Financial advisors in Troy NY

As represented by the Bloomberg U.S. Aggregate Bond Index, returns over the past decade in fixed income can be described only as abysmal. The average annual return of the fund that tracks this index, the iShares Core US Aggregate Bond ETF (AGG) has been less than one percent. However, in part, this low interest rate environment which we appear to be exiting has also been partially responsible for the outsized returns in the equity markets as over the past decade the S&P 500 (SPY) has returned an average in excess of eleven percent.

Excluding expenses, a portfolio with a weighting of 60% in the SPY and 40% in AGG would have returned approximately seven percent per year. This assumes returns of 11% and 1%, respectively. To achieve that same return in today’s environment, with interest rates on U.S. Treasuries (fixed income) hovering near four percent, the average annual return of equities (SPY) must only be at or above 9.33%.

Moreover, in order to maintain their standard of living as well as principal over a full economic cycle, many retirees project to take annualized distributions of five percent on their principal balance. Over the past decade that individual would have had to have had 76.67% of their portfolio invested in equities. Today, with the rise in interest rates, that percentage could be reduced to 56.66%.

If history is any guide, it appears as if the TINA (There is No Alternative) era is over, at least for a while. Upon doing some research we found that since 1950 the average interest paid on the 10-year U.S. Treasury Note has been above four percent 75% of the time.

The conclusion in regard to the above is that over the next decade investors can expect to extract a larger percentage of their total return from the fixed income component of their portfolio. Savers are finally being rewarded.

Keep in mind that when retirement planning, the negative impact of inflation must be considered.

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According to a weekly survey from the American Association of Individual Investors (AAII), sentiment (a contrarian indicator) remained decidedly bearish at above sixty-percent of respondents for the second consecutive week. Within the report it was noted that “bearish sentiment has only been above 60% four other times prior to last week and this week. Those dates were August 31, 1990 (61.0%), October 19, 1990 (67.0%), October 9, 2008 (60.8%) and March 5, 2009 (70.3%).

Historically, the S&P 500 has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500. The S&P 500 has underperformed following periods of below-average neutral sentiment, though the link is weaker.”

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Bad news for Nike is most likely good news for inflation as the shares of the footwear and athletic/athleisure apparel manufacturer slumped Friday after the company met earnings, but saw its inventory rise 44% to $9.7 billion. Nike blamed the bloated inventory numbers on supply chain disruptions. To that we would add a consumer that has transitioned from a stay-at-home environment, one where a lot of time was spent online making purchases to one in which they are getting out and doing things. Either way, we believe that Nike will have to severely discount their wares which should help reduce the level of inflation over the next quarter or two. This weak retail environment echoes that of Target and shipping giant FedEx.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained

therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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In a continuing effort to quell inflation through reducing aggregate demand, the Open Market Committee (FOMC) of the Federal Reserve, the body that dictates monetary policy, raised its target Federal Funds rate by 0.75% to 3.00%. This marked the third consecutive 75 basis point increase and the fifth overall. The prior two hikes were 50 and 25 basis points on May 5 and March 17, respectively.

Furthermore, in a policy known as Quantitative Tightening (QT), in addition to raising rates the Fed has increased the amount of U.S. Treasuries and Mortgaged-Backed Securities they will let sunset monthly to $95 billion, a further headwind to economic growth.

Within the policy statement released immediately after the two-day meeting, the Fed observed that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and ware weighing on global economic activity. The committee is highly attentive to inflation risks.”

Fed Chair Jerome Powell reiterated these hawkish tones during the ensuing Press Conference, noting that “my colleagues and I are strongly committed to bringing inflation down to our 2 percent goal. We have both the tools we need and resolve it will take to restore price stability on behalf of American families and businesses.”

The above paragraphs represent the Fed’s blunt instruments within their toolbox available when adjusting the pace of economic growth. They include adjustments to interest rates, purchasing or selling debt of the U.S. Government and jawboning.

We are quite concerned that after pursuing a historically loose monetary policy far beyond what in hindsight proved necessary, in an effort to balance supply with demand, the Fed is now continuing to stomp on the brakes of an already slowing economy. Unfortunately, the Fed has little impact on the international supply chain or upon the war levied upon Ukraine by Russia. This therefore leaves the bulk of their efforts surrounding the destruction of demand.

Look no further than the twenty percent year-over-year decline in the Sales of Existing Homes or the fourteen percent decline in issuances of Building Permits as evidence of the slowing of what was a red-, too-hot housing market. A slowdown was indeed appropriate. That said, perhaps the Fed has gone too far. Enough is enough.

We believe that it is time to relax the jawboning and begin to measure the impact of the policy adjustments to the economy rather than to rush headlong into further demand destruction thereby risking a hard landing.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it

also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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As professionals, each with over thirty years in the financial services industry, it is disheartening to periodically hear of embezzlement, fraud or some other criminal activity that destroys the wealth of an individual or a business and the reputation of this industry. That said, like any industry, there are those that scheme to take advantage of the unwary and sometimes find at least temporary success. Keep in mind that the vast majority of men and women practicing in this industry are honest, trustworthy, hardworking individuals. However, as the old saying goes, it takes just one bad apple to ruin the whole barrel. However, given the periodic occurrences of malfeasance, we thought it timely to write this article, hoping to identify some steps the reader might take to prevent bad things from happening to their portfolios.

Step Number One – your monthly statement (or quarterly, if applicable) as well as tax information should come directly from the custodian and not from the advisor. Some examples of custodians are Charles Schwab & Company, Wells Fargo, JP Morgan Chase and Merrill Lynch. If you are receiving this information ONLY from the advisor, this is a red flag.

Step Number Two – the custodian should be different from the broker. Make certain they are not one and the same. As an example Bernard L. Madoff and Bernard L. Madoff Investment Securities were one and the same. Once again, a red flag.

Step Number Three – Generally speaking, invest only in easy to liquidate, transparent, marketable and publicly traded securities. As a general rule, do not invest in private placements or securities whose price you cannot look up online to determine the market value. Do not invest in penny stocks unless you are speculating (like going to Las Vegas). This is not the path to wealth, but to financial ruin.

Step Number Four – Periodically check your account online on a website that is provided by and maintained by the custodian, not the advisor. Once again, this provides a firewall that protects your assets. The value will most likely rise and fall with the markets. However, at least you know what is stated on the website as your value is the actual value. Similarly, investments do rise and fall in value. Be wary of those whose value remains static.

Step Number Five – Always make checks payable to the custodian. Never make a check payable to the advisor. Enough said.

Step Number Six – Check for discrepancies. The statement from the custodian should reconcile with that from the advisor. Errors could be genuine or perhaps something less than genuine.

Step Number Six – Be careful of pushy salespeople or those promising high investment returns. We agree with a paragraph in a pamphlet prepared for FINRA (Financial Industry Regulatory Authority, Inc.) by Lightbulb Press that notes “if you’re trying to get rich quick, there’s probably someone out there who’d be happy to sell you a scheme that sounds like the answer to your dreams. Making a killing on a ‘hot’ investment is not key to a successful strategy.”

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial

advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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