Additional client resources

At Eaton Financial Group, we understand that every person’s journey is different. Our first priority for every new client is to listen and learn about your personal path and the goals you have in mind for the future. 

We are here to provide you with professional support to help make your goal a reality. Bookmark this page and check back often for updated financial tools and points of interest in support of guiding your financial journey.

CIO Notes

CIO Notes by Month

February 2022

January Sell-off, A Continuation
The selling and volatility that started in late 2021 continued in January, with steep declines in all sectors of the market, especially technology and small cap related names: The S&P 500 ended January down -5.3%, the DJIA -3.3%, while the Nasdaq 100 lost -8.8% and the small cap Russell 2000 -9.5%.

Both stock and bond prices fell sharply last month as markets priced in interest-rate tightening during 2022 from the Federal Reserve. In a month where investors could have used it the most, bonds provided no ballast in January.

A Balanced Approach
We generally do not use this space to discuss the actual investments we deploy in our models, as they are highly customized depending on the client situation. However, in the context of both major asset classes falling – stocks AND bonds, it is important to note our allocation to assets we own that are NOT correlated to traditional asset classes. We call these alternatives. These are invested in assets such as commodities, real estate, and other derivative assets, which will serve to provide balance, ballast, and dampened volatility in an otherwise downward trajectory.

It’s Not Just Covid Anymore
Inflation is now center stage and while some areas of the market considered more expensive or speculative began to struggle in November, the broader market took a big step back during the first week of January following increasing hints from the Federal Reserve that the central bank will take aggressive action to slow down the jump in consumer prices.

“The Dec. 15 minutes that came out on Jan. 5, they were a shock to investors,” Ed Yardeni, founder of Yardeni Research, said on CNBC on Monday.

Over the past month, the Federal Reserve (Fed) has made it clear that it is serious about fighting that inflation. The central bank has signaled that it plans to stop its asset purchases, hike rates, and possibly reduce its balance sheet, starting in March.

Tech Leads the Way Down
Technology stocks with high valuations got hit first and are continuing to get hit very hard. At one-point last Monday, the technology index was a few percentage points from entering a bear market (a drop of 20% or more).

Finally, increasing bond rates typically punish growth stocks as their future earnings growth become less attractive as rates rise, in theory because innovation will cost more (higher interest mean higher borrowing costs).

Our Constant
On market volatility: remember that the long term returns of stocks are unpredictable in the SHORT-TERM and further, the return of stocks is just a way that the efficient market prices them. Volatility – properly understood – is a CAUSE of equities’ substantially higher returns, and therefore, YOU, as the long-term investor should regard this somewhere between a non-event and a blessing!

Your success as an investor will depend on focusing on the well thought-out, long-term financial plan have developed with your family, and financial advisor. Remember, you do not predict, you plan.

Long-term investors are best to remember that if their PLANS do not change, they should not change their investments, especially to chase a fleeting upside move in a sector or stock, or to time market moves. Your well-diversified financial plan drives your portfolio, NEVER the other way around, and persistence is the best defense to an uncertain short-term market.

 

Be Well and Invest Wisely,
DE
January 2022
Resilience and Moving Forward in 2022:
Despite worries about new coronavirus variants and shifts in monetary policy, US stocks posted double-digit gains for the third calendar year in a row. 
 
Although 2021 was a strong year for the major US large-cap equity indices, it was narrowly focused, with weakness among some of the lower quality, highest priced technology names.
 
Last year around this time, we had cause for optimism, as we thought about 2021, we looked forward to a return to normalcy. At the beginning of the year, new vaccines had been approved to treat Covid, the economy seemed to be in recovery mode, and market trends were rotating toward value stocks after a decade-long growth cycle. 
 
Instead, 2021 was another pandemic year with new Covid variants, continued economic uncertainty, and market trends that swung back and forth between growth and value and large- and small-cap stocks. Investors also had to contend with higher inflation, persistently low interest rates, supply chain hurdles, and worries about how and when the Federal Reserve might reduce its bond buying program. 
 
Nevertheless, stocks rallied through the many challenges of 2021, and investors were rewarded with another year of stock market gains. It was tough to beat the market in 2021.
 
OUR CONSTANT:
Your success as an investor will depend on focusing on the well thought-out, long-term financial plan you have developed with your family and financial advisor. Remember to plan NOT predict.
 
