June Newsletter to Clients

Enjoy this month’s edition that features a discussion of bonds as the crystal ball of the stock market, some advice on aging, and survey results showing why Americans retire earlier than planned.

Last year I wrote in a newsletter that, while stocks could be characterized as the child jumping up and down on the couch when it was bedtime, bonds are the adult in the room. What I meant by that is, while stocks can get a bit irrationally exuberant from time to time, bonds tend to reflect more rational thought. Furthermore, bonds can tell us things about the economy and the stock market if we look closely. 

A recent Wall Street Journal article pointed out that a rough gauge of stocks’ expected returns – based on the current S&P 500’s earnings yield for those of you curious – is now only slightly higher than the yield on ultrasafe government bonds. What does this mean? There is more inherent risk in owning stocks than bonds so an investor should be compensated by taking this extra risk. And, if there isn’t extra compensation for this added risk, a rational investor may just invest in bonds and ignore the stock market. It may be a sign the stock market is over-valued – or not. 

Don Calcagni, chief investment officer at Mercer Advisors says, “…inflation fears are growing and valuations are stretched. To justify these prices, you’re going to need to see continuing record earnings growth for a number of years.”

On the other hand, Jeff Blazek, co-chief investment officer at Neuberger said, “Stocks aren’t cheap, but they’re not horribly expensive. We like bonds, but we also like stocks.” 

I’m glad they’ve cleared that up. In the meantime, we’ll enjoy the outstanding performance of the markets through the end of May:

•    S&P 500 Index of large, U.S. companies – up 11.27%;
•    Russell 2000 of small, U.S. stocks – up 18.15%;
•    MSCI EAFE index of international companies – up 9.74%
•    U.S. Aggregate Bond Index – up 0.38%. 

The New York Times published a special section titled Longevity last month that focused on aging. As part of this they surveyed readers for their “best advice to others for meeting their goals.” Here are a few of their responses – some financial, some not:

•    “Don’t Wait to Save” – Start saving as soon as possible – even if it’s just $20 or $50 – it adds up;
•    “Put Your Future First” – This is similar to my favorite financial planning expression, “Pay yourself first.” This person emphasized to others to save for retirement so that you can enjoy your life when you want;
•    “Prevent falls” – This person stressed the importance of exercise and balance to avoid falling and having to recover from an injury – and to be able to play in the surf and garden;
•    “Work a Little Longer” – This person is concerned with inflation and having enough to live on in retirement so she is still working at age 66;
•    “Engage with Others” – This 94-year old stressed the need for human interaction. She entertains friends for coffee or a meal once a week;
•    “Embrace a New Identity” – The key to retirement, according to this person, is not to let your former job remain your forever identity. Retirement is an opportunity to reinvent yourself and build a new routine and new interests.

What’s your advice?

A recent survey found that most Americans retire earlier than planned. The Retirement Risk Survey, released by the Society of Actuaries Research Institute – sounds like a fun group – showed that 59% of retirees left the workforce before they had expected. 

On average, American workers retire at 62 but most don’t want to retire that soon. The average worker expects to retire at 65 and 39% plan to retire after 70, if at all. 
Here are the top five reasons people left the workforce earlier than they planned:

•    Change in health status – 31%;
•    Job dissatisfaction – 25%;
•    Job loss – 20%;
•    Change in family situation – 19%;
•    Achieved retirement savings goal earlier than expected – 16%. 

Thank you for your continuing confidence.