While every investor should have their own financial goals and strategies to achieve those goals, 2019 is proving to be a solid year for most of those goals. Investment advisors are quick to recommend investors meet with advisors to best analyze their long-term and short-term financial goals and build those strategies, but that advice doesn’t change the general rules of investment and the condition of the current economy.
“Our most recent discussions ‘We’ve had a great run-up, we’re at all-time highs in the stock market,’ and the general thought in our shops is there is an upside,” said Robert Glaser, vice president and senior director at BNY Mellon Wealth Management. “We still believe the economy is on good ground, but the reality is there won’t be the same growth in the second part as the first part of the year as it continues to be choppy and volatile.”
The first half of 2019 saw the stock market rebound and surpass previous levels following a tough 2018 fourth quarter. Glaser called it the “100-yard dash to nowhere,” in the rebound from the tough finish to last year.
With markets up 8 percent in the first half of 2019, the year has been encouraging to new and veteran investors, said Tricia Beard, Fidelity Investments vice president and branch manager in Henderson. That’s on the heels of the market being down 4 percent last year. There are three ways the market can go the rest of the year, she said.
“The market will go up, down or stay the same,” Beard said. “It’s very difficult to anticipate. That’s why we always encourage people to come in and set up a plan of action.”
The 2019 market surge following the end-of-the-year shock is a good reminder we are in volatile times, said Brian Loy, president of Sage Financial Advisors in Reno. Despite that rough period last year, the stock market is currently four times as high as it was at the bottom of the Great Recession and interest rates are .5 percent above the all-time low.
“It can’t go on now forever, but the neat thing about the equity markets is there’s a permanent upward trend interrupted by downturns and those downturns are when wealth returns to rightful owners,” Loy said. “People get freaked out and sell and that’s when money is made for other investors. It’s important to know that the market will take an adjustment and correction.”
Currently, large-cap stocks — big name companies like Amazon, Google and Apple — are performing well and Glaser says that’s a “scary thing about now.” He said that performance of well-known names has led novice investors to believe they can adequately manage their own portfolios. Eventually, the markets will rotate and asset location becomes important to survey the shift and without the ability to read those signals, Glaser said those riding the large-cap stocks could suffer, or at the very least see dramatically reduced returns.
Northern Trust Wealth Management experts have similar forecasts following the bounce back in the stock market, and have a neutral position for equity allocations, with modest overweight position to US Equities and underweight position to Emerging Market Equities, said Randy Campanale, senior vice president and senior portfolio manager at Northern Trust in Las Vegas.
Campanale also said Northern Trust analysts expect U.S. economic growth to return to a “more balanced pace of 1.9 percent.”
“We do see economic circumstances slowing, but not contracting,” he said. “Red flags now are an unexpected rise in inflation and also trade friction.”
While inflation is close to as low as it can go and there are no foreseen causes for jumps, Campanale said an unexpected rise could pose problems with interest rates.
“Lowering rates is the ‘relief valve’ for markets in a slowing economy and if that relief was endangered by inflation, that could raise risk levels,” he said.
The future of inflation is a great unknown, but a more concrete issue is the growing trade friction between the U.S. and various nations across the globe, particularly China.
“If the friction moves to more elevated levels or escalates to a trade war, that would hurt economic growth and stock markets would take notice,” Campanale said. “We are looking carefully at the effects of trade friction and if that friction is increasing. That reduces confidence for business leaders in their planning for future expenditures and reduces capital spending for plant and equipment. We see that happening now modestly and are watching carefully to see if it worsens.”
The current volatility of geopolitical trade winds is a bit of an issue when it comes to computer trading, as small movements can set the computers off, triggering oversells, Glaser said.
“There’s any number of things that can spook a market,” he added. “Investment markets don’t like surprises. If they see things coming, they remain calm. And the expectation is things will remain calm, but people need to be mindful of the things we can’t see.”
High Wealth VS. Growing
As nearly every advisor will point out, each individual has their own financial goals and with those come different investment strategies. Young professionals have time on their side as they can use their long time horizons to take more risk in their investments in hopes of high payoffs. Campanale has an anecdote he uses to help explain the strategy to clients.
“When I was a young professional, with babies at home, my wife and I bought onegallon plants for the yard and installed them ourselves. Why? Because we sure didn’t have much money, but we did have a lot of time to let them grow,” he said. “Of course, now we buy 10- and 25-gallon plants and have them planted.”
