Tag Archives: investment advice

Growth Stocks vs. Value Stocks

bear-market--My Comments: If you believe, as I do, that some of your money needs to be working harder than, say a Certificate of Deposit, then your likely solution is some kind of mutual fund or brokerage account. Most of us are not sufficiently sophisticated financially to explore other options, so for new, let’s assume you decide to own a stock portfolio of some kind.

One point on the decision tree is to choose between growth stocks and value stocks. If I’ve now confused you to the point of paralysis, then read the rest of this and see if it makes any sense.

by Sean Williams June 19, 2016

You can make a solid argument that the stock market is the greatest creator of wealth over the long term.

We’ve definitely witnessed a surge in home values since the 1990s, but the previous 100 years (1890-1990) saw home prices outpace the inflation rate by a paltry 0.21% per year, based on estimates from Robert Schiller via Irrational Exuberance. By comparison, inclusive of dividend reinvestment, the stock market tends to rise by about 7% per year, which is roughly double the rate of inflation between 1914 and 2014. Investing in the stock market arguably gives Americans their best chance of reaching their retirement goal and leaving the workforce at a time of their choosing.

The age-old debate: growth stocks vs. value stocks

However, the path by which an investor gets from Point A to Point B in the stock market has long been up for debate. There are easily more than a half-dozen investing strategies to choose from, but few get more credence than growth investing and value investing.

Growth investors are typically seeking companies that offer a superior growth rate relative to the overall stock market and perhaps their peers. Companies that are growing faster are often trendsetters, and presumably they should be able to keep up their superior growth for a long time to come. Companies with a high growth rate also have the potential to see their stock prices soar. The downside, as you might imagine, is that growth stocks aren’t always making money, and the valuations of growth stocks can be prone to getting ahead of themselves because of emotional investing.

By comparison, value investors are seeking investments trading at a discount to the overall market or a sector in question. Value stocks usually have mature business models that seek to maintain strong pricing power, modest growth, and typically reward long-term shareholders with a dividend or stock repurchases. On the downside, value stocks can always get cheaper, because trying to time a low is a fruitless practice. Additionally, since value stocks usually have mature business, they don’t offer the same eye-popping returns that can occasionally be seen with growth stocks.

“So which method is best over the long haul?” you wonder? That’s exactly what Bank of America/Merrill Lynch sought to find out.

Based on the study findings from Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. However, value stocks generated an average return of 17% per year over the same timeframe. Said Bank of America/Merrill Lynch chief investment strategist Michael Hartnett, “Value has outperformed Growth in roughly three out of every five years over this period.”

Perhaps more interesting is that value stocks have tended to outperform during periods of economic growth, while growth stocks have proved better when the economic weakens or contracts. This would certainly help to explain why value stocks have left growth stocks in the dust, since the economy is expanding for a much longer period of time than it’s contracting or stagnating.

Also worth noting is that we’ve seen a bit of a reversal to this trend since the end of the Great Recession. In other words, growth stocks have substantially outperformed value stocks despite the U.S. economy returning to growth. However, we’ve also witnessed historically low lending rates during this seven-year period, which has made access to capital cheaper than ever for growth stocks looking to hire, expand, and acquire competitors. As lending rates normalize in the years ahead, we’re liable to see this divergence from the historic trend wane.

Source article: http://goo.gl/f0bCjz

How to Invest in Mutual Funds

InvestMy Comments: Mutual funds have been around for about 100 years. Some genius decided to create a new investment model, a stand alone investment. With one investment you now could own shares of hundreds of stocks, in smaller amounts. And the rest is history.

Today there are more funds to choose from than you can imagine. Some have good records and some not so good. None of them are free; employees and rent has to be paid, and that ultimately comes from whomever owns shares of the fund. But the costs you think you pay are only those costs that the regulators determine must be reported. There are costs that escape disclosure which you can only guess about. Buyer beware.

