Assessing Your Personal Portfolio Management Scorecard


SUMMARY

In order to invest for success in 2019, you have to know where the markets are, as well as how your investments performed in 2018 relative to the overall market. By keeping track of your own investment management gains and losses, you can determine if you’re on the right track and get sound financial planning advice for 2019. If your portfolio performed poorly in 2018, you may need to speak to a financial advisor about your investment strategy for the coming year.

 

It was the worst year for stocks in a decade, but how bad was the performance of the major indices? What about fixed income investments?

What are the headwinds markets face in 2019? Is the economy slowing, will the Fed raise rates too high, too fast? What about tariffs and the trade war? What about the plunge in oil prices?

To get yourself on the path to economic freedom, you have to know where the markets are. More importantly, you want to know how your investment strategies performed in 2018 relative to the wider markets. It is by keeping your own scorecard that you can determine if you are on the proper path to investing success. If you severely underperformed, perhaps you need to speak with a financial advisor about making some changes.

In this episode, you get the essential market scorecard, but you’ll also find out how to use that scorecard to get yourself ready for success in 2019.

Topics discussed include:

  • A “tale of the tape” on the performance numbers in key market indices
  • The headwinds facing markets in 2019
  • Why you need to focus on what you can control
  • Setting financial goals for the new year
  • Assessing your personal portfolio management scorecard
  • Action steps to get your personal finances in order
  • Plus, much, much more…

Transcript:

Doug Fabian:      What should be your next step to economic freedom in 2019? How did the financial markets end 2018 in terms of performance? And what facts regarding your personal finances do you need to pull together to succeed in the new year? All this and more on this episode of The Science of Economic Freedom.

 

Male:                    The Science of Economic Freedom is intended as an investor education resource. The views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio. This program is sponsored by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

 

Doug Fabian:      Welcome to The Science of Economic Freedom. I’m your host, Doug Fabian. This podcast is all about helping you achieve your financial dreams. We call that economic freedom. This program is about your journey to achieve economic freedom for yourself and your loved ones. Today, we want to help you identify your next step on that journey. This is Episode 41 — The Market Scorecard for 2018 and Your Path to Success in 2019.

 

Now, here is our agenda today. We’re going to cover the market scorecard for last year, we’re going to talk about your path to success, and then lastly, we’re going to talk about the action steps you need to take this week to start moving down that path to success. Now, this is the first Science of Economic Freedom podcast of 2019 and we have recorded this podcast on January 2nd. I want to remind listeners — you’re in two groups. Those of you who desire to achieve economic freedom and those who have achieved it and want to keep it. Now, believe or not, many people fall out of economic freedom in retirement because of bad decisions and mistakes. I know you don’t want that. We can’t make you successful in 2019, but you can. What we can do is to provide a path, a framework, best practices, give you some assignments and action steps. We can lead you through a process that helps you make better decisions.

 

Now, what are people struggling with right now? It is what to do next. We had the worst stock market performance in the past 10 years during 2018. So, people are asking, “What should I do?” It is all about the next step, but you have to have the facts to make the next step meaningful. Now, let’s step back for a moment. How many Americans actually achieve economic freedom? This is something I’ve been working on, I’ve been researching, trying to find some credible statistics about how many Americans actually are achieving economic freedom today.

 

And here are some of the numbers that I have come up with from credible sources. Today, there are 11 million households with a net worth above $1 million. Now, a net worth above $1 million does not mean that you have achieved economic freedom, but it is a measurement of net worth and it is positive and a million dollars is a lot of money still. If we just take that number of 11 million and we divide it by 126 million households that we have in America today, we get a number of 8.7%. But that’s not accurate in terms of the number of people who are economically free. So, I’m going to say today as I’m gathering more statistics that less than 5% of Americans actually achieve economic freedom. Now again, I realize that there are people who have a net worth of a million dollars and are not economically free and then there are also people with less than a million dollars who are economically free, most likely because of their income streams. But the real detail is the fact that 65% of Americans have little or no savings at all.

