the prices of some of the most common goods and services purchased by urban consumers — such as food, transportation, clothing and medical care.

The Producer Price Index (PPI) measures the price changes of products from a broader cross section of industries in the goods-producing sectors of the U.S. economy.

Jobless Claims Report

The jobless report, published each week by the Department of Labor, also acts as an indicator of the economy. For example, unemployment filings tend to increase when the economy weakens. While released weekly, the reports are generally assessed as a four-week moving average (MA) to balance out variances from week to week. Note, too, that the report does not track job losses by part-timers, self-employed people and contract employees because they do not qualify for unemployment benefits.


We often hear about a report referred to as “housing starts.” This is the New Residential Housing Construction Report, which is released by the Census Bureau and the Department of Housing and Urban Development (HUD). It details the number of new building permits issued, which serves as an economic indicator in terms of an increase or decrease in new construction activity (supply). For example, new construction tends to pick up early in the expansion phase of the business cycle.

Another leading economic indicator from the real estate sector is the Existing Home Sales Report, compiled by the National Association of Realtors. This report reflects new demand for home sales, with considerable seasonal variance. Together, the two provide a general picture of the housing sector as well as mortgage interest rates and overall consumer confidence.

Consumer Confidence Index (CCI)

Speaking of confidence, the Consumer Confidence Index (CCI) measures perceptions and attitudes of the general population. Although it relies on a small sampling of consumers (5,000 U.S. households), it has proved surprisingly accurate in projecting consumer spending. The CCI is considered a valuable measure because consumer spending represents 70 percent of the economy. A continuing uptick in confidence can be a positive indicator for stronger economic growth.

Purchasing Managers’ Index (PMI)

Another indication of consumer confidence and buying patterns is reflected in the Purchasing Managers’ Index (PMI). This report compiles data (new orders, inventory levels, production, supplier deliveries and employment) from purchasing executives at approximately 300 companies in the manufacturing sector. A surge in new orders may indicate a pending increase in customer prices, and vice versa. For context, a PMI of more than 50 demonstrates that the manufacturing sector has expanded compared to the prior month. The PMI has a strong historical track record for predicting GDP growth.

Stock Market Indices

While investors have access to the broader stock market, performance benchmarks are generally composed of a representative collection of stocks with similar traits, such as market capitalization or sector. A particular stock market index is computed into a weighted average representing the underlying stocks and used to compare returns of specific investments or sectors. The following are some of the most popular stock market indices:

  • Dow — The Dow Jones Industrial Average (DJIA) is represented by the stocks of 30 of the largest and most well-known companies in the United States. Large swings in this index are generally a strong indicator of movement throughout the entire market.
  • S&P 500 — The Standard & Poor’s 500 Index is more diverse and is composed of 500 of the most widely traded stocks in the U.S. across an assortment of sectors. Because it represents about 80% of the total value of the U.S. stock market, the S&P 500 index represents much of the movement in the U.S. stock market as a whole.
  • Wilshire 5000 — The Wilshire 5000 is composed of almost all publicly traded companies with headquarters in the U.S. It is extremely diverse and includes stocks from every industry.
  • Nasdaq — The Nasdaq Composite Index is best known for representing technology stocks, although it also includes stocks from the financial, industrial, insurance and transportation industries, with some companies based outside the U.S. The index hosts both small and large firms as well as many speculative companies with small market capitalizations.
  • Russell indices — The Russell 3000 is an index of the U.S. stock market’s 3,000 largest publicly traded companies. The Russell 2000 is a market-capitalization-weighted index that is composed of the 2,000 smallest stocks in the Russell 3000.
“Nothing has more impact on the direction of asset prices than economic conditions and how central banks respond to those conditions. Period.”

Final Thoughts

As consumers and investors, we are continually bombarded with news and information designed to help us make better decisions. Unfortunately, there’s such a thing as information overload, which can make it impossible to analyze so much data. As a result, we often end up doing nothing. When it comes to being a data-informed investor, it’s important to remember that the leading economic indicators and other analyses support just one of the three components related to our investment success.

The primary component is determining our investment goals, which is guided by more subjective data such as how much money we would like to accumulate, by when and how much risk we’re willing to take to achieve those goals. Next, it’s a good idea to work with an experienced financial advisor to determine an asset allocation strategy designed to help meet those goals. This not only encompasses different asset classes, such as stocks, bonds and cash instruments, but also various types of products such as annuities or other insurance-based contracts that can provide a guaranteed payout.

Finally, it’s important to monitor investment decisions on an ongoing basis to ensure that your strategy remains on target to meet your objectives. For this, staying abreast of data-driven reports may give us the best opportunity to predict how the economy and stock markets will perform in the future and further guide our investment decisions.