CAPITAL MARKET UPDATE
Market Performance as of 9/30/23
U.S. SECURITIES
- S&P 500 TR: 3Q23 -3.27% and YTD 13.07%
- Dow Jones Industrial Average TR: 3Q23 -2.10% and YTD 2.73%
- Bloomberg Barclays US Aggregate Bond: 3Q23 -3.23% and YTD -1.21%
- Top US Sector Performers 3Q23: Energy and Communication Services
- Worst 3 US Sector Performers 3Q23: Utilities, Real Estate, Consumer Staples
FOREIGN SECURITIES
- MSCI EAFE (unhedged International Stocks): 3Q23 -4.11% and YTD 7.08%
- MSCI Emerging Market (unhedged): 3Q23 -2.93% and YTD 1.82%
- Bloomberg Bclys Glbl Agg Bond Hedged: 3Q23 -1.87% and YTD 1.09%
Performance Quilt Chart Organized by Asset Classes from 2014-2023
INVESTMENT INSIGHTS
Market Thoughts - Don Cox
We are constantly reminded that there is a lot of uncertainty within the financial markets. As we move into the fourth quarter of 2023 and into next year we have some question marks when it comes to the movement of the equity markets. I feel it is important that in times of uncertainty we remind ourselves what works to reduce portfolio risk; diversification, diversification, diversification. The above image of the performance of asset classes and what leads the market year to year supports the case for diversification.
Despite disappointing results from stocks in the third quarter, U.S. equities have been rewarding year to date. The U.S. GDP also grew at a 4.9% annual pace ending September 30th. With that result, the Fed will want to keep interest rates elevated. We do expect growth to begin slowing as levels of unemployment are beginning to rise and we realize that inflation has peaked. This is where our diversification strategy comes in...
We hire managers that utilize a variety of strategies and research methods. This gives your portfolio exposure to a wide range of opinions and forecasts when securities are bought and sold for your account. We do not believe in only investing in one strategy or keeping all your eggs in one basket. As we watch bond yields rise and equity performance slow, we will monitor the moves from the managers and may decide to adjust your allocation soon. Our commitment to you is not to time the market but to stay knowledgeable about what impacts certain global and U.S. factors will have on your holdings. We will keep you informed along the way.
Cody Cox
At Cox Global we believe, now more than ever, that an active management strategy with our Axiom managers will provide the best opportunity to navigate this environment. Let me give you an example.
Market returns have improved in 2023, but most investors faced one of the most challenging years in 2022 because of the relationship between stocks and bonds. Last year was the first time in at least 45 years that both stocks and bonds showed negative returns in a calendar year, surprising many investment analysts. To combat increasing inflation, the Federal Reserve increased interest rates significantly which harmed absolute results across the board. Active management will allow your portfolio to adjust and minimize downside participation when your managers notice unexpected trends.
Sources: Total returns of the indices mentioned are provided by Morningstar, MSCI, S&P Dow Jones and SectorSPDR.com. None of these firms nor their Information Providers can guarantee the accuracy, completeness, timeliness, or correct sequencing of any of the information on their websites, including, but not limited to information originated by them, licensed by them from information providers, or gathered by them from publicly available sources. There may be delays, omissions, or inaccuracies in the information. Past returns are no indication of future results. PIMCO Cyclical Outlook: https://www.pimco.com/en-us/insights/economic-and-market-commentary/cyclical-outlook/post-peak. https://www.cnbc.com/2023/10/26/us-gdp-grew-at-a-4point9percent-annual-pace-in-the-third-quarter-better-than-expected.html
Summary of CAPITAL GROUP'S Recent Thoughts
- A rolling recession may have already started. A rolling recession will occur when industries suffer over different time periods. Others may perform well when one disappoints.
- Resilient consumers could lead a strong economic recovery. Consumers have lower debt and companies have better financials compared to other recessions.
- There have been windows of opportunity between a Fed pause and cut. The time period between a final rate hike and a rate cut can be too lengthy to sit it out.
- Bull markets have dominated bear markets. "...analysis of all market cycles since 1950 revealed that while the average bear market has lasted 12 months, the average bull market has been more than five times longer. The average bull market has had a 265% gain (versus a 33% decline for the average bear market)."
Source: Capital Group 2023 Market Trends in 5 charts October 4, 2023 https://www.capitalgroup.com/advisor/insights/articles/2023-market-trends-5-charts.html
Retirement Income and the Traditional Portfolio
Taking withdrawals from a traditional portfolio exposes fixed-income investors to “sequence of returns” danger. In other words, experiencing negative returns early in retirement can deplete your portfolio more quickly than expected and potentially undermine the sustainability of your assets. So you may want to consider a couple of strategies to help manage this concern.
Liquid Assets
The first is to have a pool of very liquid assets to fund two to three years of retirement spending; this may keep you from selling longer-term assets at an inopportune time. Through time, and depending upon market conditions, you may have the opportunity to replenish this cash reserve using gains from your retirement portfolio.
Annuities
Another complementary strategy is to integrate annuities. This can help shift the risk of market volatility off your shoulders and onto the issuing insurance company.
The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
Until retirement, portfolio optimization largely focuses on the blending of different asset classes in the appropriate measure to create optimal portfolios. But in retirement, investors must integrate different retirement investment vehicles to enhance income and manage risk.
One of the industry’s leading thinkers, Ibbotson Associates, has done a great deal of research around this very idea. In a landmark study, “Retirement Portfolio and Variable Annuity with Guaranteed Minimum Withdrawal Benefit,” Ibbotson’s research came to several key conclusions that hold important ramifications for meeting the retirement-income challenge.
