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Trending Now – April Market Recap

“We are now in a bear market – here’s what that means.”– CNBC headline on December 24, 20181

“The stock market rally to start 2019 is one for the history books.”– CNBC headline on February 22, 20182

If you’re like most people, it’s probably not uncommon for you to plan your day or week based on the weather forecast. For example, you might check the forecast, see that it’s supposed to be sunny, and decide to go fishing on Saturday.  

But when Saturday rolls around, it starts to rain.

The frustration you’d feel is very similar to how investors and analysts often feel about the markets. The forecast says one thing – and then the opposite happens.  

For example, let’s go back to the end of 2018. For months, the markets had been hammered by volatility. The Nasdaq entered bear market territory. Many pundits predicted even more volatility after the new year.  

But four months later, the markets are on the verge of record highs.  
So, the question is: Why the change in direction? What’s behind this year’s market rally? And most importantly, what can we learn from it?  

The volatility that dominated the end of 2018 was largely due to fears of an economic slowdown. The Federal Reserve raised interest rates, which can cool both inflation and economic growth. Trade tensions with China showed no signs of stopping. Corporate earnings slowed down, oil prices had dropped, and several other indicators had many analysts predicting a recession in 2020 or 2021.  

Even after the turn of the year, there was some interesting data that, when compared with historical trends, suggested more storms on the horizon. For example, you may have seen the term “inverted yield curve” bandied about in the media for a time.  We’re venturing into “financial nerd” territory here, but this is when the yield on short-term Treasury bonds rises higher than the yield on long­-term bonds. It doesn’t happen often, and historically, it has sometimes been a sign of an impending recession.  

The result of all these signals was a forecast that had many investors reaching for their umbrellas, convinced that gloomy weather was here to stay.  

But instead, the markets enjoyed their strongest start to a year since 1998.3

In many ways, this rally has been driven by something very simple: Nothing really got worse. The Federal Reserve has stopped raising interest rates, saying that it won’t raise them again in 2019.4 The trade war with China seems to have hit a lull. And now, investors can point to a host of different historical trends that work in their favor. For example, some data suggests that when the stock market rises 13% or more “during the first three months of a calendar year,” it will gain even more before the end of the year.3

So, does that mean the good times are here to stay?

No.

Warren Buffett, the legendary investor, has a saying: “Be fearful when others are greedy and greedy when others are fearful.” While we shouldn’t take that maxim too literally, it does illustrate an important point. Time after time, conditions that cause fear can change in an instant, leaving the fearful behind. On the other hand, conditions that stoke greed can shift before you know it, giving the greedy a nasty shock.  

On their website, CNN has something called the Fear & Greed Index.5 Using seven different indicators, they can calculate which emotion is driving the markets most at any given time. As of this writing, that emotion is greed. A few months ago, it was fear. As we’ve just seen, the scale can swing from end to another very quickly.  

When you look more closely at the data, there are still reasons to think a recession is possible in the next year or two. (A contracting labor market, problems in Europe, stocks being valued too highly, to name just a few.) Other data suggests that the stock market’s current highs are overblown.6 But does this mean it’s time to run and hide? Nope! While data is very good at telling us what was and what is, it’s still unreliable at telling us what will be – at least as far as the markets are concerned. In fact, for as much grief as we give meteorologists for getting a forecast wrong, they do a much better job predicting the weather than experts do the markets!  

Here’s what we can learn from all this

As financial advisors, the reason we’re sending this article is because there are a few things we think we need to keep in mind as 2019 rolls on.  

First, we need to remember to guard against recency bias. Recency bias is when people make the mistake of thinking what happened recently is what happens usually. It’s why investors tend to panic during market volatility or take on unnecessary risk during a market rally.  

Second, remember that emotion is a good servant, but a bad master. Emotion helps us interact with other people. It makes experiences more memorable and life more colorful. But it can be come harmful if it drives our decisions. We should always strive to keep our own personal Fear & Greed Index from swinging too sharply one way or the other.  

Finally, whether the markets go up, down, or sideways, you’ll probably hear about many different statistics, indicators, and historical trends that predict this, that, or the other thing. When you do, remember that correlation is not causation.  

Correlation, as you probably know, is the measurement of how closely related two things are. In finance, we often find that many things tend to change in sync with one another. Asset classes, market sectors, you name it. It’s why we spend so much time looking at things like inverted yield curves – because they are often correlated with the health of the markets or economy.  

But just because two things are correlated does not mean that one causes the other. (It’s why an inverted yield curve doesn’t always mean a recession is nigh.) All the indicators and historical trends you hear about in the news are important, and worth studying – but again, they only tell us what was or what is. Not what will be.  

So, to sum up:

  • Just as we didn’t give in to fear when the markets were down, so too will we not give in to greed while the markets are up.  
  • We will remember that sun today doesn’t protect against rain tomorrow, or vice versa.  

Instead, we’ll make decisions as we’ve always done: by keeping our clients’ long-term goals foremost in our minds. In other words, we’re not working to help you go fishing just this weekend.  We’re working to help you go fishing any weekend you want.  

As always, if you have any questions or concerns about the markets, please don’t hesitate to contact us. In the meantime, have a wonderful Spring!  