Every investor should preferably have a diversified mixture of equities and bonds, Glaser said. The ratio of that mixture again depends on the personalized goals and strategies of every investor, as more equities generally pose more risk but a greater reward possibility. Bonds result in lower, but steadier payouts.
“Everybody loves risk in their portfolio when it’s going up,” Glaser says. “But when it’s going down, it’s another story.”
To that end, when it comes to personalization, Glaser said it’s important not to compare investment returns to others, as they all vary based on circumstances. A 20 percent return on one portfolio might be the same as a 12 percent return on another based on a variety of factors like taxes.
When it comes to rules for investment, Loy likes to distill guidelines down to three points. An individual should spend less than they earn; know what they own, avoid complex investments; and, take free money when it’s offered — whether its company match or tax benefits.
Loy said a lot of times the first rule is often lost as desire for a certain lifestyle can derail plans. Rather than focused on growing returns, some investors should be more worried about avoiding and cutting down debt. For children’s sake, the best thing to do for them is to provide them college without debt, Loy said.
Loy’s two key questions are “How much can you save?” and “How much will you spend in retirement?” From there, it’s developing an asset allocation plan to help successfully manage a comfortable retirement — if that’s the goal. Other goals could include job changes, buying a home or funding education.
“Personal finance is personal,” Loy said. “It’s unique to everybody. What works for you might not work for me.”
As wealth grows, so too can the diversification. Investors can look at other assets to help grow capital, with real estate being one of the prime examples of an area investors quickly reach for to help diversify portfolios.
“People tend to love real estate,” Loy said. “Some people just hate the stock market, they think it’s the Wall Street casino. Real estate is tangible. You get a monthly rent check and that’s what people like.”
Another factor investors tend to like about real estate, even though they might not realize, is they don’t track the values as diligently as the stock market, Loy said. He said it would likely do plenty of investors good to turn the TV off and stop tracking the day-to-day market fluctuations.
“How does it impact your daily life?” he asks.
In Las Vegas real estate, the beginning of the year started with a bit of uncertainty in interest rate fluctuations, so the commercial real estate market was a tad slow, said Marlene Fujita Winkel, executive director of capital markets at Cushman & Wakefield.
The real estate market is tight now as the strong market incentivizes individuals to sell to recoup gains, but finding a value replacement property poses an issue, Winkel said.
“Quite frankly there’s not a lot of opportunity and not a lot of quality product available,” she said, adding there is an increase in transitioning to single tenant properties for long-term stability. “We’ve gone from a value-add marketplace to a more stabilized market. We were selling properties that were 30 to 50 percent leased and now we’re out in the 80 to 95 percent range. It’s a different buyer pool.”
Winkel said there are remnants of large portfolios being separated by large firms still available, such as the Hines Summerlin portfolio which was purchased in 2012 at 50 percent occupancy. The 23 buildings are leased up and selling off individually.
Real estate isn’t just for high net-worth investors any more either. It’s now easier than ever for investors to find their way into owning chunks of real estate as technology is quickly helping younger generations get into different realms of investment sooner and easier.
Investors of all ages and net-worth are now presented with a plethora of options of where to put their money and how to trade. Like most industries, technology has greatly changed the way investments can be made and watched. From roboadvisors employed by the major firms to apps like Stash, Robinhood and Acorns, that allow users to make their own decisions at the swipe of a finger, the choices are growing. Apps like Stash allow users to buy portions of stock shares, and can help investors familiarize and learn the ins and outs of trading.
Technology has changed the investment game in two primary ways, Loy said. The first is the amount of personal information “hanging out there.” The second is the amount of information and transparency available for investments.
Once seasoned, however, the choices can become daunting, Beard said, as there are 5,500 stocks to choose from — a reason she suggests mutual funds or Exchange Traded Funds, or groupings of similar stocks traded together. Regardless, tech is transforming the future of investment.
“It’s created an environment that’s more convenient,” Beard said. “As demographics change and millennials earn more, they might want to work in a different way, but having an app allows them to trade, look at their accounts, watch lists and send money right there from a phone.
“It really allows for any type of investor and empowers them to do a lot more on their own.”
While the tools at hand allow the investors to work on their own, there are important questions that arise that investors might be best consulting with an expert.
“They certainly help invest, but if I have $100 a month extra, should I invest that or pay down student loan,” Loy said. “It’s like people who go to WebMD and they get some information, but possibly it’s better you go in and see someone who can listen and talk to you personally.”