Please refer to this month’s “missive” (published monthly in this newsletter) for your complete value system on our investment philosophy, our role in your portfolio and our beliefs.
 
Long-term investors are best to remember that if their PLANS do not change, they should not change their investments, especially to chase a fleeting upside move in a sector or stock, or to time market moves. Your well-diversified financial plan drives your portfolio, NEVER the other way around, and persistence is the best defense to an uncertain short-term market.
 
We are always a phone call or email away.  Schedule a call, Zoom or meeting.
 
Be Well and Invest Wisely,
DE
December 2021

Melting Up
After more all-time highs, most stocks pulled back in November. The widely used stock market benchmark index, S&P 500, was off about -.8%. Most other indexes were down similarly. The Nasdaq 100 (technology index), however, was up 2.0%. 

Familiar culprits in the causes of volatility were Covid, interest rate policy and inflation. As Fed Chair Powell signaled that the central bank could accelerate its plan to withdraw financial support from the economy (“tapering”), it became apparent that there is concern about inflation. The price gains we have seen may be longer lasting than originally believed, and further stimulus exacerbates inflation.

Yes, inflation has jumped to its highest point in 30 years, but we should view this in context. Thus far, 2021 has been a notable year, in large part because the arrival of highly effective vaccines, which allowed our economy to reopen and return to normal growth trajectory. Further, SP500 has been resilient, persistently rebounding from declines.

Year-to-date, the SSP500 has posted 5 separate one-day downward moves of at least 2%, yet quickly recovered each time.

In yet another overhang, we now have the Omicron coronavirus variant, threatening to slow the economy, potentially prolonging supply interruptions and negatively affecting the labor market.

On the other hand, the United States economy is robust, and people now spend money that they did not in the past year, especially over the holidays, as they restart many of the activities missed last year.

As we often see, we take some of the good with some of the bad, but we stick with the consistent, long-term plan.

OUR CONSTANT:
Your success as an investor will depend on focusing on the well thought-out, long-term financial plan you have developed with your family and financial advisor. Remember, you do not predict, you plan.

Long-term investors are best to remember that if their PLANS do not change, they should not change their investments, especially to chase a fleeting upside move in a sector or stock, or to time market moves. Your well-diversified financial plan drives your portfolio, NEVER the other way around, and persistence is the best defense to an uncertain short-term market.

We are always a phone call or email away.  Book a call or meeting with us.

We wish you all, our dear friends, a year of good health, fulfillment and perhaps a little prosperity as well!

 

Be well and invest wisely.
DE

October 2021

MARKETS:
September opened at a new all-time high for the broad-market S&P 500 index, and the fell fell 5%. September of 2021 was the worst one since 2011 for both the S&P 500, (down -4.7%), and the Dow (-4.2%), according to Dow Jones Market Data. The Nasdaq 100 index was also down -5.7%.

We consistently point out that correlation is NOT causation, however, historically, almost half of all Septembers have in fact posted losses.

While the S&P 500 has experienced mild pullbacks this year, investors have bought the dips, and the index never reached a correction (This is defined as >= 10% drop).

A ROLLLER COASTER:
The first nine months of 2021 were tumultuous. Medical, economic, and political uncertainty caused stock market volatility. And yet, market indexes plodded along, steadily “melting up”, with the occasional pullback, then once again pushing to new highs.

As we have discussed in this space, index success is has been deceiving, and market leadership has see-sawed back and forth over the last year.

STILL SCALING THAT “WALL OF WORRY”
So, what is happening now? There are several factors that may be at play:

  1. The worries begin with the outlook for corporate earnings for the next few quarters. Many equity analysts who had predicted another strong quarter of economic growth are now CUTTING their estimates, and the common culprits seem to be of the same ones we have blamed since last year:
    a. The supply-chain bottlenecks (If supply constraints persist, it will be difficult for companies to access the raw materials and products needed to meet demand, while the higher costs associated with such shortages are hurting profit margins.)
    b. The COVID 19 Delta variant
    c. inflation (predominantly caused by the supply chain issues mentioned above, and increasing demand for goods as the world economy reopens)
    d. Possible potential global energy crunch
    e. China’s regulatory crackdowns on their own companies

OUR CONSTANT:
Long-term investors are best to remember that if their PLANS do not change there is little reward to in changing their investments, and that their well-diversified financial plan drives their portfolio, NEVER the other way around.

