Mid-October Update

Caveat Emptor, Growth Stocks:  Investing

“When there is a gap between perception and reality it is only a matter of time until it is reconciled…in favor of reality” – Jack Bogle

Equities are generally divided into two categories:  Growth and Value. Growth Companies are focused on reinvesting to expand, tend to perform best in bull markets, and often show up in the technology and healthcare sectors. Value companies are considered “Bargains” and are often most attractive in the later stages of an economic cycle. As expected, Growth has been outperforming value – but my current concern is that many companies without steady earnings are leading the growth charge.

To illustrate:  unprofitable growth stocks that have surged this year include Sarepta Therapeutics (Nasdaq: SRPT) and Okta Inc. (Nasdaq:  QKTA) While both have seen their stocks prices double, they do not have many profits which means it may all come back to roost. Sarepta has had only one quarterly profit since 2016 yet 20 of 22 analysts polled by FactSet have a buy rating. Do they see something we don’t?  Okta went public in 4/2017 and has yet to post a quarterly profit, while 11 of 13 analysts have a buy rating!

Below is the return of the Russell 1000 Growth Index compared to the return of the unprofitable companies that reside within the index.

Source: Wall Street Journal

The solution:  We can’t predict when the markets will turn up or down, so broad diversification remains the best approach. If you own individual stocks, make sure they do not represent more than 10% of your total portfolio. And for your diversified stock holdings, make sure they are equally weighted between Growth and Value equities or tilted to Value, this will help avoid an unpleasant surprise!

 
Mid-October Update

Medicare Part D:  Healthcare In Retirement

You probably already know that Medicare is the primary health insurance for Seniors age 65 and over. But If you are new to Medicare, you may not realize that you must buy a separate policy that covers prescription drugs. (A possible exception is if you choose a Medicare Advantage plan that combines various parts and may also cover prescription drugs, but not always).

Do you have the right prescription drug plan? My friend, Diane Omdahl, founder of a Medicare consultancy 65 Incorporated tells us “retirees who regularly take prescription drugs can potentially save hundreds or even thousands of dollars with careful shopping for a Medicare Part D prescription drug policy”.

If you regularly take one or more prescription drugs for chronic conditions and/or your doctor recently prescribed different drugs for you, it’s a wise use of your time to carefully shop for prescription drug coverage. You can make changes during Medicare’s upcoming open- enrollment period which runs from October 15th – December 7th. With the changes becoming effective at the beginning of 2019. Unlike Medicare supplement plans you can change your Part D without needing to satisfy underwriting requirements.

 

Rates On The Rise:  Fixed Income Update

The Fed announced its third-rate hike for the year, indicating another rate increase anticipated in December and three more to follow in 2019. The Fed’s key policy rate, the Federal Funds Rate, now stands at a range of 2% – 2.25%, the highest in ten years. Borrowing rates are gradually increasing in various consumer sectors including autos, appliances, and home mortgages.

Many analysts believe that the current Fed Chairman, Jerome Powell, may have the ability to orchestrate a soft landing, meaning raising interest rates gradually without triggering a recession or economic slowdown.

Of the various fixed income sectors, U.S. corporate high-yield bonds had the least amount of price declines in September, outperforming both government and investment grade debt. Some analysts view this as a validation of improving financial conditions for U.S. companies and their ability to repay debt.

While fixed income investors are concerned that Fed hikes may be bad for bonds, it’s important to remember the fundamental reason to invest in fixed income: capital preservation income and diversification trading equities and real estate.

Sources: Treasury Dept., Federal Reserve, Bloomberg

*Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.