 

So, if you’re listening to this podcast and you really truly desire economic freedom, you’re in the right place. But I want you to understand that economic freedom is really achieved by a very small percentage of the population. Now, why is that? One reason why is because people don’t know how to do it. They don’t have goals, they overspend, they take on too much debt, they don’t save any money, they don’t have a plan, they lack discipline. There are hundreds or even perhaps thousands of reasons why people don’t achieve economic freedom. The biggest, in our opinion, is they don’t know how. That is the mission of this podcast. It is to fill this knowledge gap. But it is up to you to act.

 

Now, let’s talk about 2018. This is very fresh in our minds, we’re at January 2nd of 2019. And let’s deal in facts. There’s a longstanding tradition of measuring how the financial markets do on an annual basis, and we’ll review those numbers in a moment, but we want you to keep in perspective what the markets posted in 2018 to historical trends. It’s not unprecedented for the markets to have a negative year. But we will be encouraging you to measure how you did against the market because the scoreboard does matter. And if you underperformed major market indices in 2018 by a significant margin, this could be an indication that something is wrong with your investment mix, your asset allocation, or your security selection.

 

But before we get into the numbers, as I was preparing for today’s show, I came across two articles that were predictions on what’s going to happen in 2019. One article very positive, predicting that the S&P 500 could go up 25% in 2019. And the author made their case that the US economy is strong and that stocks have corrected and the bull market is still in place. And then we had the other extreme — the market’s going to go down another 30%. This particular author was making the case for a significant bear market. And they made the case as to why — the amount of debt in the world and that interest rates are rising and that economies are slowing. Now, the details really don’t matter. The who, the what, the where, the why. Neither of these predictions will help you reach your goals.

 

One of the things that I want you to do, and I’m going to be taking you through in the next six weeks, this process of focusing on different aspects of your finances so we can have a secure path to 2019 no matter what the market does. Because we want to focus on what we can do, not what the markets do, because we can’t control that. But also I want to remind you with these two startling predictions that are contrasting is you want to push away the noise. Avoid the noise.

 

Now, there are just five statistics that I’m going to share with you regarding the global equity markets and I’m calling these the tale of the tape. The S&P 500 was down 5.2% in calendar year 2018, the NASDAQ 100 down 3.9%. If you look at all stocks in the United States, they were down 5.1%. International stocks in developed countries down 15.7 and emerging markets down 17. Now, that’s the point-to-point measurement, meaning from December 31st to December 31st. During the year, of course, there were periods of time that the markets were up and periods of time that the markets were down more. If we take a look at the measurement of the correction so far, from the absolute high on the S&P 500 and some of these under indices, to the lows that we established on Christmas Eve, the S&P 500 corrected 19.8%. The NASDAQ 100 24%, the total stock market index 20%, international stocks 22%, and emerging stocks 27%. So, in the classic measurement of a bear market, which is a 20% decline, we actually saw that magnitude in a number of these indices.

 

One of the things that we are noticing right now is there is a very negative sentiment regarding, stocks, the economy, the new year, politics, trade talks, and the like. And I want to remind you of something that we’ve talked about many times on The Science of Economic Freedom which is the greed/fear cycle, on how many times investors get caught in the greed cycle. And this is where we were a year ago when we had massive amounts of money pouring into US stocks in January of 2018 after we had the spectacular 20% returns in 2017. That’s greed.

 

One of the things that we have seen in the fourth quarter of 2018 is we have seen significant selling of stock mutual funds and equities in general as stocks corrected. We’ve seen measurements of sentiment, how investors feel about the markets, go from very bullish to very bearish. And that’s just what happens. This is all part of human psychology. This is what causes people to make bad decisions, to selling out of the market because it’s down, not really taking into account who, what, when, where, and why relative to your particular situation, when are you going to need this money and the like.

 

And then of course, we have another market to talk about, and that is the fixed income market. Because the fixed income market, mostly made up of bonds, is that percentage of your portfolio that can provide a shock absorber to the equity exposure that you have in your portfolio and provide you with consistent income stream. Let me give you a few statistics relative to fixed income. The aggregated bond index was down 23 basis points, that’s one quarter of 1% in 2018. Now, this is in light of the fact that the Federal Reserve raised interest rates multiple times. But bonds were able to eke out, we’ll call it a flat rate of return in the aggregate. If we take a look at international bonds, they were actually positive in total return in 2018, but emerging market bonds were down about 5%. So, there’s varying degrees of performance in the fixed income arena, but by no means no disaster there.

