2nd Quarter and into the Rest of the Year

The 2nd quarter is now behind us, and the momentum is with us!  Will recent global political events derail the positive trend?

Good question, and one I answer in the below video

Transcript:

Hi there, Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm headquarters right here in Boulder, Colorado. Today, I want to talk about the second quarter review. Really kind of the first half of the year review and then a third quarter preview which really turns into the rest of the year preview as well.

 The first quarter of this year, we had some drops in January and February. Some people were saying, okay. This is after a strong 2013 that means 2014 is going to be negative or really hard. Well, March came back and the first quarter of this year really was break even to positive just a little bit. Now, when we go into April, May, and June which is kind of the second quarter, it continued to be a very strong stock market. The unmanaged stock market index, the Dow Jones Industrial which is the one that we hear about the most, is up about 1.5% for the year, but when we actually go to a broader basket of stock, whether it be S&P 500 or other indexes, you are really looking at the first half of this year being between 2% and maybe 8% or 9% depending on what index you are looking at. These are for unmanaged stock market indexes.

 I am going to throw up there on your screen a particular chart that shows what the S&P 500 has done over the last 17 years or so. You are going to see since 2009 the market has, without major interruptions, gone straight up, so it’s really been a very strong market and one that I have to say if we were talking in March of 2009 after seeing the fourth quarter of 2008, remember how 2008 was so difficult, who would have thought that things would have just skyrocketed ever since then, but yet, that is exactly what has happened. It’s a good lesson in humility that when everybody else is so certain that it’s going to continue to go down, many times that’s a buying opportunity.

 I want to throw another chart up on your screen. You are going to see that the price to earnings ratio in general is a little bit more expensive than the average of where it was one year ago. It does not mean that it is ready to decline, but I’m just saying that it is not as quite the bargain that it was a year ago or even on average. When we look at the late 1990s right before the big crash of 2000, 2001, and 2002, many of the markets were having the PE ratios in the 20s, 28 or 29 stuff like that, and the NASDAQ was off the charts, almost 100, so I do want to keep everything in perspective.

 We will go to the next chart and there you are going to see that the earnings per share are looking really good and profit margins as well are looking really strong for companies. In general, I think things are disturbing that last quarter there was a negative or contraction in the GDP, the Growth Domestic Product, I think that it’s something we have to really watch out for. One thing that is good about it though is if it stays difficult I think that the fed is going to have even more of an incentive to keep interest rates low. Remember when we had quantitative easing and they were buying a year ago $85 billion worth of bonds which was keep a lot of liquidity in the market. Well now they are doing $35 billion a month and by the fall of this year according to the June meeting notes, they might even stop the purchasing all together. Now there is an awful lot of liquidity in there. I don’t think that this is going to be a huge interruption and disruption to the market, but it is something that we need to keep in mind. Now, even if they stop, I think that the interest rate increases will be very, very gradual and very, very slow.

 I am going to throw another chart up on the graph and you are going to see the corporate cash is very high as an economy and we are going to see on the next sheet there that it is normal for there to be decline throughout the year, so we have had already about a 6% decline in the market. That was through January and February which is actually about a normal, even actually on the low side of volatility. As we go forward, there might be some more volatility, let’s hope that there’s not, but so far the year is looking really nice.

 Now, I am going to throw this next chart up on the graph and that’s going to show you since 1900, so that’s 114 years of course, and you can see that there has been a breakout. It has a tendency to have the consolidation period and then some advances. Of course, in the 1930s there was a decline, a huge multiple year decline, but when we do these trend lines you are going to see that there is periods of consolidation and then a breakout. In my opinion, I think that I am very bullish on the market on the United States and I think that this is something that is going to be before long laughing. That being said, we don’t live in just a stock world. There are other asset classes as well.

 Let’s go to the next graph and you are going to see that apartment real estate, in particular is what I am talking about, apartment vacancies is at bottom line here. That’s a good thing. You want vacancies to be really, really low, and so when you can see that office vacancies have increased a little bit through 2009 and 2010, but have been coming down since then, you’ve got retail, industrial, and apartment, and apartment is looking the best from a real estate point of view, from at least a vacancy point of view. Of course, you got to get them at really good pricing and things of that nature.

