Returns

With 3Q17 officially in the books let’s take a look at where the markets stand. Coming into the week, as of Monday October 2^nd US Stocks as measured by the S&P 500 were at +14.24% YTD, trailing their international developed and emerging counterparts thus far. International developed stocks as measured by the MSCI EAFE are at +20.47% YTD, and emerging markets are at +28.14% YTD as measured by the MSCI EM.

Valuations

Stocks do not look irrationally overbought in historical terms. US stocks are slightly about their long-term averages with a forward P/E of $17.70, and international stocks are below their long-term averages. International developed stocks have a forward P/E of $14.76 and emerging market stocks have a forward P/E of $12.51.

Growth & Profits

The final estimate for US 2Q growth is 3.1% annual rate which is the quickest pace in more than two years. US companies are showing 18.6% year-over-year operating EPS growth based on 2Q reporting.

Jobs

The US economy added 156,000 jobs in August and the unemployment rate rose to 4.4%. Production and nonsupervisory wages rose 2.3% year-over-year, slower than the previous month.

Inflation & Rates

August data is showing core inflation as flat year-over-year. While additional rate hikes may be temporarily delayed, the Fed explicitly announced its intention to begin the balance sheet normalization in October. The plan is for the Fed to decrease holdings of Treasuries and mortgage-backed securities by up to $10B in total per month in the 1^st quarter of implementation with an additional $10B increase each quarter thereafter. Ultimately decreasing holdings by $50B by the 5^th quarter of implementation.

Conclusion

Thus far the expected return of volatility in the markets in 2017 has failed to materialize. Stocks have continued a seemingly unshakable climb upward over the course of the year. Asked to explain this, I read somewhere a “market expert” describe the environment simply as “it’s a bull market.” This was a solid take, and it is likely to remain one until the something unforeseen comes along to knock things off course or it runs out of steam. It seems unlikely for the bull to run out of steam right now given low probabilities for global economic recession, continued economic and corporate growth and generally attractive valuations. Especially in international markets where valuations are cheap in relative terms and growth appears to be increasing.

– Wyatt Swartz

– 10/2/2017

The post can be viewed on Investopedia here.

Question Headline:

What are the risks associated with a Roth IRA?

Question Body:

Your Answer:

There are 3 primary risks associated with an IRA.

1. Poor Investment Choice Risk

• Presumably funds within a Roth IRA are being invested in market traded securities such as stocks, bonds, mutual funds, REITs, and ETFs. Investing in market traded securities always includes the risk of loss of principle. Investing funds within a Roth IRA or another account requires the investor to have the right mix of securities based on their goals, time horizon, and cash flow needs from the portfolio.

2. Changes in Investor Circumstances

• Funds invested within a Roth IRA grow tax-free and distributions in retirement (after age 59 ½) are also tax-free. These great features come with restrictions, specifically the accounts are meant for retirement savings. An investor that has a change in circumstances that needs to access their funds prior to retirement (age 59 ½) may face penalties and taxes.

3. Opportunity Cost Risks

• With any investment, there is always the risk of “missing out” on some other better investment, this is called opportunity cost risk. Investor capital that is allocated in a Roth IRA cannot be put towards other investment vehicles which ultimately might have proven more beneficial.

– Wyatt Swartz

– 9/25/17

Have a plan. Follow the plan, and you’ll be surprised how successful you can be. Most people don’t have a plan. That’s why it’s easy to beat most folks. 

— Bear Bryant