Letter to Clients: 3rd Quarter 2017

Dear Clients and Friends:

It is hard to believe that 2017 has already passed the halfway mark. Seems like just a few days ago we were shivering in the cold and now we are sweltering in the heat. Of course, it will seem like a blink of the eye and we will be shivering once again. They say that “time flies when you are having fun” and I must be having a ball because according to my Broker Check records at FINRA, I now have more than 26 years of experience and it seems like only yesterday….

Over the years I have worked with clients through many transitions; some joyous, some not so much, some planned well in advance, some a complete surprise. As I reflect on this I am going to do something a bit different in this client letter. In this letter I want to focus a bit on one common, planned transition – retirement.

But first, let’s not ignore the economy and its effect on your portfolio.

Happy Birthday Economic Recovery

As June ended, according to data compiled by the National Bureau of Economic Research (NBER), the current economic recovery and expansion turned eight years old, the third longest since the end of WWII. The NBER marked the end of the Great Recession in June 2009. It is the NBER which is the arbiter of recessions and expansions for the U.S. economy. It bases its calls on data that includes employment, sales, income, and industrial production.

In a vacuum, eight years may not mean very much but that all depends on your perspective. Including the current economic recovery, there have been twelve such recoveries since WWII. Our eight-year (96 month) expansion, has only been exceeded by the expansion that began in 1991 and lasted 120 months, and the expansion that began in 1961, which lasted 106 months or nearly nine years. The shortest one was only 12 months. It began in 1980 and fell victim to then Fed Chairman Paul Volker’s decision to use monetary policy–sharply higher interest rates–to crush years of high inflation.

You may be asking, “What does that mean to me and my investments?” or, “The current recovery isn’t young anymore. Is a recession around the corner?”

There have been 10 bear markets beginning with the Crash of 1929 through the Global Financial Crisis of 2008. If one studies the macro economic environment when the bear markets began, we find four common elements: recession, a spike in commodity prices, unexpected or significant monetary tightening by the Federal Reserve, and/or extreme valuations in the markets. For most of the 10 bear markets, there were 2 or 3 of these factors present. But perhaps the most correlated factor (present in 8 of the 10 bear markets) are recessions.

Perhaps the easiest of the factors to dismiss is extreme valuations. One of the hallmarks of the current expansion has been its slow and boring pace. This slow-paced recovery has failed to create euphoria in any meaningful economic activity which could lead to potentially dangerous excesses. It has also led to a super cautious Fed that has been slow to tap on the monetary brakes.

Economists have traditionally done a poor job of calling turning points in the business cycle and I won’t try to predict when the next recession will set in. However, most leading economic indicators suggest that the odds of a recession anytime soon are low. Continued economic growth should create profit growth, which is a tailwind for stocks, even as the Fed gradually increases interest rates.

We should never discount unexpected volatility. But the investment plan we’ve recommended for you takes unexpected turbulence into account. Remember, timing the ups and down in stocks is rarely profitable longer term.

Switching Gears: Enjoying a Purposeful Retirement 

Picture this—it’s Friday afternoon, your work is done, and you have the weekend ahead of you. But what makes this weekend different than any other weekend is that two-week vacation following it. You wish your colleagues well, they express similar thoughts, and you head toward freedom. Of course, you’re excited! Travel, new experiences, time away from the mundane, and time to recharge. In the back of your mind, you know it’s temporary and you’ll be back at your desk before you know it. Maybe that’s part of the reason why the time away is special. It’s short-lived.

Now, let’s take this another step. This vacation is permanent. You are saying your final goodbyes. When you awake on Monday, you will wake up when you want to wake up. No more alarm clocks. You’ll never head back to the office again.

For some, you’ve already experienced your last day at work. For others, it is a goal, but it’s not reality. At least not yet. I’m talking about, of course, retirement.

