Volatility is the Price Investors Pay

With the market selling off abruptly early this year, we wanted to reach out and provide a little color as to what is normal for equity markets and what is not, to help ease worry or concern for investors and potential investors. Although difficult in practice, this is not a time for panic! Not too long ago, we hit another all-time-high in the markets. We feel that the bull market is intact, the economy is still healthy, and fundamentals support higher prices from here. We also strongly believe that volatility will be higher this year.

Below we summarize a few key points that drive our investment philosophy and help put into perspective the market declines. We will discuss the volatility, fundamental, and economic landscapes.

Typical Market Declines

Below is a chart that illustrates historical intra-year declines vs. calendar year returns. You can see that most years’ experience drawdowns of more than -5%, and that most years have positive calendar year returns.

 Volatility

2017 was a year of unprecedented calm in the markets. It was an ‘abnormal’ market environment. We broke records for longest periods without a 3% and 5% decline. We broke additional records for the lowest amount of realized volatility. 2018 has experienced more volatility than all of 2017, which again is more typical of equity markets.

Below is a chart that shows that a 5-10% decline in the markets happens on average every year and that the average length of recovery is typically 1 month. Although unnerving, it is normal for markets to experience these types of movements.

Source: Ned Davis Research

Fundamentals

Earnings growth is what drives stock market returns over the long-term. According to Factset, “For Q4 of 2017, the blended earnings growth rate for the S&P 500 is 13.4% with all eleven sectors reporting earnings growth for the quarter.” We’re seeing great earnings growth rates that have a tailwind of accommodative monetary policy and tax reform.

 

Economics

The main economic indicators we look include the unemployment rate, inflation levels, yield curve spreads, manufacturing indices, LEI, and others. Most, if not all our indicators, show a very healthy economy that is growing, albeit at a steady rate. We constantly monitor these indicators to be aware of unfavorable equity and market conditions expected in the future. Again, based off our indicators we don’t see any fundamental change in the economic landscape.

 

Summary

Stay the course and realize that markets are historically volatile – if there were no volatility, uneasiness, and risk involved with equity markets, there would be no potential reward and long-term returns. As the economic and fundamental landscape changes, we will make changes. Until then, stay the course.

Understanding Social Security

In the United States, 87 percent of individuals over age 65 receive some form of social security benefits, amounting to some 57 million people. (Source: Fast Facts & Figures About Social Security, 2010)

Yet, Social Security remains one of the least understood and most underutilized benefits available to almost every retiree. In recent years, this governmental retirement program has expanded to include benefits such as disability, family and survivor benefits. Even those not eligible to receive a retirement benefit may be entitled to another form of social security benefit from a spouse, ex-spouse or family member.

Social Security is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer may also contribute an equal amount. In return, you receive certain benefits that can provide income to you when you reach retirement.

However, navigating the world of Social Security can be anything but simple. The benefits you receive depends on several factors including your average lifetime earnings, the age at which you file for social security and the type of benefit for which you are applying. Claiming strategies vary from one individual to the next and many individuals don’t realize what they might be missing out on.

Other factors such as divorce, the death of a spouse and the number of years worked can have a significant impact on your benefit. Working with a retirement planning and social security professional can help you to get all that you are eligible to receive. You can also estimate your benefit online based on your actual earnings record using the Retirement Estimator on the social security website at www.ssa.gov.

Riley Crosbie, CPA, CFP®, our resident social security and retirement expert recommends that “any retirement planning should have the goal to align your wealth and your life. Social Security should be thought of as a part of a wider retirement plan, taking into consideration your goals, needs, fiscal responsibilities and legacy. By fully understanding your larger financial picture, you are better equipped to decide when and how to begin receiving your Social Security benefits.”

When Should I Take Social Security?

Your Social Security retirement benefit is based on your highest 35 years of earnings over your working career and the age at which you start receiving Social Security benefits. For those born between 1943 and 1954, your full retirement age is 66. Full retirement age (the age at which you are entitled to receive your full retirement benefit) increases in two-month increments thereafter, until it reaches age 67 for anyone born in 1960 or later.

However, you don’t have to wait until full retirement age to begin taking Social Security. Regardless of your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so can in certain circumstances be advantageous: Although you’ll receive a smaller benefit amount if you retire early, you’ll receive benefits for a longer period than if you had retired at full retirement age.

Choosing to delay receiving benefits past full retirement age is also an option and may be right for you. If you delay retirement, you will receive an 8 percent increase for each year you delay. An individual can receive delayed credits until age 70. A retiree with a full retirement age of 66 who elects to delay receiving benefits until age 70, will receive 132% of their retirement benefit.

The Social Security Administration has said “A secure, comfortable retirement is every worker’s dream. And now because we’re living longer, healthier lives, we can expect to spend more time in retirement than our parents and grandparents did.

Achieving the dream of a secure, comfortable retirement is much easier when you plan your finances.”

To schedule a complimentary retirement and social security consultation, call 435-752-1702 or visit adamswealthadvisors.com

Is your advisor really working for YOU?

Understanding the fiduciary standard.

 

In a 2017 survey by The American College of Financial Services, only 52 percent of respondents currently working with a financial advisor were certain whether their financial advisor was a fiduciary or not.

This little understood standard of care should be a sizeable factor in determining whether working with a particular advisor is right for you and your goals, yet a whopping 48% of those respondents didn’t know the standard of care to which their advisor is held.

So, what is the fiduciary standard and why does it matter?

The fiduciary standard is an SEC regulated standard of care that requires Registered Investment Advisors to act in the best interests of their clients and to put the needs of their clients above their own.

This legal and ethical obligation to put the client first sounds like your typical regulatory oversight that can be found in almost any industry. However, the vast majority of ‘money managers’, ‘financial advisors’, and ‘brokers’ in the United States are not held to this standard.

In fact, most financial advisory firms are held to a lower standard of care. The suitability standard.

The suitability standard is rife with grey areas which allow advisors and brokers to put your money into products, plans, and models which first and foremost benefit them. Large built-in commissions, and models dictated to them by their firm can mean that your assets are not always allocated with your goals in mind.

It may come as a shock to many individuals and families to learn that their advisor is not obligated to put their needs above their own.

How do I ensure that my advisor is doing what is best for me?

First and foremost, it is important to ascertain whether your advisor is a fiduciary. This will give you the most definitive understanding of the standards to which they adhere.

Second, understand that there are many good advisors out there, both brokers and fiduciaries. However, do look for designations that show competence and a dedication to excellence within the industry. Designations such as the CERTIFIED FINANCIAL PLANNERTM professional (CFP®) can build confidence in the competency of your advisor.

Third, look at performance and go with your gut. Are you happy with the performance of your portfolios? Are you comfortable with the amount of risk in your portfolios? Do you feel good about the attention and care you receive from your advisor? If the answer to any of these questions is no, it may be time to schedule a consultation with another firm.