As financial advisors, we look at a broad range of market and economic forces to form our investment decisions. In our monthly economic report, we take a look at the effects these forces have had on markets nationally and globally during the month. This broader perspective helps us to provide more insightful investment and financial planning advice to our clients. Click Here for report.
Consumers are an integral cog in the American economic engine, but since the financial crisis hit its crescendo, consumers have been under high attack. By most traditional measures, the economy is larger today than any time in our history, but it is hard to argue that consumers are feeling the benefits of that expansion. That said, consumers seem to be taking a new view on debt and spending, all in the name of prudence.
With the benefit of hindsight, virtually everyone can agree that consumers came through the mid-2000s with too much debt, and too little concern about how to pay that debt. Measures such as the household debt service ratio, which measures debt payments on mortgage and consumer debt, reached record highs, nearly hitting 14% in the third quarter of 2007. The good news is that those figures have actually fallen faster than they rose.
Since 2008, the debt service ratio has fallen nearly 3 percentage points and stands at levels last seen in the mid-1990s.
As consumers started to feel mildly better about the economic outlook and about their personal financial situations, they naturally began spending more money.
Throughout 2011, for instance, consumer spending posted a 2.2% gain, after rising a similar 2.0% in 2010. However, those gains are largely coming from a drawdown in savings as opposed to wage growth. After peaking at above 7%, the personal savings rate has steadily declined over the past two years and fell as low as 3.5% in November before a slight rebound in December.
One of the primary reasons consumers have been reticent to spend has been a simple lack of sustained wage growth. In recent months, wages have bounced around in a volatile fashion, falling over the summer, before jumping in the fall and weakening again as winter approached.
Consumers have at least one reason to be optimistic. Labor markets are inching toward definitive improvement for the first time since the recession ended. Initial claims for unemployment benefits have consistently tracked below 400,000 since early November, the longest such period since mid-2008.
Consumers are in better shape than 2007-08, be it from “strategic defaults” or through intentional efforts to act responsibly, but there remains a long way to go to reignite such a vital cog. The good news is that labor markets are gradually thawing, and such improvement should lead to higher wages and better employment prospects.
Glassman Wealth Services was ranked in the top 10 nationally of RIA “Practices to Watch” by Financial Planning Magazine. Read more about our Awards and Accolades.
As financial advisors, we look at a broad range of market and economic forces to form our investment decisions. In our monthly economic report, we take a look at the effects these forces have had on markets nationally and globally during the month. This broader perspective helps us to provide more insightful investment and financial planning advice to our clients. Click Here for report.
With France and Austria being the latest countries downgraded by Standard and Poor’s, from AAA to AA+, it doesn’t help that Europe has a $39 trillion and growing pension problem. In a recent Businessweek article by Rebecca Christie and Peter Woodfield, they point out a few sobering facts:
Our own debt crisis infographic shows that public debt in many eurozone countries has already reached unsustainable levels.
Tough Medicine Ahead
As populations age and birth rates decrease, countries will have to make some difficult adjustments.
Little doubt remains that public and private sector workers will have to accept changes to their retirement benefits, and share more of the burden in the years and decades to come.
Fortigent, the independent investment, research and financial reporting firm we have partnered with since our inception announced this morning that they are being acquired by LPL Financial. LPL is purchasing 100% of the company from the current owners, Lydian Trust, Affiliated Managers Group and Fortigent management.
During a call with a Fortigent managing director, Barry Glassman, president of Glassman Wealth Services learned of the pending merger and expressed his support of the deal.
“They told me that it is very important to the leaders of Fortigent to keep Fortigent as Fortigent,” said Glassman. “Based on conversations I’ve had with them leading up to the deal, I anticipate that what we enjoy most about working with Fortigent should not change.”
Glassman Wealth Services is among the few elite advisors who allocate significant resources for the considerable and comprehensive investment research and due diligence services offered by Fortigent. In addition to harnessing the expertise of their investment specialists who filter the vast universe of investment ingredients, we respect, and have come to rely on their thought leadership in formulating the recipes that are our client portfolios. In short, they help us to remain on the forefront of investing for our clients.
Fortigent claims that the acquisition will allow more resources to be available at a faster pace, and that advisors will see greater customization. 2010 seemed to be a year of introspection for the firm, and 2011 was a “full-court press” to address their findings. Our hope is that with LPL’s resources, more of Fortigent’s strategic wish list, and therefore ours, will come to fruition in 2012.
When investing, we certainly take into consideration economic conditions and the political landscape, however, our Historical Returns Chart reminds us why we maintain a long-term investment perspective. Over the past 15 years, the previous years’ winners may become the next year’s biggest losers. Click on chart to enlarge.
Individual investors continue to move out of stock and stock funds and are now heavily underweight equities in favor of bonds according to the American Association of Individual Investors. Allocations to stock and stock funds fell 3.4% to 53.1%, while allocations to bonds and bond funds increased 2.3% to 21.3%. The remaining 1.1% found its way to cash, which currently stands at 25.7% weight.
Growing pessimism is also reflected in recent mutual fund flow data from the Investment Company Institute (ICI). In the past six months through October, investors pulled $122 billion from equity mutual funds, with nearly all of that coming from domestic equity funds. Foreign equity funds experienced outflows of “only” $7.5 billion.
Naturally, money is flowing into the relative safety of cash and fixed income funds. During the same six-month period, bond funds picked up $61 billion. Bonds continue to receive favorable treatment from investors, despite the fact they allocated more than $620 billion into bond funds in 2009 and 2010.
November is proving no different. Another $12 billion fled equity funds through November 22, while $20 billion found its way into fixed income funds.
Interestingly, Institutional investors and asset managers gradually became more optimistic and are taking a slightly different tact. Despite market volatility and headline risks, a Reuter’s poll of US asset managers found the average allocation to equities increased 2.6% to 63.7% in November. Bond allocations shrank 2.7% to 29.3% during the month.
They may have cause to be optimistic. Data from the Stock Trader’s Almanac shows that December is the single best month of the year for the S&P 500 since 1950, and the second best month of the year for the DJIA. With an average gain of 1.7% for both indices, holiday cheer appears to overtake the markets and encourage a holiday buying spree.
Only time can tell if this will be another holiday season to celebrate. Given the typically inaccurate positioning of individual investors and ability of institutional investors to position ahead of rallies, it may be time to bet on black this holiday. Of course, the lingering crisis in Europe does little to soothe frayed nerves this year, so investors not prepared to endure the volatility should probably watch this one unfold from the sidelines.
As financial advisors, we look at a broad range of market and economic forces to form our investment decisions. In our monthly economic report, we take a look at the effects these forces have had on markets nationally and globally during the month. This broader perspective helps us to provide more insightful financial planning advice to our clients. Click Here for report.
Jessica Ness, Client Advisor and Director of Financial Planning for Glassman Wealth Services recently shared her retirement planning tips with Mark Miller, retirement columnist for Reuters.
“Rebalancing puts an automatic buy-low and sell-high methodology to work because you trim asset classes that have grown in size and you contribute to asset classes that have shrunk.”
Click HERE to read the entire story.
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