Articles tagged with: Bear market

The Chapters of Retirement

The five phases of life after 50 & the considerations that accompany them.

The journey to and through retirement occurs gradually, like successive chapters in a book. Each chapter has its own things to consider.

Chapter 1 (the fifties). At this stage of life, retirement becomes less like a far-off dream and more like a forthcoming reality. You begin to think about when you can retire, and about taking the right steps to retire comfortably.

By one measure, men have their peak earning years in their mid-fifties. Data from the Federal Reserve Bank of New York shows the median male worker earning 127% of his initial salary at that time. The peak earning years for women are harder to statistically gauge, as some women leave the paid workforce for years-long intervals. In inflation-adjusted terms, earnings actually peak earlier in life. PayScale estimates that on average, pay growth for women flattens at age 39 (at a median salary of $60,000), and at age 48 for men (at a median salary of $95,000). So by the fifties, many people are receiving raises to keep up with the cost of living, but essentially earning the equivalent of what they made a decade or more ago.1,2

During your fifties, you may contend with “lifestyle creep” – the phenomenon of your household expenses growing along with your pay raises. These increased expenses may include housing costs, education costs, healthcare costs, even eldercare costs. Despite these financial strains, the inflow of new money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early.

Chapter 2 (the early sixties). The anticipation builds at this point; you start to think about the process of retiring and the precise financial and lifestyle steps involved. You also begin to think about the near future – not only what you will do next, but how you will do it.

According to the Center for Retirement Research at Boston College, the average American man now retires at age 64, the average American woman at age 62. So the reality is that the early sixties coincide with retirement for many people. This reality is worth noting in light of the difference between Americans’ envisioned and actual retirement ages. Last April, a Gallup poll asked pre-retirees when they expected to leave the workforce: 37% saw themselves working past 65, 32% before 65, and 24% at 65. The same poll asked older, retired Americans when they had stopped working full-time, and 67% of those respondents said they had done so before 65.3,4

You may have to act on your plans to volunteer or start an encore career earlier than you think. If you do not have a set plan for the next chapter, a phased retirement may give you more of an opportunity to determine one.

This is also a time to dial down risk in your portfolio, especially if a bear market occurs right before you retire. You have little time to recover from a downturn.

Chapter 3 (the start of retired life). The first year or so of retirement is akin to a “honeymoon phase” – you have the time and perhaps the money to pursue all kinds of dreams. The key is not to spend wildly. Lifestyle creep also affects new retirees; free time often means more chances to spend money.

The good news is that you may spend less than you think. Transportation, insurance, housing, clothing and food costs may all decline. The common view is that you will need to live on 80% of your end salary for a comfortable retirement, but in a 2014 T. Rowe Price survey of retirees, the average respondent was living on 66% of his or her pre-retirement income. Eighty-five percent of those retirees said they were maintaining their standard of living with less money.5

Chapter 4 (the mid-sixties through the late seventies). This is when some people get a little restless. It is also when some people find their retirement savings growing disturbingly smaller. You may get bored with all-leisure, all-the-time and want to volunteer or work on your own terms, health permitting. You may want to adjust your retirement income strategy or see if new streams of income can be arranged.

Chapter 5 (eighty & afterward). The last chapter of retirement is one frequently characterized by the sharing of legacies and life lessons, a new perspective on the process of living and aging, and deeper engagement (or reengagement) with children and grandchildren. This is also the time when you should think about your financial legacy, and review or update your estate plan so that when you leave this world, things are in good order and your wishes are followed.

Before and during your retirement, it is wise to keep in touch with a financial professional who can guide and consult you when questions about income, investments, wealth protection, and wealth transfer arise.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – marketwatch.com/story/peak-earnings-for-men-come-in-their-early-50s-2015-06-18 [6/18/15]
2 – fastcompany.com/3025564/how-to-be-a-success-at-everything/when-are-your-high-earning-years-how-much-you-should-make- [1/30/14]
3 – crr.bc.edu/briefs/the-average-retirement-age-an-update/ [3/15]
4 – gallup.com/poll/182939/americans-settling-older-retirement-age.aspx [4/29/15]
5 – news.investors.com/investing/073014-711065-people-adjust-to-lower-income-in-retirement.htm [7/30/14]

Long-Term Investment Truths

Key lessons for retirement savers.

