One of the toughest, specifically, for new retirees. There may have been harder markets to navigate, I imagine the late 1920’s, and what came after that, or the early 70’s may be on the list ( I missed those market routs) but right now this market is getting tougher to figure out (it is starting to feel too easy and that’s the problem). Having just heard Warren Buffet’s letter to shareholders (he has seen most market cycles!) his mantra that the future looks bright for long term investors in US stocks should stoke more optimism in the short run as well. As a recap, for the decade just passed, large cap stocks have averaged a 14.3% return leading the pack of assets while delivering a 31.7% gain in 2019 and 21.7% return in 2020. Small cap stocks have averaged 10.9% over the same decade. In both categories growth has outpaced value again. Ten year treasury bonds delivered a 4% return the past ten years, now junk bonds are yielding 4%. As interest rates have churned lower and lower each year for at least the past decade now, it is getting increasingly harder to imagine both stocks and bonds outperforming in your retirement portfolio in the next few years. The ten year treasury now hovers just below 1.5% and this helps to overvalue stocks as market’s flourish in low rate environments. So you have a choice to make as a newly retired investor, spend a bit less for now (the obvious but boring choice), or go on the hunt for income alternatives that will substitute for treasuries while holding on to highly overvalued stocks for dear life. When it comes to the fixed income portion of your portfolio, and the hunt for alternatives, the devil lies in the details. Firms are scrambling to invent products with happy sounding names like ‘buffer funds’, ‘market hedging’ strategies, ‘mortgage-backed’ bank loans, ‘long/short’ funds, ‘life settlements’ and many more (let’s not forget to mention equity-income annuities...can’t go down, can only go up the happy insurance salesman will tell you!) Yes, some of these products will in fact outperform for a period of time, but the cost to hold them year-in-and-year-out will be extremely high (many start at 2%-3% a year and go up from there). Some suggest that utility and preferred stocks are decent income alternatives to treasuries, and they are...until they aren’t. Everything has a shelf life once cycles shift. Right now we are nearing the end of a very long cycle that is wearing income investors out with the Federal Reserve pledging to keep interest rates low for....ever? Sooner or later the towel is being tossed into the ring one investor after another as the past now becomes forever in their minds as the low interest rates are wearing them out. Many parts of the stock market are acting badly as new highs are hit. SPAC’s (a cross between a hedge fund and venture capital) are everywhere and there is rampant speculation with short term- minded trading becoming the new norm all of which
Bonds
Wealth Management
Investment advice is too costly... and to what end? Just because you may pay tens of thousands of dollars a year to a wealth management firm does not mean your stock portfolio will rise any faster. Wall Street does a fantastic job of marketing active management services to investors. Yes, people love to see the firm that holds their hard earned savings on television commercials during sporting events as it gives them a feeling of safety and comfort. The cost of those commercials adds up to an enormous sum and it has to be paid for by somebody. That somebody is you.
Dimensional Funds are not available on a retail basis to investors, however, Smart Choice Financial Planning is authorized to bring Dimensional Funds to you if your situation warrants on accounts over one million in assets. When these funds do not make sense for your particular situation, we will work with you to find a suitable investment to meet your needs.