Tag: recession

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Charlie High Income Pilots Retirement Mistakes

Trust Your Instruments, Not Your Gut, When it Comes to Flying AND Investing!

​As a brand-new pilot, one of the first things you learn is how to mitigate the risk of the potentially deadly physiological phenomenon known as spatial disorientation or spatial-D. In pilot speak, spatial-D is when your body is telling you one thing and your flight instruments (and airplane) are telling you something completely different. Sadly, spatial-D has claimed the lives of many pilots.

In this video, one of our newest Leading Edge team members and previous Marine F/A-18 fighter pilot, Mark Covell discusses just one example of spatial-D.  Mark shares how carrier pilots tend to feel like they are pitching up as they are launched off the carrier at night due to the massive acceleration from the catapult. During daytime, VFR conditions this is probably a non-issue. However, in weather, or at night, this type of spatial-D is potentially deadly.

What does spatial-D have to do with investing and retirement planning? Personally, I feel like all of 2020 could be compared to being catapulted off a carrier at night and not knowing what is up or what is down.

During the heat of the battle from February until the markets settled a bit in early April, investor emotions were all over the place. Years of stock market gains evaporated in days, even hours. Furthermore, many people thought, and the news media quickly suggested we were headed for the second Great Depression. And don’t get me wrong, anything was (and is) possible. Sometimes, the unknown can be truly scary.

One slightly humorous example of investor spatial-D was early in the pandemic when the shares of ticker symbol ZOOM shot up due to investors buying up shares as quickly as possible. Zoom Technologies, a so-called penny stock had risen more than 240% in the span of a month before the SEC suspended trading. Unfortunately, the traders failed to realize the ticker symbol ZOOM did not represent the Cloud Video Conferencing company Zoom they thought they were purchasing – Ticker symbol ZM.

Here is the headline from MarketWatch.com dated February 27, 2020.

In the airplane, pilots must fight spatial-D by cross-checking and TRUSTING their instruments. If, as an investor, you did not trust your instruments during 2020, it may have been very costly.

So, it’s a dark night and the weather is terrible.  What are the instruments you trust?  What is your primary and backup instrument? Here are four instruments that I think can save your investments as well as your financial sanity during uncertain times…

1. Cash reserves – Emergency Funds.

    • Having extra cash can prevent withdrawals from retirement accounts or excessive credit card debt in emergencies.  Studies also show having cash in a bank account makes people happy. In an article posted on PYMNTS.com,  “Can Cash Really Make You Happier”, Joe Gladstone, research associate at the University of Cambridge in the U.K. and co-author of two recent studies about money and happiness said,

“We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth,” Gladstone explained. “Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.”

2. Have a working knowledge of financial history.

    • You don’t have to be an expert or financial historian, but I believe being familiar with financial history is akin to training before you go on a flying mission.  Pilots call this chair flying.  Athletes and musicians use a technique called visualization that helps them prepare for uncertainty and reduce anxiety for a sporting event or concert.

3. Admit that times are scary, and you do not know what’s going to happen.

    • This may sound silly, but I’ve seen many people get themselves into a “square corner” because they assumed that something was going to happen when in fact there was no indication or possible way of knowing what the future may hold.  We have heard investors say “my gut tells me…” many times.
      • Some of the best investors in the world invest with the mindset of preparing to be wrong. That’s why diversification is not popular or “sexy” because it’s like admitting you don’t know what’s going to happen in the future, so you must prepare for multiple scenarios.  However, diversification can feel disappointing but prove to be a profitable strategy over the long term.

BlackRock Investment Management Company posted the graphic below on their investor education website about diversification and “S&P Envy” over the last 20 years.

4. Prepare and Plan by having a clear vision of your goals and priorities.

    • If you don’t understand the “why” behind your investments as well as why you’re investing and saving in the first place, you will most likely bail-out of your plan during difficult and uncertain times.  Changing your investment plan mid-crisis creates a very high likelihood that your investment returns will be significantly lower.
    • Simon Sinek started a movement by encouraging businesses to “Start with Why.” It’s a powerful mindset that leads to trust, inspiration and success.  I believe the same applies to your financial and investment game plan.

5. Remember that you are invested in companies – not politics.

    • Sometimes our politics clouds the investment and retirement planning picture.  This rule falls under the axiom; “control the controllable.”  If you’re allowing your politics to affect your investment game plan than you may want to see rule number 2 above.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 12/09/2020 and are subject to change at any time due to the changes in market or economic conditions.

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Luck and Airline Pilot Retirement

Luck and Airline Pilot Retirement

How much does luck have to do with building a successful retirement nest egg?  Consider what would happen if immediately following your retirement there is a recession.  Talk about bad luck!  Unless… you planned for it.  

At Leading Edge we plan under the assumption that a recession may happen at the time of your retirement.   In this video, Charlie and Kevin discuss how to run your plan through a financial simulator in order to forecast what your financial picture might look like if the market turns south when you turn 65, and discuss what you can do NOW to insure against a “bad luck” scenario.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 07/20/2020 and are subject to change at any time due to the changes in market or economic conditions.

