Weekly Market Recap This 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Staying on top of these changes by holding just a few stocks is challenging and you can often end up with biases in an outdated portfolio that can hurt your returns and/or increase your risk.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:
The views expressed herein are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. Past performance is not indicative of future results. Investments in securities involve the risk of loss. The tax loss harvesting strategy discussed should not be interpreted as tax advice and it does not represent in any manner that the tax consequences detailed will be obtained or that its tax loss harvesting strategy will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing. 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 | 0 Accounts with Actions | Your portfolio has no recommended actions right now. We'll watch over your investments and alert you with an email when there are actions for you to complete. Sign in to see detailed steps  | | Sign in to see your full dashboard | | 
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