RVW Quarterly Newsletter

We are pleased to provide the RVW Report for the 3rd Quarter of 2024. The economy and the and financial markets were generally positive and the major equity indexes continued their bull run. The previously ultra-concentrated returns for a few winners have begun to broaden to a larger and more diverse group of stocks, as was widely expected. Benign inflation, growing profitability and a decline in interest rates fueled market momentum.

 

As trusted advisors and fiduciaries, we provide robust financial planning advice and guidance. We employ investment strategies informed by decades of insights from financial science – while keeping costs such as taxes and brokerage – as low as possible. Our sole focus is the long-term financial well-being of each client.

 

The incoming economic data continue to remain strong, surprising many. The US economy added 254,000 jobs in September versus a consensus expectation of 150,000 jobs, the unemployment declined modestly, wage growth is solid and remains sticky, job openings are going up, and the ISM services reading (a measure of economic activity) is also positive.

Why the economy is so resilient: Primarily because of lower sensitivity to Fed hikes for consumers and firms with locked-in low interest rates; massive AI spending; elevated fiscal and defense spending; and the profitability of the digital revolution with the additional tailwind of AI.  The recent Fed rate cut and the general decline of interest rates as inflation has subsided, have further supported the current Goldilocks environment.

 


A PICTURE TELLS A THOUSAND WORDS–AND A CHART TELLS THE STORY

EMPLOYMENT SURGED IN THE 3RD QUARTER

A GROWING PROPORTION OF ALL AMERICANS ARE WORKING AGAIN

CORPORATE PROFITS ARE STRONG AND GROWING

HOUSEHOLD FORMATION IS BOTH A RESULT OF,
AND FURTHER IMPETUS FOR, ECONOMIC GROWTH

ALMOST 36% OF THE S&P 500 IS DRIVEN BY JUST 10 STOCKS –
FAR HIGHER THAN WHAT IS USUAL.

WHY WE DON’T FEAR RECESSIONS: EVERY ONE WAS FOLLOWED
BY A STRONG BULL MARKET

A CAUTIONARY TREND: CONSUMERS ARE UNDER PRESSURE

ELECTION PERSPECTIVE: HISTORY SHOWS THAT RETURNS HAVE BEEN UNRELATED TO THE PRESIDENCY

WHY WE DON’T JUST INVEST IN THE S&P 500
EXPLAINED IN 3 CHARTS

CAUTION: Never confuse a cyclical movement with a long-term trend.
During the first decade of this millennium the large cap (S&P 500) index lost almost 10% while every other category was profitable:

There are many periods where the S&P 500 (in green) did poorly:

 

Excluding the Magnificent 7—the remaining 493 stocks in the index delivered just 11% YTD.

 

Insight:

  • It is a cap-weighted index – so it is definitionally overweighted to the most expensive companies and underweighted to the least expensive companies.
  • Around 50% of the index is typically invested in the largest 50 companies – meaning it is not widely diversified. Currently it is even more skewed than usual. When a bubble bursts the most exposed stocks typically take the loss more severely.
  • It is a large-cap domestic index. As is illustrated above, there are long periods of time when foreign markets do much better – and also when rotation of styles moves to smaller companies (which can be more agile and entrepreneurial that the largest ones).
  • The Nobel Prize winning research of Professors Fama and French shows that over time smaller companies did better than larger ones, and cheaper companies outperformed the go-go growth stocks.

 

DIVERSIFICATION MEANS ALWAYS HAVING
TO SAY YOU’RE SORRY

Being truly diversified means that there almost always will be a part of your portfolio that is underperforming the rest. (Note: If every element in your portfolio is working really well, it means one of two things: you’re incredibly lucky or you are not actually diversified.)

THE LONG-TERM RISKS OF INDIVIDUAL STOCK SELECTION

Enhanced index-based investing provides access to a dynamic Darwinian selection process

4 STOIC PRINCIPLES FOR SMART INVESTING

Adopting an RVW Mindset: A disciplined, rational, and successful strategy for building long-term wealth.

 

 

In the tumultuous world of finance, the ancient wisdom of Stoic philosophy offers guideposts of clarity and calm. Applying Stoic principles allows investors to make more rational decisions.
1. Control What You Can, Accept What You Can’t
“You have power over your mind – not outside events. Realize this, and you will find strength.”
The financial markets are influenced by countless factors, many of which are beyond any individual investor’s control. Instead of futilely attempting to predict or manipulate market movements, savvy investors focus their energy on aspects within their sphere of influence. Rather than reacting emotionally to every market fluctuation, adopt a long-term perspective.2. Practice Patience and Long-Term Thinking
“No great thing is created suddenly, any more than a bunch of grapes or a fig.”
In investing, patience is not just a virtue – it’s a crucial ingredient for success.  As Warren Buffett says: “The stock market is a device for transferring money from the impatient to the patient.” Savvy investors ride out short-term market fluctuations and benefit from the overall upward trajectory of the markets over time.3. Maintain Emotional Discipline
“If external things pain you, it is not they that disturb you, but your judgment of them.”
Emotions can be an investor’s worst enemy. Fear, greed, and anxiety lead to poor investment decisions, such as panic selling during market downturns or over-investing in hyped-up assets. “Flavor of the month is for ice cream, not for your portfolio” – RVW WealthWisdom4. Practice Contentment and Avoid Greed
“He is a wise man who does not grieve for the things which he has not, but rejoices for those which he has.”
The allure of quick riches often leads investors to take on excessive risk or chase unrealistic returns. Practicing contentment in investing means accepting reasonable, sustainable returns that align with your financial goals.

