Is the Stock Market Casting a Spell on Investors?

After the financial markets posted another strong performance during the first half of this year, the word “magic” keeps coming to mind! And it’s not just because the word offers an apt description of the pretty wizardly stock market returns lately.

bull-markets-604cs030413My current interest in sorcery also comes from observing a noticeable shift in investor behavior. Just a few years ago, some investors were very apprehensive about stocks, and very reticent to take on very much risk in their investment plans. But in recent months, some of these folks seem to have come under a magic spell and have begun to appreciate the potential rewards (and the risks?) of equity investing.

It’s certainly understandable how the stock market’s performance may have brewed a mystical tonic to bring investors back to stocks. During the first half of 2014, the Standard & Poors 500 Index (the “S&P 500”), a well known and broad measure of the US stock market, gained 7.14% through June 30, 2014.

Hot Equity Market!
These returns came after two consecutive excellent years in 2013 and 2012 when that same index posted increases of 32.39% and 16%, respectively. Since the bear market bottom on March 9, 2009, the S&P 500 has gained a whopping 221.17% through June 30, 2014. The impressive results seem to be the investment equivalent of pulling a rabbit out of a hat!

Earlier this year, I began to hear conservative investors expressing a desire to increase their equity investments. My personal observation of this apparent growing appetite for stocks, combined with other anecdotal evidence of such interest, raises important questions for all investors.

magicoDoes the more optimistic tone in business and among investors makes this a good time to seek out potentially greater investment rewards? Or, are investors setting themselves up to be potentially disappointed if the equity markets shift unexpectedly to a downward trend?

Of course, it is great news that there is more optimism in the air! A more positive economic outlook, an improving job market, and healthy stock returns reflect an environment that some thought just a few years ago could have only come about through economic sleight of hand!

And although there remain some concerns about the strength of the current economic recovery, the current financial climate is certainly far more encouraging than it has been for several years. But does that mean you should increase your exposure to equity investments?

That’s a question which wizards or financial advisors should not answer hastily. Any investment shift, especially a significant change, provides both risks and opportunities that should be evaluated based primarily upon an investor’s financial goals and circumstances, as well as that individual’s risk tolerance. Conversely, the decision should NOT be based on which investments have offered the best returns most recently.

Chasing Attractive Market Returns?
Unfortunately, investors, to their own detriment, sometimes pursue investments that have fared well in the short term, but which might not be priced to perform so well in the future. Some financial journalists have recently suggested that investors who want to reconsider their investment strategies or asset allocation might be acting irrationally, or adding risk to their portfolios at exactly the wrong time.

I don’t completely agree with that perspective since an investor might have valid reasons for re-considering their financial goals and/or their personal circumstances might have changed. Also, stocks might not be so outrageously priced relative to historical valuation models that would suggest a plunge is necessarily imminent (though a wizard would need a crystal ball to know with certainty).

Should You Change Your Investment Path?
iStock_000011359435XSmall appian bottomStill, prudence may likely be the order of the day. Investors should establish and stick with a disciplined asset allocation strategy and look for opportunities to “rebalance” back to your model. That discipline might suggest that selling some stock might be timely if your model is out of balance.

Although we all might wish for a magic wand to make profitable investment decisions, not even the best wizards can time the markets or guarantee investment outcomes. Instead, investors should consider using time-tested investment principles and potions in managing their portfolios. As always, if you have any financial or investment related questions, please send me an email message at bill.pollak@lpl.com or call at (925) 301-4086

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing.

April 2014 Newsletter: Are You Ready to “Spring” Forward?

file7001235656807After a difficult winter which saw many parts of the Midwest and East Coast suffer through severe cold and snow, there is no doubt that much of the country is ready for Spring! And although many in California are likely wishing for our own winter-like conditions to ease the drought, there is still no denying the appeal of the new season.

Spring brings with it, of course, the blossoming of nature as the warmer temperatures and longer days have their desired effect. For some, the start of a new baseball season is also part of the appeal! But I think this particular Spring brings with it the possibilities for other kinds of renewal and regrowth that do not have to be limited to the natural world.

We are now five years past the 2008-09 Great Recession. The journey to the current economic recovery from that difficult time has not always been smooth or in a straight line, but a recovery has nonetheless occurred. And according to some economists, it is possible, if not likely, that the recovery in 2014 may even accelerate from the modest improvement we have seen in recent years.

This potentially more positive economic landscape may provide an exciting opportunity to seek out rejuvenation and new opportunities in your own life. For example, you could consider using this time to evaluate a different career path or new career/professional endeavors.

