It is common for there to be declines in the markets throughout the year, sometimes even double digits declines.
This is to be expected.
As an investor, one of the reasons we diversify and modify our allocations throughout the year is to try to minimize these fluctuations.
What should you do when there is one of these expected declines? It depends on the situation at that time.
Please click on the video below for a 4 minute discussion I give on this topic……
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management, here in Boulder, Colorado. And I this week I want to talk about intra-year declines, and frankly, the correlation they have with the end of the year returns. Because, I talked about this just a little bit when I did my end of the year video (kind of beginning of the year video) where I said that on balance, I’m optimistic for 2012. And at that time I said, “listen, it’s common for there to be volatility,” but volatility has increased in the last couple of years and I believe that volatility will continue going forward.
It is common for there to be, within the year (intra-year), declines that we seem to forget after the year is over. Negative, kind of from the high to the bottom, within a year of you know, eight, nine, even double digits, but that doesn’t mean the year is going to be horrible. So as 2012 unfolds, we’re going to find some times where it’s not as high as it used to be, OK? That the market has declined, and that is part of the process, part of the journey and the travel. Now that being said, the reason why we diversify, and we adjust our allocations throughout the year is to try to minimize the impact that we have. But we know that it’s going to happen.
So the question that we ask ourselves at that time is, “why is this going down, you know, why is the market going down like that?” Is it event driven, where there’s a lot of emotion around it? Is it value driven? What’s the cause of it and at that time, do we believe it will continue to go down, or do we think that this is just going to be one of those normal, you know, fluctuations, and staying invested is the right thing to do? I don’t know what we’re going to do at that time, but I’m preparing you right now for that, you know, almost inevitability. OK?
I’m going to throw up on [screen] here… here are some intra-year returns and then declines and then the annual return. And you’ll notice even in the last two or three years, a twenty-eight percent decline in ’09, sixteen in 2010, and even last year there’s a nine-teen percent decline and it ended up the year, and that’s on the S & P 500, which is an unmanaged index, that doesn’t necessarily mean that the year ended on a decline.
So, you know, one thing I want to talk about is as well, that when I say that I’m more optimistic because I look at the value of the market and I believe that the prices are…, I believe it’s an underpriced market right now, that does not mean that I discount all of the negatives out there. The way I like to think of it is, there’s a scale, there’s all these things on the negative side, and all these things on the positive side, and which way is it going to tilt? And it is still acknowledging that there are negative things. And someone else, another analyst, might take the same data and say, “no, I’m going to weigh all the negatives a little bit more than the positives.” And so there are always positives, there’re always negatives out there and the question is- how do you weigh them? And which one is a little bit more than the other? And of course, you might adjust your opinion as the year unfolds.
So anyway, that’s one thing I wanted to talk about this week. I hope that you’re doing well. The Super Bowl was a couple of days ago, and frankly I’m recording this right as we’re going into the weekend so I don’t know who won but you do, so hopefully your team won.
Mike Brady, Generosity Wealth Management; I’m a comprehensive, holistic, wealth management firm, with tax planning, estate planning, investment management, retirement planning, I really try to do all of those in order to help my clients meet their goals. Mike Brady, Generosity Wealth Management-303.747.6455.
You have a wonderful week! I’ll talk to you later, bye bye now.
Goodbye 2011 and hello 2012! What happened and what’s my outlook for 2012? Optimistic or pessimistic?
Watch my video to find out.
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management, and today I want to talk to you about a little bit of a review on 2011, but spend most of my time talking about the current situation right now. And you know, maybe do a little bit of a, …, thinking about 2012 and what the future may hold.
2011 was a real volatile year. I mean frankly, when we look back at year upon year we can always say that it’s very volatile. I’m going to show you a graph in a minute or two that actually shows, we kind of forget about it, but many years have large declines intra-year. So 2011, (I’m going to throw this box up there); this is kind of a style box from value, blend, growth, and large, and mid, and small cap.* And by the way, I’ve got lots of disclosures at the end of this video so I highly encourage you to read those disclosures about the unmanaged stock indexes. So what you’ll see is, in general, the U.S. market was up a couple of percent to down five or six percent, but it was a wild ride the way we got there.
