Halloween and Market Spooks

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Post by: Valley Financial Group

We're just a one day away from the spookiest day of the year with Halloween falling this Wednesday. With ghosts, goblins and ghouls running amok, you'd be inclined to think that there is nothing but fear and fright all around on the evening of the 31st. There is, however, one reason to be just a little bit joyous when the clock strikes midnight and the eleventh month of 2018 gets underway, this being that October has come to an end. For a lot of us, the most frightening part of October isn't the creepy costumes, decorations, or haunted houses, but the fact that October is the worst month for the market in regards to overall average performance.

So is this just a random coincidence, or is there a reason for the consistent downturn during the month? Firstly, the month got its unfortunate reputation as a less than stellar one for investors in 1929, when on October 29 the market collapsed and resulted in our nation's worst economic recession, now known as the Great Depression. The second reason October has worse stock performance is that it follows September, another historically poor month for the market whose performance could potentially bleed into the following month. Finally, the idea of behavioral finance and investing comes into play heavily in this case. With a lot of investors cognizant of October's reputation as a poor month for the market, it can cause them to make rash decisions without really thinking, perhaps selling hard on their currently owned assets before the perceived downturn hits, which of course will end up aiding the cause of the downturn they sought to avoid. So, if the thought of vampires and werewolves are making you sleep with the lights on this week, just remember that October will soon be behind us, and with it, hopefully, the start of better market performance in the month of November. I've always liked Thanksgiving better anyway.

Fire in a Crowded Theater

Post by: Valley Financial Group

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Yesterday’s market declines—the Dow down 3.15%, the S&P 500 down 3.29% and tech stocks, as represented by the Nasdaq index, off 4.08%--were entirely within the normal range of mini corrections, which we’ve experienced numerous times since March 9, 2009.  But they represent an interesting test of character for the press and market pundits.

The most responsible voices in the press and elsewhere point out that market corrections are normal, and fear of market corrections works to the investor’s advantage.  Fear of incidental declines is exactly why investors demand a higher return from stocks than, say, for cash.  

The responsible voices will point out that being able to control your fear is one of the best ways to generate higher returns in your portfolio.  They will say—correctly—that there has yet emerged no way to know the future, and therefore we have no idea if this lurch in the market is temporary or the first sign of a significant downturn.  Not knowing means that any action you take is likely to be wrong—especially since the markets have always recovered to set new highs after every downturn so far.

But these declines always bring out the opportunists who do everything they can to feed the fear.  In order to get clicks, or draw attention to themselves, they will predict disaster, and claim to know what’s going to happen tomorrow or in the next week or two.  They’ll make it sound as if this one-day reversal is a clear hint of doomsday—and of course the normal fear mechanisms in the human mind is programmed to pay attention to warnings like this.  

Your best course, which your rational mind already knows, is to simply tune out the pundits who yell “fire” in a crowded theater.  You know that they don’t know the future any more than you do.  Stocks just went on sale, albeit a little bit, and if you’re in accumulation mode, you might hope they drop a little more, so you’ll be able to buy cheaply and hold on for the recovery.  

Your rational mind knows that panic seldom leads to a good outcome; please, if you can, give it your attention amid the screaming and shouting that is sure to show up in the news this week.

The Super Bowl & Investing

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Post by: Valley Financial Group

I️ know that it’s been a few months since THE EAGLES. WON. THE SUPER BOWL. But it is very obvious it’s still at the forefront of the minds and hearts of Eagles fans all over the greater Philadelphia area. After all, how could one soon forget what we had longed for more than anything else and which we had been cruelly forced to wait for so long? But despite the years, for some decades, of waiting and dreaming and crushing disappointment, the Birds faithful never lost hope, and never stopped believing.  We Philly fans are special like that. A 2-3 start won’t stop us from turning on our TVs and radios every single week to cheer on our beloved Eagles, and we’ve all watched hours of football on Sunday’s when our boys in black, white, and green were well out of playoff contention.

This same no quit attitude we all have for the Birds can just as easily be applied to your investment portfolio, even if i‎t might be a little more difficult to execute. Sticking with your investments through slight downturns in value, as opposed to jumping ship as soon as you see red on your ticker, can end up being extremely beneficial in the long run. I‎t may seem deceptively simple, but to follow through when your hard-earned dollars are on the line is far easier said than done. It’s finance 101. Buy low, sell high, and the third golden rule, do not panic. Have a little faith in you and your adviser's carefully thought out investment strategy and who knows, you might just end up winning the Super Bowl. 