This could also be a great time to review your personal and financial goals and/or develop a comprehensive financial and investment plan if you have not recently done so. The seeds of those efforts, whether in your professional, personal, or financial life, could create your own Spring bounty in the future!

Earlier in March, we moved our clocks ahead for daylight savings time. Perhaps the following articles will help you “spring” forward to whatever changes you may be considering in 2014:

The Most Critical Step in Starting a Business
In today’s challenging world of traditional employment, starting your own business or endeavor might be an appealing career alternative, especially if you have an idea about how to fill an unmet market need. Here are some thoughts about preparing to make venture your fly! Read more…

Resources for Mid Life Professionals Going Back to School
It’s not unusual for people in the midst of professional change to consider going back to school to enhance their current knowledge or to enter an entirely new field. Learn about some resources that can help you evaluate such a change is right for you. Read more…

Baseball and Financial Planning
Spring training is a tradition that baseball teams and baseball fans look forward to every year. As this year’s baseball season gets under way, here are a few lessons from America’s pastime that might help you reevaluate your finances. Read more…

Impact of Health Care Costs on Social Security
Medical expenses, and particularly Medicare premiums, will likely reduce the money you receive from Social Security at the time you retire. Get the facts about the relationship between these two important US Government benefit programs, and how you can accurately plan for what you will receive from Social Security. Read more…

I hope that the turning of the season is positive for you and your loved ones, and that these articles may inspire you to move toward your goals in 2014! As always, please do not hesitate to contact me at (925) 301-4086 or send me an email if you have any questions about these or other financial topics!

March 2014 Blog: Can You Win “Investment” Gold?

It’s not often that we can gain investment insights from an 18-year-old wunderkind.

1_3a104b11a55dd074a15f7c05a91b6a17Many of us marveled at the performance of American Mikaela Shiffrin at the Sochi Winter Olympics, where she became the youngest Olympic slalom champion. What makes Shiffrin remarkable is not only her success, but also her approach to the sport. Unlike many of her peers, while training she focused more on technique and practice — the discipline of ski racing — rather than on competing.

When Shiffrin lost footing and became airborne on the course, she was able to regain her position quickly as she had practiced her recovery many times before. Throughout all of her training, she took the long-term view. It can be difficult to take the long-term view in investing, particularly when we are challenged by bumps on the slope.

February, for example, provided investors with mixed signals. Colder and snowier-than-usual weather adversely affected many economic reports, causing uncertainty over the health of the economy to linger. Several high-profile companies also cited the negative impact of weather on future earnings.

Looking at the bigger picture, however, helps us regain our sense of balance. U.S. stock prices appear to be looking past weather disruptions and have rebounded back to near record highs following a soft start to the year. We see underlying strength in most economic indicators including a continued recovery in the housing market, which is supported by easier mortgage availability, limited home inventory, and near-record housing affordability.

20120121-RoyersfordPA-WinterStormLimerickSquare__5MF_Absent a severe storm in March, we expect more clarity on the health of the overall U.S. economy in April, when March economic data are released, and we still expect economic growth, as measured by real gross domestic product (GDP), to reach 3% in 2014, based upon many of the drags of 2013 fading, including U.S. tax increases and spending cuts and the European recession, and growth accelerating from additional hiring and capital spending by businesses.

The bond market also hit some bumps, as Puerto Rico was downgraded during the month by all three major credit rating agencies as a result of its large debt burden and multi-year recession. But municipal bond market investors have been thinking longer term and appeared to take the downgrades in stride by noting Puerto Rico is not reflective of the overall market.

Just last week, the broader bond market appeared to corroborate the move in stock prices by ignoring another batch of weather-impacted data and anticipating better growth. Bond investors also refocused on a Federal Reserve that remains on schedule to reduce bond purchases and eventually raise interest rates in late 2015.

Policymakers in Washington, D.C. appear to be taking the longer view as well by focusing less on partisan differences and more on overall economic health. Congress agreed to a “clean” debt ceiling increase without links to the Affordable Care Act or the Keystone XL pipeline.

This “clean” bill acted as a positive for the stock market, which may have rallied on the perception that a more business-friendly legislative environment may be developing. We continue to expect a 10-15% gain for U.S. stocks in 2014, as measured by the S&P 500 Index. (Derived from earnings per share for S&P 500 companies growing 5 – 10% and a rise of half a point in the price-to-earnings [PE] ratio.)

