The Business Cycle

Tip: Not Smooth. During both recessions and expansions, the economy can go through brief reversals in economic activity. A recession may include a short period of expansion followed by further decline; an expansion may include a short period of contraction followed by further growth.
Source: National Bureau of Economic Research, 2017

What has upswings and downturns, troughs, peaks, and plateaus? Though such terms could easily describe a roller coaster ride, in fact they are commonly used to refer to something known as the business cycle.

The business cycle — also known as the economic cycle — refers to fluctuations in economic activity over several months or years. Tracking the cycle helps professionals make forecasts about the direction of the economy. The National Bureau of Economic Research makes official declarations about the economic cycle, based on factors such as the growth of the gross domestic product, household income, and employment rates.

Recovery & Recession

An upswing, or recovery, occurs when the economic indicators improve over time. A recession occurs when the same indicators go through a contraction. A particularly long or severe recession is referred to as a depression.

Despite being called a cycle, it’s important to understand that the business cycle is not regular. It doesn’t happen at set intervals. Some recoveries have lasted several years while others are measured in months. Recessions, too, can last for a number of years or be as short as a few months.

Moving in Waves

The economic cycle moves through periods of recession and recovery. Despite being called a cycle, it’s important to understand that the economic cycle is not regular.

Stages of Cycle

Fast Fact: Who Says? The peaks and troughs of the economic cycle are reported by the National Bureau of Economic Research, a private, nonprofit, nonpartisan research organization. Their website is nber.org.

So how should investors look at information about the business cycle?

Investors who understand that the economy moves through periods of recovery and recession may have a better perspective on the overall cycle. During recovery, understanding whether the economy is at an early or late stage of the cycle may influence certain investment decisions. Conversely, during a recession, deciphering whether the economy is passing through a shallow or deep cycle also may influence certain decisions.

Generally, the business cycle will transition from recovery to recession — and recession to recovery — over several months. Understanding that the economy travels through cycles may help you put current business conditions in better perspective.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

A Look at Diversification

Tip: Correlation. To adequately diversify, it’s important to select securities that have a low correlation — that is, securities that don’t tend to track each other’s movements up and down. Securities with a high correlation may tend to fail together — defeating the purpose of diversification.
Source: Investopedia, 2016

Ancient Chinese merchants are said to have developed a unique way to reduce their risk. They would divide their shipments among several different vessels. That way, if one ship were to sink or be attacked by pirates, the rest stood a good chance of getting through and the majority of the shipment could be saved.

Your investment portfolio may benefit from that same logic.

Diversification is an investment principle designed to manage risk. However, diversification does not guarantee against a loss. The key to diversification is to identify investments that may perform differently under various market conditions.

On one level, a diversified portfolio should be diversified between asset classes, such as stocks, bonds, and cash alternatives. On another level, a diversified portfolio also should be diversified within asset classes, such as a diverse basket of stocks.

A Diversified Approach

For example, say a stock portfolio included a computer company, a software developer, and an internet service provider. Although the portfolio has spread its risk among three companies, it may not be considered well diversified since all the firms are connected to the technology industry. A portfolio that includes a computer company, a drug manufacturer, and an oil service firm may be considered more diversified.

Similarly, a bond portfolio that invests exclusively in long-term U.S. Treasuries may have limited diversification. A bond fund that invests in short- and long-term U.S. Treasuries as well as a variety of corporate bonds may offer more diversification.

Mutual Funds and ETFs

Fast Fact: Only One? One landmark study of more than 40,000 equity investment accounts found that about 25% of accounts held only one stock, and about half held only one or two stocks.
Source: National Bureau of Economic Research, 2001

The concept of diversification is one reason why mutual funds and Exchange Traded Funds (ETFs) are so popular among investors. Mutual funds accumulate a pool of money that is invested to pursue the objectives stated in the fund’s prospectus. The fund may have a narrow objective, such as the auto sector, or it may have a broader objective, such as large-cap stocks. ETFs also can have a narrow or broader investment objective. Keep in mind, however, the more narrow an investment objective, the more limited the diversification.

