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DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

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DWM 2016 Year-End Market Commentary

Written by Brett Detterbeck.

Over the holidays, I heard a lot of people whine about 2016 and how they were happy that it was over. Obviously, as a Cubs fan, I am biased. 2016 delivered a gift that has been waited upon for decades! One more time, “Go Cubs Go, Go Cubs Go, Hey Chicago, What Do You Say…” Sorry, I digress. Really, beyond breaking goat curses, what’s not to like about a year like 2016 when all major asset classes were up? For all the doom and gloom, not only early on in the year when stocks were getting hit in January, but also later in the year with Brexit and then during our “nasty” US Presidential Election, 2016 turned out to be a pretty darn good year for most investors.

Let’s review:

Mkt Commentary Blog Graph edited w title

Equities: The graph above shows the performance of the MSCI AC World Equity Index, which finished the year up 7.9% in 2016. You can see that it was rough going early on and definitely some blips here and there, but ultimately a solid showing. Large caps did well, as represented by the S&P500, up 12.0%. But the big winner was in domestic small cap value where the Russell 2000 Value notched in a 31.7% return! Mid cap* stocks also shined, up 20.2%. Emerging markets** sold off in 4q16 after the Trump victory, but still finished up 11.2%.  Value continued to outperform growth, in some cases, by a 2 to 1 margin. At DWM, our clients follow a diversified strategy within their equities portfolio which feature the areas above and a value tilt.

Fixed Income: 2016 was another positive year for bonds, but ended with a thud, if you’re looking at the most popular bond benchmarks. The Barclays US Aggregate Bond Index lost 3.0% in the fourth quarter, finishing 2016 up 2.7%. The Barclays US Aggregate Bond Index had a horrendous 4q16, down 7.1, and finished +2.1%. Why the fourth quarter sell-off? Well, the Trump victory caught a lot by surprise and created a “rotation” of assets in the markets. In other words, with Trump’s pro-growth/ decreased regulation / America-first agenda, people traded out of bonds (that can get hurt from this new expected inflation brought on by growth), and traded into domestic equities particularly smaller caps and industries currently weighed down by regulation like financials and those that will benefit from infrastructure spending. The 10-yr Treasury Note yield which went as low as 1.3%, with some even worried about potentially going negative, spiked up, closing at 2.4% to end the year. That, folks, is a huge move for bonds, but is something that can happen when rates have been held down artificially for so long, and forecasts what we may be in store for. These upward moves in yield bring downward moves in prices. With the Fed signaling three rate increase of 0.25% each in 2017, traditional bond index investors could be seeing flat to even negative returns in 2017 and beyond! Bonds are no longer the safe haven they have generally been for the last three decades. This is not your Grandfather’s Oldsmobile! If you’re heavily invested in bonds, make sure you are working with a professional wealth manager that can position the portfolio appropriately or you could be caught with your pants down. Here at DWM, we aren’t a bond “closet indexer” which means the components that make up our clients’ bond portfolio are quite different than that of those indices mentioned above. Furthermore, we feel we can better position the portfolio for this new environment by adjusting the duration – or sensitivity to rates – to a very low measure. Our DWM clients have benefitted from this approach.

Alternatives:  In general, alts had a positive performance in 2016. The Credit Suisse Liquid Alternative Beta Index which was up 5.4% for 2016. Winners included precious metals like gold**** +8.3%; MLPs +14.8%; and catastrophe insurance-linked bonds notching in at 8.8%. But all was not peachy. Hedge funds*** as of the latest data available (11/30/16) were only about flat on the year. And many managed futures had negative showings, having a particularly tough time with the trend reversals following Trump’s victory.

So after a year where a balanced investor may have had registered a handsome high-single digit return, now what? It really is hard to forecast what will happen in 2017 as nobody knows exactly how this new Trump agenda will play out. We do know that the latest US quarterly GDP reading was the best in two years at 3.2%. US unemployment at 4.7% is hovering around its nine-year low. US companies are coming off the sidelines and are starting to invest their cash piles. Beyond this recent optimistic attitude domestically, investors are even encouraged with the outlook in the Eurozone, Japan, and China, more so than just several months ago. Brighter economic fundamentals could lead this stock market even higher.

In conclusion, we’re at a very interesting time. It’s only several days until Trump takes office and when his administration and Republican congressional majorities start trying to do all of these pro-growth/pro-economy measures. The markets are up since Election Day because investors have bought into the theory that they will indeed be successful in cutting taxes, loosening regulations, and providing fiscal stimulus. If they are successful, the legs on this bull market will continue to grow. If they are unsuccessful, America might not be so great again. Only time will tell. In the meantime, DWM will continue to monitor all client portfolios in pursuit of protection and growth in this new environment.

As I could hear Joe Maddon, coach of the Chicago Cubs saying, “2016 was a pretty darn good year. Now let’s go out and do it again!” Hey Joe, at DWM, we’re up to the challenge!  

Brett M. Detterbeck, CFA, CFP®, AIF®

DETTERBECK WEALTH MANAGEMENT

 

*represented by the Dreyfus Mid Cap Index Fund

 

**represented by the MSCI Emerging Markets Index

 

***represented by the GSAM Hedge Fund Index as of 11/30/16 (latest available)

 

****represented by the iShares Gold Trust

 

† represented by the Alerian MLP ETF

 

‡ represented by the Pioneer Insurance-Linked Interval Fund

 

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Happy Holidays – Lessons from Star Wars

Written by Les Detterbeck.

rogue oneGrandsons Matthew and Henry and I went to the see “Rogue One: A Star Wars Story” yesterday.  With Carrie Fisher (Princess Leia) having passed away in the morning, it was a surreal experience.  Even so, we all loved it.  This is the eighth Star Wars film, all of which have been commercial blockbusters, amassing combined box office earnings of $7 billion.  But did you know that the Star Wars films have also provided some great financial lessons as well? With thanks to wealthmanagement.com for the idea, here are some of the key ones:

There is tremendous power in holistic planning.  Young Luke Skywalker’s advisor Obi Wan Kenobi (“OWK”) taught him that the Force, an energy field created by all living things that binds the galaxy together, is the source of his power. In the same way, a well-developed holistic financial plan can give you tremendous power to meet your goals.  Of course, once implemented, the plan needs regular monitoring and modifications as conditions and goals change.

