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U.S. Presidential Election Update

U.S. Presidential Election Update

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John Fischer, CFA®, CFP® | Chief Investment Officer

In a result that many thought was an improbable outcome as recent as yesterday, Donald Trump has been nominated as the next president of the United States. The markets responded initially with a similar surprise to the news as U.S. stock futures were down as much as 5% in the early morning hours as it became evident Mr. Trump would be victorious. They have since recovered those losses following Mr. Trump’s conciliatory acceptance speech with both the Dow and S&P 500 indices opening trading near yesterday’s close. Safe haven assets, such as gold and the Japanese yen, also spiked higher on the election news but are off their highs in early trading. The market’s resiliency suggests investors may have learned some valuable lessons from the panic selling that took place following the surprising outcome of the Brexit vote in late June.

Heading into election day, many believed a victory by Hillary Clinton was merely a formality. Polls had suggested that while her lead had narrowed in the week leading up to the election that she still maintained an adequate margin over Mr. Trump. Respected websites tasked with predicting the outcome of the presidential election put the odds of Mrs. Clinton winning as high as 80%. The market reflected this confidence in a Clinton victory as equity markets soared earlier this week on the news that the FBI would not pursue any additional charges in their most recent review of her email debacle.

If investors have learned anything from the surprise outcome of the Brexit vote this summer, it would be to avoid making emotional, rash decisions with regard to their investment portfolio on the heels of a political vote. In the two days following the unexpected result of the Brexit vote, the S&P 500 fell by more than 5% sending investors racing for the exit as the uncertainty of the election outcome loomed large. A mere three days later, the S&P 500 had surprisingly recovered its heavy losses to pull within 1% of its pre-Brexit levels.

While there is still much to be decided about the ultimate outcome of Britain’s decision to leave the European Union, thus far the economic numbers suggest that the fear was greater than reality.  While no two elections are exactly alike, the aftermath of the Brexit vote serves as a reminder to all investors that panic is never a wise investment strategy.

As Mr. Trump prepares to enter the White House, there is much uncertainty surrounding both his foreign and domestic policies, which was evident in the market’s initial response to his victory last night. Like the outcome of the Brexit vote, we will not know the effects of Mr. Trump’s policies for quite some time.

While the Republican party now controls both the Senate and the House of Representatives, Mr. Trump’s path to implementing his policies is far from clear. He will be forced to negotiate with some of the established Republicans that rejected his campaign.

In the short-term, there is the potential that the Federal Reserve will decide to keep interest rates the same at their December meeting in light of the market uncertainty from the surprising election results. In an indication that the market is digesting the implications of a Trump presidency, bonds are actually negative this morning despite the market volatility. Usually, bonds outperform during market uncertainty as they are considered a safe haven asset. In this case, interest rates are rising on the long end of the yield curve as investors brace for the potential of higher rates due to Mr. Trump’s promises to increase infrastructure spending and cut income taxes, which could further increase the deficit.

While investors are often tempted to suggest that this market event is different, it’s important to put the results of the election into historical context. While presidential elections have proven to increase short- term market volatility, the long-term effect on market returns based on which party wins the election and control of Congress has been negligible. Over the long-term, market fundamentals such as earnings growth, valuations, and interest rates are much more predictive of market returns. As such, we would advise clients to ignore the short-term market noise, focus on their long-term portfolio objectives, and look for opportunities should the market uncertainty provide it.


2017 Second Quarter Market Review

2017 Second Quarter Market Review

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John Fischer, CFA®, CFP® | Chief Investment Officer

In the classic movie Groundhog Day, Bill Murray plays a troubled character who is forced to relive the same day over and over again.  Though Murray wakes up to a new day, he has the same daily experiences and endures the exact same challenges.  The second quarter was reminiscent of the movie.  Similar to the first quarter, we saw solid corporate earnings growth, respectable economic numbers, a persistent low interest rate environment, and continued hope by investors that the pro-growth policies proposed by the Trump administration would eventually provide a boost to the U.S. economy.  The second quarter also brought more of the same in terms of returns with every major asset class finishing in positive territory again.  However, the challenges from the first quarter also carried over to the second quarter in the form of policy uncertainty of President Trump’s administration, geopolitical risks, and the direction of the Federal Reserve’s future monetary policy.

Seventy-five percent of S&P 500 companies exceeded their earnings per share estimates for the first quarter, which tops the five-year average of 68%.  First quarter S&P 500 earnings grew at a rate of 13.9%, its fastest rate since the third quarter of 2011.  The strong earnings helped the S&P 500 index post its seventh consecutive winning quarter in spite of the aforementioned market headwinds.  As of the end of June, S&P 500 earnings for the second quarter were estimated to grow at a rate of 6.6%, which is below the 8.9% projection for earnings growth in the first quarter.1

In continuing first quarter themes, international markets outperformed U.S. markets again in the second quarter.  International developed and emerging markets have each posted double digit gains year to date, outpacing both the Dow and the S&P 500.  Europe was a bright spot in the second quarter following Emmanuel Macron’s victory in the French presidential election.  His victory quieted investor concerns that the French election could further destabilize the Eurozone and the euro currency on the heels of the populist movement that has followed last year’s vote by the U.K. to leave the European Union.  Economic numbers continue to improve in Europe (albeit from a low base) to provide another reason for investor optimism.

The U.S. stock market has outperformed the international market in seven of the past nine years.  However, if we expand the lens to a longer-term view, history shows us that performance tends to be cyclical suggesting that now could be a good time to take profits from U.S. stocks and rebalance your portfolio by buying international stocks.  More importantly, history shows us that adding international investments to a portfolio provides better diversification that gives your portfolio a smoother ride toward your financial goals.

The Federal Reserve continued its quest towards a more normalized interest rate policy by raising their key overnight rate by another 0.25% in the second quarter.  This rate increase was the Fed’s fourth such move since December 2015.  The Fed also gave the market some insight into its intentions to reduce its balance sheet, which has ballooned to more than $4 trillion due to its bond purchases as part of its quantitative easing strategy.  This strategy was enacted to keep interest rates low, thereby lowering the cost of borrowing for individuals and businesses to help support the weak U.S. economy following the Great Recession.  In the most recent Fed minutes, indications were that the Fed would begin to wind down its bond buying program as soon as September.  This decision could put upward pressure on bond yields as one of the biggest consumers of bonds puts their fork down and steps away from the table.  Ironically, the news had little effect on long-term bond yields given the sustained demand from international bond buyers and the skepticism surrounding tax and regulation reform amid an economic environment in which inflation continues to be below the Fed’s target range.

A consistent source of investor concern since President Trump’s election has been the expectation of higher interest rates and its potentially negative impact on bond prices.  Interest rates and bond prices move opposite of one another.  Despite the fact that the Fed has raised its short-term rate by a total of 0.75% since President Trump was elected, 10 and 30-year bond yields have not followed suit continuing to trade in a tight range.  This fact is an important reminder to all investors that while the Fed’s decisions strongly impact short-term bond yields, the Fed has little control over long-term yields.  Rather, the two predominant factors that drive long-term bond yields are economic growth and the expectation of future inflation.  The Bloomberg Barclays U.S. Aggregate Bond index has actually posted small positive returns in each quarter of 2017 despite the Fed rate increases.  While stocks have outperformed bonds year to date, investors should remember the value of owning bonds in their portfolio is for their risk mitigating benefits.  When stocks fall in value, bond prices often rise offering ballast to portfolios.

As investors conclude the first half of the year, they see a familiar picture of a rising U.S. market at a valuation above its long-term average.  Yet its elevated valuation does not appear to be as significant when considered within the context of the prevailing low interest rate environment.  Like Bill Murray’s character in Groundhog Day, investors can’t seem to shake the seemingly daily market challenges of rumors of President Trump’s involvement with Russia, North Korea tensions, or the inability of Republicans to secure the first victory of their pro-growth agenda.  The third quarter will offer additional risks in the form of finding a resolution to raise the federal debt ceiling and the beginning of the Fed unwinding its balance sheet.  Despite these ongoing concerns, the market continues to persevere thanks to an improving economy, strong corporate earnings, and a low interest rate environment.  Our optimism on the general direction of the market remains intact given these strong market fundamentals, however, investors should be prepared for the elevated risk of a short-term market correction.  Investors can be well-prepared for this risk by making sure they own an appropriate balance of stocks and bonds that aligns with their tolerance for risk and the time horizon of their financial goals.  Investors who choose to ignore this counsel run the risk of repeating their same mistakes from the last market correction, which reminds me of a movie I once saw.

Source: FactSet

John Fischer, CFA®, CFP®

Chief Investment Officer

 

 


Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the Article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, this Article shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this Article serves as a substitute for personalized individual advice. Information contained in this Article may have been derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

Why I Chose to Work with an RIA

Why I Chose to Work with an RIA

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John Fischer, CFA®, CFP® | Visionary Educated Investor

It’s been almost a year and a half since I asked myself the same question that many investors have been asking themselves with increasing regularity – should I work with an RIA? Until early last year, I had spent my entire career in finance at large brokerage firms. But I had been having a gut feeling for some time that I needed a change as something just did not feel right. When I think back to the start of my career, I could not have imagined working for an upstart, fast-growing RIA like Visionary. As I sit here today, I realize that the RIA structure and my core values are a perfect match.