The concept of diversification is critical to understand when you are evaluating a portfolio. If you want more information on diversification, or have questions about how your money is invested, please call so we can review your situation. Shares, when redeemed, may be worth more or less than their original cost.

Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Inflation & Your Money

Tip: Back in the 80s. What would have cost you $1.00 in 1985 will now cost you $2.20 due to inflation. It’s important to factor in inflation as you consider your financial future.
Source: Bureau of Labor Statistics, 2016

“If the current annual inflation rate is only 1.7%, why do my bills seem like they’re 10% higher than last year?” Many of us ask ourselves that question, and it illustrates the importance of understanding how inflation is reported and how it can affect investments. ¹

Inflation is defined as an upward movement in the average level of prices. Each month, the Bureau of Labor Statistics reports on the average level of prices when it releases the Consumer Price Index (CPI).

The CPI is a measure of the change in the prices for a “market basket” of consumer goods and services over a period of time. The CPI is developed from detailed expenditure information provided by families and individuals on what they actually bought in eight major categories: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other groups and services.

Whose Basket of Goods?

Many find that the government’s “basket” doesn’t reflect their experience, so the CPI, while an indicator of the rate of inflation, can come under scrutiny. For example, the CPI rose 1.7% for the 12-months ended December 2016 — a modest increase. However, a closer look at the report shows movement in prices on a more detailed level. Not counting food and energy, prices rose 2.1% for the 12 months.²

As inflation rises and falls, it can have three effects on investments.

Real Rate of Return

Fast Fact: Historic Low. Inflation was at comparatively low levels in 2016, but it can range higher. The highest in recent history was in 1980, when it peaked at 13.5%.
Source: USinflationcalculator.com, 2017

First, inflation reduces the real rate of return on investments. If an investment earned 6% for a 12-month period, and inflation averaged 1.5% over that time, the investment’s real rate of return would have been 4.5%. If taxes are considered, the real rate of return may be reduced further.³

Second, inflation puts purchasing power at risk. When prices rise, a fixed amount of money has the power to purchase fewer and fewer goods. Cash alternatives — which earn a low rate of return — may not be able to keep pace with the rise in prices.

Trending Lower

Inflation, as measured by the Consumer Price Index, declined sharply in 2008. A similar, yet slower, decline occurred between 2011 and 2015.

Chart Source: USinflationcalculator.com. For the period 1/1/1996 to 12/31/2015.

Third, inflation can influence the actions of the Federal Reserve. If the Fed wants to control inflation, it has various methods for reducing the amount of money in circulation. In theory, a smaller supply of money would lead to less spending. And that, in turn, may lead to lower prices and lower inflation.

When inflation is low, it’s easy to overlook how rising prices are affecting a household budget. On the other hand, when inflation is high, it may be tempting to make more sweeping changes in response to increasing prices. The best approach may be to develop a sound investment strategy that takes both possible scenarios into account.

  1. Bureau of Labor Statistics, 2017
  2. Bureau of Labor Statistics, 2017
  3. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. Past performance does not guarantee future results.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Options When Your CD Matures

Tip: Keep Track. Some banks renew CDs automatically unless they are instructed otherwise. If you own a bank-issued CD, make sure you understand the terms and conditions.

Investors who are looking for a short-term cash alternative often find certificates of deposit to their liking.

But when a CD matures — when it stops earning interest — investors are faced with a choice of what to do with the proceeds. This can be a difficult decision, especially if an investor purchased a CD when interest rates were higher and then must consider whether to purchase a new CD when interest rates are low.

CDs are short- or medium-term debt investments offered by banks and savings and loans. CDs also can be purchased through most brokerage firms. They’re insured for up to $250,000 per depositor, per institution in interest and principal by the Federal Deposit Insurance Corp. (FDIC).

