Remember this? It’s late in 2007 and the banks have already started their downward spiral. As their prices fell, their dividend yields rose. Most “high yielding,” “high dividend” or “dividend achiever” type ETFs/funds rebalance quarterly, so at year end, what did they do? They loaded up on bank stocks.

As investors and advisors alike look to realign/re-balance their portfolios this year, we wanted to provide a reminder about how mutual funds are taxed. Like any investment, if you buy a mutual fund, own it for more than one year, and sell it at a profit, you must pay federal (and for most states) capital gains tax on your gain.

Investors of balanced strategic portfolios as well as effective tactical portfolios are now well aware of the benefits of reduced risk during times of market duress. While volatile markets may encourage investors to seek the historical “safe havens” of fixed income and lower risk investments, an unfortunately timed rebalance or re-allocation towards fixed income can be particularly risky in today’s environment.

Although none of our investment systems directly incorporate fundamental data, we enjoy contemplating the fundamental narratives reflected in the price trends our systems ultimately find attractive. Our systems are currently quite leery of equity or other risk assets, as we now sit firmly in a bear market induced by the widespread economic halt caused by COVID-19.

Recently a reader asked us to explain “the recent Repo Market Fiasco and the Fed’s intervention,” as well as the consequences and outcomes. For those of you who regularly read our blog, we first included a chart on this subject on September 23, 2019. The answer is fairly technical, but let’s focus on some charts to show the enormity of the issue first.

I write this letter with the utmost gratitude and respect. You see, unlike your predecessors, this time you and your Committee acted quickly, decisively and appropriately to a rapidly evolving political and macro-economic world. It is hard to contemplate what Congress has charged the Federal Open Market Committee (FOMC), and you, to do.

Most investment professionals would agree that stock market price movement in the 0-5% range is just ordinary market movement or statistical “noise”. 

What is volatility? From a purely technical standpoint, volatility, otherwise known as standard deviation, is a statistical measure of data’s dispersion around its mean. In more simple terms, volatility is a way to measure swings in the price of securities or market indices. But what does that tell us as investors?

For decades most financial plans were created with withdrawal rates of 4 to 5% to meet clients’ living needs. Yet today, the 10-year U.S. Treasury yield is hovering around 1.5% and even the 30-year has a ~2% yield. Worse yet, yields on equities have also trended lower with the dividend yield of the S&P 500® Index also around 2%. Today, almost $20 trillion of international bonds have negative yields!

What is risk? How do you measure it? In investing, risk can mean a lot of things to a lot of people. Industry professionals would typically answer volatility (VIX), standard deviation, Sharpe ratio, beta, and the list goes on. While those are technically correct, as money managers, we have to think like investors. What does “risk” mean to them?