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Be a Winner — Learn to Live with Volatility (and other thoughts on the current market) – 3/2/2018

Posted March 5, 2018

Be a Winner — Learn to Live with Volatility

February brought the highly anticipated 10% pullback after the biggest drop in 2017 of only 3%. Corrections of 10% are evidence that the market does not continually rise, and they motivate technicians to correct their flawed trading programs. Many short-term trading strategies force the selling of stocks into a volatile downturn, such as the one we experienced in early February.

I am seeing appeals to investors like this: Is your portfolio ready for 2018 volatility? This is the wrong question. As fiduciaries, we advocate for long-term investment strategies guided by personal financial planning. Volatility is fundamental to investing, and investors will not enjoy stock market returns unless they accept volatility and risk. Financial planning answers the right question: What risk level is appropriate for each client to enjoy a lifetime of financial peace, security, and income?

Be Reassured by Corporate Earnings

Every year, investors enthusiastically read Warren Buffet’s annual letter to shareholders. This year he counsels investors “to both disregard mob fears and enthusiasms” and to focus on corporate earnings and on the boost to business from the new tax cuts. The last three quarters of 2017 post a strong earnings growth trend: +10.3% in Q2, +6.4% in Q3, and an estimated +14.8% in Q4. This Q4 2017 figure will likely be the highest earnings growth rate since Q3 2011 (16.8%) — and all this without any help yet from corporate tax cuts.

Be Clear About Why You Invest in Bonds

Trump caused U.S. stocks to fall sharply on Thursday, March 1 by announcing a 25% tariff on steel imports and a 10% tariff on aluminum. Trump is going against his chief economic advisor, Gary Cohn, and in opposition to most economists who are against tariffs because trade wars can spiral out of control and result in American consumers paying higher prices for almost everything. Republican Senator Ben Sasse blasted Trump for “proposing a massive tax increase on American families.” The pushback may be strong enough to cause Trump to back off. On March 1 the Dow closed down 420 points or 1.7%, but bond prices moved up as interest rates fell. This is one of the reasons to invest in bonds: they diversify and stabilize the price movements in stocks. We always welcome your calls.

NOTE: The IRS never calls taxpayers. If you receive a call from the IRS, it is a scam!

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