January 2019
We are currently sending consolidated statements showing the market value of your accounts on the last trading day of 2018. 2018 was an up and down year as you all know, but almost 100% of you have been ignoring those market gyrations. So have we. When we do consider them, we reflect upon the opportunities lower markets provide.
It is business as usual in our office; when people need money for an event they have been planning, we send them their money and when they send us money to invest, we gladly put it to work. We study your accounts, make a few changes and put “extra” cash from dividends or capital gains to work.
This seeming lack of concern is based upon historical facts. The DJIA went up 28.11% in 2017 and down 3.48% in 2018. The S&P 500 increased 21.82% in 2017 and then decreased 4.39% in 2018. The Nasdaq increased 32.99% in 2017 and lost 0.04% in 2018. (First Trust Advisors L.P. – Market Watch). Overall, the changes seem quite mild when you consider the two-year summaries.
Since 1926, the market, as measured by the S&P, has had nine major Bull Market moves and eight major Bear Market moves. The average Bear Market period lasted 1.4 years with an average cumulative loss of -41% and the average Bull Market period lasted 9.0 years with an average cumulative total return increase of 480%. (“History of U.S. Bear & Bull Markets Since 1926”, First Trust Portfolios L.P., www.ftportfolios.com). And that’s how and why people make money “holding” carefully chosen investments.
There seems to be agreement that the economy is strong, but markets need to “take a breather”. Employment is a problem only because there aren’t enough workers. Then there are the federal reserve decisions, interest rates in general, China, trade wars, the national debt, deficit…etc. “Experts” argue about which one will ruin us. We haven’t forgotten that the Roman Empire no longer exists and the similarities between their behavior and the countries of today are disturbing, but we also know preparing only for the worst does not make for a balanced life.
We stress the large diversification of investments in your portfolio. There are 11 sectors and 126 sub sectors in the S&P Index. While the active managers we use do not promise to add investments from all sectors or to equalize the amount invested in each, we are confident they are searching all sectors to find the best carefully managed companies to buy.
The market is acting “normal.” (Everyone has a tantrum or bad day once in a while.) It is good for us to remember the market will not go UP all the time. When it has been smooth and easy to live with, we tend to get too comfortable and forget the importance of down, or Bear, Markets.
Summary: the economy is “normalizing.” Interest rates have been kept unrealistically low for years and there are consequences. We saw the results in 2007-2009; the market dropped to its lowest level in years and the excesses developed in the housing market after the implosion of stocks in 2000 corrected. Interest rates had been lowered with the best of intentions, but it was not a normal market correction. There are continued reverberations.
Due to new tax law, which changes the allowable deductions for your income tax preparation, we will not be sending letters summarizing fees. (Most taxpayers will benefit from the changes.) But we will send out available information regarding gains and losses on sales. Please give your accountant permission to contact us directly regarding any missing information and we will provide it. Remember that final versions of 1099 tax forms often arrive from the custodian as late as March.
Please call us to discuss your accounts or new possibilities or changes at any time. Meetings set up by you are often more timely than ones suggested by us.
Thank you for working with us.
Louise Googins, Author, Principal
Karl Kuelthau, Principal
Michael Googins, Administrator
Kim Rankin, Accountant
Carson Bieber, UW intern
Logan Donovan, UW intern