 

So, now, let’s talk about some of the headwinds that are facing markets as we’re going into 2018 and these are being talked about ad nauseam on the financial channels and on the worldwide web. The global economy is slowing. Obviously, there’s a big question mark. Got a number out today on the Chinese manufacturing index, on how it is starting to signal a significant slowdown in China. We, of course, have rising interest rates here in the United States and the Fed has signaled just a couple of weeks ago that it’s going to consider raising interest rates if it is warranted in 2019. And then, of course, we have the backdrop, the uncertainty of the political situation, and the trade and tariff talks that are in play. So, those are the headwinds.

 

Some tailwinds — oil prices. We talked about this a couple of weeks ago, oil prices have fallen 30% in the last 90 days. We have unemployment at less than 4% of employable citizens. That’s an excellent number. And then lastly, US economic growth remains strong. We had a very good holiday season from the early indications. So, there are many things that are positive out there as well. So, don’t become too bullish, don’t become too bearish. Right at the beginning of the year, one of the things that we want you to do is realize that this is a journey, 2019 is not a destination. It is just going to be part of our journey towards economic freedom. And in order for you to get on the path to success in 2019, you need to focus on what you can control.

 

Now, this outline that I’m going to take you through is what the podcast subjects are going to be over the next five weeks. I wanted to give you this market recap today because we’ve got some specific assignments that I’m going to give you. If you really and truly want to be successful in 2019, we need to act, and understanding how markets did last year is part of that process, dealing in facts. But going back to the subject of what you control, one of the things that we’re going to talk about on next week’s show is setting financial goals for 2019. I’m going to give you some assignments in order to be able to prepare for next week’s show. But it is important that we know what we’re trying to achieve.

 

Going back to the statistics that I talked about at the beginning of the show, 68% of Americans save little or no money, one important fact/statistic that you need to focus on in your life is how much money are you saving? A general way to look at that is 10% of what you make, but if you can save more than that, your journey to economic freedom is going to happen sooner. Are you maximizing your 401K and your IRA? Now, for those of you who are in economic freedom, you’ve achieved economic freedom, you’re in retirement, one of the most important aspects of your life is the assets that you have accumulated so far, I talked about this in Episode 40. One of the things I did in Episode 40 is I talked about the importance of your balance sheet. We have a special report at the scienceofeconomicfreedom.com in the Resources section on Balance Sheet Basics. This is a one-page document that most people never put together. And again, as I think about you and the audience that we have here, I’m thinking about the people who desire to achieve economic freedom. Let’s place ourselves in that context, even if we haven’t achieved it yet, we want to achieve economic freedom so we want to do the things that are going to help us get there. Having a balance sheet is key, a list of all your assets and your liabilities.

 

One of the things that I want you to do as you go through the course of this week is to look at your personal scorecard. Now, we know the S&P 500 was down 5%, small cap stocks were down more, technology stocks were down less, international stocks were down more. So, one of the things that you want to do, one of your assignments is to gather your statements together, and understand how you did in 2019. One of the things that we’re going to be talking about in the weeks ahead, and in two weeks, I’ll just preview it right now, Don Calcagni, Chief Investment Officer of Mercer Advisors is going to be with us. We’re going to be talking about market outlook for 2019. But I know one of the subjects that Don and I are going to talk about is asset allocation and rebalancing. And when we get to that place of talking about asset allocation and how it works in your personal life financial plan, I want you to know what your asset allocation is. And it’s really easy to figure that out. And whether or not you need to be making any adjustments, we call that rebalancing.

 

Another key subject that we’re going to talk about in the weeks ahead is cash flow and how cash flow really matters. One of my colleagues, Kelly Palmer, long-time financial planner extraordinaire at Mercer Advisors, Kelly has coined the phrase that “cash flow is the single most important indicator to a family’s success.” Their cash flow, you’ve got to have a handle on your cash flow. And it’s not just cash flow during the accumulation phase, it’s also cash flow in retirement. As I’m talking to investors and having one-on-one conversations through wealth coaching, where people who have achieved economic freedom get themselves in the most trouble is when cash flow starts to get out of whack. Meaning they’re spending more than the financial plan that they had put together indicated for.

