A True Halloween Scare: Volatility Returns to the Marketplace

Recently, we here at DWM posted a blog discussing the phenomenon that “Bull Market Runs Come in All Lengths”. Within this article, we mentioned the idea that before our current bull run ends, we may see many more pullbacks and/or corrections.

Within the current month, we have seen these types of market downturns as investor fears of upcoming mid-term elections, tariffs, rising rates,  and international economic slow-down issues have spiked levels of consumer fear (measured by the volatility index, VIX), by nearly 50% .

While this data can’t tell us whether the current bull market run is coming to an end, it opens up the opportunity to better understand just what is happening in the economy, and how we should handle times like these.

To understand the severity of market moves, there are three unique distinctions: a pullback, a correction, and a bear market, which signify downward market moves of 5%, 10%, and 20% respectively.

Over the past month, securities within all asset classes – equities, fixed income, and alternatives – have experienced one of these. On October 23rd, in fact, over 40% of the stocks in the S&P 500 were considered to be in bear market territory. Since then, markets have continued their run of ups and downs.

What can this market data tell us about the future? Unfortunately, not much. While markets tend to be cyclical in nature over the long-term, the short-term is usually marred by emotions (herd mentality, greed, and fear) rather than by solid fundamental and economic modeling. Furthermore, the risk of attempting to predict these short-term outcomes can have a serious long-term effect on the performance of an investor. Studies have shown that by missing out on only a few days strong returns in a market cycle can drastically impact the portfolio’s overall return.

Thus, in order to stay on track with long-term financial goals, one of the most successful and least anxiety-inducing ways to manage investments is to generate a financial plan, assess and re-assess risk tolerance regularly, and continually stay disciplined to these values in order to avoid making emotional and poor decisions. In conjunction with these actions, an investment portfolio needs both an appropriate asset allocation based on a client’s financial plan and has to be made up of a well-diversified portfolio that can help provide exposure to market areas, such as fixed income and alternatives, that are arenas that may still produce returns even with stocks stuck in a slowdown. The combination of these strategies can work as shields to protect both an investor’s assets, and his/her mental health during times of volatility such as today’s challenging marketplace.

At times, corrections, pullbacks, and even bear markets can actually be good things! If certain areas of the market are being overvalued, or company valuations are getting ahead of their fundamentals, pullbacks and corrections can serve as a check and balance system, to get these more in line. This makes companies, sectors, and markets more stable as they can refresh a bull market that is verging on inflating itself beyond its means.

Furthermore, a pullback, correction, or bear market move down for a certain security can provide other opportunities. For example, this month, DWM will be creating value for clients by taking advantage of tax-loss harvesting options. Tax-loss harvesting is the process of selling out of a security that has lost value since an investor first bought it, and using that loss to offset any gains that an investor realized during a tax year. This upside can serve as a nice treat to offset the “trick”-y investment arena of October.

One other somewhat notable factoid is that in the mid-term election year of October 2014, the stock market took a noticeably similar look. That of the Dow Jones down nearly 3%, rebounding, and selling off throughout, ultimately dropping into correction territory. This was quickly followed by a November post-election market boom hitting record highs for the Dow and S&P 500. Once again, while interesting to see, take these numbers with a grain of salt moving forward and looking at future returns.

All in all, keeping in mind that while volatility and uncertainty in the marketplace can be scary, maintaining a balanced, disciplined portfolio and financial plan, and staying dedicated to that plan throughout all market cycles is the key to being financially sound and minimizing the number of sleepless nights. At DWM, we proactively discuss these matters with clients, and strive to keep our clients informed, motivated, and on-target to their financial plans to help them reach their long-term financial goals. Happy Halloween!

October: Halloween and National Cybersecurity Awareness Month

What a combo!  Ghosts and goblins seem pretty tame compared to the potential theft of our financial information.  146 million Americans got a big scare last month when Equifax announced that hackers had stolen their personal information.  Fast food chain Sonic just announced that customers’ debit and credit card information was stolen last week.  So, while Halloween costumes, haunted houses and trick or treats get put away on November 1st, cybersecurity issues cannot be put away in the attic trunk or tossed into the garbage.

We probably all wish we could just email Equifax a two word message:  “You’re Fired!”  Unfortunately, it’s not that easy.  For example, Fannie Mae, who sets the rules for most mortgages, requires information from all three credit “repositories.”   If you will never need a mortgage, you can try to delete your files from Equifax.  However, those who have tried have been put “on hold” for hours and then told that deletion of their files was impossible.  The “no” response to deletion was confirmed by Equifax former CEO Richard Smith last week to Congress. For now, the best we can do is freeze (not “lock”) our accounts at Equifax, Transunion and Experian.

