December 1, 2020
What the Markets Are Doing
(By Ryan Redfern, Shadowridge Asset Management, LLC)
November appears to be getting back to normal for the stock market now that we’re past the election tension. Volatility, measured by the VIX index, has been steadily falling back to the lows we saw in mid-August. And the S&P 5001 has slowly risen back to, and just beyond, the highs we reached in August – now up 14.3% YTD as of Thanksgiving Day (FastTrack data).
A big headline this week was the Dow Jones Industrial Average reaching 30,000 for the first time. While that sounds like a big milestone, that puts the index up 6.8% YTD (FastTrack data). It’s always funny to me how the financial news headlines focus on the Dow index. The only reason I can think of is that the numbers sound more dramatic than they actually are. A CNBC headline from Tuesday read “Dow pulls back more than 150 points after reaching 30,000 milestone.” Sounds dramatic, but 150 points is approximately 0.5% in movement, which is fairly common for any given day. Where’s that eye-roll emoji?
In the shorter-term, market cycles appear to be pushing on the overbought side and could be due for a pullback. Though at this point in the year, any market downside is expected to be short-lived and present potential buying opportunities. So that is how we’ll be viewing the cycles in our investment strategies.
What are we watching the closest right now? The potential for market strength to rotate into different segments from those that have been leading over the past few years. For example, we’re now seeing improvement in sectors like Financials, Energy and the price of Oil, and Value stocks. Technology and Communication should remain relevant as those seem to be the drivers of modern life, i.e., how we communicate, and how goods are purchased.
For the past 1000 trading days, which is approximately 4 years, Growth stocks have exponentially outperformed Value stocks. But this outperformance could shift back to Value in the coming years based on economic perceptions. What we believe this demonstrates is how important it is to focus on the areas of the market that are working and avoiding those that aren’t. A “properly diversified” portfolio (based on Modern Portfolio Theory), which many “buy and hold” investors own, has lagged over the past several years because of its belief that you needed to focus your investments on Value over Growth (the Red line over the Blue line) regardless of what the environment says. To me, that kind of “di-worse-ifciation” does little to reduce risk, and at the cost of lower returns. Wouldn’t you rather own more of the Blue line than the Red line below? You know what we’ve been favoring.
Bonds – the bond markets, specifically High Yield and Municipal bond indexes, had a good November: both are up around 3% for the month, while the Aggregate Bond Index AGG is up 0.9% for November (FastTrack Data). Like the stock market, we’re seeing a shift of confidence in where to allocate Bond money, which is something else we follow closely.
As I’m writing this on Thanksgiving Day, I’m thankful to you, for reading this article and taking an interest; for my fellow colleagues who inspire and challenge me; and for my family who supports and humor me throughout the year. Happy Thanksgiving, everyone!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.
The Personal Side of Money
(By Laura Redfern, CFP®, Shadowridge Asset Management, LLC)
I often find that when people come to me for financial advice, they get more than they bargain for. A conversation about the stock market? Sure. Tips on how to save for a future goal? You bet. Observations about the opportunities available to you in your current situation? Absolutely.
But there’s so much more.
What about the potential impact that your financial decisions may have on those you love? Or your personal values, and how these show up in your financial behavior? Or your sense of identity, who you are, and what you want to do in this world? In other words, why are you even doing all this in the first place? Often people don’t expect that kind of conversation with a financial advisor.
Simon Sinek, well known for his motivational books and inspirational TED Talk “Start with Why,” has said:
“Achievement happens when we pursue and attain what we want. Success comes when we are in clear pursuit of why we want it.”
If my job is to help my clients improve their financial lives, it is essential that we take into account not only the technical nuts and bolts of those lives, but also the drivers behind them. The why, not just the how and the what.
Interestingly, there didn’t use to be much formal training for this way of looking at finances. Back in 2011 when I earned my CERTIFIED FINANCIAL PLANNER™ designation, we were well-trained in the nuts and bolts areas: estate planning, taxation, employee benefits, insurance, retirement savings, investments, etc. But the “human” side was simply not addressed. Personal financial drivers like relationships, emotions, hopes and dreams, and self-esteem were not considered particularly relevant. Finance is supposed to take emotion out of money, right?
Wrong. Making financial decisions is an emotional exercise. To deny this would be to leave out an important part of the overall picture.
I am gladdened to say that the profession is changing. Now, there are designations such as Behavioral Financial Advisor (which my colleague Phil holds), Certified Financial Wellness Educator, Registered Life Planner, and even Financial Therapists. This is a wonderful recognition in the financial services profession that human beings are not simply computers, and we might serve them better by acknowledging the human side of finance.
To that end, this fall I earned the designation “Certified Financial Transitionist.” The training was excellent. It started with learning to recognize and then to address the drivers of our financial behavior. We learned about behaviors that can get us stuck and behaviors that can help get us “into the flow.” We then learned tools to help assist us when we’re stuck in the struggle state, and tools to help enhance the flow state. We learned how to better help clients, friends, family as they move through the important and often challenging times of making financial decisions when life changes.
Overall, this has expanded my horizons and provided me with even more tools and resources to help my clients. We’ll still talk about budgets and the stock market, I’m certain, but we’ll be able to put those conversations into a richer context of what’s going on in our lives and relationships, what we can do about it, and why it matters.
