Our Blog

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.

Here’s our latest blog:

 

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DWM 1Q19 Market "Madness" Commentary

Written by Brett Detterbeck.

guy dunking

In basketball, March Madness is a big deal. For those of you who aren’t familiar with the term, March Madness refers to the time of the annual NCAA college basketball tournament, generally throughout the month of March. In the market, it may appear that “Madness” is never confined to any one month. If you really want to talk about Madness, just think about the last 6 months: The S&P500 was at an all-time high late September, only to throw up an “airball” and bottom out almost 20% lower three months later on worries that the Fed was raising rates too fast, only to “rebound” to have its best first quarter since 1998 as the Fed shifted its tone to a more dovish nature. Is it the NCAA or the markets in a “Big Dance”?!?

Yes, the investing environment now is so much different than our last commentary. Then, it certainly felt like a flagrant foul after a tenacious 4q18 sell-off that had gone too far. We advised our readers then to essentially do nothing and stay the course. And once again, rewards come to those that stay disciplined. With the market back within striking distance of its peak, it almost feels like its “cutting down the net” time. (“Cutting down the net” refers to the tradition of the winning basketball team cutting down the basketball net and giving pieces to team members and coaches.) But of course, the game of investing is not just four quarters like basketball. Investing can be a lifetime. So if you’re thinking about your portfolio like you would a basketball team, let’s hope its more like the Chicago Bulls of the 90s and not the 2010s! (Where’d you go, Michael Jordan?!?)

Like the Sweet 16 of the NCAA tourney, your portfolio holdings are probably like some of the best out there. But there will always be some winners and losers. Let’s take a look at how the major asset classes fared to start 2019:

Equities: The S&P500 soared to a 13.7% return. Small caps* did even better, up 14.6%. Even with a challenging Eurozone environment, international stocks** climbed over 10%. In basketball terms, let’s just say that this was as exciting as a SLAM DUNK for investors! Of course, with a bounce-back like this, valuations are not as appealing as they were just three months ago. For example, the S&P500 now trades at a 16.4x forward PE vs the 16.2x 25-year average.

Fixed Income: With the Fed taking a more dovish stance, meaning less inclined to raise rates, yields dropped and thus prices rose. The total return (i.e. price change plus yield) for most securities in fixed income land were quite positive. In fact, the Barclays US Aggregate Bond Index & the Barclays Global Aggregate Bond Index jumped 2.9% and 2.2%, respectively. Further, inflation remained under control and we don’t expect it to be a pain-point any time soon. But TIME OUT!: Within the last several weeks we have seen conditions where the front end of the yield curve is actually higher than the back end of the yield curve. This is commonly referred to as an “inverted yield curve” and has in the past signaled falling growth expectations and often precedes recessions. To see what an inverted yield curve means to you, please see our recent blog.

Alternatives: Most alternatives we follow had good showings in 1Q19 as evidenced by the Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, up 3.9%. Two big winners in the space were Master Limited Partnerships***, up 17.2%, and Real Estate****, up 15.2%. The pivot by the Fed in terms of their attitude toward rates really benefited the real estate space as new home buyers are now seeing mortgage rates almost a point lower than just several months ago. Unfortunately, not all alts did as well. Gold barely budged. And managed futures, down 3.1%, were tripped up by the last six-month whipsaw.

So if you think of your asset classes as players on a basketball squad, one could say that pretty much every one had a good game, but the star of the show was definitely “LeStock”. Moreover, there was no buzzer beater necessary this quarter, as your team flat out won. In fact, most balanced investors after just one quarter are up high single-digits! A definite nice start to the year. You have now advanced to the next round, but where does your team go from here?

The game we saw in the first quarter cannot continue. With the Tax Reform stimulus starting to wear off, economic growth has to decelerate. In fact, companies in the S&P500 are expected to report a 4% decline in 1Q19 vs 1Q18; their first decline since 2016! World trade volume has really slowed down, so there’s a tremendous focus on a US-China trade agreement happening – if not, watch out! The good news is that the Fed seems to be taking a very market-friendly position, and unemployment and wage growth are under control.

