August Newsletter to Clients

Enjoy this month’s edition that features an analysis of the stock market, a tool to find lost or forgotten 401(k)s, a review of Social Security and a summary of a Vanguard study that found value from hiring an advisor.

Every day, it seems, the stock market hits new highs. Good news, for sure. But, not unlike a child’s report card that shows all A’s, a closer look at the market to make sure all this success isn’t coming from archery, ceramics and basket weaving classes is warranted. 

In fact, stock market Index readings alone can be deceiving so there are a few things we are watching. The primary concern is the heavy concentration of the S&P 500 by the so-called “Magnificent 7” stocks of Alphabet, Amazon, Apple, Broadcom, Meta, Microsoft and Nvidia. (Tesla was in the mix but dropped out) Combined, those 7 companies comprise 35% of the S&P 500’s market capitalization. Furthermore, Nvidia alone counts for 8% of the S&P 500 and, if it was a country, it’s value would make it the 11th largest economy in the world and surpass the Gross Domestic Products of countries such as the United Kingdom, Australia and Russia. 

Conversely, the median stock in the S&P 500 is 12% below its 1-year high. Plus, the Russell 2000 Index of small, U.S. companies is only up .26% on the year. Torsten Slok, Chief Economist at Apollo Global Management said, “You can’t have an economy that flies on just 7 stocks.” As a result, we’re closely watching to see if the good performance spreads to the rest of the report card. 

Is it possible you may have a 401(k) or a pension from a former employer you’ve lost track of? The U.S. Department of Labor recently introduced a new website where you can search for retirement plans that are lost or forgotten: https://lostandfound.dol.gov/. Let us know if we can help you search. 

This week Social Security celebrated its 90th birthday! We often get questions from clients about the viability of Social Security since they’ve read that the program’s retirement trust fund is forecast to be depleted in 2033. If that happens, payments could be reduced to 77% of benefits.

Why? The simple answer is there are more people taking benefits than paying into the system – simple demographics. The trust fund makes up the difference and it is declining in value as it pays out more and more benefits. 

My personal belief is that Congress will eventually make some changes to ensure the long-term viability of Social Security, just as was done in the 1980s when the trust fund was created. One simple solution would be to increase the cap on the amount of pay subject to the Social Security tax beyond the current $176,100 this year. Other possibilities include raising the full retirement age beyond the current age of 67. Regardless, we still include Social Security benefits in our financial plans. 

Now, under the heading of self-promotion, a new study from Vanguard revealed hiring an advisor improves long-term financial returns and also saves time and stress for clients. For the past decade, Vanguard researchers have been trying to measure how much financial advice is worth. They identified four core sources of value: financial value, portfolio value, time value and emotional value. 

Their latest study, based on a survey of 12,443 investors, revealed that 75% of clients say financial advice saves them time – a median of two hours a week. 86% of clients report feeling greater peace of mind. “Reducing stress, increasing peace of mind, spending more time with family, all of those things contribute tremendously to overall well-being,” said Paulo Costa, an economist at Vanguard and co-author of the study. 

Please let us know how we at Moneywatch can help you more. 

Thank you for your continuing confidence.