You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others you glean along the way.

First & foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.

You learn how much volatility you can stomach. Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500. Across 1926-2014, the yearly total return for the S&P averaged 10.2%. If you want to be very casual about it, you could simply say that stocks go up about 10% a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 from its mean total return in this time frame, which means that if you add or subtract 20.2 from 10.2, you get the range of the index’s yearly total return that could be expected 67% of the time. So in any given year from 1926-2014, there was a 67% chance that the yearly total return of the S&P might vary from +30.4% to -10.0%. Some investors dislike putting up with that kind of volatility, others more or less embrace it.1

You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.

Should you misgauge your need for liquidity, you can end up selling at the wrong time as a consequence. It hurts to let go of an investment when the expected gain is high and the Price-to-Earnings ratio is low.

You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the market is hot may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.

Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks as well.

The closer you get to retirement, the less risk you will likely want to assume. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked while saying hello to others that you may be buying at the right time.

You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 13% of the portfolio invested in just two Dow components? The investor just likes what those firms stand for, or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on the overall portfolio performance.

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so he or she gets heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor has less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.

You learn to be patient. Even if you prefer a tactical asset allocation strategy over the standard buy-and-hold approach, time teaches you how quickly the markets rebound from downturns and why you should stay invested even through systemic shocks. The pursuit of your long-term financial objectives should not falter – your future and your quality of life may depend on realizing them.

Mike Moffitt may be reached at phone# 641-782-5577 or email: rsmlbyer@mchsi.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and Asset Allocation do not protect against market risk.

Standard deviation is a historical measure of returns relative to the average annual return. A higher number indicates higher overall volatility.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. 

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [6/4/15]

You Could Retire…But Should You?

It might be better to wait a bit longer.

Some people retire at first opportunity, only to wish they had waited longer. Thanks to Wall Street’s long bull run, many pre-retirees have seen their savings fully recover from the shock of the 2007-09 bear market to the point where they appear to have reached the “magic number.” You may be one of them – but just because you can retire does not necessarily mean that you should.

Retiring earlier may increase longevity risk. In shorthand, this is the chance of “outliving your money.” Bear markets, sudden medical expenses, savings shortfalls, and immoderate withdrawals from retirement accounts can all contribute to it. The downside of retiring at 55 or 60 is that you have that many more years of retirement to fund.

Staying employed longer means fewer years of depending on your assets and greater monthly Social Security income. A retiree who claims Social Security benefits at age 70 will receive monthly payments 76% greater than a retiree who claims them at age 62.1

There are also insurance issues to consider. If you trade the office for the golf course at age 60 or 62, do you really want to pay for a few years of private health insurance? Can you easily find such a policy? Medicare will not cover you until you turn 65; in the event of an illness, how would your finances hold up without its availability? While your employer may give you a year-and-a-half of COBRA coverage upon your exit, that could cost your household more than $1,000 a month.1,2

How is your cash position? If your early retirement happens to coincide with a severe market downturn or a business or health crisis, you will need an emergency fund – or at the very least enough liquidity to quickly address such issues.

Does your spouse want to retire later? If so, your desire to retire early might cause some conflicts and impact any shared retirement dreams you hold. If you have older children or other relatives living with you, how would your decision affect them?

Working a little longer might be good for your mind & body. Some retirees end up missing the intellectual demands of the workplace and the socialization with friends and co-workers. They find no ready equivalent once they end their careers.