A Registered Investment Advisor (RIA) is an individual or firm who engages in the business of providing investment advice, making recommendations, or conducting investment analysis for clients. The main distinction that separates RIAs from brokerage firms is their legal obligation to clients. Brokerage firms are required by law to ensure any investment recommendation is suitable based on the client’s profile. RIAs have a higher legal responsibility. RIAs have a fiduciary obligation to clients such that not only must investment advice be suitable but it must also be in the client’s best interest.

This begs the question, what is the difference between an investment recommendation that is suitable versus one that is in the client’s best interest? Let’s offer a hypothetical example. A young married couple consults two advisors about investing. Each spouse is employed with group term life insurance. They have no kids, are diligent savers, and have a long time horizon. They would like an investment that offers long-term growth potential. Advisor A recommends a diversified stock portfolio. Advisor B recommends a variable universal life insurance policy. Both options offer the opportunity for long-term growth. However, Advisor B’s recommendation includes an insurance policy that doesn’t appear to be a need. Additionally, the insurance policy carries higher fees with a large upfront payment to the advisor where the diversified stock portfolio does not. In this case, Advisor A’s recommendation would likely be viewed as being in the client’s best interest. Advisor B’s recommendation would likely pass the suitability test but would not be serving the client’s best interest.

In my previous life at a brokerage firm, I was responsible for giving investment advice to advisors with regard to bond portfolios of clients. Part of my responsibility was to execute trades for advisors that met the firm’s compliance standards. Over time, I found that while the trades I executed passed the suitability test for clients, not all of the trades passed my personal test when making an investment recommendation to clients. That test was a simple grandma test – would I make this investment recommendation if it were my grandma’s account? For me, suitability was never a high enough moral bar to make a recommendation in good conscience.

I grew up in St. Louis in a middle class family with strong Christian values. My parents emphasized many important values when I was a child but none more universally important than the Golden Rule – treat others how you wish to be treated. It was this simple yet invaluable rule that served as the framework for my grandma test and would ultimately guide me in my decision to work for an RIA. In looking for potential job opportunities, I knew I wanted to work for a firm with a passion for comprehensive financial planning (not just investing), a firm with strong core values, and above all else an unrelenting commitment to always pass the grandma test – that is, to always act in the client’s best interest. I would soon realize that the legal structure of an RIA combined with the Visionary’s core values would make for an ideal match.

When you step back and think about the legal obligation that RIAs have to act in the best interest of clients, doesn’t it seem a little silly that such a law would be necessary in the first place? My wife Kelly gave birth to our first child this past April. When her doctor recommended an urgent C-section after hours of labor, did I stop and ask the doctor if she was acting in Kelly and our unborn child’s best interest? If she was putting the interest of my wife and unborn son ahead of her own interests? Of course not, the answer was obvious. So why is the investment business any different? Advising people on how to manage their finances to buy a home, pay for college, or save for retirement are some of life’s most cherished goals. It seems just as obvious for investment advisors as it does doctors that a client’s interest should always come first. Unfortunately, laws in our society are introduced for a reason. Maybe instead of asking why the legal obligation to act in the client’s best interest is necessary, we should be asking why all investment advisors are not required to follow it?

The Department of Labor (DOL) expressed the same concern with its recent creation of the DOL Fiduciary Rule. The rule requires all advisors, regardless of their status as a broker or RIA, to place their clients’ interests ahead of their own. However, this rule only pertains to retirement accounts such as IRAs and 401(k)s. While the law has shortcomings, its intention of assuring that all investment advisors act in clients’ best interest regarding their retirement accounts is a positive for investors. However, the rule falls short of the protection investors deserve as it does not include non-retirement accounts, such as savings or individual investment accounts. These accounts are still only subject to the suitability standard unless you work with a Registered Investment Advisor. An RIA was already legally bound to act in clients’ best interests prior to the DOL Rule – for both retirement and non-retirement accounts.

The robust growth in RIAs in recent years offers evidence that investors are coming to the same conclusion to the question I posed to myself prior to joining Visionary – if one desires to work with an investment firm that is obligated to put the interests of the client ahead of their own at all times, with whom should they choose to work? In retrospect, my decision to join Visionary was a remarkably easy one. Visionary’s values of faith, community, integrity, growth, and excellence, strongly align with my core values. Our legal responsibility to always put clients’ interests first illustrates to investors the transparency by which we work to help our clients accomplish their life goals. Finally, the decision to join an RIA like Visionary means my grandma test is now part of my legal obligation to the clients we serve, which suits me quite well.

John Fischer, CFA®, CFP®
Visionary Educated Investor

2017 Third Quarter Market Review

2017 3rd Quarter Market Review

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John Fischer, CFA®, CFP®

October 15, 2017

As the final days of summer ticked away and children started back to school, investors were faced with newfound market turmoil.  Rising tensions with North Korea, tax reform, looming hurricanes, debt ceiling questions, and concern about the Fed’s future direction combined to renew investor anxiety.  Put it all together and it should come as no surprise that markets saw their greatest volatility since the spring.  What a difference a few weeks make.  Fast forward to quarter-end and all three major U.S. indices hit record highs as the market resumed its focus on the solid economic fundamentals that have been the primary driver of the market rally.  The third quarter should serve as an important reminder that while investor emotions and market sentiment can change quickly, your portfolio should not.  Rather than swaying with the motion of the market, investors should construct their portfolios on the foundation of their financial goals, risk tolerance, and time horizon.Image may be NSFW.
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The U.S. economy continued to flex its muscles during the third quarter as S&P 500 companies reported second quarter earnings growth of 10.8%.1  The double-digit earnings growth in consecutive quarters marks the first time S&P 500 companies have posted such stout growth since 2011.  The unemployment rate in September fell to a new 16-year low at 4.2% while wages grew 2.9% versus the year-ago period, exceeding expectations and giving consumers hope that higher wages may finally be a part of this economic expansion.  Given consumer spending makes up roughly 2/3 of U.S. GDP, unemployment and wage growth trends offer confidence that the increasing financial health of consumers can continue to drive this market higher.

Despite the aforementioned market volatility, the third quarter ended in much the same fashion as the first two quarters of the year.  All major asset classes posted gains for the quarter as the global growth recovery story continued and interest rates remained in a tight trading range.  Emerging markets was the best performing asset class in the third quarter, up more than 7%.  Improving commodity prices, continued global growth, and attractive valuations have bolstered emerging markets in 2017 with year-to-date performance surging nearly 30%.  Domestically, small-cap stocks outpaced their larger peers for the quarter with hope that tax cuts would have a greater effect on their more U.S.-centric businesses.

After being the worst performing sector in the first half of the year, energy rebounded nicely during the third quarter with gains of more than 6%.  Supply disruptions caused by Hurricanes Harvey and Irma along with continued supply cuts by OPEC boosted energy prices.  The information technology sector continued its strong year on the back of robust sales and earnings growth, particularly from the largest companies in the sector.  Financials posted solid gains on the expectation of higher interest rates and reduced regulation.  Consumer staples was the only equity sector to finish down on the quarter as Amazon’s acquisition of Whole Foods sent shock waves through the sector.

While equity performance was strong again in the third quarter, investors continued to pay close attention to the Fed for additional clues about the future path of the fed funds rate as well as final details about when the Fed would begin reducing the $4+ trillion worth of bonds on their balance sheet.  During the Fed’s September meeting, Fed Chair Janet Yellen indicated she expected one more fed funds rate increase before year-end given the continued strength of the U.S. economy.  The Fed also announced it would begin the process of allowing bonds on the Fed’s balance sheet to mature without reinvesting the proceeds.  These bonds were purchased after the last recession as part of the Fed’s quantitative easing policy, which was designed to keep interest rates low and thereby stimulate the economy.  The decision by the Fed to begin reducing its balance sheet speaks to the strength of the U.S. economy in that it no longer needs the crutch that quantitative easing provided for the market.

How the reduction in the Fed’s balance sheet affects interest rates is yet to be determined.  Despite the news that the Fed would begin to reduce its balance sheet, government interest rates finished the quarter relatively unchanged from where they began the quarter.  While some investors will say higher interest rates are a virtual certainty as a result of the Fed’s plans, we would caution against such general assumptions lest we forget both the unexpected outcome and market reaction of our presidential election last year.  Global demand for U.S. bonds continues to be significant and the aging demographics of our population and their desire for portfolios with a higher allocation to bonds will both likely serve to limit the upward trajectory of interest rates.  The strength of the U.S. economy should help interest rates climb over time but we expect it to be a slow, methodical move.  Investors should continue to own bonds given they often rise in value when stocks fall and thus offer ballast to portfolios in times of market uncertainty.

Given corporate profitability remains strong and consumers are trending up, we continue to believe that the economic fundamentals are in place for the bull market to continue.  That said, while many of the market risks that rattled investors during the third quarter have faded to the background, it is important to remember they have not altogether disappeared.  There are still heightened geopolitical tensions, uncertainties around tax reform, questions about the federal budget deficit and debt ceiling, as well as concerns about how the market will respond to the Fed’s recent actions.  Thus, while there is reason for overall market optimism, the risks for a near-term market correction remain.  We would advise investors to avoid making short-term portfolio adjustments driven by market sentiment that could harm their long-term financial goals.   Rather, investors should make sure they are well-diversified with an appropriate balance of stocks and bonds for their risk tolerance and time horizon.

Source: FactSet

John Fischer, CFA®, CFP®

Chief Investment Officer

 

 

MARK SCHLAFLY APPOINTED CHIEF STRATEGY OFFICER at Visionary Wealth Advisors

MARK SCHLAFLY APPOINTED CHIEF STRATEGY OFFICER at Visionary Wealth Advisors

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October 23, 2017

ST. LOUIS, MO – OCTOBER 23, 2017 – Visionary Wealth Advisors (VWA) announced today that its executive team has expanded with the addition of Mark Schlafly as Chief Strategy Officer (CSO).

