Recently we have received a number of calls from our clients concerned about the Equifax security breach and how that might affect their accounts with us and custodied at TD Ameritrade. We have enclosed a print-out of information from TD Ameritrade on their top-notch Security Procedures, Systems and Policies. We think it's important for you to see some of the things happening both on the client and advisor side. TD Ameritrade has always done an excellent job staying ahead of all our technological needs, especially in regards to our clients' security issues.
Most importantly, to many of you, is the "Asset Protection Guarantee". That guarantee states if you ever lose cash or securities from your account due to unauthorized activity, TD Ameritrade will reimburse you for those losses. While the topic can be unsettling for many, rest assured that TD Ameritrade and Pearson Financial are doing everything possible to protect your sensitive information.
It's possible that many of you have also read about the "Fiduciary Rule", which has recently been a hot topic in the financial news. Basically it states that advisors should work in the clients' best interest, not necessarily for their own financial gain. Our philosophy here at Pearson Financial Services has, and will always be, to work in the clients' best interest! For us it has never been about selling products that may not be the best option for the client, but may pay significant commissions. Instead, we always strive to offer our clients the best suitable investment choices, at the lowest possible overall cost.
Transparency is another "buzz word" that is getting a lot of press lately. Our business is built on trust, and without your trust we would not thrive as a business. As investment advisors we focus on a holistic approach that covers a low cost, transparent investment plan and those invoice statements you receive each quarter are an example of our commitment to full and "transparent" disclosure.
As the 3rd quarter of 2017 comes to an end, many wonder with North Korea's threats, increased tension between Saudi Arabia and Iran, continued gridlock in Washington, and significant natural disasters (that have early estimates of upwards to $75-100 Billion dollars of damage), how has the stock market shrugged off all of these worries and continued to thrive. Somehow, 2017 has been a year that the stock market has taken everything in stride.
More than a year has passed since we have experienced a decline of 5% or more. This low volatility is something that we haven't seen since the 1990s. We know that volatility will come back at some point, but data reviewed since 1945 shows that even in declines of 5% or more, the market recovered to a breakeven point in an average of four months or less (per data from CFRS-S&P).
A GDP revision for the second quarter of 2017 shows that the economy expanded at a 3.1% rate; with solid employment data, expansion in manufacturing, and consumers in a relatively strong fiscal position. We still have a highly accommodating Fed Policy, a relatively low rate of inflation and continued corporate earnings growth. Aside from some turbulence in the market from unforeseen events, this backdrop bodes well for a recession that still appears to be a number of years away.
The US Stock market, as represented by the S&P 500 Index, is up close to 12%, year to date. International stocks are on track for an even better year, while some emerging markets are on track for their best performance since 2009. We have attached an "Investment Growth Chart" that outlines the performance of some key Vanguard Equity Funds, tracking from January 1, 2017 through the end of September, 2017.
The Fixed income market has been rather subdued. The 10 Year Treasury started the year with a yield of 2.44 % and as of the end September, had a yield that stood at 2.33%. The Federal Reserve Open Market Committee has raised rates by a half of one percent so far in 2017. It appears as though the Fed may raise short term rates again, one more time, by a quarter of a percent point before year end. However, this is dependent on key data points in the coming months and many believe that the back to back to back destruction of three major hurricanes may in fact give the Fed pause in moving again on short term interest rates this year.
We will be watching very closely to see how the Federal Reserve starts to unwind its balance sheet. From November of 2008 to October of 2014, the Fed's balance sheet had grown nearly six fold. The Fed has been keeping liquidity high, with purchasing new bonds to replace maturing bonds. Now it plans to slow down those purchases, (at an initial pace of $10 billion) and instead, increase that amount gradually.
Our investment committee will be meeting to review this unwinding of the Fed's balance sheet while monitoring the impact on overall interest rates. I will touch on this in our year end letter as the process gets underway.
Please keep in mind that asset allocation has always been key in maximizing returns while minimizing risk and we encourage you to make it a point to review your allocation with us at least annually to make sure it still matches your risk tolerance.
In the meantime, if anything at all is on your mind, please do not hesitate to call us.
Wishing you all a wonderful fall season.
Sincerely,
Bryan Bastoni, CFP, TM
P.S.
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