Schwartz
Financial Weekly Commentary
September
1, 2014
The Markets
There is no
substitute for mental preparedness. Just ask any professional athlete or Navy
SEAL. One essential aspect of metal preparation is situational awareness – being
able to identify, process, and understand what is happening around you at any
given time.
That’s been a
challenge for bond investors this year. 2014’s Treasury market rally took
economists (and everyone else) by surprise:
“Treasury yields
lurched higher in May 2013, when the Fed first sketched out a timetable to wind
down its bond-buying program, even though it didn't actually begin the winding
down until seven months later. Yields were expected to keep rising this year as
that program ended and the Fed turned its attention to raising its short-term
policy rate but, instead, yields have fallen as investors still seem enamored
of bonds.”
A Bloomberg survey (August 8-13) found
economists’ median forecast projected 10-year Treasury yields would be 2.7
percent by the end of September. The yield on 10-year U.S. Treasuries finished
last week at 2.34 percent.
It’s likely bond
market surprises may continue during the next few months. In fact, bond
investors may want to mentally prepare themselves for a rough and bumpy ride. It’s
likely analysts and investors will try to anticipate the Federal Reserve plans for
increasing interest rates, and it’s not all that hard to imagine the type of
volatility that could ensue. All you have to do is think back to the ups and
downs that punctuated guesses about when the Fed might begin to end its bond-buying
program.
Barron’s offered the opinion the first rate hike
won’t happen until March of 2015, but that won’t stop anyone from speculating it
could happen earlier. Conjecture, rumor, and supposition are likely to begin
before the Federal Open Market Committee meeting on September 16, 2014.
No matter how
markets twist during the next few months,
investors should keep their wits about them. Being mentally prepared may help.
Data as of 8/29/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
0.8%
|
8.4%
|
22.3%
|
18.3%
|
14.4%
|
6.2%
|
|
10-year Treasury Note (Yield Only)
|
2.3
|
NA
|
2.8
|
2.3
|
3.5
|
4.2
|
|
Gold (per ounce)
|
0.7
|
7.0
|
-8.7
|
-11.0
|
6.1
|
12.2
|
|
Bloomberg Commodity Index
|
0.9
|
0.7
|
-3.8
|
-7.8
|
0.1
|
-1.2
|
|
DJ Equity All REIT Total Return Index
|
0.4
|
20.1
|
23.2
|
15.3
|
18.7
|
9.2
|
S&P 500,
Gold, Bloomberg 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 Total Return 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.
life
expectancy has been increasing by 15 minutes every hour for the
last 50 years or so in the richer countries around the world,
according to The Economist. That’s an
increase of about 2.5 years per decade.
Longer lifespans are a mixed
blessing. On the one hand, people may enjoy longer lives. On the other, the
longer people live, the greater the chance that longevity risk – the possibility
that life expectancy will exceed expectations – could negatively affect people,
companies, and governments around the world.
One way to measure longevity
risk is by estimating the cost of an aging society. The International Monetary Fund’s (IMF) 2012 Global Financial
Stability Report calculated the potential cost of providing everyone in the
world, age 65 and older, with the average income necessary to maintain his or
her standard of living at its preretirement level. By 2050, assuming a
replacement rate of 60 percent of preretirement income, the cost would be about
11.1 percent of gross domestic product (GDP) in developed economies and 5.9
percent of GDP in emerging economies – and that doesn’t include increases in
health and long-term care costs. If longevity increases by three years, the
estimated costs go up by almost 50 percent!
Insurance companies, employers
with defined benefit (DB) pension plans, and governments are exposed to
significant longevity risk. Insurers offer products designed to provide
lifetime income. Employer-sponsored DB plans promise lifetime payments to
employees who meet specific criteria. Governments with pension programs have made
similar promises to citizens.
Many entities are looking for
ways to effectively reduce their exposure to longevity risk. One way to manage
longevity risk is to share it. An example would be to develop a “liquid
longevity risk transfer market” where,
“…The “supply” of
longevity risk would meet “demand” for that risk. That is, the risk would be
transferred from those who hold it, including individuals, governments, and
private providers of retirement income, to (re-) insurers, capital market
participants, and private companies that might benefit from unexpected
increases in longevity (providers of long-term care and healthcare, for
example). In theory, the price of longevity risk would adjust to a level at
which the risk would be optimally spread through market transactions.”
The overall longevity risk
market could be sizeable. According to Risk.net,
current global annuity and pension-related longevity risk exposure is between
$15 trillion and $25 trillion.
Weekly Focus – Think About It
“Some cause happiness
wherever they go; others whenever they go.”
