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MARCH 2018 Your SEASONS OF
WE A L T H
®
(520) 325-1600 WWW.SHEPHERDWEALTH.COM Investing
How We Strive to Avoid Winter With This Tactic
A fundamental principle of investing has always been “buy and hold.” This has been the standard for years, with the overwhelming consensus being that selling in any market condition will screw up your return. Investors who stay the course and never get out of the market will see everything work out if they invest for the long term. Some data backs this up. For example, if you miss the 10 best days of the market over a 20-year span, your return will be about half of what it would be if you didn’t miss those days. Therefore, buy and hold prevents you from missing those 10 days. But what if you miss the 10 worst days? It’s the opposite: You approximately double your return. The key we believe to potentially doing better is not about 10 days; it’s about navigating the 17 months where the markets on average lose 38 percent value, and it takes five years to get back to even. By explaining the seasons of investing, we can show you how Shepherd Wealth strives to do that. WINTER. This is a season of consistently dropping prices, like a recession in the economy. Losses abound in a winter market, and investors are hit extremely hard during this season. I’ve seen the stock market winters of 1987, 2000, and 2008 and the impact they’ve caused. With the buy-and-hold strategy, it takes five years on average to break even after a winter market, and those are trying times for any investor.
SPRING. During a recession, you’ll always hear the phrase “green shoots.” This is the indication that the market is moving out of a recession and toward its spring. Green shoots are new job gains or price increases for investors. They come up through the ground as the market begins to warm up. As the market continues to grow, momentum builds and creates an established spring of growth. SUMMER. As spring builds momentum, it turns to summer. This is when you can see consistent growth and steady increases, usually across all markets. This is generally a safer time for most investments, and it’s a great time to build wealth. FALL. Weakening prices and downtrends in the market characterize a fall season of investing. Often, buy-and-hold investors hold on until winter, when some may panic and sell low. We believe this is the time to harvest. This is when we ditch the buy-and-hold strategy that has been adopted by many firms and implement our process to help you avoid a winter with your portfolio. MOVING AVERAGE CROSSOVERS. We don’t guess or use suspect rumors to decide when to move your money. Instead, we use cold, hard math. Moving average crossovers are used by investors to spot market trends and can be a great identifier of when to enter or exit a specific investment.
Let’s think of it in terms of sports. By calculating batting averages in baseball for the last 20 days, you can identify whether a player is hot or cold. As the season progresses, that data set changes — a player’s 20-day average is going to be different from one day to the next based on their performance. The principle is similar with this strategy, and we use this concept to decide when to move money to mitigate losses. We mentioned that it takes an average of five years to get back to even with the buy-and-hold strategy after a bad winter. With our process, which is intended to preserve and avoid large losses, it could dramatically shorten the time to get back to where you were. Ned Davis published a book, “Being Right or Making Money,” that in one way investigates the flaws behind the buy-and-hold method. He explains that the best investors adjust and align with the market rather than staying wrong. Losing money is hard, and there is a severe emotional impact when your investments crash in a winter market. The buy-and-hold strategy pushes investors to their most dangerous place. Rather than sustain losses and take five years to break even, we help our clients mitigate the risk of winter by using this mathematical process. -Dave Shepherd
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HISTORY OF STOCK MARKET
MATTERS
The stock market is one of the most dynamic forces of wealth- building out there. As markets soar, so do opportunities. But perhaps where we learn the most is not in the market's rise, but rather in its fall. That’s why we’ve decided to cover the three biggest crashes of recent history. Black Monday August of 1987 was one of the most exciting times in the history of the stock market. The Dow Jones industrial average was peaking at over 44 percent from the previous year. Markets around the world were on a path of ascension, and Wall Street was right there in the passenger seat. That is, until Black Monday. In October of 1987, the Dow dropped 22.61 percent — the single largest one- day percentage decline in the index ever. To put this in perspective, that’s nearly 10 percent higher than the crash that started the Great Depression in 1929. Worldwide markets were affected, but the U.S. market would bounce back and regain its pre-crash value by 1989. Dot-com Bubble The time between 1997 and 2000 characterized one of the most aggressive growth periods in the stock market. The internet was driving unprecedented growth in the Nasdaq, the technology- based index. But the rush of people getting into the market began to present a very real problem. The influx of new investors, combined with seasoned investors leaving traditional funds for these opportunities, led to a massive overvaluation in stock price and created a bubble. In 2000, the bubble didn’t just burst — it exploded. Companies in this market had been operating at a loss in an effort to gain market share, and they focused on growth over profits. When the bubble burst, most of these companies were left with no tangible assets to back up their existence. By 2002, the Nasdaq had dropped 78 percent in just 30 months. The Great Recession The dot-com bubble may have actually contributed to the Great Recession that began in 2008. In order to ease the effects of the tech collapse, the government instituted lower housing interest rates. This created more mortgage opportunities and eventually led to aggressive, predatory lending. The market grew, but a massive amount of these loans were given to borrowers who couldn’t actually afford to repay them, thus creating “subprime mortgages.” When the bubble burst, the market was hit hard. The Dow fell 50 percent over a period of 17 months, painting a picture very similar to what happened in the Great Depression. WILL HISTORY REPEAT ITSELF?
