3rd Quarter Newsletter

Greetings from the crew at Eagle Financial Strategies. We hope this finds you all well.

Following please find our commentary on the markets in general as we go into the second half of the year. But first, some issue specific news concerning those of you who hold American Finance Trust.

American Finance Trust, as of their director’s meeting on June 9th (we were notified on 6/27) has suspended their redemption program for now (with the exception of death or disability of the shareholder), including the redemption we were supposed to have in July. Their rationale for this is that the constant redemptions were hurting their ability to use their cash to make further investments for the Trust to strengthen the underlying portfolio. The company reiterated that these are intended to be long term investments, generally using a 3 to 5 year time frame. American Finance Trust is currently in its third year of operation. They did not indicate when the next round of redemptions would be.

While this means that it will take a while longer to fully exit this position, there is a positive takeaway. At their current dividend of $1.30 per share per year, the annual yield on the positions held in your portfolios that have this issue is slightly above 6%.

Now on to the markets in general. The “Trump Rally” continues to produce decent returns in almost all market segments. Although the markets seem to be rangebound over the last few weeks, year to date (through 6/30/2017) performance for the major indices is as follows (Source: Morningstar):

Dow Jones Industrial Average + 9.35%
Standard & Poors 500 Index + 9.34%
Russell 2000 + 4.99%
MSCI Europe Asia Far East +13.81%
MSCI Emerging Markets +17.22%

As you can see, in general, it has been a good year so far. Even in a rising interest rate environment in which fixed income investments normally do poorly, the Barclay’s US Aggregate Bond Index is up 2.27%.

This, however, causes us pause. We believe that, going forward, we need to be very cautious and prepare ourselves for increased market volatility. We base this cautionary stance on the following factors:

1. Since spring of 2009, with the exception of a small pullback in 2015, the markets, as a whole, have been going up.

2. We believe in “reversion to the mean”, in which the markets need to adjust back to their traditional, historical rates of return.

3. We see investors getting extremely comfortable with the relatively low levels of market volatility. This comfort level often leads to unrealistic expectations that the markets will continue their upward trend indefinitely.

So, how do we prepare for what we believe is a return of volatility and perhaps a broad market pullback? We offer the following suggestions.
First, realize that, for the most part, your portfolios are built for the long haul. Increased volatility allows us to create buying and selling opportunities, while market pullbacks allow us to buy your investments and reinvest your dividends at better prices.

Second, understand that making knee-jerk reactions to short term market movements can derail your long term investment program. Sometimes doing nothing is better than doing something. Portfolio activity does not always translate to positive, long term outcomes.

Finally, if and when market volatility returns and/or we begin to experience a market pullback, talk to us if the market action is causing you stress. There are many steps we can take to help you through the market declines including investment education and re-evaluation of your risk tolerance, among others.

In other developments, we are continuing to refine our portfolio modeling program. Most of you will see some additional trading activity in your accounts as we continue this process.

In closing, we want to reiterate how much we appreciate the trust you place in us to handle your financial affairs. In terms of personnel, we have been going through some growing pains over the last few months. Thank you all for your patience. We will be announcing a new hire soon.

As always, please contact us with any questions or concerns. On behalf of all of us at Eagle Financial Strategies, we hope you have a great Summer.

1st Quarter 2017 Newsletter

Happy New Year from the crew at Eagle Financial Strategies! We hope you had a great holiday season.

Following please find some items of interest as we go into 2017.

For those of you who still have Master Limited Partnerships in your account, please be aware that you will receive a Form K-1 to file with your tax return. From past experience, many of these K-1s are not issued until the end of March. If you have any questions concerning whether or not you will be receiving a K-1, please email or call us.

We have done a full review of our models and selected investments. You will most likely see some activity in your accounts over the next few weeks as we realign your portfolios with the new models, swapping out selected investments for the new ones.

We expect some turbulence in the market going forward. The “Trump Rally” thus far has been based solely on analysts’ thoughts on “what might happen”. No one knows for sure. While President-Elect Trump has made some clear indications as to what he would like to do, he still needs a cooperative Congress and Supreme Court to fully execute his vision.

Interest rates should head higher throughout the year. The Fed has telegraphed the possibility of three rate increases during 2017. This will cause some volatility in the fixed income markets if the rate increases should materialize.

As far as to our thoughts on the market’s overall reaction, our crystal ball is still broken (I know, we need to get a new crystal ball repair man-we are open to suggestions). As always, we believe that staying the course and executing a properly developed investment plan based upon your individual risk tolerance is the proper action. Almost all of the accounts we manage are set up to be long-term investment programs. Therefore, it makes no sense to make short-term adjustments that could potentially harm the program over the long-term. An interesting study supports our belief that staying invested and not trying to time the market, even in poor market conditions, is the way to go.

According to the 9/5/2016 edition of BTN Research, the total return of the S&P 500 from 2011 through 2015 was 80.7%. The best 13 trading days in that five-year period (out of 1,258 total trading days) accounted for 55.1% of the 80.7% gain. Put another way, approximately 1% of the trading days over the five-year period accounted for approximately 68% of the total five year gain. If one had been trying to time the market by moving in and out in response to external factors, they stood a very good chance of missing the biggest gains from 2011 through 2015. (These figures represent past performance only, and cannot be used to predict future performance.)

This does not preclude a speculative investment once in a while (though only if it is indicated by your risk tolerance), but does lend credence to our belief that remaining invested over the long-term, adding to investments (especially in down markets), and reinvesting dividends and interest back into the account is the proper way to execute a long-term investment program.

We wish you all a Happy, Healthy, and Prosperous New Year.

Let’s Be Careful Out There…

This is just a quick note of caution to all of our readers. More of a “blurb” than a “blog”.

As investment advisors, we often have a front row seat to people’s financial mistakes. One of the biggest mistakes people make is believing an unscrupulous advisor that guarantees investment returns.

By law, investment advisors are NOT allowed to guarantee investment returns.

If you are approached by someone who states that they can triple your money, guarantee an XX% rate of return on your money, or makes a claim guaranteeing you to never lose your money, kindly show that person the door. The only money they are tripling is most likely their own, through gaining access to yours.

In our roles as life insurance agents, we often show people illustrations showing a guaranteed interest rate on a policy or annuity. This cannot be mistaken for the same type of guarantee that is mentioned above as they are contractual promises from the company providing the policy. The company has a financial interest in seeing that they honor their guarantees. You, as a consumer of the product, still need to be aware that those guarantees are only as strong as the company behind it. Therefore, is it truly a guarantee? By the strictest definition of the word, I would say no.

Bottom line. Nothing in the financial world is truly guaranteed, even the interest on government bonds that are backed by the “full faith and credit of the U.S. government” (don’t even get me started…). Fall back on the old saying that if it seems too good to be true, it probably is.