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The Northern Star Newsletter 4/9/18: Quarterly Report

Message from Jon

Market Update:

This market has certainly been a lot less enjoyable when compared to 2017, but then again, we saw this market condition coming for some time now. We will also likely see it sticking around for the majority of 2018 and possibly into 2019, before the selling really shows up in force and sends the indexes down further.

 According to Crestmont Reseach,

"(1) NEW: Serious Implications: Forecast Skew Over the Next Decade.

This article describes and demonstrates the serious implications of forecast skew for long-term stock market returns. Spoiler alert: Most forecasts for stock market returns from Wall Street analysts average near 6% annually. However, there is almost no chance of a 7% annualized return for the next decade, but high chance that it's between 0% and 6%. This outlook should be empowering, not concerning. There is a lot that can be done by and for investors to achieve success, even when returns from the stock market are so far below average.

I have to admit that when I am reading this, I am not encouraged. However, I have to keep in mind that even during a secular bear market cycle, investment years like 2013 and 2017 are not only possible, but probable as well! Many investors are not capable of taking the good with the bad and therefore end up making irrational and emotional decisions when it comes to their portfolios. They are the same people you run into that feel good when it's sunny and bad when it's rainy.

The proper approach to investing is simple, but it is definitely not easy.

Develop a comprehensive plan and approach

  1. One that includes
    1. Amount of required portfolio value at retirement
    2. Amount of contribution necessary to reach said goal
    3. Plan of debt management by retirement
    4. Plan of income creation during retirement
  2. Deploy said plan
    1. Regardless of age or market condition
  3. Monitor said plan
    1. For opportunities for improvement
    2. For unplanned needs that arise
    3. For changes to life-path
    4. For potential risks to plan integrity
  4. Periodically adjust plan components to better align to new conditions and circumstances
  5. Repeat steps 3-4

Let's face it, the markets are going to ebb and flow in and out of favor. Your circumstances are not always going to be plannable and predictable. The key to arriving at your personal financial summit safely is to plan, prepare, and remain diligent so that whenever the unpredictable or unplanned situation or circumstance arrives, you are capable of dealing with it successfully.

Till we speak again, enjoy this "spring" weather!




Special Update: Quarterly Report


Domestic stocks lost ground last week as trade war concerns continued to rattle investors. With these declines, the Dow officially moved back into correction territory.[1] For the week, the S&P 500 lost 1.43%, the Dow dipped 0.95%, and the NASDAQ dropped 2.11%.[2] International stocks in the MSCI EAFE managed a 0.38% increase.[3]
An escalating trade dispute between the U.S. and China wasn't the only headline to affect markets. Last week also brought surprising data from the Labor Department. In March, the economy added 103,000 new jobs - far lower than economists anticipated. Meanwhile, wages grew, and unemployment remained a low 4.1%.[4]We are now 1 week into the 2nd quarter of 2018. As we examine what may lie ahead in the markets, we will also focus on understanding what has happened so far this year. Here are a few key findings from the 1st quarter.Quarterly UpdateIn 2017, domestic markets experienced little volatility and significant gains.[5] The 1st quarter of 2018, however, did not continue these trends.Volatility ReturnedThe CBOE Volatility Index (VIX), a popular measure of volatility, increased by 81% in Q1, as stock performance fluctuated.Between January and March, the S&P 500 had 23 days when it lost or gained 1%. In 2017's last quarter, the index didn't have a single day where it fluctuated that much. While the return of volatility may feel jarring, it is actually normal. Last year's calm is what is unusual.[6]Indexes Had Mixed ResultsMajor domestic indexes hit new records in January then slipped into corrections the next month. By March's end, they recovered somewhat from February's lows, but the S&P 500 and Dow still posted their 1st quarterly losses in more than 2 years. The S&P 500 lost 1.2% and the Dow dropped 2.3%. The NASDAQ ended in positive territory, with a 2.3% gain for the quarter.[7]The Economy Remained StrongDespite market volatility and lackluster quarterly performance, the economy appears to be on solid ground. When announcing March's interest rate increase, the Federal Reserve beefed up the economy's growth projections and expressed that "the economic outlook has strengthened in recent months." In 2018, the Fed expects unemployment to fall to 3.8% and the economy to grow by 2.7%.[8]What's AheadIn the coming weeks, we will receive more data that reveals our Q1 economic performance. We will also work to find answers to important questions for the 2nd quarter, such as: What will happen with trade and tariffs? Will the labor market continue to strengthen? In the meantime, if you have questions of your own, we are always here to talk.  
ECONOMIC CALENDARTuesday: PPI-FDWednesday: Consumer Price IndexThursday: Jobless Claims, Import and Export PricesFriday: Consumer Sentiment

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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