In this newly-created position, Mr. Schlafly is responsible for driving Visionary Wealth Advisors’ growth through strategic planning and advisor education and development. He assists in identifying, formulating, and communicating Visionary’s growth initiatives for both clients and the overall company.

Mr. Schlafly is a 25-year industry veteran whose distinguished career includes serving as the President & CEO of FSC Securities Corporation, Senior Vice President of Brokerage Products and Services at LPL Financial, and Vice President and Manager of Managed Products at A.G. Edwards.

“We are thrilled to welcome Mark as our Chief Strategy Officer,” said Brett Gilliland, CEO and co-founder of VWA. “This is an exciting time as we continue to evolve Visionary to provide leading unbiased and independent advice through our fiduciary model. Mark’s proven skills and experience in developing successful strategies in our market space are a strong complement to our existing team.”

“The pace of change in our industry has never been faster, and clients are looking to Visionary for our insight and knowledge to fuel their life plans,” said Mr. Schlafly. “I am excited to join Visionary and look forward to building on Visionary’s existing solid relationships with advisors, clients and partners, helping to expand our solutions in wealth management and financial planning.”

Mr. Schlafly will continue to serve as an adjunct career advisor and instructor at Washington University. He earned his Bachelor’s degree in Finance from St. Louis University and is a graduate of the Securities Institute from the Wharton Business School at the University of Pennsylvania.  He holds FINRA Series 7, 24, and 63 designations and is a CERTIFIED FINANCIAL PLANNER™.

“Mark brings a vast amount of experience to Visionary as a leader of large organizations. He shares the same values as our current team of serving clients first and firm second,” said Brett Gilliland. “Mark has worked through different market cycles and knows how the best firms and advisors have gotten their clients through those cycles. People hire us to help them navigate through not only the good times but tough times. Mark’s industry experience and knowledge will allow us to better serve our clients as a whole.”

 


Visionary Wealth Advisors is a registered investment advisor headquartered in St. Louis, Missouri with corporate locations O’Fallon and Edwardsville Illinois; and Palm Beach Gardens, Florida. The Executive Team brings over 75 years combined experience in the wealth management industry. Visionary’s experienced team work everyday to fulfill its mission of providing world-class, client-centered wealth management services and promoting our founding culture of faith, family & community. All of Visionary’s wealth advisors practice a propriety fiduciary model that places the client’s interests above all others.

JANA M. GREGOREK NAMED DIRECTOR OF NEW BUSINESS DEVELOPMENT at Visionary Wealth Advisors

JANA M. GREGOREK NAMED DIRECTOR OF NEW BUSINESS DEVELOPMENT at Visionary Wealth Advisors

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ST. LOUIS, MO – OCTOBER 31, 2017
– Visionary Wealth Advisors (VWA) announced today that Jana Gregorek has joined the firm as the Director of New Business Development.

Mrs. Gregorek will be responsible for recruitment of financial advisors at Visionary in addition to creating succession plans for experienced advisors. She will develop strategies to ensure advisors have the right tools, systems and processes to meet their clients’ needs.

“We are very excited to have Jana join the Visionary team to help guide us into the future,” said Tim Hammett, CFP®, AEP, President and co-founder of VWA. “As the Director of New Business Development, Jana will directly impact the deliverable that we bring to our clients. It’s one thing to start the relationship, it’s another, completely different thing to carry that relationship forward to the foreseeable future, which Jana will play a key role in accomplishing.”

Mrs. Gregorek will leverage her 11 ½ years at Edward Jones in St. Louis, MO to Visionary. During her career, she created and led complex, multi-faceted company-wide programs, managed relationships with industry leading insurance companies, introduced change management principles and managed senior level teams.

“I have a passion for leading and mentoring others to build their confidence and be the best they can be and enjoy building relationships,” said Gregorek. “I am excited to be part of Visionary Wealth Advisors. Being a Visionary means looking past the day-to-day and understanding client’s long-term goals and dreams. It means aspiring for something greater and setting new goals for yourself along the way. I work every day to live up to the expectation.”

“With diverse experience across the financial product and services spectrum, Jana brings valuable perspective to our team, but more importantly, to our clients,” said Brett Gilliland, CEO and co-founder of VWA. “The core of what we do is helping people achieve their goals and dreams for their life. Adding Jana and her experience will add to the depth of best of breed people, platform, and services available to our clients.”

Ms. Gregorek holds a FINRA Series 7 & 66 licenses, Missouri Life and Health Insurance license, Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC) from the American College of Financial Services, and Change Management Certified. She holds a Masters of Business Administration from Washington University in St. Louis and a Bachelor of Science in Communications, Minor in Business Administration from University of Illinois at Urbana-Champaign.


Visionary Wealth Advisors is a registered investment advisor headquartered in St. Louis, Missouri with corporate locations O’Fallon and Edwardsville Illinois; and Palm Beach Gardens, Florida. The Executive Team brings over 75 years combined experience in the wealth management industry. Visionary’s experienced team work every day to fulfill its mission of providing world-class, client-centered wealth management services, and promoting our founding culture of faith, family & community. All of Visionary’s wealth advisors practice a propriety fiduciary model that places the client’s interests above all others. Learn more at www.visonarywealthadvisors.com

Does Your Investment Plan Allow for Cheat Days?

Does Your Investment Plan Allow for Cheat Days?

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John Fischer, CFA®, CFP®

Chief Investment Officer

November 21, 2017

Even with the best intentions and a lot of commitment, it’s tough to stick to a healthy eating plan that has you choosing whole foods and lots of veggies over pizza and burgers.

This challenge is made even greater by the many temptations we face on a daily basis. These temptations give our emotions an opportunity to prevail over our discipline to stick to our plan.

How many times at a restaurant have we chosen fries over a side salad in a moment of weakness?


Your Investment Plan Can Look a Lot Like Your Diet

It might not seem like the act of eating healthy and the act of investing wisely are related — at least, not directly. But think about the factors that contribute to a good diet.

You not only need to know what to eat and where to find those foods, but you also need to know the best ways to prepare meals that align with your goals so eating healthy isn’t just a trend. It becomes part of your lifestyle.

You also need processes and systems in place to make sure you hold yourself accountable and stay consistent with your food choices day in and day out. You’ll need to take those consistent actions over a long period of time to see results.

Setting up a plan for your diet also requires that you assess your health now, define the goals of your diet, and map out a plan on how you intend to achieve your goals.

You might notice that the same components of a good nutrition plan that lead to success are also present in a good financial plan. And looking at investing through this analogy lens makes it easier to understand why investors often struggle with making good investment decisions.


Why We Struggle to Stay Disciplined Over Time (with Diets and Investments)

The most difficult part of an effective diet is also the most onerous part of being a good investor.  It’s extremely challenging to commit to making good decisions day after day, week after week, and month after month.

It can be very painful to do an honest assessment of your current financial status.  For many, it is tough to articulate financial goals beyond wanting to help pay for children’s education or retire comfortably.

It’s also not much fun in the moment to choose a side salad over fries. Similarly, no one would describe the decision to remain invested when the stock market is declining as “fun” or “enjoyable.”

But as famed investor George Soros reminds us, “If investing is entertaining and you’re having fun, you’re probably not making any money.”

Correct investing, like a disciplined diet, requires us to make hard choices in the moment. We have to prioritize our future selves over our want for instant gratification.

It’s for this reason that if investors hope to make the right decisions and avoid the mistakes made in a moment of market weakness, they must have a disciplined plan in place first.


What We Can Do to Stay the Course with Our Wealth and Health

There is a recipe for success that applies as much to a strong diet as it does a solid investment plan: Automate your life.

Rather deciding on lunch when it’s 12pm, you’re starving, and every menu online looks terrific, you can pack your lunch the night before and take it with you in the morning. By deciding on lunch and preparing it while still full from dinner, you’re much more likely to choose a smaller, healthier lunch.

Plus, you don’t have to make a difficult choice in the moment because you automated the decision by making and bringing your meal with you.

As this pertains to your financial plan, automate your investments by having a portion of your salary automatically distributed directly into your 401(k) and savings account. You can also establish a rules-based plan to rebalance your investments periodically so you don’t have to make the difficult decision to sell winners and buy losers in the moment when emotions run high.

These steps provide two monumental benefits to investors: They reduce the number of good decisions individuals must make to be successful, and eliminate the need to make decisions in the most emotional, irrational moments.


How to Incorporate “Cheat Days” into Your Financial Strategy

As we’ve seen, the same principles that guide how to maintain a healthy diet apply to maintaining a healthy investment approach, too. Even some of the same simple tips and tricks you can use to increase the likelihood of success with your diet can be used to improve your financial plan.

Take “cheat days” as an example of one of those tricks that can help you stick to a specific, strict diet over time.  Many good diets allow a cheat day each week.

The premise of a cheat day is that by having the ability to give in to your cravings every once in a while, it will help keep you on the path to long-term success.

Disciplined investors should also be allowed a “cheat day” for their investment portfolio.

It’s not easy to establish a disciplined routine of saving and investing in a well-diversified manner through up markets and down markets.  After all, it entails much of the same excitement as watching paint dry.

Like craving chocolate, many investors enjoy the opportunity to pick stocks or invest in a certain market sector on a hunch. If you consistently make positive investment decisions towards your long-term financial goals, consider carving out a small allocation of your portfolio for more liberal investing.

