Meridian Financial Advisory

WSJ: "The S&P 500 opened Friday about 1.4% lower, while the Dow Jones Industrial Average dropped 2.3%, or 835 points, in the early minutes of a holiday-shortened trading session. The Nasdaq Composite Index retreated 0.9%."

Stocks, Oil Drop on Concerns Over New Covid-19 Variant International equity markets, oil prices and Treasury yields slumped after South Africa raised the alarm over a fast-spreading strain of the coronavirus, triggering concern that travel restrictions and other curbs will spoil the global economy’s recovery.

Pretty powerful graphic and observation. How not to run out of money in retirement. One course of action that does NOT require a difficult tradeoff.

Managing Sequence Of Return Risk w/ Bucket Strategies Vs Total Return Rebalancing Approach - http://bit.ly/1EBiVrD

Was on a call this morning with a very successful tactical manager. They make a point I strongly believe. At these current full valuations, even though the market is likely to run more this year, expected average annual returns over the next 10 years are likely to be very lackluster. That means stock market investors will have to accept low expected future returns in exchange for the same old stock market risk (which is considerable). That's why equity exposure has to be more than buy and hold. Part of that equity exposure has to be achieved via risk managed asset managers and I don't mean long only stock picking funds. I mean funds that can go long, neutral and short using multiple strategies, methodologies, managers, time frames in a non binary way. Using such strategies can reduce risk, give investors confidence and out perform in the coming years.

The US stock market (the S&P 500) has reached another record high in its forward price/sales ratio. Higher valuations do suggest increased risk, at least in terms of the risk/reward proposition. For those with less capacity/tolerance for large losses, this is a meaningful data point.

Flows into global equity funds more over the last 5 months than previous 12 years

Because perspective and context matters, here is some data to contextualize our current market situation:

The market declines 36% during an average bear market.
The market increases 112% during an average bull market.

The average length of a bear market is 299 days (10 months).
The average length of a bull market is 1,003 days (2 years and 9 months).

Bear markets occur on average every 3.6 years. The longest we have gone between bear markets was the 13 years between 1987's Black Monday and 2000's dot-com bubble.

If you assume a 50-year investment timeline you should expect to experience 14 bear markets. Bear markets are normal. They exist in the cycle of a healthy market.

As you get closer to retirement, managing market cycles is more important.

(graphic from The Wall Street Journal)

"5 Ways to Be Smart About ‘Smart Beta’ Funds"
How Can These Funds Make Your Portfolio More Resilient in a Downturn?
They Can Reduce Volatility and Increase Returns Over a Market Cycle.
"Here’s what smart-beta, or factor-based, funds are and what to consider about them as they show up more in retirement plans"

Five Ways to Be Smart About ‘Smart Beta’ Funds Here’s what smart-beta funds are and what to consider about them as they show up more in retirement plans.