Investors do not predict, rather, they plan. They simply cannot (and will not try) to forecast the market’s near-term future, and know that the average stock market return is about 10% per year for nearly the last century, and therefore, the longer their time horizon, the greater odds that they will see a positive market return.

Uncertainty is a constant, as always. However, slow, and consistent growth is a good thing, and participating with a diversified portfolio most certainly leads to long-term wealth creation.


Whenever you need us, we are a phone call or email away.

Be well and invest wisely.
DE

September 2021

MARKETS: 
In spite of persistent concern about Covid (and specifically the Delta variant), stocks continued to rise in August with the S&P 500 posting its seventh consecutive monthly gain. Second quarter corporate earnings were strong, with 90% of companies beating expectations.

Large-cap growth stocks led, with the Nasdaq 100 up 4.2% and the S&P 500 ended August ahead 3.0% with the small-cap Russell 2000 up 2.2%.

FOLLOW THE LEADERSHIP: 
Sector leadership has again shifted and remains mixed. Growth (versus value) outperformance, led by tech, started early in the pandemic and moved the market through August 2020. As seasons shifted into the fall of 2020, that growth outperformance came to an abrupt halt and shifted to an outperformance of value funds led by cyclicals through early 2021. Then, from mid-May through August of this year, growth regained the upper hand.

INFRASTRUCTURE: 
Spending on the nation’s infrastructure is meant to boost economic growth (through investment spending, job creation, and earnings gains) and should support longer-term growth by adding productivity-enhancing capacity, generating new products from research and development, improving education, and increasing connectivity via broadband access.

MARKETS “CLIMB A WALL OF WORRY”: 
Still, according to Bloomberg, September 2021 has been the worst month of the year for stocks in the past two decades. So this could be a good time to review how you’re managing risk and make sure you’re invested in a way that can help you participate in the market’s gains and stay on track through volatile periods along the way.

Uncertainty is a constant, as always. However, slow and consistent growth is a good thing, and participating with a diversified portfolio most certainly leads to long-term wealth creation.

A CONSTANT: 
The plan drives the portfolio – not the other way around. Unless your plan changes, do not change your portfolio. We do not know or care where the markets will move, as we cannot control them. We design our various portfolio models around quality investments, and in engineering the portfolios so we know HOW they will respond WHERE as the overall market moves. This way we may assist you in choosing the portfolio best suited to your individual volatility preferences and liquidity needs.

Be well and invest wisely.
DE

August 2021
MARKETS:
In July the broad market (S&P 500) was up 2.5% and the Dow gained 1.3%, while the small-cap index (Russell 2000) lost -2.9%. Value dropped, and large-cap US growth regained the lead. Given the constant and extreme reversals of leadership trends, this year is proving quite difficult to handicap what will “work,” but validating the merit in diversifying asset classes.
Also this month, the five largest tech companies—Apple, Microsoft, Amazon, Alphabet (Google), and Facebook—reported excellent earnings results, and as a group their revenue increased over 30%, once again asserting their prominence, as they now comprise close to 23% of the SP500.
 
COVID:
For now, and resistant to further shutdowns, the USA remains open and the stock market does not exhibit concern with the recent spike in Covid, resulting from the Delta variant.
 
INFLATION:
The Federal Reserve seems reassured that the recent inflation surge is temporary (and we agree), and they have maintained their focus on full-employment, while keeping inflation moderately above target at 2%. By way of reminder, the Fed’s prime directives: to promote steady prices (i.e. inflation) and full employment, to promote stability in the financial system. Inflation concerns have abated during the last month, after a sharp increase during the last 9 months.
 
A CONSTANT:
As always, we advise focusing on what we may control, keeping aware of investment opportunities commensurate with sound risk management principles, where we will focus on avoiding a loser, and winners will take care of themselves. Since we can’t predict future markets, we focus on the ongoing and consistent implementation of your long-term plan. We have made no updates to the portfolios since our last update 
(July 1, 2021).
 
Be well and invest wisely.
DE
July 2021

The markets still seem to be driven by the vicissitudes of both the “reopening” trade as well as Fed policy (via massive and ongoing stimulus).

It’s halftime in 2021! In one of the best first halves since 1998, US stocks have enjoyed extraordinary gains since the Covid-19 bear market, yet there is no clear leadership trend (such as technology, innovation or “reopening” from April through December 2020). Furthermore, other areas that thrived during the pandemic (such as clean energy) became overbought, then reverted to their mean, and are now regaining strength.
 
