Omega
Wisdom



Blending Life, Wealth, Work & What's Next
March 7, 2017

Are you missing out on the stock market's rise OR is it time to "batten down the hatches"?

There comes a time when we need to reach out to our clients to provide some perspective about what’s happening in the financial markets, and we at Omega feel it’s time.  Having been through a number of market downturns, one of the signs we remember is when everyone starts to feel they are missing out or need to jump into  the markets or certain types of investments (i.e. real estate) more aggressively.  Whether it was tech stocks in 1999 or real estate in 2007, the feeling is the same for me.  It makes me nervous.  As we have begun our 1st meeting of the year with many of our clients, we have been saying to our clients that much of what has happened in the financial markets has been on speculation and without regard to actual policy changes or a wider view of the cons of some of the potential impacts of the new Administration’s potential actions.  And yet, you start to feel like you may be missing out on the amazing rise since election day.  The S&P500® Index has been up over 6.8% since January 1st, and 9.2% over the last 3 months.  When we look back to election day, it’s an even bigger rise.  Certainly the promise of lower taxes and fiscal stimulus (i.e. infrastructure spending) are reasons to be positive about the US economy’s prospects for the future.  That said, there are plenty of reasons to be concerned, not including investor sentiment getting more aggressively growth-oriented.  Some concerns we have at Omega include:
•    The Federal Reserve’s mindset around raising interest rates and the financial markets’ seeming doubt about how much and how often rates may rise.  A surprise (i.e. investors think the Fed won’t raise rates and they do or the Fed raises them higher and quicker than expected) would cause some nasty downward pressure on the stock market.
•    Trade policies that could actually slow down our economy if the US is too protectionist and may open up opportunities for countries like China to become the power-player in the global trade economy.
•    Immigration policies that don’t truly support growth in the US- without younger workers to fill in the lower level jobs, our economy may stagnate.

For those clients who were with us back in 2008-09, we did not recommend selling everything and going to cash.  That generally doesn’t work since it’s hard to get the timing right to get back in at the bottom of the market.  What we are recommending are the following strategies to help weather any downturn that may be coming our way:

•    If you need cash in the next 6-9 months for living expenses, college/school expenses, big trips, etc.  that money should be held in cash or close to cash.  Don’t worry about missing out on any market growth, this money is leaving your portfolio anyway.
•    Keep retirement plan assets invested in a diversified, growth-oriented way if you are not retiring in the next 5 years.
•    If you are retiring in the next 5 years, let’s make sure your retirement plan assets reflect a diversified approach and is on automatic rebalance so that any downturn becomes an opportunity to sell high(er) on some assets and buy lower on others.  Let’s also have a plan for filling out the shorter-term “pools” (of wealth) in case we need some recovery time.
•    With taxable accounts (joint, trusts, etc.), we need to determine if you will be accessing those assets soon, and we may want to revisit the strategy you are currently invested in.
•    Don’t bet against bonds.  Yes, they look like the “loser” right now, especially with rising rates (makes bond prices go down), but they could become the portfolio “hero”
•    Don’t bet against asset classes such as international stocks, emerging market stocks or US small company stocks.  Conventional wisdom was wrong immediately after the election so don’t be fooled into thinking that you “know” where the markets are going.  Stay diversified according to your timeline and risk tolerance.

Finally, we have noticed that as our clients approach retirement, they often become more nervous about the impact of the financial markets on their retirement security.  That’s normal.  The reality is that there are things that you can do to prepare for and weather a downturn as you begin to take withdrawals.  It’s nothing fancy or special but it also mean that you partially sit out some of the current rally.  

As always, please feel free to reach out to us if you have any questions or concerns.

We look forward to talking with you and urge you not to get sucked into any shorter-term market exuberance. 

Warmly,

Lisa

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