2016 began with a thud and ended with a bang. After one of the worst-ever starts to a year, U.S. stocks managed to rebound and ultimately finish the year with solid gains. Much of the rise came in the final few weeks of the year, following the surprising results of the U.S. presidential election. Indeed, there has been an abrupt change in market sentiment, and asset prices have largely taken their cues from a recalibration of economic expectations in the wake of the surprising Trump victory and Republican sweep of Congress.
The election result came as a surprise to many and caused some uncertainty in the markets overnight. Many investors are wondering how all of this impacts their portfolios and if they should be making any changes.
The main reason people renounce their U.S. citizenship is to take advantage of lower tax burdens abroad, but the growing unease with U.S. politics might also be contributing to a record number of Americans who are renouncing their citizenship and surrendering their passports. While we don’t recommend this to our clients, we have received questions about the financial pros and cons of leaving behind one’s U.S. citizenship. In the interest of keeping you fully informed, we sat down with Raoul Rodriguez, a Pinnacle Wealth Manager and resident expert on expatriate issues, to discuss the question.
The third quarter was a fairly placid one for investors, though there was major diversity in return profiles depending on what asset class, sector, or country one was invested in. In the U.S., the leading sector was clearly technology stocks, while elsewhere, Japan, Emerging Markets, and European stocks also had positive returns for the quarter. Within fixed income, the broad bond market indices slowed down and posted flat returns, though credit related sectors performed well along with other risk assets. Commodities brought up the rear in the third quarter, as they cooled off from their torrid run in the first half of the year. Summing it up, returns by asset class were mixed, but most investors in globally diversified portfolios enjoyed modest gains during the period.
With the third quarter in the books, the focus now turns to assessing prospects for the fourth quarter and beyond.
On September 19, 2016, S&P Dow Jones and MSCI, Inc. added a sector for Real Estate. Up to this point, REITs have traditionally been considered a sub-industry and part of the Financial sector, but as of the market close on August 31, 2016 (and effective September 19, 2016), they were split from the Financial sector and moved to their own sector (with the exception of Mortgage REITs). This should not be a surprise for investors, as the change had been announced by index providers, S&P Dow Jones Indices and MSCI, back in March 2015.
After a tumultuous first quarter, the second quarter brought some relief as most assets were able to rebound to varying degrees. From a big picture perspective, U.S. stocks have been oscillating in a wide range that dates back to the fourth quarter of 2014. In other words, for the last year and a half, stocks have made almost no upside progress, while being subjected to several brief but vicious selloffs. This type of choppy, sideways action is frustrating for both bulls and bears as long as stocks remain within the current range. Global stocks are in a much more precarious state, with only modest recoveries that left many markets still well below their highs of a year ago (or longer).
This morning we awoke to the historic news that Britain has voted to leave the European Union. Given that markets had positioned for a vote to stay in the union, this decision has produced shockwaves through global markets. Given this news, we have outlined our thoughts regarding this historic day and what it may mean for the market and our portfolios.
The beginning of 2016 started in an emotional frenzy, as world markets dropped sharply out of the gates on fears of a sputtering world economy, plummeting commodity prices, a stubbornly hawkish Federal Reserve, and a decelerating earnings backdrop. The violence of the move in January was stunning, and by early February the number of world markets that had fallen more than 20% from their highs clearly argued that a bear market across the globe was taking place. But with share prices falling so fast, gloom quickly took hold and set the market up for a rally off the lows. What has unfolded since mid-February is a rally to the upside that has been just as violent and abrupt as the drop in markets that preceded it. The genesis of the rally was likely too much short term pessimism and oversold conditions, but it was also aided by more European central bank intervention and a Federal Reserve that was forced to pull back some of its hawkish rhetoric.
Is a portfolio worth $500,000 a lot of money for retirement? How about $1 million? What if you’ve saved $5 million? I get asked this a lot, and I find it helps to reframe the question: Is $2,000 a month a lot of money? What about $5,000 a month? Or $10,000?
When you look at it this way, you probably already know your answer. That’s because we generally conceive of wealth in terms of current income and not assets. Think about it: We pay income taxes and see our tax withholding on every pay stub, and we routinely deal with monthly bills and expenses that must be paid with current income.