November 2019 Newsletter to ClientsSubmitted by Moneywatch Advisors on November 4th, 2019
Enjoy this month’s edition that features a best practice on your accounts plus commentary on investments so far this year.
Save the Date for the Moneywatch holiday party and open house on Thursday, December 12 from 4:00-7:00 PM.
Account Information: TD Ameritrade, along with many other financial institutions, is now collecting ‘trusted contact’ information from clients. This information is very helpful in the event you become unreachable. It does not give the contact any legal power, but it does enable the company to make inquiries on your status. If you would like Moneywatch and/or TD Ameritrade to keep a record of this information, please email us directly so we can forward the necessary documentation requirements.
Maintaining and confirming current beneficiary designations on all your investment accounts (taxable and retirement) is a sound estate planning practice. We are currently reviewing primary and contingent beneficiaries on TD Ameritrade accounts. In the rare event that something was to happen to your primary beneficiary(s), it would be prudent to list a contingent beneficiary(s). We are in the process of reaching out to clients who do not have an existing contingent beneficiary.
Investment Returns: Last month we explained that, like Warren Buffett, we never try to time or anticipate what the stock market will do next. That doesn’t mean, however, that we don’t study the markets – stocks and bonds – for how they behave and how the investments we choose for our clients perform within those markets. So, with that in mind, what’s our take so far this year?
Interest Rates: On October 30, the Federal Reserve lowered short-term interest rates for the third time during 2019. These moves followed four rate increases during 2018. As you may remember, the rate increases last year were partly responsible for the stock market’s steep decline during the 4th Quarter.
The Fed’s dual mandate from Congress dating back to the 1970’s is to promote the goals of maximum employment and stable prices. Currently, even as annual economic growth hovers a bit below 2% per year, unemployment stands at very low rates historically and inflation is a bit less than the Fed’s target rate of 2%. Despite their stated concerns about the trade war, Brexit, decline in business investment and earnings, the Fed indicated after their last meeting that further cuts were unlikely unless there were reasons to do so.
Stocks: At the end of the 3rd Quarter the stock market, as measured by the S&P 500, was up over 20%. Despite the fact earnings have declined for three consecutive quarters, stocks seem less expensive when interest rates are low. Why? Because when an investor estimates the multi-year earnings of the company they are buying and determines a price they are willing to pay for those earnings, lower interest rates translate into lower expected returns and, consequently, a higher stock price. Also, many investors see current bond yields as so low they’re willing to take more risk in stocks because they believe there’s no place else to go.
Some of our key mutual funds and returns through 09-30-2019:
- T.Rowe Price Blue Chip – TRBCX – 18.88%
- Janus Henderson Enterprise – JAENX – 27.56%
- Janus Henderson Triton – JATTX – 21.41%
Income Funds: Bonds and bond funds have performed way better than many expected this year because interest rates have declined. When interest rates decline, bond prices increase. The average annual return of bonds – price increase and interest paid – is 3.06% over the last 5 years. The total return of the U.S. Aggregate Index, kind of the S&P 500 for bonds, is over 8% for 2019 so far. Similarly, those clients who own one of the floating bank loan funds have seen good returns too.
Some of our key income mutual fund returns through 09-30-2019:
- BlackRock Floating Rate – BGT – 10.68%
- Loomis Sayles Bond – LSBDX – 8.96%
- Lord Abbett Bond Debenture Fund – 11.34%
What comes next is uncertain but the first three quarters of 2019 have posted spectacular returns. As always, diversification is the key to help smooth out whatever the ride happens to be.
Thank you for your continuing confidence.