This is a useful overview for anyone with money in the markets that is not just X shares of company A or Y certificates issued as a bond by company B or government C. If you are a relatively conservative investor or working with money that has to support your retirement, you have to first decide how much money you can lose in any given year and not have heartburn. Only then can you begin to decide if a fund choice will be a good option for your money.

by Matthew Frankel – The Motley Fool – June 25, 2016

The best mutual funds to invest in are those that fit your investment objectives without charging high fees. When choosing funds, you should look for:
1. Funds that meet your objectives.
2. No-load funds.
3. Low expense ratio — companies like Vanguard and Fidelity offer some extremely cheap funds.
4. Good Morningstar and/or Lipper ratings.
5. Strong performance history.

Decide what you want to invest in
There are mutual funds that invest in all types of stocks, bonds, CDs, commodities, and more, so the first step is to decide what you want to invest in. And there are two main types of mutual funds to choose:
• Passively managed funds track a certain index, such as the S&P 500 or the Russell 2000. These simply invest in all of the companies in an index, and don’t require too-much effort on the part of the fund’s managers. Because of this, these funds tend to come with relatively low fees.
• Actively managed funds have a manager who chooses its investments, and decides when to buy and sell. Because the main goal of actively managed stock funds is to beat the market, and because of the additional effort required, actively managed funds usually have higher fees than passively managed ones.

Lower costs = more money in your pocket
When looking for mutual funds, I automatically narrow my search to “no load” mutual funds — which means that the fund doesn’t come with a sales charge or commission. In most cases, your brokerage will clearly differentiate no-load mutual funds.

The most-important number you should look at when comparing mutual funds is known as the expense ratio. This tells you the total ongoing cost of investing in the fund on a yearly basis as a percentage of your assets.

For example, an expense ratio of 1% tells you that, if your investment is worth $10,000, you’ll pay $100 in various fees. If you’re interested, here’s a thorough discussion of what makes up an expense ratio; but for most investors, it’s sufficient to know that a lower expense ratio means a “cheaper” fund.

You may see two different expense ratios listed for a particular fund: gross expense ratio, and net expense ratio. Net expense ratio can be lower, as it includes any discounts or temporary reductions in fees. The gross expense ratio is the permanent amount, and is the primary number to pay attention to.

Small differences in expense ratios can have a big impact
It’s important to emphasize that seemingly small differences in expense ratios can make a big difference over long time periods. As a simplified example, let’s compare two hypothetical mutual funds, both of which track the same index. The only major difference between them is that the first charges an expense ratio of 0.75%, while the second charges a cheaper 0.5%.

If you invest $10,000 in each fund, and the underlying index produces average annualized returns of 8% per year before expenses, after 30 years, the first investment will be worth $81,643. Your investment in the cheaper second fund would grow to $87,550. If you ask me, a difference of more than $5,900 is well worth the effort of shopping around for a cheaper option.

This isn’t to say that a fund with a lower expense ratio is automatically better than a more-expensive one in all cases. For passively managed funds, comparing expense ratios can be a highly effective practice. However, with actively managed funds, a higher — but still reasonable — expense ratio can be justified by a strong track record of market-beating performance.

What those fund ratings mean
Two of the most-frequently used ways of rating mutual funds are the Morningstar and Lipper ratings. Morningstar ratings use a five-star system to rate funds, and take into account the fund’s past performance, the manager’s skill level, risk- and cost-adjusted returns, and consistency of performance. Five stars is best, and only 10% of the funds evaluated get the coveted rating. Regarding the rest, 22.5% get four stars, the middle 35% get three stars, the next 22.5% get two stars, and the bottom 10% get one star.

Lipper uses five criteria: consistency, preservation of capital, expense ratios, total return, and tax efficiency. With this information, the funds in a given category are broken down into quintiles — in other words, 20% get the highest rating, 20% get the next highest, and so on.

Both ratings are calculated over different time periods — three-year, five-year, and 10-year periods, respectively. These can be useful in your research; just remember that these ratings are based on past performance, and are not necessarily a guarantee of future results.

Past performance doesn’t guarantee future results, but…

Just because a mutual fund has performed well in the past doesn’t necessarily mean it will do the same in the future. In fact, mutual funds tell you this themselves — it’s generally written right near the historic returns section on each fund’s prospectus.

