Investment Insights Podcast: A review of November markets

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Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded December 8, 2017), Leigh provides a quick review of October markets.

 

Quick hits:

  • After a short pause in the beginning of the month, it was more of the same for equity markets as the investment themes that have been apparent for most of the year were again evident throughout November.
  • The S&P 500 Index was up 3.1% in November.
  • Developed international equities were up 1.1%, underperforming domestic equities for the second month in a row.
  • Emerging markets were up 0.2% for November.
  • Fixed income was down in November with most sectors posting negative returns.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full October Market and Economic Outlook.

 

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

 

Investment Insights Podcast: Oil bounces back

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded December 1, 2017), Tim discusses what’s been pushing the commodity higher and, maybe more importantly, where the price of crude goes from here.

Quick hits:

  • Two primary factors are driving the rally in the price of oil, and from an economics perspective they are the classics: supply and demand.
  • Facing greater demand and reduced supply, are we worried that the price of crude will continue to move up?  Our short answer, is no.
  • Looking out over the next year or so, we believe the price of oil will be range bound, with a lower band around $40 a barrel and an upper band around $60 a barrel.

For Tim’s full insights, click here to listen to the audio recording.

 

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: When will the next recession hit?

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded November 20, 2017), Tim takes a closer look at the somewhat unpleasant topic of Recession — including what causes them and when the next one might hit.

Quick hits:

  • There are three historic catalysts for a recession: The Federal Reserve, a bursting bubble, and an exogenous shock.
  • When will the next recession hit? The short answer? Not now.
  • Interest rates remain at reasonable levels, corporate revenues and earnings are growing, unemployment claims and the unemployment rate are at historic lows, and consumers and corporations have ample access to credit.

For Tim’s full insights, click here to listen to the audio recording.

 

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Purchasing power and the big power of small changes

Crosby_2015Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

“A nickel ain’t worth a dime anymore” — Yogi Berra

Odds are, you’re now familiar with the Parable of the Boiling Frog. A story that posits that a frog dropped in boiling water will hop right out of the pot, but that one placed in tepid water that is gradually raised to boiling will meet its demise. The absolute veracity of this metaphor is questionable, but the illustrative quality of the narrative is beyond reproach. The fact is, slow, incremental change can be damaging to us in profound ways. The imperceptibility of these changes leaves us helpless to react, and we only become aware of what’s happening once it is too late.

Sadly, there is a “boiling frog” dynamic at play in the way you think about money, something behavioral economists call the “money illusion.” As best described by Shafir, Diamond and Tversky, the money illusion “refers to a tendency to think in terms of nominal rather than real monetary values.”

In a nutshell, we think of numbers in a way that is disconnected from their purchasing power, and in doing so can make irrational personal financial decisions. Consider the ways in which a six-figure salary or being a millionaire are still considered useful shorthand for wealth. While these may have been meaningful distinctions in say, the ’70s and even eye-popping in the ’20s, they simply don’t mean what they used to because of inflation and decreased purchasing power. The fact is that going forward, multimillionaire status will be required of even middle-class Americans who want to retire with peace of mind.

purchasing power

Inflation creep is slow and insidious, just like the proverbial boiling water, and just like the water, it can have lasting detrimental effects. Consider Yale professor Robert Shiller’s comments on the money illusion as we mentally account for our housing purchases,

“Since people are likely to remember the price they paid for their house from many years ago, but remember few other prices from then, they have the mistaken impression that home prices have gone up more than other prices, giving a mistakenly exaggerated impression of the investment potential of houses.”

Thus, people may overextend themselves to get into an expensive house, hoping for a large nominal return over the years, never realizing that the numbers they are looking at may not even be keeping up with inflation.

While getting in over your head on a home represents excessively risky behavior precipitated by the money illusion, it can just as soon lead to inappropriate risk aversion. Consider the “flight to safety” that occurs during most economic downturns. Investors flood into treasuries, which may not even keep up with inflation, while ignoring equities, which are at their greatest value in years. Truly conceptualized, nothing could be less safe than putting your assets in a class that minimizes purchasing power. By conceptualizing assets in nominal terms instead of “real dollars,” investors irrationally lock in an absolute loss in their efforts to protect against a nominal one.

Financial professionals can help their clients understand purchasing power in a way that is aligned with their individual desires and aspirations. Advisers should emphasize that investors can be lured into focusing on illusory numbers that have little impact on their ability to meet their own needs. As we’ve seen, incremental negative changes can be as bad for your financial future as they are for a frog’s health.

The Center for Outcomes, powered by Brinker Capital, has prepared a system to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800-333-4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: A review of October markets

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Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded November 10, 2017), Leigh provides a quick review of October markets.

