This notification for the week of 7/11/2017 is part of an ongoing series of updates intended to keep you informed about the changes occurring in your 4Thought Financial Group separately managed accounts (SMAs) each week. The information is broken into the constituent model portfolios we use to manage client investment advisory accounts. Please contact your advisor(s) directly for any more in-depth information related to your personal portfolio or for clarification on which models/strategies apply to you. Occasionally we may provide general commentary, as well as planning techniques and ideas. Make sure to discuss with your advisor whether these are applicable to your situation before taking any actions with regards to your financial plan or investment portfolio.
• Liability-Driven Investing (for Bear Markets): Currently fairly valued (on an absolute basis), and it is the most attractively priced of the four method categories (on a relative basis) based on the measured average of our fixed income focused and risk transfer strategies.
• Strategic Asset Allocation (for Bull Markets): Currently overvalued (on an absolute basis), and it is the second-most attractively priced of the four method categories (on a relative basis) based on the measured average of our diversified (primarily stock) portfolio strategies.
• Selective/Concentrated Investing (for Eagle Markets): Currently overvalued (on an absolute basis) and it is the third-most attractively priced of the four method categories (on a relative basis) based on the measured average of our private equity like strategies.
• Opportunistic Investing (for Wolf Markets): Currently overvalued (on an absolute basis) and it is the least attractively priced of the four method categories (on a relative basis) based on the measured average of our hedge fund like strategies.
• For all investors: As the second half of 2017 commences and yields have risen slightly, bonds are becoming increasingly undervalued (cheap) relative to most stock types globally (with the exceptions of high yield bonds and floating rates, which are still expensive). Non-US stocks (emerging markets in particular) and private equity continue to lead by year-to-date performance, with US small cap stocks and US bonds of various types continuing to lag in 2017. Most stock types globally are slightly to moderately overvalued (expensive), with international developed and emerging markets measured as the most expensive currently, and US mid cap stocks the least expensive. The overvaluation of the Strategic Asset Allocation investing method and global stocks as a whole point to the continued use of a somewhat cautious approach to cash deployment (see below "How Investors Can Take Action" for more info on this).
How Investors Can Take Action:
• For all investors: As always, remember to contact your advisor(s) to notify them if any of the following have recently changed for you: Life circumstances (Family, career, home, business, etc.); Financial goals; Lump sum cash needs; Monthly income needs; Bank account cash balances; Other assets or liabilities; Your attitude towards risk. Significant changes in any of these areas may require a reallocation of your investment portfolio.
• For growth investors: Temporarily reduce the amount of your systematic investments of earned income into your investment portfolio so that the total annual contribution amount is slightly less than your calculated available annual savings (Total earned income, minus living expenses, minus taxes, equals available annual savings). Slightly under-contribute to your investment portfolio and leave a little more cash in the bank than normal. Use a somewhat cautious approach to contributions (not too much) based on current asset and method valuations. Consult with your advisor on this prior to taking action.
• For income investors: Temporarily increase the amount of your systematic withdrawals from your investment portfolio so that the total annual withdrawal amount is slightly more than your calculated portfolio income need (Portfolio income need equals annual living expenses, plus taxes, minus any non-portfolio income). Withdraw slightly more from your investment portfolio and keep a little more cash in the bank than normal. Use a somewhat aggressive approach to withdrawals (not too little) based on current asset and method valuations. Consult with your advisor on this prior to taking action.