CD holders agree to keep their money in the account for a specified amount of time anywhere from one month to five years. If money is withdrawn from a bank-purchased CD before the specified period expires, the CD holder may face penalties. Brokerage-purchased CDs trade in a secondary market, which may provide the holder the option to sell the CD for prevailing market prices (prevailing prices may be more or less than the original amount invested). Brokerage-purchased CDs are more complex and may not be suitable for all investors. Investors are encouraged to read the terms and conditions before purchasing a CD through a brokerage.

Three Choices

Generally, investors have three options when a CD matures:

Option 1: Roll the proceeds into another CD.
Option 2: Invest the proceeds into another cash alternative.
Option 3: Invest the proceeds in another type of investment.

Some banks will automatically roll the CD proceeds into another certificate of deposit unless instructed otherwise. That makes it critical to keep track of when CDs mature.

When rolling over a CD, it is important to be aware of the interest rates being offered. CD rates rise and fall, and the interest rates offered may be more or less than those earned on the maturing CD.

Another Cash Alternative

Fast Fact: Insured. Certificates of Deposit are insured — up to $250,000 per investor, per institution — by the Federal Deposit Insurance Corporation, or FDIC.

Investors also may elect to invest the proceeds in another cash alternative. One alternative is short-term U.S. Treasury bills which are backed by the full faith and credit of the federal government for the timely payment of principal and interest. These are debt-based investments; investors lend money to the U.S. government and are paid a specified rate of return.

Another Investment

Investors may elect to invest the proceeds in another type of investment. However, other investments that offer a higher yield generally carry more risk. So investors should consider the role CDs are playing in their portfolios and attempt to determine if adding additional risk would be appropriate, given their situation.

When one of your CDs matures, you face a number of choices. Knowing your options can help you make a sound investment decision.

Falling Together

Over the past six years, rates on one-year CDs have been trending lower. As interest rates offered on one-year CDs fell, the amount of money investors committed to CDs also moved lower.

Source: Federal Reserve Bank of St. Louis, 2016. For the period December 1, 2009, to December 1, 2015.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Value vs. Growth Investing

Tip: An investment is based on incisive, quantitative analysis, while speculation depends on whim and guesswork.
—Benjamin Graham,
noted value investor

Looking at their recent track records doesn’t do much to settle the debate. As you can see from the chart below, during the past 10 years, growth stocks came out on top six times and value investing four times.

Investing for Value

Value investors look for bargains. That is, they attempt to find stocks that are trading below the value of the companies they represent. If they consider a stock to be underpriced, it’s an opportunity to buy; if they consider it overpriced, it’s an opportunity to sell. Once they purchase a stock, value investors seek to ride the price upward as the security returns to its “fair market” price—selling it when this price objective is reached.

Most value investors use detailed analysis to identify stocks that may be undervalued. They’ll examine the company’s balance sheet, financial statements, and cash flow statements to get a clear picture of its assets, liabilities, revenues, and expenses.

One of the key tools value investors use is financial ratios. For example, to determine a company’s book value, a value analyst would subtract the company’s liabilities from its assets. This book value can then be divided by the number of shares outstanding to determine the book-value-per-share—a ratio which would then be compared with the book-value-per-share of other companies in the same industry or to the market overall.

Investing for Growth

Growth investors are using today’s information to identify tomorrow’s strongest stocks. They’re looking for “winners”—stocks of companies within industries that are expected to experience substantial growth. They seek companies in a position to generate revenues or earnings greater than what the market expects. When growth investors find a promising stock, they buy it, even if it has already experienced rapid price appreciation, in the hope that its price will continue to rise as the company grows and attracts more investors.

Fast Fact: Words on Growth. “It seldom pays to invest in laggard stocks, even if they look tantalizingly cheap. Look for, and confine your purchases to, market leaders.”
—William J. O’Neil,
noted growth investor

Where value investors use analysis, growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrow’s leaders; they are less focused on the value of the underlying company.

For example, growth investors may favor companies with a sustainable competitive advantage that are expected to experience rapid revenue growth, that are effective at containing cost, and that have an experienced management team in place.

Value and growth investing are opposing strategies. A stock prized by a value investor might be considered worthless by a growth investor and vice versa. Which is right? A close review of your personal situation can help determine which strategy may be right for you.