As always, there are risks out there. But with the bull market on the brink of entering its 11th year of economic expansion, the end-of-the-game buzzer need not be close as long as you have a good coach at the helm. Just like within NCAA basketball, to succeed, you need a good coach on the sidelines - someone like Tom Izzo of the Michigan State Spartans who always seems to get his players to work together and play their best. The same way a wealth manager like DWM can help you put the portfolio pieces and a financial plan together for you in an effort to thrive and succeed.

So don’t wind up with a busted bracket. If you want a lay-up, work with a proven wealth manager and you’ll be cutting down your own nets soon enough. Now that’s a “swish”!

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

 

*represented by the Russell 2000

**represented by the MSCI AC World Index Ex-USA

***represented by the Alerian MLP ETF

****represented by the iShares Global REIT ETF

†represented by the Credit Suisse Managed Futures Strategy Fund

 

 

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Ask DWM: What is an Inverted Yield Curve and What Does it Mean to Me?

Written by Lester Detterbeck.

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Great question. Historically, an “inverted yield curve” has been a signal that recession was on the way. As with so many things these days, though, the old “rule of thumb” may not apply. Here’s why:

A yield curve is a graph showing interest rates paid by bonds. The chart is set up with the horizontal axis representing the borrowing period (or “time”) and the vertical axis representing the payments (or “yield”).   We all would typically expect that loans over a longer period time would have a higher interest. That’s “normal.”  For example, if a 30 year mortgage rate is 4%, a 15 year mortgage rate might be at 3.25%.   A one year Certificate of Deposit might earn 1% or less and a 5 year C.D. might be 2%. The situation is referred to as a “normal” or “positive” yield curve in that interest rates are higher as the borrowing period gets longer and the curve slopes upward, see below:

Normal

 

However, rates don’t always work that way. At the end of last week, the three-month Treasury bills’ yield 2.46% was higher than the yield (2.44%) for 10-year treasuries. This situation technically produced an inverted yield curve, since a shorter period had a higher rate. This also happened three months ago. Historically, “curve inversions” have tended to precede major economic slowdowns by about a year.

inverted

 

Inverted yield curves are unusual because they indicate lenders (or investors) are willing to earn less interest on longer loans. This is most likely to happen when the economy is perceived to be slowing down and faces a meaningful risk of recession. Historically, curve inversions have occurred about a year before the each of past seven recessions in the last five decades, though a recession doesn’t necessarily occur every time we see a yield curve inversion.

The U.S. economy has slowed already from the average growth rate of 2018; mainly as a result of the 35-day government shutdown and reaction to the Federal Reserve’s (“Fed”) reports of slower growth and a moratorium on interest rate hikes. Some economists feel the economy may slow even more due to the tax-cut stimulus being only a one year spike, headwinds from trade tensions with China, political uncertainties and global polarization and fragmentation.

However, other factors point to strong economic growth. We do have a solid labor market which drives consumption. Average monthly job creation is well above what might have been expected this late in the business cycle. Further, more workers have been attracted back into the labor force and wage growth has been 3%; a rate in excess of inflation. Business investment should rise and government spending is higher.

In short, an inverted yield curve is not a perfect predictor of recessions. A different portion of the yield curve inverted three months ago in December and the markets in early 2019 have rebounded sharply as fears subsided. Also, many economists believe the drop in 10-year Treasury yields is due to non-U.S. economic headwinds, like Brexit as well as the unwinding of the Fed’s balance sheet after Quantitative Easing. They believe it’s not because of serious weakening of U.S. economic fundamentals.

The current inverted yield curve may or may not be the bellwether of a coming recession. These days, there is not a simple cause and effect relationship between an inverted yield curve and recession. More likely will be the resolution or non-resolution of uncertainties such as Brexit, trade tensions, political matters and global peace. Stay tuned and stay invested for the long-term.

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When Your Plan Ends…

Written by Ginny Wilson.

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As our clients know, we use MoneyGuidePro (MGP) as our financial planning software tool and we generally review our clients’ particular plan with updates when we meet. This allows us the opportunity to discuss any changes in their lives, perhaps an upcoming life event, like retirement, or a new goal, like starting a 529 for a grandchild. We help to analyze all of the “known” factors and make some assumptions about the future, including when your time on earth may end. MGP euphemistically refers to this as the “plan end”, or in other words, the time when these variables, assets and concerns will no longer be yours!

