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This notification for the week of 8/15/2017 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.
Valuation of Investment Methods:
• 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.
• Selective/Concentrated Investing (for Eagle Markets): Currently fairly valued (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 private equity like strategies.
• Strategic Asset Allocation (for Bull Markets): Currently fairly valued (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 diversified (primarily stock) portfolio 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.
Perspective and Positioning:
• For all investors: After a brief interruption of an extended period of low-volatility stock market behavior late last week (related to worries over a potential conflict between the US and North Korea), global stock have recovered their poise. Non-US stocks and private equity continue to lead by year-to-date performance for 2017, with US small cap stocks and US bonds of various types continuing to lag (both of these have barely moved since early 2017). Emerging markets stocks in particular have had an impressive year so far after several years of underperformance. Most stock types globally are only modestly overvalued (expensive) or close to fair value, with US large cap growth and emerging markets measured as the most expensive currently, and US mid cap stocks the least expensive. Shorter term and higher credit quality bonds are generally undervalued while high yield bonds continue to be measured as modestly overvalued. The roughly fair valuation of the Strategic Asset Allocation investing method (only slightly overvalued) and global stocks as a whole point to the use of a neutral 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: Make systematic investments of earned income into your investment portfolio so that the total annual contribution amount is equal to your calculated available annual savings (Total earned income, minus living expenses, minus taxes, equals available annual savings). Use a neutral approach to contributions (not too much and not too little) based on current asset and method valuations. Consult with your advisor on this prior to taking action.
• For income investors: Take systematic withdrawals from your investment portfolio so that the total annual withdrawal amount is equal to your calculated portfolio income need (Portfolio income need equals annual living expenses, plus taxes, minus any non-portfolio income). Use a neutral approach to withdrawals (not too little and not too much) based on current asset and method valuations. Consult with your advisor on this prior to taking action.