The first four, four and a half months of the year were up starting in May and June, we saw some weakness and then August and September were really quite brutal. Just huge, you know, hundred point swings in the DOW every other day and it was really quite painful and there was a huge focus on the downgrade of the U.S. government by S & P and a real focus on the U.S. federal debt. And, you know, 2011, one of the surprises was how well bonds did. I know I’m very surprised. And Bill Gross, who runs one of the largest funds out there, particularly bond focused funds, he admitted half way through the year, well maybe three quarters of the year, that he guessed it wrong. So, I think that how well the bonds did in 2011 is going to be the big surprise. But that’s why we remain diversified. Because my experience has shown, in twenty-one years, that the thing that you love the most sometimes you’re just darn wrong about! And so the thing that you hate the most, sometimes you’re wrong about that as well. So it’s really looking at the percentages, maybe weighting one over the other and changing that allocation throughout the year.
So you’re probably wondering about 2012. Right here in my hands I’ve got “15 Experts Predict 2012,” a little article. And we’re talking big names, Goldman Sachs, and UBS, and you know, kind of every big name that you can think of out there. And frankly, one article says that China is the best thing in the world, then the next one says China’s going to be a problem. One says that the U.S. is going to have great growth and the next one says it’s going to have poor growth. One saying bonds are good, one bad, and really the answer is always unclear, this year is no different.
I do believe we’re going to continue to have volatility, and one thing that I’m going to do is meet with clients and talk about whether or not some strategies need to be implemented to take advantage of that. But I am optimistic about 2012. I’m going to throw up a chart here; we’re going to see that the percentage of current assets that are in cash and equivalents has increased. And from a corporation point of view, that makes a lot of sense. I mean that when there’s uncertainty, you’re not sure how many widgets you’re going to be able to sell or how many services you’ll be able to provide, you want the best balance sheet that you can have. And I think the best recipients, when that cash gets converted back into research and development, gets back into the economy, I think that mid and small cap companies are going to be the ones that are kind of the first beneficiaries of that.
2012, I feel will be event driven, just like 2011 will. [sic.] We’re going to hear lots of stuff from Europe, and we’re going to hear a lot about the debt, and of course this is an election year so we’re going to hear all about, all about the election year politics. But I think we’re also going to hear about China. That’s going to come in here because it’s had a huge growth. It’s been one of the largest, kind of emerging into the developing markets, but it’s faltering. And this could be the year where it kind of teeter-totters to the bad side. So that’s something that I’m going to really watch out for.
I’m going to throw up here on the chart, that as it relates to volatility, here’s a chart that, we kind of forget about it but most years have some kind of volatility. The bottom number is entry year, kind of decline, and that does not mean that the year ended. The black number is actually what the year ended. So although there might have been a double digit decline throughout the year and everyone kind of freaks out, you know, it’s not over till it’s over. I’m here in Boulder and we got our Denver Broncos and between the fourth quarter and overtime, you know, the game’s not over till the whistle blows. And so throughout the year if we have some huge declines we have to assess at that time, “hey, wait a second, is this going to continue, or is this just one of those throughout the year declines that we still feel firm in our analysis that the market may be under-valued?”
Speaking of the market being under-valued, I don’t hold much weight with forward price to earnings ratios, but I do like, not the forward, but the actual price to earnings ratio is low right now. Particularly in comparison to like the twenty year average and what it’s historically been. So I’m kind of in the Warren Buffett camp that believes that this is a market that is under-valued; that the economy is actually getting better, it might not feel that [sic.], particularly if you’re unemployed. I mean we have an unemployment problem, and we have a housing problem. But you know, I’m kind of in that camp.
You know I could sit here and go on and on and on. But I think that I’ve gotten my feelings out to you that in general, I’m optimistic about 2012. I think that small and mid-cap are probably kind of the styles that deserve closer attention. But you’ve got to, of course, do what’s consistent with what your risk levels are, and your particular goals. And work with your financial advisor and hopefully that financial advisor is me, but if not, of course, everything I say here today is kind of general, so you can get a general feel for how I’m thinking.
That’s it for 2012.
Mike Brady, Generosity Wealth Management; I do have these videos on a weekly, sometimes every other week, depending on how busy I kind of get and if I’m able to get it out in time.
I am a full service wealth management firm, here in Boulder, although I have a number of clients in many different states. I named it Generosity Wealth Management because I truly believe that people are trying to make the world a better place and that includes making things better for themselves so that they are not a burden upon others in their own retirement. That they make things better for their family – so that they can pass money on to their family or just provide for them; whether it’s a college education; whether or not it’s just to make their life a little bit easier. But also to make their community a better place- both local and global community. And so there’s some “generosity” that each of us have inside us. And that’s many of the thoughts that went into my company name of Generosity Wealth Management.