If having a small amount of investing “fun money” satisfies your cravings, gives you something to chat (or brag) about with friends, and allows you to stay on task with your investment plan for the large majority of your portfolio, then it’s a worthy consideration.

 

 

2017 Fourth Quarter Market Review

2017 4th Quarter Market Review

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John Fischer, CFA®, CFP®

January 15, 2018

Every year at Christmas, my family takes part in a white elephant gift exchange. Everyone brings a gift to the exchange, and then participants draw numbers to determine the order you get to choose a present from the pile — or “steal” a present from someone who already chose theirs.

The goal of the game? Take home the best present. This year, I won a virtual reality headset. Although the headset still sits at home in its unopened box, I can’t help but think of it when I look back at the lay of the investment land from the start of 2017.

After all, as it turned out, 2017 felt much more like virtual reality than actuality.

What the Pundits Predicted for 2017  Versus the Reality We Saw

When 2017 began, many analysts pointed to the fact that valuations in the U.S. were above their long-term averages and cautioned investors of a pullback where stocks would revert back towards their long-term average valuations.

But as we know today, the Dow, S&P 500, and Nasdaq all finished up more than 20%, including dividends – more than double their historical annual returns. To top it off, the S&P 500 achieved gains in every month of 2017, a feat never before seen in its 90-year existence.

At the beginning of the year, many investors also favored the U.S. over International markets. They felt more optimistic about U.S. growth than growth overseas, and had grown tired of recent International underperformance since 2012. The reality of 2017 turned out to be that international markets outperformed the U.S.

Understanding the Causes of Such a Different Reality Than Predicted

What propelled us beyond the forecasted reality for US markets? We can thank an improving economy along with corporate earnings that continued to exceed expectations.

Last year served as an important reminder that while market valuations are a meaningful predictor over the long term, they are a poor prognosticator for short-term returns.

Outside the US, emerging markets led all equity asset classes finishing the year up almost 35% thanks in part to strengthening commodity prices, a weaker U.S. dollar, and strong performance from China. International markets also performed well as deflation fears dissipated and political stability improved.

2017 served as a good reminder for all investors that market leadership between U.S. and International tends to be cyclical — which is why owning International and emerging market stocks can be a valuable contributor to a diversified portfolio.

How Politics Impacted the Financial Markets

After President Trump was elected, many bond prognosticators called for higher interest rates in 2017 and thus were bearish on bonds. Analysts expected borrowing for infrastructure spending and improving economic growth to push inflation and interest rates higher, thus sending bond prices lower.

In reality, the benchmark for the U.S. bond market finished up more than 3% as 10-year government rates were unchanged. 30-year government rates actually fell during 2017. Infrastructure spending was pushed to 2018, inflation remained below the Fed’s target, and the relative attractiveness of U.S. interest rates compared to the rest of the world all served to keep interest rates contained.

While 2017 bond returns paled in comparison to stocks, it’s important to remember that bonds serve a critical role in a diversified portfolio by providing a steady income stream and a stabilizing presence when values of stocks decline.

What Can This Tell Us About 2018?

As investors turn the page to 2018, most still feel the excitement and exuberance a terrific 2017 provided.  And while there remains reason for optimism as the economy strengthens, we remind our investors that many of the risks from last year remain.

The market will continue to carefully watch the Fed as it continues to raise short-term rates and reduce the amount of bonds they hold as part of their quantitative easing policy.

Though somewhat dormant recently, the geopolitical threats of ongoing disputes with North Korea and Iran could cause a market disruption. Trade disputes surrounding NAFTA and China could also upend markets.

The tax reform should be a positive for the market, but the future benefits remain uncertain. The efforts to pass healthcare and tax legislation should serve as a reminder of the ongoing risk of policy missteps to the market as President Trump continues to implement his political agenda.

Let Last Year’s Surprises Serve As Important Reminders for the Investing Year Ahead

Last year felt like a virtual reality of sorts. Equity markets returned more than twice their long-time averages despite concerns of valuations, and bonds generated positive returns in the face of fears of rising rates.

The surprises of 2017 are a valuable reminder to investors that the prediction game is a difficult and dangerous game to play when it comes to achieving your financial goals. While economic growth and corporate earnings suggest the market can continue to prosper in 2018, investors should brace for lower market returns after a banner year and expect more market volatility than the historically low level of 2017 as risks to the market persist.

After such a strong year, we urge you to guard against complacency and overconfidence in your investment decisions. Otherwise, you may wish your reality more virtual and less actualized this time next year.

Don’t let your emotions — even positive ones — override your solid, strategic investment plans.

 

John Fischer, CFA®, CFP®

Chief Investment Officer

 

 


Market Volatility Returns – What It Means for your Financial Plan

Return of Market Volatility 

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John Fischer, CFA®, CFP® | Chief Investment Officer
February 13, 2018

If you didn’t know any better, you might be tempted to think that Groundhog Day was more of a market indicator than a popular tradition around the coming of spring.  After all, it was the economic release on the morning of February 2nd that caused the markets to oscillate in a fashion not seen in nearly 2 years.

This type of market fluctuation feels very unsettling, especially when markets have been unusually calm over the past year.  During these uncertain times, it’s important for investors to understand that these types of events are normal and can create opportunity for disciplined, long-term investors.

The Cause

The market turbulence that began on Friday, February 2nd was actually caused by wage and jobs reports that both were very positive.  The economic reports indicated that the consumer had more money to spend, which is encouraging news for the economy.

Unfortunately, investors took this good news as an indicator that rising inflation and interest rates could hinder the economy in the future.  Investors were also concerned that the good news would cause the Fed to raise rates faster than previously expected, which would be a headwind to the economy.

Perception versus Reality

It’s true that high inflation or interest rates can harm an economy.  But the important distinction for investors to make is that there is a distinct difference between rising inflation and high inflation.  In recent years, the Fed has been struggling to get inflation above 2%.  Despite the recent fears, inflation is still hovering around 2%.  Inflation is markedly lower than the historical average above 3%.

The same can be said for interest rates as the 10-year treasury yield remains below 3%, which is considerably lower than its historical average.  It is healthy for inflation and interest rates to rise as an economy grows.  Given both metrics remain well below their historical averages, we don’t believe they represent a material impediment to a growing economy.

Normal versus Abnormal

Since late January, the U.S. market has experienced a 10% correction.  A glimpse at the record books shows that the market averages a correction once a year.  The last market correction occurred 2 years ago in February 2016, so we were overdue for this type of pullback.  Trees don’t grow to the sky and neither do markets.  Despite the setback recently, the U.S. market has had a terrific 2-year performance up more than 50%.  Market declines are a normal part of investing especially after such a successful 2-year run.

Last year was an unprecedented year for investors.  U.S. markets finished up more than 20%, doubling their long-term average return.  Despite averaging a 10% correction each year, markets were extremely tranquil as our largest pullback last year was a meager 3%.  This context can be helpful for investors to realize that the recent market volatility is part of a normal market cycle.  Moreover, what actually proved to be abnormal were the exceptional returns and muted volatility of 2017.

Looking Ahead

As we look to the remainder of 2018, market fundamentals give us reason for optimism despite the recent volatility.  With low unemployment, wages growing, and GDP trending higher among other positive indicators, the economic growth story should continue to strengthen this year.

Corporate earnings grew at a double digit pace in 2017 and are expected to see their fastest growth this year since 2010.  Given the sound fundamental backdrop and seemingly no recession on the horizon, we believe the recent market decline presents long-term investors with a nice buying opportunity.

Focus on your Plan

With all the calm prior to the recent market volatility, the past few weeks have felt like stepping out on the first cold day of winter after a mild fall.  In the short-term, we would caution investors to expect more volatile days as volatility usually breeds more volatility.  However, it’s critical to put perspective around the recent market decline.

These pullbacks are normal and healthy for an expanding economy and can provide opportunities for disciplined investors.  Long-term investors should avoid letting short-term market noise affect their long-term financial plan.  If your financial goals, risk tolerance, and time horizon have not changed, neither should your investment strategy.

______________________________________________________________________________________________________

Visionary Wealth Advisors, LLC (“The Firm”) is an SEC registered investment adviser that maintains a principal place of business in the State of Missouri. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. In addition, this shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this serves as a substitute for personalized individual advice. Information contained in this presentation is derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.

 

The Pain of Falling

The Pain of Falling

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John Fischer, CFA®, CFP®

February 19, 2018

A few weeks ago, I went for an early morning run before the sun came up. I barely made it off my street when suddenly, my foot clipped a break in the sidewalk and I went down.

Unfortunately, the darkness had concealed the elevated sidewalk. On the flipside, the lack of light also shielded my shameful concrete dive from any potential onlookers.

As I picked myself (and my dignity) up from the ground, I realized that my fall took a bite out my hand, both elbows, and a shoulder, and bruised my hip.

It had been years since I experienced a fall while running — so long, in fact, that I forgot about the risk of falling.  Even worse, I forgot how much it hurt to strike the concrete.

And if you’re an investor in the market right now, you can probably relate.

A Lack of Market Volatility Makes It Easy to Forget How Normal It Is

We’ve watched the market steadily — and sometimes dramatically — trend upward since the beginning of 2016. It’s been a long time since investors experienced a stumble and fall, but that’s exactly what happened earlier this month.

If you’re like many other investors, you might have forgotten the feelings of pain and nervousness that naturally come with a market selloff and seeing declining portfolio values. It’s been a while since we last felt this way.

