Financial Planning Tip of the Month

Review Insurance Coverages.

You should review your insurance coverages on a regular basis to ensure that the amounts of coverage are still consistent with your original needs and intent. This means reviewing life insurance, health insurance, long term care insurance, disability insurance, car insurance, and homeowners insurance. You also might find out that you need some additional insurance coverage in the way of an umbrella policy. Insurance is not the most exciting of financial planning discussions but it’s crucial to living a financially secure life. Where life insurance is involved, be sure to reevaluate your beneficiary designations and coverage amounts after major life events.

Economic and Market Commentary

Below is the most current five-year global market return outlook from Blackrock. Here are the Cliff notes...an increase in Developed International and Emerging Market stocks and a reduction in High Yield and Emerging Market bonds.

At RAA, we have not shifted away from international stocks. Since earlier this year, we have been increasing our international stock exposure; both developed countries and emerging markets. Next month with be 1 year since the historic Brexit. Pundits and investors both thought that the surprise Brexit would be the needle that broke the camel's back. Guess what...as events like Brexit often do; it was a terrific buying opportunity for those willing to wait a while and stomach a little volatility.  

We have been very cautious with regard to high yield bonds. Your parents probably taught you some basic life lessons. Look both ways before you cross the street. Cover your mouth when you cough. Don't buy high-yield debt securities when the yield spread between them and Treasuries is too low.  Just as the stock market's price-to-earnings ratio can be a warning sign, so can the yield spread on junk bonds. And right now, that sign is flashing red. Currently, our only direct exposure is through short term, higher quality high yield bonds and floating rate notes. In addition, we have reduced exposure to small cap stocks in favor of mid cap and large cap.

At RAA, our Core philosophy follows much of what Blackrock dictates. Our Satellite strategies are more proprietary and are designed to attempt to further diversify, reduce risk, generate income and add incremental return over time.

Our Core/Satellite approach will typically invest approximately 70% of one's portfolio in Core investments and approximately 30% in Satellite investments. Core investments follow a longer-term asset allocation plan and are invested in broadly diversified, low cost ETFs, mutual funds and individual stocks.  Satellite investments are more tactical and may have a shorter-term investment horizon. Satellite investments may include ETFs and mutual funds with a narrower focus, sector ETFs, individual stocks, business development companies, MLPs, REITs or closed-end funds.

The Vix and Mr. Market

Wall Street’s fear gauge, the VIX, has fallen to a 24-year low. The VIX takes the temperature of the market’s anxiety level. It shows how much market volatility — Wall Street’s code word for market swings to the downside — that investors expect in the next 30 days.

The VIX fear gauge is often viewed as a contrarian signal. So, when it’s very low and not waving a warning flag, it could be signaling that investor complacency is high and that investors could be caught off guard if the market surprises them with a downturn.

And just because the VIX isn’t warning of tough times for the market, doesn’t mean there aren’t reasons to be afraid.

At RAA, we continue to work hard to be sure the we are taking prudent risks with your hard-earned money. We continue to favor minimum volatility funds are a component of our Core philosophy.

Benjamin Graham, the "father of value investing" and teacher of the "Oracle of Omaha, Warren Buffet, stressed the importance of always having a margin of safety in one's investments. Graham is also famed for creating the fictional character "Mr. Market".

At RAA, we too believe it is critical to have a margin of safety. That said, we tend to err on the side of caution in the investment and allocation decisions we make. As your Financial Advisor, we are here to protect you from Mr. Market. He has been pretty quiet lately but that could change quickly. Whether the markets are up or down, we strive to keep you comfortable and confident and to help you make the best decisions to keep you on a path to achieving your goals and objectives.

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