 

Quick hits:

  • Many of the global growth themes that were evident in the third quarter carried into the start of the fourth quarter.
  • Macroeconomic data remained positive and earnings announcements generally came in above analyst forecasts.
  • Our base case remains that the positive market momentum we have seen year-to-date will likely continue through year-end.
  • However, we are aware that with equity markets at record highs and volatility at record lows, this may indicate investor sentiment is reaching excessive levels.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full October Market and Economic Outlook.

 

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

 

Thank You, Veterans

beaman 150 x 150Noreen D. BeamanChief Executive Officer

Tomorrow, we recognize those who have sacrificed careers, time with loved ones, and even their lives to serve our country. Please take a moment out of your busy Saturday to attend a Veterans Day event in your area, or simply say thank you to those who are currently serving or have served in the military.

On this Veterans Day, we say thank you to the veterans in our Brinker Capital family: Chuck Widger, Tom Daley, Jimmy Dever, Jay O’Brien, Jim O’Hara, Jeff Raupp, and Bill Talbot.

For additional ways to give back to Veterans, click here.

Brinker Capital, Inc., a Registered Investment Advisor

Investment Insights Podcast: Are you familiar with the expression, “Don’t fight the tape?”

Chris HartHart_Podcast_338x284Senior Vice President

On this week’s podcast (recorded November 3, 2017), Chris highlights some of the more interesting facts that he has come across in recent days from various sources that support the notion of “don’t fight the tape.”.

 

Quick hits:

  • With October complete, the S&P 500 is up more than 15% for the year.  According to our research partners at Strategas, this has only happened 17 times since 1950, and usually indicates continued market strength through the end of the year.
  • A seasonally strong fourth quarter looks even more attractive and helps further confirm our constructive outlook for risk assets for the remainder of 2017.
  • Our partners at Evercore ISI point out that with more than 50% of S&P companies reporting, results have been above analyst expectations.
  • What’s more interesting is that the earnings beats have been skewed more positive than normal.
  • Our outlook remains constructive supported by strong economic data.

For the rest of Chris’s insight, click here to listen to the audio recording.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Avoid the pain of regret: a disciplined approach to retirement savings

Marino_R 150 x 150Roddy Marino, CIMAExecutive Vice President
National Accounts & Distribution

With 39 percent of Americans feeling ill-prepared for retirement, according to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey, we are often challenged to come up with a solution to make saving easier.[1] Unfortunately, there are no easy solutions, and in the absence of unplanned windfalls, there are no shortcuts. There are, however, strategies that will help you overcome behavioral impediments by infusing discipline into your retirement savings plan. Here are six strategies to consider:

  1. Automate the process. The best way to make retirement savings a priority is to put it on autopilot, so each time you get paid you save for the future without giving it much conscious thought. If you have an employer-sponsored retirement plan, arrange for a percentage of your pay before taxes to go directly into your retirement account. Also, commit to increasing the percentage you allocate to your retirement account every time you get a raise. The impact of automated savings plans to net pay is often far less than anticipated, and after time it goes somewhat unnoticed. The impact on your nest egg, however, could be quite significant.
  2. Make it binding. Make your future self a promise to refrain from withdrawing any money from your account before retirement. The best way to protect your retirement account is to establish a separate emergency reserve fund. It is typically recommend setting aside six months’ worth of income to cover unexpected expenses like uncovered medical costs, home repairs, or other unplanned surprises. With an emergency fund, you have a resource to fund whatever immediate needs arise without tapping your retirement account or delaying your savings goals.
  3. Pay your future self what you paid your creditors. After you’ve cleared an outstanding debt, consider “continuing” those payments by making deposits into your retirement account. For example, if you pay off a car loan that previously cost you $500 a month, allocate that same amount to your retirement account.
  4. Establish a home for “found” money.  It’s not uncommon for someone to view inheritances, tax refunds, and company bonuses as “found money,” and splurge on items they would not otherwise buy. If you receive a windfall or even a little extra, consider allocating the amount into three portions: one for long-term savings goals, one for short-term savings goals, and one to reward yourself.
  5. Use reward points. Several credit card companies offer specialized cash back programs which convert rewards points into cash deposits into 529 college savings plans, brokerage accounts, or other retirement accounts (e.g., IRAs).
  6. Get an accountability partner. To increase the likelihood of meeting your retirement savings goals, ask someone to hold your feet to the fire. Your accountability partner should be objective, and unlike a spouse, have no vested interest in daily household financial decisions. Your accountability partner should track your progress, offer encouragement, and continually remind you of your long-term goal. If you are already working with a financial advisor, ask him or her to take an active role in keeping you motivated and engaged in meeting your retirement goals.

As the late Jim Rohn once said, “We must all suffer from one of two pains: the pain of discipline or experience the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” Failing to save enough for retirement comes in as the top financial regret of older Americans.[2] So, if saving for retirement poses a challenge to you today, give some thought to the challenges your future self will face if you don’t take these steps.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

[1] Retirement Confidence Survey 2017, Employee Benefit Research Institute

[2] Bankrate Financial Security Index Survey, May 17, 2016

Investment Insights Podcast: Who is the next Fed Chair?