Historically low volatility in 2017 altered the perception many investors had of normal market fluctuation. A look back helps illustrate just how much the lack of market volatility in 2017 distorted investor’s reality of what is normal.

Since 1980, the S&P 500 index has finished up or down more than 1% on a given day an average of 63 days a year – roughly 25% of the trading days in a year. In 2017, by comparison, the S&P 500 index finished up or down more than 1% just 8 times all year, or 3% of the year.1

The extreme lack of volatility last year could put you at risk of forgetting what normal market volatility feels like. And that, in turn, could leave you vulnerable to the mistakes investors make when they panic and react emotionally.

2017 Was the Exception, Not the Norm

Market volatility was not only historically low in 2017, but markets also seemingly marched in a single direction (up!) throughout the year. If we look back at historical market activity, we can see that it’s reasonable to expect about three 5% pullbacks and one 10% correction per year.

In 2017, not only did the S&P 500 not see a correction, but investors didn’t see a single 5% pullback, either. The largest decline in the S&P 500 all year was less than 3%.

It’s hard to remember this after a year like 2017, but we need to understand that market corrections are normal, and even healthy for stocks. They can also serve as a valuable reminder of the inherent risks of the market.

Before You Overreact, Make Sure You Understand the Lessons We Can Learn from the Fall

In the absence of periodic downturns, investors run the risk of overreacting when market volatility does return.

For a driver who takes the highway daily, driving 60 MPH doesn’t feel very fast. But if that driver only takes back roads for a year, getting back on the highway after 12 slow driving months can make 60 MPH feel more like 100.

When markets experience long periods of stability, market volatility can feel gut-wrenching to investors.  And gut-wrenching feelings often precede poor investment behavior.

After the fall I took while on my early-morning run, my instinctive feelings were to slow down to avoid another fall. My instincts were wrong.

The lesson should have been not to slow down, but rather to be more aware of the risks while running.

As an investor, you might not remember how it feels when stocks fall after enjoying periods of calm for so long. This can put you at risk of overreacting when the next market decline happens.

Big overreactions — like selling to go to cash or making one’s portfolio too conservative — can cause serious harm to your long-term financial goals.

To mitigate these risks, we advise investors to guard against complacency and overconfidence when markets are steadily climbing as such behaviors can lead to overly-aggressive portfolios. And to avoid overreacting when markets drop, investors should focus on owning the right mix of stocks and bonds based on their risk tolerance and the time horizon of their financial goals.

Of course, we might also advise to avoid running in the dark.

Source: 1 Morningstar Direct

 

Visionary Wealth Advisors, LLC (“The Firm”) is an SEC registered investment adviser that maintains a principal place of business in the State of Missouri. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. In addition, this shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this serves as a substitute for personalized individual advice. Information contained in this presentation is derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.

10th Annual Taste of Edwardsville

First Quarter Market Review

First Quarter Market Review

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John Fischer, CFA®, CFP®

April 17, 2018

Where Investing and Golf Intersect

Golf is a challenging sport that requires serious focus and concentration. The goal is simple, but not easy: to hit a small ball with a long club, send that ball hundreds of yards into the distance, and have it land at a precise spot.

Then, do it over and over again. And if you play golf with friends like mine, they’ll throw in the added challenge of forcing you to concentrate while cracking jokes during your backswing.

The point is, there’s not much you need to do to be a successful golfer. The challenge is not in figuring out some complexity, but in doing something very straightforward with exacting precision. More importantly, the challenge is in doing something with precision consistently.

In that way, golf is a lot like investing.

The first quarter of 2018 could serve as a good reminder about the true challenge with investing that we all face: staying consistent with simple but precise actions that must be taken over and over again to be successful.

Even in the best of markets, it can be difficult to be a disciplined investor who remains focused on your long-term financial goals. But just like when your buddies start crowing in the middle of your golf swing, adding in a flurry of background noise via market volatility and fluctuation makes the task of being a disciplined investor exponentially more difficult.

The Impact of “Noise” on Investors

The noise that was the market volatility of the first quarter of 2018 was much louder than what investors heard throughout all of 2017. For some, getting used to hearing that distracting, unpleasant “sound” has been a tough adjustment.

During the first few months of the year, we saw the stock market incur its first 10% correction in nearly two years. That’s in stark contrast to 2017, when 3% was the largest decline we saw all year.

In 2017, the S&P 500 only had 8 days in which it closed up or down by more than 1%. Compare that to the first quarter of 2018, when the S&P 500 had 23 days like this. Investors have been forced to embrace a new normal so far this year.

Did We Have Too Much of a Good Thing?

Stocks got off to a fast start in 2018, up more than 5% in the month of January as they picked up where we left off in 2017. The onset of market volatility was actually sparked by a strong jobs number in early February that was better than the market expected.

The strength of this key economic indicator ignited investor concerns that inflation was beginning to rear its ugly head. These inflation fears caused the stock market to lose its footing and stumble into its first correction in nearly 2 years.

One, Two, Three, Four; I Declare a Trade War

Just as the market was recovering from that inflation scare, the White House announced plans to add tariffs to all steel and aluminum imports. That sparked investor concerns over a trade war.

Soon after this announcement, the White House announced substantial tariffs targeting Chinese goods on account of China’s unfair trade practices and their theft of American intellectual property.

Less than a week after the steel and aluminum tariffs were released, the White House announced plans to exempt Canada and Mexico from the tariffs. Soon after, the entire European Union was added to the exempt list with more countries expected to come.

That’s part of the reason why we don’t believe the current Administration is interested in a massive trade war in which there would be no real winners. As the exemptions to the steel and aluminum tariffs illustrated, we believe these tariffs were created as part of a larger negotiating strategy as the U.S. attempts to improve existing trade agreements.

While a full-fledged trade war is unlikely in our view, we do expect the recent market volatility to persist for some time as ongoing trade negotiations take place.

The Difference Between High Rates and Rising Rates

Given the economy continues to grow moderately and the Fed announced another rate hike in March, some investors have started to worry about the potential effects of rising interest rates and the potential negative ramifications on the economy and stocks. This is a good time to point out there’s an important distinction between high interest rates and rising interest rates.

High interest rates can be a major liability to an economy. High rates increase borrowing costs for individuals and businesses which can reduce their inclination to spend. That, in turn, can cause an economy to slow or contract.

But this isn’t an accurate picture of where we sit today. Following the Great Recession, interest rates fell to historically low levels. While interest rates, both short-term and long-term, have risen from their post-recession lows, they still remain well below their long-term averages.

Most importantly, interest rates are not at levels that would significantly restrict economic growth. We expect rates to rise slowly over time as the economy expands, but the moderate pace of economic growth and current inflation level (which still remains below the Fed’s 2% target) indicate a rapid rise in interest rates is unlikely.

The Takeaway: Opt Out of the Noise

The volume of volatility in the first quarter raised a great deal of clamoring about the market. It took the noise to a level that, as an investor, you might not have experienced in some time.

The S&P 500 finished the quarter in negative territory for the first time since 2015, and only the second time in the past 5 years. Given the ongoing concerns of a trade war, we expect the market to remain fairly noisy as we move into the summer months. The relative quiet of 2017 seems to be but a distant memory.

We know there’s been an increase in market noise. But that doesn’t change what you should be doing to achieve your financial goals: focus on what you can control.

Make sure the riskiness of your portfolio aligns with the time horizon of your financial goals and your tolerance for risk. Rebalance when appropriate. Stick to your strategic, rational investment plan (while tuning out emotional impulses).

The best golfers demonstrate the ability to focus and concentrate on their primary objective while tuning out all the noise and distractions around them. The best investors do the same thing.

 

 

Visionary Wealth Advisors, LLC (“The Firm”) is an SEC registered investment adviser that maintains a principal place of business in the State of Missouri. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. In addition, this shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this serves as a substitute for personalized individual advice. Information contained in this presentation is derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.

3 Keys to My Investment Success

3 Keys to My Investment Success

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John Fischer, CFA®, CFP® | Chief Investment Officer
May 17, 2019

Most people find the process of buying a brand-new car exciting — stressful at times, sure. But it’s fun to shop around and get exactly what you want in a new car.

I recently went through this process myself, and found the experience bittersweet. Buying the new car also meant giving up the first car I ever owned.

My first new car meant so much when I bought it more than a decade ago. I didn’t love it because of how nice it looked or all its features. I loved that car because it was a symbol of how hard I worked to pay for it, to earn it.

At the time, I was just a couple years out of college. I had friends who were borrowing money to pay for a new couch for their apartment. I’m sure most people assumed I took out a big loan to buy the car.

But that was what gave me the most pride: paying cash for it, in an amount that cost nearly a year’s salary. That meant no loan, no debt to anyone. The car was mine.

I wasn’t able to pay cash for the car thanks to a large salary or a trust fund. I wasn’t a great stock picker, nor did I have sensational market returns. I was able to do it by focusing on what I could control and applying 3 simple investment principles.

These 3 keys to my investing success not only allowed me to buy my first brand-new car in cash, but they also set me up to build real wealth throughout my life — and they can do the same for you, too.

Pay Yourself First                                

Starting with my first job as a teenager, my parents taught me to put some money from every paycheck into savings before spending a dime. Ever since, my budgeting process always started with an aggressive savings goal that I funded first. Then I’d see if I could live on the rest of my earnings after contributing to that savings goal.