Stick to the Plan.  Do you remember when Luke was just a neophyte, learning the ways of the Force,  and the skeptical Han Solo, disregarding the advisors like OWK pushed Luke to be a risk-taker, like him?  After Luke got distracted by Solo’s taunts, OWK reminded him to trust his plan instead of making knee-jerk reactions.  While things got rocky along the way, Luke eventually reached his goal- to become a Jedi Knight.  It’s an important lesson.  You need to stick to your plan, particularly with investments.  Trust in your plan and your allocations and focus on long-term goals.

Quick and Easy Leads to the Dark Side. In the 1980s, the Jedi Master Yoda taught Luke about the Dark Side.  Yoda told Luke that chasing instant gratification, like investing heavily in a hot stock, can lead to ruin.   When Luke ignores the advice, he’s almost defeated by Darth Vader.  Yoda reminds us that patience is a key in investing.  At DWM, we firmly believe that you should adopt an appropriate, diversified asset allocation and stay fully invested.  Don’t try to time the markets or chase performance. Stay disciplined.

Value is the key.  Despite his other issues, Han Solo does understand value.  Luke was shocked when Solo initially disclosed his fees to pilot them across the galaxy in the Millennium Falcon.  Luke said he could buy and pilot his own starship for less, but OWK knew expertise can command a fair price and even offered to spend more to ensure results.   Yes, value is the key.  Expertise and honesty command a fair price and offer the best possibilities of helping you get to your lifetime destinations.

Family is everything. In “Star Wars VII: The Force Awakens,” Solo played the role of advisor to next generation heroes Rey and Finn, but was unable to guide his own son Ben. As a result, Ben disregarded Luke Skywalker's teachings and sought out the advice of Snoke and converted to the dark side, as the evil Kylo Ren. At DWM, our focus is on families.  We do our best to meet, understand and communicate with everyone, sometimes three or four generations, and, as part of our total wealth management service, provide financial assistance to all family members, regardless of the size of their current investment portfolio.

Use a Fiduciary. Along with Yoda’s warning about the quick, easy and seductive dark side, the heroes of Star Wars are frequently working not just for themselves, but in the best interest of the galaxy. General Leia (no longer a princess) formed the Resistance when the First Order rose to power in the ashes of the Empire. The evil First Order did not support plans made in the best interests of the galaxy.  Finn abandoned the First Order after he was asked to attack innocent villagers and used his knowledge to aid the resistance.  Unfortunately, there are many providers in the financial service industry that are part of the quick, easy and seductive dark side.  Align yourself with advisers who are fiduciaries, legally bound to put your interests first, and who are passionate about adding value and helping you reach your goals.


MAIN-Princess-Leia-changed-name-in-new-Star-WarsMay The Force Be With You Always!

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Father of the American Christmas Card

Written by Grant Maddox.

christmasIt's that time of year again. Time to get together with family, reconnect with old friends and drink eggnog by the fire. Spending time with those important people in your life is nice any time of the year, but it's always great around the holidays. However, what is one to do about all those wonderful people if you do not get to see them in person? Enter the Christmas card. Christmas cards have become a staple in most households during the holidays and there is a long history behind their success and popularity.


Have you ever wondered how the Christmas card came to be what it is today? Initially produced in 1843 by Sir Henry Cole of Britain as a way to keep in touch with all of his friends and acquaintances, it wasn't until 20 years later that they became mass produced in the United States by Louis Prang of Boston, MA. Sir Henry Cole's original card included images of him feeding and clothing the poor with the words "Merry Christmas and Happy New Year" on both sides. He had the same heading of "TO ____," with the blank spot allowing him to print a different name on each card. Back in the States, the popularity of Louis Prang’s take on the Christmas card grew. Soon people began to collect these and measure how many they received each year. It is for this reason that Louis Prang is considered by many as the "Father of the American Christmas card."

christmas card

Christmas card, L. Prang and Co., 1876. PR 31, Bella C. Landauer Collection


Christmas cards have indeed grown since their creation in the 1800's. With 1.6 billion Christmas cards purchased every year, according to the Greeting Card Association, the industry for Christmas cards seems like it may last the test of time. That is, if we don't all switch over to electronic, emailed cards. However, the ease of electronic greeting cards does not appear to be having a large effect either, as this year Americans will spend on average $30 on Christmas cards, according to a study done by Statista.com. The amount that Americans spend on Christmas cards each year does not even take into account the time and effort that goes into developing the card, and, in some cases, getting the family to stand still long enough to have a picture for your card. However, all the time, effort and money that you put into giving Christmas cards to friends and family is a small price to pay for letting your loved ones know you're thinking of them during the holiday season.

At DWM we value the importance of family and friends, and we agree that maintaining close relationships is priceless. Connecting with those important people in your life is nice around the holidays, and it's especially important to us at DWM now and throughout the year. We appreciate keeping in touch with all of you and we wish you a Merry Christmas, a wonderful holiday season, and a happy new year! 

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