taxes

Volatility Is Not Risk

Volatility Is Not Risk

The two should not be confused.

 Provided by Amber Nabity Stitt

What is risk? To the conservative investor, risk is a negative. To the opportunistic investor, risk is a factor to tolerate and accept.

Whatever the perception of risk, it should not be confused with volatility. That confusion occurs much too frequently.

Volatility can be considered a measurement of risk, but it is not risk itself. Many investors and academics measure investment risk in terms of beta; that is, in terms of an investment’s ups and downs in relation to a market sector or the entirety of the market.

If you want to measure volatility from a very wide angle, you can examine standard deviation for the S&P 500. The total return of this broad benchmark averaged 10.1% during 1926-2015, and there was a standard deviation of 20.1 from that average total return during those 90 market years.1

What does that mean? It means that if you add or subtract 20.1 from 10.1, you get the range of total return that could be expected from the S&P two-thirds of the time during the period from 1926-2015. That is quite a variance, indicating that investors should be ready for anything when investing in equities. During 1926-2015, there was a 67% chance that the S&P could return anywhere from a 30.2% yearly gain to a 10.1% yearly loss. (Again, this is total return with dividends included.)1

Just recently, there were years in which the S&P’s total return fell outside of that wide range. In 2013, the index’s total return was +32.39%. In 2008, its total return was -37.00%.2

When statisticians measure the volatility of major indices like the S&P 500, Nasdaq Composite, or Dow Jones Industrial Average, they are measuring market risk. Trying to measure investment risk is another matter.

You can argue that investment risk is not measureable. How can investors measure the probability of a loss when they invest? Even after they sell an investment, can they go back and calculate what their risk was at the time they bought it? They only know if they made money or not. Profit or loss says nothing about risk exposure.

Most experienced investors do not fear volatility. Instead, they fear loss. They think of “risk” as their potential for unrecoverable loss.

In reality, most apparent “losses” may be recoverable given enough time. True unrecoverable losses occur in one of two ways. One, an investor sells the investment for less than what he or she paid for it. Two, some kind of irrevocable change happens, either to the investment itself or to the sector to which the investment belongs. For example, a company goes totally out of business and leaves investors with worthless securities. Or, an innovation transforms an industry so profoundly that it renders what was once a leading-edge company an afterthought.

Accepting risk means accepting the possibilities of equity investing. The range of possibilities for investment performance and market performance is vast. History has shown that to be true, history being all we have to look at. It fails to tell us anything about the negative (or positive) disruptions that could come out of nowhere to upend our assumptions. A “black swan” (terrorism, a virus, an environmental crisis, a quick evaporation of investor confidence) is always a possibility. Next year, the performance of this or that sector or the small caps or blue chips could be spectacular. It could also be dismal. It could certainly fall in between those extremes. There is no way to calculate it or estimate it in advance. For the equities investor, the future is always a flashing question mark, regardless of what history tells or pundits predict.

Diversification helps investors cope with volatility & risk. Spreading assets across various investment classes may reduce a portfolio’s concentration in a hot sector, but it also lessens the possibility of a portfolio being overweighted in a cold one.

Volatility is a statistical expression of market risk, constantly measured. Volatility, however, should not be confused with risk itself.

Amber Nabity Stitt may be reached at Amber@physicianadvisorsllc.com.

PhysicianAdvisorsLLC.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities offered through Lion Street Financial, LLC. (LSF), Member FINRA & SIPC. Investment Advisory Services offered through Physician Investment Advisors, LLC. Physician Advisors and Physician Investment Advisors are not affiliated with LSF.

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [3/31/16]

2 – ycharts.com/indicators/sandp_500_total_return_annual [3/31/16]


doctors life podcast

The Doctor’s Life Podcast Episode 021- Maximizing Your Roth IRA

Many physicians believe they can’t do a Roth IRA. Sure, there are income limits on Roth IRAs, but there is a rule that turns out to be a nice workaround to help you maximize your Roth IRA.

Justin Nabity is in The Doctor’s Life Podcast studios to help you with your Roth IRA info and that workaround. All episodes of The Doctor’s Life Podcast are available here, iTunes, Android, and on SoundCloud. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…


Weekly Economic Update for February 8, 2016

Amber Nabity Stitt Presents:

WEEKLY ECONOMIC UPDATE

WEEKLY QUOTE

 

“You gain strength, courage and confidence by every experience in which you really stop to look fear in the face.”

     

– Eleanor Roosevelt

      

   

WEEKLY TIP

 

If you want to leave some of your IRA to your children, a Roth IRA conversion may be a great idea: the IRA they inherit could realize further tax-free growth.