As we look back at the concerns we’ve had during the past month, we realize — just as Mikaela Shiffrin did on her gold medal run — that we’ve been here before. We know we can trust the discipline and practice of sound investing and stay focused on our long-term goals. Even those of us who are industry veterans can take a lesson from the young champion.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The economic forecasts set forth in this letter may not develop as predicted.

This research material has been prepared by LPL Financial.

October 2013 Blog: Time to “Tune Out” the Chaos

The signs of fall are upon us: the onset of cooler evenings, slightly shorter days and the turning of leaves. And the new time of year brings the familiar like a new football season and other rituals like Halloween.

image29-300x200But recently, I thought about an important but less noticed pastime of the autumn months, and that is the start of the opera season in many cities across the country. Although I have not attended an opera in many years, it seems to me that recent news events have been quite operatic in their own right and as dramatic as any great piece by Wagner, Puccini or another famous composer.

For example, the United States and Iran have been opening up new channels to communicate and negotiate, punctuated by a phone call a few weeks ago by between the U.S. and Iranian Presidents, after many years of a difficult relationship which has had its own theatrical elements at times. Ironically, this historic event occurred while we are in the midst of our own drama in Washington DC.

Not surprisingly, I am referring to the domestic standoff in Congress that has shut down the U.S. government for the first time in 17 years. The failure in Washington is disappointing, if not a surprise. However, history tells us it is not necessarily a bad thing for investors. The 16 government shutdowns over the past 37 years have not been particularly negative for stock market investors, averaging only a 2% decline for the S&P 500, according to LPL Financial Research.

More importantly, from a longer-term perspective, they preceded above-average returns. The S&P 500 Index has risen 11% on average in the 12 months following the shutdowns, compared with 9% for all periods (see note 1). Notably, in the last government shutdown 17 years ago in late 1995, the S&P 500 rose 21% in the subsequent 12 months (see note 1).

operaAs the government shutdown began on the morning of October 1, stocks actually rose after falling modestly in the preceding days. That reaction makes sense, since selling stocks into short-term political uncertainty has been costly for investors in recent years. Of course, the shutdown is not the only issue facing investors from Washington. We are also approaching a breach of the debt ceiling on October 17, leading to the remote-but-heightened threat of default on some U.S. obligations if lawmakers fail to increase the limit on total U.S. federal government debt.

Fear over the threat posed by the debt ceiling seems well contained at this point. Perhaps this is because the economic and fiscal backdrop in the United States, and especially Europe, is much improved relative to the 2011 episode. While it is good news that the markets have been relatively steady, the market may make the politicians act. The situation bears close watching. As the debate continues, this month’s newsletter focuses on informing you about how to consider your long-term finances and avoid getting distracted by the “show” in Washington, DC.

Like a musical performance, events in the capital will eventually have their own coda, though it’s hard to know the outcome. Regardless of how things play out, the goal of the following information is to help you “tune out” the chaos and create your own beautiful opera as you move toward your long-term personal and life goals:

Looking Backward and Forward on Entitlement Programs
Current budget and debt ceiling negotiations, not to mention last year’s presidential election, have put the spotlight on our nation’s tax policy, deficit, and entitlement programs. Learn about how entitlement money is spent and what actions you should consider if the programs are reformed at some future time. Read more…

Affordable Care Act: What about Your Current Medical Plan?
If the US Government continues with the implementation of the Affordable Care Act, will you need to change medical plans? The answer depends on your situation. Read more and get information about Healthcare Exchanges…

Will Interest Rates Rise this Year?Interest rates for things like mortgages have increased in recent months in spite of the fact that the Federal Reserve Bank has not adjusted its target rates. This article discusses some of the factors behind higher rates and the implications for your investments, especially those that are income-producing. Read more…

What Rate of Return Can Stock Investing Provide?
When planning for future goals, it’s often very useful to make assumptions about your savings rates and potential investment returns in order to chart your journey. However, it is especially important to make sure that your projections are prudent and realistic. Learn about this important aspect of financial planning and how to approach estimating future stock market returns. Read more…

May the fall months bring beautiful music to your personal, professional and financial life! As always, please do not hesitate to contact me at (925) 301-4086 or send me an email at bill.pollak@lpl.com if you have any questions about this blog or any other financial topics.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The economic forecasts set forth in this blog may not develop as predicted.

Note 1: This research material has been prepared by LPL Financial.

September 2013 Blog: Can You Embrace Change?