Driven by optimism related to both reopening of the economy and massive government stimulus, market leadership shifted from growth to value stocks last fall, including financials, energy, materials, and industrials. Performance of these sectors was largely driven by rising prices, after a prolonged period of underperformance.
 
There is still a tug of war between growth and value, where in June 2021, growth rallied back up and value, which led the way for several months, dropped. We have in fact increased our positions in BOTH for this quarter model update (made 7/1/21), by adding Dodge and Cox Stock find (DODGX) and i-shares Core SP 500 (IVV). We have also added some exposure to larger China growth stocks (GSAIX), with concentration exposure to technology and other innovation-oriented companies.
 
Data shows US consumer confidence reaching highs, given the stronger economy and job market. Home prices jumped the most in more than 30 years in April 2021. Earnings season gets under way soon, and aside from some of the reopening trades (travel, leisure, etc.) sinking over concerns about further spread of the Delta variant, we have conviction in the upward trajectory of equity earnings and remain positioned as such. As markets evolve, we will advise and adjust where needed.
 
As We Will Consistently Counsel Our Clients:
1. The plan drives the portfolio – not the other way around.
2. Unless your plan changes, do NOT change your portfolio.
3. We do not know or care where the markets will move, as we cannot control them.
 
We design our various portfolio models around quality investments, and in engineering the portfolios so we know HOW they will respond WHERE the overall market moves. This way we may assist you in choosing the portfolio best suited to your individual volatility preferences and liquidity needs.
 
Be Well and Invest Wisely,
DE
June 2021

There was little reason to sell and go away this May.

While in fits and starts, the rotation into value from growth is persistent and we have adapted the portfolios to reflect this.

For the month of May, the DJIA gained 2.2%, the S&P 500 was up 0.7%, and the small cap Russell 2000 gained 0.3%. The NASDAQ 100 lost -1.2%. Foreign markets outpaced those in the US. The MSCI EAFE Index gained 3.5%, and Europe, as measured by the iShares Europe ETF (IEV), was up 4.3%. Emerging markets were up 1.7%.

As we know, the coronavirus slammed the brakes on the economy in March 2020 and suddenly economically sensitive stocks—especially travel—looked awful, and powerful growth stocks looked brilliant.

With the ramp-up in vaccines and the economic relief effort in the fall, we invested in many of those hard-hit sectors.

Previously lagging areas—small caps, value, and energy—started to come back when stocks were weak, and value lost modestly less. Then by November, investors became more optimistic about the economy, and a market shift was underway.

The market rallied, and value beat growth every month, but really took off in March 2021. Value funds of all capitalizations continue to be leaders and we are in fact replacing some of aggressive growth positions, which led us out of the Pandemic.

Stocks have been on an extraordinary run since the Covid-19 bear market, and they’ve had an unusually strong start to 2021.

The S&P 500’s 12% year-to-date gain in 2021 is already quadruple the median 3.1% gain at this time of year.

We believe in the rally and have positioned the portfolios as such.

Missive of the Month

February 2022
“Far more money has been lost by investors preparing for corrections…than has been lost in corrections themselves.” – Peter Lynch

Should I Sell My Stocks?
The challenge of selling a security is something that investors ponder from time to time, especially if the markets are volatile. Whether that security is an individual stock, a mutual fund, or an index fund, investors are left with the question of what to do with the proceeds.

No matter the reason for selling, it is important we have a well-thought plan for what we will do with the proceeds…before we pull the trigger.

This article DOES NOT TAKE A SIDE in that debate.

Remaining in Cash
The default for selling securities is to remain in cash. Whether the markets are high or low, we may justify sitting in cash until the “uncertainty and tough times pass.” This logic relies on a significant (and incorrect) assumption – that there will be an all-clear signal that it is a good time to invest.

Sitting in cash may seem to be a comfortable and safe move but take note: it is fraught with uncertainties and long-term danger. When do we get back in? What if the market keeps moving higher? At what point do we realize that the train has left the station and we aren’t on board?

Historically, a majority of those who try to time this end up vastly underperforming the market. Generally, “dollar-cost averaging,” that is investing smaller amounts more frequently and consistently perform better.