--Oscar Wilde,
Irish writer and poet
Value
vs. Growth Investing (8/29/14)
|
0.85
|
9.53
|
4.19
|
4.76
|
24.91
|
20.62
|
17.30
|
|
|
0.77
|
9.79
|
3.92
|
4.64
|
25.08
|
20.48
|
16.49
|
|
|
0.61
|
8.95
|
3.97
|
3.31
|
22.28
|
21.94
|
17.13
|
|
|
0.51
|
11.46
|
4.78
|
6.45
|
30.68
|
21.17
|
18.13
|
|
|
1.21
|
8.97
|
3.00
|
4.15
|
22.25
|
18.50
|
14.34
|
|
|
1.01
|
10.22
|
4.91
|
5.34
|
25.74
|
21.27
|
19.61
|
|
|
0.85
|
11.98
|
4.59
|
5.27
|
28.31
|
22.32
|
20.57
|
|
|
1.01
|
8.17
|
5.76
|
6.43
|
22.04
|
17.76
|
19.14
|
|
|
1.19
|
10.79
|
4.38
|
4.28
|
27.31
|
23.88
|
19.13
|
|
|
1.26
|
4.74
|
5.01
|
4.34
|
20.64
|
20.03
|
18.54
|
|
|
0.92
|
6.41
|
4.96
|
4.23
|
22.81
|
19.37
|
18.16
|
|
|
1.94
|
0.58
|
5.38
|
4.97
|
15.34
|
18.76
|
18.36
|
|
|
0.95
|
7.17
|
4.68
|
3.89
|
23.83
|
22.00
|
19.02
|
|
|
0.68
|
9.37
|
4.17
|
3.77
|
23.51
|
21.85
|
17.95
|
|
|
0.69
|
10.07
|
5.00
|
6.34
|
27.83
|
20.31
|
18.41
|
|
|
1.19
|
9.21
|
3.38
|
4.16
|
23.40
|
19.83
|
15.64
|
©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:
Retirement Bucket List
When it comes to
retirement, here’s the first thing we at Schwartz Financial always tell our
clients:
“If
you want to work for the rest of your life, that’s your business. If you don’t, that’s ours.”
When it comes to
retirement, here’s the second thing
we always tell our clients:
“If you can dream it, we can help you do
it.”
All you need is a
plan. So what’s your plan for retirement?
Here are a few suggestions:
Write the next
Great American Novel.
Raise horses on your farm.
Start
an entirely new career as a standup comic.
Learn how to cook
Italian food … in Italy.
Work as a tour guide at the Guggenheim®.
Follow
the voyage of Darwin’s Beagle through
the Galapagos.
Listen to jazz in a
smoky bar in Paris.
Have the freedom to do what interests you versus what needs to be
done.
Design and build your own house.
Compete
in AAU Masters swimming at 80.
Spend a year in Rio.
Restore an old sports car and drive
to car shows.
Work for human rights for people in third world
countries.
Build
a log cabin from the ground up.
Retrace the Endless Summer surf odyssey.
Drop
anchor at every island in the Caribbean.
Build
your collection of fine wines.
Spend
time with your grandchildren.
You want more?
We can help you do more. Like:
Create a beautiful garden. Give your spouse a chance at a career. Ski for 100 days a season. Volunteer in the inner-city neighborhood
where you grew up. Finally, finally use all of your frequent flyer
miles. Create a world that consists of
nothing but a hammock, a pitcher of
lemonade, and a stack of John Grisham novels.
Return to your family’s farm and try to make a go as a farmer. Participate in guided tours of all the ancient wonders of the world. Open your own bed and breakfast. Finally get your college degree. Trek to the Himalayas. Visit all 50 states. Start another career. Scuba dive all over the world. Visit every major-league ballpark. Relax. Go on a Safari in Africa. Move to a college town and take all the
classes you skipped 40 years ago. Write
movie reviews for the local weekly.
Climb a 20,000 foot mountain.
Rent a barge for a canal tour in Europe.
Invest in startup companies.
Coach youth soccer, baseball, and basketball. Drive from Alaska to Patagonia. Run the Boston and New York marathons. Play as many of Golf Digest®’s top-100 courses as possible. Play in a garage band. Play bridge for money. Just
play! Go on at least three cruises a
year. Act in community theater. Visit all of the churches and museums that
you successfully overlooked on your semester abroad. Dinner and a movie … every night! Learn
to play the piano. Be a couch
potato. Fix the sink. Take a trip down the Nile. Read Russian novels. Run for local political office. Absolutely
nothing. Give back to all of those
who helped you. Do all of the things
you’ve been afraid of—skydiving, bungee jumping, and hang gliding. RV along Route 66 with your spouse and your
dogs.
As you know, I’ve been sending you information about
different retirement topics for a while now.
It should be clear that my team and I can help you with any retirement
challenge you’re ever likely to face.
But retirement is about more than overcoming
challenges. It is about living the life
you always wanted to live. Your
retirement is coming up, which means it’s time to start planning. More than that, it’s time to start dreaming.
So what are you waiting for? Close your eyes and dream it.
We can help you do
it.
Give me a call at 215-886-2122 to get
started.
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 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.
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