1 “We are now in a bear market – here’s what that means,” CNBC, December 24, 2018. https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html

2 “The stock market rally is one for the history books,” CNBC, February 22, 2019. https://www.cnbc.com/2019/02/22/the-stock-market-rally-to-start-2019-is-one-for-the-history-books.html

3 “The Stock Market is Having Its Strongest Start in 21 Years,” Money, March 20, 2019. http://money.com/money/5639032/stock-market-strong-start/

4 “Fed holds line on rates, says no more hikes ahead this year,” CNBC, March 20, 2019. https://www.cnbc.com/2019/03/20/fed-leaves-rates-unchanged.html

5 “Fear and Greed Index,” CNN Money, accessed April 17, 2019. https://money.cnn.com/data/fear-and-greed/

6 “Dow, S&P 500 and Nasdaq near records but stock-market volumes are the lowest in months,” MarketWatch, April 18, 2019. https://www.marketwatch.com/story/why-stock-market-volumes-are-the-lowest-in-months-as-the-dow-sp-500-and-nasdaq-test-records-2019-04-17

Medicare – Insurance for Retirement #2

We reviewed Medicare Part A and Part B, in the first article in this series.  Now it is time to explore Medicare Part C and Part D. If you need a refresher on Part A and Part B, that article can be viewed on our website: http://www.mmwealth.com/medicare-insurance-for-retirement-1/

Medicare Part C

Part C is also known as Medicare Advantage Plans. Unlike Parts A and B, Part C is optional (Part B is technically optional, but usually it is highly recommended). Before signing up for Part C, you must sign up for Part A and B. Many times, Part C covers the same things covered by Part A and B, however it also covers additional items of insurance including vision, prescriptions, and dental. 

Part C is supplemental insurance to Medicare Part A and B, but it should not be confused with Medicare Supplement Plan or “Medigap”.  We will cover Medigap policies in part 3 of this article series.   

The cost of Medicare Advantage Plans, or Medicare Part C, can vary greatly because the premium increases as supplemental items are added to the coverage. The average monthly premium is approximately $34.00.  Premiums can be as low as $0, but remember, nothing is truly free because there are co-pays and deductibles. The cost of premiums also varies based on geography.  Be aware that a New York policy may not be usable in Florida.

Medicare Advantage insurance is purchased through a private insurance company, which is why comparative shopping every year is important. Sticking with the same coverage year after year may end up being a costly mistake because premiums can increase, coverage may change, and your health needs may be different over time.   It is a best practice to make sure your current Part C coverage is still the best solution for you when enrollment begins on October 15th.  The best policy does not necessarily mean the cheapest premiums, deductibles and co-pays. It is important to make sure the policy works well with the preferred doctors in your area.   

Medicare Part A and B offer a 7-month enrollment window however, Medicare Advantage offers individuals two months to sign up after a special enrollment event (i.e. retirement).  If the enrollment window is missed, the next opportunity will be open enrollment which begins on October 15th.  One key fact to remember: a person cannot be disqualified based on preexisting conditions.

The government rates Medicare Advantage (Part C) and Prescription Drug (Part D) plans using a scale of one to five stars.  Individuals that are eligible can enroll in a five-star plan anytime throughout the year.  This is a convenient option for those that want or need to obtain coverage before October 15th or after December 7th.    

Medicare Part D

Medicare Part D is also known as the Medicare prescription drug benefit.   It is an optional plan for those that have signed up for Medicare Part A and B only, or those who have Part A, B and Medigap.  Individuals that have Medicare Part C coverage may not need Part D because prescriptions are usually covered by Part C.   

There is a late-enrollment penalty for those that do not enroll for Part D when they were first eligible and do not have creditable prescription coverage from a source such as an employer or Medicare Part C.  The late enrollment penalty is 1% of the national base beneficiary premium ($35.02 in 2018) multiplied by the number of months the person could have had Part D but did not. For example, waiting 12 months after you retire and not signing up for another credible prescription drug coverage means that your Part D premiums will be $3.50 more per month for the rest of your life. It is not a considerable amount, but it is an easy expense to avoid by being aware of the enrollment guidelines.

Part D standalone must cover at least two drugs per drug category, but each plan can choose which specific drugs they cover. It is the individual’s responsibility to shop for the Part D plan that will best cover the prescription drugs they need.  Individuals should not purchase a Part D plan thinking it covers all prescription drugs, because it will not.

Just like with Part C, Medicare Part D is purchased with a private insurer, which means comparative shopping each year is a good idea for those that have a standalone Part D plan.   The main reason for this is because the prescription drugs covered by the plan may change.  Those that are enrolled in Part D will receive a packet of information in September that details the changes to the current plan.   

The average monthly premium in 2018 for Part D is $43.00 per month.  Part D’s premium is not the major expense of this insurance, it is, in fact, the co-pay. The copays for different Part D policies vary greatly and therefore it is important to look at the co-pays of the drugs that you may take to understand what your total out-of-pocket expenses will be (Premiums + Copays).

In the next and final article in this series, we will look at Medigap also known as Medicare Supplemental Policy.    

