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So far Jim Malliard has created 34 blog entries.

Optimism in the Face of Economic Turmoil

Jim MailliardThe year 2022 has been rough for investors.  Even relatively conservative portfolios are down about 15 percent. A huge culprit has been red hot inflation, currently running at about 8 percent, according to economic consensus. Food and gas are running even higher. That contrasts with a long-term U.S. average inflation rate of 3.3 percent going all the way back to 1914. Inflation this high creates the expectation of higher interest rates, which we are now seeing across the board. That is historically bad for economic growth, stock returns, and the bond markets. Is it possible to maintain one’s optimism in the face of economic turmoil?

Despite this dreary synopsis, investors would be wise to stick with their long-term written plan, unless something significant has changed with their financial goals and circumstances. Successful bond money managers believe inflation is cooling at least a little. That would mean the Fed could slow their aggressive rate hikes, which would eventually be good for the bond market and provide investors with some relief.

As for stocks, there is also reason for optimism. John Lynch of Comerica Bank points out that since 1950, in the 12 months following a mid-term election, the S&P 500 index of large company U.S. stocks has risen an average of 15 percent with no down years.

The charts here contain monthly data from the Dow, S&P, and Nasdaq indices. You can see that, while the markets are down overall for the year, each received a nice bump up in October. This illustrates the importance of maintaining a consistent investment strategy.

Those who remain invested over the long-term historically reap the benefits of the anticipated upturn in the markets. Those who panic during a downturn and sell out of the markets often miss that opportunity.

Optimism in the Face of Economic Turmoil
Yahoo! Finance data; past performance does not guarantee future results.
By |2022-11-24T17:49:34-07:00November 29th, 2022|Current Affairs, Investing|

Investing Fundamentals Have Not Changed

investing fundamentals have not changedWar between Russia and Ukraine, climbing gas prices, and inflation at a 40-year high: It’s understandable that investors might be edgy these days. Yet, it’s important to recognize long-term investing fundamentals have not changed.

Some may be surprised to learn that historically stocks have been remarkably resilient, even in times of war. Mark Armbruster of the CFA Institute points out the average return for large-cap U.S. stocks during World War II and the Korean, Vietnam, and Gulf wars was 11.4 percent. Current stock market performance has been on par with historical norms.

The Swiss Finance Institute looked at the period from 1926 to 2013 and found stock markets tend to fall in the “pre-war phase,” as forces are massed and tensions rise. Then stocks tend to rise when war breaks out. They call this phenomenon “the war puzzle” because there is no clear explanation for it.

Recently, the U.S. S&P 500 fell significantly in the weeks running up to Russia’s invasion of Ukraine. A month later, stocks had recovered a good portion of the drop.

Once again, we see the basics of good investment management remain valid over time. Investing fundamentals have not changed despite the headlines.

  • Work with a trusted advisor and develop a written long-term investment plan aligned with your tolerance for risk.
  • Stick with that plan, unless your circumstances profoundly change.
  • Stay diversified and stay invested, even when things feel daunting.

 

By |2022-04-04T18:39:21-07:00April 11th, 2022|Current Affairs, Investing|

An Eye on Inflation

an eye on inflationBy most measures, the economy is running hot. But even the casual observer can’t help but notice a strong economy can come with a down-side. Inflation is becoming more and more obvious, as we fill our gas tanks and are alarmed by higher prices of everyday items like groceries. Inflation had been for many years an afterthought, but now it is getting more mainstream attention as we all keep an eye on inflation.

The U.S. Bureau of Economic Analysis’s August reading of the core personal consumption expenditures (PCE) price index — the Fed’s preferred inflation measure — was up nearly 4 percent year over year, the highest inflation in three decades. September’s consumer price index, the more familiar CPI, rose 5.4 percent compared to a year ago.

The price of many basic family goods is up much more than that. For households earning the U.S. median annual income of about $70,000, the current inflation rate has forced them to spend another $175 a month on food, fuel, and housing, according to Mark Zandi, chief economist at Moody’s Analytics.

