In The News...
There was a new sheriff in town, for a moment.
His name: Jeff Bezos.
Bezos, the CEO of Amazon, had supplanted Bill Gates as the world's richest person following Amazon's earnings release. Amazon's share price rose and Bezos' net worth climbed to $92 billion, narrowly edging the Microsoft founder.
But... by the end of the week, the stock price fell back and Bezos is again #2 in the world.
It is only a matter of time though. Perhaps more impressive than Bezos' meteoric rise is the fact that Gates has been the world's richest man in 18 of the past 23 years (per CNBC). Not only that, but the fact that the two-richest people in the world reside in Seattle (within blocks of each other) is mind-boggling.
Drop that device! Washington State passed a new law that went into effect last week, barring mobile device use while driving. The biggest change, which bolsters the existing law preventing drivers from texting or holding a phone to their ear, is that you cannot even hold your electronic device while driving. On top of that, you cannot eat or do your makeup while driving, either.
The law obviously aims to reduce injuries stemming from collisions. I approve it. Traffic has become horrendous in Seattle as the population has exploded in the absence of additional roads/infrastructure. The traffic is bad enough, but it worsens when people pull out their phones the second they hit a red light or bumper-to-bumper traffic. This legislation will hopefully curb what has been a self-perpetuating problem. Even if traffic does not dramatically improve, it should reduce the number of crashes and injuries.
In The Market...
The S&P 500 was flat this past week. Let's look under the hood...
Stocks: Role-reversal occurred last week, as previously weak sectors such as Energy and Consumer Staples led and stronger sectors (Health Care, Tech) declined. The last two times we saw the S&P 500 stall on a weekly basis like this (In June and March) the following few weeks were flat-to-down, before again chugging higher. We'll see if history repeats itself here, entering what is seasonally the worst month of the year for stocks.
Below in the Portfolios section you will notice that we bought Financials (XLF) and sold Real Estate (VNQ). This might seem funny considering my comments last week about patience. Sometimes things happen quick and conviction rises. That was the case here. Simply put, I believe Financials have a better technical outlook, led by the fact that Financials are knocking on the door of all-time-highs.
Bonds: A down week for conservative bonds (TLT, LQD), but not terribly unexpected given the yo-yo behavior the past few weeks. High-yield bonds were positive on the week, which bodes well for stocks, I believe.
In Our Opinion...
On Wednesday the Federal Reserve opted to leave short-term interest rates unchanged, keeping the federal funds rate at 1.00%. It was the 5th time the Fed has met this year. It would have been the 3rd rate increase this year, had that decision been made.
I always say to ignore the noise around the Fed. The below image typifies why. A lot of investors have grown so obsessed with finding clues within Fed statements and meeting minutes/notes that there are now side-by-side comparisons of current vs. previous Fed statements. Not just general comparisons of tone or major economic issues, but comparing Fed statements word-for-word. Take a look...
The infatuation with the Fed baffles me. It has cooled a bit since the Fed began raising rates in late-2015, but nonetheless, the 24-hour news cycle and continuing narrative that the Fed dictates market returns attracts clicks.
My advice remains the same: Know what is going on but do not let speculation over the direction of short-term interest rates guide your investment decisions.
In Our Portfolios...
(Note: Each client's account is uniquely managed, based on account size and risk tolerance. Your account will only own some, not all, of the investments bought and sold over time.)
I was asked to present to a group of new parents (myself included) this past week, on topics most relevant to financial planning for kids. After soliciting feedback on topics they were most interested in, my talk centered on 3 main areas:
- College savings
- Life insurance
- Estate planning
I realize most of you are not new parents, but many of the concepts within these categories may still apply. In no particular order, here were some takeaways I thought worth sharing...
- Are you helping save toward your grandchild's college savings? If you use a 529 plan (the most popular option) make sure you understand how your eventual account withdrawals will impact, and potentially hurt, your grandchild's financial aid eligibility.
- If you are already saving for college, have you run the math to know that you are saving the right amount to afford the type of school and number of years you want to accommodate? Most do not, which often starts with ignoring the fact that college costs increase 4-5% per-year.
- Are you nearing retirement and in need of life insurance? Check to see what coverage you currently have with your employer, or what coverage you can obtain prior to leaving. It will likely be much more expensive to obtain a new life insurance policy in your 60s than it would to continue your existing policy held through work ("portability" feature).
- If you own a permanent life insurance policy, does it still meet your needs? Do you need less coverage? More? How much cash value is there within the policy?
- If you have a Last Will And Testament in place, how recently have you reviewed it? For example, if family dynamics have changed and you would prefer a different Executor to carry out your wishes post-death, you should update it.
- Do you own a Living Trust? Among other things, a trust helps certain assets seamlessly pass to the intended heir, bypassing what can be a lengthy probate process. It also helps keep your personal/financial matters more private. A trust layers on top of your Will.
- Are estate taxes a concern? The federal limit allows a married couple to pass roughly $10 million tax-free to their heirs, but you may still owe state estate taxes. Right now the WA State exemption is $2.1 million, a much lower threshold than the federal exemption.
What's New With Us?
There are a number of exciting things I have in the works. Sorry for being vague about it, but once I have more detail I will share it.
Have a great weekend!
Brian E Betz, CFP®