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded October 30, 2017), Tim discusses who President Trump might announce as his nominee for Chair of the Board of Governors of the Federal Reserve System.

Quick hits:

  • The three leading candidates seem to be Fed Governor Jerome Powell, Stanford Professor John Taylor and Chairwoman Yellen.
  • While any prediction tied to the Trump Administration comes with a heightened level of risk, we believe Mr. Powell will be chosen by the President to serve as the next Fed Chair.
  • If Mr. Powell does become the next Fed Chair, we don’t expect much of a change near-term concerning U.S. monetary policy.

For Tim’s full insights, click here to listen to the audio recording.

 

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Are you worrying about the wrong things?

Crosby_2015-150x150Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Take a moment and imagine the person you love the most. Perhaps it’s your spouse or partner; maybe it’s a beloved parent. If that person is near, I’d like for you to put the phone or tablet down and go give them a big hug. Tell them how much you appreciate them and all the reasons why you love them. If they aren’t proximal, say a small prayer of thanks or think good thoughts about the positive impact they have in your life before you return to reading. Go on…

…You back now? Ok, great, welcome back.

Now, I want you to realize that the person you’ve just spent the last few minutes idolizing is more likely to kill you than any stranger, terrorist, or bogeyman. In fact, your appendix is more likely to off you than Al Qaida or ISIS. We tend to fear all the wrong things. We’re scared of high-profile, low probability threats like terrorist attacks and home invasions, but we routinely ignore more mundane but probabilistic hazards like not wearing a seatbelt or eating unhealthily. In general, we stink at assessing risk in many predictable ways – chief among them is our tendency to worry disproportionately about low-probability-high-salience events.

Quick! Name all the words you can that begin with the letter “K.” Go on, I’m not listening. How many were you able to come up with? 

Now, name all the words you can in which K is the third letter. How many could you name this time?

If you are like most people, you found it easier to generate a list of words that begin with K; the words probably came to you more quickly and were more plentiful in number. But, did you know that there are three times as many words in which K is the third letter than there are that start with K? If that’s the case, why is it so much easier to create a list of words that start with K?

It turns out that our mind’s retrieval process is far from perfect, and a number of biases play into our ability to recall. Psychologists call this fallibility in your memory retrieval mechanism the “availability heuristic,” which simply means that we predict the likelihood of an event based on things we can easily call to mind. Unfortunately for us, the imperfections of the availability heuristic are hard at work as we attempt to gauge the riskiness of different ways of living.

In addition to having a memory better suited to recall things at the beginning and the end of a list, we are also better able to envision things that are scary. I know this first hand. Roughly six years ago, I moved to the North Shore of Hawaii along with my wife for a six-month internship. Although our lodging was humble, we were thrilled to be together in paradise and eager to immerse ourselves in all the local culture and natural beauty it had to offer. That is, until I watched “Shark Week.”

For the uninitiated, “Shark Week” is the Discovery Channel’s seven-day documentary programming binge featuring all things finned and scary. A typical program begins by detailing sharks’ predatory powers, refined over eons of evolution, as they are brought to bear on the lives of some unlucky surfers. As the show nears its end, the narrator typically makes the requisite plea for appreciating these noble beasts, a message that has inevitably been over- ridden by the previous 60 minutes of fear mongering.

For one week straight, I sat transfixed by the accounts of one-legged surfers undeterred by their ill fortune (“Gotta get back on the board, dude”) and waders who had narrowly escaped with their lives. Heretofore an excellent swimmer and ocean lover, I resolved at the end of that week that I would not set foot in Hawaiian waters. And indeed, I did not. So, traumatized was I by the availability of bad news that I found myself unable to muster the courage to snorkel, dive or do any of the other activities I had so looked forward to just a week ago.

In reality, the chance of a shark attacking me was virtually nonexistent. The odds of me getting away with murder (about 1 in 2), being made a Saint (about 1 in 20 million) and having my pajamas catch fire (about 1 in 30 million), were all exponentially greater than me being bitten by a shark (about 1 in 300 million). My perception of risk was warped wildly by my choice to watch a program that played on human fear for ratings and my actions played out accordingly.

The easy availability of financial news (especially the scary kind) paired with the human tendency to overweight danger means that many investors walk around in a state of near-panic all the time. All the while, they are ignoring things that are truly damaging wealth over time like bad behavior, excessive fees, a lack of diversification and inadequate savings. It is only by understanding how our brains can play tricks that we truly grasp that panic selling is more hazardous than a recession just as surely as a hamburger can be more harmful than a shark.

The Center for Outcomes, powered by Brinker Capital, has prepared a system to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800-333-4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.