Home Guides & Resources chevron_right Bi-Weekly Newsletter A Year for the Record Books Published January 2, 2020 Table of Contents Looking Forward to 2020 Market ‘Pros’ Get FANGed Financial Planning Focus: Planning in Your 60s and Beyond New Special Report: Hiring an Accountant Looking Ahead As stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. rallied into the end of 2019, markets continued to set records. The Dow Jones Industrial Average closed Thursday at its 21st all-time high for the year, while the S&P 500 index hit its 34th best for 2019. And the Nasdaq Composite has been on a tear, hitting its 10th consecutive high on the back of (as we expected) robust holiday sales. BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market investors have also had plenty to be thankful for, as falling interest rates have led to higher prices and strong overall returns in virtually all segments of the fixed-income markets. If the year-to-date return through yesterday holds up, 2019 will have been the best calendar year for bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. in more than a decade-and-a-half. What has driven investor confidence and securities prices as the year draws to a close? Reasonably strong U.S. corporate earnings, low consumer interest rates and generally positive economic data have kept the slow-growth-not-no-growth economy expanding. Signs of a thaw in U.S.-China (and U.S.-elsewhere) trade negotiations and a fairly dismissive stance towards Brexit’s market impact have also boosted optimism as the curtain falls on the year. Indeed, for all of the vociferous headlines, there’ve been few lumps of coal under this year’s market tree. (In case you’re wondering, coal was one asset that didn’t rally this year, falling 35% in price—that’s not a lump, that’s a TKO.) With just a few trading days left in the year, the Dow and the broader S&P 500 have returned 25.7% and 31.8%, respectively, through Thursday’s close. The MSCI EAFE index, a measure of developed international stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. markets, is up 21.6%. As of Thursday, the yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. on the Bloomberg Barclays U.S. Aggregate Bond index has dropped to 2.34% from 3.28% at 2018’s end. On a total return basis, the U.S. bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market has gained 8.6% in 2019. Looking Forward to 2020 We will have much to say about our economic and market views for 2020 in our forthcoming Quarterly Outlook. But, standing on the brink of a new decade, we know one question many of you share with us: Will 2020 repeat the double-digit gains we’ve earned in 2019? We’re not expecting another year as bullish as this one, particularly given historical trends. This past decade, the Dow grew at a 10.6% annualized rate. If you include dividends—which you should—the Dow compounded at a 13.4% annual pace. The S&P 500 index returned 11.2% a year, or 13.5% with dividendsA cash payment to investors who own stock in the company.. Both showed phenomenal results that were certainly well above average. We know that market times and climbs won’t always be this good. The 100-year annual return for the Dow Jones Industrial Average was just 5.8% without dividends (the figures for total returns don’t go back that far). Prudence dictates lowering expectations. As we have been for 25 years, we will be investing with you and alongside you every step of the way, ensuring that your portfolio is well-matched to your needs and to the tenor of the times, and that your overall financial plan is in sync with your income, savings and lifestyle demands. Remember, pundits earn their paychecks grabbing eyeballs rather than providing sound investment advice. In this season of jaw-dropping soothsaying, one thing we won’t do is give you a wishy-washy prediction about market returns or risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.. Chalk it up to a slow news day, but we were bemused that Bloomberg paid any attention at all to Vanguard chief economist Joe Davis putting 50/50 odds on a stock market correction (10% drop) in 2020. A 50/50 chance of a stock market correction is not a prediction, but an irrelevant coin toss. The facts: The long-term average intra-year drawdown for the S&P 500 index is 13% to 14%—surpassing Davis’ 10% “prediction.” And in 17 out of the past 35 years—almost exactly half—the S&P experienced a 10%-plus intra-year decline. Or 50/50, if you prefer. Market ‘Pros’ Get FANGed As you prepared for the Christmas holiday, you probably missed the fact that December 24 marked the one-year anniversary of a fairly substantial market downdraft during the final months of 2018 that had many investors worried the bull market’s run was over. When markets closed on December 24, 2018, the Dow Jones Industrial Average was down 18.8% from its October 3 high, while the S&P 500 index was off 19.8% (just above the 20% textbook definition of a “bear marketA period in which stock prices decline significantly from recent highs and remain below previous high marks for weeks or months. Generally, a decline of at least 20% in stock prices is considered the threshold marking the start of a bear market.”). As bad as that felt, investors in the so-called FANG stocks were crushed during that period. The NYSE FANG+ index—made up of 10 tech giants that includes the eponymous Facebook, Amazon, Netflix and Google (Alphabet) along with Apple, Tesla and other headline names— was down 