Here is where good estate planning comes into play. At DWM, we think it is important to help you with the preparation for the end of your life, as well as your legacy after. We aren’t lawyers, but we work with some trusted estate attorneys and can use experienced insights and knowledge of your financial world to make sure that all of your wishes are properly addressed. We have helped many of our clients in this way, as well as many of their extended family members. We offer to carefully review your existing wills or trust in an effort to make sure your asset distributions and beneficiary designations are how you want them. We like to provide our own CliffsNotes version in a summarized Estate Flow for your convenience.   If things need updating, we can make some recommendations on how and also on who can help you with the legal paperwork and advice.

We also review all of your estate plan ancillary documents that discuss your end-of-life plan. These include the Health Care Power of Attorney (HCPOA), which designates an agent to represent you on health care decisions, the Durable Power of Attorney (DPOA), which designates a financial, legal and business representative on your behalf and the Living Will, which essentially outlines your care wishes in the event of incapacitation or when you can’t speak for yourself. Many of our clients come in not understanding how vitally important these documents can be for you and your family to have in place BEFORE there is a reason to need them! These documents are also state-specific and must be updated or kept current for where you spend time, either in a primary or secondary residence. Every situation is different – a terminal diagnosis may give you time to determine the answers for these questions and to generally get your affairs in order. However, a sudden, unexpected incident, especially for a younger person, can leave the people you love with decisions and demands that may be overwhelming.

An article in the WSJ recently talked about this issue of “Preparing for a good end of life”. Planning ahead and talking to your loved ones is important for everyone’s peace of mind. There are some fundamental pieces that should be considered to have a good plan ready. As the WSJ writer recommends, “Imagine what it would take to die in peace and work back from there.” This might include where you want to be and how you will manage the financial and physical obligation of your end-of-life. Would you want to be at home and perhaps have in-home care? Would you rather allow for in-patient hospice treatment so there is less demand on your family? The WSJ references a 2017 Kaiser Foundation study that suggests most people care much more about the burden on their families, both financially and emotionally, than about extending their own life.

The Living Will and HCPOA allow you to specify what kind of medical attention you want during a serious medical event or terminal situation. Will you want to be kept alive artificially while being treated so you can live as long as possible? These documents allow you to determine who will be your representative on these matters and what decisions for your care that you make ahead of time or ask that your representative decide for you. In some cases, the right choice might be someone more neutral than a close family member, as their judgement may be emotionally clouded. Either way, it allows you to make decisions now that will offer a guideline to follow for those who love you. Having these conversations ahead of time about who will make decisions and how you wish to be cared for will hopefully bring solace to your loved ones, as well as relieve any stress for you by knowing that this is in order.

It is also important to ensure that all of your legal affairs are in order. Make sure that all of your bequests to others and the timing for them to receive them are kept up to date. It is also important to make sure deeds and the beneficiary designations on other assets are current and titled the way you want them, whether in a trust to avoid probate or with named beneficiaries to make your wishes clear. Make sure to keep life insurance policy information in a safe place and the beneficiary designations current. Also, safely store a list of all important financial documents and social media passwords in at least one place to make it easier for your personal representative(s) to tie up your affairs. Prepare a business succession plan and keep all the documents current. Don’t put off assigning items of sentimental or financial value to those you want to receive them. Many people are now even planning their own memorial services and writing their own obituaries to lessen the obligation and make sure everything is how you would like it. We are happy to help you store some of these financial documents in our secure “vault” in our DWM cloud.

We may have all experienced or know about situations where no planning was in place or updates to wills, titles and/or beneficiary designations were missing or outdated. Your family and friends will be dealing with tremendous grief during this time, so making these preparations ahead of time will allow both you and them some comfort when it’s time. While it may be hard to have these conversations and make these decisions, it will certainly make it easier for everyone in the long run.

Please let us know if we can help you get these affairs in order. At DWM, we are always happy to help bring peace of mind to our clients and their families.

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