Staying employed longer might also help baby boomers ward off some significant health risks. Worldwide, suicide rates are highest for those 70 and older according to the World Health Organization. Additionally, INSERM (France’s national health agency) tracked 429,000 retirees and pre-retirees for several years and concluded that those who left the workforce at age 60 were at 15% greater risk of developing dementia than those who stopped working at 65.3

It seems that the more affluent you are, the more likely you are to keep working. Last year, Bank of America’s Merrill Lynch and Age Wave surveyed wealthy retirees and found that 29% of respondents with more than $5 million in invested assets were still working. That held true for 33% of respondents with invested assets in the $1-5 million range. Most of these millionaires said they were working by choice, and about half were working in new careers.1

Ideally, you retire with adequate savings and a plan to stay physically and mentally active and socially engaged. Waiting a bit longer to retire might be good for your wealth and health.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/o8lf6z2 [8/1/14]

2 – money.usnews.com/money/blogs/on-retirement/2015/02/05/6-reasons-you-shouldnt-retire-early [2/5/15]

3 – newsweek.com/2015/03/20/retiring-too-early-can-kill-you-312092.html [3/20/15]

More Irrational Exuberance?

Has unchecked optimism inflated asset values?

“Irrational exuberance.” That phrase – uttered by Federal Reserve Chairman Alan Greenspan in 1996 and reputedly coined by economist Robert Shiller – has become part of the investment lexicon. Now and then, bears reference it – especially when the market turns red-hot.

Late last year, many Wall Street investment strategists thought the S&P 500 would advance about 5.8% in 2014. They were wrong. As 2014 ends, the broad benchmark is poised for another double-digit annual gain. Asked to explain the difference, bearish market analysts might point to irrational exuberance.1

Irrational exuberance – the run-up of asset values due to runaway enthusiasm about an asset class – reared its head catastrophically in 2000 (the tech bubble) and in 2007 (the housing bubble). In the first edition of his book of the very same title (2000), Shiller warned investors that stocks were overvalued. In the second edition of Irrational Exuberance (2005), he cautioned that real estate was overvalued. The fact that he’s trotting out a third edition of the book in 2015 was some people a little spooked. 2,3

Has quantitative easing (QE) bred irrational exuberance once again? As a 2011 Forbes.com headline put it, “Trees Don’t Grow to the Sky – Even with the Fed Behind Them.” You could argue – quite convincingly – that the Fed has propped up the stock market since 2008, and that the great gains of this bull market were primarily a result of QE1, QE2 and QE3.4

No further easing, no further gains, the logic goes (or least not gains resembling those seen in recent years).

As 2014 ends, bears insist that stocks are greatly overvalued. To back up their argument, they point to recent movements in the CAPE (Cyclically Adjusted Price-to-Earnings) or P/E 10 ratio. This closely-watched stock market barometer (created by Shiller and his fellow economist John Campbell) tracks a 10-year average of the S&P Composite’s real (inflation-adjusted) earnings.5,7

(If you’re wondering what the S&P Composite is, it is a historically wide, big-picture window on the U.S. equities market that unites data from the S&P 500 – which has only existed since 1957 – with prior S&P indices.)6

Since 1881, the P/E 10 ratio of the S&P Composite has averaged about 16.5. At the peak of the dot-com bubble in 2000, it hit 44.2. It stumbled to a low of 13.3 when the market bottomed out in March 2009, but it was up at 26.5 as December began, about 60% above its historic mean.5

Why should this concern you? This P/E 10 ratio has only topped the 25 level three times – in 1929, 1999 and 2007.7

But isn’t the market healthy & ready to stand on its own? That’s what the bulls insist, and given the S&P 500’s 2.45% rise for November following the end of QE3, they may be right. Ardent bulls contend that another secular bull market began in March 2009 – history just hasn’t confirmed its secularity yet.8

In fact, Shiller himself recently noted that even though the high P/E 10 ratio is troubling, it has been mostly above 20 since 1994. (Low bond yields may explain some of that.) A numeric gap from 26 to 20 is decidedly less alarming than one from 26 to 16.7

Whatever occurs, remember that stocks don’t always go up. (Home prices don’t always ascend either.) The longer a bull market progresses, the more challenges it overcomes, the greater the chance that this particular reality of equity investing may be lost.* While diversification does not protect against marketing risk or guarantee enhanced overall returns, it may pay to diversify your portfolio across asset classes for this very reason, now and in the future.