It’s causing many to ask if inflation will stay elevated or head back down toward the long-term trend. Economic analysts at The Vanguard Group believe inflation dynamics will be volatile in the short-term. This is mostly due to supply shortages and other economic disruptions caused by virus-related shutdowns and the subsequent re-opening. However, Vanguard believes by the end of 2022 inflation will decline back to the 2.5 percent neighborhood.

What can we do to control inflation? The answer is, of course, not much.

You can improve your odds of long-term financial success, though, by working with the right advisor. An independent, fiduciary advisor, like Perspective Financial Services, will help you map-out, document, and stick to a disciplined plan to get you through uncertain times.

By |2021-11-09T08:38:28-07:00November 22nd, 2021|Current Affairs, Financial Planning|

Cryptocurrency Risk

Mailiard-v1-WEBThe latest investment fad has arrived: cryptocurrencies. Younger, inexperienced buyers excitedly trade “cryptos” on their phones and brag about it to friends. One claims to be getting rich buying Bitcoin (the original cryptocurrency). FOMO kicks in (fear of missing out) and entices others to buy. Unfortunately, it’s rare that any fully understand what they’re doing or cryptocurrency risk.

As legendary investor Warren Buffett said, “I can say almost with certainty (it) will come to a bad ending.”

Cryptocurrency’s wide appeal is easy to understand. It’s basically digital cash that can be transferred immediately and anonymously between parties. Bitcoin trades using technology called “blockchain,” a digital ledger that is purported to be unhackable. This unique currency also isn’t bogged down by intermediaries, such as governments, banks or international currency exchanges.

Potential appeal aside, crypto trading should not be considered as investing, but rather speculation. Only those with giant appetites for risk should consider it. Stories of wild price swings abound. When the economy appeared to be collapsing due to the Coronavirus, Bitcoin fell about 65 percent – three times as much as stocks – by March 2020.

“Bitcoin is not real money now, and… without huge reforms it will never qualify as real money,” said Larry Kudlow, a noted economist formerly of CNBC and the Trump administration.

One should only risk money in cryptocurrency markets that he or she can afford to lose entirely. How many people really have “money to burn?”

In addition, the tax implications of cryptocurrency are extremely complex and shouldn’t be taken lightly.

Real, long-term investing is the time-proven path we take at Perspective. We work with our clients to first develop a written plan, a road map.  From there, we build and maintain broadly-diversified portfolios in established markets backed by many decades of risk-and-return data. The result is a less volatile and more predictable portfolio.

By |2021-05-11T19:51:30-07:00May 17th, 2021|Current Affairs, Investing|

Holiday Financial Lesson

Jim MailliardThis time of year, I ask my children what they want for Christmas. Not that I am actually going to Christmas shop. Rather, I ask my kids to send me the exact internet links to things they would like. I just click and order. Granted, it pretty much takes all of the surprise out of Christmas for them. It also takes the risk out of gift buying for Dad, and for that we’re all grateful. Having wasted money in the past trying to be a creative gift-buyer, I have solved that problem and learned a basic, holiday financial lesson – don’t waste money on stuff nobody wants.

Recalling this simple concept, I asked myself, “What else can I learn at the holiday season?” I found an interesting article “Financial Lessons from Classic Holiday Movies” by Esther Trattner of MoneyWise.

Here are a couple lessons from my all-time favorites.

The timeless classic A Christmas Carol contains some important financial themes. The miserable Ebenezer Scrooge is the embodiment of “money can’t buy happiness.” Since the 19th century, a “Scrooge” has been known as a selfish, miserly person. The story ends on a happy note, though.

After being visited by the spirits of Christmas past, present and future — who show Scrooge the suffering wrought by his lack of charity, both to others and to himself — he is transformed into a generous, joyful guy.

Another favorite movie, Elf, is a hilarious contemporary classic. Will Ferrell plays Buddy who, as a small child, accidentally ends up at the North Pole to be raised by Santa’s elves. On reaching adulthood, he sets out on an epic journey in search of his real family. Along the way, Buddy charms even the hardest of hearts with his innocent wisdom and upbeat attitude. The financial moral here? Have a plan, stick to it, remain positive; and you are much more likely to reach your goals.

By |2020-12-13T12:42:12-07:00December 13th, 2020|Financial Planning|