Schwartz
Financial Weekly Market Commentary
March
24, 2014
The Markets
After a series of
moves that proved far more effective, but were almost as complicated as the
Acme Corporation strategies Wile E. Coyote employed in pursuit of the
roadrunner, Russia dropped an anvil on Ukraine and annexed Crimea. In response,
Ukraine’s acting Prime Minister Arseniy Yatsenyuk signed a political
association agreement with the European Union (EU), and the United States
slapped sanctions on some of Russia’s President Vladimir Putin’s wealthy allies
and Bank Rossiya.
The EU also took
action although the BBC reported
Russia’s foreign ministry called the European Council's decision to impose
sanctions "regrettable" and "detached from reality." European
and Russian economies are interdependent. Twenty-five percent of the EU’s gas
comes from Russia, and more than one-half of Russia's budget is derived from
oil and gas sold to the EU. In addition, experts cited by the BBC indicated sanctions on Bank Rossiya
could tie up monetary transactions in EU banks and potentially affect
individual European countries’ business dealings with Russia if economic
sanctions are implemented.
Economists cited by
The New York Times said, “The
uncertainty that now hangs over nearly every profitable enterprise in Russia is
what poses the gravest threat to the country’s long-term prosperity, rather
than any immediate consequence of the specific sanctions.” While many of Putin’s
allies seemed relatively unaffected by the sanctions, at least one has experienced
consequences. Reuters reported
Russian billionaire Gennady Timchenko was forced to sell his ownership stake of
almost 50 percent in a global commodities trading firm after sanctions against
him disrupted the company’s operations.
Russian markets have
been unsettled by recent events. Consumers and businesses already have been
stung by interest rates which are very high by western standards and may move
even higher. Rating agencies, like Fitch and Standard & Poor’s, have warned
they will downgrade Russia’s credit rating. Russian consumers have been
thwarted as both Visa and Mastercard have stopped doing business with Russian people
or companies that have been targeted by sanctions.
U.S. stock markets
remained relatively blasé about events overseas but were alarmed by Federal
Reserve Chairman Janet Yellen’s comments during her first quarterly press
conference. She suggested the Fed might begin tightening interest rates in
2015, just a few months after tapering ends.
Data as of
3/21/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard
& Poor's 500 (Domestic Stocks)
|
1.4%
|
1.0%
|
20.8%
|
12.9%
|
17.8%
|
5.5%
|
10-year
Treasury Note (Yield Only)
|
2.8
|
NA
|
1.9
|
3.3
|
2.7
|
3.7
|
Gold
(per ounce)
|
-3.5
|
11.2
|
-17.2
|
-2.3
|
7.1
|
12.3
|
DJ-UBS
Commodity Index
|
-1.5
|
5.7
|
-3.7
|
-7.1
|
3.1
|
-1.3
|
DJ
Equity All REIT TR Index
|
-0.2
|
7.6
|
4.3
|
10.6
|
25.8
|
8.4
|
Notes: S&P
500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold
does not pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested dividends
and the three-, five-, and 10-year returns are annualized; and the 10-year
Treasury Note is simply the yield at the close of the day on each of the
historical time periods.
Sources:
Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance
is no guarantee of future results. Indices are unmanaged and cannot be invested
into directly. N/A means not applicable.
some worry the U.S. stock market, LIKE A FIRST TIME MARATHONER a few miles from
the finish, may be getting a little wobbly. There is no denying the Standard
& Poor’s 500 Index has had a good run. It has gained about 172 percent
since its low following the financial crisis, and its earnings have grown by
121 percent since 2008, according to Barron’s.
Of course, that growth has been supported by extraordinary measures including very
low interest rates and multiple rounds of quantitative easing.
Low
interest rates have meant businesses could borrow money relatively cheaply. Barron’s pointed out lower borrowing
costs were reflected in bond spreads – the difference between the current yield
on one type of bonds (for example, high-yield bonds, investment-grade bonds, or
government bonds) and that of other types of bonds with similar maturities. The
differences in yield between higher risk and lower risk bonds are a lot smaller
than they once were. According to Barron’s, from late 2008 through early 2014,
the yield on high-yield bonds and comparable Treasury bonds has narrowed from about
22 percent to about 4 percent.
As
private borrowing costs have dropped, companies have been able to borrow
billions of dollars and pay relatively little in interest. Some have returned
the money to shareholders as dividends; some have used the cash to make
acquisitions; and others have repurchased shares on the market or directly from
investors. Typically, when companies repurchase stock, their earnings per share
rises and so does the value of any outstanding stock. Regardless, low interest
rates and cheap borrowing costs have helped fuel share price appreciation and the
bull market in stocks.
