Schwab's IMPACT Conference: Top Five Takeaways

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I recently attended Schwab’s IMPACT conference in Washington DC. IMPACT is a conference for independent advisors that custody assets at Schwab (like Windermere). The three day agenda is filled with education sessions on the markets, economy, and our practices as well as high profile keynote addresses and opportunities to connect with money managers, Schwab personnel, and other service providers. It’s an excellent conference and I thought it was only fair to share some key takeaways from my time in our nation’s capital

1.) Polarized government - Greg Valliere has been following DC politics for over three decades and shares his input at IMPACT every year. His main point this year was that the center of politics has vanished. Both parties are more polarized than ever and there is increasingly less desire for any cross party negotiations. He anticipates the house will turn to democrats in the midterm elections but that the senate will stay with republicans, resulting in more gridlock and polarization in DC for the next two years. (Greg sends a daily email sharing his insights. You can subscribe here)

2.) Trade concerns abound - but China moves forward - Many speakers expressed concerns over the ongoing trade negotiations with China. Concerns are centered around the uncertainty it is causing in the markets, as well as the possibility that it will slow US growth and potentially lead to a recession sooner than would otherwise occur. Money managers focused on China expressed similar concerns over trade. However they presented a strong case for investment in China - largely driven by the consumer story. Chinese citizens are experiencing record earnings (up 120%), high savings (average 35% of income), and low levels of leverage. Chinese government is also still willing to be very accomodative and stimulative

3.) Words of Advice from Former White House Chief of Staff - Andrew Card (Cheif to George HW Bush) was joined on stage by Dennis McDonough (Chief to Obama) and the two shared stories and advice from their time in the White House - as well as gave their perspective on the current administration. Card offered some advice his grandma had given him that could arguably benefit most of us: “Taste your words before you spit them out - and don’t leave the room before you go out the door.”

4.) Fed on track - According to Former Chair of the Federal Reserve Janet Yellen, the Fed is on a reasonable track. Yellen’s tone was measured and thoughtful. She noted that in her view, the economy is doing very well and that a recession doesn’t appear imminent. However, she stressed that the Fed is seeking to keep economy from overheating (read - higher inflation) and will continue to raise rates gradually. Rates at the short-end, adjusted for inflation, are still effectively at zero and the Fed will likely target a real rate closer to 1% (which has historically been closer to 2%). Her main concerns include trade and the pressing need for entitlement reform

5.) Equity & Fixed Income Outlook - Schwab’s equity outlook was cautious. Concerns over trade and inflection points in certain economic data lead to a market weight to equity asset class in their view. Anticipation is that we have some runway left (especially post mid-terms which tends to be a strong cyclical period) but that we are late cycle. Over moderate term (6-18 months), prediction was that value, international, and large caps will lead. On Fixed Income side, Schwab anticipates ongoing volatility and spread widening. They stress that it’s time to add some duration (as long rates are close to near-term peak), focus on quality, and remain close to home (ie: US debt)

As always, it was a very worthwhile conference and we appreciate the ongoing guidance and support from Schwab in helping us better serve our clients

View from the Chair: Windermere's Market Perspectives (October 2018)

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October was certainly a trying month for investors. While we all understand that markets can move in both directions, downward moves always attract far more of our time & attention and lead to significant questions and concerns. Media outlets do their best to explain the moves, predict the future, and create as many shocking headlines as possible. While interesting, such analysis is not always helpful. Let’s take a look at what we know for sure - and consider where we go from here.

What We Know For Sure

1) Stocks go down much faster than they rise - but they go up more often than they go down

Downward moves always feel drastic and sharp - far faster than the period during which markets rise. However, it’s important to know that on average, since 1960, the S&P has seen annual gains 75% of the time. Three out of four years have seen gains in the US equity market. So, while they may fall at a faster pace than they rise, they go up more than they go down

2) Intra year declines are common

Intra year downward moves aren’t all that unique either over time. Since 1900, the Dow Jones Industrial Average has fallen 5%+ about three times per year, 10%+ once per year, 15% once every two years, and 20% once every three years. On average, such declines are less than a year - often times just a few months - but they do happen much more frequently than we remember

3) Uncertainty remains - but businesses are moving forward

There is no doubt that there is a sizable level of uncertainty in the markets, namely as it relates to trade, elections, and interest rate levels. The resolution of these items will impact the future trajectory of the businesses that comprise the market. However, we’d suggest that uncertainty is always present somewhere in the world, economy, and markets. We are just far more aware of these items than we ever were in the past - whether it be from 24/7 business news or the President’s twitter feed. Despite these macro uncertainties, businesses are operating every day - moving forward to drive revenue and innovation. Revenues and earnings growth showed great strength in the most recent quarter and guidance on the whole was also strong. This is where the certainty lies

4) Panic isn’t a strategy

It’s human nature to want to take action. We are instinctually driven to react in times when we are fearful and uncertain. But please remember - panic is not a strategy. We have put diversified portfolios in place and will continue to rebalance against them. Equity portfolios are comprised of high quality businesses that have sufficient cash flow and low leverage to withstand economic weakness should it arise. Best strategy is to stay invested and engaged. Reach out anytime and we will go thru your specific situation with you. Now is not the time to panic.

Where We Go From Here

1) Focus forward - as we mentioned above, now is not the time panic and move to cash. Revisit your overall financial plan and remind yourself of the progress you’ve made up until this point - and the path to get you to your ultimate goals. Stay the course and remember, these moves are part of the process.

2) Balance towards targets - diversification has been shown to insulate portfolios from some volatility. Continual rebalance against these targets, as well as adjustments to exposure within the asset classes to match the environment we are in, are advised

3) Active management opportunity - sharp downward moves in markets tend to impact every business indiscriminately. As a result, many companies are now trading at very attractive prices that build in attractive margins on safety. As a result, it is our prediction that active management will once again shine versus passive/ETF index investments. (Note: Consider this in context of your overall portfolio and specific allocation/risk tolerance)

4) International component - International markets have struggled in 2018, far more than US markets. This again may present an opportunity to add diversification at very attractive valuations. (Note: an allocation to international should be carefully evaluated in context of your portfolio as a whole)

5) Continue to save - Dollar cost averaging (ie: investing at various points in the market) has been proven over time to be a very sound strategy. Investing markets are one of the only “shops” in the world where people prefer to buy when things are expensive and sell when things are cheap. Fight against that urge - continue to save and invest at all market levels - including today’s

6) Reach out - You don’t have to do this alone. We know this is jarring and we know how much your portfolios mean to you. We feel the exact same way and are here to work thru this - together.


None of us want to experience market declines. They test our conviction and lead to increased worry and concern. But as we all know, we can’t control or predict markets - and opportunities are often the greatest in markets such as these. We will continue to apply a disciplined and informed approach to manage thru these times and to ultimately stay the course. It may not feel like it now, but this too shall pass. We are here to answer any questions you have and we will move forward - together.

Invest on,

Pam