Many investors struggle to save as much as they should because at the end of the month, there’s no money left in the checking account to put into savings. One of the reasons I love the process of paying yourself first is you do the hard work upfront. If you pay yourself first and hit your savings target, then you can spend whatever remains to your heart’s delight with no second guessing or guilt. Key #1: Decide what to save first.

Automate Your Savings

It’s not easy to consistently make good decisions in life, over and over and over again. It’s difficult to make the choice to eat healthy, exercise, or save money on a daily basis. Making that choice every day for a week or a month is even harder. It can feel nearly impossible to do it for a year.

Why? Because you face temptations on a daily — or even hourly! — basis to go out to eat, skip the gym, or buy the latest tech gadget. As humans, we only have so much willpower. We can only make so many good decisions before we literally suffer from decision fatigue, and our ability to make the best choices starts to decrease.

That’s why we need to find ways to make good decisions once, not over and over again. Automating your savings allows you to do just that: make one good decision in your financial life, then set it and forget it.

Instead of having an internal struggle about whether to spend or save when you receive your paycheck, you can set up an automatic transfer to your 401(k) account, your IRA, and/or your savings account. You no longer have to make the good-but-hard choice with each paycheck, and you also save yourself the pain that may be associated with doing the responsible thing instead of the what-you-want-in-the-moment thing.

This strategy can also help you avoid the inherent traps of timing the market by having your monthly savings be invested automatically on a regular basis. Key #2: Make one good initial decision to automate your savings and eliminate the pain of making future good decisions.

Live Below Your Means

 As a teenager, my dad encouraged me to read the book The Millionaire Next Door. A New York Times bestseller, the book’s lessons are as valuable today as they were 20 years ago.

The author, Thomas J. Stanley, interviewed more than 1,000 millionaires to learn about their lifestyle habits and glean lessons others could apply to reach the same level of wealth. Through Stanley’s interviews and research, he found what surprised many: you would never know the vast majority of the interviewees were millionaires because they didn’t look like it.

They drove 10-year-old cars and wore non-descript clothes. They lived in modest neighborhoods and their possessions were modest, too. Most didn’t scrimp or pinch pennies to an extreme, but they weren’t lavish spenders, either. They were lavish savers, prioritizing their savings and investments to be rich instead of simply looking rich.

This book first taught me the difference between rich people and wealthy people. Rich people earn a lot of money. Wealthy people have accumulated a lot of money. Which group would you prefer to be in? Living below your means is one of the simplest ways to build wealth and achieve your financial goals. Key #3: It’s not what you earn, it’s what you keep.

Focus on What You Can Control

How is it possible that I could talk about the keys to my investment success and not mention the market, a stock, or my portfolio returns?

It’s because all those things are outside of our control — and they’re also much less critical to our long-term financial success than the areas in which we have 100% control.

Too often investors want to focus on market returns because making money is exciting. Discussing how much you save versus spend is not only unexciting and dull, but that conversation can also be a painful one to have. It’s necessary, though, if you want to build — and keep — real wealth.

You cannot control the stock market, whether Middle East tensions continue to escalate, if a trade war ensues, or when the next recession will strike.

You can, however, decide to pay yourself first, automate your savings, and live below your means. Habits – both good and bad – are hard to break. Establishing good saving habits is a gift that lasts a lifetime.

______________________________________________________________________________________________________

Visionary Wealth Advisors, LLC (“The Firm”) is an SEC registered investment adviser that maintains a principal place of business in the State of Missouri. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. In addition, this shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this serves as a substitute for personalized individual advice. Information contained in this presentation is derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.

2nd Quarter Market Review

2nd Quarter Market Review

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John Fischer, CFA®, CFP® | Chief Investment Officer
July 16, 2018

Should Investors Express Gratitude for Volatility?

Has there ever been a moment in your life where you felt sure you hit rock bottom? Looking back at that period in your life, consider how you felt in the moment: you probably felt like there was no bouncing back, but look at where you are now.

Maybe it was when you got laid off, but dealing with that challenge led to your dream job or your own business. Or it might have been when you experienced a catastrophic failure that became a tipping point on your path to success.

Blessings in disguise are difficult to appreciate because they hardly feel like blessings at all in the moment. It takes time and the perspective of hindsight to see the big picture in life — and often times, in your investment portfolio, too.

2018 marks the 10th year of the market’s economic expansion, but investors experienced an unusually rocky stretch for the first half of the year. In the past 2 years, the S&P 500 index closed up or down 1% a total of 54 times — and two-thirds of those days happened in the past 6 months.

A sharp uptick in volatility can test the will of investors to remain invested for the long-term. Market fluctuations often result in stocks declining, which can feel painful and alarming in the moment. But the fact that the S&P 500 still managed a positive return for the first half of 2018 despite the significant market volatility could be viewed as one of those blessings in disguise.

What’s $50 Billion in Tariffs Amongst Friends?

Escalating trade tensions between China and the U.S. served as a main driver of market volatility in the second quarter. While the billions in tariffs threatened by each country seem significant at face value, it’s important to view these numbers within context.

Total trade (imports and exports) for the U.S. in 2017 was $3.9 trillion while U.S. GDP was $19 trillion.1 As a percentage of total trade and the U.S. economy, these tariffs are quite small.

Still, those “small” tariffs could apply pressure to the economy as the price of goods goes up. That, in turn, could hurt consumer confidence. Additionally, tariffs will affect the supply chain of businesses, which could raise production costs and dampen companies’ views on further hiring and business investment.

We remain confident that the trade disputes will be resolved before we reach the point of a full-blown trade war. At the same time, real negotiations have yet to take place as the tariffs have gone from threat to reality. Investors shouldn’t expect this market risk to go away overnight. We’ll likely see ongoing spurts of market volatility as long as tariffs are headline news.

Despite Tariff Tiffs, the Market Remains Resilient

The market stayed afloat in the first half of the year despite concerns that ranged from geopolitical issues (with North Korea) and trade policy worries (with tariff disputes with China and other ally countries) to monetary concerns, with the Fed raising interest rates. The strength of the economy and corporate earnings allowed the market to tread water in spite of these perils.

The well-being of U.S. consumers did even more to support overall market performance, given the fact that these consumers make up two-thirds of U.S. GDP. Unemployment hit 3.8% in May, a level not seen since 2000. This low unemployment rate, along with improved wage growth, left consumers feeling increasingly confident and happy to spend (which supports the economy).

Meanwhile, the S&P 500 reported first-quarter earnings growth that exceeded 20% growth for the first time since 2010. Corporate tax cuts and the overall strength of the consumer and the economy played key roles here. While we’ll likely see the benefits of tax cuts to corporate earnings begin to fade in 2019, they should provide a nice tailwind for the rest of the year.

Bonds, What Are They Good For?

In June, the Fed announced another hike to the Fed funds rate. This continued climb caused some investors to question the value of owning bonds as part of their diversified portfolio.

It’s critical investors remember that the Fed funds rate is an overnight lending rate. While it directly impacts the direction of short-term rates, it has very little effect on intermediate and long-term bonds.

Since December 2015, the Fed has raised the Fed funds rate by 1.75%. During that time, 10-year Treasury yields increased by only 0.60% while 30-year Treasury yields didn’t rise at all.

Bonds are a valuable part of a diversified portfolio because when stocks are down, bonds are often up, thus cementing their role as an “airbag” for portfolios when stocks struggle. Thus, bonds help investors remain invested during the tough times when stocks have fallen.

In the final 2 weeks of the second quarter, the S&P 500 index was down 2% as investors worried about the impact of the looming tariffs. During that time, the U.S. Aggregate Bond Index was up, cushioning the impact of falling stocks and demonstrating the value of bonds as part of a diversified portfolio.

2018’s Volatile Market Offers a Blessing in Disguise

The current economic expansion is now the second longest in U.S. history. At the end of market cycles, we’ve historically seen investors display euphoric tendencies and adjust their portfolios to take more risk than they should. Then when markets turn volatile, investors lose more than they can tolerate, and sell at the worst possible time.

The recent market fluctuation is a timely reminder to investors that stocks are volatile and risky. For those investors who heed this lesson from the first half of 2018 and make sure their portfolio is not assuming more risk than they can tolerate, they will have learned the lesson without the pain of a market downturn.

The hardest part about blessings in disguise is that they’re difficult to see in the moment. We encourage investors to take advantage of the recent market volatility and review their portfolios to make sure the amount of risk represented there is aligned with their financial goals, tolerance for risk, and time horizon.

The alternative is learning the lesson the hard way when the next market downturn strikes.

 

Source: 1 Foreign Trade, U.S. Census, https://www.census.gov/foreign-trade/statistics/highlights/annual.html, 7/13/18

______________________________________________________________________________________________________

Visionary Wealth Advisors, LLC (“The Firm”) is an SEC registered investment adviser that maintains a principal place of business in the State of Missouri. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. In addition, this shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this serves as a substitute for personalized individual advice. Information contained in this presentation is derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.

Ryan Barke named as General Counsel & Chief Compliance Officer

Ryan Barke named as General Counsel & Chief Compliance Officer

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Ryan Barke | General Counsel & Chief Compliance Officer

JULY 30, 2018 – Visionary Wealth Advisors  announced today that Ryan Barke has joined their firm as General Counsel and Chief Compliance Officer.

“Ryan’s knowledge, expertise, and legal background will continue to help our Visionaries serve our clients in the fiduciary manner that we do,” said Visionary CEO and Co-Founder Brett Gilliland. “His serving attitude and passion to work hard will enhance our team. We are extremely excited about Ryan’s addition to Visionary Wealth Advisors.”

