Two retirement numbers to remember

One of the most complex decisions people face today is financial planning for retirement. With the well-documented transition from state and company sponsored pension plans to individual IRA and 401(K) plans, much of the burden has shifted from financial professionals onto individuals. Recent research from Wells Fargo and Gallup shows that few investors understand the key steps needed to plan for and pursue the retirement they desire and deserve.

Change is hard, but it’s part of life. A big change some investors may have noticed over the past few weeks is the move up in Treasury yields. The 10-year Treasury yield, as of 2-1-18, has gone up to levels we haven’t seen since April 2014. While that’s a rather large move up, in a historical context, yields are still very low.

The steady rise in Treasury yields has accelerated in 2018. Perhaps as notable, long-end rates, which proved immune from the upward pressure last year, have risen 0.40% since year-end to 3.14%. The increase across the yield curve is likely a result of the Federal Reserve’s tightening of monetary policy, better-than-expected global growth, the likelihood of a growing federal deficit, and signs of an uptick in inflation. In this blog post, we’ll assess how macro developments have affected the fixed income space, with insights for investors on what to keep in mind amidst volatile conditions.

The early-February market selloff was the largest weekly decline in two years. Intraday volatility was significant, with opening rallies concluding in selloffs and opening selloffs rallying into the close. Multiple factors contributed to the market swings, including elevated valuations, exuberant investor sentiment, and aggressive investor positioning. While many investors no doubt found the weeklong market fluctuations jarring, it’s important to remember that opportunities may be created by rocky market conditions. In this blog post, we’ll delve into those potential opportunities, with a focus on fundamentals.

When talking with investors, it’s almost like they think of the world in BTR and ATR terms—Before Tax Reform and After Tax Reform. Many people were surprised that tax reform took a matter of a few months rather than a matter of a few years. As we discussed back in October, when surprises happen, markets move. That’s why the “golden key” to investing is to have better expectations than others. However, that’s really hard to do on a consistent basis. Those who anticipated tax reform would get done were likely duly rewarded for their foresight.

The State of the Markets

The famous investor Sir John Templeton once said, “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,” a quote that links the market to cycles of human emotion. The questions I get all the time are, “Where are we in this bull market?” and “What should I do now?” Well, I would say we are in the place of optimism with some euphoria sprinkled in. Does that mean we are getting closer to the death of this bull? I don’t think so — even when the market drops several hundred points as it did this week in Tuesday’s trading session. But let’s review exactly what all the key variables look like right now.

Income investing is hard when income seems scarce. Even the yield on the Bloomberg Barclays U.S. Corporate High Yield Index doesn’t seem all that high. As of 1-3-2018, the yield to worst on this index was 5.65%, well below the average of 9.12% for the 1987 through 2017 period. Even adjusting for inflation, that yield seems a little skimpy. Inflation—as measured by the year-on-year change in the consumer price index—averaged 2.6% for that time period, with the most recent reading for November 2017 coming in at 2.2%. It is no wonder that income-oriented investors are probably looking for alternative sources of income, and casting a more global net across multiple asset classes.