Evans Wealth Management Blog

Articles written by Evans Wealth Management are designed to educate clients & potential clients on concepts important to their financial future.

It Could Have Been Worse!

The market was crazy fickle this month with multiple rallies and declines packed within a mere four-week period. Blame it on news related to world economic growth slowing, the Fed’s next rate decision or the US / China trade talks. By month’s end, participants should be glad the market only posted a slight decline in what was an overall very turbulent period for stock prices.

Uncertainty wasn’t limited to the US. The UK elected a new prime minister on the promise to exit the European Union by October with or without a deal. Trade tensions and weakening economic data also contributed to the volatility. Overall, developed country returns outperformed emerging countries but both saw declines for the period.

The winner for the month was US fixed income markets. As investors sought a haven from the stock market rollercoaster, they drove bond prices higher and yields lower. The Barclay’s Aggregate index gained 2.6% for the month. The rally in long-term bonds resulted in the yield curve inverting causing speculation about the economic expansion ending soon.

In the US, large caps outperformed small cap stocks. Value struggled to compete with growth largely due to the collapse in the energy sector which composes a larger percentage of the small cap and value indices. Defensive sectors such as staples and utilities held up best. Overall, it was a challenging month for equities worldwide in August.


Notable Market and Economic Happenings:

  • Despite the above backdrop, two-thirds of S&P 500 industry groups have rising 200 day moving averages with 80% above their respective industry moving averages. It suggests a positive long-term outlook.
  • When you compare YTD 2019 with years having a similar trading pattern, it suggests a better than average return outcome for the remainder of the year with less downside volatility than a typical year. This stands in sharp contrast to the prevailing market expectation.
  • The bond market is pricing in a 50% chance of two rate cuts between now and the end of the year.


Inspirational Thought for the Day:

“Everyone wants to live on top of the mountain, but all the happiness and growth occurs while you’re climbing it.” – Andy Rooney

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Social Security Claiming Strategies and Your Retirement

According to a recent study, social security represents approximately 33% of all income received by US retirees. This amounts to a staggering $1.0 trillion in annual benefits. While this sounds like great news for retirees, the research also suggests the impact could have been even greater if more had waited to enroll. Essentially, the lost income from sub-optimal claiming strategies was greater than the actual impact.

Below are a few interesting points from the study.

  • Current retirees will collectively lose $2.1 trillion in wealth because they made a sub-optimal decision about when to claim social security. This represents approximately $68,000 per household.
  • Only 4% of retirees make the financially optimal decision about when to claim.
  • It was estimated that 57% of retirees would have built more wealth if they had delayed claiming until 70 years old. Only 6.5% would have had more wealth if they had claimed prior to 64 which is when 70% of retirees claim currently.

The goal in claiming social security is to begin the income stream as soon as possible without sacrificing benefits over the long haul. There are multiple options to consider before making the decision and the optimal combination of decisions is different for everyone.

If you would like to better understand the social security system in order to optimize your retirement income, you are invited to attend the upcoming seminars taking place on September 12th and October 10th in the Alpharetta, GA area.

Feel free to click the following link, https://socialsecurityauthority.com/ to learn more and to register. Hope to see you soon!


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The Most Underappreciated Source of Big Returns

Daniel Yergin writes in his book entitled, “The Quest,” the biggest energy story of the last four decades has nothing to do with oil or gas. In fact, it has nothing to do with solar, wind, nuclear or other sources of alternative energy. Care to guess what it is?

It is conservation and efficiency.

Would you believe the biggest impact on our energy resources is not the source of our energy but how much further we can go on the same level of energy today compared to the past? It is estimated the US uses 60% less energy per dollar of GDP today than in 1950. Case in point, the average miles per gallon of all vehicles has doubled since 1975. Essentially, conservation and efficiency have enabled us to travel twice as far using the same amount of energy.

The beauty of efficiency is it’s largely under our control. What it lacks in attention-grabbing appeal from the public, it more than makes up for in impact on our life.

This concept applies to many areas of our life.

The finance world’s version of conservation and efficiency is saving and frugality. These are largely under our control and have a 100% chance at being effective in improving our finances. However, they aren’t nearly as exciting as seeking big investment returns.

Consider two investors. One earns a 10% return and the other 9% per year. But, the second investor only needs half as much money to live as the first. In time, the second investor will have far more money because the second investor’s income is going further despite the marginally lower return.

