Stock markets around the world turned in stellar results for the quarter ending in September. Baring a dramatic reversal before year-end, equities seem poised for a double-digit return. Some say stocks are too expensive and prices will adjust. Other people look at nuclear saber rattling at home and abroad and forecast trouble. Political norms are being tested around the world as well. Natural disasters in Puerto Rico, Florida, Texas, and California will cost the United States billions. Despite all of these headwinds, stocks keep setting new highs.
Trying to forecast where markets will head is folly. For example, when the Federal Reserve raised short-term interest rates in September, long-term rates rose. The current bull market dates back to March 2009. Since then stocks have grown more than 360 percent. In March of 2009, not a soul forecast this bounce back. Most of the smart money in 2009 was out of the market completely. With frothy stock valuations and low yield on bonds, many managed portfolios hold low-quality bonds, risky bond funds or have high stock allocations. With a 1 percent asset management fee, a bond index fund yielding a shade over 2 percent is difficult to justify. High-quality bonds or certificates of deposit act as a shock absorber when dramatic downturns occur. To borrow Lou Reed’s line, if you want to walk on the wide side, 2009 was the time.
Last quarter American investors lagged their international cousins. Diversified portfolios should include international and emerging market stocks. Your best bet is low-cost mutual funds and ETFs; I like index funds, but there are low-cost actively managed funds, too. For the year, US stocks have gained slightly more than overseas companies, 17.2 percent versus 16.6 percent.
I don’t know which way stocks will go and, for the most part, don’t care either. According to statistics, either my wife or I have a 50 percent chance of living 31 more years. Stock prices are probably going to go down a time or two over our lifetime. The important thing is having a stock allocation appropriate for our time horizon, risk tolerance and goals. Understanding mean-reversion is critical for retirees and if you don’t know what that means, find out.
Draining the Swamp
Do not forget the Equifax scandal. Congress in its infinite wisdom dramatically reduced the ability of consumers to take action against companies like Equifax. We live in the Information Age; while pursuing profits Equifax recklessly handled sensitive personal financial data of over 150 million Americans. If you have not made any significant changes in how you protect your financial data, don’t worry about the stock market. Equifax lost the keys to your fiscal house, so you need to change the locks. Congress and the President seem hell-bent on giving Equifax a “Get Out of Jail Free” card.
You can’t always get what you want, but Buz Livingston, CFP can help figure out what you need. For specific recommendations, visit livingstonfinancial.net or come by the office in Redfish Village, 2050 Scenic 30A, M-1 Suite 230.