December 9, 2020

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Charlie Education Kevin Video

The Shape of Economic Recovery

The coronavirus has wreaked havoc on our financial markets. Now that we are settling into the chaos many economists are starting to predict what shape the recovery might look like; V, U, W, L, etc. What do those letters mean? And does it even matter HOW the economy recovers, as long as it DOES indeed recover?

Kevin walks you through how those letters represent the different recession models and how each could affect your financial plan.

We love getting your questions. Let us know what topics you would like us to cover. 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 04/21/2020 and are subject to change at any time due to the changes in market or economic conditions.

December 9, 2020

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Charlie Education Kevin

5 Things You Can Do to Prepare for This Bear Market

Who could have imagined we would start with the spread of a virus, add in some political election turmoil, and now we have an OPEC price war.  Wow!

Although we can’t control viruses and oil price wars, there are many things we CAN do to prepare for this bear market or recession.  Here are five things to do in order to not freak out and bring peace to your financial life:

1. STOP WATCHING THE NEWS AND START READING IT.

It’s important to be informed.  However, the 24-hour news cycle, selling fear and anxiety, is at an all-time high. Instead of watching TV or sensationalized videos, read your news from reputable sources. This will help reduce your emotional reaction while helping you stay knowledgeable and informed. Call us if you would like suggestions of reputable sources.

2. EVALUATE YOUR PERSONAL BUDGET & BALANCE SHEET.

For those of you that have very low debt and a sufficient emergency fund, you can rest easy.  Even if you’re laid off or furloughed you will have sufficient cash to prevent you from raiding your retirement funds.  If this is not you, consider the following:

● Develop a spending plan to eliminate all short-term, high-interest debt as soon as possible.
● Refocus your spending on necessary items only.
● Increase your emergency savings through automatic payroll deductions.
● Avoid new purchases unless cash is available.

3. CONSIDER A REFI ON YOUR MORTGAGE.

A good friend, and client, recently refinanced his mortgage to a 15-year 2.56% interest rate. This past week we saw mortgage rates fall to the lowest level in almost 50 years. That’s a game-changer for retirement planning!

4. STAY IN THE FIGHT.

You don’t have to be invested in 100% equities all the time, but staying in the market in some capacity is required to capture the long term market gains that are available to all of us.  It’s been shown that leaving the market only to return later may diminish your returns significantly.  In fact, if you miss out on just a few of the positive days in the market, your long-term stock averages could suffer tremendously.  You have to manage risks in the stock market – not avoid them completely.

 

The chart below shows how $10,000 invested in the S&P 500 index, for the 20-year period of 1999 through 2018, would have performed under various scenarios.

5. FOCUS ON YOUR GOALS & YOUR INVESTMENT TIME HORIZON.

Remember, the money you will need in one to five years is not at risk in stocks.  It’s only a paper loss until you sell the stocks. You wouldn’t sell your house or rental real estate property just because the price declined so why would you sell your stocks?  Furthermore, more conservative portfolios recover faster from downturns than aggressive ones.  For example, according to Charlies Schwab, a portfolio with more than 70% stocks and the rest in bonds took more than two years to recover from the 2008 financial crisis, compared with just seven months for a portfolio with more than 70% in bonds and the rest in stocks.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 03/12/2020 and are subject to change at any time due to the changes in market or economic conditions.

December 9, 2020

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Charlie Education Kevin

2019 Year-End Investment Report

We have just completed the final quarter, not only of the year, but also the decade, so it’s as good a time as any to reflect back on the market behavior for the past year, and also for the past 10 years. The short version is that we have experienced a bull market for the entire ten-year period, with no -20% bear market periods and only a few 10% corrections since June 2009. People who record the history of the markets will remember that the investors of the 2010s participated in the longest bull market in American history – a totally improbable event considering that the decade came right after one of the most dramatic market setbacks in modern times.

Also worth noting is how the predictors of doom were once again totally off-base. When the Federal Reserve Board stepped in to stem the worst of the Great Recession, there were widespread cries that the Fed was “printing money” in a way that would lead to massive inflation and/or the bursting of a stock market bubble. Today, an expansionist Fed is routinely criticized for being too tight, rather than too loose. Inflation, meanwhile, has ranged from 0.7% to 2.1% – which hardly signals a crisis. If you’ve noticed any bubble-bursting in the equities markets, please help us find it.

By any measure, 2019 was a remarkable year for investors – and who could have guessed? Stocks went on sale in December 2018, and many were predicting that the bearish trend would continue through calendar 2019. But investors who took advantage of the lower prices or stayed the course saw well-above-average gains almost literally across the board. The markets went on sale again in August when there were reports of a very slight inversion of the yield curve in the bond markets which (it was widely reported) signaled that a recession was on the near horizon. Those rumors turned out to be false and the yield curve–that is, the difference in bond rates between short-term and long-term issues–had subsequently steepened.

A breakdown shows that just about every investment asset was up strongly in 2019.  The Wilshire 5000 Total Market Index — the broadest measure of U.S. stocks — gained 9.08% in the 4th quarter, finishing the year with a hefty 31.02% gain.  The comparable Russell 3000 index was up 25.52% for the year, and has gained an average of 11.83% for the decade of the 2010s.