However, that doesn’t mean you should ignore that section, especially when it comes to actively managed funds — those that don’t simply track a specific index. Consistently strong fund performance over the years is one sign of good management, and a smart strategy. It’s also important to look at a fund’s performance during tough economic t After all, if you look at a fund’s performance over the past five years, take the information with a grain of salt. The S&P 500’s total return was 83% during that time, and it’s not difficult to make money in markets like that. Instead, it’s a good idea to also take a look at how the fund did during, say, 2008, in order to get an idea of how the fund’s investments hold up in bad markets.

The bottom line on mutual funds
Shopping for mutual funds can certainly be intimidating — after all, there are literally thousands to choose from. However, by determining your investment objectives, considering highly rated funds, comparing expense ratios, and evaluating past performance, you can narrow down the selection, and find mutual funds that are right for you.

What John Oliver Got Right (and Wrong) About the DOL Fiduciary Rule

My Comments: The financial services industry is starting to come to terms with what is known as the DOL Fiduciary Rule. Some of us embrace this new standard and others think the world is about to end.

In short, it institutionalizes the idea that if you are providing financial advice to the consuming public, you are bound to act in your client’s best interests. While many believe this has been the case all along, it’s been largely a myth. If push comes to shove, the companies for whom the large majority of brokers and advisers work for do not want to be held accountable for the recommendations and offerings made by their sales people. They have argued vehemently against this new standard and with the help of millions of dollars spent on lobbyists, the new rules are a watered down version of what was originally proposed.

But in my opinion, it’s a good first step. If those in my profession are ever going to achieve the professional status of Certified Public Accountants (CPAs) and attorneys, we’re going to have to, in every respect, conform to a fiduciary standard.

June 17, 2016

The Department of Labor’s fiduciary rule has been a battle for our industry for about six years now, and consumers rarely know about or understand the potential changes. But last week, the rule took on a new audience: the viewers of “Last Week Tonight with John Oliver.”

I spend almost every day reading something about this rule, whether it be about lawsuits, what advisors should do about it or how the industry should embrace it. The rule itself is extremely complicated and so are the things advisors managing retirement accounts must do. As Oliver explains, “for the average person saving for retirement … [it] doesn’t need to be this confusing.”

Oliver does a decent job of explaining why the rule came about, but he also sways in favor of the DOL, which doesn’t seem to be the opinion of our industry.
I see how many of our industry’s people are worried and furious about the harm it could cause, but I also see why the DOL and consumers think the rule is important to protect Americans and their money. Just take a look at this Reddit thread where consumers are concerned about the “hidden fees” their accounts may be facing. Here’s a look at hits and misses of the video:

What he got right:

In the beginning of the video, Oliver begins to discuss how the term “financial advisor” is not a credential but rather just a job title. Although he may have angered advisors for mocking their job titles, it’s true that consumers may not know these are not reflective of the advisor’s credentials.

Oliver goes on to explain how the fiduciary rule is good for consumers because they should have someone acting in their best interests. This makes sense because in order to create a successful retirement plan, many different products and investments will most likely be needed to make sure a client will have enough income for as long as they live. It only makes sense for advisors to be fiduciaries, right?

Where Oliver was wrong:

Although he was right to state that the titles “financial advisor, financial analyst, etc.” virtually mean nothing, he failed to mention that consumers bear part of that burden. When hiring someone to manage your money, one would think the consumer would do some research on the people chosen to manage that money. Really, it comes down to the lack of financial education our country faces.

Oliver also suggests people should be investing in low-cost index funds, which the show seems to imply is a good investment for any and every person. From my experience though, every portfolio and client situation is different, which is why financial advisors are important in the first place; suggesting one type of investment as a be-all, end-all for investors could create a sticky situation in the long run.

