Glassman Wealth Services LLC

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:

• State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt.
• Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities.
• Economic output devoted to spending on retirement benefits is projected to rise by a quarter to 14% by 2060.
• Europe has the highest proportion of people over 60 years old in the world.
• With life expectancy in Europe rising at a rate of 5 hours per day, the number of people over 65 in the 34 countries in the Organization for Economic Cooperation and Development is forecast to more than quadruple by 2050.

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.

• Increasing the retirement age and decreasing benefits for workers.
• Governments may have to take on more investment risk to grow their pension assets, but this could backfire as hot investment sectors move from boom to bust.
• Move pension liabilities from government-funded programs to making employees responsible for their own retirement through employee-funded accounts.

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.

I had a conversation recently with John Waggoner, the personal finance columnist for USA Today where we talked about the assumptions that many people still make about retirement, such as retirees will spend less money in retirement (they don’t), they can safely withdraw 4%-5% each year for living expenses (it depends), and the need to diversify investments and save more (always a good idea.)  To read the entire article, click HERE.

Last week, the International Energy Agency (IEA) released its 2011 world energy outlook. The IEA painted a dire picture for the global energy outlook, showing an increasingly stressed oil market where production is simply unable to match growing demand from emerging economies.

Among the key findings, the IEA projected that global energy demand will increase by one-third between 2010 and 2035, with oil demand, in particular, rising from 87 million barrels per day (mb/d) to 99 mb/d during that timeframe. Unsurprisingly, the two biggest drivers of demand growth will be China and India, which the IEA expects will account for 50% of demand growth.

Demand growth is generally a good thing, as it means goods and services are in need. In the case of crude oil, however, production is struggling to keep pace. Crude oil supply is expected to grow marginally in the next 25 years before beginning a steady decline. Even more problematic, production capacity of 47 mb/d is needed during that time to offset reduced production in existing fields.

Without an alternative to crude oil, nations around the globe run the risk of becoming ever more dependent on volatile regions such as the Middle East and North Africa.

Not only is oil becoming scarcer, but the cost of production is set to rise quickly in regions like Latin America, where extraction techniques are becoming more intricate. All of these factors will influence oil prices and consumer behavior in the coming decades.

Yet, humans are nothing if not innovative in their time of greatest need. In recent years, an abundance of natural gas has been located in various regions of the world, including right here in the US. This led the IEA to go as far as dubbing this the “Golden Age of Gas.”

The shift to a world of natural gas will not be easy. In order for natural gas to fulfill its potential, the IEA estimates that $9.5 trillion of infrastructure investment will be necessary over the next 25 years. That is a staggering sum in any environment, much less one where global governments are implementing harsh austerity measures and slashing spending. 

Lost in all the discussion about sovereign crises in Europe and “super committees” in the US is the simple fact that emerging economies continue to expand rapidly. A burgeoning middle class in emerging economies is demanding modern amenities and lifestyles that offer distinct challenges to what are everyday staples in developed countries. Crude oil demand is a perfect example and one that requires serious policy actions if we are to avoid another crisis in the not so distant future.