We know the last week has been stressful for many people. Market declines are frequent. In fact, a correction does take place on average once a year. Additionally, the markets are not strangers to geopolitical concerns.
Despite all of the factors outside of our control, we can control how we react, how we feel and what we listen to.
At Silver Penny we design portfolios and financial plans with your long term goals in mind. We know these periods of time are a part of being investors and we plan your portfolios in anticipation of such periods of volatility.
Warren Buffet might have said it best, “Investing is simple but not easy.”
I encourage you to keep this in mind and we are here if you need us.
Lincoln Financial Network is the marketing name for Lincoln Financial Securities Corporation and Lincoln Financial Advisors Corp., broker/dealer’s (Member's SIPC) and affiliates of Lincoln Financial Group. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.
Securities and investment advisory services offered through Lincoln Financial Securities, a broker/dealer (member SIPC) and registered investment advisor. . Insurance offered through Lincoln affiliates and other fine companies. Lincoln Financial Group is the marketing name for Lincoln National Corporate and its affiliates.
Cash This asset class is more notably defined with money market funds and certificates of deposits. While these are not the only instruments defined as cash, in the investment world, these are more widely used. Bank CDs are FDIC insured and offer a fixed rate of return. An investment in a money market fund is neither insured nor guaranteed by the US government or FDIC. Furthermore, there is no guarantee that a fund will maintain a stable net asset value of $1. It is possible to lose money by investing in a money market fund. Cash as an index is represented by the BofAML 3M US Treasury Note TR USD.
TIPS An acronym for Treasury Inflation Protected Securities, these are instruments issued by the United States Treasury, and offer a hedge against Inflation. These fixed income securities pay a coupon every six months, settling the principal at maturity. Furthermore, the coupon payment is adjusted for inflation based in the consumer price index (CPI). Because of this inflation protection, TIPS often offer a lower yield compared to other Treasury instruments. TIPS as an index is represented by the BBgBarc US Treasury US TIPS TR USD.
Short, Intermediate and Long-Term Bonds Short term bonds refer to those bonds with maturities of less than 4 years. Intermediate bonds typically have maturities of between 4-10 years, and Long bonds refer to bonds with maturities greater than 10 years.
Municipal Bonds A “Muni” bond is a fixed income instrument issued by a state, county, city, municipality, local government, or an associated agency that may provide certain local, state, and federal income tax benefits. Typically, these bonds are exempt from federal income tax, and may be exempt from local and/or state income tax as well. Municipal bonds may be subject to the Alternative Minimum Tax (AMT). Municipal bonds as an asset class are represented by the BBgBarc Municipal TR USD.
Intermediate Fixed Income This type of debt is classified by a maturity, or date of principal payment, set to occur in 3-10 years. These funds are more descriptive of the fixed income market as a whole. In a standard yield curve environment, these instruments offer a yield higher than short term debt, but less than long term or high yield securities. Corporate bonds typically offer higher yields and hold more credit risk than comparable-maturity government bonds. Intermediate Bonds as an index is represented by the BBgBarc US Agg Bond TR USD.
Long Fixed Income Debt issued with a maturity usually over ten years. These instruments have become less popular due to the fact that yield spreads have become smaller in relation to intermediate fixed income. Long Bonds as an index is represented by the BBgBarc US Long Corporate TR USD.
High Yield Fixed Income This type of fixed income instrument pays a higher yield than other types of bonds, and usually has a shorter maturity. These bonds also have increased default and credit risks. High Yield bonds are widely held in mutual funds or exchange traded funds in order to diversify risk. High Yield as an index is represented by the BBgBarc US Corporate High Yield TR USD.
REITs Real Estate Investment Trusts invest in a wide array of properties, companies specializing in real estate, and/or mortgages. REITs can be purchased in two ways: either through a pooled investment of REIT properties through a mutual fund or exchange traded fund, or by going directly to a REIT company. Typically, these investment instruments offer a source of dividends for liquid income. Unlisted, or non-traded, REITs may also carry redemption and valuation risks for investors.
US Large Cap Equity funds focus on big companies that are fairly representative of the overall stock market in both size and price. They tend to invest across the spectrum of U.S. industries, and owing to their broad exposure, the funds' returns are often similar to the S&P 500 Index.
US Small/Mid Cap Equity The typical small or mid-cap fund invests in stocks of various sizes and mixed characteristics, giving it a middle-of-the road profile. These capitalization structures are usually less than those of the S&P 500 companies. The correlation between small and mid cap funds are broadly positive, meaning they move in step with each other. These funds may offer more risk than funds investing in larger companies.
International Equity funds in this asset class invest largely outside of the United States. International equity can carry risks not found with domestic equity, such as regulatory, economic, accounting, political differences, and currency exchange.
Emerging Markets Equity These types of investments are much like international, but carry extra risks associated with smaller less established countries. Political and economic instability are associated with Emerging Markets.
Absolute Return An aggressive and advanced way of investing in both domestic and international markets. The goal of these funds is to generate positive returns in most market cycles without incurring an extreme amount of risk. While the original concept was to reduce risk, the overwhelming majority of these funds have taken to maximizing returns. Absolute return funds employ investment management techniques that differ from traditional mutual funds; including, short selling, futures, options, derivatives, arbitrage, leverage, and the use of unconventional assets. Some hedge fund strategies may be illiquid, carry increased risks, have large minimum investment requirements, and have little to no regulation. Suitability standards may apply.