32.0% from its June 2018 high, making the S&P’s decline appear a cakewalk by comparison. While the Dow and S&P began to recover and go on to hit, collectively, 55 new highs in 2019, the FANG+ languished, never recovering its losses before plunging again in May and June. In fact, it wasn’t until December 19 that the FANG+ crested its 2018 high. As if strapped to the grand-finale rocket of a New Year’s Eve fireworks display, the index has soared 9.4% this month—nearly tripling the S&P 500’s 3.3% gain and defying the pundits who said it couldn’t or wouldn’t happen. Source: The Wall Street Journal. It was only this past June and July when pundits from Oppenheimer’s Ari Wald to CNBC host Jim Cramer and others said the FANG stocks would continue to underperform—even calling them “dead” money. Cramer came up with his own replacement for the FANGs, a five-stock retail WATCH list—Walmart, Amazon, Target, Costco and Home Depot. The pundits’ calls were clever, but clever doesn’t mean smart. In the second half of the year, the FANG+ index returned 24.2% to the S&P 500’s 11.2% gain. Remember, pundits earn their paychecks grabbing eyeballs rather than providing sound investment advice. When all of the “analysts” were yelling “sell, sell, sell,” that was the perfect time to buy, buy, buy—and an object lesson in the risks and lost opportunities from market timing, and the hazards of taking your investment cues from television entertainers. ************ Financial Planning Focus: Planning in Your 60s and Beyond Financial planning is a lifelong process. In your 60s, with the retirement finish line likely in sight, returning to or creating your financial plan is as important as ever. Retirement is a weighty milestone, and not one that you can afford to get wrong as you hit your 60s. Here are five tips to help ensure that your golden years match your dreams for them: Update your financial plan. Revisiting your plan before retiring will give you confidence that you will have adequate resources to live the lifestyle you want in retirement or provide a wake-up call to make changes. Our financial planners have the ability to run multiple scenarios in order to gauge your retirement success. Consolidate where you can. If you had multiple employers throughout your career, you may have some old 401(k) or retirement plans that you might want to consolidate. Take this opportunity to clean up your balance sheet—it’s easier to keep an eye on your accounts if they are under one roof. Plus, it will make taking required minimum distributions simpler when that time arrives. Prepare for Medicare. A good date to keep in your head or on your calendar is three months before your 65th birthday, when you are eligible to enroll in Medicare. Do it in a timely manner to avoid the stiff penalties that come with late enrollment. The exception: If you plan on working beyond age 65 and you are still covered by your employer’s plan. In that case, enroll in Medicare a few months before you leave your job to prevent any coverage gaps. Plan for Social Security. We’ve written extensively about Social Security and have three podcast episodes dedicated to the topic—for good reason. Social Security can be just as complicated as Medicare, if not more so. Above all, it’s vital for you to understand how much you’ll receive as well as the implications of filing for your benefits sooner or later. You can get started at ssa.gov or give us a ring. Review your estate plan: Your estate is your legacy, and it shouldn’t be taken lightly. Make sure that you have the basic estate-planning documents up to date (wills, powers of attorney, and health care documents). Are the beneficiaries on your retirement accounts up-to-date? Have you considered any charitable impact that you would like to make? Financial planning doesn’t stop when you stop working. It’s an ongoing process that should be reexamined whenever your life changes. Our recommendation to all our clients: Get started or review your financial plan in early 2020. Simply contact your portfolio team to get started. ************ Special Report: Top 10 Questions to Ask Before Hiring an Accountant As you work to build and safeguard your clients’ wealth, tax considerations can get increasingly complex. As the quarterback of their wealth management team, we often recommend you engage with a good certified public accountant. The latest Special Report from Adviser Investments discusses the key questions people should ask as they search for an accountant to work with. The peace of mind that comes with having another experienced professional in your corner is worth every penny. Click here to read this report today! Looking Ahead Next week, financial markets and our offices will be closed Wednesday in observance of New Year’s Day. We’ll be back at our desks Thursday morning ready to help you with all your wealth management needs for the days, months, years, decades and generations to come. We’ll also wrap 2019 and welcome 2020 with a light slate of economic reports to pore over, including data on home prices, pending home sales, consumer confidence, car sales, construction spending and manufacturing. Please note: This update was prepared on Friday, December 27, 2019, prior to the market’s close. About Adviser Investments Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). 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Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them. 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