The past two months of this year’s market action have been frustrating. However, most of the signs we are watching are positive for US equities in the short, intermediate, and long terms. Domestic equities are still strongly holding their place as the number one spot in the world to be invested. This is important to recognize in light of the increased volatility we are experiencing.

Think of us as your hired professional driver. We are tasked with getting you to your long term goals. It’s not clear what’s up ahead – smooth sailing just around the corner or miles of detours and hold-ups. We’ll continue to use our expertise and systems to determine the best route to get you to your goals.

We aren’t at a complete standstill and are paying attention to conditions to determine if the worst is almost over or if there’s still a lot of stop-and-start ahead. We have made some significant changes in your portfolios by raising a larger percentage of cash than usual and adding more defensive types of holdings like utilities, healthcare, telecoms, and real estate. We’ve been selling some poorer-performing investments in order to harvest losses for tax purposes where possible.

Charlie Bilello, Chief Investment Officer of Pension Partners, LLC, had some interesting observations this week about the rapid shift in sentiment from greed just a few months ago to some extreme fear today:

One of the fascinating things about markets is how quickly investors can shift from one emotion to the other.

At the start of the year, investors were unequivocally greedy. And who could blame them? The S&P 500 had just completed its 9th straight up year, and it did so without a pullback greater than 3%. In the AAII Sentiment Poll, Bulls outnumbered Bears by 44%. This was in the top 5% of all readings dating back to 1987.

Fast forward to today, and sentiment has shifted 180 degrees. Volatility has increased as the S&P 500 has experienced a pair of +10% corrections. In the same AAII Poll, Bears now outnumber Bulls by 22%, which is in the bottom 5% of all readings. Investors are now fearful.

 

I have written you before in the past couple of months about the fact that the markets seem so volatile, but when we look at it in the historical perspective, this volatility is normal. However it feels terrible because it is so very different from last year when the volatility was abnormally low.

Let’s put this into perspective. In the words of economist Harry Dent yesterday:
The markets, except for the Russell 2000, are still well above their lows on October 29. The Dow would have to fall another 3.8% below its lows on Tuesday to retest those levels. The S&P 500 would have to fall another 3.6% and the Nasdaq another 4.7%. Retesting those lows doesn’t even get close to the level of crash the markets should be at if this is the beginning of a major bubble burst. The average of the last seven stock bubbles was a 42% loss in the first 2.6 months! The S&P 500 is only down 10% from the top over two months later. The Russell has been the worst, but it’s only down 15% at that point.

This is still just a correction. Hang in there and know that we have a system that works.

 

The Charitable IRA Rollover
The Charitable IRA Rollover is now a permanent charitable option for those IRA holders who will reach age 70 ½ in 2018. Attention to IRA assets as a potential source for charitable gifts is an important planning step. Each year individuals 70½ and older can transfer up to $100,000 of IRA assets directly to charity. The money is not included as income for tax purposes, preserving the full amount for charity. You can make gifts during your lifetime and enjoy seeing the impact of your giving.

Identity Protection 101

  • Don’t believe what you hear on the phone. Government agencies will never call you out of the blue – not the FBI, the IRS, financial institutions, or the judicial system. They will never ask for payment or personal information over the phone. They also don’t email you. Even if you get an email that says your statement is ready to view, it is best never to click on any links and to log on to the official site yourself instead.

 

  • Don’t believe what you see. Caller ID can be—and often is—spoofed, meaning that they have used a number intended to look familiar, local, or official but is not the real number. If you want to verify the source of a call, look up the website or telephone number yourself. Never assume that the link or customer service number provided is legitimate; it may lead you right back to scammers.

 

  • Do check your credit report regularly. Signs of identity theft often show up first in your credit report. The government-sanctioned website AnnualCreditReport.com allows you to get a free copy of your credit report from each of the three major credit reporting companies: Experian, Equifax, and TransUnion. You can check one report at a time over the course of a year, or you can request reports from all three companies at once. You will be asked to supply your date of birth and Social Security Number. Note: If you request your credit score, there will be a charge.

Let us know your questions and concerns.