In case you missed it (or if you didn’t make it to the last two minutes of the video), here are the five retirement saving tips the show gives to its viewers:
1. Start saving now.
2. Invest in low-cost index funds.
3. Ask if your advisor if they’re a fiduciary.
4. As you get older gradually shift your assets from stocks to bonds.
5. Try to keep your fees under 1%.

One more thing to point out is that Oliver seems to think that annuities are almost always a bad investment decision. Annuities have been the subject of the “bad” in our industry according to Elizabeth Warren and Suze Orman (both of which he cites as fighting against the investment products).

To me, what this video tells consumers is that they should be aware of exactly how their money is being invested. Advisors should be clear to their clients about how they’re being compensated, and in turn, clients should communicate any concerns they have with their advisors.

My hope is that this video helps educate consumers at least on the importance of saving for retirement and that it sparks conversation.

The Next Bear Market Will Be Ruthless

bear-market--My Comments: This might put you to sleep. Or the next bear market might cause you to leap from a tall building. You choose.

If you have money invested in the markets, and your time horizon for a full recovery is limited, you should read this to the end.

 

by Eric Parnell, CFA,  June 10, 2016

Summary
• It has been almost nine years since the outbreak of the financial crisis. And it has been more than seven years since the start of the most recent bull market.
• The Fed has created a bubble not only in asset prices but also in the investor belief that the value of their investments will be protected no matter what.
• Unfortunately, the next bear market will eventually come, and it is likely to be ruthless once it finally arrives.
• Investors who recognize such an eventual reality can stand at the ready to capitalize once the time finally arrives.

It has been almost nine years since the outbreak of the financial crisis. And it has been more than seven years since the start of the most recent bull market. Stocks have been impressively resilient in the face of every test during the post-crisis period thanks in large part to the seemingly endless support from monetary policymakers including the U.S. Federal Reserve. This has helped foster an environment where many investors are not only comfortable but have swagger about owning stocks at historically high valuations despite chronically slow growth. As a result, the Fed has helped create bubbles not only in asset prices but investor expectations that the principal value of their investments will be upheld no matter what challenges befall the economy. Unfortunately, just like the bursting of the tech bubble and the onset of the financial crisis, the next recession will finally come. And when it does, it has the potential to be absolutely ruthless for investors.

Let’s Get This Out Of The Way

I can already hear the bulls sharpening their knives for the comment section of this article, and I very much look forward to reading and responding to all points of view including those that strongly disagree with my article, but let me get out in front with a few observations.

Indeed, I have been bearish for some time, but this does not mean that I’m predicting that everything is going to go up in smoke tomorrow. Just as the tech bubble went about four years longer than it probably should have, the same could definitely be said for today’s market. Moreover, we could see the S&P 500 Index (NYSEARCA:SPY) continue to rally for the next several months or couple of years. Then again, we could already be one year into a new bear market. Only time will tell. But what’s important to note is that the higher and longer today’s market continues to rise, the longer and harder it is likely to fall on the backside. In the meantime and until we start to definitely roll down the other side of the mountain, I have and will continue to hold a meaningful allocation to stocks.

But isn’t my holding stocks a contradiction to my bearish view? Absolutely not. For just as being bullish does not mean that one should be all in and 100% allocated to equities, being bearish does not imply that one should be completely out of stocks and hide away in a bunker waiting for the world to end. Bear markets slowly evolve over long-term periods of time, and selected segments of the stock market have historically demonstrated the ability to perform well during different stages of bear market cycles. For example, consumer staples (NYSEARCA:XLP), utilities (NYSEARCA:XLU) and healthcare (NYSEARCA:XLV) stocks all typically perform well during the early stages of a bear market, and selected specific stocks of various styles and sizes such as Wal-Mart (NYSE:WMT), Village Super Market (NASDAQ:VLGEA), Community Bank System (NYSE:CBU) and Southern Company (NYSE:SO) have demonstrated the ability to perform well throughout the entirety of two of the worst bear markets in history in the bursting of the tech bubble and the financial crisis. So while I may not be loaded up on the SPY, the market offers a solid menu of stocks that one can hold through the worst of a market storm. I also own a lot of other things outside of stocks that are performing well today and I expect will perform even better during any future bear market in stocks.