Chase Utley's Retirement

"Chase Utley! You are the Man!”  - The Great Harry Kalas

Post by: Valley Financial Group

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In Philadelphia, we loved Chase simply because he gave everything to the Phillies and to the City of Brotherly Love. If you need any proof of this love, according to US Social Security database, 299 newborns were named Chase in Pa in 2009.  The Man is now retiring from baseball and if Chase Utley needed help preparing for his retirement these are the questions Valley Financial Group would want him and his family to think about.

1. Do you know what your ideal retirement looks like?

- It is very important to know if you have enough money for retirement. What exactly do you want your retirment to pay for and what is it going to cost to live your ideal retirement? If you don’t have a vision of your retirement goals then it makes the planning just to say a little difficult.  

2. Does your spouse have the same retirement goals for your family as you?

- Just like in baseball, if you are married, you are part of team and if you don’t share a common game plan it could lead to some series loses. The term is “Gray Divorce.” Among U.S adult ages 50 and older, the divorce rate has roughly doubled since 1990.  Boomers are living longer and now that the kids are out of the house they want to live freely, which can cause problems if one spouse wants to live the Archie Bunker Retirement on the recliner. Not understanding your spouse’s retirement goals possibly can be catastrophic for your finances.

3. What do your financial habits say about you?

- Your assets, pensions, social security benefit, tax situation, debt, cost of living, longevity, insurance, risk tolerance etc… are all important in creating a successful retirement plan. However, if we took a look at your credit card and debit card statements, would we understand who you are and what would they say about you.  According to Kathleen Kingsbury author of the book “Breaking Money Silence” evaluating your statements will allow you to understand where your money is going and consider if it fits your values.  You want to notice what money behaviors match and don’t match what’s is important to you. You want to eliminate or slow down the habits that could interfere with achieving your ideal retirement.

Chase Utley is most likely playing his last games at Citizen’s Bank Park today and he probably isn’t walking into Valley Financial Group after his game for a meeting to plan for his retirement. However, if he did, these are the first three questions we would want ask him and when he left the meeting we would thank him for all those great years and for being the Man! We wish you the best Chase!

https://www.nerdwallet.com/blog/investing/financial-plan-questions-to-ask-before-

you-start/

https://nypost.com/2017/06/14/this-is-what-divorce-looks-like-after-50-years-of-marriage/amp/

The Relationship between Bonds and Interest Rates

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Post by: Valley Financial Group

When it comes to discussing investment strategies and portfolios, most minds shoot right to the glitz, glamour, and high risk-reward commonly associated with stock and equity investments. Although they're far from unheard of, the humble bond usually takes a backseat to allure of the "golden egg" possibility when investing in stocks, but even though their lower risk-reward may not be quite as enticing to the untrained eye, a good selection of bonds can play an integral part in a successful investment portfolio.

So, yeah, we know we need them, but how exactly do they work? Put simply, the value of a bond after it is purchased shares a negative correlation with the interest rate levels issued by the Federal Reserve. If interest rates rise after your bond is purchased, it is now worth less than face value and will trade at a discount. If interest rates fall then your bond's value increases, it will trade at a premium. Nothing to crazy right?

Getting into more specifics now, the way in which you purchased the bond matters in terms of how much the value of your purchase fluctuates based on these interest rate changes. For example, if you are a shareholder in a bond fund, a collection of hundreds or even thousands of bonds, your level of boom or bust will be much more dramatic then someone who is an owner of an individual bond. This is because, when interest rates rise or fall, shareholders will either jump off or on the bandwagon, so to speak, of the bond fund according to which way the interest rate turns, causing significant spikes and drop-offs of their investments for those investors who hold onto their shares. Because of their close relationship with interest rates, bonds are also heavily affected by the fear effect, that being when something causes economic fear, whatever it may be, which in turn causes many investors to take their money out of riskier investments (stocks) and gravitate towards safer bets (bonds and securities). This sudden rush of demand drives bond prices up, and, as we know, when bond prices rise their yields fall, causing losses for those already invested in individual bonds and bond fund shareholders.

However, these pains brought about by fear are usually not even close to the hits that one may take in the stock market during a time of economic turmoil. So, in the world of bonds, how does one protect themselves. Firstly, it is always safer to buy bonds with shorter maturities, meaning the issuer will have to pay you back sooner, leaving you less vulnerable to interest rate fluctuations. Second, when investing in individual bonds, make sure you and your adviser have looked over the company's reliability, particularly in terms of credit, to give yourself the highest chance of obtaining returns. So now we all have some basic knowledge of bond investments, and if any of this sounded good to you, do some research, sit down with us, and find out if bonds or securities are a good fit for your investment portfolio.