Schwartz Financial Weekly Commentary 9/8/14

Schwartz Financial Weekly Commentary

September 8, 2014

 

The Markets

 

It’s déjà vu all over again!

 

Last year, pundits and analysts tried to discern when the Federal Reserve might begin to end quantitative easing by reading economic tea leaves. For months, bad economic news proved to be good news for stock markets. This year, investors are seeking signs which might indicate when the Fed will begin to raise interest rates and, once again, bad news has become good news. Last week’s weaker-than-expected unemployment report helped push U.S. stock markets higher, according to Reuters, because it was interpreted to mean the Fed would not raise rates soon.

 

The week before, the Commerce Department announced household spending slowed during July. Consumer spending was up just 3.2 percent annualized through mid-summer which is the smallest increase in spending in five years. As it turns out, spending fell because Americans are saving more. During July, households set aside 5.7 percent of income, on average. While that’s good news with respect to American households’ financial security, it’s not such good news for U.S. gross domestic product, according to Barron’s:

 

“Unfortunately for the U.S. economy, a penny saved is not a penny earned. While the decision by Americans to cut back on their profligate ways isn't necessarily a bad thing – it was spending beyond our means that helped spur the Great Recession in the first place – it's only consumer spending, not saving, that counts when computing gross domestic product. So when consumers spent less in July than they did in June, it caused economists to ratchet down their third-quarter economic-growth forecasts which now sit below 3 percent.”

 

Some experts say slower growth is good news because economic expansion may last longer. While that’s all well and good, Robert Shiller, Sterling Professor of Economics at Yale, suggested in The New York Times that U.S. stock markets are looking a little pricey by some measures. He suspects the reason investors remain interested in buying highly-priced shares may ultimately be found, “…in the realm of sociology and social psychology – in phenomena like irrational exuberance, which, eventually, has always faded before.”

 

Data as of 9/5/14	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.2%	8.6%	21.3%	19.9%	14.4%	6.0%
10-year Treasury Note (Yield Only)	2.5	NA	3.0	2.0	3.5	4.3
Gold (per ounce)	-1.5	5.4	-8.6	-12.6	5.0	12.2
Bloomberg Commodity Index	-1.4	-0.7	-3.8	-8.2	-0.1	-1.3
DJ Equity All REIT Total Return Index	1.0	21.3	26.8	16.9	19.2	9.0

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.

 

if you live in the United States, No matter where you reside, you are NOT in the top 10 when it comes to the world’s most ‘livable’ cities. The Economist Intelligence Unit’s Global Liveability Ranking and Report was published in August 2014. It relies on 30 factors such as safety, healthcare, educational resources, infrastructure, and environment to determine which of 140 cities around the world are the most livable. The burgs which top the rankings tend to be “mid-sized cities in wealthier countries with relatively low population density.” They include:

 

1.      Melbourne, Australia

2.      Vienna, Austria

3.      Vancouver, Canada

4.      Toronto, Canada

5.      Adelaide, Australia

6.      Calgary, Canada

7.      Sydney, Australia

8.      Helsinki, Finland

9.      Perth, Australia

10.  Auckland, New Zealand

 

The names on that list haven’t changed since 2011; however, the average global livability rating has fallen 0.7 percent since 2009. The change is due to a decline in stability and safety (down 1.3 percent) among other things. More than 50 of the cities surveyed have seen their ratings move lower during the past five years. This year, the cities that ranked worst for livability included Damascus, Syria; Dhaka, Bangladesh; Port Moresby, Papua New Guinea; Lagos, Nigeria; and Karachi, Pakistan.

 

The good news for Americans is Washington D.C., Los Angeles, and New York City remain relatively highly ranked and haven’t experienced any change in their livability rankings. None of these is the most livable city in the United States, though. The top honor, here at home, goes to Honolulu (26^th) followed by Pittsburgh (30^th).

 

Weekly Focus – Think About It

 

“If you want your children to turn out well, spend twice as much time with them, and half as much money.”

--Abigail Van Buren, American advice columnist

Value vs. Growth Investing (9/5/14)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	0.21	9.75	4.87	3.87	23.44	22.30	17.41
Large Cap	0.21	10.03	4.71	3.96	23.72	22.03	16.60
Large Core	0.47	9.46	4.53	2.92	21.80	23.63	17.28
Large Growth	-0.08	11.37	5.10	5.39	28.03	22.54	17.94
Large Value	0.26	9.26	4.48	3.57	21.25	20.11	14.67
Mid Cap	0.33	10.58	5.53	4.18	24.12	23.21	19.78
Mid Core	0.76	12.83	5.55	4.71	27.04	24.51	20.77
Mid Growth	0.07	8.25	5.80	4.96	20.10	19.52	19.03
Mid Value	0.15	10.95	5.22	2.80	25.64	25.74	19.52
Small Cap	-0.20	4.53	4.77	2.09	18.56	22.28	18.60
Small Core	-0.09	6.32	4.72	1.99	20.76	21.74	18.12
Small Growth	-0.50	0.08	4.62	2.46	12.35	20.68	18.18
Small Value	-0.02	7.15	4.97	1.88	22.76	24.46	19.45
US Core	0.49	9.90	4.75	3.22	22.77	23.67	18.10
US Growth	-0.08	9.98	5.20	5.11	25.30	21.80	18.23
US Value	0.22	9.45	4.65	3.30	22.26	21.55	15.99

 ©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:

 

Wish you could withdraw money from your 401(k)? 
You might have more options than you think.

These days, many pre-retirees save for retirement primarily through an employer-provided 401(k).  401(k) accounts can be a great savings tool, especially if your employer matches your contributions.  But there are occasions when relying on a 401(k) account isn’t the best option. 

For example, some employers don’t match their employees’ contributions, which takes a major shine off these types of accounts.  Other 401(k)s have a narrow range of investment options to choose from, leaving employees dissatisfied and frustrated with the results they’ve been getting.  Many of these people would love an alternative, but don’t feel like there is one. 

The good news is that there may indeed be an alternative.  It is called an “in-service withdrawal.” 

You see, most people believe that withdrawing money from your 401(k) before you retire will trigger additional taxes and penalties.  And that’s true—except if your company’s retirement plan has an in-service withdrawal feature.  Here’s how it usually works.  For companies that permit it, workers can begin withdrawing funds from their 401(k) starting at age 59½ without incurring any early-withdrawal penalties.  You can use the money you withdraw to invest in an IRA (which will often have a wider range of investment choices) or some other vehicle if you so choose.  Of course, the money would be considered ordinary income and taxed as such, but that can be a small price to pay if you’re unhappy with how your retirement savings are currently invested. 

One popular tactic is to withdraw a portion of the funds inside your 401(k) for placement inside an IRA.  The remainder can be kept inside the 401(k).  This gives you the best of both worlds: the IRA’s wider range of investment options, combined with continued access to your company 401(k) and any contribution-matching that comes with it. 

It is important to note that in-service withdrawals aren’t right for everyone.  Again, 401(k) accounts can be a great tool, and may in fact be the best place for your money to be.  But if you are not satisfied, it’s worth looking into whether your employer permits in-service withdrawals. 

Not every company does, but according to a 2006 survey by the Profit Sharing/401(k) Council of America, about 70% of companies do.  You can usually find out by simply asking your Human Resources Department or Plan Administrator. 

There are many ways to invest the money you withdraw from a 401(k), more than can be covered in a single letter.  So if you’d like to learn more about whether in-service withdrawals are right for you, and what your investment options are, please contact me at 215-886-2122, or by email at mike@schwartzfinancial.com .  I’d be happy to speak with 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 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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