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First Quarter 2017

The Markets

Headlines are dominated by politics and the new administration. Global economic data has improved. U.S. stock markets have paused recently somewhat. Leading the way, year-to-date, have been international stocks, including emerging markets. Small companies have had a big run, but less so in the first quarter of this year. Commodities are negative for the quarter as well. The Federal Reserve increased the Fed funds rate by 0.25% and appears to be poised for more rate hikes this year, if growth continues. Despite the failure of a repeal of the ACA (Affordable Care Act) – tax reform, regulation reform, trade policy and an infrastructure bill may still be in the works and could affect market direction this year. A recession does not appear likely as most sectors are doing reasonably well. Being invested, therefore, has generally been better than holding cash for long-term investors.

The economy grew in 2016 at a 2.1% rate. Unemployment is at 4.5%. We will watch for any inflation increases as there has been a modest uptick recently.

The Markets this Century

It has been a wild ride for investors. As we review the last 16 years or so, it is helpful for investors to learn from past mistakes and misconceptions. I thought an overview of the mistakes we most commonly see and lessons learned would be helpful as we go forward into the next 15 years.


Here are our top 10:

  1. Stocks are really risky (really). Trying to predict future stock performance is an exercise in futility, but we are confident that high-quality bonds will have far less volatility in the long run. Stocks can be riskier in one day than a high-quality bond is in an entire year.
  1. The notion that U.S. stocks don’t give international exposure. There are two points to be made:
    • 30% of Revenue from S&P 500 comes from outside the U.S.^
    • Yet international stocks outperformed U.S. stocks in the first half of this 17 year period and have underperformed in the second half. Generally, a big difference can be attributed to currency. In my opinion, it is best to have a globally represented portfolio.
  1. The long run can be longer than you can wait. It is important to understand your time horizon, as the long run can be 10 years or more. In the first part of this century, bonds did very well relative to stocks, but interest rates were falling. As the opposite is likely to occur going forward, make sure you understand the relationship of interest rates and bonds and ignore short-term events.
  1. Prediction is impossible. So far, in the 21st century, we have had two stock plunges of nearly 50% or more. Economist Gary Schilling correctly called the 2008 crash, but he missed the 2009 bottom and subsequent recovery. Harry Dent’s 2009 book, “The Great Depression Ahead,” was the exact wrong time to be out of one of the greatest bull markets we have experienced. Even economists flunk interest rate forecasts, as rising interest rates have now just begun.
  2. Stick with your asset allocation – don’t invest emotionally. This is difficult to do at times when markets are soaring or plunging, but as this last century has shown, a well balanced portfolio has typically been able to sustain even through very significant market declines and has participated in recoveries. Rebalancing and diversification are very effective tools.
  3. Market plunges are not all alike. 2000-2002 was much different than 2008-2009. 2000 was more technology related and 2008 was a credit crisis. We believe portfolios should not be based on any particular decline, but more resemble an all-weather portfolio.
  4. Narrow bets have worse market timing. Technology, gold, commodities and real estate are all investments that have had periods of good performance results, but there is no silver bullet as far as consistent returns over long periods of time. As they hit peaks and valleys, investors tend to get in and out at the wrong times. In my opinion, broader is better.
  5. Costs matter. Taxes, taking losses, offsetting gains and investment expenses should be considered as part of the overall portfolio strategy and can help boost your long-term returns.
  6. Investing based on the recent past is a mistake – which investors keep making. In the five-year period ending in 2007, U.S. stocks doubled while international stocks tripled. Since that time, international stocks have lagged. Trying to invest on the most recent performance is almost a contra indicator. In 2008-2009, cash was king. If you stayed in cash since 2009, you missed the total market recovery.
  7. Most investors are not saving enough to sustain their standard of living into retirement, according to a study by the National Retirement Risk Index. Save more, invest wisely, work longer and stay healthy.** 52% of working age households are at risk of being financially unprepared for retirement.

Resource Center

This NEW section is to present helpful apps that can help you stay connected and make life easier, as well as some books or materials that address some of the challenges that we all face today as investors.

The app Pillboxie was designed by a registered nurse and is an easy way to remember any medications you may take. Its unique display allows users to visually manage and schedule their meds. Scheduling a reminder is as easy as dropping a pill into a pillbox.

Enjoy looking forward to spring weather and summer months ahead.

Warm Regards



Raymond James is not affiliated with Pillboxie. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Management Group is independent of RJFS. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Diversification and asset allocation do not ensure a profit or guarantee against a loss. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. You should discuss any tax or legal matters with the appropriate professional. Dividends are not guaranteed and must be authorized by the company’s board of directors. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.

**2017, by Trustees of Boston College, Center for Retirement Research.

Financial Market Update* Year-to-date change as of March 31, 2016
S&P 500 Index 6.07%
Morningstar Commodities
Broad Basket Category -2.02%
MSCI EAFE US$ (International) 7.25%
Barclay US Aggregate Bond 0.82%

*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.
Source: Morningstar

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