Check the other artciles
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Protect Your Identity – Free Credit Freeze

It’s been over a year since Equifax, one of the three largest credit reporting agencies in the U.S., revealed they’d been hacked.  Because the hackers were able to access everything from Social Security numbers to payment histories to driver’s license numbers, the cyberattack put over 145 million Americans at risk of identity theft.1

What did you do to protect your data?

If you’re like most Americans, the answer is probably, “not much.”  According to a survey by AARP, only 14% of adults chose to freeze their credit after the hack – even though freezing your credit is one of the best ways to prevent identity theft.2 

One possible reason for this is that credit freezes have traditionally cost money.  But now you can freeze your credit for free!

Thanks to the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” a new law enacted in May, credit reporting bureaus like Equifax, TransUnion, and Experian must offer free credit freezes.3    


SEC. 301. PROTECTING CONSUMERS’ CREDIT.


“(A) IN GENERAL.— Upon receiving a direct request from a consumer that a consumer reporting agency place a security freeze, and upon receiving proper identification from the consumer, the consumer reporting agency shall, free of charge, place the security freeze not later than…1 business day after receiving a request by telephone or electronic means…[or] 3 business days after a request that is by mail.”3 


Economic Growth, Regulatory Relief, and Consumer Protection Act


What is a credit freeze?

To calculate your credit, agencies like Equifax store important data like loan and payment history, birth dates, Social Security numbers, and more.  Whenever you apply for a loan or approval on a credit card, banks and other lenders will request that information from a credit reporting agency. 

When you apply for a credit freeze, the agency will essentially lock, or freeze, your file so that it can’t be accessed.  That way, even if a lender requests your information, the agency will not release it until you “thaw” the freeze first.  It’s an excellent way to keep your personal information from falling into the wrong hands.  That’s because it “makes it harder for criminals to use stolen information to open fraudulent accounts, or borrow money, in your name.”4 

In many cases, you can safely keep your credit frozen year-round unless you need to apply for a loan.  Unfortunately, many people don’t take advantage of this.  Some probably didn’t want to pay the money, while others find the process to arduous.  And some, likely, don’t think identity theft will ever happen to them.  That’s despite the fact that, in 2014 alone, 17.6 million Americans experienced identity theft!5

In our opinion, freezing your credit is definitely an option to consider. 

A few things to know:

  • To get the most protection, you should freeze your credit at all three of the major credit reporting agencies.  Visit these websites to learn how:

TransUnion: transunion.com/credit-freeze

Experian: experian.com/freeze/center.html

Equifax: equifax.com/personal/credit-report-services

  • The new law also enables parents to freeze their children’s credit for free if they are under age 16.  While a child’s identity is usually not as vulnerable as an adult’s, it still should be protected, and it’s a terrific way to teach children about the dangers of identity theft!
  • While a credit freeze is a valuable weapon in the fight against identity theft, it won’t protect you from everything.  That’s why you should check your credit report regularly.  (You can still request a credit report even if your credit is frozen.) 
  • Freezing your credit will not affect your credit score.

To learn more, visit the Federal Trade Commission’s website at https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs

Identity theft is one of the biggest threats to reaching your financial goals.  Take steps to protect your identity as soon as possible.  Please let us know if you have any questions – and be sure to visit the links listed above to learn more!

1 Stacy Cowley, “2.5 Million More People Potentially Exposed in Equifax Breach”, The New York Times, October 2, 2017.  https://www.nytimes.com/2017/10/02/business/equifax-breach.html?module=inline

2 “Up for Grabs: Taking Charge of Your Digital Identity,” AARP National Survey, August 2018.  https://www.aarp.org/content/dam/aarp/research/surveys_statistics/econ/2018/taking-charge-of-your-digital-identity-national.doi.10.26419-2Fres.00228.000.pdf

3 “Text of the Economic Growth, Regulatory Relief, and Consumer Protection Act,” https://www.congress.gov/bill/115th-congress/senate-bill/2155/text

4 Ann Carrns, “Freezing Credit Will Now Be Free,” The New York Times, September 14, 2018.  https://www.nytimes.com/2018/09/14/your-money/credit-freeze-free.html

5 “17.6 million U.S. residents experienced identity theft in 2014,” Bureau of Justice Statistics, https://www.bjs.gov/content/pub/press/vit14pr.cfm

Medicare – Insurance for Retirement #1

Introduction – The Complexities of Medicare

Medicare is the health insurance that people dread to think about because of the complexities and lack of information available. Many, even those already on Medicare, do not know the rules or how it works. Once they sign up for Medicare, most think it’s a set-it-and-forget-it health insurance. But, premiums can increase, benefits can change, and medical needs can increase. It is for these reasons that it is important to understand Medicare before and after you sign up for it.

This is article number one of a three-part series on Medicare. Open enrollment for certain parts of Medicare started on October 15th and now is as good a time as any to better understand Medicare. This article will address Basic Medicare (Part A and B). Our next article will go over Medicare Advantage Plans (also known as Part C) and Part D. The third and final article in this series will focus on the Medicare Supplement Plan (also known as Medigap).

Medicare Part A

Medicare Part A is known as hospital insurance. It covers hospitalization, skilled nursing facility care, inpatient care in a skilled nursing facility, hospice care and home health care.

Generally, it is available to people that are 65 years or older (as well as younger people with disabilities or end stage renal failure). Part A is premium free if you are 65 or older and you or your spouse have worked and paid Medicare taxes for a minimum of 10 years.

