Recently, I was interviewed by Money magazine regarding planning for couples that have large age gaps. I apparently said something cogent, as I was quoted in the June 14 article titled Money, Marriage and a Big Age Gap: 6 Ways to Make Sure Your Retirement Is Safe. Check it out!

Also this week, in a widely anticipated move, the Federal Reserve raised its benchmark lending rate by a quarter point to 1.25%. Given that the rate increase wasn’t a surprise, it probably isn’t the reason traders saw fit to take profits in the stock market over the last couple of days, especially in some of the hotter sectors. Perhaps the bigger news was the announcement that they may start allowing some of the principal and interest payments on the $4+ Trillion (that’s 4 million MILLIONS) of US Treasury Bonds and mortgage-backed securities to roll off their balance sheet and not be reinvested.

The effect of allowing the Fed’s bond holdings to shrink will be to take some cash out of the economy which will likely keep a lid on growth. If they get it right, maybe we’ll be back to “normal” in the next few years. Get it wrong and perhaps the doom and gloom predictions of either a deflationary death spiral or rampant runaway inflation will come to pass. No pressure, right?

The bond market certainly has not behaved as if it believes we’ll be needing wheelbarrows to cart our cash to HEB any time soon. In fact, interest rates are holding near all-time lows, which points more to an anticipated slowdown versus the economic expansion that recent equity returns seem to indicate.

I can’t provide any insight into what the markets will do tomorrow, next month, or even next year. I can remind you, though, that rarely has one come out better over ten-year periods by betting against stocks. Just look at the last decade for a reminder.

In June of 2007, the bond market saw interest rates spiking while the S&P 500® was peaking, albeit about 40% below today’s levels. If you had owned a fund approximating the index, you would have seen your account balance drop by nearly half in the following couple of years although you would have been rewarded with dividend payments around 2% a year. On the other hand, you could have just played it safe and just bought a 10-year Treasury Bond around a 5% yield to maturity. Had you done that and reinvested your interest and dividends, you would have had a much smoother ride but today you would have about half as much as the equity fund owner, as illustrated in Exhibit 1.

Finally, my friends at Dimensional Funds have released their 2017 Mutual Fund Landscape. In this annual report, they analyzed US mutual fund returns and accessed manager performance relative to their benchmarks. This year’s edition, like previous years’, shows strong evidence that most fund managers fail to outperform their benchmarks. Not only that, but the fact that some have fleeting success doesn't seem to predict they can repeat the performance, as seen in Exhibit 2.

If you're concerned that your plan may not address unique situations such as an age gap, or if the current market has you worried, get it touch for a review.