Update from GMFG – January 18, 2019
I hope your New Year is off to a great start. We know you’ve seen a lot of activity in your account and we wanted to give you an update on what actions we took on your behalf and why.
It has been our experience that when fear and irrational behavior are driving markets, things can get out of hand. So, because machines (program trading) were running Wall Street and volatility (a fear gauge) doubled overnight, we decided to substantially reduce your equity exposure to preserve assets. We had been planning to rotate out of the higher growth areas anyway and reposition assets in higher dividend paying stocks and areas that we believe do better in a maturing economic cycle. Because it was just before year-end, we were able to generate some short-term tax losses for many of our clients as well.
You’re probably aware, but we want to remind you that because we pay the trading costs in advisory accounts, we can do this without expense to you. We pride ourselves on doing the right thing whenever necessary but are always conscious of keeping your costs as low as possible. It is definitely an advantage of working in an advisory relationship.
Last year was remarkable for another reason. Normally having a diverse allocation of different assets smooths returns and can be beneficial, but last year that wasn’t the case. Because every major asset class finished down in 2018, with small cap, international and emerging markets all down double digits, there really were few areas that produced positive returns. What started out to be a promising year ended in fear, panic, and a lot of volatility.
That said, as soon as markets began reacting positively to good news, we got portfolios back to their normal weightings in US equities relative to the portfolio objectives. We are still underweight in international equities because it appears that global growth has slowed. The upcoming year still looks to be on track for solid growth in the US. We are obviously concerned about the government shutdown and think it has the chance to hurt growth if it goes on too long, but there are positives on the global trade front. The US and China are definitely motivated to find a way to work together to keep their economies growing. Of course, Europe is being impacted by Brexit and that could hurt European trade and their economies. We don’t really expect a lot of growth out of Europe anyway.
In closing, we believe we have positioned your portfolio to take advantage of areas of expected growth and higher interest rates, but we are obviously watching things carefully. Fortunately, US equity markets have responded nicely so far this year.
Again, we hope you have a great New Year. Trust that we are using all the tools in the toolbox to help you meet your investment goals.
Donald J. Phillips, CFP®
Greater Midwest Financial Group, LLC.
3222 Rice Street
St. Paul, MN 55126-3047
Phone: (651) 490-9790 Fax: (651) 490-9788
Greater Midwest Financial Group, LLC is not affiliated with Kestra IS or Kestra AS. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
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