November Newsletter to Clients

Enjoy this month’s edition that features a reminder about investing after elections plus a review of the markets so far this year. But, first….

For our Kentucky clients, please join us at the Moneywatch Advisors Holiday Party on December 12 from 4:00-7:00 PM at our offices at 121 Walton Avenue. You may RSVP to Chelsea Hale at 859-268-1117 or at Chelsea@moneywatchadvisors.com. 

As you might expect, our clients span the political spectrum. That means, a week and a half after the election, some of our clients are elated and others fearful. Below is an anecdote that will, hopefully, be an insightful window into how we at Moneywatch Advisors view investing within the context of politics and elections.

Back in 2017, a couple nearing retirement came to us in search of retirement planning and investment management help. They had moved most of their investments within their retirement funds to cash after the 2016 election because they feared a dramatic decline in the stock market under newly-elected Donald Trump. So, by the time they found us, they had missed out on about $75,000 in gains they would have experienced had they kept their money invested. 

Is this a lesson about how markets will perform now that Donald Trump has been re-elected? No. This is a lesson about how attempting to time the market is a fool’s errand. Market history shows that it hasn’t really mattered much whether long-term investors moved into the market at the “right time”, whether defined by politics, disasters, market booms, busts or anything else. 

Jeffery Yale Rubin, president of the market research firm Birinyi Associates, calculated returns of two investors: one who put their money into the market at the absolutely worst day of each year, when stocks were the most expensive and the other who had perfect timing and invested only on the day when stocks were cheapest. 

They both started at age 22 in 1982 and put $7,000 into an IRA each year. Over 42 years that totaled $294,000 in contributions for each. 

The investor with perfect timing would now have about $3.4 Million from their regular annual contributions. The investor with the bad luck/poor timing would have about $2.7 million. Not a small difference between the two but both did quite well given their somewhat modest contributions. What’s the lesson? Mr. Rubin said in an interview “A lot of people wonder whether they should delay investing for one reason or another. The answer is clear, if you’re in it for the long run, just start immediately.” 

At Moneywatch, we plan and invest for each client based on your individual circumstances, needs and goals. While we monitor economic and market conditions carefully and adjust accordingly, our judgments are based on data, not politics. 

As I’ve written before, the stock market has been fabulous so far this year. The S&P 500 index of large, U.S. companies has returned over 27% through last week and the Russell 2000 index of small, U.S. companies has returned almost 20%. Bonds, as measured by the Bloomberg U.S. Aggregate Bond Index, have returned a little more than 2%. 

There is evidence that the stock market is getting a bit expensive. Aggregate earnings of the S&P 500 are on track to post growth of 5.3% for the third quarter but now also trade at 22.2 times earnings for the next 12 months. This compares with a 5-year average of 19.6 times earnings, according to the FactSet. This is why we diversify your, and our, portfolios with a mix of bonds, large U.S. companies, small and mid-size U.S. companies, real estate companies and international companies. 

Thank you for your continuing confidence.

Ramsey Bova, Owner and President, CFP®