Three
rounds of quantitative easing (the Fed’s bond buying programs) also helped push
stocks higher. An expert cited in Barron’s
noted “there has been a more than 90 percent correlation between the growth of
the central bank's assets and the S&P 500 since the bull market began five
years ago.”
Now,
the Fed is tapering quantitative easing and has indicated tighter monetary
policy may begin as soon as early next year. Should investors worry the bull market
will go away as these exceptional support measures are taken away?
If
an investor has long-term financial goals, the answer is no. The portfolio
allocation may have been chosen to help pursue those goals through all kinds of
market conditions. If the stock market is slowing down, an investor may
experience slower growth but that doesn’t mean the goals have changed or the
holdings are unsound. We may want to stay focused on the finish line.
Weekly Focus – Think
About It
“Humility is not thinking less of yourself,
it's thinking of yourself less.”
--C. S. Lewis, novelist, scholar,
broadcaster
Value
vs. Growth Investing (3/21/14)
1.29
|
1.84
|
1.73
|
3.60
|
24.01
|
15.50
|
22.81
|
|
1.36
|
1.26
|
1.80
|
2.99
|
23.00
|
15.43
|
21.06
|
|
1.85
|
2.35
|
3.19
|
3.78
|
24.29
|
17.45
|
22.68
|
|
0.27
|
1.00
|
0.13
|
2.81
|
26.77
|
16.60
|
21.98
|
|
2.05
|
0.44
|
2.23
|
2.40
|
18.10
|
12.34
|
18.52
|
|
1.08
|
3.69
|
1.17
|
5.50
|
26.92
|
15.77
|
27.15
|
|
1.21
|
4.40
|
1.24
|
5.95
|
24.45
|
16.39
|
27.91
|
|
0.18
|
3.42
|
-0.41
|
5.25
|
27.12
|
13.94
|
25.21
|
|
1.95
|
3.28
|
2.90
|
5.34
|
29.19
|
16.94
|
28.35
|
|
1.18
|
2.80
|
2.71
|
4.55
|
26.43
|
15.21
|
28.29
|
|
1.55
|
4.10
|
4.02
|
5.85
|
26.65
|
14.11
|
27.82
|
|
0.52
|
1.06
|
0.71
|
2.60
|
29.65
|
15.61
|
26.85
|
|
1.46
|
3.22
|
3.39
|
5.17
|
23.17
|
16.01
|
30.31
|
|
1.70
|
2.87
|
2.86
|
4.35
|
24.39
|
17.02
|
24.11
|
|
0.27
|
1.49
|
0.06
|
3.28
|
27.02
|
15.98
|
23.01
|
|
1.99
|
1.20
|
2.44
|
3.17
|
20.69
|
13.52
|
21.27
|
©2004 Morningstar, Inc. All Rights Reserved.
The information contained herein: (1) is proprietary to Morningstar; (2) is not
warranted to be accurate, complete or timely. Morningstar is not responsible
for any damages or losses arising from any use of this information and has not
granted its consent to be considered or deemed an “expert” under the Securities
Act of 1933. Past performance is no guarantee of future results. Indices are unmanaged and while these indices
can be invested in directly, this is neither a recommendation nor an offer to
purchase. This can only be done by
prospectus and should be on the recommendation of a licensed professional.
Office Notes:
Plan for Health Costs
What is retirement? Is it a chance for you to travel the world,
play with the grandkids, take up that hobby you have been putting off, or just
relax and read a book? Yes, retirement
can be all these things and more.
Unfortunately, your retirement years are also when your body starts to
slow (and break) down.
You may not notice
it immediately. Say you retire at 65,
full of energy and with no health problems.
But in five years? Ten years? Fifteen?
By that time, you’ll be eighty.
They say age is a state of mind, but it is also a fact of life, and this
fact means inevitable changes to both your health and your pocket book.
There is no use
being anything less than blunt about it.
Your medical expenses will go
up after retirement, and the further into retirement you are, the higher your
expenses will likely be. But many
pre-retirees fail to plan for these costs.
It’s a major mistake that too many pre-retirees make.
Those who do plan often underestimate exactly how
much their medical expenses will cost.
For example, a 2013 study by Fidelity Investments suggested that 48% of
people ages 55 to 65 believe they will need only $50,000 to pay for their
health-care costs in retirement. But the true number is likely to be much
higher than that. According to the
Employee Benefits Research Institute, a couple on Medicare with median drug
expenses (meaning at the mid-point of expected prescription drug use for
retirees) needs approximately $151,000 in savings “to have a 50 percent chance
of having enough money to cover health care expenses in retirement.”
That is a lot of
money. There are just so many aspects of
health care that will have to be covered.