Although Part A is premium free, that does not mean there’s no out-of-pocket expense. In 2018, there is a $1,340 deductible per “spell of illness”. A single “spell of illness” begins when the patient is admitted to a hospital or other covered facility, and ends when the patient has gone 60 days without being readmitted to a hospital or other facility. That means that if you need to be hospitalized, you must pay $1,340 out-of-pocket as a deductible and then Part A kicks in. If you pay $1,340 as a deductible, leave the hospital and come back in 3 months for a different reason, you would have to pay the deductible again. This surprises many people because they are used to the annual deductible reset, not the 60-day deductible reset.

Another aspect of Part A that people find surprising is there is no maximum out-of-pocket expense. If you need skilled nursing care for home health care, you must pay the $1,340 deductible and then Medicare Part A will help pay for SOME of the costs, not all. Therefore, if you need Part A coverage for more than 100-150 days for hospitalization or skilled nursing care, you may have to pay the entire bill thereafter. This, of course, can lead to catastrophic healthcare expenses. We will discuss a potential solution in our upcoming articles.

Medicare Part A is the first part of Basic Medicare. Because there is no premium, there is no reason why most people should not sign up for Medicare Part A three months prior to their 65th birthday. There is one specific exception…if you are working, covered by your employer’s high deductible healthcare plan AND contributing to your Health Savings Account. If this is the case then you should visit our office to speak with us to determine if it makes sense for you to sign up for Part A.

Medicare Part B

Medicare Part B is known as medical insurance. It helps covers services and supplies that are medically necessary for the diagnosis or treatment of a health condition. This includes outpatient services, at a hospital, doctor’s office, clinic, or other health facility. Medicare Part B also helps cover many preventive services to prevent illness or detect them at an early stage. Together, Medicare Part A and Part B are known as Original Medicare.

Part B has the same eligibility as Part A – 65 years of age or older and you or your spouse have worked and paid Medicare taxes for a minimum of 10 years.

Unlike Part A, Part B has a monthly premium and a yearly deductible. The monthly premium for 2018 starts at $134 amount and can increase if your gross income (which is your adjusted gross income plus tax-exempt interest) is above a certain amount. Higher premiums may also apply if you do not enroll in Medicare Part B when you were first eligible.

The deductible for Part B is relatively low ($183 per year in 2018). Furthermore, Part B has a coinsurance of 80%.

After the initial yearly deductible, Part B will pay for 80% of the “Medicare-approved amount”. This basically means Medicare says what something should cost. If a medical provider charges 120% of what Medicare says it should cost, you will have to pay for that extra 20% premium. In truth, Medicare Part B, on average, will only pay about 60% of these medical costs! Lastly, just like Part A, there is no limit on out-of-pocket expenses.

For a variety of reasons, it does not always make sense for someone to sign up for Part B at age 65. If you are still employed with a company that has a minimum of 20 employees, or if your spouse is, you do not have to sign up for Medicare Part B. Instead, you can stay on the medical plan offered by your or your spouse’s employer. If you plan to do this, you should check with the benefits administrator to see how the plan works with Medicare. A good rule of thumb is when you hear that your work insurance is secondary to Medicare, it would be a good idea to apply for Part A and B at the very least.

Enrollment for Medicare Part A and B is easy. Call Social Security at 800-772-1213 or go to the nearest Social Security office. Bring your photo identification (state issued ID or passport) and proof of your birth (birth certificate). You will also need proof of your marriage (marriage certificate) if you are applying for Medicare through your spouse’s work record. You can sign up for Medicare three months before your 65th birth month. For example, if you were born in July, you can apply for Medicare on April 1st for the benefits to start July 1st.

We will cover Medicare Part C, D and Supplemental in our upcoming articles.

Tips for Preventing Fraud

Tips for preventing fraud

Cybercrime and fraud are serious threats and constant vigilance is key. While our firm plays an important role in helping protect your assets, you can also take action to protect yourself and help secure your information. This checklist summarizes common cyber fraud tactics, along with tips and best practices. Many suggestions may be things you’re doing now, while others may be new. We also cover actions to take if you suspect that your personal information has been compromised. If you have questions, we’re here to help.

Cyber criminals exploit our increasing reliance on technology. Methods used to compromise a victim’s identity or login credentials – such as malware, phishing, and social engineering – are increasingly sophisticated and difficult to spot. A fraudster’s goal is to obtain information to access to your account and assets or sell your information for this purpose. Fortunately, criminals often take the path of least resistance. Following best practices and applying caution when sharing information or executing transactions makes a big difference.

How we can work together to protect your information and assets

Safe practices for communicating with our firm
  • Keep us informed regarding changes to your personal information.
  • Expect us to call you to confirm email requests to move money, trade, or change account information.
  • Establish a verbal password with our firm to confirm your identity, or request a video chat.
How Schwab protects your account

Schwab takes your security seriously and leverages protocols and policies to help protect your financial assets.    

  • Confirm your identity using Schwab’s voice ID service when calling the Schwab Alliance team for support.
  • Use two-factor authentication, which requires you to enter a unique code each time you access your Schwab accounts.
  • Review the Schwab Security Guarantee, which covers 100% of any losses in any of your Schwab accounts due to unauthorized activity.

