Q2 2017 Newsletter


Volume 8, Issue 2 - July 2017


Global equity markets continued their march higher over the course of Q2. Led in part by strength in the financial, healthcare and utility based sectors as well as in both developed and emerging markets overseas, albeit only through the middle part of June. Domestic indices reached all-time highs yet again although witnessed a pullback in the technology heavy Nasdaq Composite index late in the quarter in particular.

The Federal Open Market Committee (FOMC) again voted to increase its benchmark interest rate at the June meeting of governors sighting economic growth as evidenced by a strengthening labor market, business investment and consumer spending. Yet also pointed out low wage growth, inflation (or lack thereof) and slowing residential real estate and auto sales as signs that warrant caution. This marks what appears to be uncertainty in terms of the FOMC’s intent with its rather aggressive tightening schedule moving forward.

In Washington the stalemate seemingly continued with tax reform, the American Healthcare Act and budget resolution all standing in the way of the president’s legislative agenda. Regardless of which side of the aisle one walks all of these headline grabbing issues should be cause for concern. And will certainly have an impact on financial markets

as they work through an increasingly difficult process. As risk-managers and tacticians we force ourselves to tune out the political hyperbole in order to make well informed decisions within both the equity and fixed-income portfolios. That is to say markets could move significantly in either direction over the near term as a result of policy and legislation over the remainder of 2017… and we are prepared.

In terms of the Tactical Allocation Portfolio (TAP) we spent a good portion of the quarter retooling the equity side in particular. Focusing on strength from very broad based down to subsectors of the marketplace. Healthcare and financial exposure was particularly strong as was our continued commitment in developed markets abroad with Europe leading the way. We also remained true to technology despite the pullback late in the quarter. We will continue to monitor for signs of weakness ahead as always. Expect a similar move on the fixed-income side in Q3 as we continue to diversify and potentially reduce duration in what appears to be a continuation of tightening monetary policy by the FOMC.

We will gladly field your questions should any of the above need clarification. In the meantime we hope you are out enjoying your summer and look forward to speaking with you soon.     



More about finametrica

The FinaMetrica Risk Tolerance Profile was launched in 1998. It was developed and trialed in Australia over four years with the assistance of the University of New South Wales. It's now maintained with expertise from the London School of Economics, and has gained international recognition as world's best practice. The profile’s reliability and validity is backed by over a million uses by thousands of financial advisors in over 20 countries. The FinaMetrica Toolkit is made up of three parts:

·       a psychometric questionnaire of personal financial risk tolerance (risk tolerance profile),

·       a method for taking the results of the questionnaire into account in the financial planning process, and

·       educational materials designed to personalize the explanation of investment risk and return to help                     investors better understand how their investments might perform in the future.

Psychometrics is the blending of psychology and statistics. It is the scientific discipline for testing personal characteristics such as risk tolerance. Psychometrics sets international standards for both the development of tests and for evaluating the qualities of tests. The FinaMetrica risk tolerance profile exceeds these standards for validity and reliability.

Have you engaged in this new assessment tool we implemented earlier this year? If not or if you have someone you know who might be interested please let us know.

Source: FinaMetrica Pty Ltd http://www.riskprofiling.com/

                       Almost half of         americans die nearly broke

Americans aren't known for being great savers. In a recent GoBankingRates study, 69% of adults admitted to having less than $1,000 in the bank, while 34% said they actually don't have any savings at all.

But apparently, this collective lack of savings doesn't get all that much better with age. A study by the National Bureau of Economic Research found not so long ago that almost half of Americans die nearly broke. Of the general population, 46% of retirees die with savings of $10,000 or less. But that number climbs to 57% among retirees who are single.

Now when we take other assets, like homes, into account, the picture gets a bit less bleak. Still, 57% of single-adult households and 50% of widowed households had no housing equity to show for when they died.

The problem is that dying nearly broke isn't just a matter of denying one's beneficiaries an inheritance. Rather, it points to a frightening degree of financial vulnerability during retirement. If seniors are passing without much in the way of assets, it means that in the years leading up to their death, they're ill equipped to handle a major unexpected expense, such as a significant medical bill. In fact, in that same GoBankingRates survey, only 37% of seniors 65 and older claimed to have $1,000 or more in the bank.

Having an emergency fund, however, is just as crucial for retirees as it is for younger folks. And the sooner more people realize that, the less financial insecurity they'll take to the grave.

Will an unplanned expense catch you off guard?

Though most Americans don't have the means to cover an unanticipated expense, working folks have one advantage over retirees: the ability to earn more to cover their costs. But since many retirees don't work, in the absence of savings, they'll have no choice to but take on debt when a financial emergency arises.