Investing in Another Security
We may sell a security with plans to invest in a different one. Sometimes we are influenced to buy a security that has been performing better than what we own. The question we must ask ourselves is: “What evidence do I have that the new security will perform better than the existing one?”

This is an important question to reflect and discuss with me. A lot of money has been lost because investors sold and bought at the wrong time. This happens with both novice and professional investors, including institutional managers.

In a study spanning 24 years, researchers analyzed the trading results of institutional money managers. They found that the stocks they sold subsequently outperformed the stocks they bought at a cost of over $170 billion. The abstract summarized, “Plan sponsors could have saved hundreds of billions of dollars in assets had they simply stayed the course.”1

Thoughtful Selling
Of course, there are occasions when selling a security makes sense. But that should only be after purposeful thought and a plan of “what’s next” is created. It is so easy to sell, and our emotions can sometimes get the best of us.

But that is why I am here. My job is to – through thoughtful dialogue – help you AVOID making the wrong decision just at the wrong time.

Reach out to us any time for cup of coffee and a chat about your plan and investments.

Be well and invest wisely.
Doug

January 2022

A “Dependable” Forecast for 2022

Part 1: A Restatement of General Investment Principles
Here at Eaton Financial Group, we believe that your plan is built on love, based on your values, and is planning centric. This is sharply distinguished from an approach that’s market-focused and current event driven.  

My goal here, in addition to clearly stating my philosophy of advice is to make clear that the current commentary (below in Part 2) which may follow is no sort of economic or market production, but rather my highly personal view of the current situation. 

Every successful investor that I have ever known was acting continuously on a plan; failed investors, in my experience, get that way by reacting to current events in the economy and the markets, and very often, trying to get rich quick. 

I neither forecast the economy, nor attempt to time the market, nor predict which market sectors will outperform which others over the next block of time. 

In the sentence that always bears repeating: We plan, never predict.  

Once a client and I have that plan in place and have funded it with what historically has been the most appropriate types of investments, high quality equity, I will hardly ever recommend changing the portfolio, so long as your long-term goals have not changed. To repeat, unless your plans change, do not change your portfolio.

I have found that the more often investors change their portfolios in response to market fears or fads of the moment, the worse the long-term results.  

 

Part 2: 2021 Observations
As I write this, we are at about 4,750 on the S&P 500, despite the ongoing pandemic and other political, social, and economic headwinds. While this is certainly gratifying, it doesn’t proceed from our having been “right about the market,” other than in the largest, longest-term sense.

Our positions in the equity market are a pure function of their being historically best suited to your lifetime financial (and especially retirement) planning. They are never based on a view of the economy and the markets, which we continue to believe can neither be forecast nor timed. Stated another way, we aren’t “right” because the market is up “x” % this year, any more than we’d be “wrong” if it were down “x” %.

Our investment policy is the same as it’s always been—even (and especially) when the market declined 34% in five weeks in February/March of 2020. Simply stated, that policy is based on two enduring beliefs:

  1. That the historical long-term return of equities over bonds is necessary to the achievement of your most important long-term financial goals.
  2. That the only way to be reasonably sure of capturing the premium return of equities is to ride out their frequent but historically temporary price declines.

Be assured that I claim no credit for anything beyond making an appropriate long-term plan for you and your family and encouraging you to stay invested through thick and thin.

 

Part 3: 2022 Forecast
(Full disclosure: The following forecast is nearly identical to my forecast in years past, and most likely, next year too!)

Most investors crave economic and market forecasts. With the markets so uncertain and volatile, our brain craves some sort of idea of what the future holds. But the markets are unpredictable – evidenced by the fact that no one can consistently predict them with accuracy.

Of course, like the proverbial broken clock, a certain forecast may sometimes be accurate. As experienced investors, however, we acknowledge that is not dependable, no matter what our brain tells us.

Unlike market and economic forecasts, our macro-level view is reliable simply because it is based on enduring investment truths and investor behavior. These factors are more dependable than market outcomes and more important to an investor’s well-being.

2022 FORECAST:

  • Investors who watch the market often will experience more stress than those that do not.
  • You will be tempted to change your investment strategy based on market performance, expert forecasts, and/or your personal beliefs about the future.
  • Your investment decisions and reactions to market events will have a significant influence on your personal investment return.
  • Like a math problem that someone explains to us AFTERWARDS, the economy/market will do something that surprises or stumps us, and it will be obvious in hindsight.
  • Investors that focus their time and attention on those things they can control will have a better investment experience than those that focus on what they wish they could control.