To learn more, visit Schwab’s Client Learning Center.

What you can do

Be aware of suspicious phone calls, emails, and texts asking you to send money or disclose personal information. If a service rep calls you, hang up and call back using a known phone number.
Never share sensitive information or conduct business via email, as accounts are often compromised.
Beware of phishing and malicious links. Urgent-sounding, legitimate-looking emails are intended to tempt
you to accidentally disclose personal information or install malware.
Don’t open links or attachments from unknown sources. Enter the web address in your browser.
Check your email and account statements regularly for suspicious activity.
Never enter confidential information in public areas. Assume someone is always watching.

Exercise caution when moving money

Leverage our electronic authorization tool to verify requests. Featuring built-in safeguards, this is the fastest and most secure way to move money.
Review and verbally confirm all disbursement request details thoroughly before providing your approval, especially when sending funds to another country. Never trust wire instructions received via email.

Adhere to strong password principles

Don’t use personal information as part of your login ID or password and don’t share login credentials
Create a unique, complex password for each website, Change it every six months. Consider using a password manager to simplify this process.

Maintain updated technology

Keep your web browser, operating system, antivirus, and anti-spyware updated, and activate the firewall.
Do not use free/found USB devices. They may be infected with malware.
Check security settings on your applications and web browser. Make sure they’re strong.
Turn off Bluetooth when it’s not needed.
Dispose of old hardware safely by performing a factory reset or removing and destroying all storage data devices.

Use caution on websites and social media

Do not visit websites you don’t know, (e.g., advertised on pop-up ads and banners).
Log out completely to terminate access when exiting all websites.
Don’t use public computers or free Wi-Fi. Use a personal Wi-Fi hotspot or a Virtual Private Network (VPN).
Hover over questionable links to reveal the URL before clicking. Secure websites start with “https,” not “http.”
Be cautious when accepting “friend” requests on social media, liking posts, or following links.
Limit sharing information on social media sites. Assume fraudsters can see everything, even if you have safeguards.
Consider what you’re disclosing before sharing or posting your résumé.

What to do if you suspect a breach

Call our office or your Schwab Alliance team immediately at 800-515-2157 so that they can watch for suspicious activity and collaborate with you on other steps to take.
Request our “How to Respond to a Data Breach” flyer for more information.

Learn more

Visit these sites for more information and best practices:

  • staysafeonline.org: Review the STOP. THINK. CONNECT™ cybersecurity educational campaign. https://staysafeonline.org/
  • consumer.ftc.gov: Focused on online security for kids, it includes a blog on current cyber trends. 
  • FDIC Consumer Assistance & Information, https://www.fdic.gov/consumers/assistance/index.html.
  • FBI Scams and Safety provides additional tips, https://www.fbi.gov/scams-and-safety.

Interest Rates 2018

It’s October, which means autumn is upon us.  But this year, it’s not just the leaves that are falling.  The markets have been falling, too.  On Wednesday, October 10, the Dow slid more than 800 points.  The S&P 500 fell for the fifth straight day.  And the tech-heavy NASDAQ was hit hardest of all, dropping more than 4%.1  All three indexes continued sliding on Thursday, too.2

It sounds dramatic, but it’s not necessarily cause for alarm.  Still, whenever market volatility rears its head, it’s useful to understand why.  That’s because the more we understand the why, the less cause we have to fear it.

Before we delve into why, however, let us ask you a question.  Do you remember the Greek myth of Theseus and the Minotaur?  In the story, Theseus descends into a bewildering labyrinth to fight the half-man, half-bull Minotaur.  But to find his way back, Theseus first ties one end of a ball of string to the entrance.  Then, after slaying the beast, he follows the unwound string all the way back to the surface. 

The reason we mention this story is because sometimes, navigating the markets can feel like wandering through an impenetrable labyrinth.  There are so many headlines and narratives, each with their own twists and turns.  The good news is that it’s possible to pick up a thread and follow it all the way back to its source, just like Theseus. 

A ten-year journey

In this case, follow the thread back to the end of 2008.  Seems like a long time ago, doesn’t it?  Barack Obama had just been elected president.  The academic paper that would lead to the creation of bitcoin had just been published.  And people were just beginning to realize how bad the Great Recession would become.

To combat this, the Federal Reserve lowered the federal funds rate to almost zero.3  This is the interest rate that banks pay each other for overnight loans. 

Their reasoning was simple.  By reducing the federal funds rate, banks could afford to lower their own interest rates to customers.  Lower interest rates, of course, make it cheaper for businesses and individuals to borrow money, which spurs more investing and spending.  This, in turn, could help revive America’s slumping economy.  And with millions of jobs lost during the Great Recession, the economy needed all the help it could get. 

Rates remained in the basement for years afterwards as the economy embarked on a long, slow healing process.  In fact, it wasn’t until 2015 that the Fed finally raised rates at all.4

Now follow the string forward to 2018

The Fed has started lifting interest rates at a slightly faster pace in 2018.  Recently, on September 26, the central bank announced they would raise the federal funds rate to a new range of 2.0 to 2.25%.5  Officials also suggested they might boost rates once more before the end of the year.  It’s the third increase in 2018, and the eighth overall since 2015. 