“Out with the Old, and in with the New” I thought of this well-known quote when I drove my sons across the Eastern span of the Bay Bridge earlier this month during the first few hours of its opening. Making that historic drive was certainly memorable, especially after waiting so many years for the opening!

628x471It’s amazing to think that, after the 1989 Loma Prieta earthquake, the passage of over two decades was required to finally replace the old Eastern span. Most of this time was not for the actual construction effort, but for the years political wrangling that came before the first crews hit the Bay to begin work.

So, what does the experience with the new bridge project have to do with personal finances? I think the long process demonstrates the difficulty of change, the extent to which we human beings sometimes fiercely resist it, and how that resistance can sometimes jeopardize our chances of meeting our personal and financial goals.

In the realm of personal finance, the challenge in addressing change sometimes arises during “non-seismic” but important shifts like personal or career transitions, retirement, or other significant life happenings. I have seen how “out with the old and in with the new” is often not so simple and sometimes can be quite difficult, either psychologically, financially or both.

Figuring out how to “bridge” to a new set of circumstances can feel as daunting as what the proponents of the new Eastern span might have felt for years before last week’s historic opening. This can even be true even when the change is positive!

Embrace-Change-e1354040757547Yet, in spite of the challenges in managing through a transition, I have learned from my own experience that embracing the change and evaluating its ramifications may likely result in positive outcomes, not only in the financial realm but in the emotional as well.

Since I realize this is often easier said than done, I recommend that you think about getting help! Remember to take advantage of any resources, including this newsletter and my website, to approach your new circumstances. If you are thinking about switching jobs or perhaps contemplating a more significant career shift, for example, consider downloading my Career Transition Workbook.

This e-book discusses the financial and even some of the non-financial aspects of the career transition process. My blog includes many articles relevant to those contemplating career shifts and other transitions like retirement. In the near future, I also expect to add more content related to the subject of transition, both on my website and in future newsletters!

In the meantime, this month’s blog focuses on a variety of topics, not only for those experiencing a shift but also for people who just want to look at their “status quo”:

How to Pay Off Credit Card Debt
If you have incurred a significant amount of credit card debt, read our tips for how to approach reducing or eliminating those card and loan balances. Read more…

Importance of Timing for Future Retirees
Though a market downturn generally isn’t fun for most people, its timing can have a greater impact on those who plan on soon retiring or those who have recently done so. Read more…

Famous People Who Failed to Plan
While considering an estate plan might understandably not be on the top of your list during a life transition, getting a plan correctly done is something that will need your attention when you get your bearings. Read more…

Is College Debt the New Bubble?
The student loan “debt clock” reached the $1 trillion milestone last year, and student loan debt has continued to climb -– both for students and for parents borrowing on their behalf. What’s next? Read more…

As always, I hope this information is useful and informative! Please contact me at (925) 301-4086 or send an email to bill.pollak@lpl.com if you have any questions about other financial or transition-related topics!

–Bill Pollak

August 2013 Blog: Can Money Buy Happiness?

48362361_198e5baae8We have all heard that old adage that “money can’t buy happiness”! And although I am a financial professional whose job is to inspire people to make sound financial decisions, I think there is a lot of truth to this saying. The pursuit of financial well-being at the expense of other important life goals seems inadvisable and quite unappealing!

But recently, I came across research from a number of academic disciplines that made me briefly wonder whether my thinking was off target. One such study, undertaken by two University of Michigan professors and published in April of this year, (Note 1) concluded that money can indeed buy happiness, contradicting years of economic dogma.

For decades, economists have actually believed happiness and income were not related, in part due to the influence of a landmark study on the subject published in 1974. (Note 2) However, the Michigan researchers could not find a point of financial attainment where the level of happiness leveled off.

As I considered these vastly different conclusions, I came to realize that we should not spend too much time considering this academic debate! Instead, I think it’s probably more important for each person to decide about this question for their own life – without resorting to the use of statistics and econometric models!

Portrait of a successful handsome businessmanEach of us could consider, for example, establishing our own personal objective about what we would need in order to remove finances as a source of stress or anxiety. This approach might include developing a realistic plan that will help you attain that financial objective(s), or it could involve getting assistance from a professional if the effort seems too difficult.

Even if you currently feel confident about your financial circumstances, you might want to re-focus on activities that provide you with intrinsic happiness and then reconsider your financial plans so that you can do more of those things in the future.

Having worked with many professionals experiencing mid-life change, I think these are particularly important questions to consider – a time of change presents a great opportunity to re-assess what is truly important in your life and to then try to organize your finances with the goal of trying to do more of those activities.

