Happy New Year: China May Pull the Plug on Bitcoin Causing a World-Wide Economic Collapse
Did that get anyone’s attention? That’s what headlines are designed to do, but as we know, they are frequently sensationalized and misleading, especially as it relates to financial markets. After all, if the headlines read that “US and Global Markets Seem to Be Operating as Expected”, it probably wouldn’t get the needed attention to support ad costs, right?
As our contemporary Nick Murray pointed out, the year end 2012 headlines from CNN read “Investors yank $150 billion from stocks for 3rd year” and surmised this was ominous for markets. Similarly, MarketWatch headlines from their May 2016 publication took a negative tone with “The equity exodus by investors is only getting worse”, and made it seem like everyone should get out while the getting was good. After all, there was a crazy election with polarizing candidates coming up! Those that cashed out missed a 34% increase in the S&P 500. As we enter 2018, there are similar cries designed to trigger our emotions. While the siren song of market timing continues, we believe the volatility of opinions on market conditions reinforces the need for investors to remain disciplined, globally diversified, armed with reasonable return expectations, and efficient strategies. Having a defined investment philosophy will keep portfolios moving forward within the framework of a strategic plan. This is designed to give us confidence for strength even as human behavior drives fear when the turbulent and difficult market cycles come – and they will come periodically.
2017: Great Year for Diversified Portfolios, Including International & Emerging/Asia Markets
Speaking of discipline, in 2014, 2015, and early 2016, International and particularly Emerging Market equities (and debt for that matter) were very much out of favor with previous 3 years returns of -4%, -4%, and -16%. Despite the pain for several consecutive quarters, we did not abandon these segments and regularly rebalanced into them buying at lower prices. Things turned around in late 2016 returning 11% and then 37% in 2017. China and South Korea in particular did exceptionally well returning over 40% (despite Kim Jong Un’s best intentions). Looking at the current environment the Value segments of the market, including domestic and global value, have lagged the stellar returns of the growth segments. We believe this provides opportunity to rebalance in at more attractive levels, while also maintaining exposure to the broader market which has done well, with the S&P returning 21.4% in 2017.
Impacts of the Tax Reform Bill
There will be significant tax planning opportunities beginning in 2018 with 5 out 7 bracket rates improved. For 2019, the Joint Committee on Taxation shows that the Senate bill would cut taxes 7 to 9 percent across income groups, except those earning over $1 million would get a 5 percent cut which in most cases would cover fully funding IRAs or increasing 401K contributions. Business owners of pass though LLCs and C-Corps may alter the business structure to get even more benefits. We are analyzing these changes and look forward to exploring recommendations based on the new tax code.
Very best wishes for a healthy and prosperous 2018!
Mitch & Destin