Why are interest rates going up?  Because the economy is in a much stronger place!

Unfortunately, with that strength comes the risk of inflation.  Inflation is the rate at which prices rise and purchasing power falls.  For example, if the rate of inflation is 3%, then a candy bar that costs a dollar one year will cost $1.03 the next.  It’s essentially the measure of how valuable your money is.  And if inflation goes too high, it can make even basic living costs very expensive.   

Historically, inflation goes up when interest rates are low.  The Federal Reserve takes the risk of inflation very seriously.  In fact, stabilizing inflation is one of the reasons the Fed was created in the first place.  So, to prevent the economy from “overheating”, the Fed has slowly raised interest rates.  This makes borrowing costlier and reduces spending, forcing the economy – and inflation – to grow at a slower rate. 

Whew!  Got all that?  If so, congratulations!  You’ve followed the string all the way back to the surface.  We’ve finally reached the present day. 

How higher interest rates affects the markets

There’s really no direct link between interest rates and the markets.  The effect is more of the “ripple” variety.  Despite this, higher interest rates tend to spook investors. 

Remember, when the federal funds rate goes up, it costs more for banks to loan each other money.  In response, banks raise their own interest rates.  This makes borrowing more expensive for businesses and individuals, prompting them to cut back on spending.  Less spending for businesses means less investment, less expansion – and less growth.  And when investors think a company isn’t growing, they tend not to invest in that company.  On the individual side, higher rates can also mean less disposable income for people to spend or invest. 

There are other reasons why the markets are struggling.  Falling bond prices (which are directly correlated with rising interest rates).  Trade tensions between the U.S. and China.  Like we said, the markets can be positively labyrinthine.  But interest rates are one of the main drivers behind this sudden surge in volatility. 

And now you know why. 

So where do we go from here? 

As important as interest rates are, they’re still just one thread.  There are plenty of others that could cause the markets to rise or fall.  For instance, a fresh bit of good economic news could transform this week’s fears into last week’s memories.  And with the economy as strong as it is, would that really be a surprise?

This is why we don’t overreact whenever the markets lurch one way or the other.  You see, when it comes to working toward your goals, we do everything possible not to fall into a labyrinth of twists, turns, and changes in direction.  Instead, it’s better to keep things simple.  To stay above ground.  To follow our own path, not headlines or individual economic indicators. 

In the story of Theseus and the Minotaur, Theseus was advised to “go forwards, always down, and never left or right” to reach his goal.  The road to your goals isn’t quite so cut-and-dry.  But the point is, Theseus had a plan.  A strategy.  And with the help of ball of string, he never deviated from it. 

We also have a strategy: To invest in sectors with the highest relative strength, pay more attention to supply and demand (instead of storylines), and follow our own set of rules about when to enter or exit an investment.  And while you don’t have a ball of string, you have something even better: A team of experienced professionals dedicated to holding your hand while you work toward your goals. 

It’s October.  It’s a time for falling leaves, trick or treating, and an endless array of pumpkin-flavored beverages.  It’s not a time for stressing about the markets.  So, enjoy the season, remembering that here at Minich MacGregor Wealth Management, we’ll keep watching Washington, Wall Street, and your portfolios.  Every day, every week, every month, and every year. 

Sources

1 “Dow falls 832 points in third-worst day by points ever,” CNN Business, October 10, 2018.  https://www.cnn.com/2018/10/10/investing/stock-market-today-techs-falling/index.html

2 “U.S. Stocks Seek Stability on Heels of Wednesday Rout,” The Wall Street Journal, October 11, 2018.  https://www.wsj.com/articles/markets-tumble-across-asia-led-by-tech-as-growth-worries-dominate-1539225820?mod=article_inline?mod=hp_lead_pos1

3 “Fed Cuts Key Rate to a Record Low,” The New York Times, December 16, 2008.  https://www.nytimes.com/2008/12/17/business/economy/17fed.html

4 “Federal Reserve raises interest rates for second time in a decade,” The Washington Post, December 14, 2016.  https://www.washingtonpost.com/news/wonk/wp/2016/12/14/federal-reserve-expected-to-announce-higher-interest-rates-today/

5 “Fed Raises Interest Rates, Signals One More Increase This Year,” The Wall Street Journal, September 26, 2018.  https://www.wsj.com/articles/fed-raises-interest-rates-signals-one-more-increase-this-year-1537984955

Words to Live By #2 – Change

A major part of our job is helping people reach their financial goals in life.  Over the course of our career, we’ve found that while things like planning, saving and investing are crucial, they’re not as important as qualities like perseverance, hard work, gratitude, and adaptability.

Sometimes, whenever the road to our goals seems long or daunting, it’s helpful to look for inspiration.  So, lately, we’ve started sharing a few quotes that have inspired us in our own personal journey.  We call them Words to Live By, and we hope they’ll help you as much as they’ve helped us.

Last month, we looked at the quality of perseveranceThis month, let’s look at an underrated quality: Adaptability and the willingness to change.

