Broker Check

2017 Comments, Critiques, and Contributions

February 22, 2017
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January 2017 Newsletter

This newsletter covers a number of topics, some of which may be important to you.  Please call us if you have any questions.


How diversification helps and hurts your investment returns

We are often asked a question along the following lines:  Why didn’t my account do as well as the S&P 500 or the DOW?  The S&P includes 500 major US companies.  The DOW is comprised of only 30 US companies.  Unfortunately, TV and radio reporting usually only tell us how the US stock markets are performing.  Our regular media sources fail to help investors see the more complex picture.

2016 is very instructive in providing an answer to the performance question noted above.  Assume you have a three part account comprised of US companies, foreign companies and US corporate and government bonds. 

In 21016, the US company portion did well as measured by the S&P 500 or the DOW.  Let’s look at the other two parts of our hypothetical account.

During 2016, the US dollar strengthened versus other world currencies.  Your foreign company values were negatively impacted by the dollar strengthening.  The negative impact created by a stronger dollar reduced the returns of the non-US holdings in your account. 

Higher US interest rates hurt bond values.  As interest rates go up, the value of existing bonds moves in the opposite direction.  The longer the bond has to maturity, the more the value is negatively impacted by rising rates.

In 2016, the strengthening dollar and rising interest rates were responsible for moderating our hypothetical portfolio results.  The point is by no means to limit diversification or to try to time allocation moves.  Broad diversification is intended to moderate volatility.  The combined return of multiple parts blends the good, the bad and the ugly.

Brian Portnoy, PhD, CFA penned a report for investment advisors associated with the issues just noted.  The article is appropriately titled:  “Diversification Means Always Having to Say You’re Sorry.”

What we can learn from market history

NOTE: The following information is by no means intended as predictive.  According to Kiplinger newsletters, a US large cap (S&P 500) market decline of 10-20% occurs on average about once per year as measured over the past 40 years.  A decline of 10-20% is considered a “correction.”  Yet, we have only had two corrections since the market recovery began in March 2009. 

Also, according to Kiplinger newsletters, a US large cap (S&P 500) market decline of over 20% occurs on average about once per three years as measured over the past 40 years.  A decline of 20% or more is called a “bear” market.  Yet, we have not had a decline of 20% or more since the market recovery began in March 2009. 

According to a Barron’s article in January 2016, declines that occur during non-recessionary periods typically have fairly rapid recoveries – Think one year or less.  Since March of 2009 the US markets have only had two corrections.

We experienced a correction in the summer of 2011 when President Obama and then Speaker of the House, John Boehner, were unable to agree on a tax and spending plan.  Another correction occurred starting in May 2015 and lasted until early February 2016.  The root cause was investor concerns about slower economic growth in China.  In both cases, recovery occurred within less than one year.

We routinely believe our clients should be fully invested, especially during non-recessionary periods such as we are presently experiencing.  We cannot predict when good or bad markets may occur.  So, our investment view is as follows: it is time in the market, not market timing that is important.  We practice a time-tiered portfolio approach so that near term money is not overly exposed to the potential ravages of a large decline.  Importantly, we respect that our clients have full authority over how their money is invested with our firm.


Your investment account is not like a bank account.

Occasionally, we are asked by a client to transfer money to their bank account as soon as possible.  Based upon a few issues noted below, this may take a few days to a week.

  1. Only the portion of your account that is already in money market can be sent to your bank or credit union.
  2. If we have to sell holding(s), this impacts the transfer timing. We cannot sell any holdings after the markets close at 2 PM our time.  So, we may have to wait till the nest day to enact sells.
  3. Proceeds can be sent by wire transfer at a $25 charge. However, the receiving institution, a bank or credit union, may not immediately post the money in your account.
  4. Proceeds can be sent by another electronic means at no charge, but this approach typically means delaying your access to your proceeds.

We have two summary comments:  Keep an emergency reserve in your bank or credit union.  Expect it to take a few days (up to a week) for money to transfer from your investment accounts to your bank.

2016-2017 Retirement Plan Contribution Limits

Traditional and Roth IRAs

                $5,500 for ages under 50

                $6,500 for 50 and older


401K, 403b, 457 and Thrift Savings Plan (TSP)

                $18,000 for ages under 50

                $24,000 for 50 and older



                $12,500 for ages under 50

                $15,500 for 50 and older


SEP IRA – Please talk with your accountant