Evenly Divided?

Over the past 10 years, growth stocks have outperformed value stocks six times and value stocks have outperformed growth stocks four times.

Source: Thomson Reuters, 2016. Growth stocks are represented by the Wilshire U.S. Large-Cap Growth Index, an unmanaged index that is generally considered representative of growth stocks within the U.S. stock market. Value stocks are represented by the Wilshire U.S. Large-Cap Value Index, an unmanaged index that is generally considered representative of value stocks within the U.S. stock market. Index performance is not indicative of past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Rebalancing Your Portfolio

Tip: Rebalancing Schedule. When to rebalance? There is no set rule. Some rebalance when their portfolio’s allocation is off by a specific percentage — say 5%. Others may be comfortable setting the target higher or lower.

Everyone loves a winner. If an investment is successful, most people naturally want to stick with it. But is that the best approach?

It may sound counter intuitive, but it may be possible to have too much of a good thing. Over time, the performance of different investments can shift a portfolio’s intent — and its risk profile. It’s a phenomenon sometimes referred to as “risk creep,” and it happens when a portfolio has its risk profile shift over time.

When deciding how to allocate investments, many start by taking into account their time horizon, risk tolerance, and specific goals. Next, individual investments are selected that pursue the overall objective. If all the investments selected had the same return, that balance — that allocation — would remain steady for a period of time. But if the investments have varying returns, over time, the portfolio may bear little resemblance to its original allocation.

How Rebalancing Works

Rebalancing is the process of restoring a portfolio to its original risk profile.

There are two ways to rebalance a portfolio.

The first is to use new money. When adding money to a portfolio, allocate these new funds to those assets or asset classes that have fallen. For example, if bonds have fallen from 40% of a portfolio to 30%, consider purchasing enough bonds to return them to their original 40% allocation. Diversification is an investment principle designed to manage risk. However, diversification does not guarantee against a loss.

Fast Fact: Expert Insight. “The four most expensive words in the English language are, ‘This time it’s different.’”
–Sir John Templeton,
Renowned Investor

The second way of rebalancing is to sell enough of the “winners” to buy more underperforming assets. Ironically, this type of rebalancing actually forces you to buy low and sell high.

Periodically rebalancing your portfolio to match your desired risk tolerance is a sound practice regardless of the market conditions. One approach is to set a specific time each year to schedule an appointment to review your portfolio and determine if adjustments are appropriate.

Shifting Allocation

Over time, market conditions can change the risk profile of an investment portfolio. For example, imagine that on January 1, 1996, an investor created a portfolio containing a mix of 60% bonds and 40% stocks. By the end of 2015, the mix would have changed to 50% bonds and 50% stocks.

Source: Thomson Reuters, 2017. For the period December 31, 1995, to December 31, 2015. Stocks are represented by the S&P 500 Composite index (total return), an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by the Citigroup Corporate Bond Composite Index, an unmanaged index that is generally considered representative of the U.S. bond market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. When sold, an investment’s shares may be worth more or less than their original cost. Bonds that are redeemed prior to maturity may be worth more or less than their original stated value. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate. The types of securities and strategies illustrated may not be suitable for everyone.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Estimating the Cost of College

Tip: Public Costs. Average in–state tuition and fees for public four-year institutions was $9,410 for the 2015-2016 school year. Out-of-state tuition for these same institutions averaged $23,893.
Source: College Board, 2015

It doesn’t take a degree in finance to see the cost of college continues to rise.

In its 2015 report, the College Board showed that public four-year institutions raised prices an average of 3.4% annually between the 2005-06 and 2015-16 school years. Put another way, a $5,000 education in 2005-06 would cost $6,985 in 2015-16.

For a few families, the lion’s share of education costs falls on parents and, in some cases, on grandparents. Generally the majority of families rely on a combination of scholarships, grants, financial aid, part-time jobs, and parent support to help pay the cost.

