Weekly Market RecapThis week saw improved US housing and employment data. US growth was revised up to 3.9% for the second quarter. Meanwhile, Volkswagen announced that harmful emissions on its diesel vehicles were under reported on potentially 11 million vehicles globally, causing the stock to decline and the CEO to resign. Internationally, Norway, Ukraine and Taiwan all cut interest rates this week, a reminder that as America focuses on a potential rate hike this year, many other countries are at a different points in their economic cycles. Volkswagen's issues demonstrate one of the risks of stock picking. Problems such as Volkswagen's are hard to forecast. In fact, it appears to have surfaced due to an academic research project that never intended to expose the company. Yet, investors with material holdings in Volkswagen have seen their returns hurt this week. By comparison, a diversified portfolio can be better insulated from issues impacting individual stocks, yet still capture the growth of the broad stock market, as has occurred historically. For example, in a diversified portfolio, such as FutureAdvisor's, Volkswagen typically represents well under 0.1% of portfolio exposure among thousands of other assets held within Exchange Traded Funds (ETFs). This means you have the potential to benefit from robust long-term return prospects, without exposure to what we view as excessive stock specific risk. Tracking an index comes with other benefits too. A well constructed index is able to keep up with economic changes. For example, back in the 1900s the US stock market was dominated by railroad stocks, whereas railroads are now just a fraction of the economy. In addition the average lifespan of a S&P 500 company used to be three times as long as it is today, down from 60 years in the 1950s to under 20 years today, according to Credit Suisse Research. So, we see the composition of the global economy changing, potentially at an increasing rate. Staying on top of these changes by holding just a few stocks is challenging and you can often end up with biases in an outdated portfolio that can hurt your returns and/or increase your risk. Well designed indexing offers an effective way to keep up with both the market and economic changes in our view. Finally, remember that in volatile markets, such as we've seen recently, it can feel tempting to move to cash with the goal of protecting your portfolio. There are several challenges with this approach. The most obvious one is while it can be easy to exit the markets because there is always something to worry about, finding the right time to re-enter the market is far more difficult. Indeed, DALBAR's research suggest that this sort of trading typically costs investors 4% a year. In addition, getting in and out of the market drives up the total costs of investing in various ways from commissions to taxes. Finally, cash has generally been a relatively weak asset class historically, in part because its value is eroded by inflation, and it does not enjoy the returns that stocks and bonds have historically offered. Disclaimer: Your Portfolio Update
Over the past month your portfolio was down 2.2%, and we have no recommendations at this time to improve it. Congratulations on maintaining one of the best portfolios among all our clients. We will, as always, continue monitoring your account and alerting you if there are actions to take (periodic rebalancing is required, etc). Ways To Improve Your Portfolio
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Saturday, September 26, 2015
Your portfolio down 2.2% over the last 30 days as Volkswagen hits emissions problems
Wednesday, September 23, 2015
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 August 22, 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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Saturday, September 19, 2015
Your portfolio down 2.4% over the last 30 daysas US retail sales improve
Weekly Market RecapThis week saw healthy US retail sales data with further employment improvement. We also saw continued soft inflation and slightly weaker industrial production. Related to this data, the Federal Reserve left US interest rates unchanged during this week's meeting. We believe the current media focus on what the Fed may do, and when, is potentially excessive, especially for longer term investors. Historical data shows that rising rates are not necessarily bad for the stock market, in part because rates generally rise because the economic environment is viewed as robust. Internationally, there are elections scheduled in Greece this Sunday. This is the third time the Greeks will go to the polls this year, though the issues surrounding a bailout in Greece now appear largely resolved. China released long awaited plans to reform state owned enterprises, though for many Western commentators the plans did not go far enough in opening these enterprises up to market forces. The IMF released updated growth forecasts, showing improved growth for the US and Euro area but marked deterioration in Brazil and Canada. Overall aggregate global economic growth is expected to be 3% for this year, 0.1% decline relative to prior forecasts. A reminder this week on the potential benefits of a passive approach to investing. During volatility, such as we've seen recently, there is no shortage of pundits claiming to have predicted the market successfully and to know what's going to happen next. However, academic studies strongly suggest that focusing on a low cost approach and avoiding excessive trading is likely to deliver better returns on average and over time. We believe this approach can be augmented by automatic rebalancing. This can correct for the problems in trading on emotion as behavioral finance identifies. Also, a focus on tax efficiency whether through techniques such as tax loss harvesting or tax efficient asset placement has the potential to help after tax returns. Disclaimer: Your Portfolio Update
