Broker Check

March 19, 2018

| April 03, 2018
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It’s a good time for a gut check. Last week, after sliding lower for four days, the Standard & Poor’s 500 Index recouped some of its losses on Friday. The reasons behind the week’s poor showing were diverse. Barron’s reported:

“The market is so discombobulated right now that it can’t even decide what it’s afraid of. What do we mean? When the Standard & Poor’s 500 index suffered its first correction since the beginning of 2016 last month, the cause was easily identified – a good old-fashioned inflation scare caused by a larger-than-expected increase in wages and a rapidly rising 10-year Treasury yield, which almost hit 3 percent…Fast-forward more than a month and those fears seem almost quaint.”

Those fears included:

⦁ Special Counsel Robert Mueller’s subpoena of the Trump Organization.
⦁ The effects of recent tariffs and the possibility of trade wars.
⦁ The departure of Secretary of State Rex Tillerson.
⦁ The Atlanta Fed revised its GDPNow Forecast downward for the first quarter of 2018. Weakness in consumer spending, net exports, and inventory investment offset gains in private fixed-investment growth.
⦁ The Commerce Department reported weak retail sales for the third month in a row. Economists had expected sales to rise.

Here’s the thing: During 2017, volatility settled at historically low levels and stock markets charged ahead. As a result, it was relatively easy for investors to become sanguine about risk. You could say 2017 made investing seem as mundane as driving across the flatlands of the Plains states. It’s possible 2018 will be more like traveling icy switchbacks through the Rocky Mountains.

No matter what happens in the months to come, it’s a good time to reassess your risk tolerance and make sure it aligns with your financial goals and asset allocation.

Key points for the week

⦁ Inflation was tame in February but remains a concern.
⦁ The Federal Reserve hiked rates this week.
⦁ February tied as the most volatile month since 1996.
⦁ The number of big moves so far this year is roughly average.

Economic Update

The Federal Reserve used a fairly strong economy and modest inflation to support raising rates at its meeting this week. The Fed remains focused on unwinding its policy of unnaturally low rates implemented during the 2008 financial crisis.

The inflation data suggests the plan is working. Prices are increasing at a healthy pace, while consumer inflation is rising at a moderate pace and is in line with the Fed’s goal. Last week, the Department of Labor announced inflation rose 0.2 percent in February and 2.2 percent over the last year. Both numbers matched expectations.

While this month’s numbers were good, we continue to watch inflation for signs of trouble. Wages and benefits are increasing very slowly for an economy near full employment.

When looking at stock market volatility, February was a volatile month. As the chart below shows, there were 12 days when the S&P 500 rose or fell by more than 1 percent, tying it with 2009 as the most volatile February since 1996.

However, January was a calm month, and unless there are more 1 percent moves, the quarter will be about average.

The year has felt more volatile than it has actually been. This is primarily because investors are comparing it to 2017. There were only two 1 percent moves during the entire first quarter of 2017, and there weren’t any in February. Last year may have been the calmest ever in the markets. But, if investors expect every year to behave that way, they should expect to be disappointed.

How Much do you Spend on Healthcare?

Healthcare costs have been going up for a long time. The Centers for Medicare & Medicaid Services reported annual health spending – healthcare paid for through private health insurance, Medicare, Medicaid, or out-of-pocket spending by businesses, households and governments – in the United States averaged $3.3 trillion in 2016.

That’s about $10,348 per person. It’s a significant amount even before you consider the median income in the United States was about $57,600 that year.

Here’s another perspective: Healthcare spending was equal to almost one-fifth (17.9 percent of GDP) of everything the United States economy produced during 2016 (Gross Domestic Product – GDP – measures the value of all goods and services produced in a country). That’s more than U.S. manufacturing produced (11.7 percent of GDP) during 2016. Add in retail (5.9 percent of GDP) and the total is just shy of spending on healthcare.

