Eric Lai, John Wenzel, & Jill Shibuya | Archvest Wealth Advisors | May 1st, 2019
Category: Archvest Newsletters
What a difference three month makes. The headlines have completely flipped from the doom and gloom of Q4 to “Best Three-Month Start Since 1998” and “Best Quarter Since Q2 2009.” For the quarter, the S&P 500 ended up 13.65%, the Dow up 11.81% and the international markets as measured by the MSCI was up 9.98%. This first quarter rally has effectively brought us back to the same levels we saw at the end of Q3 2018.
Asset Allocation and Diversified Portfolio
As history buffs, we look to the past to give us context and guidance. Recently, we completed a research project with our fellow colleague, Lawrence Grossman of Grossman Financial Management, where we looked at the historical risk and returns of the markets.
We looked at the risk-adjusted returns over the past 50 years and reaffirmed that a diversified portfolio has performed better than an all-stock portfolio. For the sake of this newsletter, we’ll focus on the risk-adjusted returns of the US stock market as measured by the S&P 500 versus an aggressive portfolio, 75% in stocks, and 25% in bonds (comprised of 3-month Treasury Bills and 10-year Treasuries). During this period stocks returned 9.7% per annum with a risk level of 16.8%. Meaning, during those past 50 years, we would expect the stock market to be within the range of -23.9% or up as much as 43.3% about 95% of the time. For the 75/25 portfolio the average return was similar at 9.0% per annum, but the range of outcomes was narrower with a range of -16.4% to +34.4%. Comparing the all-stock portfolio to the 75/25 portfolio, the all-stock portfolio performed worse from a risk adjusted standpoint. The risk was 32% higher but you only got an extra 7.8% in return. This risk/ return tradeoff is very lopsided and one was not fairly compensated for the additional risk taken.
The risk figures in recent decades are not much different than the 50 year period. However, the returns are quite different depending on the period. For example, from 1999–2008 the all-stock portfolio would have generated -1.4% per year and the 75/25 would have been up .8% per year. The most recent decade is quite different, from 2009–2018 the returns would have been 13.0% and 10.2% per year, respectively. An investor who started investing in 1999 would have achieved dramatically different results than in investor who started investing in 2009. Here lies the problem, we do not know what the future holds until well after the fact; we do not have the luxury of picking which decade to invest in.
This brings us back to the focus of our firm: financial planning. We have to plan for your financial goals according to a level of risk you are comfortable with. The returns are uncontrollable but the returns will come with over time. Trying to time the market is a foolish game over the long-run. One will often enter when it’s too late and leave too late (buying high and selling low) and getting the worst of both worlds.
In light of the headlines of recent data breaches, we would encourage you to freeze your credit to protect yourself against fraud should your personal inflation was compromised. Freezing your credit is now free, and parents can freeze their child’s credit if the child is under age 16. It will take roughly 5 minutes per credit bureau to complete.
You may access the three credit bureau through our website to freeze your credit at:
Updates from Archvest
Many of you have asked and we can now deliver.
Archvest now has the capability to manage your outside account such as your employer 401(k) plan. We have developed processes and procedures to link up the outside accounts to our Black Diamond system so we get a direct data feed of these outside accounts and can report on it as part of your quarterly reporting package. This will allow us to monitor and manage these accounts. If you are interested in this service, please let us know and we can schedule a time to go over the logistics of setting this up.
Additionally, Archest has partnered with Flourish Cash to offer a high yield savings account alternative for your cash holdings. Flourish Cash is a service that negotiates bank deposit rates on your behalf to offer a very competitive interest rate. The current rate is 2.3% as of April, 2019. Flourish Cash deposits are FDIC insured up to $2,000,000 per registration. There is no fee and no minimum balance for you to use Flourish as an Archvest client. For more information, please contact us and we can send you an invitation link and assist you with opening the account.
Although there is no such thing as a free lunch, there is such a thing as your misplaced money. Depending on where you have moved from or to throughout your lifetime, it’s possible you might have left some money behind that never found its way to you. There is a quick search you can do via the following link to see if you might have money due to you:
This link will take you to a free database where you can search at the city and state levels to see if there are any outstanding monies due to you that had not been claimed. If you identify monies due to you, we would encourage you to file a claim online to get your money. If you have any questions, please give us a call and we could help in this process.
As always, we appreciate the confidence you have placed in us to work alongside you regarding your planning needs. Be sure to follow us on Facebook, LinkedIn and Twitter as well as our RSS feed to stay up to date on what we’re reading and thinking.
Eric Lai, John Wenzel, & Jill Shibuya