Investment Insights Podcast: Focusing In

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Vice President

On this week’s podcast (recorded September 23, 2016), Jeff focuses on three important events–third quarter earnings season, the election, and the Federal Reserve meeting in December. Highlights of his discussion include:

  • We view the negative impact on the energy sector to be mostly behind us, with year-over-year comparisons looking much more favorable.
  • The election, and the uncertainty it brings, will weigh on markets to some extent. Either way the election results go, we should have a little more clarity on forward policy, which is a positive.
  • A November interest rate hike is not off the table, but very unlikely. Prognosticators see a December hike becoming more likely.

For Jeff’s full insight, click here to listen to the audio recording.

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.

Nix the Mixed Emotions About Retirement

cook_headshotPaul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

The future holds many uncertainties, leaving us to often have mixed feelings when thinking about retirement. Even if you feel more than ready, on an emotional level, to move to the next phase of your life, you may have some uncertainty about whether you will be able to maintain the lifestyle you wish.

Last week in Roddy Marino’s Eight Signs You Are Ready to Retire, he shared some useful statistics from an Ameriprise Financial survey that address this notion of mixed emotion. Close to 50% of respondents felt they were ready to retire, but admitted that there was still some concern. 21% admitted more bluntly that they felt uncertain or not ready at all. Suffice it to say that a large portion, about 63%, of newly retired boomers said they felt stressed about retirement leading up to the decision.[1]

We’ve talked before about how your physical health can impact your retirement, but let’s take another approach and look at six financial certainties that may help to lower your stress and avoid some of the mixed emotions about retirement.

  1. You will need cash. Throughout your retirement journey, you will need quick access to your money. Typically, you will need enough liquidity to cover two years’ worth of anticipated living expenses.
  1. The quicker you spend, the shorter it will last. Your predictable expenses may total up to, for example, $2,000 a month. But how many years could you go on spending $24,000? The impact of spending on your portfolio becomes clear once you determine a spend-rate. For example, if you had $500,000 in a retirement savings account and withdrew $2,000 a month, the portfolio would last 20-29 years. A $500 reduction in spending, however, could result in 9-15 more years of longevity for the portfolio.
  1. The money not needed to cover expenses must be invested…wisely. While you can’t control the markets, you should feel confident that your investments are managed with skill and integrity. Choose an investment advisor with whom you have a trust and have a high level of confidence.
  1. Eventually, you will run out of cash and need more. One of the tricky parts of managing your money in retirement involves knowing how to create an income stream from your portfolio. You need to figure out which assets to take distributions from, and when. To ensure that each of your assets performs optimally, you must conduct a careful technical analysis and evaluate moving market trends. If you are like most retirees, you could benefit from having an expert perform this service for you so that you can have confidence that you are benefiting from all possible market and tax advantages.
  1. You’ll make more confident decisions if you know how your investment performance and expenses measure against your goals. Throughout your retirement journey, it is helpful to know where you stand against your goals. If your overall goal is to outlive your savings, then you should have a system in place that helps you contextualize your spending and its relative impact on long-term goals.
  1. Markets are volatile. When markets fluctuate, many investors feel like all semblance of control over their financial future is lost. Having a well-diversified portfolio may help to smooth the ride and reduce some of the emotions of investing.

If you approach retirement by developing an income solution that addresses each of these known facts, you can feel as if you are on more solid ground to enjoy your retirement.

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.


[1] Ameriprise Study: First Wave of Baby Boomers Say Health and Emotional Preparation are Keys to a Successful Retirement, February 3, 2015

Eight Signs You Are Ready to Retire

Roddy MarinoRoddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

New England Patriots quarterback is famous, and infamous, for a number of things both on and off the football field. His stance on retirement, however, is a personal favorite. When asked when he will retire, the then 37-year old quarterback said, “When I suck.”

Brady has the benefit of stats, sacks and millions of armchair quarterbacks to tell him when it’s time for him to hang up his cleats, but the decision to retire isn’t as clear for most Americans.

According to a survey conducted by Ameriprise Financial, nearly half of retirees (47%) felt ready to retire, but approached it with mixed emotions. 25% of the people surveyed said they could hardly wait for retirement, but nearly as many (21%) felt uncertain or felt that they were just not ready.[1]

If you are among the group of pre-retirees who feel uncertainty, here are eight signs that will help you decide if the time is right for you to consider retirement:

  1. shutterstock_447538888You are emotionally ready. Choosing when to retire has as much to do with emotions as it does finances. The transition from a full-time job that, for many, shaped their identity, to life with less structure can be scary. According to the Ameriprise study, losing connections with colleagues (37%), getting used to a different routine (32%), and finding purposeful ways to pass the time (22%) pose the greatest challenge for the newly-retired. Despite these challenges, 65%say they fell into their new routine fairly quickly, and half (52%) report to having less time on their hands than they would have thought.
  2. You’ve paid down your debt. Debt represents a key barometer in retirement readiness. If possible, you will want to keep working until your high-interest credit card debt, personal loans or auto loans have been satisfied—or you have a plan to retire such debt.
  3. You have an emergency fund. It’s important to plan in advance for how you will address emergencies, big and small, in retirement. The same survey revealed that 90% of Americans have endured at least one setback that harmed their retirement savings. Setbacks vary from caring for adult children, to college expenses stretching over six years instead of four. Others include loss of a job, assisted living expenses, and disappointing stock performance. As the survey indicates, unexpected life events cost the retirement accounts of the respondents $117,000 on average. An emergency fund can serve to prevent you from having to resort to retirement savings during hard financial times.
  4. You know what it’s going to cost. Some people believe they will enjoy a significant decrease in post-retirement expenses; however, that may not be the case. Instead, many retirees experience trade-off in expenses. For example, instead of daily commute costs, retirees may take longer trips thereby canceling out any savings in transportation expenses. Most retirees’ expenses follow a U-shaped pattern. For the first few years, the expenses mimic pre-retirement expenses, then as the retiree settles in, expenses dip only to rise as health care costs kick in.
  5. You know how you will create income. Much of retirement planning involves asset accumulation, but it is equally important to figure out what assets to tap, and in what order. Your income plan should include a decision on when you will elect to receive Social Security benefits. It should also take into consideration all sources of income including fixed, immediate, and indexed annuity strategies, pensions, and even your house. It should also address the timing as to when and you will withdraw income from all potential sources.
  6. Your children have their financial lives in order. Family dynamics play a significant role in shaping one’s retirement experience, yet are often overlooked during the planning process. Many retirees do not anticipate or underestimate the financial toll associated with providing financial support to their adult children. If you are thinking of retiring and still have a financially dependent child, consider establishing parameters for the arrangement, set expectations, and deepen the child’s understanding and appreciation of what is at stake for you.
  7. You have prioritized your health. When it comes to determining retirement well-being, health is typically more important than wealth. Retirees in better health have the added peace of mind that comes from financial security. They tend to enjoy retirement more, feel fulfilled and are not as prone to negative emotions as their less healthy counterparts.[2] For most, health care costs top the retirement expenses charts so your ability to pay for medical care you will eventually need should be a key consideration. Healthy habits and preventive medical treatment before retirement can help to serve as a cost-containment measurement as well as a lifestyle booster.
  8. shutterstock_128132981Someone you trust can help you make your financial decisions. A trusted advisor is invaluable throughout your retirement journey. He or she can help you manage your retirement portfolio to meet your preservation and growth objectives, help you establish an income strategy matched to your spending needs, and track your spending versus assumptions. If a crisis arises, a trusted financial advisor will already know your financial history and can help make decisions that are in your best interests. Similarly, it is extremely helpful to have a trusted advisor relationship solidified in the event your cognitive abilities decline, and you need help with decisions.

[1] Ameriprise Study: First Wave of Baby Boomers Say Health and Emotional Preparation Are Keys to a Successful Retirement, 2/3/15: http://newsroom.ameriprise.com/news/ameriprise-study-first-wave-baby-boomers-say-health-and-emotional-preparation-are-keys-to-successful-retirement.htm

[2] Health, Wealth and Happiness in Retirement, MassMutual. 3/25/15

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 – The Good and Bad of Trading on Emotion

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Investment Manager

On this week’s podcast (recorded January 26, 2016), Jeff looks at the opportunities created via emotional selling while monitoring the negative factors at work in the economy:

  • Leading reasons for weakness in the marketplace continue to be falling oil prices and China’s slowing growth
  • Strength of the global economy is creating uncertainty.
  • When markets are volatile, it’s important to evaluate where markets may have overreacted and opportunity has been created.
  • Emotional trading seems to have generated attractive entry points into the market, but unique to an investor’s risk tolerance and time horizon.
  • Positives in the market include tame inflation and accommodative monetary policy; negatives include overtightening by the Federal Reserve.

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

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.

Monthly Market and Economic Outlook: March 2015

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

Global equity markets delivered solid gains in February, helped by a stabilization in crude oil prices, signs of better economic growth in Europe, and a short-term resolution in Greece. It was a “risk-on” environment for U.S. equities, with the S&P 500 gaining 5.8%, despite more mixed economic data. Cyclical sectors, like consumer discretionary and information technology, posted gains of more than 8%, while the more defensive utilities sector fell more than -6% during the month. In the U.S. growth outpaced value, but there was little differentiation by size.

International developed equities were slightly ahead of U.S. equities in February despite continued U.S. dollar strength. European equities in particular exhibited strength ahead of the ECB’s quantitative easing program. Emerging market equities had positive returns in February, but lagged developed markets. Brazil, India and China were all relatively weak, while emerging European equities fared the best. A ceasefire agreement with Ukraine, as well as the stabilization in oil prices, helped boost Russia’s currency and their equity markets, which gained more than 22% in USD terms.

U.S. Treasury yields rose in February, with the yield on the 10-year Treasury note climbing 32 basis points to 2.0%. In her comments to Congress, Fed Chair Yellen laid the groundwork for the Fed’s first rate hike this year, which could come as early as June. All sectors in the Barclays Aggregate were negative in February, with Treasuries experiencing the largest decline. High yield credit spreads tightened meaningfully during the month and high yield bonds gained more than 2%. Municipal bonds were slightly behind taxable bonds for the month.

Our outlook remains biased in favor of the positives, while paying close attention to the risks. We feel we have entered the second half of the business cycle, but remain optimistic regarding the global macro backdrop and risk assets over the intermediate-term. As a result our strategic portfolios are positioned with a modest overweight to overall risk. A number of factors should support the economy and markets over the intermediate term.

  • Global monetary policy accommodation: Despite the Federal Reserve heading toward monetary policy normalization, the ECB and the Bank of Japan have both executed bold easing measures in an attempt to support their economies.
  • U.S. growth stable: Economic growth has improved over the last few quarters. A combination of strengthening labor markets and lower oil prices are likely to provide the stimulus for stronger-than expected economic growth in the near-term.
  • Inflation tame: Reported inflation measures and inflation expectations in the U.S. remain below the Fed’s 2% target.
  • U.S. companies remain in solid shape: U.S. companies have solid balance sheets are beginning to put cash to work. Earnings growth has been decent and margins have been resilient.
  • Less uncertainty in Washington: After serving as a major uncertainty over the last few years, Washington has done little damage so far this year; however, Congress will still need to address the debt ceiling before the fall. Government spending has shifted to a contributor to GDP growth in 2015 after years of fiscal drag.

However, risks facing the economy and markets remain, including:

  • Timing/impact of Fed tightening: The Fed has set the stage to commence rate hikes later this year. Both the timing of the first rate increase, and the subsequent path of rates is uncertain, which could lead to increased market volatility.
  • Slower global growth: While growth in the U.S. is solid, growth outside the U.S. is decidedly weaker. The Eurozone is flirting with recession and Japan is struggling to create real growth. Growth in emerging economies has slowed as well.
  • Geopolitical risks: Issues in Greece, the Middle East and Russia, could cause short-term volatility.
  • Significantly lower oil prices destabilizes global economy: While lower oil prices benefit consumers, should oil prices re-test their recent lows and remain there for a significant period, it would be a negative not only for the earnings of energy companies, but also for oil dependent emerging economies and the shale revolution in the U.S.

While valuations have moved above long-term averages and investor sentiment is neutral, the trend is still positive and the macro backdrop leans favorable, so we remain positive on equities. The ECB’s actions, combined with signs of economic improvement, have us more positive in the short-term regarding international developed equities, but we need to see follow-through with structural reforms. We expect U.S. interest rates to remain range-bound, but the yield curve to flatten. Fed policy will drive short-term rates higher, but long-term yields should be held down by demand for long duration safe assets and relative value versus other developed sovereign bonds.

However, as we operate without the liquidity provided by the Fed and move through the second half of the business cycle, we expect higher levels of market volatility. This volatility should lead to more opportunity for active management across asset classes. Our portfolios are positioned to take advantage of continued strength in risk assets, and we continue to emphasize high conviction opportunities within asset classes, as well as strategies that can exploit market inefficiencies.

