November 2018 Newsletter to Clients

Enjoy this month’s newsletter that features a holiday open house invitation and commentary on this month’s stock market decline.

 

Holiday Party is coming up! Mark your calendars for Thursday, December 13, from 4-7:00 pm at our office located at 121 Walton Avenue.

 

If you’ve watched any financial news over the last month or so you’ve almost certainly seen a breathless commentator describing, in dire tones, how the stock market is tumbling. They’re reminiscent of weather forecasters before a hurricane. Finally, some action!

 

Well, there is no denying the stock market has declined during October. In fact, the S&P 500 dropped 8.5% from September 20 to the last day of October. The legitimate questions, then, are: Should you be concerned and what is Moneywatch doing to react to this market decline? 

 

First, let’s look for a moment at some of the economic news that can impact investors’ decisions. Remember, a purchase of a company’s stock is a decision made that the company’s future profits will increase from where they are now. So, data points that could potentially harm profits in the future can cause investors to sell their stock. We’re currently seeing higher interest rates, higher inflation, tariffs, and low unemployment that can restrict future growth. Each affects different industries in different ways but, taken together they have caused some investor anxiety. However, it is important to remember the economy is still doing extraordinarily well with very solid company earnings reported for the 3rd Quarter. But, after 9 years of a rising stock market, some investors have decided to take a pause. 

 

The main thing we are NOT doing is panicking. In fact, we prepare every client’s portfolio with the understanding the stock market can decline at any time. As you know, we choose assets for you to own that are not directly correlated to one another. Meaning, when one zigs, the other should zag. For instance, stocks and long-term income assets have low, or even negative, correlations and this is why your portfolio’s risk is reduced when we include these types of investments. Traditionally, bond funds play a prominent role in our client’s portfolios but, as interest rates rise as they are now, the value of these bonds should decline. As a result, that’s why investments such as BlackRock Floating Rate Income Trust (BGT) and Lord Abbett Floating Rate (LFRAX) are in your portfolios. As we’ve discussed here before, they should perform better in a rising interest rate environment as the loans they purchase generate more income from the borrowers. Plus, their correlation to the stock market is low. 

 

The market reset, whether it turns out to be a short-term decline or a longer-term swoon, can provide opportunities. Primarily, as we head toward the end of the year, the stock market decline can provide opportunities to harvest some losses to offset some gains in taxable accounts. In other words, as we rebalance your portfolio, we will look for opportunities to sell assets that have declined in the recent sell-off to offset both those that have gained value as well as those that earned income in the account. This will help limit capital gains taxes at the end of the year. 

 

This is also a great opportunity to tune out those hyper financial pundits and remind ourselves a diversified portfolio will win out in the long-term.