Also, isn’t my making a statement that the next bear market could be “absolutely ruthless” for investors nothing more than fear mongering? No, it is not. Instead, it is trying to increase investor awareness of a view that they may not otherwise be hearing. After all, one only has to tune into one of the major financial news networks to hear a cornucopia of bullish views on the market, many from analysts that have a direct vested interest in promoting such bullish views and reassuring the audience that despite any short-term rough patch that “stocks will be trading higher by the end of the year.” Conversely, those expressing a bearish view are often met with heavy pushback and scowling derision. As a result, this leaves many that may be less experienced with investment markets exposed to the risk of wondering “why didn’t I see this coming” when they eventually find themselves locked in the jaws of the next bear market.

In the end, it is up to individual investors to decide how they wish to proceed with their own portfolio allocation. But by sharing this more bearish perspective on today’s markets – it at a minimum provides investors with a viewpoint to consider that they may not be hearing elsewhere. Now that we’ve got that out of the way, let’s get down to it.

The Economic/Market Disconnect

The next bear market is setting up to be ruthless for investors. But this does not mean that it will be ruthless for the U.S. economy. In fact, it would not be surprising at all to see a prolonged and significant decline in stocks accompanied by what amounts to a somewhat longer than normal but otherwise relatively mild economic recession. How can this be the case? Simple. Since Main Street (NYSE:MAIN) hardly participated in the glorious ascent that has been Wall Street via the stock market over the past seven plus years, Main Street is not likely to suffer nearly as much when stock prices come falling back to earth. In fact, many parts of Main Street might actually find themselves benefiting in many ways including even lower interest rates on loans, lower gasoline prices at the pump and the execution of more effective fiscal programs by policymakers that finally have had a long overdue fire lit under them.

Impossible, you might say. How can we have a major stock market decline with a relatively milder impact on the broader economy? One has to look no further than the bursting of the technology bubble from 2000 to 2002. During this time period, stocks declined by more than -50%, but the economy hardly even declined. Although we officially had a recession from March 2001 to November 2001 according to the National Bureau of Economic Research (NBER), the overall decline in U.S. real GDP was -0.3% and we didn’t even have two consecutive quarters of negative growth during this stretch. This recent example highlights the fact that it is certainly possible to have a stock market more than cut in half without any measurable contraction in economic activity. For if stock valuations get too far ahead of the economy, as they were then and are arguably today, they then have a huge air pocket through which to descend by simply falling back to the underlying economic reality.

What About Not Fighting The Fed? Lest We Forget – Lest We Forget!

What about fighting the Fed? Haven’t we learned by now during the post-crisis period that the U.S. Federal Reserve and their global central bank counterparts are going to do whatever it takes to protect stock prices at every turn? This has been definitely true in recent times as any attempts to try and short the market over the past seven years when it looked like stocks were going to break sharply to the downside have been absolutely steamrolled along the way. But in order to avoid falling victim to recency bias, just because this has been true in recent years does not mean that it is universally true.

In fact, the history of the Fed is filled with examples of them winning so many of the battles but ultimately losing the wars.

To set the stage for this point, let’s go back to the last great Fed victory, which was winning the war over inflation back in the early 1980s. How did the Fed win this war? Because it was willing to endure the hardship, lose the battles, and suffer the sacrifice to prevail with overall victory in the end. Then Fed Chair Paul Volcker did not coddle and cajole the economy and financial markets at the time in working to solve the problem. Instead, he dialed up interest rates to nearly 20% and ripped the heart out of the inflation problem. During this time, the economy endured two back-to-back recessions and a solid bear market, but it set the stage for the years of prosperity that followed in the 1980s and 1990s. In short, the Fed was willing to lose some battles to win the war. And until former Fed Board Governor Kevin Warsh is appointed to the position, Mr. Volcker will remain my favorite all-time Fed Chair.

