Weekly Market RecapThis week saw extremely high volatility across global stock markets, sparked, in our view, by concerns about Chinese growth. Ultimately, global markets saw gains this week after a notably poor start and the accompanying panic inducing headlines on Monday. Against this backdrop, economic data was generally good. The US saw strong second quarter growth of 3.7%, ahead of most expectations, and housing and jobs data were positive. In China, the government continued to take steps to bolster its stock market against recent declines including lowering interest rates and reducing reserve requirements for banks. Though our preferred investment time horizon is decades, this past week demonstrates, on a small scale, the important theme of staying the course with a robust investment strategy. During the apparent panic late this week, there was the obvious temptation to sell based on gut instinct. However doing so would have caused you to miss out on gains as the market rebounded. Daniel Kahneman won the Nobel Prize in economics for recognizing that humans aren't always as rational as economic models would perhaps like them to be. Increasingly, behavioral finance, which Kahneman championed, has become an influential discipline within finance. Weeks such as this perhaps show us why. The decline and the subsequent rebound within a week may not necessarily have rational causes, but long-term investors clearly can benefit from patient, long term stock market exposure based on history. Disclaimer: Your Portfolio Summary
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Saturday, August 29, 2015
Your Weekly Update - Markets End Volatile Week Higher
Saturday, August 22, 2015
Your Weekly Update - S&P 500 Declines Year To Date
Weekly Market RecapThis week saw general declines for stocks, with the popular S&P 500 benchmark moving into losses for the year. We see this decline based primarily on China concerns. These declines occurred despite good housing and jobs data in the US this week. Other developed markets, such of those of the Eurozone and Japan are also show healthy recent economic activity based on August surveys. So, developed markets are on a positive trajectory in our view. Clearly, Chinese concerns have dominated market sentiment. Although Chinese stocks have declined in recent months, much of this has only served to reverse rapid Chinese gains from earlier this year. Over a one year period, the Shanghai Composite stock index is actually up well over 50%. Also, note that just last week the International Monetary Fund projected the Chinese economy to grow 6.8% in 2015. That's slightly below the Chinese government's 7% target, but still more than double the growth rate in most other economies, including the US. So as much as markets are concerned about China, the Chinese stock market is actually still up healthily on a 12 month view, and with an economy growing fast, at double the rate of the average country. Of course, history shows that a robust strategy is to buy and hold in environments such as these, maintaining your investment goals and risk tolerance. We've seen similar dips to this one in October 2014, June 2012 and August 2011 and in countless prior years. These all proved to be temporary with the market ultimately returning to new highs. In fact, DALBAR research has shown that changing course in market declines can cut your returns by 4% a year. Therefore, we believe changing course is likely to be harmful. To complement a buy and hold strategy, and especially because markets may be overreacting currently, rebalancing your portfolio can be valuable. Rebalancing is intended to prevent your portfolio drifting from its goals, and avoids emotional trading based on fear or greed. We employ threshold-based rebalancing so that if any asset moves too far from its target weight, then we recommend a rebalance, or rebalance automatically for Premium customers. Generally, rebalancing means selling assets that appear more expensive and buying those that could be more attractively valued. At times when the market "mean reverts" this can help returns by as much as +0.4% a year according to research. It helps to keep your risk tolerance constant, because you risk tolerance should not change due to market movements, and altering it could counteract potential rebalancing recommendation benefits. The frequency of rebalancing recommendations is dependent on market movements and higher volatility will typically drive greater rebalancing activity. Note that what we monitor for rebalancing is not whether the markets are up or down, but how different asset classes move against each other. We monitor your portfolio daily for appropriate rebalancing opportunities, but only make a recommendation to you when we believe the benefits of doing so outweigh the costs. Remember, maintaining a diversified portfolio with techniques such as automatic rebalancing is only one of our nine best practices. Log in to your account to see a your assessment of how you are doing across all nine. Disclaimer: Your Portfolio Summary
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FutureAdvisor | Market movements have created an opportunity to rebalance
As part of our 24/7 monitoring of your investments and the markets, we want to alert you that it may be a good time to rebalance your portfolio based on recent market movements. Based on the market fluctuations since our last rebalance email on January 17, 2015, we are recommending that you take action in 1 of your accounts. Sign in for the most up-to-date rebalancing recommendations.  If you have any questions or want to talk to an advisor just reply to this email. Thanks again for using FutureAdvisor. | ||
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Sunday, August 16, 2015
Your Weekly Update - US Jobless Claims At Historic Lows
Weekly Market RecapThis week saw generally positive US data, with US unemployment holding at 5.3%. The level of unemployment is very close to what the Federal Reserve considers "full employment". However, despite this positive economic news, concerns about the Fed's actions and global growth has weighed on markets recently. As expected, Greece reached an agreement on reforms bringing it closer to its third bailout in recent history. Russian economic data showed that Russia fell into recession after its economy shrank in the first half of 2015. This is due primarily to a weaker currency and declining commodity prices. China devalued its currency this week, apparently to boost exports. When reading news headlines, which tend to focus on the bad news, it is helpful to remember the diversification we recommend in your portfolio and how it helps. For example, Russia's 2015 recession is driven, in part, by falling commodity prices such as oil. Yet, the same trend is reducing costs for importers of oil such as Japan and most of Europe and stock