New “cyber-vampires” are emerging from the darkness.  Did you ever watch the movie “Catch me if you can?” Great film.   It is the story of Frank Abagnale, Jr., played by Leonardo DiCaprio, a master of deception and a brilliant forger who stayed one step ahead of the FBI (Tom Hanks) for five years with his highly successful scams.  Once arrested, he spent five years in jail from age 21 to 26.  Since that time, Mr. Abagnale has put his unique skills to good use teaching FBI agents around the country about cybercrime, identity theft and fraud.    He also serves as an ambassador for AARP’s Fraud Watch Network and lives in Daniel Island, SC.  Here are some of Frank Abagnale’s (“FA”) recent warnings:

FA: “Stop writing checks- if you are still paying by check, you might be putting your life savings at risk.”  If you go into a grocery store and write a check, you have to hand the clerk the check with your name and address, phone number, your bank’s name and address, your bank account number, the bank routing number and your signature.  And then, the clerk may ask to write down your date of birth and driver’s license number as well.  You never get the check back, it goes to the store’s warehouse, where it may be destroyed thoroughly (or not) six months from now.  Anyone seeing the check has all they need to draft on your bank account tomorrow.

FA: “It is now 4,000 times easier to forge checks (with today’s technology).”  50 years ago, FA used a Heidelberg printing press, originally costing $1 million, to forge checks.  The press was 90 feet long and 18 feet high.  Now, one simply opens their laptop and says, “Who’s my victim today?”  In fact, FA indicates that forging checks is so easy these days that street gangs that used to deal in drugs and narcotics are forging checks instead.  FA: “It’s easier and you spend a lot less time in jail if you are caught.”

FA: “Technology breeds crime-whether it is forging checks or getting information.”  Facebook is a great source of information for the crooks.  One of the most common scams now is the “grandparents scam.”  The bad guys go on Facebook and find out who the grandparents are and see who the grandson is dating.  They easily manipulate their telephone caller ID to show a call coming from the NYPD or other police department.  The thieves place their call on a Friday night and tell the grandparents that the grandson is at the jail after being picked up for DUI/DWI and being held for bail.  If money for bail is not received in two hours, the grandson will have to spend the weekend in prison.  “Millions of grandparents have fallen for this scam.”

At DWM, we recognize that you have worked and continue to work very hard for your money.  Our goal, in every facet of providing Total Wealth Management, is to protect and grow your assets.  Cyber-safe practices are a key element of risk management.  Our first job is to educate our clients and friends about the importance of cybercrime, identity theft and fraud.  Charles Schwab & Company, the custodian for our clients’ money, is as dedicated as we are to keep you and your funds safe and help prevent attacks.

Watch for more blogs this month (and beyond) on cybersecurity.  It’s a tremendously important topic!!

Happy Halloween!

halloween-moneyHappy Halloween! Halloween can be one of the best times of the year, especially if you’re creating memories with your family and friends. We all love to watch scary movies and get a little spooky on Halloween, but do you know what’s even scarier than a creepy clown on Halloween? Having poor financial habits. My name is Grant Maddox and I am a new Service Associate with DWM.  As a recent College of Charleston Business graduate with a concentration in Finance, I have learned a thing or two about spending while on a “college budget”. I have also learned through my course work how important it is to stay on your budget and not over spend.

Americans love to spend!  The 2015 Bureau of Labor Statistics reported that average spending in the U.S. across all types of expenses increased in 2015. Expenditures for food, housing, apparel and services all rose between 3.4% and 3.9%. We know the Consumer Price Index remained largely unchanged at 0.73% last year. In other words, the increase in spending was principally not the result of inflation. Instead it shows American households simply spent more in 2015.

There are many reasons why Americans may spend more – for one thing, technology has made it so much easier. As accessibility to online retail and credit options increases, so do our spending habits. You can pay with a swipe of a card or by hovering your phone over a machine!  It is eerie how easy you can spend your hard-earned dollars!  In fact, kicking off the end of year spending season is Halloween. Just how much do Americans spend on trick-or-treating and other Halloween festivities? The National Retail Federation (NRF) forecasts total Halloween spending—including candy, costumes, and decorations—to come to $7.4 billion this year. We are inundated with eye-catching campaigns to encourage excessive spending, especially during the holidays.

Establishing a budget that includes life’s essentials such as rent, utilities, food, and transportation is important for setting up yourself or your child for success. It is crucial to encourage saving early and often to gain the benefits of compounding. While many young professionals may see saving for future goals, such as a down payment on a house, as a non-priority, saving, in fact, can certainly make a huge difference. As a parent, you can even encourage your child’s saving by offering to match a percentage of their contributions to a designated savings account. These lessons can be invaluable to them as they grow older. Having direct deposits of paychecks, direct deposits to savings vehicles and automated payment schedules help us manage our bill payments and savings potential more easily.  Technology can be a wonderful attribute to our society and for our spending, when we use it wisely.

At DWM, we encourage you to plan for your major purchases and be sure that your goals are all part of a larger successful financial plan.  Looking for ways to right size your spending isn’t just about planning ahead for luxury items.  Reviewing all household expenditures to determine if they are needs, wants, or wishes is also a great practice. I look forward to learning all I can about total wealth management and helping our clients and others to achieve their financial goals.

aaeaaqaaaaaaaafdaaaajgvhztrjmmuxlwniytatnguwmy1hnjg5lwfjzdq0mjexmji0nqEditor’s Note:  Please join us in welcoming Grant Maddox to our DWM team.  Grant joined our firm in October as a service associate and is training/learning/working toward becoming a junior advisor. Welcome aboard, Grant!