303.747.6455
www.generositywealth.com
And please, stay tuned, I will have another video and another newsletter before you know it. You have a wonderful, wonderful day- bye bye.
* Small Cap- refers to stocks with a relatively small market capitalization. The definition of small cap can vary among brokers, but generally it is a company with a market capitalization of between $300 million and $2 billion.
Mid Cap- refers to a company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company’s shares outstanding by its stock price. Mid cap is an abbreviation for the term “middle capitalization”.
Large Cap- A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term “large market capitalization”. Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share.
Keep in mind that the dollar amounts used for the classifications “large cap”, mid cap”, or “small cap” are only approximations that change over time. Among market participants, their exact definitions can vary.
Definitions courtesy of www.investopedia.com and reflect a general rather than specific understanding of these industry terms, unless otherwise stated.
It’s my belief the volatility we’ve seen in the past few weeks, months, and year will continue going forward. I also believe that more active management may make sense to take advantage of this market condition.
I talk about this in my video.
I also discuss the rising healthcare costs in your future and that I have software that will estimate what lump sum you may need upon retirement to fund your healthcare under certain assumptions.
Fun stuff! Click on video to hear more!
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management, here in Boulder, Colorado. And I am really pleased to be talking with you today and there are a couple of things I want to talk about today.
And the first one is volatility. On Wednesday, we had a DOW that was over 400 points up, and this is following the Thanksgiving week where the market was sharply down. (Low volume but still sharply down.) And it’s my belief that this type of volatility, and not just in the last couple of weeks, we’ve seen a lot of volatility in the last year or so, I believe it is going to continue going forward. And if that is true, it’s also my belief that some active management should be considered for client’s portfolio. That’s something that I’m going to be talking with my clients about in the coming months. That’s also something I’m going to be talking about in these videos in the coming months, that it may have a place in a volatile environment- how can we best position our portfolio to take advantage of that particular market condition? So, if you’re not one of my clients, I recommend you give me a call so that we can talk about it, kind of one on one, and your personal situation.
And the second thing I’m thinking about this week is well, healthcare costs; and specifically as it relates to retirement.
I heard a statistic yesterday that is very interesting. The Fortune 100, 91 out of the Fortune 100, in 1985, had traditional pension plans. Today, the Fortune 100, only 19 of them have traditional pension plans. If you’re a GE employee, starting today, you know, day one of your employment, you are not offered their traditional pension plan. And that is, GE is one of the largest companies, with the largest pension plans. So, I think this is a trend that is going to continue going forward. And what this tells us is that you’ve got to take control of your saving and investing for your own retirement. Don’t assume that someone else, either some big corporation or even Social Security is going to handle it. You’ve got to take control of it!
And one of the largest expenses you’re going to have in retirement are your health care costs. And fifty-three per cent of individuals recently polled couldn’t even estimate what those health care costs are. We’re talking Medicare A, and B, and D, and your estimated premium payments, and your estimated out of pocket expenses. These are some expenses that you’re going to have to, you know, pay in your retirement. So the question is, in your life expectancy, what are they going to be, what kind of a lump sum, under certain assumptions, will you need to have in retirement? And of course the question is- do you have that set aside? You may, you may not, but let’s try to quantify that on a piece of paper.
I have some wonderful software that I’m going to be working with clients with in the next couple of months to try to put that number down on a piece of paper so that we can say, “Boom! This amount of money is what, under these assumptions, we’re going to need for the healthcare costs for the rest of your life.” So the question is, have you done that for yourself? Maybe you have. If you haven’t, give me a call I can try to help you answer that question. It’s a hard number to really put down, things are always in motion, but you know what, let’s try to estimate as best we can. An estimate is better than not having any idea at all. And it is something we can revise as the years go forward.
So anyway, that’s kind of what’s on my mind this week. Mike Brady, Generosity Wealth Management, 303.747.6455, here in Boulder, Colorado. A comprehensive, a full service wealth management firm; I love my clients, I have a great passion to treat my clients like members of my family, and if you’re not my client, I’d love to talk to you about whether it makes sense if what I do is right for you, or if I’m the right person to help you with that. So, anyway, you have a wonderful week and we’ll talk to you later bye bye now.
As a complement to some of the volatility I discuss in my video, you can see in the chart to the left that what goes up one month can go down the next.