Mike Moffitt may be reached at ph# 641-464-2248 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

 *Stock investing involves risk including loss of principal.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   Citations.

1 – blogs.wsj.com/moneybeat/2014/11/23/a-sign-of-health-for-stocks-cautious-2015-forecasts/ [11/23/14]

2 – money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/ [1/13/05]

3 – irrationalexuberance.com/main.html?src=%2F [12/8/14]

4 – forbes.com/sites/etfchannel/2011/01/20/trees-dont-grow-to-the-sky-even-with-fed-behind-them/print/ [1/20/11]

5 – advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php [12/1/14]

6 – advisorperspectives.com/dshort/updates/Validating-the-SP-Composite.php [12/8/14]

7 – tinyurl.com/pwungau [8/18/14]

8 – online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [11/30/14]

 

 

 

 

Pullback Perspective

This latest stock market pullback has provided an unwelcome reminder that stocks do not always go up in a straight line. Even within powerful bull markets such as this one, pullbacks of 5 – 10% have been quite common and do not mean the bull market is nearing an end. In this week’s commentary, we attempt to put the pullback into perspective. We look beyond this latest bout of volatility and share our thoughts on the current bull market, compare it with prior bull markets at this stage, and discuss why we do not think it’s coming to an end.

Pullbacks Don’t Mean the End of the Bull Market

Pullbacks such as this one, which has reached 5%, have been normal. Sometimes stocks get ahead of themselves. When they do, investor concerns can be magnified and profit taking might take stocks down more than might be justified by the fundamental news. We see this latest pullback as normal within the context of an ongoing and powerful bull market and do not see its causes (European and Chinese growth concerns, the rise of Islamic State militants, Ebola, the Russia-Ukraine conflict, etc.) as justifying something much bigger.

The S&P 500 has now experienced 19 pullbacks during this 5.5-year-old bull market, during which the index has risen by 182% (cumulative return of 217% including dividends). The 1990s bull market included 13 pullbacks; there were 12 during the 2002 – 2007 bull market. At an average of three to four pullbacks per year, we are in-line with history. We understand the nervousness out there, but what we have just experienced looks pretty normal at this point.

When volatility has been so low for so long, normal volatility does not feel normal. Investors have become unaccustomed to what we would characterize as normal volatility. While most of the 5% drop came in a short period of time last week (October 6 –10), the level of volatility experienced last week is not at all uncommon within an ongoing economic expansion and bull market. Volatility tends to pick up as the business cycle passes its midpoint, which we believe it has. Reaching this stage just took longer than many had expected during the current cycle.

Also, keep in mind that the 335 drop in the Dow Jones Industrials that we experienced on Thursday, October 9, 2014, is not as dramatic as it once was. That loss was less than 2%, with the Dow near 17,000 when it occurred, compared with 3 – 4% losses associated with that number of points on the Dow earlier in the recovery.

These pullbacks do not mean the end of the bull market is near, nor does the fact that we have not had a 10% or more correction since 2011. In fact, most bull markets since World War II included only one correction of 10% or more, and the current bull has already had two (2010 and 2011). We do not believe the current economic and financial market backdrop has sufficiently deteriorated for the pullback to turn into a bear market, as we discuss below.

Why This Pullback Is Unlikely to Get Much Worse

So why do we think this pullback is unlikely to turn into a bear market? There are number of reasons:

• The economic backdrop in the United States remains healthy. Gross domestic product (GDP) is growing at above its long-term average, providing support for continued earnings growth; the U.S. labor market has created 2 million jobs over the past year; and the drop in oil prices may support stronger consumer spending.
• Our favorite leading indicators, including the Conference Board’s Leading Economic Index (LEI), the Institute for Supply Management (ISM) Index, and the yield curve, suggest that the bull market may likely continue into 2015 and beyond, with a recession unlikely on the immediate horizon.
• The European Central Bank (ECB) is likely to add a dose of monetary stimulus to spark growth in Europe, the source of much of the global growth fears that have driven recent stock market weakness. China stands ready to invigorate its economy as well.
• Interest rates, and therefore borrowing costs for corporations, remain low. The Federal Reserve (Fed) is in no hurry to raise interest rates.
• Valuations have become more attractive. Price-to-earnings ratios (PE) have not reached levels that suggest the end of the bull market is forthcoming, based on history. We view PEs, which have fallen about 0.5 points from their recent peak, as reasonable given growing earnings and low interest rates.
• The S&P 500 is marginally above its 200-day moving average at 1905. Historically, this level has proven to be strong support. Although the index may dip slightly below this level in the near term, we expect the range around that level (1900 – 1910) to provide strong support for the index again and would not expect it to stay below that range for very long.

Bull Markets Don’t Die of Old Age

The current bull market is one of the most powerful ever at this stage, just over 5.5 years in. Since March 9, 2009, when the current bull market began, the S&P 500 has risen 182% (total cumulative return of 217%), topping all other bull markets since World War II at this stage. The 1949 and 1982 bull markets were close, with gains of 170% and 163% (respectively) at this stage, but were not quite as strong.

So does that mean that this bull market is too old and should end? We don’t think so. Bull markets die of excesses, not old age, and we do not see the excesses that characterize an impending bear market. The labor markets are not strong enough yet to generate significant upward pressure on wages to drive inflation. U.S. factories have excess capacity. As a result, the Fed is unlikely to start hiking interest rates until the middle of 2015, and rate hikes are likely to be gradual. It will likely take numerous hikes to slow the U.S. economy enough to tip it into recession (and invert the yield curve), which is unlikely to come until at least 2016. We do not see stock valuations or broad investor sentiment as excessive. We expect this bull market to complete its sixth year in March 2015 and believe there is a strong likelihood that it continues well beyond that date.

Conclusion
We do not believe the volatility seen in recent weeks, which is in-line with historical trends, is an early signal of a recession or bear market. Nor do we think the age of this bull market means it should end, given the favorable economic backdrop, central bank support, and reasonable valuations. Although we will continue to watch our favorite leading indicators for warning signs of something bigger, we think this latest bout of volatility is nothing more than a normal, though unwelcome, interruption within a long-term bull market. We maintain our positive outlook for stocks for the remainder of 2014 and into 2015.

Mike Moffit may be reached at phone# 641-782-5577 or email: mikem@cfgiowa.com
Website: cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing involves risk including loss of principal. Price-to-earnings ratio is a valuation ratio of a company’s current share price compared to its per-share earnings.
INDEX DESCRIPTIONS
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure
performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

After QE3 Ends

Can stocks keep their momentum once the Federal Reserve quits easing?

“Easing without end” will finally end.
According to its June policy meeting minutes, the Federal Reserve plans to wrap up QE3 (Quantitative Easing) this fall. Barring economic turbulence, the central bank’s ongoing stimulus effort will conclude on schedule, with a last $15 billion cut to zero being authorized at the October 28-29 Federal Open Market Committee meeting.1,2

So when might the Fed start tightening? As the Fed has pledged to keep short-term interest rates near zero for a “considerable time” after QE3 ends, it might be well into 2015 before that occurs.1

In June, 12 of 16 Federal Reserve policymakers thought the benchmark interest rate would be at 1.5% or lower by the end of 2015, and a majority of FOMC members saw it at 2.5% or less at the end of 2016.3

It may not climb that much in the near term. Reuters recently indicated that most economists felt the central bank would raise the key interest rate to 0.50% during the second half of 2015. In late June, 78% of traders surveyed by Bloomberg News saw the first rate hike in several years coming by September of next year.4,5

Are the markets ready to stand on their own? Quantitative easing has powered this bull market, and stocks haven’t been the sole beneficiary. Today, almost all asset classes are trading at prices that are historically high relative to fundamentals.

Some research from Capital Economics is worth mentioning: since 1970, stocks have gained an average of more than 11% in 21-month windows in which the Fed greenlighted successive rate hikes. Bears could argue that “this time is different” and that stocks can’t possibly push higher in the absence of easing – but then again, this bull market has shattered many expectations.6

What if we get a “new neutral”? In 2009, legendary bond manager Bill Gross forecast a “new normal” for the economy: a long limp back from the Great Recession marked by years of slow growth. While Gross has been staggeringly wrong about some major market calls of late, his take on the post-recession economy wasn’t too far off. From 2010-13, annualized U.S. Gross Domestic Product (GDP) averaged 2.3%, pretty poor versus the 3.7% it averaged from the 1950s through the 1990s.3

Gross now sees a “new neutral” coming: short-term interest rates of 2% or less through 2020. Some other prominent economists and Wall Street professionals hold roughly the same view, and are reminding the public that the current interest rate environment is closer to historical norms than many perceive. As Prudential investment strategist Robert Tipp told the Los Angeles Times recently, “People who are looking for higher inflation and higher interest rates are fighting the last war.” Lawrence Summers, the former White House economic advisor, believes that the U.S. economy could even fall prey to “secular stagnation” and become a replica of Japan’s economy in the 1990s.3

If short-term rates do reach 2.5% by the end of 2016 as some Fed officials think, that would hardly approach where they were prior to the recession. In September 2007, the benchmark interest rate was at 5.25%.3

What will the Fed do with all that housing debt? The central bank now holds more than $1.6 trillion worth of mortgage-linked securities. In 2011, Ben Bernanke announced a strategy to simply let them mature so that the Fed’s bond portfolio could be slowly reduced, with some of the mortgage-linked securities also being sold. Two years later, the strategy was modified as a majority of Fed policymakers grew reluctant to sell those securities. In May, New York Fed president William Dudley called for continued reinvestment of the maturing debt even if interest rates rise.7

Bloomberg News recently polled more than 50 economists on this topic: 49% thought the Fed would stop reinvesting debt in 2015, 28% said 2016, and 25% saw the reinvestment going on for several years. As for the Treasuries the Fed has bought, 69% of the economists surveyed thought they would never be sold; 24% believed the Fed might start selling them in 2016.7

Monetary policy must normalize at some point. The jobless rate was at 6.1% in June, 0.3% away from estimates of full employment. The Consumer Price Index shows annualized inflation at 2.1% in its latest reading. These numbers are roughly in line with the Fed’s targets and signal an economy ready to stand on its own. Hopefully, the stock market will be able to continue its advance even as things tighten.6

Mike Moffit may be reached at phone# 641-782-5577 or email: mikem@cfgiowa.com
website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – marketwatch.com/story/fed-plans-to-end-bond-purchases-in-october-2014-07-09 [7/9/14]
2 – telegraph.co.uk/finance/economics/10957878/US-Federal-Reserve-on-course-to-end-QE3-in-October.html [7/9/14]
3 – latimes.com/business/la-fi-interest-rates-20140706-story.html#page=1 [7/6/14]
4 – reuters.com/article/2014/06/17/us-economy-poll-usa-idUSKBN0ES1RD20140617 [6/17/14]
5 – bloomberg.com/news/2014-07-07/treasuries-fall-after-goldman-sachs-brings-forward-fed-forecast.html [7/7/14]
6 – cbsnews.com/news/will-the-fed-rate-hikes-rattle-the-market/ [7/10/14]
7 – bloomberg.com/news/2014-06-17/fed-will-raise-rates-faster-than-investors-expect-survey-shows.html [6/17/14]

Women, Longevity Risk & Retirement Saving

Statistics point out the need to save early, save consistently & stay invested.
Will you live to be 100? If you’re a woman, your odds of becoming a centenarian are seemingly better than those of men. In the 2010 U.S. Census, over 80% of Americans aged 100 or older were women.1

Will you eventually live alone? According to the Administration on Aging (a division of the federal government’s Department of Health & Human Services), about 47% of women aged 75 or older lived alone in 2010. If that prospect seems troubling, there is another statistic that also may: while 6.7% of men age 65 and older lived in poverty in 2010, 10.7% of women in that age demographic did.2,3

Statistics like these carry a message: women need to pay themselves first. A phrase has emerged to describe all this: longevity risk. As so many women outlive their spouses by several years or more, a woman may need several years more worth of retirement income. So there is a need to consider income sources – and investment strategies – for the years after a spouse passes away.

What does this mean for the here and now? It means contributing as much as your budget allows to your retirement accounts. Procrastination is your enemy and compound interest is your friend. It means accepting some investment risk – growth investing for the long run is looking more and more like a necessity.

You will need steady income, and you will need to keep growing your savings. In 2012, Social Security income represented 50.4% of the average annual income for unmarried and widowed woman aged 65 and older. Having a monthly check is certainly comforting, but that check may not be as large as you would like. The average woman 65 or older received but $12,520 in Social Security benefits in 2012.4

You will likely need multiple streams of income in retirement, and fortunately forms of investment, housing decisions and inherited assets can potentially lead to additional income sources. A chat with a financial professional may help you determine which options are sensible to pursue.

Your income and your savings must also keep up with inflation. Even mild inflation can exact a toll on your purchasing power over time.

Risk-averse investing may come with a price. In 2013, the investment giant Allianz surveyed Americans with more than $200,000 in investable assets and unsurprisingly learned that their #1 priority was retirement savings protection. What did surprise some analysts was their penchant for conservative investing during a banner year for stocks.5

Memories of the 2008-09 bear market were apparently hard to dispel: 76% of those surveyed indicated that given the choice between an investment offering a 4% return with protection of principal and an investment offering an 8% return but lacked principal protection, they would take the one with the 4% return.5

A substandard return shouldn’t seem so attractive. If your portfolio yields 4% a year and inflation is running at 1% a year (as it is now), you can live with it. Your investments aren’t earning much, but the Consumer Price Index isn’t gaining on you. If consumer prices rise 3.3% annually (which was what yearly inflation averaged across 2004-07), you are barely making headway. You actually may be losing ground against certain consumer costs. If inflation tops 4% (and it might, if interest rates take off later in this decade), you would have a real problem.6

Cumulative inflation can really eat into things, as a check of a simple inflation calculator reveals. An $18.99 steak dinner at a nice restaurant in 2000 would cost you $24.54 today given the ongoing tame-to-moderate inflation over the last 14 years. That’s 36.3% more.7

As much as we would like to park our retirement money and avoid risk, fixed-income investments may not always offer much reward these days. Retirees can feel like they are being punished by low interest rates, as they can see prices rising faster around them at the grocery store and for assorted services and goods. Interest rates will rise, but equity investments have traditionally offered the potential for greater returns than fixed-income investments.

Growth investing is a possible response to longevity risk. After all, you don’t want to risk outliving your retirement savings. Keeping part of your portfolio in the stock market offers you the potential to keep growing your retirement money, thereby offering you the chance have a larger retirement fund from which to withdraw proportionate income.

Michael Moffitt may be reached at 1-800-827-5577 or email: mikem@cfgiowa.com.
website: cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by the urban consumers for a market basket of consumers for a market basket of consumer goods and services.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – census.gov/newsroom/releases/archives/2010_census/cb12-239.html [12/10/12]
2 – aoa.gov/Aging_Statistics/Profile/2011/6.aspx [4/10/14]
3 – aoa.gov/Aging_Statistics/Profile/2011/10.aspx [4/10/14]
4 – ssa.gov/pressoffice/factsheets/women.htm [3/14]
5 – foxbusiness.com/personal-finance/2013/10/24/wall-streets-rallying-so-why-are-boomers-so-scared/ [10/24/13]
6 – usinflationcalculator.com/inflation/current-inflation-rates/ [4/10/14]
7 – usinflationcalculator.com/ [4/10/14]

China, Ukraine & the Markets

Dow drops again, analysts wonder. March 13 saw another triple-digit descent for the blue chips – the Dow Jones Industrial Average plummeted more than 230 points, the second market day in less than two weeks to witness a loss of 150 points or greater. The S&P 500’s (small) YTD gain was also wiped out by the selloff. As the bull market enters its sixth year, it faces some sudden and potentially stiff headwinds, hopefully short-term.1,2

