Discipline is vital, and that includes having a plan


An interview with Gary Ran from Telemus Capital Partners appeared some time ago in Barron’s, a popular financial weekly. He noted that during market turmoil it was “hard for investors to stay focused in times like this, just when you need it the most because there seems to be so much information. But information isn’t knowledge.”
Do you mean that all the information that is thrown at us over the internet doesn’t amount to the knowledge necessary to manage our own portfolios? In our opinion, if it is combined with the appropriate educational background, knowledge of how businesses operate, an ability to decipher financial data and the jargon that goes along with it, a temperament that is conducive to dealing with turmoil and experience, it certainly does. Otherwise, it may not.
As in life, financial planning is all about setting achievable goals, establishing a well-designed, but flexible plan and then monitoring your progress along the way. The problem arises when an investor discovers only too late that they do not possess one or more of the qualities noted in the preceding paragraph or do not possess the discipline necessary to carry out their plan.
As we enter the final quarter of the calendar year, we thought we would lay out five predictions that we heard throughout the year; that masqueraded as information but ultimately would have diverted you from your objectives. Keep in mind that we adhere to the following statement. “Long-term capital belongs in equities while short-term capital belongs in bonds and cash.”
“Interest rates on the ten-year U.S. Treasury are headed to four percent.”
This may sound like helpful information, and perhaps you have let money sit in the bank at near zero percent waiting for these higher rates. However, interest paid on the 10-year note has been stuck under 3% for most of 2018 and are now right around that rate. Rather than waiting forever, we suggest investors ladder some short-term bonds, maxing out duration with the 2-year U.S. Treasury which is yielding approximately 2.75% and is free from state tax.
“The trade war will end this ten-year bull market.”
We say not so fast. Although a headwind to economic growth, we believe our strong labor market, recently enacted tax reform and the reduction in onerous regulations currently outweighs the cost of tariffs. That said, a prolonged trade war may be a different story. “The FANG (Facebook, Amazon, Netflix, Google) plays are dead money.” Whoa. How many times have we heard this one? Although richly valued, we believe that most equity portfolios should include some of these market/industry leaders. However, we would barbell this approach by investing in some industrial and financial holdings.
“International markets will play catch-up to the United States.”
Maybe they will. However, this has yet to occur in 2018. Although we have increased our weighting in overseas holdings, we are still way underweight compared to popular target funds offered from Fidelity and Vanguard. Except for Asia, at this time we intend to keep it this way through the remainder of the year.
“President Trump will be impeached, and the market will tank.”
This may or may not end up happening (remember, we are not political prognosticators). However, if history is any guide any such decline, if it occurs at all, will be temporary. Furthermore, two of the catalysts to this bull market run since the election has been as a result of the already enacted tax reform and deregulation. However, the ongoing trade war has most likely been a headwind to higher stock prices.
The bottom line – don’t worry about the day to day noise in the financial markets. Keep your sights firmly set on your objectives. The rest will take care of itself.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518.279.1044.

— Dennis & Christopher Fagan


Leave A Reply