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Making Sense of Recent Market Volatility

Dear Readers,

I’ve received a few calls this week to get my opinion on the current market downturn.  Its understandable considering October turned out to be the worst month for stocks since October of 2008, shortly after the collapse of Bear Stearns and subsequent collapse of Lehman Brothers.  I want to first note that this downturn is not like that one.  Banks are well capitalized, and the financial system is not having a liquidity crisis.  I’ve tuned into several economists, most recently Liz Ann Sonders, to compare opinions about what may be driving this market action.

The factors that are being repeated over and over include:

The Escalating Trade War with China:  It’s entirely possible that Trump will tariff every good that China imports to us.  By some estimates, that business is worth half a trillion dollars. *  It’s not clear exactly what will happen but so far China has not responded well to US accusations of technology theft and our escalating tariffs.  The stock market hates uncertainty, so while this all pans out, the market, and specifically companies impacted by these tariffs, are likely to suffer.

Rising Rates:  Let me start by saying that normalized interest rate policy is a good thing!  The primary reason we’ve had interest rates so low for so long is that the US economy struggled to regain its footing following the 2008 financial collapse.  Even after the stock market rallied strongly from 2009-2014, there was widespread belief that “Main Street” wasn’t experiencing the same recovery that “Wall Street” was.  As such, the Federal Reserve maintained a low rate policy to encourage borrowing and to push investors into risk assets.  Many believe the Fed drove the stock market higher with these policies.  Now that we are experiencing consistent economic growth, the Fed is pulling off the training wheels.  While healthy, this could be analogous to any person going through withdrawal from something – there is a period of discomfort that follows.

Economic Contraction:  It is often said that the stock market anticipates events and trades well ahead of them.  Because this bull market has lasted so long, any collection of data that points to economic contraction could cause the market to drop.  The GDP (economic growth) read from Q3 was a solid 3.5%, but many are interpreting the cautious profit outlooks from companies reporting earnings to indicate an expectation of slower growth going forward.  That doesn’t guarantee a recession is on the horizon, but it could cause the stock market rally to stall.

These are the primary reasons we’re hearing for why the market has dropped roughly 10% this month.  While it may seem like the sky is falling, I want to remind my clients and readers that the economy and stock market have recovered from many tough periods over the past few decades.  Each time these tough periods present themselves, it feels worse than it really is, probably because the stock market tends to climb slowly over time and then drop rather suddenly.

My best advice in this time is not to focus on the market headlines, but rather to focus on your personal situation. If you’re in your 30’s or 40’s and investing through qualified plans such as 401Ks and IRAs, these dips shouldn’t matter.  In fact, they help because your now buying stocks and reinvesting dividends at lower prices.

The people who should assess their portfolios most carefully are those that are living off bond interest and stock dividends to ensure that their financial plan is solid and that they can withstand these levels of volatility. Checking your current allocation and withdrawal rate would be wise.

It also never hurts to review your cost exposure and the type of investments that you own within your portfolio.  We obviously can’t control the daily movement of the markets,  but we can make sure we own efficient investments that are in line with our overall objectives, time horizon, and risk tolerance.

As always, feel free to contact me with any questions or concerns.


Russell Bailyn

Vice President

Premier Wealth Advisors LLC

14 E 60th St, #402

New York, NY 10022

P: 212-752-4343 *231

F: 212-752-7673




Author: Navigating the Financial Blogosphere


Securities offered through: First Allied Securities, Inc. A Registered Broker/Dealer. Member: FINRA / SIPC

Advisory Services offered through: Premier Wealth Advisors, LLC. (PWA) & First Allied Advisory Services, Inc. (FAAS). Both Registered Investment Advisers, RIA’s.  PWA is not affiliated with First Allied Securities, Inc and/or FAAS.

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Keeping Your Eye on the Ball

I thought this would be a good time to refocus any of my readers out there who may be getting distracted by the recent market decline.  For the majority of investors, market volatility should either be ignored, or treated as an opportunity to add to your portfolio at “sale” prices.  Even for those of you who are retired and may be taking occasional distributions to supplement your other income sources, there is likely no need to sell positions right now to raise cash.  Doing so will likely be a regrettable decision, even if the market moves lower before it eventually trades higher.  Well-built, diversified portfolios, should be able to withstand prolonged periods of market volatility, just as they always have in the past.

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Why Hire a Financial Advisor?

