In our June newsletter, we made note of the changes made by the Department of Labor Rule (DOL) and How it Impacts D3 Clients. We mentioned that “in addition to increased documentation, there may be some contract and disclosure requirements that we will need to comply with.” After working with SEC contract lawyers, we have determined that we will need to amend all of our current client contracts. As a result, we will be sending out letters to all clients in October and November that will update your contracts to comply with current SEC and DOL rules. We will provide additional details of this contract update project in September and October.
Plan Update & Performance Reviews
We are currently making appointments to review our Affordable Family Office clients’ financial plan updates and performance reports. We are also making appointments to review 1st half portfolio performance for all of our Advanced Portfolio Managementclients. If you would like to schedule an in-person appointment, a phone call, or a Skype call to review your financial plan update and/or your performance report, please call Patty or Sharon at 630-271-0033.
We are also in the process of reviewing our Affordable Family Office clients’ estimated taxes to determine if any estimated tax payments are needed to avoid under withholding penalties. If you are an Affordable Family Office client and we determine you need to change your current schedule of estimated tax payments or need to start making payments, we will contact you over the next two weeks.
Many of our clients have expressed concern regarding stock valuations and the length of the current economic expansion. Although valuations for equities are elevated relative to historical averages, we believe the current state of global economic expansion remains steady and can help support above historic average valuations.
The chart below illustrates that although the U.S. is currently in the 3rd longest economic expansion in the last 100 years, the current expansion is a bit unique. Economic growth has been a lot slower than previous recoveries. In our view, this provides more room for continued economic growth moving forward.
Using a car as an analogy for the U.S. economy, a car with a full tank of gas can travel farther and longer if the average speed driven is 55 miles per hour versus 70 miles an hour. As the line graph below shows (on the right), the cumulative growth of the U.S. economy since the Great Recession in 2008 is significantly below all other economic recoveries since 1948 (bottom blue line).
Another reason for higher than historic stock valuations is due to low interest rates. Unless the economy grows at a greater than 3% rate on a sustained basis, we will likely continue to have low interest rates. These low rates will continue to help to support current equity valuations.
Outside of the U.S., signs continue to point to an overall globally healthy economy. For the first time since 2007, the world’s major economies are all growing at the same time. All 45 countries tracked by the Organization for Economic Cooperation and Development (OECD) are on track to grow this year, and 33 of them are anticipated to accelerate growth from a year ago. In July, the International Monetary Fund projected global economic output would grow 3.5% this year and 3.6% in 2018, up from 3.2% growth in 2016.
In summary, with the exception of any unforeseen event that could cause economic growth to slow, we believe equities around the world can sustain their current levels of valuation. As economies continue to strengthen, this should lead to higher stock values barring central banks dramatically raising interest rates.
We’ve completed the review of our preferred list of mutual funds and ETFs as well as the fund options in all of our clients’ retirement plan accounts. These reviews focus on identifying funds that are well positioned for the future by reviewing the fund expenses, the fund’s investment process, and historical risk adjusted returns. As a result of this review, we will be making a few minor investment changes over the next month.