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812-853-0878  |  800-355-9624

October 1, 2018

Dear Client:

 

Returns for the major stock indices through the third quarter of 2018, and the current bond market yields are as follows:

 

Index YTD 2018
Dow Jones Industrial Average      8.67%
S&P 500      10.56%

 

Fixed Income Yields 1 year 5 year 10 year 30 year
Municipals 1.92% 2.23% 2.62%     3.26%
US Treasuries 2.57% 2.94% 3.05% 3.20%

 

Through the first three quarters of 2018, the markets have continued to deliver successful results.  The equity market indices have again reached all-time highs as have your stock based portfolios.  The economy is firing on nearly all cylinders as eight of the eleven sectors in the S&P 500 are positive for the year, and 80% of the companies topped their earnings estimates in the 2nd quarter.  The markets are still benefiting from the lower corporate tax rates, which have significantly contributed to impressive year-over-year earnings growth.  In each of the first two quarters earnings have been up over 20% and we have yet to see the 3rd and 4th quarter numbers, which we do not believe will be anything but remarkable.  The U.S. markets have dominated their foreign counterparts as the total U.S. equity market capitalization has risen this year from 36.60% to 40.16% of the total world equity market cap.  By now, you are fully aware we are in a bull market and have been for almost a decade.

At LYNCH & Associates, we believe to be successful as an investor, one must be dedicated to a long-term vision.  We admit we sound like a broken record beating the long-term drum.  As highlighted in multiple studies, the average investor’s behavior over time negatively affects their own investment performance by more than half the S&P’s performance.  A true investor is at peace with owning high quality investments for years and decades.  We strongly believe that disciplined equity investing for decades is, for most people, the surest way to accumulate lasting, generational wealth.

With all-time highs in markets brings conversations about when is the right time to reallocate, when is the correction coming or when should money be taken off the table?  These questions are ultimately dealt with on an individual basis as risk tolerance is very specific and does take some careful consideration.  Generally, our message to those under fifty years of age or in the

accumulation phase of their lives is to remain heavily exposed to equities, and in most cases entirely invested in equities.  Another group of our wealthiest investors, who are 70+ years old and have been equity investors for decades, often view their assets as if they are managing them for their heirs; this group is also heavily invested in equities.  Generally, the two above-mentioned groups should be sleeping comfortably with respect to their asset allocations.  The toughest decisions currently are attributed to the 50 to 70 year old cohort, who have many years to live and are transitioning to retirement or the distribution phase of their lives.  This middle-aged group requires the most conversation with respect to asset allocation as many have grown accustomed to significant growth in their portfolios in recent years.

As goes the famous marriage vow, for richer or poorer, I would jest that the “for richer” part is not what makes marriage difficult.  Similarly to investing, it is NOT the market rallies that make investing difficult; rather the market declines.  Please keep in mind, the markets have declined by over 20% twelve times since the end of World War II and by over 40% three times.  These facts can be understandably unsettling.  To offer some comfort, the average time to a FULL recovery has been 14 months for the 20% to 39% declines, and 58 months in the case of the three most challenging markets.  We are not alarmed at the current levels of the markets for many reasons, but fully concede that market declines are inevitable and we accept as our responsibility to regularly remind you of the risks, even if we believe they will be short-lived.  Being a true long-term investor is not how you handle the good times, rather how you behave in the tough times.

Our decision to maintain heavy equity allocations has been mostly twofold.  One reason is we understand equities have historically outperformed every other asset class over most reasonable time periods and also because of the recent unimpressive options available in fixed income.  However, the bond market has begun to peek its head and treasury and municipal bond yields have become slightly more attractive.  The transition into more balanced accounts has become more appropriate for some, especially those moving into the above-mentioned distribution phase.  Moreover, money market rates have continued to improve, yielding 1.63%.

We genuinely appreciate your business and value the trust you have placed with us in the stewardship of your financial assets.  As always, we welcome and encourage you to schedule an appointment to review your personal financial situation.

Sincerely,

 

Ryan T. Lynch, CFP® ChFC®

President

 

Form ADV Part II of the LYNCH & Associates Uniform Application for Investment Advisor Registration and the LYNCH & Associates Code of Ethics are available to all clients at any time.  If you would like to receive a copy, please contact Jennifer Farless at (812) 853-0878 or jfarless@LNAonline.com.

 

Office:  10644 Newburgh Road, Newburgh, IN 47630