Welcome to the Milestone Newsletter! We hope this communication allows us to share stories and financial content that is helpful to you – both personally and professionally.
We trust you’ve had a fantastic summer! We have been busy here with normal client reviews, digesting what the market throws at us, and family vacations. Let’s do the fun stuff first!
Dave: This summer, our family took an awesome vacation to Yellowstone National Park. My girlfriend Tiffany has two boys, ages 11 and 15, and my three boys are 10, 12, and 14. Together, we have quite a crew! We flew out to Salt Lake City, rented a van, and drove all over Idaho, Wyoming, and Montana, touring the Grand Teton and Yellowstone National Parks. It was an amazing adventure. I am so blessed by the love, energy, and laughs we all have together!
As I write this, I reflect on how meaningful family vacations have become for me. About five years ago, I went through a divorce and a powerful thing happened. My relationship with my sons became, no longer “our” responsibility, but mine. Planning activities during the half of the time we were together became my opportunity. I decided to make our vacations a priority. That year, my boys and I set out at 3 AM on a road trip that would take us through the Smokey Mountains, Gatlinburg, Dollywood, and on to Nashville, TN. We slept in tents and a fancy hotel. We cooked T-bone steaks over an open fire and ordered room service. I turned my cell phone off and we spent uninterrupted time together. I was honest. Open. I asked questions…and really listened. It was strange, lonely, beautiful, hilarious, and glorious. My sons and I bonded even more deeply. When we returned home, I asked the boys where their favorite place was that we stayed. I thought it might be the Grand Ole Opryland Resort – the $400 a night hotel room with a balcony over the arboretum. They all agreed that it was the $45/night KOA campground with the great water slide. Since then, I’ve seen summer vacations as an incredible gift – an opportunity to spend quality time with the people I love most. I’ve learned that the most memorable moments don’t always happen in the places postcard pictures are taken. And in the fragile places of our hearts where laughter and tears are not so far apart, just taking the time to be together - open and undistracted - with the people we love is what it’s all about.
Justin: My family spent a week in Cape May, NJ. Ellie got her first taste of the beach and LOVED it! If you have never been, Cape May is a beautiful historic town. It has been ranked as a top ten beach in the world by TripAdvisor. Ellie hit it big in the arcade and hit for what seemed like a large jackpot (750 tickets). It took minutes for these things to print out. After spending about $10 in the arcade, we went to cash in all of our tickets and she had enough for a mermaid doll. She was thrilled! Five minutes later, the mermaid’s head fell off. The doll couldn’t have cost more than 50 cents. I thought at first - pretty good business model - until the screams started! Then I realized they didn’t do a great job of creating lasting value for their customer! We work hard to make sure we are meeting with our clients regularly - and even more frequently in time of transition (retirement, loss of a loved one, job change). We take great pride in having our “heads on straight” for those meetings and being available to you when you need us. If someone you know has complained about their advisor “having their head in the clouds” (or somewhere else) we’d be happy to meet with them!
Now, down to business! The US stock market peaked in January and then quickly declined by 10%. Since then, it has gradually climbed back and recently hit new highs again. We have seen higher volatility and expect that to continue. While we haven’t seen a tremendous amount of growth in stock prices overall (unlike last year), we have seen company earnings increase substantially and earnings estimates have increased by 14% due to a strong, growing economy and the tax bill (lower corporate taxes mean more net earnings per dollar of profit).
With the economy doing well, the Federal Reserve has been increasing interest rates. Their objective is to keep unemployment and inflation low. They tap the brakes by increasing interest rates to keep the market from overheating. If interest rates remained low, businesses and consumers would continue to borrow at high levels and inflation would start to jump. Rising interest rates are a double-edged sword for investors as the rates they earn on safe money will increase (savings accounts, CDs, bonds), but those higher rates can hurt stocks as companies now have to pay more interest to borrow money to grow and therefore have less profit for shareholders. Now is a good time to evaluate the interest rates you are getting at the bank to make sure the rates you are receiving are in-line with market rates. We are happy to help with that!
Growth stocks (think Amazon and Apple) have continued to outperform value stocks (think AT&T and PPL) so far this year as they have the last few years. Growth stocks are exciting to own - until suddenly they aren’t. Due to high expectations for growth, they have the ability to skyrocket quickly (i.e. Amazon) but when earnings don’t meet expectations or projects don’t work as planned, things can go the other way fast. Recently, we saw the largest one-day decline in a company’s value in history with Facebook reporting lower profit guidance. The stock was down as much as 20% in one day! Interestingly enough, when comparing growth to value stocks, value stocks have outperformed growth by a slight margin over the long run. International stocks are down this year. With value stocks posting modest returns, international stocks down more than 5% for the year, and bonds posting negative returns, most diversified portfolios are only up slightly for the year. It is natural to feel frustrated when we hear the news media reporting that stocks are hitting all-time highs and we aren’t seeing strong growth in our portfolios.
Performance Year-to-Date (1/1/18 - 9/19/18)
Understanding what is going on internally is the key to having a solid perspective. We continue to believe that a diversified mix of investments, with rebalancing, will lead to the best investment results over time. If you have questions about your portfolio, don’t hesitate to give us a call! We wish you a healthy and prosperous rest of 2018!
Feel free to share our market commentary with your friends and family! If you have someone who you think could benefit from our service, we would be honored to help!
David S. Coult, CFP®, CLU®, ChFC®, QPFC
Justin R. Miller, CFA®
Chief Investment Officer