My role as your financial planner is to put you on a path to reaching your financial dreams. We take a holistic approach that encompasses many aspects of financial planning. But what happens when you’ve reached the financial goals and you have the resources to retire comfortably? Just because you’re financially well-off doesn’t mean you are ready to embrace what can be a drastic new lifestyle.

A recent story featured on CNBC.com stated, “Happiness in retirement is about more than account balances.” Sure, money is part of the equation; it reduces stress that can be brought on by inadequate finances. But for those people whose identity is wrapped up in their work, especially those who have built their company from the ground up, retirement can be an uncertain transition. Many business founders delay retirement opting instead to work well into their 70s or even 80s.

A 2013 British study cited in the CNBC article showed that retirement may increase the risk of depression by 40%. Think about it… your routine has been interrupted, and the bonds you’ve formed with your co-workers will forever be changed.  All of this can have substantial implications for your health. There are psychological implications that may inevitably be a part of retirement.

6 Ways to a Happier Retirement

1. If possible, transition into retirement. Recall the scenario we started this topic with. You’ve worked a full week, it’s Friday, but you’ll never go back to work. It sounds enticing, especially if your job is just that…a job.However, a recent Transamerica study found that 61% of American workers hope to transition into retirement by shifting from full-time to part-time. Yet, only 25% said their employers offer such options.

A study last year by Merrill Lynch noted that 47% of retirees have either worked or plan to work in retirement, and 72% of pre-retirees say they want to work in retirement. If you want to work or feel you need to supplement your retirement income, you aren’t alone. If your firm offers a flexible schedule, seriously consider it. If not, could you contract on a project-by-project basis, consult, or find part-time employment elsewhere? It will not only keep you busy, it will keep your mind sharp and supplement your retirement income.

2. Talk to your spouse or partner. This is critically important. What do both of you want to get out of retirement? How can you get on the same page? How much time will you be spending together? In the past, you’ve been apart during your weekdays. But that will change. Find ways to integrate each other into your daily lives through activities that you both enjoy. But you may also want to spend time on your own, or with friends, or other family. Consider mixing things up. Variety really can be the spice of life.

 3. Set new goals. You are embarking on a new venture. But unlike decades of work, your new life won’t have the structure it had before. That can be disorienting for many, creating drift, depression, and possibly magnifying health issues.Consider coming up with an outline or schedule of activities. Having a daily or weekly plan can help prevent loneliness and boredom.

Keeping active via part-time work is one option. Another is to volunteer. What are your passions? Who or what cause would you like to assist? Your church or a familiar community organization can benefit from someone that has years of experience in the business world and decades of accumulated wisdom. In addition, volunteer work helps expand your social network, a network that can quickly fray when you no longer have the comradery that your current job offers.

4. “Eat well, sleep soundly, and play often.” That’s the advice from veteran career coach Bill Ellermeyer.  Bill says, “Happily retired people treat themselves like a good friend. They keep themselves well-fed, exercise at least three times a week, get proper rest, and maintain strong social connections.”He’s right. Don’t isolate yourself. Stay active.

5. Exercise. This is a subset of number four. Keeping busy enhances your mental capacity. If you can, incorporate some type of physical activity into your weekly regimen. If walking on a treadmill bores you, take short hikes or walks in the park. If it’s something you enjoy, you’re more likely to engage in that activity.

6. Play with your grandchildren. If you have grandchildren, time with them is time well spent. That is something you intuitively know, but it’s also backed by research from the Institute on Aging at Boston College. According to Sara M. Moorman, an Assistant Professor there, “The greater emotional support grandparents and adult grandchildren received from one another, the better their psychological health.”

Finally, retirement isn’t a time to slow down. It’s a time to redirect your path and embrace new experiences. Take charge and don’t let circumstances dictate your future. It’s the key to a happy and fruitful retirement.

We can never say this enough, It is our job to assist you! If there are any additional questions or concerns you may have, feel free to email or call. That’s why we are here. As always, I’m honored and humbled to serve as your financial advisor.

Stay cool and we will check in with you this fall.


Art DInkin, CFP®