By Maurice Stouse, Branch Manager and Financial Advisor
As investors look toward 2020 and back on recent history, there are a lot of things on their minds. They have a lot on their minds because the market, at least in the last two years, has had some significant moves. Last year the market ended up with dramatic selloffs around Christmas making December 2018 one of the worst months for performance in the history that records were kept. And this year, investors (growth or equity-oriented investors) have seen returns that have far surpassed historical numbers. More conservative or income-oriented investors have seen the interest on their bonds and or savings decline as interest rates have reversed themselves over the past year.
So, looking into the end of the year and in to next and beyond, what are things that investors might want to be considering? We can start at a macro level with interest rates. World monetary policy and domestically, the Federal Reserve policy has been what is called quite dovish as world banks and the Fed have insured there is a significant supply of money in the system. This was done because of concerns over an economic slowdown (take Germany as an example). Some rates around the world have now turned negative where the investor gets back less than what was invested but do get the return of the face amount of what they bought. The result has been the return to lower rates of return for safe and for conservative investments. The implication is that those investors might take on more risk by considering investments (high yielding dividend stocks as an example). Thing to consider: Is that driving up stock prices?
Secondly, trade as a consideration. Here in the U.S., industry leaders are planning with less certainty than they have had in the past because the outcomes of trade negotiations are not fully known yet. Are current tariffs hurting trade, cost, industry, profitability? There is nothing conclusive at this point. So, while lower interest rates might be fueling higher asset (read that stock) prices, does trade uncertainty make the stock market more volatile as result. So, second thing to consider: Will trade uncertainty lead to more short-term volatility.
Lastly, the strength of the economy. While corporate profits have held up, employment is at all time lows and inflation remains low, what about the long-term health of the economy? Investors are left wondering as economic growth is currently about 2.2% and for an economy to sustain growth, most would agree that 3% is a more acceptable or needed growth rate. What about the state of U.S. manufacturing? Currently it is not seen as robust and many think that important to sustain asset prices (stock prices). So, third thing to consider: What is the long-term strength of the U.S. and world economy.
Historically, stocks have outperformed bonds as well as cash instruments for over 90 years. According to Ibbotson and Associate through 2018, stocks have returned 10%, government bonds returning 5.5% and Treasury bills (closely related to cash) 3.47%. Inflation by contrast has average 2.9% in that time frame.
In the short run, stocks have proven more volatile. In the past year alone the S&P 500 has averaged 13.7% but over the last two years, 9.3%. Investors can look back further and see that for five years it is 8.7% and for 10 years 11%. You can keep going and see that at 15 years it is 6.7% (accounts for a lot of volatility in 2008) and 20 years 8%.
That might have investors wondering when to “get in” and when to “get out.” There is no strategy or formula for this. Investor may want to recall that familiar saying: They don’t ring a bell at the top and they don’t ring a bell at the bottom. Unless the need for cash or income is now, staying the course,if an investor has a long term time frame (meaning at least 10 years), stocks might offer the best option.
Before beginning or altering a plan, investors should work with and advisor, or do their own research if they prefer to build a plan for their long-term wealth as well as for their current or long-term income and savings needs.
Maurice Stouse is a Financial Advisor and the branch manager of The First Wealth Management and Raymond James and he resides in Grayton Beach. He has been in financial services for over 32 years. His main office is located at The First, First Florida Bank, 2000 98 Palms Blvd, Destin, FL 32451. Branch offices in Niceville, Mary Esther, Miramar Beach, Freeport and Panama City. Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. First Florida Wealth Group and First Florida Bank are not registered broker/dealers and are independent of Raymond James Financial Services.
Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.
Holding stocks for the long term does not insure a profitable outcome. Diversification and asset allocation do not ensure a profit or protect against a loss. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. An investment in a money market mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although it seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you’re not yet 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company’s ability to pay for them. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.
