Posts in Sectors

Rising Oil Prices

May 31st, 2016 Posted by Economics, Investor Behavior, Politics, Sectors 0 thoughts on “Rising Oil Prices”

Have you been following recent news headlines about oil prices? Here’s a sampling:

Oil Prices Rise as Supply Concerns Persist – Wall Street Journal, May 24, 2016

Oil price hits $50 a barrel – could it now go on to $55, $60 or $65? – The Week, May 26, 2016

Crude futures stabilize after rising above $50 a barrel – CNBC.com, May 26, 2016

Oil Prices Explained: Signs of a Modest Revival – The New York Times, May 26, 2016

We were enjoying the effects of deflated oil prices for a while. Who doesn’t like paying less to fill up their tank? But prices have recently been restoring themselves, due to lower supply and increased demand. We can feel the result in our pockets. Reading the headlines does not necessarily make us feel better, either.

The situation can feel worse if you have investment holdings in oil. So what should you do?

First of all, go ahead and read the news stories if you want to. Being better-informed does no harm, in and of itself. But be aware of how you may be reacting emotionally.

At OpenCircle, we always tell our clients to keep their impulsive feelings in check when it comes to making investment decisions. Financial matters should be handled calmly, with a clear head, and according to a well-thought-out plan. A good plan builds in healthy diversification across asset classes, so that your portfolio is not overly susceptible to fluctuations in one particular holding. And the best plan is designed to meet your goals, both short- and long-term. The important thing, is to stick to it.

Sticking to your plan on your own may be challenging. It is a question of staying calm and keeping your perspective. To help you do that, it is good to talk to someone you trust who understands your needs and goals and can support you in achieving them.

Whenever we see news that feels like it could threaten the status quo of our lives, it is natural to want to do something about it. So, you can worry if you are so inclined, but before taking any action, talk to someone who will not fan the flames of your worries. Talk to a professional who can help keep the bigger picture in your sights. We encourage you to give us a call at 203-985-0448. We look forward to speaking with you.

[Photo credit: Flickr user Soliven Melinda]

How to Respond to China’s Impact on Global Markets

January 7th, 2016 Posted by Economics, Foreign Investing, Investment Strategy, Investor Behavior, Sectors 0 thoughts on “How to Respond to China’s Impact on Global Markets”

Events in China have had an impact on the beginning of the New Year, and we’re not talking about fireworks. There has been concern for months about China’s economy, as we have watched a slowing down of growth. And just as we rang in 2016, there was some media drama around China’s stock market plunge and the negative reaction that was evident in our own US markets. Now, even as China’s government takes steps to stabilize the situation, people are wondering how they should respond individually, if at all.

The simple answer is, as always, stay calm. We have talked previously about having a well-thought-out financial plan and sticking to it. This mindset is as valid as ever.

Back in August of 2015, CNBC ran a piece by Jim Pavia about market volatility amid doubts about China. In it he interviewed Manisha Thakor, a member of CNBC’s Financial Advisor Council. As our Director of Wealth Strategies for Women via the BAM Alliance, she always talks to our clients about being prepared for market fluctuations.

“I explain how the money [clients] have in stocks is, by definition, money they don’t need to spend in the near term,” Manisha said in the August piece. “If they needed to spend it near-term, we would never have put it in stocks to begin with; it would have been allocated to high-quality fixed income.”

Manisha is also a member of the Wall Street Journal’s Wealth Experts’ Panel. On December 18, 2015, the WSJ posted Manisha’s article, “What Investors Should Have Learned from Recent Market Volatility.” The article is still so relevant that it could have been written yesterday. For your convenience, we are sharing excerpts here:

For me, the biggest lesson of 2015 was the vital importance of having a written investment policy statement. During August, I noticed that individuals who had a clear, concise and documented plan were least likely to have a knee-jerk (and all too often ill-timed) reaction to wild market movements….

I suspect investors with an investment policy statement were more likely to stay the course because they had a deep understanding of, and comfort with, the risk they were taking in their portfolios.

Developing this understanding before a period of volatility hits is the key. Just as the time to network is before you need to utilize a connection, the time to understand why your portfolio is constructed in the way that it is comes before that construction gets put through an inevitable patch of volatility.

What will 2016 hold? As my colleague, Larry Swedroe, says, “Ignore all forecasts. All crystal balls are cloudy.” He means that no living person on the planet knows with certainty what will happen in the future. That said, as we head into 2016, we’ll be watching and preparing for events that may include:

– Interest-rate hikes

– A rising dollar

– Recession in non-U.S. developed markets

– Falling commodity prices negatively impacting emerging markets

– The one thing we can always expect–the unexpected

Against this backdrop, it is likely that the VIX (a measure of the volatility of the market) will continue to rise and investors’ convictions in their investment plans will continue to be tested. So, if [recent events] made your stomach plunge along with the markets, it’s time for you to create or revisit your written investment policy statement.

You can read more about Manisha Thakor on our website.

To learn more about creating or reviewing your own written investment policy, please give us a call at OpenCircle, 203-985-0448.

