Category: Uncategorized | Investment Planning Group

Sell in May and go away – and then what?

ClearSEM — Fri, 05 May 2023 17:47:36 +0000

Sell in May and go away – and then what?

The age old Wall Street adage “sell in May and go away” is one of many captions that work, until they don’t. It suggests selling all of your stocks on May 1^st and staying out of the market until November 1^st. This somewhat outdated superstition can be tracked back to the early 20^th century when trading volume was significantly impacted by the extended summer vacation season of Wall Street traders.

The track record of the “sell in May and go away” adage has been mixed over the years. While the stock market has historically performed poorly during the summer months “going away” has only worked twice since the great financial crisis in 2008. In fact you would have only benefited once between 2010 and 2020. In every other year of that decade, by staying invested from May through October you would have outperformed the market according to www.thebalancemoney.com

-and then what?

It’s the economy, what else?? Are we experiencing inflation or are we in a recession? The truth is it depends on who you ask. An economist will answer, without qualification that we are in an inflationary episode. Yet most people I ask tell me they think we are in a recession. The relationship between inflation and recession is complex because it is more than looking at data, its often about how we feel. In some cases high inflation can lead to a recession if it becomes uncontrollable, and erodes confidence in the economy. It comes down to a matter of personal perspective. When your neighbors lose their home it is a recession. When you lose yours it’s a depression.

The good news

We have established that you do not have to “sell in May and go away”. If you have a plan, stick with it. This is not to say we don’t have financial challenges ahead. We do, but we are not likely to have both inflation and a recession at the same time. Raising interest rates to combat inflation can lead to a recession if they are increase so much that the purchasing power of everyday American families erodes. By historical standards, rates are much lower than they were in 1980. The high interest rates lead to a severe recession from 1980 to 1982.

Sources:

Investopedia.com

Forbes.com

CNBC.com

MarketWatch.com

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal.

No strategy assures success or protects against loss.

Please visit our website www.planipg.com for more information and useful tools

LPL Tracking #1-05369339

The post Sell in May and go away – and then what? appeared first on Investment Planning Group.

Don’t fight the fed

ClearSEM — Wed, 08 Mar 2023 17:47:44 +0000

Don’t fight the fed

Don’t fight the Fed.

“The Fed”, the informal reference to the central banking system of the globes largest economy formed in 1913 to make the financial system of the U.S. more safe, stable, and flexible. Sometimes “the Fed” refers to a single man, the Chairman of the FOMC. Today, that person happens to be Jerome Powell and nobody I know wants to pick a fight with him. So, what does it mean when you hear “don’t fight the Fed”? It is a mantra that suggests you align your choices with the actions of the Fed. This means you should invest aggressively when rates are low, and conservatively when rates are high. Nonsense! You should never invest in a manner inconsistent with your tolerance for risk, and when possible, invest with a goal in mind. Additionally, “don’t fight the Fed” is simply not a perfect science. From March 16th, 2022, to February 1st, 2023, the Fed raised interest rates 4.5%. Half of the increases happened between March 16th and July 27th when the S&P 500 dropped 7.6% and the other half occurred between September 21st and February 1st when the S&P 500 rose 8.71% according to Yahoo Finance charts. Looking at this last rate hike cycle it appears the age-old mantra “don’t fight the Fed” gives us a success half of the time.

The Powell Doctrine

After spending countless hours combing through the public domain looking for someone who has identified the “Jerome Powell Doctrine” I fear that I have come up empty handed. Perhaps that is because some feel he could have done a better job. Consider me an interested party who was once critical of Chairman Powell for not acting sooner but now open to new ideas on how and when the Fed acted. Once inflation hits the target rate we will be in a better position to judge. I have become less critical after seeing inflation drop from its peak of 9.1% in June 2022 to 6.4% in February of 2023. We still have a way to go, but we are heading in the right direction. Most Fed chairs in modern history have made their mark on it. Since I may be the first to identify the “Powell Doctrine” I will describe it as simply waiting until you see the white of inflations eyes, then hit it with the biggest hammer you can find. In time we will see how that works.