Alpha Opportunistic An aggressive and advanced way of investing in both domestic and international markets. The goal of these funds is to generate above average returns compared to other asset classes, with the understanding that increased risk is necessary. These funds may employ investment management techniques that differ from traditional mutual funds: including short selling, futures, options, derivatives, arbitrage, leverage, and the use of unconventional assets. Compared to other alternative asset classes, these funds may increase risk to an overall portfolio.
Commodities are a broad index represented by the S&P GSCI Capped Commodity TR index.
Risk – A statistical measurement of dispersion about an average, which, for a mutual fund, depicts how widely the returns varied over a certain period of time. Investors use the standard deviation of historical performance to try to predict the range of returns that are most likely for a given fund. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility. Standard deviation is most appropriate for measuring risk if it is for a fund that is an investor's only holding. The figure cannot be combined for more than one fund because the standard deviation for a portfolio of multiple funds is a function of not only the individual standard deviations, but also of the degree of correlation among the funds' returns. If a fund's returns follow a normal distribution, then approximately 68 percent of the time they will fall within one standard deviation of the mean return for the fund, and 95 percent of the time within two standard deviations. Standard deviation is computed using the trailing monthly total returns for the appropriate time period. All of the monthly standard deviations are then annualized.
Asset Allocation Term referring to the distribution of assets across a number of investment vehicles and asset classes. Correlation between asset classes can produce diversification that may decrease, but not eliminate risk. The process of determining which mix of assets is optimal can be personal and specific to a particular client. An individual’s time horizon, tolerance for risk, and various other traits should be considered when selecting an asset allocation.
Index A hypothetical portfolio of specific securities used as a benchmark in judging the relative performance of securities such as mutual funds, stocks, and variable annuity sub-accounts. Indexes are unmanaged portfolios and should only be used as a comparison with securities of similar investment traits and criteria. An investment cannot be made directly into an index. Exchange traded funds do mimic an index, but may have some risk of tracking error. The performance of an index assumes no transaction costs, taxes, management fees, or other expenses.
Exchange-Traded Fund (ETF) is a security that tracks an index and represents a basket of stocks or bonds like an index mutual fund, but trades like a stock on an exchange. ETFs cannot invest directly in an index, and may carry tracking error risk.
Mutual Fund is a security that represents a basket of stocks or bonds that is often actively managed but might follow a benchmark or category. Mutual funds carry specific risks associated with active management. Mutual funds are sold by prospectus. Consider the fund's investment company objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information about the fund. It should be read carefully before investing.
Investment return and principal value will fluctuate so that the value of redeemed shares may be worth more or less than their original cost.
Diversification through an asset allocation plan is a useful technique that can reduce overall portfolio risk and volatility. Diversification does not eliminate risk, does not guarantee a profitable investment return, and does not guarantee against a loss.
The performance of an index assumes no transaction costs, taxes, management fees or other expenses. An investor cannot invest directly in an index. Past performance is no guarantee of future results.
Sector investments that concentrate its investments in one region or industry may carry greater risk than more broadly diversified investments.
Analysis of current and recommended asset allocation, including Efficient Frontier and Monte Carlo simulation, use hypothetical asset class estimate (Capital Market Assumptions) to simulate outcomes for portfolios.
Non-traditional investments or alternate investments may be subject to special risks, such as illiquidity. Futures and forward trading is speculative and involves substantial risk. There is no assurance that the stated investment objectives will be met. Clients must meet specific suitability standards before investing. Suitability may vary by state. Units or shares of these types of investments may fluctuate in value so that at redemption may be worth more or less than the original amount invested. Several of these offerings are sold by prospectus; a prospectus contains complete information including risks, fees and expenses. Clients should read these carefully before investing. Several of these programs may be for sophisticated investments only or may be limited to established accredited clients.
*Alternative Investments may be subject to Lincoln’s Product Suitability guidelines. Current LFA policy provides clients to purchase up to 30% of their net worth in alternative investments, with only 10% of their net worth in any one product, and 20% in any one sector. Please see LFA’s Product Suitability for Alternative Investments for further guidance. This does not apply when using mutual funds.
Foreign investments are subject to risks not originally associated with domestic investments (i.e. currency, economic, and political risks, and different accounting systems.). Investing in emerging markets can be riskier than investing in well-established foreign markets. Mutual funds investing in foreign small and/or medium-sized company stocks typically involve greater risk, particularly in the short-term, than those investing in larger, more established foreign companies. The risk associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different from those in the United States.
Small cap stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small-cap market may adversely affect the value of these investments so that shares, when redeemed, may be worth more or less than their original cost.
Funds that concentrate investments, foreign or domestic, in one region or industry may carry greater risk than more broadly diversified mutual funds.
Bonds have fixed principal and yield if held to maturity and a default does not occur. Prices of fixed income securities may fluctuate due to inflation, credit, and interest rate changes. Investors may lose money if bonds are sold before maturity or a default occurs.
Long-term government bonds, intermediate-term government bonds and Treasury bills are backed by the full faith and credit of the US government and offer a fixed rate of interest. Although government bonds and Treasury bills are backed by the full faith and credit of the US government, this is not applicable to mutual funds that hold these securities.
There is no assurance that by assuming more risk you are guaranteed to achieve better results.
This information should not be relied upon as research or investment advice regarding a particular security nor should it be construed as recommendation to purchase or sell a security.