May Newsletter-Has the low-hanging fruit been picked?

May 4th, 2015

Each year I attend the annual conference of the Investment Management Consultants Association (IMCA), a group made up of some the brightest Investment professionals in the country.  Collectively, IMCA members advise a broad cross section of investors, from the largest pension plans and ultra-high net worth individuals to Millennials and Gen X’rs who are just getting started. It’s a wonky group for sure.  Who else would be willing to spend three days listening to economist prognosticate about the future?  But buried underneath those propeller heads is a group who genuinely care about their client’s well-being and is seeking to gain the best information with which to make informed decisions.

Having been a member of this organization since 2004, I have noticed that at each annual conference there seems to be an overarching focus that transcends the individual sessions.  In 2008 and 2009 obviously there was a lot of conversation about the state of the world economy, when could one expect it to recover and what forces would influence that rate of recovery.  In the years that followed, we watched as corporations trimmed the fat and consumers got their financial affairs back in order and slowly the wheels of greatest economic engine in the world again began to turn.  At this week’s conference, the overarching focus seemed to be on how long the economy will continue to grow and what rate.

After three days of looking at the data, it appears unlikely that the rate of growth in the three to five years to come will be as great as it was in the three to five years that just past.  There are a variety of reasons for this.  Globally, we are seeing slower growth rates from some of world’s fastest growing economies including China.  Some of this has to do with relatively tighter labor supplies there but demographics are also playing a part as China’s population ages and fewer children are being born as a result of their one-child policy.  Other factors weighing down future economic growth rates include a less accommodative U. S. monetary policy and an unwinding of the U.S. Quantitative Easing programs that were implemented to stimulate the economy, to name a few.  Bottom line; growth rates will likely slow.

So what do we take away from this?  Is it time to stock up on canned foods and head to the basement?  Maybe not.  History has shown us that the economy can continue to hum along at these slower growth rates for many years.  With that said, these factors do influence our asset allocation decisions as well as how we will guide our client’s expectations for future rates of return on their portfolios.  It will also influence our tolerance for taking risk in our portfolios as we consider the risk versus reward for asset classes and the sub-sectors of these asset classes.

What we can take away is that replicating past returns is always challenging but particularly so as the economic cycle matures.  Fortunately, this is not the first time that we have faced this phase of the economic cycle.  The way we see it is, even though there may not be as much low hanging economic fruit,  there is still fruit to be had and we are skilled at finding it.

Marshall Eichenauer, Jr.

Owner and Managing Partner, Sagent Wealth Managment

Case-Shiller: Home prices continue steady march upward

April 30th, 2015

This week the Los Angeles Times reported that home prices continue to rise here in Southern California and elsewhere in the Nation. Denver and San Francisco lead the pack with 10% and 9.8% year-over-year growth rates. The LA metro area came in at 5.8%. This bodes well for the overall US Economy since housing prices greatly influence consumer confidence as well as spending and employment.  To view the entire article CLICK HERE.

April Newsletter: Do you really need a Financial Advisor?

April 1st, 2015

In February of 1993, I started as a green horn financial advisor with Shearson Lehman Brother’s (later to become Smith Barney, the firm that “made money the old fashioned way, they earned it.”)  It was a great time to get started because Wall Street had figured out that people were sick of dealing with “Stock Brokers” who cared more about the commissions than the investments.

In contrast, my training class was one of the first to emphasize a holistic, financial advisor approach to working with clients.  One based first on gaining a thorough understanding of a client’s Assets, Liabilities and Estate Planning needs and then advising them which investments and services were best suited to promote their long term financial well-being.  It’s a great approach and one that I have spent nearly half my life working to perfect.  But it’s not without its detractors.

Most suggest that paying someone for these services is foolhardy since many can do it on their own.  On the surface, this statement is true, many people can do it on their own. But, to do so well, requires far more time than most people can devote.  Not only time to get up to speed, but even more time to stay up to speed.  Let’s face it, the global economy is a big place with a lot of moving parts.  Trying to stay current on a part time basis, often ends in disaster.

In spite of this, the detractors keep coming.  Their latest incarnation is the Robo-Advisor.  Simply answer the 10 questions and the algorithm will select your investments.  Who needs to hire a Financial Advisor when a computer can do the work for you?  George Jetson might be impressed but not me.  Even the devout numbers guys (including myself) understand that selecting investments is part science and part art.

The reason is simple, people invest, not computers. And people and their human emotions are complex (Don’t believe me, just ask your significant other).  Which variety of factors are necessary to entice people to invest is very complex and ever changing. And which straw will break the economy’s back and send investors scrambling? Well, even Alan Greenspan will tell you that’s a hard one to determine.  For this reason, there will always be a human element to investing—a person who gathers the analytical data (the science) but who also studies the economy and gauges the mood of investors (the art) to determine how best to invest.

For our clients, most have seen the value in what we do and for that we are grateful.  And what about the people who have embraced the Robo-Adisor.  Well let’s hope that George Jetson and the people over at Spacely Space Sprockets did a good job with the algorithm.  But I’m not so sure.

Home Sales On The Rise

March 22nd, 2015

Share prices of Home Builder KB Homes soared 8% after a better than expected earnings report.  Chief Executive Jeffrey Mezger said there was more demand from would-be home buyers in the first quarter than a year earlier. The company sold nearly 20% more homes in California last quarter, at an average price of $550,600 — about 5% higher than a year earlier.  As one of the larger home builders in the United States, high demand and higher prices for KB Homes bodes very well for the overall U. S Housing market and the U.S. economy as well.  To view then entire article from the Los Angeles Times CLICK HERE