It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena…o that his place shall never be with those cold and timid souls who neither know victory nor defeat. Theodore Roosevelt, 26th President of United States
PLANNING COMMENTARY
100 years ago people were very obviously facing challenges- economic and other- much like they do today. Roosevelt was very wise to point out the fact that facing those challenges head on is what we should all strive to do. We would further this thought with one of our own- if one decides not to face those challenges (note that doing nothing is a decision) and “stick their head in the sand” they will most certainly fail.
This speaks very strongly to planning for one’s financial future. There are those that decide to ignore the future and its challenges while crossing their fingers and hoping that “it will all work out.” Then there are those individuals that are proactive about their financial life and goals by seeking out more sophisticated solutions to the challenges they face.
In addition to jumping into the arena (we would equate this with getting started with wealth planning) Roosevelt points out that one must “actually strive to do the deeds.” We would equate this with preparing written action items as part of the plan to ensure the appropriate actions are taken (not only discussed). We’ll keep working hard to help our clients recognize their challenges and overcome them with proactive action and advice.
MARKET COMMENTARY
Markets for August were much like the quote to start this letter. Investors generally did not want to get “in the arena” and could well be characterized as “timid souls”. The S&P 500 ended the month down about 4% leaving it down year-to-date by a similar amount as investors continued to avoid the risk of equities and instead sought the perceived safety of government bonds.
The inflows to bonds left the yield on the 10-year U.S. Treasury bond for August month-end just under 2.5% (this same bond was yielding 4% in April of this year). At the same time the price-to-earnings (PE) ratio for the S&P 500 is now under 12x (using forward 4 quarters estimated earnings). The stock yield is seen as the inverse of the PE or 1/12 which expressed as a percentage yield is over 8%. Many market observers are now pointing to the present gap between stock yields and the 10-year treasury yield as evidence of significant valuation opportunity for the owners of stocks. This strong argument for valuation has seemingly been more than offset at present by worries over the economy with the result being the August market declines.
In July Payne Wealth Partners moved our portfolio allocations to neutral, being the mid-point between our highest and lowest allowable allocation to equities for any particular risk level. This change was made based upon the attractive equity valuation argument, as prior to this we were under-allocated to stocks. We still believe this is appropriate as we observe money in markets we would characterize as “fearful” continuing to flow to bonds and wonder when those funds will return to stocks and push prices up.
We also continue to believe in the economic growth and strong currency story of the emerging markets, resulting in significant allocations in client portfolios to both stocks and bonds of emerging market countries including China, Brazil and India. Demographic forces generally favor these countries with younger workers who are improving their economic circumstances and will expand their consumption of goods and services.
Payne Wealth Partners will continue to work to stay “in the arena” by helping our clients make important planning steps and maintain the appropriate diversified portfolios in these challenging times. As always, we thank you for your trust in each of us and in Payne Wealth Partners.
