Financial Perspectives

A Collection of Pithy Market Quotes

April (From Paul Andreassen)

“Paying close attention to financial news can lead investors to trade too much and to earn lower returns than those who tune out the news.”

March (From Benjamin Graham):      

"The investor's chief problem is likely to be himself."

February (From Sir John Templeton):

"The four most dangerous words in investing are: 'this time it's different.'"

October (From Ken Fisher):

"Whatever you read lots about is surely priced in (to the market) and easily ignored."

September (From Albert Einstein):

"Compound interest is the eighth wonder of the world"

July (from Sir John Templeton):
"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria"
May (from Neils Bohr):
"Predictions are very difficult, especially about the future"
I am always looking for new quotes to keep this section lively so input is appreciated.
This pithy quotes may be oversimiplistic and should not be relied on for investment decisions.
?Social Security and Investments for the Modest Wealth Investor - March 30, 2017
Deferring social security until age 70 increases the benefits for the balance of one'e life.  I highly encourage doing so unless you have a reason to believe that you will not live into your 80's.  With no idea of one's life expectancy, I think of deferral as a risk management strategy.  If one dies young, running out of money is less of an issue that if one lives forever.  (Note: if you reach full retirement age before 2020 and are married (or were for more than 10 years) it is worth looking at a file and restrict strategy to get some social security benefits while you wait.)
But this creates a portfolio management challenge unless your wealth is substantial enough to be relatively invunerable to market swings.   Example:  If you are a couple who cannot take advantage of a suspend and restrict strategy who is planning to retire on $10,000 per month and will receive $6,000 per month in combined social security benefits who plans to retire at age 66, you will have to drain your savings at $72,000 per year ($216,000 total)  more heavily than you will when you are both 70. 
A challenge for retirement investing is that, if you live a long time, for most, it is important to get a decent return.  If one gets too conservative (eg bonds and annuities), one runs the risk of not keeping up with inflation or achieving the returns you need for a very long life.  So most retirement portfolios include a blend of stocks and bonds.  The 1950's conventional wisdom that shifting most assets to bonds when one retires made more sense before we started living so darn long. 
In general, longer time horizons are better suited to stocks and shorter to bonds or cash.  Hence the issue.  It may make sense to keep that extra $212,000 invested far more conservatively than may be appropriate for the funds you will need after you turn 70.   Hypothetical example: If one has $1 million in retirement savings and defer's social security, the  $28,000 drawdown rate that one will need to supplement social security would genrally be considered very conservative.  Over the long haul, that draw down rate is not unreasonable even if the market declines 40% over the short term.  One might reasonably anticipate a market recovery at some point and that drawdown rate will not unreasonably deplete your principal. But... If your portfolio drops 40%, that high initial drawdown will deplete more than a third of your wealth leaving your principal so depleted that your planned long term drawdown rate will have become far more aggressive relative to your assets. 
Ironically, in this example, it makes sense to consider being less aggressive in aggregate when you are 66 than when you are 70.   Had that $212,000 not been at materially at risk while the market declined 40%, your drawdown rate would be 3.5% at age 70 - low enough to invest a little bit more aggressively -
a better deal in most simulations for your heirs. But if all of your assets had been in the market while it declined 40%, your drawdown rate would have increased to 4.7%, your future a bit more vulnerable and your need to invest cautiously increased.
?This hypothetical analysis ignores inflation in the interest of simplicity.
Of course, markets are  unpredictible and past performance is no assurance of future performance nor does any strategy assure a certain outcome.

The Importance of Time Horizon Sept. 2, 2016

As many of my clients know, one of the first conversations I always have is about time horizon.  The stock market is generally a not a place for money that you might need in the next year or two though it may be appropriate place for money that you are comfortable with not having access to for some time or potentially losing.  

The challenge is that a long time can be a a really long time.   And if you are retiring soon, for example, market uncertainty complicates planning. 

(Source: Federal Reserve data base (St. Louis))

Many advisors will tell you that the market has been a good place to be for the long haul. The average S&P 500 return over the last 50 years has been about 9.6%.  But you should be aware that there have actually been 10 year periods where the S&P 500 has lost money (for example, 1999-2008).   This makes retirement planning challenging.  I am here to help you plan for these uncertainties.

These views are my own and do not necessarily reflect the views of Waddell & Reed.  The opinions are subject to change based on market conditions or other factors, and no forward looking statements can be guaranteed. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.

The S&P 500 index is unmanaged and cannot be directly invested into. Past performance is no guarantee of future results.


Can We Expect Market Returns Comparable to the Last half Century in the Decades Ahead?   Sept. 2, 2016

Should we expect comparable returns to the last 50 years as we have seen over the last 50?

  • The short answer is, probably not.  And for a lot of reasons. But the reality is no one really knows:
  • Don’t forget that asset values (reflected in the stock markets) include an inflation component.While the S&P 500 has offered a return of about 9.6% between 1966 and 2015, the real rate of return was closer to 5.8%.And today, inflation appears to be tamed and interest rates, reflecting those expectations, are at historic lows (though equities remain a superior inflation hedge to fixed income in the event that things change). Longer term, most analysts believe that interest rates/inflation are unlikely to go much lower and persistent low rates may eventually hurt personal, insurance company and pension balance sheets. And much or most of the benefit to corporate earnings may already be behind us.


  • The press is increasingly sprinkled with analysis wondering whether the rate of economic growth and concomitant investment returns, enjoyed in unparalleled amounts for the past 30-80 years, is drawing to an end.  This McKinsey report and this New York Times analysis are excellent examples.