In Ukraine, the situation is fluid. As the trading week ended, much was unresolved about the nation’s future. The parliament of its autonomous Crimea region had announced a March 16 referendum, which gave voters two options: rejoin Russia, or break away from Ukraine and form a new nation.3

Ukraine’s government calls the referendum unconstitutional. The United States and key European Union (EU) members agree and claim it violates international law. Russia welcomes the vote – 60% of the Crimean Peninsula’s population is made up of ethnic Russians, and Russian troops more or less control the region now.3

Russia wants the real estate (its Black Sea naval fleet is based on the Crimean Peninsula) and could spread its economic influence further with the annexation of that region. The cost: economic sanctions, probably harsh ones. Should diplomacy fail to stop the secession vote, then Russia can expect “a very serious series of steps Monday in Europe and [the United States],” according to Secretary of State John Kerry.3

So far, the moves have been largely symbolic: a suspension of the 2014 G8 summit and the talks on Russia’s entry into the OECD, and asset freezes for individuals and companies deemed to be hurting democracy in Ukraine. Additional “serious” steps could include financial sanctions for Russian banks, an embargo on arms exports to Russia, and the EU opting to get more of its energy supplies from other nations. Russia could respond in kind, of course, with similar asset freezes and possible pressure on eurozone companies doing business in Ukraine. The fact that Russia has already staged war games near Ukraine adds another layer of anxiety for global markets.4

Investors see China’s growth clearly slowing. Its exports were down 18.1% year-over-year in February. Analysts polled by Reuters projected China’s industrial output rising 9.5% across January and February, but the gain was actually just 8.6%. The Reuters consensus for a yearly retail sales gain of 13.5% for China was also way off; the advance measured in February was 11.8%. These disappointments bothered Wall Street greatly on Thursday. The news also roiled the metals market – copper fell 1.3% on March 13, its third down day on the week.

Besides being the world’s top copper user, China also employs the base metal as collateral for bank loans.1,5,6

As Chinese Premier Li Keqiang noted on March 13, the nation’s 2014 growth target is 7.5%; the respected (and very bearish) economist Marc Faber told CNBC he suspects China’s growth is more like 4%. The upside, Faber commented, is that “4 percent growth in a world that has no growth is actually very good.”6

Will the bull market pass the test? It has passed many so far, and it is just several days away from becoming the fifth-longest bull in history (outlasting the 1982-7 advance). Bears wonder how long it can keep going, referencing a P-E (price-to-earnings) ratio of 17 for the S&P 500 right now (rivaling where it was in 2008 before the downturn), and the 1.9% consensus estimate of U.S. Q1 earnings growth in Bloomberg’s latest survey of Wall Street analysts (down from a 6.6% forecast when 2014 began).1

Then again, the weather is getting warmer and the new data stateside is encouraging: February saw the first rise in U.S. retail sales in three months, and jobless claims touched a 4-month low last week. Maybe Wall Street (and the world) can keep these signs of the U.S. economic rebound in mind as stocks deal with momentary headwinds.1

Michael Moffitt may be reached at 1-800-827-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC.  Investment advice offered through Advantage Investment Management, a registered investment advisor and a separate entity from LPL Financial.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.

The Dow Jones Industrial Average (the ‘Dow’) is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.

International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – bloomberg.com/news/2014-03-12/nikkei-futures-fall-before-china-data-while-oil-rebounds.html [3/12/14]
2 – ajc.com/feed/business/stock-market-today-dow-jones-industrial-average/fYjPS/ [3/3/14]
3 – cnn.com/2014/03/13/politics/crimea-referendum-explainer/ [3/13/14]
4 – uk.reuters.com/article/2014/03/13/uk-ukraine-crisis-factbox-idUKBREA2C19L20140313 [3/13/14]
5 – cnbc.com/id/101492226 [3/13/14]
6 – cnbc.com/id/101489500 [3/13/14]