 We are going to go on to fixed income which are bonds. We are in a low yielding environment, so there is a lot of chasing of yield, so people are trying to get a higher and higher number. Right now, just to show you, you can get the two year treasury at only at .5%, all the way up to 30 year so far is year-to-date is yielding 3.34%, but if you would have bought it, it was so depressed last year that it actually has increased in value this year into the double digits. Frankly, last year big dog was one of the worst performing sector is this year’s performance. That’s the reason why you want to have, put my hands up here, stock and bonds. You want to mix them all together. In a perfect world, you’d have sometimes the stock pull up the bonds, sometimes the bonds pull up the stock. Here we have both of them going up together which is actually really good. Believe it or not, the bonds are pulling up. If you have a high bond allocation, they are actually pulling up the stock portion of your portfolio so far this year where as last year it dropped it down which is kind of interesting.

 From a global market point of view, I am going to throw a chart on there. The important thing to know about this chart is in comparison to historical averages, much of the developed world is expensive from a market point of view. Of course, we just went through the price earnings ratio for the U.S., and that, I already showed you, was a little bit higher than the average while many of the developed countries are the same way. Now, when we go out to the emerging market which is the next sheet there, you are going to see that there is some real bargains there with Russia and China, but of course we have political instability there, political instability as in the – in my opinion, how much can you trust it, things of that nature. Are the real numbers true, etc. Maybe they are not political instability as in they are practically dictatorships, but that’s beside the point. When we look at some of the other emerging markets, they too have a tendency to be a little pricey.

 Let me end up here by saying I continue to be positive for the rest of the year. As a matter of fact, I have a tendency to be positive for the next couple of years, and I think we need to have a well-diversified portfolio, but be a part of it. Keeping money on cash or CDs is absolutely not the right solution, in my opinion. Time is on our side, so I am going to put a chart up there and what this chart really means is from 1 year to 5 years to 10 years to 20 years, the farther out you go historically looking back all the way back to 1950 and it could be different in the future of course, that the longer you can be invested from 5 years, 10 years, all the way up to 20 years, you’re range of returns, the high-highs were because there are some higher loads as well and so they have the tendency to get into a range there. Over time, there actually hasn’t been a 5, 10, or 20 year timeframe where a 50/50 portfolio of stocks and bonds has actually lost money. That absolutely could happen in the future and so I just want to be realistic about that. However, what we are trying to do is, of course, trying to set ourselves for success so that the super low-lows we can try to trim those so that we stay invested and that we don’t let our emotions run wild. Of course, we would love to have the high-highs, but unfortunately, the downside of being diversified is the downs, the lows have a tendency to bring some of those highs down as well.

 That being said, I continue to be optimistic for the rest of this year and even going into 2015 with the Presidential Election. That’s what I got. Hope this wasn’t a little too long. Hopefully you listened through the entire thing. My name is Mike Brady, Generosity Wealth Management. Give me a call if I can help in any way, 303-747-6455. Thanks.

When to Start Taking Social Security

When to Start Taking Social Security

The earliest you can start receiving your social security is at age 62, full retirement age is 66 (for people born between 1943 and 1954), and the latest you can delay it is until age 70.2014 07 25 happy couple

At full retirement age 66 you’re entitled to 100% of your amount, but if you take it early at age 62 you receive 75% of that amount.  If you wait until age 70 then you get 132% of the full retirement amount.

So, when should you take it?

Let me just say there is no exact right time to take it that is applicable for everyone.  For one client’s circumstances it might make sense to take it early, but in another it makes sense to wait.

If you live a long life and you draw upon other sources of income until age 70, then it becomes very attractive to wait.  But, we don’t know if you’ll live a long life until after the fact, so there is some supposition around this.

Less than 2% of people wait until age 70, but mathematically that’s the best option (76% more than what you’ll receive if you take it at age 62), and that’s 76% more each year just for waiting 8 more years.

Do not do anything without talking with a financial professional to review your specific case.  I run calculations and advise on this all the time, so I’m quite familiar in the various options for clients.

Please contact me if you feel I can help you with your social security planning.

When to Start Taking Social Security – FULL ARTICLE

Squandering the Family Fortune

Squandering the Family Fortune

2014 07 25 old city

60% of the time a family’s money is exhausted by the children of the person who created the wealth, and in 90% of the cases it’s gone by the time the grandchildren die.

The biggest reason they’re squandered is because the people who bilt the wealth do not pass along clear instructions on how to handle the money after they’re gone.  Preserving a fortune requires communication and collaboration that’s hard to achieve.

Have you thought about how you’ll maintain your hard earned money in the family after your passing?

Squandering the Family Fortune – FULL ARTICLE