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Financial and Economic Commentary: April 2020

March 31, 2020

Economic and Financial Commentary: April 2020

Given the fluctuations in the global markets over the last month we thought it would be helpful to remind everyone the principles behind investing and the iterative process that we work through to connect your personal goals with investments. We also remind ourselves of this process as planning is critical to define our goals and investing is how wealth is created over time.

Why do we invest?

  • We share a passion with our clients to help them reach their long-term financial goals.

What is the most effective process to match investments with desired outcomes?

  • We start with financial planning to quantify your goals and the time frame of cash disbursement needs.
  • We plan for your liquidity/cash needs…expected and unexpected.
  • We build portfolios that will be suitable over the entire process of planning objectives.
  • We monitor your planning projection over time to make sure you are on track and adjust as needed.

How do we build portfolios?

  • We are investors…not speculators.
    • Per Benjamin Graham, pioneer of value investing:
      • ”The investors primary interest lies in acquiring and holding suitable securities at suitable prices”. (Our business)
      • A speculator cares mainly about “anticipation and profiting from market fluctuations”. (Not our business)
  • From Warren Buffet: ”We must be fearful when others are greedy and greedy when others are fearful”.
  • Our reward for risk is greatly improved when we lengthen the time horizon. Volatility is part of the investment landscape. Returns usually come over a period of years.
  • Risk is the observable fluctuations, positive and negative, over time. The psychology of the human brain dislikes losses twice as much as if like gains.
  • We believe in asset allocation to control risk and rebalancing periodically to maintain prudent risk levels.

How are we dealing with the current market volatility?

  • We believe we will face a substantial economic contraction followed by a much lower economic growth phase than the expansion that lasted from 2007 through 2019. 2020 begins a new economic cycle!
  • To make money over the next phase of our economy, we favor holding a majority of long-term or ‘investable’ assets in sustainable businesses, through individual stocks and stock mutual funds, so we can benefit from growing earnings and the capacity to increase dividend payouts. Low interest rates will make it difficult to make money in bonds and bond funds
  • We pay careful attention to valuations and debt levels of businesses we choose to invest in individually.
  • To gain an advantage, we plan to intentionally overweight and underweight certain sectors of the financial markets.
  • Given the proposed stimulus packages will rapidly increase our national debt, we ultimately expect higher income tax rates and will work to create tax efficiencies where possible.
    • Tax-swapping investments in non-retirement accounts.
    • Roth conversions for retirement accounts where suitable.

Investment and planning opportunities will present themselves in all stages of a market cycle. We stand by you, our client, as an advisor to you in this tumultuous time to guide you in keeping your investments and your long-term goals paired together.  

Jeff Secord and Scott Davis are Investment Advisor Representatives offering advisory services and securities through Cetera Advisor Networks LLC, a Broker-Dealer and Registered Investment Advisor, Member FINRA/SIPC. Cetera is under separate ownership from any other named entity. Branch: 1 Brickyard Drive Suite 201, Bloomington, IL 61701, (309) 590-9900. All investing involves risk, including the possible loss of principal.  There is no assurance that any investment strategy will be successful. Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss. Rebalancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.  Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.  The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results.