So what have we seen since? Under Fed Chair Alan Greenspan, we saw the Fed win battle after battle. This included the stock market crash of 1987, the recession of 1990, the should-have-been recession of 1994, the Asian Flu in the late 1990s, and the collapse of Long-Term Capital Management in 1998. And the Fed did so by helping investors avoid any pain along the way. Yet, in the end, they lost the war, as the tech bubble finally burst with roughly four years of investor gains during the late 1990s evaporating in the process.

About that Fed put. While it is easy to forget, particularly when it has lifted markets for so many years, but the Fed does not always get what it wants from stocks with accommodative monetary policy. Lest we forget! During the bursting of the tech bubble, the Fed was aggressively lowering interest rates for three years starting in early 2000, yet stock prices lost more than half of their value before finally bottoming in late 2002 and early 2003.

But then came the post-tech bubble period. Under Fed Chairs Alan Greenspan and Ben Bernanke, the Fed once again was winning all of the wars thanks to low interest rates and a booming housing market. And once again, investors were able to bask in the warmth of an accommodating market filled with gains and free of pain. In the process, they managed to bring the stock market all the way back to its tech bubble highs. But in the end, the Fed once again lost the war, as the housing bubble burst with nearly catastrophic consequences. By the time the financial crisis was brought under control in March 2009 (not fixed, but brought under control), the market had exceeded the losses of the tech bubble to the downside and was back to the same level it had first reached more than a decade earlier.

Once again, the Fed put does not always work. Lest we forget! During the financial crisis, the Fed was once again aggressively lowering interest rates for nearly two years starting in mid-2007, eventually lowering interest rates to zero and launching into quantitative easing along the way, yet stock prices once again lost more than half of their value before finally bottoming in early 2009.

All of this leads us to today. Under Fed Chair Ben Bernanke, the Fed has won all of the battles by giving investors everything they could ever imagine and more. Stocks have skyrocketed virtually without interruption and investor pain has been virtually non-existent. In the process, the Fed managed to catapult the stock market more than one-third higher above its tech bubble and pre-financial crisis peaks. And they did so with a global economy that has been sluggish, uneven and lackluster at best.

Why The Next Recession Will Be Ruthless For Stocks

Maybe the outcome this time around will be different. But given the historical pattern over the past two decades, my bet remains that the Fed will end up losing this war once again.

Why? Let’s begin with the qualitative, which is that war is not won by bypassing the pain and sacrifice necessary to prevail. And until policymakers finally decide that they are ready to win the war and replace the monetary cotton candy with a steady diet of spinach, we are likely to continue in these monetary induced boom and bust cycles.

Now let’s get to the quantitative. What enabled the Fed to rescue the stock market after the last two lost wars? Because they entered financial markets firing all monetary guns for an extended period of time lasting two to three years in order to get the markets stabilized and moving higher again. But let’s assume whatever bubble of the many that exist today finally bursts and sends stocks sustainably lower despite all of the best efforts and jawboning by the U.S. Federal Reserve and their global cohorts. From exactly what arsenal are they going to fire from to turn the stock market around so quickly this next time around?

Will it be lowering interest rates by several percentage points? No, because interest rates are already effectively still at zero in the U.S. and negative in much of the developed world outside of the U.S. And the temptation to go further into negative interest rate territory is unlikely, for not only has it not lifted stock price in any measurable way, evidence is growing by the day that it simply does not work and is causing more harm than good.
Will it be launching into yet another round of aggressive quantitative easing? Perhaps, but what is the justification for putting our global fiat currency system that is still a baby at only less than half of a century old at even greater peril than it already is for returning to a program that simply has not worked in generating sustained economic growth over the past seven years? With that said, I still wouldn’t put it past the Fed to go back to this well, but it stands to question what the marginal benefit to stock prices would be at the end of the day. Lest we forget the experience that Japan (NYSEARCA:EWJ) had with quantitative easing from March 2001 to March 2006 when the Bank of Japan increased its balance sheet by more than seven-fold, with the lion share of the increases taking place during the first three years of the program.

