I hope you had a great weekend. The college football season opens this weekend — fall is almost here!
LRPC’s Monday Morning Minute for this week, “What’s Going On With The Markets? Seven Things To Keep In Mind“ (presented below) comes to you courtesy of Schwab. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. If you are short on time, be sure you scan each of the seven points below.
Wondering how to react to all of the recent market volatility? Outlined below are seven suggestions from Schwab that all investors should consider.
Have a wonderful week!
What’s Going On With The Markets? Seven Things To Keep In Mind
From the Schwab Center for Financial Research
Global markets may have swung wildly in recent weeks, but we think the recent selloff in stocks and commodities is not a sign of imminent global recession. However, it may prompt the Federal Reserve (Fed) to postpone raising U.S. interest rates for a while longer. In the meantime, the basics of successful investing remain the same: Sticking to your long-term investment plan and maintaining a well-diversified portfolio should help you weather the market storm. Read on for more of our perspective on the current market environment:
1. The basics of investing have not changed.
The foundational steps for successful investing remain the same despite the current turmoil. These include having a plan, watching expenses, staying diversified, and making sure your portfolio composition is lined up with your risk tolerance and investment timetable. It can be difficult for investors to stay on track when markets are volatile. If you are concerned, be sure you contact your investment advisor before making a change.
2. We do not believe the extreme volatility in global stock and commodity markets is a sign of a global recession.
The weakness is the result of a combination of factors — concerns over weakening economic growth in China and its surprise devaluation of its currency, as well as plunging commodity prices. Because China has been an engine of growth for the global economy over the past decade, markets were rattled by signs that growth has slowed more sharply than expected. Investors also have been uneasy about the possibility that the Fed may soon raise short-term U.S. interest rates. However, the underlying drivers of economic growth in most countries are positive. Central banks around the world have cut interest rates, and lower commodity prices — especially oil prices — can help to spur consumer demand.
3. We believe the Fed is less likely to raise short-term interest rates in September as a result of recent events.
U.S. economic growth has been solid and unemployment has fallen, which would argue for the Fed to begin raising short-term interest rates soon. Collapsing commodity prices and currency devaluations, however, suggest that the rate of inflation — a key metric for Fed policymakers — may fall further. Moreover, the Fed typically takes global financial conditions into consideration and is more likely to hold off on a rate increase as long as markets are highly volatile.
4. China’s currency adjustment should not have a major impact on U.S. economic growth.
China is not a major purchaser of U.S. exported goods or services. However, China’s actions have negative effects on emerging market currencies and bonds. Countries that are major trading partners or that compete with China also have devalued their currencies, putting downward pressure on global inflation.
5. The drop in global commodity prices should be positive for consumers but is a negative for commodity producers in the short term.
Prices for all types of commodities have fallen sharply this year. Increases in supply — thanks to increased production and the stockpiling of commodities over the past few years, in anticipation of stronger demand — have contributed to the selloff. Also, because many commodities are priced in U.S. dollars, commodity prices tend to decline as the dollar strengthens, reflecting the dollar’s increased purchasing power. Once prices reach levels at which excess supplies begin to decline, prices are likely to stabilize.
6. Bonds with high credit quality help to hold down volatility in portfolios.
Bonds, in general, provide diversification from stocks, generate income, and reduce volatility in an overall portfolio. Not all bonds are the same, however. For most U.S.-based fixed-income investors, underweighting securities from riskier sectors of the market, such as high-yield and emerging markets, should lessen portfolio volatility. Holding a portfolio of “core bonds” — intermediate-term U.S. Treasury securities and investment-grade corporate and municipal bonds — typically provides diversification from stocks, and also should lessen volatility.
7. Investors should stick to their long-term plan and not react to short-term movements.
The intraday price swings we’ve seen recently can be unnerving, but long-term investors should keep in mind that these movements are likely influenced by the high-speed trading practiced by some institutional investors. A well-diversified portfolio — one that contains an appropriate mix of stocks, bonds, cash, and possibly other asset classes — should be in a reasonable position to weather turbulent market periods. Portfolio rebalancing is a classic strategy that is designed to lower risk and potentially enhance returns. Investors should consider trimming holdings periodically in asset classes that have risen in value and are taking up an outsize portion of their portfolios, while adding to those asset classes that have declined in value and now make up a smaller portion of their portfolios. Investors also may want to take advantage of “tax-loss harvesting” strategies, by selling some securities at a loss to offset taxes on gains and income in taxable accounts.
Lawton Retirement Plan Consultants, LLC (LRPC’s) Monday Morning Minute is crafted to provide decision-maker’s with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or firstname.lastname@example.org or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.
Additional Important Disclosures
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or geopolitical conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Diversification strategies do not ensure a profit and do not protect against losses in declining markets. The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.