 

And this can happen for a variety of reasons. It could happen for a crisis in a family but it also could be that you’ve made a financial commitment to somebody — and this is how it happens most likely — other family members need cash flow. You have cash and that takes you off track. We’re, of course, going to be talking about 2018 taxes as we go through the first quarter of this year. But to summarize, we want to get our personal financial house in order. We got to know the numbers. We have to have some facts. And before we start discussing whether or not we should be adding to equities or buying more fixed income, we want to understand where we are today. And there’s just no better place and time to do this than now, right at the beginning of 2019.

 

So, now, we’re at that point of the conversation which I like to refer to as the “action steps.” From this show, here is your task list if you desire our help to achieve financial success in 2019. This is like we’re on a journey, like we’re on a long hike, we’re on a path. We’re stopping right now to check our status, to check our supplies, to check our direction, to check our destination. And over the next few weeks, we’re going to meet on a weekly basis and talk about another phase of this process. Now, it might seem like we’re doing this kind of slowly, but I know how busy people are, and if I gave you a list of 20 things to do right on January 2nd of 2019, I know most people would not be able to get to the list. So, we want this to be reasonable, what I’m asking you to do, doable, and of course, necessary.

 

So, here’s the very first thing, the very first action step. Let’s get our statements together. For every investment account you have, you’re going to be able to access a year-end statement. This includes your 401K, your IRAs, your brokerage accounts. I just got an email this morning from my custodian that our 2018 month-end and year-end statements are available. Now, the tax information is going to be coming in the weeks ahead. But the statement is available, you’re going to be able to look at the statement right now and have a year-end value. Start pulling together all those statements.

 

Number two — reflect on 2018. In terms of your economic freedom, what went right and what went wrong? What was unexpected? Now, remember, let’s push aside — you could say, “Oh, Doug. The market was down 5%, that’s what went wrong.” Push aside the financial markets and what I’m talking about here is did you save more or less than you anticipated? Did you spend more or less than you anticipated? What went right? What went wrong? What was unexpected? And this starts to move into next week’s podcast subject, goal setting for 2019. What do you want to improve in 2019? Save more? Spend less? Earn more? Those are the three key drivers of your personal finances.

 

Number three — now, I spent a lot of time talking about goal setting in 2018, I am a person who sets annual goals. My wife and I did this over the holidays and we’ve got our goal set for 2019. I always begin the goal-setting process with looking at my previous year’s goals. So, review any goals you had for 2018. Next, don’t panic, don’t be negative, and don’t read trash about the end of the world tomorrow. Boy, there’s a lot of stuff like that out there and the negative headlines, the negative tone that has overtaken the financial media is very difficult to get through. But do this — be positive. Realize that five years from now, the stock market is going to be based on historical trends, significantly higher than it is today. Realize that the reason why so many people want to come to America is we are still the Land of Opportunity and that opportunity is not only to raise a family and build a business, but it’s also an opportunity to be able to invest. We have no better investment markets in the world than we have here in the United States. Realize that the stock market can outperform our expectations and certainly can underperform our expectations. But just go about this, as you’re pulling together this information, that we’re going to have a positive outcome in 2019. That doesn’t mean that I’m predicting or I’m suggesting that you’re predicting that the stock market is going to be up this year. We just don’t want to fall into that trap. But we do want to be a part of that small group of people who desire to achieve financial independence, who has a positive outlook on our future. That’s where we want to be.

 

And the last action step I’m going to ask you for is to send me an email. My email address — [email protected], [email protected] Send me your thoughts, comments, question, show ideas, and remember — the offer that we are making to help you on a one-on-one basis as a faithful listener to the Science of Economic Freedom podcast is a free, no obligation, wealth coaching session. Ladies and gentlemen, let’s make 2019 a great year for our path to economic freedom. This is Doug Fabian. Thanks so much for joining me.

 

[Music]

 

Male:                    The Science of Economic Freedom is intended as an investor education resource. The views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio. This program is sponsored by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

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