The results from such an exercise will not win you a Nobel Prize, but may likely provide important “psychic” benefits regardless of your situation. It also seems a lot more practical than solving a debate between some pretty smart economists and other social scientists!

And as you consider your own circumstances, I am providing guidance in this month’s newsletter about a number of financial topics that may help you move toward your personal definition of financial happiness. Remember, you don’t need to earn a PhD to feel “happy” about your finances:

Should You Pay Off Your Mortgage?
A common question I hear from professionals transitioning to second careers or into retirement is whether they should pay off their mortgage. Unfortunately, there is not a standard answer — the decision is based on one’s individual circumstances. Learn about the factors you should consider to make an informed choice! Read more…

Asset Class Review – REITs
Since the 2008-2009 Great Recession, Real Estate Investment Trusts (or “REITs” as they are often called) have been a popular investment, especially in light of today’s low interest rates. However, these investments have been somewhat volatile recently and you would be well advised to learn about this asset class before investing. Read more…

Social Security – Questions and Answers
If you are on the path toward electing Social Security benefits, or are developing a retirement plan, learn about the intricacies of this important program. Will the program remain solvent? How are your benefits taxed? Read more…

Making the Most of Your 401(k) Plan
With another school year right around the corner, it might be a good idea to go back to “401(k) school” and brush up on how to make the best use of the employer-sponsored retirement plans in which you are hopefully participating. Whether you are transitioning back into the workforce or simply want to review your current account, learn about how to best take advantage of this important staple of your retirement savings. Read more…

I hope you benefit from these articles and other financial education blogs I publish on my website, facebook and twitter pages. As always, please do not hesitate to contact me at (925) 301-4086 or send me an email if you have any questions about these or other financial topics!

Note (1): “Subjective Well Being and Income: Is There Any Evidence of Satiation?” April 16, 2013 Stevenson, Betsey & Wolfers, Justin. School of Public Policy and Department of Economics, University of Michigan

Note (2): “Does Economic Growth Improve the Human Lot?” Easterlin, Richard, University of Pennsylvania 1974

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor.

July 2013 Blog: Hot Weather and Hot Markets?

With temperatures in parts of the Bay Area recently moving the thermometer well north of 100 degrees, I have begun to wonder if there was any connection between the stifling weather and other unexpected and bumpy developments in the financial world!

As you might have guessed, I am referring to a recent period of heightened volatility in both the fixed income and equity markets. Some investors may have felt a different type of discomfort than what they experienced during the steamy weather, as the prices of many types of financial assets simultaneously declined in value. The unusual conditions might not have been the investment equivalent of sun spots, but they were certainly noteworthy!

I wondered whether I should commission a team of top economists and climatologists to research whether there is a connection between these seemingly disconnected events. I soon concluded, however, that such research might not result in anything useful for my clients — and besides — I most likely couldn’t afford to hire the folks I had in mind anyway!

Instead, for my July 2013 newsletter, I am opting for a more practical approach and decided to provide some useful ideas and approaches to help you take the “temperature” of some of your personal financial and investment matters:

Just How Risky Is Your Portfolio?
If you’re like most people, you probably evaluate your portfolio in terms of its return. However, the amount of risk you take in pursuing those returns is just as important, especially when you are experiencing a time of personal change, or contemplating a career shift. Learn about a nuanced approach to understanding and evaluating investment risk. Read more…

Mid-Year Planning: Accounting for New Tax Rules
As you get ready for summer, your tax situation might be the last thing on your mind! Yet, if you are not familiar with the tax provisions approved by President Obama and Congress in early January 2013, you might miss out on the chance to try to improve your year-end tax position. Read more…

Happy Healthday: HSAs Turn 10!
Health Savings Accounts (or “HSAs” as they often referred to) are a great way for individuals and families set aside money on a tax-advantaged basis to pay for health-care costs. They may also be particularly applicable to people transitioning from traditional employment to roles as either independent contractors or as sole proprietors! Read more…

The Great Investment Debate: Active versus Passive
For many years, the debate between the advocates of passive and active investing has been as hot as the weather. Learn more about of each of these approaches and why your decision about which to use is important for your long-term financial health! Read more…

I hope these thoughts may help you feel more confident and “cool”, even during times when the financial climate is heating up! As always, please do not hesitate to contact me at (925) 301-4086 or send me an email at bill.pollak@lpl.com if you have any questions about these or other financial topics!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor.