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  • Are You Thankful But Afraid?

    By Chris McAlpin

    (The following is expressed as the personal opinion of Chris McAlpin )

    Thanksgiving is a time to stop and reflect on our standard thankful lists; family, friends, life, health, wealth, etc. With so much to be thankful for it’s hard to believe we live in a world that also has so much to be fearful of. Can we be truly thankful but afraid at the same time? It’s an interesting question to ponder. It really comes down to who are we thankful to and do we trust that source to continue providing the things we are thankful for.

    A recent article in the Wall Street Journal* about Venezuela’s Golden Generation tells a perplexing story. This generation that was born in the ‘70s, grew up in the ’80s, and graduated in the ’90s, and their potential resonated. They grew up in a time when hard work and education were highly valued, some might say Venezuela’s golden age. The article showed an image of the class of ’94 at their senior party, hanging out on the beach. In that image the cockiness of youth, and all the advantages of solid middle class with an upward trajectory were evident in their smiles and swagger. History tells us though that it wouldn’t last. This once oil rich democracy has crumbled and what was once South America’s richest nation is now one of its poorest. All the future bankers, lawyers, economists, and doctors in that 1994 picture have fled the country. The country’s rich potential no longer exists.

    In my opinion, The United States once looked similar to Venezuela, swaggering and new. We are the sons and daughters of rebels who fought tyranny, of farmers who raised middle class kids, who raised bankers, lawyers, economists, and doctors. So, what, if any, is the difference? We are an extremely blessed nation and we would be remiss to forget that the very foundations of our country were built on the principles of faith and a reverence for our Creator. We were blessed because we were thankful and worshipped the Creator, and not the “created”.

    Idolatry is simply the worship of the “created” instead of the “Creator”. We put our faith and joy in things or ideas that are not based on God and instead on things built by ourselves. Here is where the fear comes into play. Fear that what we’ve built will be lost or decay, which of course always happens. Fear that maybe these idols are not right or will not sustain us. On the other hand, when we put our faith in the “Creator” we know that He “will never leave you or forsake you” (Hebrews 13:5). We escape the clutches of fear by focusing on God and not what we can do on our own.

    We share the example of the Venezuelan Golden Generation as an example of how quickly it can all be taken away. While there are most certainly Christ followers in Venezuela, as a nation they chose to follow their idols and as a result lost everything. It is very much a cautionary tale. In the United States, we have mind-boggling blessings and are capable of great generosity. Yet, we are currently in the grips of overwhelming idolatry and by failing to be thankful to the Creator, we risk the created in our land.

    So while statistics look good; the economy is growing, the stock market is up, and unemployment is down, we must remember what we’ve read in Psalm 37:

    Do not fret because of those who are evil and do wrong; they will soon die away. Trust in the Lord and do good; live and enjoy safety. Delight in the Lord. Commit your way to the Lord; trust Him and he will do this: make your righteous evident, vindicate you for everyone to see. 

    We challenge you, this Thanksgiving and Christmas, to remember where your thankfulness should be directed and be truly thankful to the One that has given us everything, including His own Son on the cross all those years ago. During this season of celebration, put your focus on Him and recognize that without Him, we have nothing. When you do, the fear fades away and you are only left with thanksgiving!

    Happy Thanksgiving and Merry Christmas from your friends at Sound Financial!

    *Wall Street Journal, November 14, 2017, “The Class of 1994, Venezuela’s Golden Generation, Is Fleeing the Country” by Ryan Dube.

    Advisory Services offered through Sound Financial Strategies Group, Inc. (SFSG), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc.,(CAMAS) Member FINRA/SIPC, 2001 Route 46, Suite 506, Parsippany, NJ 07054, (800) 637-3211. SFSG and CAMAS are separate and unrelated companies.

  • Protect Your Investments Now!

    As the markets continue to grow, we are often asked how investors should respond. Many still remember 2008 and how quickly the markets turned and want to be adequately prepared when a market correction occurs. While those conversations are best had with your financial advisor to make sure that your investment plan and the subsequent decisions are based on YOUR portfolio and retirement plan, there are some general ideas to consider.

    With that in mind, we’d like to introduce you to Clint Sorenson. Clint serves as Sound Financial’s Chief Investment Officer through our partnership with WealthShield. When Sound Financial brought on the team at WealthSheild we added to our existing leadership team and broadened the skill set that allows us to better serve our clients. These partners provide the elements of our Rules Based Strategy that help investors make data driven investment decisions rather than news-cycle induced emotional decisions. Clint wrote an article for Forbes in December 2016 regarding market correction that still rings true today. To see the article directly in Forbes, you can go here, otherwise read below and contact your Sound Financial advisor to discuss what adjustments would be prudent for you and your overall retirement plan.

    Protect Your Investments Now

    Clint Sorenson

    Co-Founder at WealthShield

    Current economic conditions indicate a U.S. stock market decline of 40% or more by the completion of this market cycle. The dramatic rise in asset prices since 2009 has caused an extreme overvaluation of the U.S. stock market. The levels of price to sales, Tobin’s Q Ratio, market capitalization to GDP, and cyclically adjusted price to earnings ratios have reached the point where bull markets end and bear markets begin.

    As the chief investment officer at an advisor services company, I find that managing private client wealth and consulting financial advisors is quite difficult today. I started my career in investment management at a major firm at the peak of the last cycle in 2007 and never heard anyone at the company say to start preparing portfolios for the potential of a stock market decline. From my perspective, it seemed as if everyone was swept into the euphoria of the growing stock market. In hindsight, 2007 was a period not unlike today, characterized by high valuations and elation. In learning from the past, now is the time to start critically thinking about how to protect investment portfolios.

    How should investors protect their portfolios? The answer is relatively simple. First, stop relying on traditional static portfolios. This approach could lead to devastating losses in today’s world of high correlations and central bank manipulation. In the global financial crisis, a 60% stock and 40% bond index fell more 34%. That is a big decline for a balanced portfolio and most likely one investors will not want to withstand.

    Second, reallocate assets using a strategy designed to hedge and protect a portion of the portfolio from dramatic declines. Some of the most popular strategies that have historically produced positive returns during market declines are hedge funds, managed futures and trend-following strategies. Adding managed futures to a traditional portfolio would have historically benefited an investor from 1973-2015. However, there are some challenges associated with investor behavior.

    When comparing a traditional 60% stock and 40% bond portfolio to a portfolio consisting of 40% stock, 30% bonds and 30% managed futures, it is evident that venturing outside the realm of the classic balanced portfolio may be beneficial. From 1973-2015, a $1 million investment in the 60/40 portfolio would have grown to just over $59 million. That is an average annual return of 9.94% with a maximum drawdown of 33.78%. Comparatively, the same initial investment over the same test period in the 40/30/30 portfolio would have grown to nearly $100 million. That is a return of 11.28% with a maximum drawdown of 20.28%

    The value of incorporating managed futures is the ability to generate positive returns and protect assets during crisis periods. During the 1973-2015 test period, the 40/30/30 portfolio would have outperformed the 60/40 portfolio in every year that the market experienced a significant decline. For instance, in 1974 the 60/40 portfolio would have dropped 16.44% for the calendar year. The 40/30/30 portfolio would have gained 1.02%. In 2008, the 60/40 declined 23.17% and the 40/30/30 portfolio fell only 12.26%.

    Historically, managed futures have demonstrated the tendency to protect portfolios during stock market declines. The reason that managed futures have had strong performance during periods of market turmoil is because of their ability to invest both long (betting on positions moving up in price) and short (betting on securities moving down in price). Therefore, when markets start moving down, managed futures traders can theoretically make profits by selling.

    Maintaining an allocation that includes managed futures or other hedging strategies is often easier said than done. By studying the 1973-2015 historical data more closely, it’s easy to determine when problems with investor behavior would have occurred. From 1991-1999, the traditional 60/40 strategy would have outperformed the 40/30/30 strategy in all but two years. For investors focused on short-term performance, that is a difficult pill to swallow. History indicates that “herd behavior” would have had many investors abandoning their hedged strategies in favor of the more traditional strategy shortly before the 2000-2003 market decline that caused the S&P 500 to be cut in half. The same situation would apply to the 2003-2007 period before the 2008 financial crisis.

    Where are we today? From 2009-2015, the traditional 60/40 portfolio outperformed the 40/30/30 strategy. This is the time to stand your ground. Prepare for a major market correction and silence the voice that’s telling you to focus on your short-term performance. The U.S. stock market became extremely overvalued as of the end of 2013. Mean reversion, according to Grantham, Mayo, Van Otterloo & Co., often takes around seven years to occur. That means that by the year 2020, stocks should fall to fair value. Now is the wrong time to abandon protective strategies.

    Data Disclosure: WealthShield research utilizes data and information from public, private and internal sources. Sources include, Barclays Capital Inc., Bloomberg Finance L.P., Factset Research Systems, Inc., The Financial Times Limited, GaveKal Research Ltd., Global Financial Data, Inc., Haver Analytics, Inc., International Monetary Fund, Intercontinental Exchange, Markit Economics Limited, Moody’s Analytics, Inc., MSCI, Inc., National Bureau of Economic Research, Organisation for Economic Co-operation and Development, State Street Bank and Trust, Standard & Poor’s Financial Services LLC, Solactive, World Economic Forum, Thomson Reuters, Ycharts, NYU Stern School of Business, Yale University (Shiller Database), US Department of Commerce. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy.

     

    Advisory Services offered through Sound Financial Strategies Group, Inc. (SFSG), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc.,(CAMAS) Member FINRA/SIPC, 2001 Route 46, Suite 506, Parsippany, NJ 07054, (800) 637-3211. SFSG and CAMAS are separate and unrelated companies.

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