Asset Class Outlook Comments
U.S. Equity + Quality bias
Intl Equity + Country specific
Fixed Income +/- HY favorable after ST dislocation
Absolute Return + Benefit from higher volatility
Real Assets +/- Oil stabilizes; interest rate sensitivity
Private Equity + Later in cycle

Source: Brinker Capital

Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Past performance is not a guarantee of similar future results. An investor cannot invest directly in an index.

Winds of Change

Joe PreisserJoe Preisser, Portfolio Specialist, Brinker Capital

The winds of change have begun to blow through Washington, D.C. carrying with them whispers that the Federal Reserve Bank of the United States is contemplating a more immediate slowing of the unprecedented stimulus measures it has employed since the financial crisis than many analysts anticipate, which could have broad implications across the global landscape. Several signals have been offered by the American Central Bank in the past few weeks to prepare the marketplace for the impending reduction of their involvement, highlighting the delicate nature of this endeavor.

The Institution faces a daunting challenge in trying to scale back a program that has largely been credited with fueling a dramatic rise in asset prices, without interrupting the current rally in equity markets.  Although the U.S. economy has shown itself to be growing at a moderate pace, a measure of uncertainty lingers within investors as to whether this growth is robust enough to compensate for the paring back of the Bank’s historically unprecedented accommodative monetary policies.

As the depths of the ‘Great Recession’ threatened to pull the global economy into depression, the U.S. Central Bank undertook a herculean effort to bring the country back from the precipice of disaster. The tangible result of these efforts has been a deluge of liquidity forced upon the marketplace, which has given birth to a tremendous rally in share prices of companies listed around the globe, and helped to repair much of the damage inflicted by the crisis. The dramatic expansion of the Fed’s balance sheet, since the inception of these programs, has culminated in the most recent iteration of these efforts—an open-ended program of quantitative easing, comprised of the purchase of $45 billion per month in longer dated U.S. Treasury debt and $40 billion of agency mortgage-backed securities, undertaken in September of last year, that has brought the aggregate amount of assets acquired by the Bank to more than $3 trillion.

5.17.13_Pressier_WindsOfChange

The chart above depicts the increase in the size of the Fed’s balance sheet (white line) versus the S&P 500 Index (yellow line).

As the economic recovery has gained momentum in the United States, with notable improvements seen in both the labor and housing markets, concern has been voiced that the flood of liquidity flowing from Washington should be tapered, lest it potentially result in the creation of artificial asset bubbles, which in turn could present risks to price stability.

The first broach of the possibility of the Fed varying the additions it is making to its balance sheet came in a press release from the Federal Open Market Committee on May 1 which stated that, “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” This statement was followed by the May 11th publication of an article authored by Jon Hilsenrath of the Wall Street Journal, who is widely considered to be a de facto mouthpiece for the Central Bank, “officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated” (Wall Street Journal). Comments issued on Thursday by the President of the San Francisco Fed, John William’s, referred once again to the possibility of the Central Bank’s program being scaled back, potentially sooner than many market participants anticipate, “It’s clear that the labor market has improved since September.  We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” (Bloomberg News).

Though the Fed has stated that it will continue its accommodative monetary policies until the unemployment rate in the United States has been reduced from its current rate of 7.5% to a target of 6.5%, it appears that the pace of this accommodation may change in the near term.  While the consensus among market participants is for this gradual reduction in quantitative easing to begin sometime this year, no one is sure of the scale or the exact timing.  As the Central Bank has played such an integral role in helping to engineer the current rally in equities, it will be imperative to closely monitor the deftness with which they handle the extrication of their involvement.

Thought of the Week, from J.P. Morgan Asset Management

The following commentary has been posted with the consent of J.P. Morgan Asset Management.

When markets become volatile, it can be easy to lose perspective. Since the November 6th U.S. election, the S&P 500 has fallen nearly 5% as concerns have shifted from who will be the next U.S. President to how the fiscal cliff will be resolved. We continue to believe that Congress will come up with a solution – the biggest question is when. Thus, as uncertainty continues to plague markets, investors should remember that markets rarely move higher in a straight line. Since February 2009, the S&P 500 has fallen by more than 5% in 6 different months, but has risen more than 5% in 10 different months, and is up over 100% since the March 2009 low. Given that this market volatility will likely continue until the fiscal cliff is resolved, it will be important for investors to stay balanced and not panic in the face of a choppy market.

When Markets Become Volatile, Keep Things in Perspective

Source: J.P. Morgan Asset Management