Long before Dear Abby first appeared in the San Francisco Chronicle in 1956, we have been seeking the advice of others. The Athenian Mercury, considered by many to have published the first modern advice column, put reader questions in print in the late 1600s.1
While it is now possible to obtain the answer to most any question by checking Google or asking the nearest voice assistant, we sometimes hesitate to follow up on the weighty issues associated with our financial goals. But such questions are essential to our financial well-being, even if the answers are not as instantaneous as finding out the seven-day weather forecast or checking the showtimes at the local movie theater. We move forward with our financial plans because we have the knowledge and confidence to proceed accordingly.
Thus, dear readers, in the spirit of answering a few questions that might be on your mind, we address the following relevant topics.
Q. Since the beginning of the year, the market has been up significantly. What’s the harm in trying to predict the market for the remainder of 2019?
A. Regarding portfolio performance for the first half of 2019, it is noteworthy to have double-digit returns follow a year of relatively poor returns (the MSCI All Country World Index Net lost 9.41% in 2018 and was up 16.23% in the first half of 2019). It may feel as if now is a good time to attempt to time the market (perhaps to lock in gains or protect against future losses) or adjust your portfolio without having changes in your investment objectives or financial circumstances. But since neither you nor anyone else can predict the future, the best course of action is to stay disciplined and remain diversified.
Q. Last year was a rough year for the bond market. Has the tide turned for fixed income in 2019?
A. Bonds have had a strong showing so far in 2019, which is worth mentioning especially given the level of concern about fixed income in late 2018.2 Less than a year ago, people thought the Federal Reserve would be hiking interest rates even more aggressively and that rates could only go up. In January, most of the respondents in The Wall Street Journal survey of economists predicted interest rates would rise in the first half of the year, and some predicted an increase of more than 1%.3 Not one respondent predicted rates would drop below 2.5%, which highlights the fruitlessness of predicting things that are effectively unpredictable.
From December 31, 2018 until the end of the second quarter, yields on 10-year Treasury bonds have dropped almost 0.7% and now the consensus is that the Fed is going to start cutting rates instead.4 The good news is that lower rates mean bond prices are higher. The downside is that lower interest rates mean lower future returns are expected.
Q. What is the most important consideration in ensuring that our money lasts for a lifetime?
A. It’s different for individuals who are currently saving versus those who are retired. For those currently saving, creating a savings plan (one that outlines how much to save and which accounts to use) is the most critical part of making sure you are going to be ready for retirement. Your advisor can help you assess whether you are on track for where you want to be and if not, what can be changed to make sure you get there.
For those already in retirement, understanding how much spending money can be generated from Social Security, pensions and your portfolio is essential. Your advisor can help you review your spending needs to ensure they are fully covered and should be checking in on a regular basis in the event of any changes.
In closing, we offer for your enjoyment several questions from The Athenian Oracle (1703).5
Q. Why is thunder more terrible in the night time?
A. In the dead of night, noises are rendered more distinct and consequently more terrible by the universal stillness everywhere else.
Q. What’s love?
A. Love, and you’ll know … We’ll give you the best description we can of that passion, which we have some reason to know … ‘Tis a mixture of friendship and desire, bounded by the rules of honor and virtue … Love, being a medium between pure friendship and perfect desire, ‘tis warm enough to keep friendship from an ague, but not so furiously hot as to set all on fire.
Q. Is there, do you think, a large part of the world still left to discover?
1 Adrienne LaFrance, “The Questions People Asked Advice Columnists in the 1690s.” The Atlantic, May 1, 2015.
2 Bonds as proxied by the Bloomberg Barclays U.S. Aggregate Bond Index.
3 Avantika Chilkoti and Daniel Kruger, “Some Investors Had Hunch Yields Were About to Fall.” The Wall Street Journal, June 9, 2019.
5 Adrienne LaFrance.