D3 Business Update:

We are finishing up the plan updates for our family office clients. Our goal is to have them completed so that you can compare the “Required Rate of Return” in your updated plan to your portfolio’s performance. We anticipate that the performance reports will be ready by the third week of July. We will be calling to review these two documents to make sure your investments are in sync with your financial planning goals and your tolerance for risk.

August 17th at noon is the date of our family and friends get together this Summer.  We are going to have it at Pinstripes, near the Oakbrook Mall.  We are hoping all of our clients can take time out on a Saturday to have lunch on D3, play some bocce ball, network with D3 staff and other clients.  Families members are encouraged to come as well as friends you would like to introduce to us.

Don and Patty will be on family vacations next week, celebrating the 4th of July.  Should you need anything from D3,  as always, call the office and Adam, Ryan, Michael or Abby will be able to help you. They will also be able to get ahold of Don or Patty if necessary.

 

Investment Outlook:

In our last newsletter we had stated that “It appears that we are at an inflection point in U.S. economy where the private sector is finally getting back on its feet.  This is evidenced by the GDP numbers, housing numbers, personal sentiment numbers, and the unemployment rate (as well as a number of additional economic indicators).”  The most recent economic indicators (housing prices, durable goods orders, consumer sentiment etc.) continue to indicate steady (but below historic average) growth for the U.S. economy.  What has changed since our last newsletter, is the Federal Reserve suggesting that the Fed’s quantitative easing program could be adjusted, or eliminated based on the strength of economic data.  It is important to keep in mind that the Federal Reserve’s decision is based on the fact that the U.S. private sector is getting back on its feet, and adjusting the quantitative easing program will be a way for the Fed to “take the training wheels off” the economy.  For investors with a long term time horizon, this should be seen as good news.

 

Another factor contributing to market volatility has been the renewed fear that China is heading for a “hard landing” due to a liquidity squeeze on the shadow banking system. The evidence of this is the large increase in short term inter-bank lending rates.  If these lending rates remain high for an extended period of time, there would be a negative impact on Chinese (and potentially global) growth.  The People’s Bank of China recently stated that it would supply liquidity to support banks that have a healthy balance sheet and lend to promising projects if they see a temporary liquidity shortage.  We see this as a positive development, but are aware that any new developments out of China (the world’s second largest economy behind the U.S.) will have an impact on investments throughout the world.

 

In our last newsletter we had also stated that “whenever the economy is at this inflection point the stock and bond markets become more volatile because traders and investors start to position their investments for the potential change in the investment environment.”  Over the last month, we have seen this prediction come to fruition, and should expect more volatility throughout the summer.

 

Earlier this month, Adam attended a presentation made by New York Times writer, Carl Richards at the Morningstar Investment Conference. Mr. Richard’s  presentation summarized the well documented fact that the returns of the average investor’s portfolio  have trailed the returns of the actual underlying investments in their portfolios.  This is due to the “behavior gap” of investors trying to time the market, which has led many investors to buy during times of certainty (when people feel good), and sell during times of volatility (when people feel bad).  Because we are trying to avoid this “behavior gap”, we are not currently focused on any short term market timing strategies.  Our focus is on long term fundamentals, and ensuring the investments our clients have exposure to meet risk reward characteristics needed to achieve their financial goals.

 

Currently, rising interest rates and stock market volatility is fueling the negative behavior gap identified by Mr. Richards. Conversely economic fundamentals are encouraging Chief Financial Officers (KMPG CFO survey) to accept more business risk and institutional investors to take more investment risk (significant buying in June).  Interest rates will only keep rising if the economy keeps improving. As we said last month, an improving economy will be good for equity investments.

 

Investment Strategy:

As stated earlier in this letter, we expect more volatility in both the stock and bond markets as participants adjust their positions to the reality of the private sector of the economy finally starting to come off life support provided by the Federal Reserve.  For all of our client’s we have exposure to the stock, bond and international markets to diversify risk and generate positive long term rates of return.  We have diversified across sectors in the bond market to help shield client portfolios from rising rates. One thing we have not done is make wholesale moves into or out of the markets.  History has taught us it is a lot better to be a little right versus 100% wrong.  If we see an economic downturn or a liquidity event, we will  raise money market positions to fund your cash flow needs.

 

As you review your financial plans and your performance reports, if you are concerned about short term volatility we will recommend changes to account for that concern.  As always, we thank you for your confidence in D3 Financial Counselors and we ask that you to keep us in mind when your friends or relatives have financial questions or face some financial uncertainty.  We serve our clients by providing Integrity, Trust, Wisdom and Confidence.

 

 

 

 

Don Duncan MBA CPA CFA™ CFP®                        Michael Meyers MBA CFP®

Adam Glassberg CFP® CIMA®                                 Patty Shipinski, Office Manager

Ryan Pace CFP®