Mr. Barke will leverage his nine years of industry experience at Greensfelder Law Firm and Scottrade.  At Visionary, he will be responsible for establishing and implementing procedures to ensure VWA’s compliance with securities laws and regulations in addition to providing legal guidance to the Executive Team.

“Visionary clients and advisors will benefit from Ryan’s industry experience and leadership,” said Visionary President and Co-Founder Tim Hammett. “His values-based beliefs are in alignment with Visionary’s founding values of faith, family, and community.”

Ryan received a Bachelor of Science degree from Illinois College, Master’s Degree from Western Illinois University, and attended law school at Southern Illinois University Carbondale. He lives in O’Fallon, Illinois with his wife, Laura, and their 3 children; Landon, Liam and Emma.

He is a Board Member of the Illinois College Alumni Association and enjoys reading, running, playing basketball, and spending time with his family.


Do You Eat Your Financial Veggies?

Do You Eat Your Financial Veggies?

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John Fischer, CFA®, CFP® | Chief Investment Officer
August 27, 2018

As a child, the idea of eating vegetables seemed as appealing as taking a cold shower. My parents would rave about how I would become big and strong if only I ate my veggies. Despite all their promises of the long-term benefits of such foods, I couldn’t get past the short-term pain of eating something so distasteful.

As adults, we still face this struggle: there are things we need to do for our own long-term benefit, but these to-dos often come with short-term pain or discomfort.

Though we may have left the picky eating habits of our childhoods behind, we may still find it hard to eat our “financial veggies,” or portions of our financial plan that we’ve ignored or put off because the idea of tackling these topics feels so unpleasant.

Sometimes, you know that addressing these areas would put you in a better financial position and closer to the future you want for your life. That still doesn’t make it any easier to deal with the short-term distaste of tackling them.

But as we mature from childhood into adulthood, most of us accept that eating vegetables is simply a habit we need to build to lead healthy lives — and in building that habit sometimes we realize we actually like the taste of some of those greens.

The same can happen with your finances when you accept there are some good habits you simply need to adopt. Here are a few of the more common “financial veggies” that investors struggle with today — and how addressing them can actually leave you feeling more satisfied with your financial plan.

The Gift That Keeps on Giving: Your Budget

Having a budget can seem like something young people must do when their incomes are small and they’re merely trying to survive. Budgets feel less important as we age because of our higher incomes — and the perception that budgeting is a tool to be used when in survival mode.

The truth is, the key to a good budget is not financial restraint but rather financial awareness. A budget helps investors be more aware where their money is going on a weekly, monthly, and annual basis.

This awareness can help individuals identify areas of spending that may be offering little value to their lives. Having that realization can allow someone to take the next step of reallocating that money to areas of life that provide more joy and satisfaction.

A helpful tool for a better budget? Automate your saving through direct deposit from your paycheck to your savings accounts. This way, you don’t see or feel the pain of saving; what’s left in your checking account can be spent without remorse.

Just as an ongoing awareness of your diet can help insure you live a long, healthy life, maintaining a budget can protect your ability to meet your lifelong financial goals.

The Best Time to Buy an Umbrella: Before You Get Soaked

Since the low point of the Great Recession in 2009, the S&P 500 is up nearly 300%.1 The terrific success of the S&P 500 over the past 9 years has many investors feeling healthy, wealthy, and wise.

Given the length and strength of this bull run, it’s easy to forget that in a short 18 months prior to March 2009, the S&P 500 lost more than half of its value catapulting investors to the sidelines as they could no longer take the agony of staying invested.2

In these merry times, it’s easy to get overconfident and overaggressive with our investment decisions given it’s been so long since we’ve felt the pain of a significant market decline like 2009. But now is the perfect time to protect against the inevitable change in market conditions.

After all, the best time to buy an umbrella is before the storm.

It’s impossible to predict the timing of the next market storm, which is why now is a great time to rebalance your portfolio allocation to stocks and bonds and make sure the risk in your portfolio doesn’t exceed your comfort or capacity for risk.

The Most Important Part of My Financial Plan

As CIO at Visionary, my passion and daily responsibilities center around investments. So it might surprise you to hear that the foundation of my financial plan – what gives me the most peace of mind – is not my investment portfolio.

Before considering how to grow my family’s nest egg, my first priority is protecting it from catastrophic risks such as death, injury, or litigation. Having life and disability insurance protects my most valuable asset – my ability to earn income year after year to provide for my family. An umbrella insurance policy reduces the risk of financial loss to my family in the event of a lawsuit.

Investors are usually most interested in talking about investment returns. But it’s critical to remember that missing the hot stock or earning 6% instead of 7% is unlikely to wreck your family’s financial future. Incurring a lawsuit, disability, or death in your family without being properly insured, however, certainly may.

The Best Gift You Can Give Your Kids

It’s not too early to get the perfect gift to tuck under the Christmas tree that your kids, young or old, will value more with each passing year: a completed estate plan.

That might sound dull (or worse), but the financial and familial costs of not having an estate plan at death can be significant. Deciding who will care for younger kids or how assets will be divided among older kids after you have passed should be the cornerstone of your financial plan.

An estate plan may also assist you in times of incapacity such as an accident or stroke. Having a power of attorney for both your financial and healthcare decisions can save your family valuable time and money if you become incapacitated — while also providing you assurance that your wishes will be followed.

Dealing with the stresses of a lost loved one are difficult enough on their own. Having an estate plan can ease the burden on your family during a very emotionally-charged time and help to prevent family disagreements that could result in irreparable harm to relationships after you’re gone.

Eating Your Financial Veggies Can Provide You with Better Financial Health

While the specific type of financial veggie you prefer to avoid may vary, we all have areas of our financial plan that need extra attention to achieve financial health.

As children, we were fortunate to have parents that held us accountable to eating our veggies to make sure our long-term best interests weren’t endangered by our short-term aversions.

A good financial planner can offer investors that same accountability to help ensure your aversion to the financial equivalents of green beans and brussels sprouts doesn’t jeopardize the long-term goals you hold for your wealth. You might even come to learn that your financial veggies are much more enjoyable than you ever considered.

 

Source: 1,2 Morningstar

 

______________________________________________________________________________________________________

Visionary Wealth Advisors, LLC (“The Firm”) is an SEC registered investment adviser that maintains a principal place of business in the State of Missouri. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. In addition, this shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this serves as a substitute for personalized individual advice. Information contained in this presentation is derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.

Visionary adds Drew Geldbach as a Wealth Management Advisor

Visionary Wealth Advisors Adds New Wealth Management Advisor

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October 3, 2018 – Visionary Wealth Advisors has added Drew Geldbach as a Wealth Management Advisor to serve clients out of their Brentwood office.

Visionary Co-Founder and President, Tim Hammett said, “We are excited to add Drew to our team of professionals. Drew is aligned with the values of Visionary and applies those same values to his client relationships.”

Geldbach has 5 years of experience in the industry and will continue to provide financial planning services. “I was drawn to Visionary because I believe that no two clients are the same. I strive to assist in client in achieving their goals. At Visionary, I am able to learn the client’s unique financial situation and put their needs first,” says Geldbach.

Brett Gilliland, Visionary Co-Founder and CEO said, “Drew’s alignment with our values and always putting his client’s first makes him a fantastic addition to the firm.”

Visionary Wealth Advisors is an independent Registered Investment Advisor, founded in March 2014 by Brett Gilliland and Tim Hammett. Visionary Wealth Advisors provides a visionary approach to all aspects of financial planning and wealth management including retirement, family office services, college and estate planning, life, health and disability insurance and small business retirement plans. Visionary Wealth Advisors’ has offices in St. Louis, MO, Edwardsville and O’Fallon, IL, Palm Beach Gardens, Florida, and Buena Vista, Colorado.

 

Third Quarter Market Review

Third Quarter Market Review

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John Fischer, CFA®, CFP® | Chief Investment Officer
October 15, 2018

What Do Investors See?

As we round third base and head for home in 2018, the current market climate reminds me of those Magic Eye books that featured page after page of autostereograms. Autostereograms are 2D patterns that, if you look at them in the right way and for long enough, allow you to see a 3D image.

But not everyone can see the hidden image in autostereograms. I’m one of those people. All I ever see is all the random colors repeated across the pattern, which distract me from seeing the real image.

Investors seem to be faced with the same problem of late when it comes to the market. Various surrounding images capture investors’ attention and distract them from what’s truly important. These distractions prevent investors from focusing on the important market fundamentals.

Let’s take a look at some of these pictures that could tempt you from your strategic investment course if you’re not careful.

The Political Merry-Go-Round

The nomination and recent confirmation of Brett Kavanaugh as a Supreme Court justice has been a persistent headline recently. While the nomination has been a polarizing one, the outcome and effect of this decision should be felt much more politically than economically in the U.S.

Investors are also beginning to turn their attention to mid-term elections in early November. Democrats could take back either the House or the Senate, and have an outside chance of winning both sides of Congress. We certainly expect to see heightened market volatility leading up to the election given the uncertainty of the outcome, similar to what occurred two years ago leading up to the presidential election.

But we caution investors against making any knee-jerk reactions with their portfolio leading up to midterms. Since 1950, the S&P 500 index has averaged a return of more than 13% in the 12 months that followed midterm elections. Furthermore, the S&P 500 index has never had a negative return in the year that followed midterm elections since 1950.1

Why have markets performed so well following midterm elections? History suggests that the certainty created by the outcome of elections, since we’ll know who will be in office, combined with a potentially more productive Congress could be reasons for market optimism . Still, we caution investors against making any speculative investment decisions, whether they be driven by optimism or pessimism.