[Photo credit: Flickr user John Keogh]

Why Diversifying Your Investments Is So Important

October 21st, 2015 Posted by Economics, Investment Strategy, Investor Behavior, Politics, Sectors 0 thoughts on “Why Diversifying Your Investments Is So Important”

Diversify. You hear this word a lot in the investment world. It’s one of those things that many investors know they are supposed to do. But they may not have an in-depth understanding of why it is so important. The advisability of diversification becomes evident when we consider current events.

Most of us have seen at least one recent news headline like this one in the New York Times on Monday, September 28, 2015: “Shell Exits Arctic as Slump in Oil Prices Forces Industry to Retrench.” According to the article, “… Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic — a $7 billion investment — in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.”

Potentially scary stuff. The impact on jobs can make it seem even scarier. As reported by the Times, “The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force.”

Did anyone see the Shell pull-out coming? Apparently not, at least externally. In fact, the Times reports, “The decision represented a major turnaround from the faith in the project that Ben van Beurden, Shell’s chief executive, expressed as recently as August.” Perhaps the company was observing less-than-favorable trends, but was holding out hope for good news.

In the end, as the article states, “… the company announced that its one well drilled this summer ‘found indications of oil and gas, but these are not sufficient to warrant further exploration.’ In a statement, it also acknowledged ‘the high costs associated with the project and the challenging and unpredictable federal regulatory environment in offshore Alaska.’”

While environmentalists may be gratified by this latest development in Alaskan oil explorations, it is not good news for Shell or its investors. Which brings me back to the subject of diversifying your investments.

Where securities are concerned, the Shell situation proves how important it is to not have all your eggs in one basket. The more your investments are tied to a specific company or industry, the greater your exposure to financial risk. You need to limit whatever risks you can, but how?

One approach to limiting risk exposure is to invest in high quality bonds. These holdings are guaranteed by the issuer, such as the US government or a municipality. Another strategy is to put money into bank-issued Certificates of Deposit (CDs) that are insured by the FDIC up to $250K. High quality bonds and CDs are safe forms of investment, but precisely because they have a lower risk factor, they do not have the higher expected returns of equities.

So, if you are willing to be exposed to a little (or a lot) more risk in pursuit of higher expected returns, what can you do to try and limit that risk? The answer is straightforward: diversify your investments. And by diversification, I mean investing in multiple industries, not just different companies. I also mean investing globally. In this way, your “fortunes” will not be tied exclusively to one company, one industry, or one country.

Investing does not have to feel like you are gambling with your money. The academic evidence shows that diversification helps reduce investment risk. And an independent, experienced, registered investment advisor can help you do just that.

[Photo credit: LendingMemo]

The Market Sell-Off May Not Be Such a Bad Thing

August 26th, 2015 Posted by Asset Allocation, Economics, Investment Strategy, Investor Behavior, Sectors, Stock Options 0 thoughts on “The Market Sell-Off May Not Be Such a Bad Thing”

There are two important things to remember as an investor. One, have a well-thought-out written plan. Two, stick to your plan. This second point is especially important when the market is experiencing the sort of ups and downs such as we have seen in the last week.

I was happy to see The New York Times spreading a similar message in their lead story on the front page of their Business section on August 22. In “This Week’s Market Sell-Off May Not Be Such a Bad Thing”, Neil Irwin gives readers a healthy perspective. He writes, “If you step back a bit, what has happened in financial markets this week looks less like a catastrophe in the making and more like a much-needed breather when various markets had been starting to look a little bubbly.”

Irwin goes on to discuss some explanations for the sell-off, but says, and I agree with him, that “those explanations, while accurate, are part of a bigger story.” While the drop seems dramatic in the short-term, it looks like a minor adjustment in the long-term, especially in view of the market run-ups since 2009.

One thing that is certain is that markets fluctuate. There will always be downward slips. But the evidence proves that the general trend over time is upward, and occasional drops may serve to keep the upward trend within a sustainable range.

I was also glad to see Ron Lieber’s article on the same front page of the August 22 New York Times Business section. In “Pension Advisers Learn the Folly of Trying to Beat the Market,” he profiles two pension advisers for the State of Nevada who are very careful not to gamble with their client’s investments. In fact, Steve Edmundson and Ken Lambert go trail running to avoid making emotion-driven decisions.

Edmundson and Lambert don’t try to outperform the market. “According to Lambert,” Lieber writes, “a pension fund manager (and an individual investor) has to begin any strategic analysis with the acknowledgment that most investors who try to pick stocks or bonds that outperform their market segment will fail to do so over long periods.” I cannot stress this point enough.

OpenCircle avoids actively picking individual stocks or timing markets. We do not try to beat the market. We aim to capture market returns while minimizing taxes and expenses. We believe in creating a sensible written plan, and sticking to it. We agree with Irwin that you should “take a deep breath” and “appreciate the remarkable run-up of the last five years.” And if you still start to feel panicky, remember to keep your eye on the big picture. Thinking in the long term is key.