As Susan Bradley, Founder of Financial Transitionist Institute, said: “In the midst of disruption, there’s a creative force. Harness that force and beautiful things can happen…”
Helping people accomplish beautiful things sounds pretty good to me. What do you think?
For more information about Financial Transitions Planning, please click here.
What’s Happening in Your Portfolio
Both our growth suite of strategies and our income models had good months in November.
We were lightly invested in growth at the time of the election, but with the markets showing a surprising bounce as the election outcome was determined, both Ryan’s and my recommendations moved toward fully invested portfolios, and by November 10th we had full exposure to stocks.
Model portfolios are what we tell our computers to sync your portfolios to. The models I create for both Shadowridge and Hepburn Capital clients include Future Technologies, Municipal Income and Flexible Income.
Future Technologies, one of 5 model portfolios that combine to make up our growth suite of strategies, is also fully invested. Primary holdings include stocks and funds in genomics, robotics, lithium battery, emerging financial technologies and electronic commerce industries.
Ryan Redfern makes the decisions for 4 of our growth strategies, Enhanced Index I and II, Advance Protect and Advance Maximize. His strategies currently hold funds reflecting the S&P 500, Nasdaq and Emerging Markets Indexes.
Income portfolios are fully invested in corporate bond funds, and Municipal Income portfolios are also fully invested. Both have handily outperformed the iShares Core U.S. Aggregate Bond ETF (AGG) modeled after the broadest income index, during November through this writing on November 29th.
And that is how we are staying in sync with this market.
Call me today to see how our proactive investing can help your investment results.
A Peek into the Future – A 2021 Market Outlook
Here are good statistics about what to expect, from Elliott Eisenberg:
Since 1860, a Republican has occupied the White House for 95 years, a Democrat 65. The annualized S&P 500 return during the 65 Democratic years of control was 8.4%, 8.3% when the President was a Republican, a statistically insignificant difference. From 1929-2019 one party controlled both ends of Pennsylvania Avenue for 45 years and the S&P 500 return averaged 7.45% during those years; the other 46 years, it was 7.26%/year.
Most opinions around stock market performance over the next year, focus upon what will happen due to the election outcome. However, the 800-pound gorilla in this conversation is not the election outcome, but Covid-19. After all, Covid-19 caused an election outcome that no one could predict a year ago, so it is really the primary factor affecting our financial markets right now.
The announcements of several promising vaccines that will begin being distributed within weeks have the potential to be a game changer. If there were only one vaccine being considered, I might worry about whether it was a valid solution, but with multiple vaccines available, the odds of one or more being effective rise dramatically.
I have read reports that there is around $3 trillion of investor cash on the sidelines. As fear of Covid-19 subsides as vaccines get traction, all that cash on the sidelines will begin to find its way back into the financial markets, and that amount of cash can act a lot like rocket fuel for the stock markets.
It will be easy for 2021 to be considered a good year compared to 2020, but with red hot stock markets there will be no doubt.
Mental Floss…
Slice of Life
This article made me smile as I always knew our town was a giving place.
News Break: Yavapai County Residents Among Most Generous Givers in Arizona
And the same day, this letter came to me. I have known of Boys to Men for several years through two friends who volunteer as mentors to the kids. Boys to Men is a terrific program and I have supported them for a number of years, and perhaps you might want to help too.
[Begin copy]
Dear friend
When I started Boys to Men in Prescott, I had no idea that we would improve the lives of so many young men from all over Arizona and from other states as well.
It has been quite the ride, especially this year with all the disruptions to our lives, our economy and our community.
Our boys are resilient; however it has been difficult to support them efficiently and consistently.
Here are the facts:
• 40% of the kids in our County are growing up in single parent households; usually the father is the absent parent;
• The rural nature of Yavapai County causes many teens to not have access to routine services, activities or even peers;
• Teenage boys, because of cultural expectations placed on them by society, are at a much higher risk of problems like drug abuse, dropping out of school and worse;
• Further social isolation caused by the Covid-19 pandemic has compounded these problems.
Boys to Men gets men back into the lives of these “at-risk” boys by providing free, healthy supervised activities:
• We provide weekly mentoring groups at most of the County high schools, in person and virtually (depending on the schools’ requirements);
• We host service and adventure activities and semi-annual rites of passage weekends, all of which are designed to help these youths learn better ways to handle the challenges that life will present by using open communication and peer-group interaction.
Here is a link to a video some of our boys made to explain the value of our organization:
https://youtu.be/MuGc7W9cRuc
Boys to Men is a qualifying charity under Arizona’s tax credit program (ID 20133). Each dollar you donate to Boys to Men can offset a dollar of your State income taxes (up to $800 for a married couple, $400 for singles).
With the new tax laws in place, these tax credits are one of the few remaining ways you can donate to charity and reduce your taxes.
By guiding these young men to more constructive ways of interacting and communicating we can help ensure that they can make a positive impact on our community.
Please help us help these young men! Follow the link below to learn more about us and to donate to our efforts:
Boys to Men Mentoring – Prescott, AZ
or mail your contribution to Boys to Men Mentoring, 4961 Bear Way, Prescott, AZ 86301
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.
In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Shadowridge Asset Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Shadowridge Asset Management, LLC, a Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.
Copyright (C) 2020 William T. Hepburn. All rights reserved.
