SPECIAL INVESTMENT UPDATE
Dear Clients & Friends,
Soon the election will be over! For investors, that means the end is in sight for the nagging uncertainty that has held the stock market back, so far, from launching into its traditional 4 th quarter rally. Even though government policies will differ somewhat depending on which presidential candidate wins, history shows that the equity market can do quite well regardless of which party is in control. The decisive factor is the economy and more specifically, corporate earnings. As long as company profits are trending upward, without being eaten up alive by inflation, share prices can advance under any political regime.
Many reliable indicators are pointing to continued growth for the U.S. economy: consumer confidence as measured by the Conference Board, jumped in September to its highest level since 2007; first-time filings for jobless benefits recently scraped a 43-year low; junk-bond prices hit a new 14-month high on October 10. On the eve of the past three recessions (1990, 2000, and 2007), prices for bonds issued by lower-grade, heavily indebted companies began to fall sharply. Just the opposite is happening now.
We are not attempting to paint an unrealistically rosy picture. We all know the U.S. economy is crawling along at a much slower pace than in the past expansions. What’s more, large parts of the developed world such as Europe and Japan are dragging behind the United States. If our newly elected president were to offer some words of reassurance to investors, it would be very much in keeping with history for the headline U.S. stock indexes to break out to a series of fresh all-time highs within the seasonally favorable November – January window.
As far as our investment strategy is concerned, we continue to maintain our standard two-pronged strategy, which is to maintain a substantial exposure to common stocks (and mutual funds) as long as there is a reasonable prospect for double-digit returns. Furthermore, we will continue to take profits more frequently so that we could gradually increase our weighting in cash as well as the fixed income portion of our portfolios. During the quarter, we continue to maintain an average asset allocation mix of 45%-50% Equity, 45-50% Fixed Income and 0%-10% cash for most of the portfolios.
As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the planning challenge this year include political and economic uncertainty, and Congress’s all too familiar failure to act on a number of important tax breaks that will expire at the end of 2016. Some of these expiring tax breaks will likely be extended, but perhaps not all, and as in the past, Congress may not decide the fate of these tax breaks until the very end of 2016 (or later). Not all actions will apply in your particular situation, but you (or family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. Please contact us at your earliest convenience so that we can advise you on which tax-saving moves to make.
We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact me should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives.
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