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You can find reports from our Investment and Research team, timely and informative financial planning topics from our Wealth Management team, and deeper dives on various important topics in our white papers from any team member. Read online, share with friends, or download for your convenience.

by Chief Investment Officer Benjamin W. Jones, CFP®, AIF®

AllegiantPA Economic Dashboard Portrait September 2018
Our Economic Dashboard remains completely green. However, prudent investors should always prepare for the next downturn. And, just as you prepare for a hurricane when things are calm at the start of hurricane season, investors should prepare for a market downturn when markets hit all-time highs. We are entering the investment world’s equivalent of hurricane season. 

As such, Allegiant developed our own proprietary Pre-Recession Checklist utilized for each and every client. Click here for more details.

Chart Expectations vs Current Situation

With U.S. consumer confidence hitting an 18-year high this past month, it is safe to say that Americans are feeling pretty good about the current economic environment. However, if you look below the surface, this extreme level of optimism may actually be a cause for concern. The chart above shows the spread between how confident consumers feel about their current situation compared to how confident they feel about the future (current situation – future expectations), while the red shaded vertical lines indicate recessions and how long they lasted. What is interesting is that when the spread between these two widens significantly, generally a recession follows shortly thereafter. As of today, we are seeing the second widest gap between the indicators in history, surpassed only by a reading during the Tech Boom of the late 1990s. This chart is a great reminder that when everyone around you is feeling extremely confident about the economy, it is wise to step back and remember that all economic booms come to an end at some point. While the majority of economic data in the U.S. still remains robust, the team at Allegiant understands that at some point the economic tide will turn, and we will make changes to our client portfolios along the way to ensure that they are ready for whatever the next few years may bring.

As financial professionals, we are frequently reminding people that the future is uncertain. In discussions of the investment market, we hear others say that there’s no crystal ball, that they are only making an educated guess, or, as a favorite economist once put it, “To make a good prediction, state what is going to happen, or when it’s going to happen, but never both.” While most investors understand that the lack of predictability in the markets is inherent, we often overlook the fact that our own futures are equally unpredictable. Financial plans, the gold standard of many advisors, require intensive budgeting, predictions of future spending, and understanding how you will feel about risk and safety in the future. These inputs are then used in conjunction with scenario analysis to determine how achievable your goals truly are. As with any engineering, the better the inputs, the better the outputs. However, like the markets, not one of our clients has a crystal ball that enables an accurate vision of your future life. So, if the actual result will certainly be different then the predicted outcome, why go through a financial planning process at all? There are a few very good reasons. 

The phrase “avoid probate” is well-known in the legal and financial industries. However, the average individual is often left without an explanation or understanding of what probate actually is and the related proceedings. Probate is the public legal process that takes place after an individual’s death when court proceedings properly distribute a deceased person’s assets to the rightful beneficiaries. Leaving a will directs the probate court to carry out the specific directions as listed within the will. If a will does not exist or is not found, then it is the court’s duty to ensure that all assets are distributed according to the state’s laws and statutes, which is almost always a sub-optimal outcome for the family and heirs. One of the primary reasons why individuals may want to avoid probate is the total lack of privacy. Generally, there remain no restrictions for the public to access the proceedings and filings. Family assets long kept private are suddenly open to the public. Probate is also costly: on average, costs may range between 5 to 10% of the gross estate value. Expenses can include appraisal and attorney fees, federal and state estate taxes, and other unforeseen expenses. Lastly, the probate process is lengthy. In general, the larger and more complex the estate, the more time it takes for the courts to finalize distributions to beneficiaries. 

Over time, insurance companies have altered their products so that now there are numerous plan options and an all-time high level of complexity. Combined with a lack of consumer familiarity with insurance jargon and contract language, making a purchasing mistake has, ironically, never been easier. Priority, however, should always be placed on selecting the correct product with the appropriate characteristics to best match each individual’s need. This short piece will focus on term insurance, perhaps the easiest form of life insurance in many situations.

Chart Housing Sept 2018

The majority of U.S. economic data has been very healthy in 2018. However, recent data in the housing market has been one weak spot. The chart above shows the level of U.S. housing starts and building permits. Both building permits and housing starts have lost momentum in recent months. The short-term movements in both data sets can be volatile; however, we have now seen consecutive months of a slowdown. There are a few factors that we believe may be contributing to the slowdown: a rise in mortgage rates which makes buying a home less affordable and an increase in housing input costs, partially caused by recently enacted tariffs. The recent dip in housing data is no cause for panic, but this is a sector of the economy that we are paying attention to, especially given the current economic and political environment.

One would have to take a trip back to the year 2000 to see a consumer confidence reading that is higher than the one posted today. This week’s chart displays the consumer confidence reading going back to 1985, with recessions being displayed in the red shaded bars. The August 2018 reading beat expectations of 126.6 on the back of strong survey data from consumers on current and future expectations for employment, business conditions, and income. Consumer confidence is one of the key indicators we track at Allegiant, and at current levels it’s still a positive for the economy.

Chart ConsumerConfidence

All indices are managed, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. Past performance does not guarantee future results.

APA Walsh 3x4HI RGBAt Allegiant, we pride ourselves on the strength of our wealth management team, after all, our independent firm is built upon a strong team approach to customized wealth management.

Melissa Walsh joined Allegiant Private Advisors in 2018. Her focus is helping clients define and achieve their financial goals through a comprehensive financial planning process which constantly evolves. Melissa’s experience in the financial services industry began in 2008, and has included relationship management, investment analysis, and financial advising. She graduated with high honors from the University of Michigan in 2007 with a bachelor’s degree in Organizational Studies. Melissa holds her Chartered Financial Analyst® designation in addition to the CERTIFIED FINANCIAL PLANNER™ certification which she earned in the spring of 2018.

With more than a decade of financial services experience behind her paired with a resolute approach and commitment to client success, Melissa contributions to our wealth management team have been invaluable since she joined the firm earlier this year.

We’re proud of her achievement in earning the CERTIFIED FINANCIAL PLANNER™ certification which verifies rigorous professional standards in addition to principles of integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence on behalf of clients.

AllegiantPA Economic Dashboard Portrait August 2018 webFor months I’ve written about the strengthening U.S. economy. More evidence of such came in the 2nd quarter GDP report, which showed the U.S. economy grew at a robust 4.1%. There were some one-time fluctuations in the number, but after canceling out the one-time effects, growth was still quite good (read our recent Feature about the GDP report to find out more). Even more impressive, on July 27th the Bureau of Economic Analysis released their once every five-year comprehensive update and it showed years of economic data were actually better than originally thought. One of the changes was a 2% per year increase in the national savings rate over the past five years (click here to read more). Trade remains the major economic concern and it will remain front and center until we have some resolutions. As there has been little further development on trade, this month I will focus on the markets.

U.S. equity markets have so far pieced together quite a good 2018, even with increased economic uncertainly and market volatility. As of the end of July, the S&P 500 was up 6.5%, not bad for seven months of the year. However, this number may be misleading. As I’ve written numerous times, breaking down data different ways provides greater insight. The devil is always in the details. For example, understanding where the returns came from - what did well and what did poorly - tells us more about the health of the markets.