Fast Fact: Private Costs. Tuition and fees for private four-year institutions averaged $32,405 for the 2015-2016 school year. If you add room and board, the figure rises to $43,921.
Source: College Board, 2015

If your child is approaching college age, a good first step is estimating the potential costs. The accompanying worksheet can help you get a better idea about the cost of a four-year college.

If you’ve already put money away for college, the worksheet will take that amount into consideration. If you haven’t, it’s never too late to start.

Resources

There are a number of resources that can help individuals prepare for college. The U.S. government distributes certain information on colleges and costs. Here are two sites to consider reviewing:

www.studentaid.ed.gov
The government’s college and financial aid portal.

www.collegeboard.org
The group that administers the SAT test.

Estimating the Cost of College

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

TIPS for Inflation

Tip: The twice-yearly inflation adjustments to TIPS are considered taxable income even though investors won’t see that money until they sell the bond or it reaches maturity.
Source: U.S. Treasury, 2017

In 2014, the country witnessed the historic appointment of Janet Yellen as Chair of the Board of Governors of the Federal Reserve System. She became the first woman to take the helm of the world’s most influential central bank.¹ She and the Fed governors are tasked with adjusting short-term interest rates to help control inflation in an effort to promote overall economic growth.

In recent years, inflation has remained low, which has allowed the Fed to maintain record-low short-term interest rates. But some are concerned that the Fed’s interest-rate policy may accelerate inflation in the future, and they are looking for investment opportunities that have the potential to react to higher interest rates.

A Few TIPS

Unlike conventional U.S. Treasury bonds, the principal amount of Treasury Inflation-Protected Securities, or “TIPS,” is adjusted when there are changes in the Consumer Price Index (CPI), which measures changes in inflation. When the CPI increases, a TIPS’ principal increases. If the CPI falls, the principal is reduced.

Fast Fact: What Are the Terms? TIPS are issued in terms of 5, 10, and 30 years.
Source: U.S. Treasury, 2017

The relationship between TIPS and the CPI can affect the amount of interest you are paid every six months and the amount you are paid when your TIPS matures.²

Remember, TIPS pay a fixed rate of interest. Since the fixed-rate is applied to the adjusted principal, interest payments can vary from one period to the next.

When TIPS mature, the bondholder will receive either the adjusted principal or the original principal, whichever is greater.²,³

If you are concerned about inflation—and expect short-term interest rates may increase—TIPS are an investment that may be worth considering. A close review of your overall strategy also might reveal other investment choices that may be appropriate in an environment of changing interest rates.

Inflation in Perspective

In recent years, the Consumer Price Index has bounced below 2.24%, its average rate for the past 20 years.

Source: USinflationcalculator.com, 2016

  1. Board of Governors of the Federal Reserve, 2016
  2. The interest income from a Treasury Inflation-Protected Security (TIPS) is exempt from state and local taxes. However, according to current tax law, it is subjected to federal income tax. Adjustments in principal are taxed as interest in the year the adjustment occurs even though the principal adjustment is not received by the bond holder until maturity. Individuals should consider their ability to pay the current taxes before investing.
  3. TreasuryDirect.gov, 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Types of Stock Market Analysis

Tip: Best Seller. One of the more influential books on using fundamental analysis is Benjamin Graham’s Security Analysis. First published in 1934, it’s now in its sixth edition and has sold more than one million copies.
Source: McGraw Hill, 2016

There is no shortage of analysis for anyone interested in investing. A search for the term “stock market analysis” turned up 16 million hits on Google and well over 200,000 hits each on Bing, and Yahoo.¹

The majority of stock market analysis can be lumped into three broad groups: fundamental, technical, and sentimental. Here’s a close look at each.

Fundamental Analysis

The goal of fundamental analysis is to determine whether a company’s future value is accurately reflected in its current stock price.

Fundamental analysis attempts to estimate the value of a particular stock based on a variety of factors, such as the current finances of the company and the prevailing economic environment. Fundamental analysis also may include speaking with a company’s management team and assessing how the company’s products are received in the marketplace.