Besides medicine, there are regular visits to your doctor, hospital
stays, surgeries, long-term care, and more.
Hopefully this
gives you a little glimpse of how important it is to plan for your medical
expenses. But how do you pay for
them? The obvious answer is “work longer
and retire later,” but let’s delve a little deeper. Here are a few things you can do:
1. Learn your various Medicare options.
If you are one of
the lucky few who will have employer-provided health care coverage even after
retirement, congratulations. But if not,
start familiarizing yourself with the intricacies of Medicare now. The Federal government’s health insurance
program for seniors is often referred to as a single plan, but in reality, it
is many types of plans rolled into one.
From the basic level of coverage (Part A) to “Medicare medical
insurance” (Part B), which covers outpatient hospital care, physical therapy,
and home health care, to the more elaborate “Medicare Advantage” plans, most
retirees are confronted with too many options, some of which are more
appropriate than others. Choosing the
best type of coverage for you will be crucial when it comes to paying for your
medical expenses.
2. Look at Medigap.
Medigap
supplemental insurance is sold by private insurance companies, and is designed
to help pay those costs not covered by Medicare. Medigap isn’t free, and certain criteria must
be met before you can purchase it, but it is definitely a route to
consider.
3. Invest properly.
Your investment
portfolio can be an invaluable tool if used wisely. One way to use it wisely is to invest a
portion of your money with growth in mind.
It’s often thought that growth-oriented portfolios are for younger
people, while retirees should trend toward more conservative investments. And while there is some truth to that, it’s
important to keep your retirement savings ahead of inflation. Being overly conservative prevents you from
being able to do that.
4. Consider long-term care insurance.
Important
disclaimer: not everyone will need long-term care or assisted living in their
lives. That said, many people do, and
long-term care (LTC) insurance is one of the best ways to pay for it. It can be beneficial to purchase LTC
insurance sooner rather than later, as premiums can get higher as you grow
older. However, LTC is expensive in and
of itself, so give the subject a lot of careful consideration before making a
decision.
5. Keep your body healthy.
I am a financial
advisor, not a doctor or trainer, so I am not in the business of providing tips
on healthy living. But this one is just
common sense, and it’s amazing how often it is overlooked. Keeping yourself healthy now can save you a lot of money in the future. By getting regular exercise, eating a healthy
diet, sleeping enough, and quitting smoking (among other things) you can give
yourself a better chance of avoiding many of the problems that plague
retirees. Conditions like high blood
pressure, diabetes, and cancer can extract a high toll on your savings as well
as your health. So the single best way
to ensure a long, happy, and financially secure retirement is to get your body
in as good of condition as possible before you bid bon voyage to employment.
As you can see,
paying for health care expenses is a huge part of retirement. As you create your retirement plan, make sure
you give the subject all the attention it deserves. Of course, if you have any questions about
how to choose the proper Medicare plan, how to invest properly, or whether
long-term care insurance is right for you, please feel free to give my office a
call at 215-886-2122. I would be happy
to help you.
Regards,
,
Michael L. Schwartz, RFC®, CWS®, CFS
P.S. Please feel
free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list,
please reply to this email with their email address and we will ask for their
permission to be added.
Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC A Registered Broker Dealer and Registered Investment Advisor. Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.
This
information is provided for informational purposes only and is not a
solicitation or recommendation that any particular investor should purchase or
sell any security. The information contained herein is obtained from sources
believed to be reliable but its accuracy or completeness is not
guaranteed. Any opinions expressed
herein are subject to change without notice.
An Index is a composite of securities that provides a performance
benchmark. Returns are presented for
illustrative purposes only and are not intended to project the performance of
any specific investment. Indexes are
unmanaged, do not incur management fees, costs and expenses and cannot be
invested in directly. Past
performance is not a guarantee of
future results.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The DJ Global ex US
is an unmanaged group of non-U.S. securities designed to reflect the
performance of the global equity securities that have readily available
prices.
* The 10-year Treasury
Note represents debt owed by the United States Treasury to the public. Since
the U.S. Government is seen as a risk-free borrower, investors use the 10-year
Treasury Note as a benchmark for the long-term bond market.
* Gold represents the
London afternoon gold price fix as reported by the London Bullion Market
Association.
* The DJ Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All
REIT TR Index measures the total return performance of the equity subcategory
of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed
are subject to change without notice and are not intended as investment advice
or to predict future performance.
* Past performance does
not guarantee future results.
* You cannot invest
directly in an index.
* Consult your
financial professional before making any investment decision.
* To unsubscribe from
our “market commentary” please reply to this e-mail
with “Unsubscribe” in the subject
line, or write us at “mike@schwartzfinancial.com”.