How to Trump-proof Your Portfolio

global investingMy Comments: This is not intended as a political statement. However, clients are asking me whether there are likely to be economic consequences, and therefore an impact on their investment portfolios, if Donald Trump wins the Presidency. These comments appeared in The Financial Times and may or may not apply to you.

Gillian Tett – May 5, 2016 – The Financial Times

This year investors have grappled with a plethora of global mysteries: Brexit, war in the Middle East, negative interest rates, energy prices, the Chinese debt bubble, Russian President Vladimir Putin’s policymaking and drama in Brazil.

Now, however, we face another big uncertainty: what an election battle between Donald Trump and Hillary Clinton might do to American asset markets.

Although Mrs Clinton, the presumed Democrat nominee, appears to have a fairly big lead over Mr Trump in the polls, the outcome of November’s presidential vote looks uncertain. We have all learnt in the past year how wrong pollsters can be.

What is even more unnerving for investors is that, as populism gathers momentum, it is eroding many of the normal boundaries of “right” and “left”, “pro-business” and “anti-business”. Discerning clear policy patterns amid the wild rhetoric is not easy for either Democrats or Republicans.

So what is an investor to do if they want to Trump-proof their portfolio — or even benefit from an ugly Clinton-versus-Trump fight? In the coming weeks, sellside banks and financial advisers will produce acres of ideas. Here are five of my own.

First of all, do not buy banks; or not if you hope government will boost their share price. Until recently, Mrs Clinton was perceived as being soft on Wall Street; indeed, some financiers hoped that bank-bashing would end in 2016.

But Bernie Sanders, her Democratic rival, has performed so well that Mrs Clinton will face pressure to steal his “socialist” language to appease his supporters, and may well pick an anti-Wall Street figure as her running mate, such as Sherrod Brown, an Ohio senator.

Mr Trump may not be so different. Many Republicans would love to repeal the post-crisis financial reforms, and he has criticised the Dodd-Frank Act. But he also seems instinctively hostile to Wall Street. As a self-appointed hero of angry main street voters, he is unlikely to embrace banks.

Second, do not expect a rally in Treasury bonds; at least, not one driven by debt cuts. A couple of years ago, it was presumed that by this point in the economic cycle policymakers would be discussing how to cut America’s vast debt burden. But Mrs Clinton is no fiscal hawk. On the contrary, she seems to lean towards fiscal stimulus, and may try to appease supporters of Mr Sanders this way.

And, while the Tea Party wing of the Republican party is eager to slash debt, Mr Trump has built a career on exploiting leverage. He has vaguely promised to get rid of America’s $15tn debt in eight years; but he also wants to create jobs, boost growth and protect entitlements. Little wonder that traditional fiscally hawkish Republicans dislike him.

Third, embrace infrastructure stocks — whoever wins. Mr Trump built his brand with construction, and were he to win in November he would be likely to unleash a national infrastructure campaign to create jobs and growth. He likes the idea of being a second Dwight Eisenhower, the man who built America’s Interstate highway system.

But Mrs Clinton may do this too. After all, as Lawrence Summers, the former US Treasury secretary, recently pointed out, the beauty of infrastructure spending is that it could create middle-class jobs and growth at a time when monetary policy has reached its limits — at least, if you do not mind raising debt.

Fourth, expect currency volatility. The most eye-grabbing element of Mr Trump’s campaign so far has been his threats about trade protectionism. But Mrs Clinton has turned more protectionist, too, toning down her support of the Trans-Pacific Partnership. No one knows if her newfound caution will actually change trade flows or supply chains. But sabre-rattling on the global stage could certainly quickly unleash some currency swings.

Finally — and most importantly — investors need to invest in assets with an eye to capricious government intervention. After all, if there is one thing that will make sense of this peculiar election, it is the idea that voters have lost faith in the free-market political centre.

With populism rife, Mrs Clinton may deploy more consumer protection and regulation in response, while Mr Trump may plump for endless protectionism.

Either way, if you want to invest in pharma, cars, tech or pretty much anything else, you would be a fool to make your choice based on economics or free-market theories alone. Populism matters, in investing and politics alike now — even, or especially, if it makes your head spin.