markets in these countries are performing well in 2015. Equally, China's currency, the yuan, fell this week, but this lead to a relatively pronounced rise in the value of the euro. As such, with an internationally diversified portfolio, trends are often balanced out across a portfolio. Generally, in 2015 we are seeing several trends that are detracting from emerging market performance, contributing to performance in developed markets. Recently, total assets in Exchange Traded Funds (ETFs) have exceeded the assets devoted to hedge funds on some estimates. Hedge funds typically charge very high fees, a typical hedge fund can charge both a 2% fixed fee and also 20% of performance. Conversely, ETFs can offer a low cost way to create a diversified portfolio. Many ETFs we use at FutureAdvisor are an order of magnitude lower in cost than even the fixed component of hedge fund fees. It is perhaps not surprising then that investors are becoming disillusioned with high cost hedge funds at the same time that growth in low cost ETFs appears to be accelerating. Assets in ETFs are now just under $3 trillion dollars across almost 5,000 different products according to ETFGI estimates. Another part of the value of ETFs in our view, is the tax efficiency due to in kind distributions. This enables ETFs to offset capital gains that would otherwise be passed on to investors as part of the ETF creation and redemption process. What it means for ETF investors is that ETFs are generally more tax efficient than similar instruments, such as mutual funds. This can help your after tax returns even before tax loss harvesting and the other services that we include in our Premium service. Disclaimer: Your Portfolio Summary
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Saturday, August 8, 2015
Your Weekly Update - Reminder On Your 401(k) Match
Weekly Market RecapThis week saw further robust jobs numbers in the US. However, the market reaction to this has been tempered by apparent weaker prospects from companies such as Apple and Disney. In addition, good economic data has kept the Fed on track for a possible US rate hike in 2015 as planned. The Fed is, in part, looking to jobs data as they time the eventual rate hike. Internationally, Greece now expects to completely finalize its bailout later in the month and the Athens Stock Exchange reopened this week. Chinese markets appeared to stabilize this week as the government added further limitations on short selling. In Canada, campaigning started for an election later in the year. Remember, if you're the sort of person, like many of us, who tends to rush to take care of your finances in late December, by that time it can be too late to get your full 401(k) match. Now is a good time to set up a contribution level that will get you to a full employer match for 2015. If you have 401(k) plan, then the matching benefit can really be worth taking advantage of. There are, unfortunately in life, few situations that can be considered free money. 401(k) matching is about as good as it can get. If your employer offers to full, or partially, match your 401(k) contributions up to a certain level, then it generally makes sense to contribute up to that level. This takes full advantage of the benefit. We believe this is a smart move even if your 401(k) options aren't perfect, because matching can mean effectively a 100% return right off the bat. This should more than offset any fee or fund inefficiency, or overcome interest rates you are paying on any debts. Also remember that the employer match does not count towards your 2015 contribution limit of $18,000 for clients under 50. (Clients over age 50 can contribute $24,000.) Plus, you can generally rollover your 401(k) to broaden your options later. You can get in touch with us if you have older 401(k)s that you'd like to rollover to lower your fees and improve diversification. 401(k) contributions, though important for those eligible, are only part of a robust financial plan. Log in to your account to see your details of our household financial plan for you, and learn how many of our 9 financial best practices you are taking advantage of. Disclaimer: Your Portfolio Summary
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Sunday, August 2, 2015
Your Weekly Update - US GDP Improves
Weekly Market RecapUS economic growth improved this week, growing 2.3% on the first estimate for the second quarter. In addition, growth for the first quarter was revised up to 0.6% growth. This was positive, in our view, as growth was previously estimated to have declined in the quarter. Jobless claims remain very low in the US and last week's number represented a 42 year low. Internationally, the Chinese markets fell sharply on Monday, but, despite the recent declines Chinese stocks are up over 10% year to date and over 60% on a one year view. The Chinese economy is projected to grow at 6.8% this year, which is ahead of all major economies except India on International Monetary Fund (IMF) forecasts. China represents about 2-4% of our recommended portfolio depending on age and risk tolerance. A reminder this week on the potential risks of stock picking relative to tracking the market. We view one of the biggest dangers with individual stocks as holding too much stock in your employer. You already rely on your employer for income, so adding stock in your employer increases your overall financial risk. Ownership of employer stock within 401(k) plans has declined in recent years, in part because many employers are eliminating the employer stock choice in favor of diversified funds. Yet, it still represents over 10% of overall 401(k) holdings at some large companies and that's far too much in our opinion. On a broader scale, stock picking also risks leaving you unintentionally overexposed to certain sectors relative to the broader market. This can lead to a worse risk to return trade-off for your portfolio. Also, owning individual stocks can be less tax efficient than owning the index since your portfolio turnover is likely to be higher which can increase your costs, including taxation. Another common mistake investors make with regard to stock-picking is that of choosing mostly B2C (Business to Consumer) brands. Because investors hear about and interact with brands such as Apple, Walmart and Procter & Gamble, they tend to favor those companies when stock-picking. Meanwhile, B2B (Business to Business) companies represent a large portion of our economy and these are often underrepresented in stock portfolios. Examples of B2B companies include Oracle, Schlumberger and SAP. By using broadly diversified ETFs, our investors get exposure to both types of companies. These are all reasons why we favor a diversified selection of ETFs to create a low-cost portfolio for retirement investing. Disclaimer: Your Portfolio Summary
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