Had you rather spend countless hours attempting to raise your investment return when the odds of significant improvement are low or increase your return by eliminating the bloat in your finances which will always work?

Long term happiness comes from the freedom to do what you want, when you want and with who you want. It requires a solid asset base which is difficult to obtain when undisciplined spending exists.

Jack Bogle made the point in his recently released book entitled, “Enough,” with the following antidote. Two people are at a party given by a billionaire. The one informs the other that the host, a hedge fund manager, earned more money in a single day than the guest had made from his wildly popular novel over its entire history. The guest/author responded, “Yes, but I have something he will never have … enough.”

Where do you find yourself today? Do you have the “enough” mindset? or Are you spending countless hours pursuing an insatiable desire for more? The answer might lead to the biggest financial breakthrough of the decade in your life.

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One for the Record Books!

Barring some unforeseen event, the current economic expansion will become one for the record books next month. According to the National Bureau of Economic Research, the expansion beginning in July, 2009 has run exactly 10 years (120 months) matching the 1990’s expansion as the longest on record. By the end of July, it will have broken the record.

Image result for record breakingWhile the current expansion is the longest on record, it has also been the slowest since at least World War II according to the St. Louis Federal Reserve.

Economic booms such as the one we are currently enjoying can encourage risky behavior. Consumers can take on too much debt. Businesses can over-invest and build too much capacity. Investors can become over-confident and drive the stock market to unrealistic levels (late 1990’s) or speculation can run rampant in the housing market (late 2000’s).

With this as a backdrop, it seems appropriate to remind ourselves expansions don’t die of old age. They are triggered by various events. Below is a reminder of some of the most common causes of economic downturns.

  1. Rising inflation leads to rising interest rates. In the early 1980s, the Federal Reserve pushed interest rates to historically high levels in order to snuff out inflation. The Fed’s policy prescription succeeded but, led to a deep and painful recession.
  2. The Fed can miscalculate. A policy mistake can be the trigger, for instance if the Fed raises interest rates too quickly and restricts business and consumer spending. This is a derivative of point number one.  There were fears the Fed was headed down this road late last year. Credit markets tightened, and investors revolted until the Fed reversed course.
  3. A credit squeeze can suppress growth.In 1980, the Fed temporarily implemented credit controls that briefly tipped the economy into a recession.
  4. Asset bubbles burst. The 2001 and 2008 recessions were preceded by speculative excesses in stocks and housing.
  5. Unexpected financial and economic shocks jar economic activity. The OPEC oil embargo in the 1970s exacerbated inflation and the 1974-75 recession. The tragedy of 9-11 jolted economic activity in 2001. Iraq's invasion of Kuwait pushed oil up sharply, contributing to the 1990-91 recession. Such events don't occur often, but their possibility should be acknowledged.

The silver lining in today’s environment is the lazy pace of growth experienced these last 10 years. Slow and steady appears to have prevented excesses from building up in much of the economy. As long as investors remain skeptical and cautious, the odds of enjoying continued economic prosperity are good.

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The New Influence on Our Money

Charles Schwab and Company recently released its Modern Wealth Survey. The results suggest a change in all Americans but particularly the younger generations’ money influences. Below are key points from the survey.

  • Americans’ financial decisions are being influenced by social media. 57% report paying more attention to how their friends spend than save. 60% wonder how their friends can afford expensive experiences they see posted on social media.
  • Of the listed money management influences, social media was ranked by far the worst money management influence. Family members and friends were considered the best influences.
  • The pressure to spend as a result of social media is strongest with Gen Z and the Millennials. They reported being the most likely to spend as a result of something they saw on social media. Their likelihood to spend due to social media was approximately double that of Gen X and Boomers.
  • Despite most Americans considering themselves savers, 59% live paycheck-to-paycheck.
  • On the bright side, 63% of those with a formal financial plan feel financially stable while approximately 50% of those without financial plans are concerned they don’t have enough money to retire.
  • Americans with financial plans were more than twice as likely to exhibit discipline when it comes to their finances (e.g., pay bills and save each month, have an emergency fund, … etc.).
  • Wealth is increasingly being defined as the “way they live their life” rather than a specific dollar amount.

A key takeaway is social media and its “fear of missing out” phenomena is increasing the pressure on all Americans to spend. The pressure is felt the strongest among the younger generations. When we spend beyond our means, it impacts your long-term financial stability.

The other key takeaway is saving and investing habits of those with written financial plans are dramatically better than those without a plan.

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