personal finance

View from the Chair: Windermere's Market Perspectives (April 2019)

A recent blog post from Seth Godin entitled “More Right” follows:

There are at least seven realistic ways to get from my home near New York to a meeting in Washington DC. None of them are wrong. Each offers its own advantage in terms of resilience, speed, cost or hassle.

And so, we can’t choose based on this is right and those are wrong. The only useful construct is to consider our priorities and find the route with the best combination of trade offs.

Waiting for perfect is a never-ending game.

And the comfort of totally right vs. totally wrong is elusive

When reading this, I was instantly struct by how many investing lessons can be drawn from this paragraph - especially when considered in context of the past six months. Here are a few key things to consider:

1.) Forget right and wrong: When it comes to investing, everyone has an opinion.  And in times of volatility (namely to the downside), those opinions become louder and more authoritative and the pronouncements of what is right and what is wrong intensifies.   And while we all know that no one can be 100% sure what will happen next, oftentimes the conviction of the talking head or article writer can still be very persuasive. There is no universal “perfect answer” when it comes investing. What is appropriate for your circumstance may not be even close to appropriate for someone else. Stay in your lane and know your truth. The rest? It’s truly just noise

2.) Evaluate priorities - So how can you determine what is right for you? Evaluate your priorities. Without giving careful consideration to what it is you are attempting to do with your wealth, it’s impossible to know how to move forward. So give it some thought. What are your plans in the future - 1, 3, 5, 10 years (or more) from now? What does life look like once you stop having an income stream from employment? What are your goals (if any) as it relates to family gifting or charity? What other income sources do you have? When do you anticipate pulling money from your invested assets? What matters most to you and your family? Spending some time addressing these questions should bear out the items that are of the most importance to you

3.) Consider trade offs - Unfortunately, nothing in life comes without trade offs and management of your wealth is no exception. Once you have outlined your priorities, consider what the trade offs look like. For instance, if your priorities require considerably more wealth than you have, you may be facing a trade-off of lower spending, higher saving, or higher required rate of return (leading to more volatility). Or if your priorities involve a certain lower level risk profile for your investments, you may be looking at lessening your retirement objectives due to a lower expected return. There is an offsetting cost for every decision made and it’s important to acknowledge them and understand their impact

4.) Strike a balance - Perfect doesn’t exist - but you can come close by weighing priorities against trade-offs. What matters more to you? What can you live with? What can you not live without? From this iterative process, a route will present itself. This is your truth. This is your north star from which you (and you alone) can dictate right versus wrong in your investing approach

5.) Comfort is illusive - Just when we find our footing in investing, it always seems like something happens to throw us off course. No matter how clear we are regarding our own path forward, times of market stress and volatility can make us hesitate and second guess ourselves. Keep a notebook handy that outlines your priorities and the trade-offs you have knowingly accepted. When volatility occurs, revisit your work and know that waiting for things to be perfect is a “never-ending game.” Instead, focus on the journey and rest easy that you are on the path that is indeed right for you

Thanks Seth for the insightful post - and best of luck to all of you as you continue in your search for “more right”

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

Mirror Lake, at the start of my Yosemite backpacking trip

Mirror Lake, at the start of my Yosemite backpacking trip

I covered a lot of hiking trail this year.  A 3-day backpacking trip in Yosemite (with ~3,000 feet of vertical elevation gain),  a one-day 30 mile hike in Devil’s Lake for Cystic Fibrosis, desert hikes in Arizona, and a multi-day fall getaway to Jackson Hole, Grand Teton, and Yellowstone National Park.  All were spectacular - but at times during each of those journeys, a certain question crossed my mind  - have we reached the top of the mountain yet?

Many investors have to be asking themselves the same thing as they sit a top the summit that is year-end 2017, Are we at the top?

Investors and markets climbed an incredibly long distance in 2017 - with almost every asset class reaching new heights.  Take your pick.  US equity markets (as measured by the S&P 500) were up over 19%.  Emerging markets (as measured by the MSCI EM index) were up over 37%.  US investment grade corporate bonds returned almost 4%. 