Words to Live By #2
Change

“There is nothing permanent except change.”  – Heraclitus

Have you ever worked toward a goal only to find the process isn’t quite what you thought it would be?  It’s a tale as old as time.  It happens when someone starts hitting the gym after years of staying away.  When someone returns to school to finish their degree.  When someone starts saving for that special trip they’ve always dreamed of.  When someone wants to finally write that novel kicking about in the back of their head.  And when it happens, people’s responses are often the same:

“It’s harder than I thought.”

“I just don’t have time.”

“I don’t want to do it that way.”

“This isn’t how I thought it would be.”

We’ve certainly thought these things on many occasions.  When we do, we remind ourselves of this quote by Maya Angelou:

“If you don’t like something, change it.
If you can’t change it, change your attitude.”

The fact is, achievement doesn’t take place in a vacuum.  It happens in the real world, and the world changes constantly.  New obstacles and challenges will constantly present themselves.  New demands on your time will constantly arise.  The things that used to work for you before don’t work anymore.  The skills you’ve long had, or the knowledge you’ve long possessed, may not be enough.

That’s why adaptability and a willingness to change are crucial if you want to reach your goals.  To put it simply, the people most able and willing to change are the people most likely to be successful.

“I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.”  – Jimmy Dean

When working toward your goals, accept and welcome the fact you may have to change:

  • Your habits.
  • Your expectations.
  • Your schedule.
  • Your mindset.
  • Your work ethic.
  • Your comfort zone.

“Intelligence is the ability to adapt to change.” – Stephen Hawking

Change may be difficult.  Sometimes, it can even be downright unpleasant.  But if the goals you’ve set for yourself are truly what you want the most, then it’s absolutely worth it.

“You cannot change your destination overnight, but you can change your direction overnight.”  – Jim Rohm

As time passes, the world will change.  As the world changes, our lives will change.  And as our lives change, so too will the road we must take to reach our goals.  When that happens, embrace it.  Don’t get stuck in the past.  Or, as the great Will Rogers once said:

“Don’t let yesterday use up too much of today.” 

Good luck!

Words to Live By #1-Perseverance

A major part of our job – perhaps the most important part – is helping people reach their financial goals in life.  Over the course of our careers, we’ve discovered that while things like planning, saving, and investing are crucial, it’s equally important to look beyond the numbers.  Achievement is about more than just spreadsheets or quarterly statements.  It’s about perseverance.  Hard work.  Willingness to change.  Gratitude.  Teamwork.

Sometimes, whenever the road to our goals seems long or daunting, it’s good to follow the example of those who came before.  So, over the next few months, we would like to share a few quotes that have inspired us in our own journey.  We call it Words to Live By, and we hope they’ll move you as much as they’ve moved us.

Let’s start with:

Words to Live By #1
Perseverance

What is perseverance?

“Perseverance is failing nineteen times and succeeding the twentieth.” – Julie Andrews

“Perseverance is the secret of all triumphs.”  – Victor Hugo

We can’t tell you how many times we’ve seen a client work so hard at something, only to come up short.  A degree.  A promotion. A new job.  An award.  Retirement.  You name it, we’ve seen it.

What we can tell you is that the clients who then pick themselves up, dust themselves off, and try again – and who do it every time – are the same ones enjoying their achievements right now.

What good does perseverance do?

“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” – John Quincy Adams

In our lives, we will face almost constant obstacles.  Financial hardship, poor health, unfortunate circumstances, even other people will stand in the way of who we want to be, where we want to go, and what we want to do.

“A lot of people are going to try to do the same thing you want to do.  You just have to decide if you’re one of the people who quits.”  – Shea Serrano

The road to our goals will often seem treacherous.  The obstacles will seem insurmountable, and the going unbearably slow.  But if the destination is what we truly want, it will be worth the mileage.  That’s why our favorite quite about perseverance comes from none other than Abraham Lincoln, who said:

“I may walk slowly, but I never walk backward.” 

As you progress towards your goals in life, always remember that the ability to keep walking, no matter how slowly, is what will get you there.  It matters more than talent.  It matters more than wealth.  Those things can certainly make the road easier.

But perseverance is what makes the distance shorter.

The Longest Bull Market in History

Human beings are obsessed with setting records. 

The fastest.  The strongest.  The first.  The longest.  It’s exciting whenever a new record gets set.  It makes us feel like we’re witnesses to something important, something historic.  Something we can tell our grandchildren about.  And now, we can add a new record to the list:

The Longest Bull Market in History

You’ve probably seen the news.  On Wednesday, August 22, many media outlets reported the U.S. stock market had set a new bull market record of 3,453 days.1  This incredible stretch, which by most estimates began on March 9, 2009, surpassed the previous record set in the 1990s. 

But here’s the thing about records.  Sometimes they matter.  Sometimes they don’t.  And the stories they tell can be very subjective. 

So, in this article, let’s break down what this bull market really means – and what it doesn’t. 

Is it really the longest bull market ever?

It depends on who you ask. 

For every article sounding the trumpets, you can find another pumping the brakes.  Fact is, the definition of a “bull market” is rather nebulous – and whether or not this one is truly a record depends on which data you’re using. 

The Wall Street Journal provided a good example in a recent article. 