  • Serious scholars such as Robert Gordon of Northwestern University, are starting to question the limits of productivity growth associated with the internet revolution and other technological revolutions in supply chain management and other parts of the economy.  Larry Summers (Harvard) called it “secular stagnation” at a 2013 I.M.F conference, citing insufficient demand.  He proposed to accelerate infrastructure spending to stimulate otherwise stagnant demand. (Both Trump and Clinton seem to agree if we take their recent economic policy speeches at face value).  But the impact and outcomes remain, of course, uncertain.


  • Further, the world faces some material demographic headwinds.  In addition to these productivity growth challenges, the world’s population is aging and population growth, one a major source of economic growth, is ebbing.  Fortunately for us, this is less of an issue in the US than it is in Europe, Japan and China.


What does all this mean to you? Don’t act precipitously, just realistically.  I believe (with all the usual caveats) that the markets can still offer a solid long term inflation adjusted return albeit a lower return than we may have seen over the last 50 years.  Just don’t build your personal financial plans around unrealistic return expectations.  The market consensus is that there is nothing in the immediate horizon to suggest that the markets are overpriced (P/E multiples & cash flow multiples, relative to long term growth rates, the strength of the US consumer sector, etc. valuations).  Though market declines can be unpredictable.  Beware of the “perma-bulls” and “perma-bears.”  There are likely to continue to be tactical opportunities to take advantage of relative value over time.

Stick to the basics – a diversified portfolio designed for your situation.

These views are my own and do not necessarily reflect the views of Waddell & Reed.  The opinions are subject to change based on market conditions or other factors, and no forward looking statements can be guaranteed. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.

The S&P 500 index is unmanaged and cannot be directly invested into. Past performance is no guarantee of future results.

Diversification is an investment strategy that attempts to reduce risk within your portfolio but it does not guarantee profits or protect against losses.  

The McKinsey and New York Times links do not necessarily reflect the views of Waddell & Reed.

Putting the Recent Market Peak in Perspective

August 9, 2016

The S&P 500 recently hit all-time highs. Are the markets overheated?  Economists and analysts are historically bad at forecasting so I would not dare.  However…let’s put it in perspective.   From 2000 to the end of 2015, the average annual returns of the S&P 500 (including dividends) have been very low by historical standards (about 4%).  Even if you argue that 2000 thru 2003 represented the end of a market bubble and look at S&P 500 returns from 2004 to 2015 the average annual returns were still only about 7.3%. Compare that to an average of more than 11% since 1950 and more than 9% since 1930.  Few forecast future average annual returns to reach these historical levels again for many reasons – demographic factors and low inflation to name two. But over the last decade and a half it is hard to argue that the market growth is notable considering these factors.




Volatility, Market Timing and Forecasting the Direction of the Market – a Perspectve

January 20, 2016

As you have probably noticed, the S&P 500 is down 9.03% year to date.* Whether the markets will turn upward from this point or find a deeper bottom is hard to know.

This downturn, at least so far, is not so unusual.  In fact, over the last 65 years, half of all annual periods saw a correction of 10% or worse in the S&P 500.  Often these declines have come swiftly.  But it does give cause for pause and reflection.  See this article for more data: Link**  

With perfect hindsight, it would be easy to make a fortune with market timing.  In fact some will tell you the direction of the market with great authority.   Sorry.  But I won't.   Anytime someone predicts the direction of the market, I ask myself a couple of really basic questions.   What is their track record?  And, if they are so smart, why are they not billionaires? Why are they sharing their wisdom with me?  The more people they educate, the harder it becomes for them to profit from their advanced knowledge, so why would they broadcast their brilliance?

The research on the ability of the so called “experts” out there - economists and Wall Street analysts – to correctly forecast either recessions or bear markets is clear.   In aggregate, they have a notoriously shaky track record.  I regularly read articles with wildly divergent forecasts.  Be particularly careful on the internet where authors can make more money with more traffic. This creates some bias towards hyperbole, in my opinion.

It should therefore be no surprise that the abundant data suggests that efforts at market timing are not only very difficult but can, and on average do hurt returns. Market timing can keep you out of the market during rebounds and it can also complicate tax management.

Even when one is absolutely right analytically and the market consensus is not, it is not so easy.  Before the last bear market in 2008, a handful of folks did correctly forecast the real estate financial bubble and bet big on it.   They were brilliant, did their homework, caught something that most of the best analysts and economists missed and made a lot of money.  But don’t forget this part of the story. In spite of being spot on analytically, they almost lost everything waiting for the market to catch up with their analysis.

From my perspective, the best approach to market volatility is to focus on designing a portfolio that is consistent with your personal goals – your time horizon and risk tolerance.   To quote Rudyard Kipling: 

…If you can keep your head when all about you
Are losing theirs and blaming it on you;

…Yours is the Earth and everything that's in it…  

                                   (From “If” by Rudyard Kipling)

This is not to say that portfolio and asset class adjustments do not make sense from time to time.  But if you google “average investor vs. Market” you will discover that historically, the average investor has significantly underperformed the market.   I will let you delve through the internet to explore all of the reasons.  I think it is simpler than that.   Too few investors have read Kipling.

*The S&P 500 Index is unmanaged and cannot be directly invested in.  Past performance does not guarantee future results. 

**Waddell & Reed, Inc. is not affiliated with the Washington Post or the author and makes no representation as to the completeness or accuracy of information provided.  Third-party posts do not necessarily reflect the views of Waddell & Reed and should not be considered an endorsement of the content.   When you access this site you, you are assuming total responsibility and risk for your use of the site.