What led to this ascent?  We’ve been discussing these items all year in our blog posts  - but just to recap the wonderful year that was, you had a confluence of many bullish factors, including:  1) synchronized global growth 2) ongoing low interest rates – both globally as well as in the US 3) ongoing attractiveness of equities (due to point #2) 4) US political actions, including tax reform passed in the last parting breaths of 2017 5) strong earnings, both in the US and abroad and 6) relatively stable geopolitical relations (despite tweets and rhetoric that lead to concerns otherwise)

View from atop a hike in Sedona, AZ

View from atop a hike in Sedona, AZ

So here we sit - on top of the investing world and wondering “is this the top of the investing mountain? Can we possibly climb any higher or go any further?” 

The simple answer – as it was when I was hiking this year – yes

The more detailed answer:  Yes, we can (and need to) climb higher.  Just keep in mind - the path that got us to this point won’t take us the rest of the way.  We need to consult our map, adjust our course, restock our supplies and energy, and keep going – one step at a time. 

Let’s take that advice in its components, as it relates to investing in 2018 and beyond

Consult our map

We’re reached a new place in the markets and the economy – one that we haven’t seen before.  2017 is behind us and we are entering new terrain.  However, like all points in markets, there are charts and data we can study and learn from to help us find our way from here. 

Looking at the “maps” as they stand today, few key highlights: 

  • Recession indicators are not present at the moment (we are trending that way but for now, there are no immediate signs)
  • US equity fund flows were net negative for most of 2017 (lots of cash on the sidelines)
  • Commodities appear to have bottomed in late 2017– and are coming on strong
  • Synchronized global growth is expected to continue into 2018
  •  US GDP is expected to rise in the upcoming year
  • Unemployment is approaching historic low
  • Inflation is beginning to trend upwards
  • US interest rates are continuing to rise
  • The yield curve is flattening but is not yet inverted
  • The US dollar continues to show weakness
  • International interest rates are also starting to rise – albeit slowly
  • International equity valuations remain lower than their US counterparts

Adjust our course

View from the top of the steepest ski slope in the US, Jackson, WY

View from the top of the steepest ski slope in the US, Jackson, WY

After digesting what the data is telling us, it is clear that what brought us to this point may not help us reach the summit in 2018.  How do you adjust course?  This depends on your exact destination (as dictated by your specific portfolio and overall objectives and goals). 

For our clients, we are undergoing a detailed review of not only their asset allocation (based upon the above data, as well as their individual goals), but also of their individual holdings and sector exposure.  All parts of their portfolio need to be reviewed and adjusted to position them for the trail ahead

Restock Supplies and Energy

Before hitting the trail for 2018, as investors, it’s essential to be sure you have what you need for the journey. 

Few things to consider:

  • Challenge your thinking - It's easy to ignore new information when you're coming off a record year.  Stay aware and stay engaged 
  •  Raise cash –  Don’t assume that names or asset classes that did well last year will automatically be winners again this year.  Look at each holding and ask if you would buy it again today – or if another idea will serve you better.  Sell and redeploy as needed
Jenny Lake, Grand Teton National Park

Jenny Lake, Grand Teton National Park

  • Invest new cash – Have additional cash you can invest today or average in over the year?  Consider putting it to work 
  • Evaluate your employer plan contributions – Have a 401k or 403b thru work?  The start of the year is a great time to increase that percentage (Of course, consult your financial and tax advisor prior to making any changes)
  • Don’t go it alone – Hiking alone is never safe.  And in my opinion, neither is investing.  Don’t falsely assume after a steady climb in 2017 that investing is “easy.”  2018 may just prove you very wrong.  Find an investment advisor you trust to help guide you along

Keep going – One Step at a Time

Is this the top?  I have no way of knowing that – and neither does anyone else investing in the markets.  What I do know for sure is that time in the markets matters far more than timing the markets when it comes to the long term compounding of wealth.

The key is to start – and to keep going.  You can’t get on and off the trail part way up the mountain.  You deserve to finish what you started.   You can keep going – one step at a time – no matter what the trail brings.  The true summit is up there.  You just have to keep on climbing.  Don’t stop now.  I promise you the view from the top is well worth it. 

The "Grand Canyon" of Yellowstone

The "Grand Canyon" of Yellowstone

The 2018 trail awaits.  You’ll see me out there climbing and when you do, please stop and say hello.

Invest on & best wishes for a smooth & rewarding climb in 2018,