 

THE VIDEO YOU MUST SEE: WHAT IF YOU ONLY INVESTED
AT MARKET PEAKS?

Follow along on Bob’s journey as an investor who had the misfortune of only investing his savings at the peak of the stock market just before a crash. The results may surprise you.

Click here to watch the video.

THE VALUE OF CONSISTENT BASE HITS

 

 

In a world focused on big wins and rapid success, consistent base hits often go unnoticed. However, this steady approach builds lasting success over time. Instead of chasing risky, high-stakes outcomes, those who focus on consistent base hits understand the power of small, reliable progress. Each incremental step compounds, creating momentum and minimizing risk. By sticking to consistent base hits, you stay adaptable, make continuous improvements, and ultimately achieve sustained growth. While the results may not be immediate, the long-term benefits of this strategy far outweigh the allure of short-lived victories.

 

 

The hardest time to invest is always now.  And usually, it’s the best time to invest….
This statement might seem to be an exaggeration. Surely, there have been times in financial history when investing was more challenging: The dot-com crash, the financial crisis of 2008, and the market volatility spurred by the global pandemic come to mind. While those were undeniably difficult periods, the difficulty of investing now taps into a deeper truth about investing. The ‘now’—the present moment—always feels fraught with uncertainty.

Why Investing Now is Hard

Recent Market Fluctuations: Recency Bias

Whether markets have recently gone up or down can have a large impact on investor sentiment with a seemingly “lose-lose” proposition. If markets have been doing well, investors might worry that they’re too late and that a correction is due. If markets have been performing poorly, investors might fear that they’ll lose money if they invest now. Poor performing markets are especially challenging as investors are reminded daily about how risky and dangerous investing is. Under these conditions, there is never a right time to invest.
Information Overload: Learning to Ignore the Headlines
In today’s digital age, investors have access to an unprecedented amount of information and analysis. While this can be beneficial, it can also lead to information overload and “paralysis by analysis”. This can make the decision to invest right now feel particularly difficult. There’s just too many reasons not to invest; inflation is too high, the fed is tightening, there is a war, our political leadership can’t seem to agree on anything, etc.
These challenges to investing in the present hold one thing in common –they all involve an investor grappling with an uncertain future. Whether it’s market performance, economic conditions, geopolitical events, or company-specific factors, uncertainty can make investing always seem particularly challenging in the present moment.It turns out that while now may be the hardest time to invest, it is also generally the best time to invest. That is because if investing is about generating returns on your assets over time then, all else being equal, the sooner you invest and the longer you invest, the greater your odds of generating those returns.
There’s always a good reason not to invest – but look at the historic rewards to patient investors:

 

 

Note: While “now” is generally a good time to start investing, every individual’s situation is different. Factors such as financial goals, risk tolerance and investment time horizon should be taken into account when making investment decisions.

 

“The average human lifespan,” Oliver Burkeman begins his mega–best seller, Four Thousand Weeks: Time Management for Mortals, “is absurdly, terrifyingly, insultingly short.” In that relatively brief period, he does not want you to maximize your output at work or optimize your leisure activities for supreme enjoyment. He does not want you to wake up at 5 a.m. or block out your schedule in a strictly labeled timeline. What he does want you to do is remind yourself, regularly, that the human life span is finite—that someday your heart will stop pumping, your neurons will stop firing, and this three-dimensional ride we call consciousness will just … end. He also wants you to know that he’s aware of how elusive those reminders can feel—how hard their meaning is to internalize.”

Click here to watch the video.

 

There has been an outbreak of very sophisticated scams that you should be aware of.  In addition to identity theft, scammers are now calling individuals pretending to be a landlord, bank or the IRS and asking that the victims log on to their accounts to initiate transactions.

Based on the experience of several clients, we believe that the most likely way that scammers will steal from you is to get you to make a transfer to a new fake account.

If you receive a call from anyone unknown to you, please do not react to their instructions. Immediately call our office for guidance. For example, the IRS NEVER calls you.

Here are the proactive measures you can take in addition to being extra cautious about the above risks:

  • Subscribe to Lifelock or a similar service (www.lifelock.com).
  • Visit the websites of the major credit bureaus and freeze your credit.
  • Ask your insurance broker for an identity theft rider to be added to your coverage.
Always call a known number to verify the details of a transaction prior to initiating.
Consider sending a test wire for a small dollar amount, to ensure all details are correct, prior to initiating a larger sum.