Rising Interest Rates

Another current distraction for some investors is the fact that the Federal Reserve raised its key interest rate to 2.25% in September. This is its highest level since 2008 and the third such rate hike in 2018.

The rise in interest rates caused some consternation among some investors who fear that higher inflation and interest rates will soon cutoff the economic growth engine in the U.S. and kill the bull market in stocks.

It’s important to view these rate increases within context. The Fed has been raising rates because low unemployment rates and consumers with more money in their pockets have produced an accelerating economy that continues to gain momentum. It’s the Fed’s job to make sure the economy doesn’t overheat due to runaway inflation.

The rate increases by the Fed are being driven by a strong economy (a good thing!) with the hopes of prolonging this economic expansion for as long as possible. While we expect interest rates to eventually reach a level that negatively impacts economic growth at some point in the future, we’re not near those interest rate levels if past market cycles are any indication.

Tariffs & Trade Agreements

Finally, we’ve seen the U.S.’s trade relationships garner a lot of attention as investors keep a close eye on our trading partnerships. Some investors feel concerned that tariffs could slow both domestic and global growth. The recent trade agreement between Canada, Mexico, and the U.S. should ease the anxiety of those investors concerned about the effects of tariffs for several reasons:

First, the U.S.’s total trade with Canada and Mexico is nearly double that of China year-to-date through July.2 Second, the agreement may also serve an additional benefit of putting pressure on China to return to the negotiating table following an agreement that should unify North America.

Ultimately, trade with China represents a very small fraction of U.S. GDP. Given that roughly 70% of the U.S. economy is driven by consumer spending, we suggest focusing more attention on the health of the consumer than the current trade dispute with China.

What’s the Image in the Background?

With all of these distractions in the foreground view of investors, it’s no surprise that it can be difficult to see the market’s “3D image” in the background.

What lurks behind the market distractions is a powerful image of an economy that experienced GDP growth above 4% in the second quarter for the first time since 2014. This economic strength is bolstered by an unemployment rate below 4%, wage growth at its highest level since 2009, and a relatively low interest rate environment.

Seeing the 3D Image

The foreground headline images of Supreme Court nominations, midterm elections, interest rates, and tariffs can be blinding even to a disciplined investor. While we expect these distractions to provide some ongoing volatility to the market, we urge investors to look a little closer instead of feeling tempted to make speculative moves.

If you can disregard what are likely little more than market distractions, you should like what you see. When you consider the solid fundamentals of economic and earnings growth underpinning this bull market combined with interest rates that remain low from a historical perspective, it’s a recipe that should bode well for this economic expansion to continue.

Sources: 1 Morningstar, 2 https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html

 

 

______________________________________________________________________________________________________

Important Disclosures:  Visionary Wealth Advisors (“VWA” or the “Firm”) is an SEC registered investment adviser. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent version is available on the SEC’s IAPD website at www.adviserinfo.sec.gov.
This Market Review (“Review”) is provided for informational purposes only.  The Review should not be construed as personalized investment, tax or legal advice, including the recommendation to engage in a particular investment strategy.  This Review, by itself, does not contain enough information to support an investment decision.  All information in this Review is considered accurate at the time of production, but no warranty of accuracy is given.
Furthermore, investors should not assume that future performance of any specific index, security, investment product or strategy referenced in the Review, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s).  Past performances referenced in the Review may not be indicative of future results and may have been impacted by events and economic conditions that will not occur or prevail in the future.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices referenced in the Review are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products.  Investing involves the risk of loss and investors should be prepared to bear potential losses, including the full amount invested.

Cyber Security Checklist

How Lessons from Giving Blood Can Make You a Better Investor

How Lessons from Giving Blood Can Make You a Better Investor

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John Fischer, CFA®, CFP® | Chief Investment Officer
November 19, 2018

How many people do you know enjoy being stuck by a needle? Whether it’s for a flu shot, blood work, or giving blood, most people aren’t particularly fond of getting poked with a sharp object.

So what should you do if you feel motivated to do something like donate blood because you know it serves an excellent purpose, but feel some degree of fear about the process? You can try what I do: don’t look.

I regularly donate blood because it makes me feel good to know my action could help someone in need. (Plus, there are the snacks and cookies you get afterward.) But I can only do this because I’ve trained myself to not look at the short-term discomfort of the needle going into my arm.

Instead, I focus on the important reasons I put myself through the process in the first place.

What Good Blood Donors and Good Investors Have in Common

The recent market fluctuations we’ve seen made some investors feel as though they were getting pricked with a figurative needle. While market volatility is a normal part of investing, the tranquility of the summer months made the recent ups and downs feel anything but normal, especially combined with the uncertainty leading up to mid-term elections.

The discomfort and even the fear we feel when we walk into a blood donation center or see the market take a downward turn can be very similar… but that suggests the solution can be similar, as well: look less.

I don’t look at the needle the nurse picks up nor do I look when they begin drawing blood. And when it comes to investments, I tend to look at my portfolio much less frequently when markets get volatile. I don’t want to see the bad news of the stock market sticking a figurative needle into my arm because I know looking more frequently increases the chances of poor investment behavior.

Both blood donors and good investors know better than to watch every single movement when they know some of the specific actions that are a normal part of the process cause pain or fear. Instead, they focus on the bigger picture or long-term goal to get through that short-term discomfort.

Where Science and Behavior Intersect

 The biggest obstacle most of us face to financial success is our own behavior. We often want to make all the wrong decisions at all the wrong times for what can, in the moment, feel like all the right reasons!

As children, we learn the instinct of pain avoidance very quickly.  When our finger hurts from being on a hot oven, the quickest way to stop the pain is to stop touching the oven.

It’s those instincts that makes investing more difficult, as our instincts tell us that we should stop investing (i.e., sell) when it’s painful.

Many investors sold stocks and went to cash in 2008-09 as the S&P 500 lost more than half of its value over an 18 month span. If an investor would have bought, or simply remained invested in the S&P 500 in early 2009 and done nothing instead of selling, they would have earned almost 18% per year including dividends reinvested to present time.

That’s almost double the long-term average return of the S&P 500.2

By looking less frequently at my portfolio when stocks are falling — which is when I would be most vulnerable to making an emotional rather than rational decision, and when I may be better off not taking any action — I feel less inclined to make the “wrong decisions” that so-often hinder our ability to achieve our financial goals.

Understanding Our Natural Aversion to Loss

Another reason why many average investors make poor choices at bad times is due to a cognitive bias known as myopic loss aversion.

Human beings are hardwired to feel a greater amount of pain over a loss than the pleasure we feel for a similar-sized gain. That natural loss aversion, combined with the habit of looking at portfolios more frequently, can make any investor more susceptible to making poor choices.

This isn’t just anecdotal. One scientific study1 proved this happens by splitting investors into two groups. One group got the assignment to make portfolio decisions on a monthly basis; the other group made portfolio decisions only on an annual basis.

The study found that investors who reviewed their portfolio on a monthly basis ended up with a much more conservative portfolio of 41% stocks and 59% bonds than the group who reviewed their portfolio on an annual basis, where investors ended up with a portfolio of 70% stocks and 30% bonds.

In other words, according to the study, investors who looked at their portfolio most frequently took the least risk and earned the least money in the long-run, regardless of the investor’s objectives, risk tolerance or time horizon. Why? The study suggests that by looking at their portfolio more frequently, those investors felt more pain caused by loss.

Seeing the Forest Through the Trees

Your goal as an investor is not to avoid all pain and ignore any market downturns. Rather, your goal should be to cultivate an awareness about your own behavior and how your natural tendency to react in different situations — especially situations that threaten you with losses — can create a significant effect on your success as an investor.

I don’t watch the nurse put the needle in my arm when I go to donate blood because I know by watching, it raises the chances of my bad behavior and increases the risk that I won’t achieve my ultimate goal of giving blood to save lives.

In other words, if I watch and feel that pain more acutely, I’m less likely to return to donate in the future.

In the same way, watching your portfolio in turbulent markets may increase your risk of making emotional decisions or reacting to loss rather than sticking to your strategic plan.

By making a concerted, disciplined effort as an investor to look at your portfolio less frequently (especially when it’s down), you can reduce the chances of making poor investment decisions and raise the likelihood of ultimate success in achieving your financial goals.

Source:    1 Thaler, R. H., A. Tversky, D. Kahneman, and A. Schwartz. “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test.” The Quarterly Journal of Economics 112.2 (1997)

2 Morningstar

 

______________________________________________________________________________________________________

Important Disclosures:  Visionary Wealth Advisors (“VWA” or the “Firm”) is an SEC registered investment adviser. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent version is available on the SEC’s IAPD website at www.adviserinfo.sec.gov
This Market Review (“Review”) is provided for informational purposes only.  The Review should not be construed as personalized investment, tax or legal advice, including the recommendation to engage in a particular investment strategy.  This Review, by itself, does not contain enough information to support an investment decision.  All information in this Review is considered accurate at the time of production, but no warranty of accuracy is given. 
 Furthermore, investors should not assume that future performance of any specific index, security, investment product or strategy referenced in the Review, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s).  Past performances referenced in the Review may not be indicative of future results and may have been impacted by events and economic conditions that will not occur or prevail in the future.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices referenced in the Review are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products.  Investing involves the risk of loss and investors should be prepared to bear potential losses, including the full amount invested.
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