“#Change2017” Investment And Retirement

Happy 2017! This past year may be one the most memorable in recent generations. “Change” might be the key word heading into 2017. “Change” will apply to: The Presidency, one party controls both the Executive/Legislative branches of government, Interest Rates, countless regulations across the board, and the Affordable Care Act, to name but a few. 

Financially speaking, it would be wise to revisit allocations in your investment and retirement plans. Last year, I wrote, “Bond Outlook in 2016” and that article would still apply in 2017. Bonds are a necessary component to a balanced portfolio however, yields are relatively low and values could decrease, if and when the Fed raises interest rates. Bottom line: it is hard to get excited about bonds. 

The S&P 500 closed at 2204 on 11/29/16, slightly up after 12 months. This is after being flat or down for much of 2016. Typically, “Change” would be a headwind for stocks, but this may not be the case this time. It will be important to make sure your allocations are positioned to YOUR risk tolerance and goals.  Too often we visit with seminar attendees and their Stock/Bond allocation hasn’t been rebalanced in years or they have been sitting in cash, paralyzed from the 2008 crash.

Let’s discuss some of the considerations, opportunities and risks that might assist your decision making. 

Before diving into some challenges facing bonds, it is important to remember bonds are an important part of your portfolio. During last year’s article, we discussed how rising rates can affect the value of your bonds and bond funds. Quickly, let’s review:

“Let’s say you owned a bond that was paying you 3% and you wanted to sell it. Consider new rates were up and someone could buy a new bond paying 5%. If you paid $100 for your bond, why would someone pay you $100 for 3% when they could buy a bond paying 5%? Likely, you would have to sell it for something below the $100 you paid. This dynamic will be in play as rates rise.”

The next 3 to 5 years could be a grind for the conservative investor. There are not many great low-risk assets that are paying a decent dividend, coupon, or interest payment. Moving forward you and your advisor will need to work together to create a plan for the conservative part of your portfolio. The conservative portion of your portfolio will make up roughly between 20 to 100 percent of your accounts depending on your tolerance and situation. The most common holdings for the average investor will likely be individual bonds, bond ETFs, and bond mutual funds. It might be prudent to investigate other opportunities in Market Linked CDs, Fixed Annuities, and Fixed Indexed Annuities. The terms on these can vary greatly; it is critical to have a trusted advisor or agent. 

Ohio is referred to as a 10/10 state, meaning the term on the annuities cannot be any longer than 10 years. Annuities are issued by an Insurance Company. Bonds, even as they fluctuate in value, have a purpose inside your portfolio. Their purpose in the short-term and foreseeable future will be for (1) some income and (2) to balance the risk of stocks/equities in your portfolio.

Around the beginning of 2009 the S&P 500 was near 825 and as I write this, is now around 2204. This is an increase of over 1350 points without a meaningful correction or decrease. It went down to 1920 during 2015, but this was a relatively insignificant event. Recent news headlines have talked about the Trump effect on business and stocks. Forecasts predict regulation rollbacks, infrastructure spending, modest rate increases, repeal or massive changes to the Affordable Care Act, and personal and business tax cuts. These are seen by some as positive stimuli for stocks. 

Some of the negatives: we are now roughly 90 months into our current expansionary cycle; rates could rise faster than expected, and “Change” could be better for some industries and asset classes than others. With the right risk tolerance and the willingness to ride out a downturn, well-managed equities can create an opportunity for growth. It is my opinion that there needs to be at least a ten-year commitment to equity holdings in our current market. If you cannot handle seeing a 20-30% drop in your holdings, entering the stock market could be a serious mistake. There are techniques to entering the market such as dollar cost averaging to cushion buying at the height of the market. Again, your advisor should be working with you to create the correct equity strategy for your tolerance and financial situation.

2017 is looking like the year of “Change.” It will create opportunities for some holdings and challenges for others, it is important to enter the market with a long-term approach. Your advisor should be in contact with you on a regular basis to rebalance your portfolio. Try to be vigilant for advisors pushing just annuities or stocks. Stocks, bonds, fixed annuities, fixed indexed annuities, market linked CDs, and other assets all have their place. There are pros and cons to any financial decision. It is important to have a strategy that will help you avoid buying and selling at the worst time. Cheers to a great 2017!

Jonathan M. Clark Investment Advisor Representative, www.clarkwealthadvisor.com Investment Advisory Services offered through Brookstone Capital Management LLC, an SEC Registered Investment Advisor.  Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer. No portion of the content should be construed as an offer or solicitation for purchase or sale of any security.

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Volume 13, Issue 1, Posted 8:12 PM, 01.10.2017