How Much Stock Should You Have in Your Retirement Accounts?

bear-market--My Comments: This question has been asked every years for the almost 30 years that I’ve called myself a financial professional. Unfortunately, there is no best answer. Human nature, in the form of doubts, confidence, expectations, past experience, impatience, timing and fear, all conspire to force our hand when attempting to make intelligent decisions. Good luck!

May 7, 2016 – Jane Hodges – MarketWatch

It has been seven years since the start of this bull market for stocks in the U.S. Is it time for investors to adjust the equity allocations in their retirement portfolios?

Many financial advisers say yes. But that is where the consensus seems to end. Some believe that investors should start to reduce the amount of money they have in stocks. Others, however, argue for sustaining the stock allocation. What they do have in common is that they believe it is time to tinker with the models, while weighing different reasons to move the stock needle up or down.

There is no universal prescription for equity allocation, of course. Much depends on a portfolio’s size, an investor’s age and how soon he or she wishes to retire. Expectations for annual stock returns have ratcheted back since the stock market recovery began in 2009, with many financial planners modeling for annual returns in the 4% or 5% range, down from as much as twice that before the 2008-09 recession.

Meanwhile, the reduced outlook for equities still exceeds expected returns for other asset classes. But for many, all of the volatility of late makes the near-term risk/reward proposition for stocks less appealing.

“Returns expectations have ratcheted down, but the expectation of short-term volatility in the market continues,” says Christine Benz, director of personal finance at fund researchers Morningstar Inc. MORN, -0.04%

Other factors affect allocation decisions, too, such as whether an investor’s portfolio has been rebalanced along the way, or whether it has passively wandered into an inappropriate asset mix for the person’s risk tolerance or goals.

Benz notes than an investor with $10,000 invested in a 50% stock, 50% bond-related portfolio in 2009 would have seen—if the portfolio were left unchecked—a transition to a 70% stock and 30% bond allocation by the end of 2015.

The good news? The investor’s money would have grown substantially. The bad news? So would the risk exposure.

Here is a look at four percentages of stock allocation for an investor to consider, and the types of investors that might want to consider each of the levels. (To see all four examples, click the palm trees below)

CONTINUE-READING

Top 10 Phrases from Bank Lobbyists and their Translation

bear marketMy Comments: On April 6, 2016, rules were introduced into the US financial system that will cause more of us to treat our clients better. At least that’s the plan.

Wall Street firms have been resisting this change for years, and while the following Top 10 Reasons Why are tongue in cheek, there’s a whole lot more truth here than most of us choose to believe.

1) This new standard will limit investors’ choice of retirement options.
“This new standard will definitely limit my choice of yachts.”

2) Investors will “go it alone” and screw up their asset allocation.
“My Wolf of Wall Street theme party will have a totally inadequate seafood buffet.”

3) Rather than provide advice, advisors will sit on their hands for fear of legal reprisals associated with a fiduciary standard.
“Shhh. Don’t tell anyone there is a robust independent advisor ecosystem already available in the economy.”

4) New, innovative products will not be introduced to the marketplace.
“New, highly profitable, poor performing products will not be introduced to the marketplace.”

5) It’s not about the price you pay, but rather, the value you receive.
“It’s not about the price they pay, it’s about the soft dollars, revenue shares, and kickbacks we receive.”

6) Our legislative partners stand ready to protect investors and the middle class.
“We have taken every Congressman out for a lovely steak dinner and we will continue to do so.”

7) We have the best facilities in the world to provide cutting edge research and leading market insights.
“We pay the highest rent in Manhattan and hired a bunch of busted PhD students who can write fancy equations.”

8) Our robust advisor network fully leverages our economies of scale to provide superior service.
“We send our advisors canned reports and shoddy back office services and charge them 50% of their revenues.”

9) We have been in the business for centuries.
“We have been exploiting clients for centuries.”

10) Our clients see the value we provide. They understand that we are well worth the price.
“Please don’t go to Vanguard. Please don’t go to Vanguard. Please don’t go to Vanguard.”