Everyone faces the prospect of growing older. When it comes to aging, people’s primary concerns include aches, pains, and changes to their physical appearance. But perhaps even more important is mental health. Fortunately, there are ways to keep your mind sharp as you age so you can enjoy your retirement. EXERCISE Working out is inextricably tied to wellness in all its forms. A simple, light workout now and then not only maintains physical health, but it also boosts your mental well-being. A 5-mile walk once per week can increase brain volume and prevent mental diseases, including Alzheimer’s. It’s no wonder exercise is the go-to solution for maintaining wellness. LEARN NEW HOBBIES Do you want to reduce memory loss by 40–50 percent? Dan Buettner, a researcher and best-selling author on studies about happiness and longevity, suggests learning a new hobby. Whether you learn to knit, paint, or discover a new board game, you’ll enjoy improved mental health. Get your hands moving, and your mind will surely follow. (Note: Watching TV as a hobby doesn’t count! People who regularly watch TV may suffer up to 50 percent more memory loss.) SOCIALIZE If you want to maintain mental health, make socializing a priority. Having an active social life increases your resistance to mental diseases and improves your mood. Furthermore, a healthy social network of friends and family (and we’re not talking Facebook here) helps give you a support system to fall back on when times get tough. TAKE A BREAK Take a step back from your everyday life and enjoy the small things. Set aside time to sit down with a good book or another activity you enjoy. While on that 5-mile walk, why not take a few moments to slow down your pace and look at the world around you? As the famous saying goes, “Stop and smell the roses.”
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WILL THE TAX PLAN SUSTAIN MARKET GROWTH? How These 3 Additions Could Af fect the Market
It’s that time of year when, no matter where you go, you see Uncle Sam pointing at you. With tax season descending upon us, we know one of the major financial questions on your mind is how the new tax plan changes your financial standing. While the major impact on your personal taxes won’t take effect until 2018, the potential for an
follows right along with it, causing an increase in prices and the market overall. Businesses Add Benefits Many businesses are taking this addition of cash and giving it back to their employees. These corporations are issuing bonuses, increasing benefit packages, and raising salaries across the board. Lowes, one of the giants in home improvement, issued bonuses of up to $1,000 for their employees. More Money, Less Problems? With many taxpayers' wallets padded by a little more dough, Americans have the ability to purchase more of the items they want. The increase in consumer capability helps companies by
giving them more opportunity to woo potential buyers. This could potentially help businesses avoid the problems of poor sales and push to continue growth. In many instances, the new tax reform can function as a stimulus plan of sorts. Whether or not this newly injected cash flow will find its way into the markets has yet to be fully recognized. We’ll be happy to put you on a path toward having your money work for you — not the other way around. If you have questions about whether the new tax law puts more money in your pocket or how minor changes to your portfolio may help, contact us today.
impact on the market is already here. Corporate Tax Cut With an unprecedented cut of 14 percent for
corporations, many businesses, both large and small, will be seeing an increase in their bottom lines. This creates more opportunity for growth and revenue, which can ultimately increase the value of a company. When the value of a company goes up, usually the stock TAKE A BREAK!
All investment strategies have the potential for profit or loss.
Recipe inspired by Real Simple
BRAISED CHICKEN AND
Spring Vegetables
INGREDIENTS •
• • • •
4 large carrots, cut into sticks
1 tablespoon olive oil
1 tablespoon sugar
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8 small bone-in chicken thighs 1 cup low-sodium chicken broth
2 tablespoons fresh chives, chopped
Salt and pepper
12 radishes, halved
DIRECTIONS 1. Heat olive oil in a large saucepan or Dutch oven over medium-high heat. 2. Season the chicken with salt and pepper. Brown in pan for 6 to 7 minutes per side. 3. Remove chicken from pan and scrape off excess fat. Add broth and stir in radishes, carrots, and sugar. 4. Return chicken to pan, placing on top of vegetables. Gently simmer with lid on pan for 15 to 20 minutes. Finish with chives.
Investment advice is offered through Shepherd Wealth Group, a Registered Investment Advisor doing business as Shepherd Wealth & Retirement. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators, nor does it indicate that the advisor has attained a particular level of skill or ability. Content should not be construed as personalized investment advice or as an offer to buy or sell, or a solicitation of any offer to buy or sell any securities mentioned. Certain content was prepared by a freelance journalist.
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Avoiding a Financial Winter Maintaining Mental Acuity What History Tells Us About Market Crashes What the New Tax Breaks Could Mean for You Braised Chicken and Spring Vegetables The 3 Best Places to See Beautiful Flowers
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Flower Displays EARTH’S MOST BEAUTIFUL
S pring is here, which means flora will soon be in full bloom. Flowers can be an easy pick-me- up or a great way to add color to your home, but some people take their flower obsession to the next level by planning botanical-themed vacations. Here are some of the most impressive gardens and flower displays in the world. Netherlands Holland, most famous for its tulips, always draws visitors at the first sign of spring. One of its most famous destinations, Keukenhof, located in Lisse, is among the world’s largest flower gardens. The park is 79 acres and boasts approximately 7 million flowers each year. This colorful garden is open annually from mid-March to mid-May, but mid- April is the ideal time to see the tulips. Washington, D.C. Besides the monuments and historic buildings, one of the biggest attractions in Washington, D.C. is
the cherry blossom trees. Travelers who visit the Tidal Basin during the spring can witness 3,000 trees, which were a gift from Tokyo in 1912, flaunt their beautiful pink blossoms. The best time to see the spectacle is from the end of March through the end of April. Anza-Borrego Desert State Park Desert lavender, flowering cacti, pygmy poppies, and rock daisies are just a few of the many wildflowers decorating Anza-Borrego Desert State Park. The various native species are often seen weaved together to form a colorful carpet over any barren patch in the park, which is located just two hours from San Diego. In addition to flowers, visitors often spot bighorn sheep. Wildflower blossoms vary in intensity each year, but they typically begin to bloom in late February or early March. Next time you’re planning a spring trip, consider visiting one of the world’s most beautiful flower displays. No green thumb required.
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