 

Looking at large cap stocks, the Wilshire U.S. Large Cap index gained 9.09% in the fourth quarter, providing a 31.51% return for the year.  The Russell 1000 large-cap index finished the year with a similar 31.43% gain (averaging a 13.54% gain over the last 10-year period), while the widely-quoted S&P 500 index of large company stocks gained 8.53% during the year’s final quarter and overall finished up 28.88% in calendar 2019 – narrowly losing out to the decade’s best yearly gain of 29.6% in 2017.   Over the last ten years, investors in the S&P 500 saw annualized gains of 11.22% in the value of their holdings.

 

Meanwhile, the Russell Midcap Index finished the 2019 calendar year up 30.54%, averaging 13.19% a year for the decade.

 

As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies posted 9.01% gains in the final quarter, to end the year with a 26.21% return.  The comparable Russell 2000 Small-Cap Index posted a 25.52% gain in 2019.  

 

Even the foreign markets were generous to investors this year. The broad-based EAFE index of companies in developed foreign economies gained 7.81% in the final quarter, and ended the year up 18.44% in dollar terms. However, the past ten years have not been the best times to invest in international stocks; the index recorded an annualized gain of just 2.57% over that time period.  In aggregate, European stocks were up 20.03% in 2019, while EAFE’s Far East Index gained 15.46%.  Emerging market stocks of less developed countries, as represented by the EAFE EM index, were up 11.36% in dollar terms in the fourth quarter, giving these very small components of most investment portfolios a 15.42% gain for the year.  However, their 10-year track record is not enviable: up just 1.20% a year for the decade.

 

Looking over the other investment categories, real estate, as measured by the Wilshire U.S. REIT index, posted a 1.14% loss during the year’s final quarter, but it finished the year with a 25.76% gain.  The S&P GSCI index, which measures commodities returns, gained 8.31% in the 4th quarter, to finish the year up 17.63%.  Looking back, however, commodities returns dramatically lagged U.S. stocks over the past decade: the total return for the commodities index overall was a negative 5.44%.

 

In the bond markets, coupon rates on 10-year Treasury bonds dropped almost a full percentage point, year-on-year, to stand at 1.75% at year end.   Similarly, 30-year government bond yields have fallen from 3.01% at the beginning of the year to 2.38% coupon rates today.  Five-year municipal bonds are yielding, on average, a meager 1.14% a year, while 30-year munis are yielding 2.15% on average.

 

It’s hard to overstate how unusual this long bull market has been in investing history.  Bear markets tend to occur about every 3.5 years, and the previous record was 9.5 years from November 1990 to March of 2000.  However, we still have a ways to go to match the 418% that was achieved in the 1990s.

 

Longer-term, it is certain that we will experience a recession, but no person alive can predict the hour or the day.  Most economists are reluctant to predict an economic downturn when unemployment is at record lows and the slow-growth economy is chugging along with a 2.3% gain in 2019.  2020 might see a recession or at least a slowdown in growth if there is another trade conflict with China, and a shift toward rising interest rates could drive up the cost of debt servicing for corporations that are highly leveraged.  Nobody knows where the Presidential impeachment process will go from here.

 

At the same time, dramatic increases in domestic oil production has lessened the possibility that the economy will experience an energy recession, and healthcare cost increases have moderated over the course of the decade.

 

Similarly, nobody can predict when or how the bull market will end, how deep the coming recession or bear market will be, or, really, anything other than the fact that all past downturns were followed by upturns which took the markets and the economy to new heights.

 

We love hearing from you!  Please don’t hesitate to call or email if we can help you, 865-240-2292.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 01/10/2020 and are subject to change at any time due to the changes in market or economic conditions.  This article was written by a guest author.

Sources:
Wilshire index data
Russell index data
S&P index data
Nasdaq index data
Morningstar
International indices
Commodities index data
Treasury market rates
Bond rates
Investors.com
Miami Herald
New York Intelligencer
PWC
Focus Economics
MSN

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Charlie Education Kevin Video

The Next U.S. Recession

Bloomberg recently published its recession probability model. The model states that as of November 2019, the chance of a recession in the next 12 months is 26%. That sounds okay but what about this? The chances of NOT having a recession are 74%. Now that’s a pretty great number! But is this predictive model a function of the latest stock market performance or does it have real predictive power?

The stock market has performed nicely in the last few months as well as year-to-date. No wonder no one is talking recession at the moment. But the truth is, the exact timing of the recessions and market downturn is unknowable. In fact, we may not even know we’ve had a recession until it’s nearly over.

In this video, Charlie discusses the only surety is that we WILL have a recession sometime in the future and trying to follow the advice of prognosticators to determine when it will happen can be an expensive mistake. Ask anyone who pulled their money out of the markets in January 2019 because of the inverted yield curve. Now that’s a good predictor of recessions, right?

 

To view the recession tracker visit: Bloomberg, U.S. Recession Chances Inch Down to 26% Within Next 12 Months

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 12/04/2019 and are subject to change at any time due to the changes in market or economic conditions.

December 9, 2020