 

Part 4: Guiding Tenets for Our Clients

Our Role…

  • To advise on the successful implementation of a well-thought-out financial plan

We Believe…

  • Our purpose is to provide great advice.
 We will do so by providing the unvarnished truth and by assisting in controlling only those factors within your control
.
  • Your plan guides the portfolio and your financial decisions, not the markets nor news. If the plan hasn’t changed, don’t change your portfolio.
  • The successful financial plan provides peace of mind, achieves your objectives, and minimizes the risk of outliving your money.
  • Your active participation is essential in our on-going financial planning process.
  • In consulting with us before considering any material financial
  • In living well, working hard and giving generously.                                                        

Important Investing Truths:

  • No strategy works 100% of the time. There will be times when your plan does not seem to be working. Process always trumps returns in uncertain scenarios.
  • Investing is about tradeoffs. Investing with emotion will provide short-term relief, but at a long-term cost. True performance can only be judged correctly over an entire market cycle.
  • Beware of the media’s influence. Their primary goal is to get you to tune in, not make wise financial decisions. They are masters of sensationalization and eliciting our emotions.
  • Real investor skill is demonstrated through discipline and patience. Our emotions and mental hardwiring influence us to react hastily to news and market movements. While it will feel good at the time, it often results in costly mistakes.

 

Part 5: Conclusion
Conviction, patience, and discipline are virtues every investor should develop. They aren’t easy, yet they are essential for your success. As your advisor, one of my most crucial roles is helping you ignore the noise – manage your investment behavior – and focus on what really matters to your financial success, and to help you MINIMIZE the regret of doing the wrong thing at the wrong time.

I have intentionally neither made predictions on the future nor profound comments on the past, simply because I reserve all detailed commentary and analysis for your own, very personal, and specific situation.

With that said, please be invited, and indeed encouraged, to raise with me any questions prompted by this very brief overview, or anything that interests/concerns you.

Please contact us any time with questions by clicking this link: Schedule a call, Zoom or meeting.

That is what I am here for. This I will continue to do.

Thank you once again for being my clients, and I wish you a prosperous, fulfilling, healthy, and stress-free 2022.

It is a privilege to serve you.
Doug

December 2021

 

A Teachable Moment: For 2022 and Beyond


Good Morning
December 5, 2021, marks a most significant anniversary in the economic and financial history of the United States, and I could not let it pass without comment. When properly appreciated, it can serve as an important teachable moment.

A quarter century ago, on the night of Thursday, December 5, 1996, the iconic Federal Reserve Chairman Alan Greenspan, speaking at a dinner of the American Enterprise Institute in Washington, gave his instantly legendary “irrational exuberance” speech.

This is what he asked: “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy?”

Mr. Greenspan asked these twin rhetorical questions essentially because he did not have conclusive answers. And if he didn’t, you knew no one else in the world did either. Coming from him, however, this thinking out loud was a financial earthquake, and it sent shockwaves throughout the entire financial world.

He surely understood that, when he so much as broached the question, he had at least suggested an answer. And that answer was unmistakable: we’re either already there, or will be soon, as this greatest of all bull markets morphs into mania.

And therefore, I write to you today. I thought it might be instructive—as well as a certain amount of fun—to review the intervening quarter century.

Let’s begin with a key item of baseline data that may and certainly should inform our inquiry. Fact: The Standard & Poor’s 500-Stock Index had closed that Thursday afternoon at 744.38.

And sure enough—just as he presaged—the S&P 500 topped out… three years, three months and 19 days later, on March 24, 2000, at 1,527.50 (Yes, that is sarcasm!).

You read that right: it more than doubled in the 40 months after Greenspan’s dire warning. I suppose I could just stop here, invite you to draw the obvious inference from the above, and call it a day.

Of course: No one—no central banker, no economist, no market strategist, no hedge fund manager—no one can predict the market, much less tell you where to get out and/or back in.

The economy cannot be consistently forecast, nor the market consistently timed – by anyone.