One of the study’s conclusions was that the addition of a variable annuity with a guaranteed minimum withdrawal benefits retirement portfolios—replacing cash or fixed-income allocations. It increases total income while it decreases risk.
A successful retirement is so much more than undertaking sound investment strategies. It also requires understanding the "sequence of returns" danger and taking measures to mitigate the risk.
Source: https://www.coxglobalassociates.com/resource-center/retirement/retirement-income-and-the-traditional-portfolio
Understanding Homeowners Insurance
We've seen the cost of homeowners insurance policies rise over the last couple of years. Take a minute to review your policy and understand what is covered and what is not.
It can save you money to review and reconsider your coverage with your insurance agent. If your mortgage lender pays your policy on your behalf don't let the automatic renewal go by without shopping around for the best policy.
What’s Covered
A homeowners insurance policy is a package of coverages, including:
- Dwelling: Covers damages to your house and any attached structures, including fixtures such as plumbing, electrical and HVAC systems.
- Other Structures: Pays for damage to unattached structures, including a detached garage, tool shed, fence, etc.
- Personal Property: Covers personal possessions such as appliances, furniture, electronics, clothes, etc.
- Loss of Use: Reimburses for additional living expenses while you are unable to live in your home.
- Personal Liability: Pays claims if you are found liable for injuries or damages to another party.
- Medical Payments: Pays the medical bills incurred by people who are hurt on your property or by your pets.
Remember, these coverages pertain only to losses caused by a peril covered by your policy. For instance, if your policy doesn’t cover earthquake damage, then losses will not be reimbursed.
Types of Homeowners Policies
The types of covered perils will depend on the type of policy you buy. The Special Form is the most popular policy since it insures against all perils, except those specifically named in the policy. Common exclusions include earthquake and floods. Typically, flood insurance is obtained through the National Flood Insurance Program, while earthquake coverage may be obtained through an endorsement or a separate policy.
Limits of Coverage
Your policy will impose limits on the amount of covered losses. If you have a valuable art collection or jewelry, you may want to secure additional insurance on those items. Be aware of whether your policy insures for replacement cost (pays the cost to rebuild your home or repair damages using materials of similar kind and quality) or actual cash value (home value based on age and wear and tear), which may not cover all your losses.
Coordinating Umbrella Liability Coverage
Individuals with significant assets may want to consider attaching an umbrella policy to their homeowners policy, which provides liability coverage in excess of the liability limits of your current policy.
source: https://www.coxglobalassociates.com/resource-center/insurance/understanding-homeowners-insurance
What's So Great About a Rollover?
Changing jobs can be a tumultuous experience. Even under the best of circumstances, making a career move requires a series of tough decisions, not the least of which is what to do with the funds in your old employer-sponsored retirement plan.
Some people choose to roll over these funds into an Individual Retirement Account, and for good reason. About 35% of all retirement assets in the U.S. are held in IRAs, and 57% of traditional IRA owners funded all or part of their IRAs with a rollover from an employer-sponsored retirement plan.
Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Once you reach age 73, you must begin taking required minimum distributions from a Traditional Individual Retirement Account in most circumstances. Contributions to a Traditional IRA may be fully or partially deductible, depending on your adjusted gross income.
Generally, you have four choices when it comes to handling the money in a former employer's retirement account.
- You can cash out of the account. However, if you choose to cash out, you may be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½.
- You may be able to leave the funds in your old plan. However, some plans have rules and restrictions regarding the money in the account.
- You can roll over the assets to your new employer's plan if one is available and rollovers are permitted.
- You can roll the money into an IRA. Rollovers may preserve the tax-favored status of your retirement money. As long as your money is moved through a direct "trustee-to-trustee" transfer, you can avoid a taxable event. In a traditional IRA, your retirement savings will have the opportunity to grow tax-deferred until you begin taking distributions in retirement.
Rollovers can make it easier to stay organized and maintain control. Some people change jobs several times during the course of their careers, leaving a trail of employer-sponsored retirement plans in their wake. By rolling these various accounts into a single IRA, you might make the process of managing the funds, rebalancing your portfolio, and adjusting your asset allocation easier.
Keep in mind that the Internal Revenue Service has published guidelines on IRA rollovers. You generally cannot make more than one rollover from the same IRA within a one-year period. You also cannot make a rollover during this one-year period from the IRA to which the distribution was rolled over.
Also, the Financial Industry Regulatory Authority (FINRA) has published some material that may help you better understand your rollover choices. FINRA reminds investors that before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, and possession of employer stock.
An IRA rollover may make sense whether you're leaving one job for another or retiring altogether. But how your assets should be allocated within the IRA will depend on your time horizon, risk tolerance, and financial goals.
source: https://www.coxglobalassociates.com/resource-center/retirement/whats-so-great-about-a-rollover
STAY INFORMED
Follow us on Facebook, LinkedIn, and Instagram @CoxGlobalAssociates!
Check out our audio series Two Sides of the Same Dollar! Find it here: https://www.coxglobalassociates.com/cga-audio-series
Cox Global Associates, Inc. || 1260 Pin Oak Road, Suite 204 || Katy, TX 77494 || 281.395.8300 https://www.coxglobalassociates.com/ || info@coxglobalassociates.com
Securities and Advisory Services are offered through Geneos Wealth Management, Inc. FINRA, SIPC. Investment advisory services also offered through Cox Global Associates, Inc., A Registered Investment Advisor.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Articles may be developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.