When a fundamental review is complete, the analyst may decide the stock is an attractive opportunity because the market has underestimated its future prospects. The analyst also may determine the stock to be a “hold” or a “sell” if the value is fully reflected in the price.

Technical Analysis

Technical analysts evaluate recent trading movements and trends to attempt to determine what’s next for a company’s stock price. Generally, technical analysts pay less attention to the fundamentals underlying the stock price.

Technical analysts rely on stock charts to make their assessment of a company’s stock price. For example, technicians may look for a support level and resistance level when assessing a stock’s next move. A support level is a price level at which the stock might find support and below which it may not fall. In contrast, a resistance level is a price at which the stock might find pressure and above which it may not rise.

Sentimental Analysis

Sentimental analysis attempts to measure the market in terms of the attitudes of investors. Sentimental analysis starts from the assumption that the majority of investors are wrong. In other words, that the stock market has the potential to disappoint when “masses of investors” believe prices are headed in a particular direction.

Sentiment analysts are often referred to as contrarians who look to invest against the majority view of the market. For example, if the majority of professional market watchers expect a stock price to trend higher, sentiment analysts may look for prices to disappoint the majority and trend lower.

Which approach is best? There is no clear answer to that question. But it’s important to remember three things: Past performance does not guarantee future results, actual results will vary, and the best approach may be to create a portfolio based on your time horizon, risk tolerance, and goals.

Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

  1. Searches conducted January 23, 2017

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Best Performing Asset Classes

Tip: Fund Flows. In 2015, investors removed $123 billion from mutual funds, a significant drop from the record $879 billion they added in 2007.
Source: Investment Company Institute, 2016

According to Yale University’s Crash Confidence Index, about 35% of investors believe the stock market will crash sometime during the next six months.”1

However, if their fear leads them to avoid the entire investment class, they may limit their potential returns. For example, during the 20-year period ended December 31, 2015, stocks had an average annual return of 9.9%. By comparison, bonds returned 6.1% and cash 2.5% during the same time frame. During that 20-year stretch, stocks outperformed bonds and cash in 15 years out of 20.2

But the stock market is volatile. Between October 9, 2007, and March 9, 2009, the Standard & Poor’s 500 stock index shed well over half its value. But then the S&P 500 started clawing its way back and ended 2010 within 20% of the October 9, 2007, close.3

If the impulse to be safe keeps investors out of the stock market, it may also keep them from taking advantage of the potential returns the stock market has to offer.

Fast Fact: Fund Owner. In 2015, nearly half of U.S. households — 43% — owned shares of mutual funds. That’s an estimated 53.6 million households.
Source: Investment Company Institute, 2016

Cash alternatives — the most conservative of the three investment classes — outperformed stocks and bonds only once during the 20-year period.2

A sound investing strategy considers short-term volatility without losing sight of long-term objectives.

A sound strategy can involve diversifying capital between different classes of investments. That way, under-performance in one type of asset may be offset by the performance of another.

Bear in mind, though, that diversification and asset allocation are approaches to help manage investment risk. They do not eliminate the risk of loss if a security price declines. The asset class that performs best one year may not do so the next. Diversifying your holdings among several different investment types and understanding that asset classes can move in and out of favor may help you manage the risk in your investment portfolio.

Changing Lead

The asset class that performs best one year doesn’t necessarily do so the next.2

  1. Yale University, 2015
  2. Thomson Reuters, 2016, for the period December 31, 1995 through December 31, 2015. Stocks are represented by the S&P 500 Composite index (total return), an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by the Citigroup Corporate Bond Composite Index, an unmanaged index that is generally considered representative of the U.S. bond market. Cash is represented by the Citigroup 3-Month Treasury-Bill index, an unmanaged index that is generally considered representative of short-term cash alternatives. U.S. Treasury bills are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury bill prior to maturity, it could be worth more or less that the original price paid. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.
  3. Standard & Poor’s Corp, 2015. The high of 1565.15 was recorded on October 9, 2007 and the low of 676.53 was recorded on March 9, 2009. The S&P 500 Composite index (total return) is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.