Some people may choose not to work with a financial advisor because they don’t think they need one.  While it may be the case that not everyone needs to work with a financial advisor, I think there is a tremendous amount of value which can be unlocked from such a relationship when the correct client/planner match is found.  I’ll provide some examples below because illustrating this relationship may be helpful in figuring out where some of that potential value may lie. Continue reading

Generation Y: The Evolving Financial Planning Practice

Gen Y is a large and increasingly affluent segment of the population.  As the number of clients under 40 in my practice continues to grow, I’m noticing clear themes emerging about what this demographic is looking for.  Interestingly, they have needs which are really quite different from my clients who are 20-30 years older.  I created a list below which summarizes some of the messages I’ve been hearing from my Gen Y clients:

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The Case for Universal Life Insurance as a Conservative Investment Alternative

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Estate Planning Basics: What Everyone Should Know

I like to write at least one article on basic estate planning each year because it’s just that important.  Financial advisors spend years working on financial plans and investment programs that can easily be dislodged by overlooking small estate planning tasks.  Many people start thinking about these issues once they get married and/or have kids because that’s when others start relying on them.  Even if that continues to be the case, some basic level of estate planning really should be a priority for everyone, even if to a lesser extent.  For example, an unmarried individual with some money and property may use a Will simply to designate a few people and charities to give their stuff to.   However, a married couple with a baby may be more concerned with issues of guardianship such as what they would do in the unspeakable scenario in which they were to die together and somebody had to take custody of the kids.  This should be spelled out in your Will so that relatives and friends don’t have to guess at your wishes about such a sensitive and important topic.     Continue reading

Between the Lines: Market Commentary from First Allied Asset Management

Below are some headlines which have been moving the markets this week.  The articles highlighted below are provided by First Allied Asset Management.  I’m not sure how many of you did “Black Friday” shopping last week but I can tell you the malls were dead around Long Island, New York.  It was much quieter than years past and from what I understand, Cyber Monday was somewhat disappointing as well.   On the issue of gas prices, I feel great about the $15 I’ve been saving each time I fill up my car.  The price is finally hitting that $3 point on Long Island which is well below the $4.30 per gallon which we were paying just a few months ago.  This should create some additional household saving and spending as gas is a major expense for people between heating their homes, their businesses, and operating automobiles.   Continue reading

Financial Planning & Investment Advisory Fees – What is Reasonable?

From what I’ve seen, fee-based advisory firms, my own included, generally charge an annual fee which ranges from .75% to 1.75% of assets under management.  Generally, the larger your account balance, the more likely you are to receive a lower fee.  In fact, fee schedules are often tiered such that the initial 250K is billed at a higher rate which scales down at varying thresholds such as 500K and 1M.  There may, however, be other methods of determining an advisory fee beyond simply the size of the account.  For example, some firms are more active (tactical) than others.  Those firms would likely charge a slightly higher fee than a firm which is more passive and investing strictly in products which mirror indexes such as the S&P 500 and the Dow Jones.  Firms with passive investment strategies may still charge fees over 1% if they are including valuable services such as financial planning, estate planning, tax planning, etc.  What is included in the fee amount (above and beyond investment management) should be discussed in clear detail at an initial consultation. Continue reading

8 Questions Financial Advisors Should Ask Their Clients

I thought this entry would be interesting for both financial advisors and for people who work with them.  Having a truly productive relationship with your financial advisor means trusting them and giving them the needed information to figure out how to really help you.  Much of that information doesn’t come out through back and forth discussion and needs to be extracted through specific questions and elaborate answers.  Below are 8 of the questions which I ask my clients that I think really help to gain a more complete understanding of their financial profile: Continue reading

Debating the Fed’s Current Interest Rate Policy

I find the entire debate surrounding economic interest rates to be highly significant at the moment.  What is supposed to be a policy tool used by the Federal Reserve to contain inflation and occasionally encourage either economic expansion or contraction has turned into a drug which our economy is gradually becoming immune to.  The debate over interest rates is currently taking place at high level institutions such as the Federal Reserve who understand that if they wait too long, the drug can have serious consequences.  The debate is also taking place across America where portfolio values and real estate prices have been on the rise, giving people the satisfaction of passively achieved wealth.  That satisfaction, however, is partially masked by the concern of bubbles and whether those asset prices may come back down at some point soon.  Continue reading