In fact, there's a reason seniors 65 and older carry over $6,300 of credit card debt, on average. Because they don't have much in the way of liquid assets, they're often forced to resort to credit cards to cover whatever unforeseen costs come their way. But just as working Americans need a minimum of three to six months' worth of living expenses available in an emergency fund, so too do seniors need that same sort of cushion, if not an even greater one. That lack of savings is causing a large number of seniors to not only die nearly broke but die in debt.

Build your savings now

If you're still years away from retirement and don't have much in the way of accessible savings, you should work on establishing your emergency fund early on, so that it's available for you when you're older. To start, create a budget that maps out your current expenses and find ways to cut corners. If you're willing to make a series of smaller changes, like eliminating several restaurant meals each month or scaling back your leisure spending, you may come to find that you're able to build that fund without making too many major sacrifices along the way.

If small lifestyle adjustments don't work, however, then you'll need to start thinking big. That could mean downsizing your living space to a more affordable property or moving someplace less expensive overall. Or, it could mean selling your car and taking the bus every day if that's an option where you live.

If the idea of altering your lifestyle makes you miserable, then your next best bet is to earn more money to amass some savings. Working a few nights a week or a couple of weekends a month might put enough cash in your pocket to build savings quickly.

Finally, make a point to stay away from credit card debt, even if it means working extra to ensure that your bills are always paid in full by the time they come due. Though avoiding credit card debt won't help you build your savings, dodging interest charges will leave you with more money to put in the bank.

Once you enter retirement without an emergency fund, your chances of building one are pretty much slim to none. And with that comes the risk of not only dying nearly or fully broke, but running out of options for paying your bills when they happen to catch you off guard.

*Source: Maurie Backman https://www.msn.com/

DOL Fiduciary Update

The Department of Labor defended its fiduciary rule in a brief submitted to an appeals court earlier this week, giving supporters of the rule hope that most of it can survive a review the agency is conducting.

In a brief filed on July 3 in the 5th Circuit Court of Appeals, the Department of Justice, representing the DOL, argued that the appellate justices should affirm a Dallas district court's decision to uphold the rule. The 135-page brief asserted that the plaintiffs, who are several financial industry trade associations opposing the regulation, failed to make their case that the DOL did not have the authority to promulgate the regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts.

The DOJ did give one nod to rule critics, saying that it would not defend a provision of the rule that would allow investors to file class-action suits against financial advisers who violate the best-interests standard.

That was the only piece of good news for the industry plaintiffs, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Financial Services Institute and the Financial Services Roundtable. Otherwise, the brief endorsed the Dallas court's evisceration of the industry's arguments.

"We look forward to the opportunity to argue our case before the 5th Circuit Court of Appeals," David Bellaire, FSI executive vice president and general counsel, said in a statement.

Representatives for the other industry groups were not immediately available for comment.

The lawsuit was filed during the Obama administration, which finalized the rule in April 2016. But now the Trump administration DOL also is defending it in court.

Advocates of the rule interpreted the brief as giving some protection to the rule as the DOL conducts a reassessment of the measure ordered by President Donald J. Trump that could lead to revisions. The DOL last week released a request for comment to guide its reconsideration.

"This is a very positive development taken as a whole," said Steve Hall, legal director and securities specialist at Better Markets. "The DOJ deserves credit for standing up for 90% of the rule. This strong brief will make it more difficult for the agency to try to unwind or weaken the rule significantly."

Barbara Roper, director of investor protection at the Consumer Federation of America, also is more optimistic.

"It's encouraging that the signs suggest, for now, that some version of the fiduciary rule is likely to survive," Ms. Roper said.

But George Michael Gerstein, counsel at Stradley Ronon Stevens & Young, said that the brief submitted to the appeals court does not necessarily mean that the DOL is going to go easy on the regulation. The agency was simply protecting its turf.

"The DOL is always going to want the right to promulgate an investment-advice rule," Mr. Gerstein said. "It's a jurisdictional defense."

The fact that the DOL carved out the class-action provision, which it said it could not defend because of the Trump administration's position on such suits in a case before the Supreme Court, means it could be on the cutting board, Mr. Gerstein said.

That has supporters concerned.

"We're disappointed one of the important remedies available to retirement savers under the rule may be less likely to survive," Mr. Hall said.

Source: Mike Schoeff Jr. http://www.investmentnews.com/

*The interpretations and organizations of these ideas are the confidential thoughts of 1st & Main Investment Advisors and do not represent the opinions of Berthel Fisher & Co. Financial Services, Inc. nor Berthel Planning, Inc.