But before I let you go, I’d just like to throw out a few other potentially relevant factoids:

  • As I write this, December 4, 2021, the S&P 500 is at (4602), up more than six times since Greenspan spoke.
  • With dividends reinvested, and any taxes paid from some other source, $10,000 invested in the S&P 500 on 12/5/96 is getting close to $100,000 along about now.
  • The earnings of the S&P 500 for the year 1996 were $40.63. With less than a month to go in the current year, the consensus forecast is around $200, up almost exactly five times.
  • The S&P 500’s cash dividend in 1996 was $14.90. Consensus forecast for this year is about $60, up almost exactly four times.
  • The Consumer Price Index was 158.6 in December 1996. It will most likely close out this year around 280, up a mere 1.8 times.

What, may I ask, was the single best financial decision you could have made on Thursday night, December 5, 1996?

Exactly right: turn off the TV and go to bed. Just my opinion, of course, but the best move you can make this morning, 25 years on, regardless of the headlines? The same: turn off the TV, log out of your computer. Enjoy the rest of your day. And let the compounding proceed, uninterrupted.

With every good wish to you and your families for a wonderful holiday season and 2022.


Doug
Ps. You may also find this on our blog: www.eatonfinancialgroup.com

 

Sources: Historical S&P 500 Index and dividends: “S&P 500 Earnings History, NYU Stern School.” Consensus 2021 earnings forecast: Yardeni Research. Consensus 2021 dividend forecast: Bloomberg. Consumer Price Index: Inflationdata.com. Current net profit margin of the S&P 500: FactSet. 

October 2021

Climbing the “Wall of Worry”

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” – Legendary investor, Sir John Templeton

Sir John believed that bull markets ultimately run out of steam, or to put a different way – using a Wall Street proverb coined in the 1950s – stock markets climb a wall of worry.

Read the financial news websites, or for a more dramatic take, get your financial information from TV/Radio, and you will hear the doom/gloom drumbeat. 2021 is no exception. Year-to-date (through September), the S&P 500 is up about 15%. That is strong stock performance, despite the COVID 19 Delta variant, extreme political partisanship, rising US debt and inflation concerns, etc.

Worry is an interesting phenomenon. Generally, what you worry about in the present seems much worse than anything in the past, simply because you are living and working through it. The uncertainty and anxiety are felt today. This may cause us to overweight current concerns and result in a myopic, rather than long-term, view of the future.

For long-term investors, it is advantageous to maintain a long-term perspective. Remember a key tenet of wealth-building success: If your financial plans have not changed, do not change (or worry about changing) your investment strategy!

Concerns – Past & Future
What did investors worry about in 2019? How about 2018, or 2008 (or how about 1988, 1977, 1963, 1955, 1943, 1931!). Generally, we cannot remember, and the reason? Worries tend to work themselves out. We adapt and adjust to our changing circumstances, especially the bad ones.

What will we stress about next month or next year? It could be a continuation of present concerns, or it could be something entirely different. As reliable as gravity, it will be something!

In our experience, I have seen that investors who focus on the “worry of the day” experience greater stress and are more likely to make an unwise investment decision. Worrying is part of the markets. It’s not worth the psychological or financial cost.

If you have any concerns, please let us know. One of our greatest values (and joys) is to help you know what is worthy of your attention and concern and what should be ignored.

Please reach out to set some time for a cup of coffee (virtually or live), for an opinion or SECOND opinion on your financial planning questions. We look forward to speaking!

September 2021

The Fallacy of Past Performance Chasing (and why we have trouble convincing you otherwise)

“Fear incites human action far more urgently than does the impressive weight of historical evidence.” – Jeremy Siegel

Prominently displayed as a metaphor, I keep a large crystal ball in my office conference room. It’s a prop to teach clients to avoid the pervasive habit of assuming a rearview mirror is a crystal ball into the future.

Paraphrasing the old saying, “Man repeats himself, but history never does,” and what we also know to be true of the stock market, history truly never repeats itself exactly. Trying to convince investors otherwise is in a word, taxing. Investors appreciate cogent explanations of market movements. But as soon as the market turns volatile, those same explanations, no matter how logically presented, will not assuage those who still feel the market will continue downward.

There have been numerous studies performed on investor attitudes and behavior. One is from finance professor Meir Statman of Santa Clara University, who curated 10 years of investor surveys. The proportion of investors who expected stocks to go up over the coming six months rose, on average, by 1 percentage point with every percentage-point increase in the S&P 500’s returns for the prior month. It was clear that these investors believed that the imminent future is shaped by the recent past.