Other fed chairs

Fed Chair Bernanke gave us “quantitative easing”. It can get complicated but in short, he needed to stimulate the economy so he cut interest rates to 0%. 2008 was a challenging time and cutting interest rates was not enough. Quantitative easing contributed to the economic recovery that followed. Prior to Bernanke we had Greenspan. In contrast to his successor, his policies were not very complicated. Chairman Greenspan was difficult to understand. His language was dubbed “Green speak” because it appeared complicated. For the exception of 1994, he raised and lowered interest rates often, and in small increments. This was the practice well before Greenspan in the 1970’s and proved ineffective for taming what seemed to be a decade of inflation. In 1996 Greenspan gave his irrational exuberance speech which resulted in 3 straight years of rate hikes followed by the same amount of time cutting rates. And finally in our little walk down Fed memory lane we have Paul Volcker, the great inflation fighter. Chairman Volcker in the early 1980’s put an end to inflation when he slammed the brakes on the economy and increased interest rates to an unthinkable 20%. By 1983 inflation retreated to just over 3%. It will be interesting to see how history treats Chairman Powell. If Powell is able to tame inflation without the economy going into recession he will likely be treated well by historians.

Sources:

NPR.org

Wikipedia

Bankrate.com

Thebalance.com

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal.

No strategy assures success or protects against loss.

Please visit our website www.planipg.com for more information and useful tools

LPL Tracking # 05362968

The post Don’t fight the fed appeared first on Investment Planning Group.

Is “the 60/40” dead?

ClearSEM — Wed, 05 Oct 2022 17:47:54 +0000

Is “the 60/40” dead?

Reversion to the mean – (or running from it)

For many investors “mean” describes how they felt this year when they open their investment statement. In my experience many investors don’t look past the first page. Especially when their account value drops. For those who dared to venture beyond the first few pages they likely saw the simultaneous correction of the stock and bond markets, something not seen in more than 50 years according to a report from Swiss Bank Mirabaud. This year will likely join the ranks of 1931,1941 and 1969 to end the calendar in simultaneous correction. Thankfully, these events are rare and have never happened in consecutive years.

It’s only math

This leads me to the mathematical concept, “reversion to the mean”. Theoretically when a system of numbers departs from a long-standing pattern eventually the system will return to its normal range. In other words, an extreme event is likely to be followed by a less extreme event. In this case the long-standing pattern can best be described by Barry Gilbert, asset allocation strategist for LPL Financial. Since 1976, the S&P 500 has had a negative calendar year return eight times. Each of those eight times, the US Aggregate Bond Index was higher, with an average total return of 6.7%, said Barry in an interview with Market Insider.

Is 60/40 dead?

In the world of portfolio management “the 60/40” is shorthand for 60% in stocks and 40% in bonds. This asset allocation appears to have the right blend of opportunity and risk management for many moderate investors. Countless reems of paper have been sacrificed to printers throughout the investment community with studies focusing on the historical performance of the balanced portfolio. Namely, “the 60/40”. Vanguard posted on their website (yay, save the trees) the “historical index risk/return (1926-2019)” of several different allocations. The unescapable conclusion is that adding bonds to your stock portfolio reduces risk. For the most part, this didn’t work in 2022. Meera Pandit, Global Market Strategist with J.P. Morgan Asset Management also asked, “is the 60/40 dead?”. She writes, “Since 1980, there have been nine instances in which the 60/40 fell more than 10% within a given year.” She also noted that “In eight of the nine instances, returns the following calendar year were positive, with an average return of over 17%. In the final analysis I believe “the 60/40” is not dead, it is sick and on the mend.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal.

No strategy assures success or protects against loss.

Please visit our website www.planipg.com for more information and useful tools

LPL Tracking # 1-05349206

The post Is “the 60/40” dead? appeared first on Investment Planning Group.