The cost of healthcare is important not just because it’s high, but because it’s a critical aspect of retirement planning. A retirement plan is built around a horizon, which is the number of years you expect retirement to last. It’s a difficult number to think about because it’s a reflection of how long you expect to live.

In general, the planning horizon for women should be longer than the planning horizon for men. Women tend to live longer, and that means their healthcare costs may be considerably higher. About $79,000 higher, according to one estimate that found a healthy 55-year-old woman could pay almost $523,000 in healthcare expenses (Medicare Parts A, B, D, a supplemental policy F, dental, and all out-of-pocket expenses) during retirement.

There are a variety of approaches that may help cover the expense – even if you’re closing in on retirement. A retirement planning strategy that factors in healthcare expenses with an appropriate planning horizon can help improve financial stability in your later years.

What are we reading?
Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.

The Downfall of Toys ‘R’ Us.
I remember going to Toys ‘R’ Us with my parents for my birthday and looking through the games, ultimately deciding, and grabbing the paper slip to take to the game vault. Fast forward to 2018 and Toys ‘R’ Us announced that all of its stores will either be closing or sold. Simply put, this is another story of Amazon putting the old ‘brick and mortar’ retailer out of business. P.S. if you have gifts cards from Toys ‘R’ Us, you may want to use them before you lose them.

Amount Needed to Net $100,000 by State.
Where you live can have a significant impact on your net income. There are 7 states with no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire has a state income tax and it only applies to interest and dividend income, Tennessee too. Oregon is the state that requires you to earn the most to net $100,000 after taxes. California is second, Hawaii is 3rd and the only East Coast state in the worst 5, Maryland.

Story of the week
Plane loses its $368 million cargo on takeoff
What is one way, besides investing, someone can make a fortune by sitting at home? Waiting for it to rain gold and diamonds, of course! A plane carrying a cargo load of gold, diamonds, and platinum worth $368 million was taking off from Yakutsk airport in Russia when part of its cargo section fell out. The majority of the valuable items hit the runway, but dozens of gold bars continued to drop during flight. Unfortunately, people who found gold in the area were expected to report it immediately or be prosecuted. So, I guess, that brings us back to investing.

Weekly Focus – Think About It

“We're optimistic about ourselves, we're optimistic about our kids, we're optimistic about our families, but we're not so optimistic about the guy sitting next to us, and we're somewhat pessimistic about the fate of our fellow citizens and the fate of our country. But private optimism about our own personal future remains persistent. And it doesn't mean that we think things will magically turn out okay, but rather that we have the unique ability to make it so."

~ Tali Sharot, Associate Professor of Cognitive Neuroscience, University College London

"The great and glorious masterpiece of humanity is to know how to live with a purpose."

                                                                        ~ Montaigne, Writer during the French Renaissance

"Failure is a part of success. There is no such thing as a bed of roses all your life. But failure will never stand in the way of success if you learn from it."

                                                                         ~ Hank Aaron, Hall of Fame Baseball Player

"The most powerful weapon on Earth is the human soul on fire."

                                                                        ~ Ferdinand Foch, Commander in Chief Allied Armies WWI

Links & Disclaimers
RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M.  The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein.  There is no assurance any of the trends mentioned will continue in the future.  Any opinions are those of the author and not necessarily those of RJFS.  Any expression of opinion is as of this date and are subject to change without notice.

Opinions expressed are not intended as investment advice or to predict future performance.  Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.  Past performance does not guarantee future results.  Investing involves risk, including loss of principal.  Consult your financial professional before making any investment decision.  Stock investing involves risk including loss of principal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Please note direct investment in any index is not possible.

Links are being provided for information purposes only.  RJFS, SPC and S&M are not affiliated with and do not endorse, authorize or sponsor any of the listed websites or their respective sponsors, and they are not responsible for the content of any website, or the collection or use of information regarding any website's users and/or members.


RJ Approval # A18-014075

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