(Kenneth L. Fisher & Meir Statman (2000) Investor Sentiment and Stock Returns, Financial Analysts Journal, 56:2, 16-23, DOI: 10.2469 / faj.v56.n2.2340)

Further, in a more recent study published in The Journal of Experimental Psychology (for additional source information, click here) (those words need to link to https://psyarxiv.com/c8pdw/), researchers tested investing disclaimers about past investment performance on US investors. In over 60 rounds, the participants chose between “Fund A” and “Fund B,” with prior knowledge of the fund’s fees and gain or loss over the previous month. With a few exceptions, generally, due to much lower fees, fund A would outperform over time.

However in spite of viewing the standard mutual-fund disclaimer that “past performance does not guarantee future results,” they more often chose the fund with higher fees. Therefore, the average investor was saying that they know better, and perhaps it WILL work for them. The researchers concluded the phrase “does not guarantee future results” may cause investors to mistakenly conclude that past performance is a highly reliable indicator, and that apparently investors do not want to settle for investing like others, rather, they simply want to get ahead!

So, as you watch the market gyrating based on the disaster du jour (or other external stimuli) and you do not listen to your advisor, or follow your own common sense, try to remember most investors acting irrationally, on either fear or greed, or buying what is popular, will most likely lose money.

Take comfort! You won’t suffer that fate, because you are implementing a well thought-out financial plan customized for your needs and goals by Eaton Financial Group.

August 2021

“For a piece of information to be desirable, it has to satisfy two criteria: it has to be important, and it has to be knowable.” -Warren Buffett

Much has been made of economy, where the markets are headed, etc. To Mr. Buffett’s point, we know that the future is unknowable, and we feel this is an excuse to once again point out that we choose not to make bets on economic predictions. That’s especially true now when the biggest wildcard is inflation – a phenomenon no one fully understands. But just because something is unknowable doesn’t mean it’s unimportant. That is why we will devote this memo to a topic we strongly disavow, predictions/forecasting.

Many financial advisors believe their job involves developing a macro-economic outlook and/or predicting the markets’ direction. We reject that. It is not that we will ignore forecasts or consensus. We will certainly study them, but we will not pretend to be able to have any skill in foretelling movements with any level of confidence, and as we have consistently pointed out, our focus rests squarely on factors within our control, such as asset allocation, acting in your best interests, and with a focus on your overall long-term financial plan.
Our Role at Eaton Financial Group is to advise on the successful implementation of a well thought-out financial plan. We help our customers MINIMIZE the regret of doing the wrong thing at the wrong time. With that, we are sharing the Eaton Financial Group Client Engagement Tenets.

We Believe In The Following:

  • Our purpose is to provide great advice.
We do so by providing the unvarnished truth and by assisting in controlling only those factors within your control
.
  • Your active participation is essential in our on-going financial planning process. Our client partnerships allow for consultation together before considering any material financial decisions.
  • Your plan guides the portfolio and your financial decisions, not the markets nor headlines in the news. If the plan hasn’t changed, don’t change your portfolio.
  • The most successful financial plan provides peace of mind, achieves your objectives, and minimizes the risk of outliving your money.

Important Investing Truths To Keep In Mind:

  • No strategy works 100% of the time. There will be times when your plan does not seem to be working. Process always trumps returns in uncertain scenarios.
  • Investing is about tradeoffs. Investing with emotion will provide short-term relief, but at a long-term cost. True performance can only be judged correctly over an entire market cycle.
  • Beware of the media’s influence. Their primary goal is to get you to tune in, not make wise financial decisions. They are masters of sensationalization and eliciting our emotions.
  • Real investor skill is demonstrated through discipline and patience. Our emotions and mental hardwiring influence us to react hastily to news and market movements. While it will feel good at the time, it often results in costly mistakes.

Please write to us or call with any comments/questions on how our client engagement tenets may apply to your specific situation. If you are not a client, please contact us for a cup of coffee and a second opinion – our door is always open.

June 2021

Crypto: The Good, the Bad and the Ugly

If there was an apt summation of the get rich quick mentality and how crypto seems to bring out the worst and best in us as investors, Tuco (from Clint Eastwood’s 1967 Spaghetti Western) nailed it. He wanted the easy way out, but also reminds us that working SMART, rather than hard is also a decent way to go!

In this month’s article, I wanted to relay what I have been learning about crypto currency during the last couple of years, what I have found to be the Good and the Ugly, and what I have concluded.

Click to read the full story

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