“The widely accepted definition of a bear market is a drop of 20% from the last peak in this cycle, while bull markets are usually measured from the lowest point reached until the peak before the next bear market.”2 

But if this is the definition you’re using, our current bull market may only have started in October of 2011.  That was the month the S&P 500 fell 21.6% from its previous high.  Any growth from that point would be part of a new bull market, not the old one.  To which other pundits might respond, “Not so fast!  That number is only accurate if you’re using intraday prices instead of closing prices.  If you use closing prices, the S&P 500 only fell 19.4%2, which is less than the 20% needed for it to be a true bear market.” 

Confused yet?  Don’t worry – most people would be.  And anyway, if you really wanted to get technical about the definition of a bull market, you’d have to debate about whether to only use price returns (the price of a stock) or total returns (to which dividends are added). And then there’s the question of which market indices to use.  The S&P 500?  The Wilshire 500?  The Dow?  Do we use intraday prices or closing prices? 

We could go on, but we won’t – we don’t want this article to give you a headache.  The point is, the deeper you dig into the numbers, the less certain a record like this becomes.  Which means the real question we should ask ourselves isn’t, “Is this the longest bull market ever?” 

The real question is whether it even matters in the first place.

To which the answer is, “No!” 

Here’s what we know: The stock market has been going up for a long time now.  Sometimes slightly, sometimes sharply, but always up.  Let’s say all the experts got together and decided we aren’t in the longest bull market in history.  Would that change the fact that stocks have been going up for years?  Would it change the performance of your own portfolio? 

No, it wouldn’t. 

So what matters is not whether this is the longest bull market ever.  What matters is how we react to a long bull market like this one. 

What goes up must come down

On March 9, 2009, the S&P 500 hit a low of 666.1  (Yes, 666.)  Since then, the S&P has soared.  That’s over nine years of growth.  Nine years of an improving economy.  Nine years of soaring corporate profits.  Nine years of mostly happy times for investors. 

It will end eventually. 

Read that last line aloud: IT WILL END EVENTUALLY. 

When that will happen, we can’t say.  Indeed, many economists foresee the current bull market continuing for some time, albeit at a slower rate.  Taxes are low, unemployment is low, and the economy is humming along nicely. 

We can’t tell you this bull market will end next month or next year.  All we can tell you is that it will end.  The reason we emphasize this so much is because now is the time to prepare for that inevitable day.  Now is the time to accept that however well your portfolio has done, nothing can escape gravity’s pull.  At some point, you will see stock tickers showing a big, fat minus sign next to each of the major indices. 

When a bull makes way for a bear, it’s not uncommon for investors to be taken by surprise.  Suddenly, it’s raining – and they’ve been caught outside without an umbrella.  When that happens, it’s easy to panic.  To think the sky is falling.  Too many investors did that when the dot com bubble popped in the early 2000s.  Too many investors did that during the worst of the Great Recession.  And the reason they did is because they hadn’t prepared themselves when times were good. 

Maybe they thought the good times would last forever. 

On the other hand…

Just as it’s easy for investors to get complacent, it’s also easy for investors to get skittish.  That’s why an equally bad mistake would be to think, “Oh, this bull market has gone on for too long.  It’s probably going to crash any week now – time to get out!” 

Nope.  The markets don’t work that way. 

Here’s what will happen.  The longer the bull lives, the more you’ll see the media speculate about what will kill it.  One week it might be the threat of rising interest rates.  The next, it might be corporate profits, or whatever’s happening in far-off lands across the sea.  And sure, any of those things could well impact the markets.  But even if the markets were to drop, that doesn’t mean a crash is imminent. 

No one should abandon ship the moment they get a little wet. 

The point is to not overreact

Some records matter.  Some don’t.  And the stories they tell can be very subjective.  That’s why we don’t overreact to them.  Here’s what we do instead:

  1. We prepare ourselves, mentally and emotionally, for when the other shoe drops.  That way, when it does drop, it will be much easier to handle. 
  2. We don’t allow ourselves to flinch at every market wobble. 
  3. We remember that we have an investment strategy, and it’s not based off headlines, storylines, records, or milestones. 

In the meantime, if you’re worried about what will happen when this bull market ends, that’s okay.  Just focus on what you can control.  Focus on paying off your house, setting up an emergency fund, or helping your children or grandchildren pay for college.  Take care of the things that matter now. 

Or maybe your goals have changed, and you want to take advantage of this bull market while it lasts.  That’s a discussion we can have, too.  Just remember that our first responsibility should always be to prioritize the long term over the short. 

Human beings tend to be obsessed with setting records.  But here at Minich MacGregor Wealth Management, our job is to help you set goals – and then work toward achieving them.  Whether we’re in the longest bull market or not, that’s what we intend to do. 

As always, if you have any questions about the markets, or about your portfolio, please let us know!  We love to hear from you.  Have a wonderful rest of the summer!

1 Michael Wursthorn & Akane Otani, “U.S. Stocks Poised to Enter Longest-Ever Bull Market,” Wall Street Journal, August 21, 2018.  https://www.wsj.com/articles/u-s-stocks-poised-to-enter-longest-ever-bull-market-1534843800?mod=article_inline

2 James Mackintosh, “Calling Bull on the Longest Bull Market,” Wall Street Journal, August 22, 2018.  https://www.wsj.com/articles/calling-bull-on-the-longest-bull-market-1534940689