One of the fun things about being a financial advisor is doing an annual review with clients to look back on the performance of their specific portfolios last year and then talking with them about what the broader market might do going forward. Here are some of the topics we address:
A Brief Recap of 2019
The economy has been strong, strong, strong over the last few years. Almost every equity market world-wide posted positive returns (Argentina and Chile are notable exceptions). In the bond market, rates dropped 60-80% across the 1 to 30 year notes, making credit much less expensive to access worldwide.
Closer to home, it’s no secret that Private Equity firms have been purchasing optometric practices at historically high levels and values, although deal volume across all markets was down slightly from 2018. Does this mean that PE interest in optometric practices is due to slow down in 2020? I don’t have a crystal ball, but there is a lot of money sitting on the sidelines (an estimated $1.43 billion, an all-time high) waiting for lower values on target companies.
Not surprising to anyone who has tried to hire good help in their practice, unemployment rates (a lagging economic indicator) hit the lowest levels since December 1969, ending the year at 3.5%. This makes filling open positions difficult and expensive in America.
Forecasts for 2020
Political uncertainty headlines 2020 between impeachment discussions, trade wars and souring relations between the US and Iran. (of note, the stock market overall has done pretty well in periods of war)
Other headwinds include speculation about overheating in the corporate bond market due to loose credit and low rates, the decline in stock market fundamentals such as Price to Earnings ratios and dividend yields. Additionally, many economists think that Europe is at the beginning of a recession.
The stock market still seems to be rising and that’s a good thing. But the yield curve hit a 3-month negative curve last September, which is the only historic predictor of a recession. And yes, one is coming eventually as we are in the longest bull market of our lifetimes, but will it be this year? In short, 2020 is far from being a year with a clear future.
How ODs should Approach This Year
So given all the uncertainty, what should a doctor do with their investment portfolio? If it's structured correctly, nothing. Even with the best of information, there aren't any rules we can rely on about when markets downturns will happen. My best advice is to take a long term approach and don’t try to time the market which is incredibly difficult for professional investors to do, much less amateurs.
For that reason, a big part of my job is to help clients develop a portfolio they are comfortable with through good markets and bad. We regularly re-balance to take advantage of market gains and buy into market pullbacks.
FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY.
The views expressed here are as of the date of publication and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer (or recommendation) Hayes Wealth Advisors to sell or provide, or a specific invitation for any investor. Information herein may have been obtained from sources believed to be reliable, Hayes Wealth Advisors is unable to warrant its accuracy.
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