Over the past month your portfolio was down 2.4% and did as good or better than the benchmark for your age and moderate risk tolerance. However, there are still actions you can take to reduce the Fees in your portfolio and/or improve the Tax Efficiency of your portfolio. We encourage you to sign in and look into them. Ways To Improve Your Portfolio
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Saturday, September 12, 2015
Your Weekly Update - Japan Pledges Tax Cuts
Weekly Market RecapThis was an uneventful week for economic announcements in the US. However, overseas news was largely positive. European trade data was strong, with German exports and imports growing more than expected to reach record highs. In Japan, stocks reacted positively to the Prime Minister's pledge that he expects to lower Japan's corporate tax rates next year. In fact, Japanese stocks had their biggest one day gain since 2008 this past Wednesday. In China, the Ministry of Finance is expected to take further steps to stimulate the economy and this lifted Chinese stocks. This a good reminder on the importance of holding a diversified portfolio. Having exposure to foreign developed and emerging markets in your portfolio positions you to capture growth wherever it occurs globally. One thing that is important to remember in light of weak months for asset returns, such as we've seen this August, is that the long term returns for stocks, which are historically robust, do include many bad months. Despite this, looking back over history, stocks have still offered attractive returns. For example, on average, looking back to 1950, the S&P 500 experienced monthly declines for about 5 months out of 12 in a typical year. That may seem like a lot of down months. As a result, it might feel like your opportunity to achieve positive returns as an investor is pretty meager. Yet, actually small positive differences really have added up over time for investors. This has caused the S&P 500 to deliver an average return of 7.7% since 1950. Remember that average annual 7.7% return going back to 1950 includes all of the months when stocks have declined (317 months in fact). So a negative month for stocks is regular event. However, despite all these negative months in the past, long-term returns to stocks have been positive, and better than many other mainstream asset classes in our view. This is one reason why we view diversified stock exposure as important for asset growth, but also employ other assets and rebalancing to keep portfolios on track. Disclaimer: Your Portfolio Summary
Ways To Improve Your Portfolio
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Saturday, September 5, 2015
Your Weekly Update - European Growth Softens
Weekly Market RecapThe economic data that was reported this week for the US came in as expected. We saw continued good housing and jobs data. US manufacturing activity grew slightly less than anticipated, but still in positive territory. US unemployment is now at 5.1%, its lowest level in 7 years. In Europe, economic growth in the second quarter was 1.2% on an annual basis. This was softer than projected and, as a result, the European Central Bank (ECB) to announce lower growth forecasts. However, the ECB restated its resolve to stimulate the European economy further if warranted. In Asia, South Korean exports fell. Key commodities such as oil and copper have increased in price in recent weeks, after earlier protracted declines. This may prove helpful to many emerging market economies. Overall, August proved to be an unusually bad month for stocks. In fact, it was the worst in 3 years for the S&P 500 and the worst in 5 years for the Dow. However, in this context, FutureAdvisor portfolios performed fairly well from a relative standpoint. The specific, diversified fixed income instruments that we select for portfolios such as Treasury Inflation Protected Securities (TIPS), domestic bonds, and international debt all held up far better than stocks. We would expect this during periods of stock market decline. So, although the absolute declines we saw in August were painful for investors, FutureAdvisor investors can take some comfort that their allocation and diversification, like bonds, helped reduced some of the downside volatility when compared to major stock benchmarks. Finally, remember that months like August, though infrequent, are an integral part of long term investing, and the markets have experienced many similar, or worse, months over history. However, there are also plenty of exceptionally good months as well. For example, just as August was weak, note that this February saw the biggest monthly gains the S&P 500 has seen in over 3 years. Despite rough months like August, stocks continue to be an attractive long term asset class based on history. Disclaimer: Your Portfolio Summary
Ways To Improve Your Portfolio
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