   

WEEKLY RIDDLE

 

When you lack me, you feel a sort of gloom. When you use me, it is time you consume. What am I?

 

 

Last week’s riddle:

Karen parks her car beside a hotel and instantly recognizes that she is bankrupt. How does she know this?

   

Last week’s answer:

She is playing Monopoly.

 

 

 

February 8, 2016

UNEMPLOYMENT NOW BELOW 5%

Although the economy added just 151,000 jobs in January, the Labor Department’s latest employment report also showed a reduction in the headline jobless rate to 4.9%. The broader U-6 measure of underemployment remained at 9.9%. Monthly payroll gains have averaged 231,000 since November; in fact, the 3-month, 6-month, and 12-month job creation averages are now all above 200,000.1

CONSUMER SPENDING FLATTENED IN DECEMBER

Personal incomes rose 0.3% in the final month of 2015, but the Commerce Department recorded no corresponding personal spending advance. The good news? The personal savings rate reached 5.5%, a 3-year high.2

MANUFACTURING SLOWDOWN CONTINUES

The Institute for Supply Management’s purchasing manager index for the factory sector came in at 48.2 for January, 0.2 points higher than the previous reading, but still well under the 50 mark. U.S. manufacturing has now contracted for four straight months. ISM’s non-manufacturing PMI dipped 2.3 points in January, but still showed expansion at 53.5.2,3

OIL PRICES & STOCK INDICES DECLINE

Oil closed Friday at $30.89 on the NYMEX, down 8.1% in five days. That and earnings disappointments lead to sizable weekly descents: the Dow lost 1.59% to 16,204.83; the Nasdaq, 5.44% to 4,363.14; the S&P 500, 3.10% to 1,880.02.4,5

THIS WEEK: Hasbro, Lennox International, Loews, 21st Century Fox, and Yelp announce earnings Monday. Tuesday, earnings news arrives from Akamai, Baidu, Coca-Cola, CVS Health, Goodyear, Ingersoll-Rand, Martin Marietta, NCR, Panera, Spirit Airlines, Viacom, Walt Disney Co., WellCare, Wendy’s, Western Union, and Wyndham Worldwide. Federal Reserve chair Janet Yellen begins two days of testimony on monetary policy in Congress Wednesday; investors will keep an eye on that and earnings from Aramark, Cisco, Expedia, Humana, iRobot, LifeLock, LoJack, O’Reilly Automotive, Omega Healthcare, Owens Corning, Tesla Motors, Time Warner, Twitter, Whole Foods, and Zynga. Thursday brings earnings from Activision Blizzard, Avon, Coca-Cola Enterprises, Diebold, Groupon, Huntsman, Invacare, Kellogg, Molson Coors, Pandora, Peabody Energy, Penske, PepsiCo, TripAdvisor, Verisign, Vonage, and W.R. Grace, in addition to initial claims figures. Friday, the University of Michigan’s initial February consumer sentiment index appears, plus January retail sales figures and earnings from ITT and Red Robin.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -7.00 -9.39 +6.80 +5.01
NASDAQ -12.87 -8.44 +11.51 +9.32
S&P 500 -8.02 -8.85 +8.68 +4.86
REAL YIELD 2/5 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.53% 0.13% 1.30% 2.00%

Sources: wsj.com, bigcharts.com, treasury.gov – 2/5/166,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our distribution list, please reply with their address.


We will contact them first and request their permission to add them to our list.

Securities offered through Lion Street Financial, LLC. (LSF), Member FINRA & SIPC. Investment Advisory Services offered through Physician Investment Advisors, LLC. Physician Advisors and Physician Investment Advisors are not affiliated with LSF.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – forbes.com/sites/samanthasharf/2016/02/05/mixed-jobs-report-151000-jobs-added-in-january-unemployment-rate-down-to-4-9/ [2/5/16]

2 – nytimes.com/2016/02/02/business/economy/factory-activity-falls-for-4th-straight-month-but-construction-edges-up.html [2/2/16]

3 – briefing.com/investor/calendars/economic/2016/02/01-05 [2/5/16]

4 – marketwatch.com/story/crude-prices-steady-as-a-weak-dollar-lends-support-2016-02-05/ [2/5/16]

5 – markets.on.nytimes.com/research/markets/usmarkets/usmarkets.asp [2/5/16]

6 – markets.wsj.com/us [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F5%2F15&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F5%2F15&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F5%2F15&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F4%2F11&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F4%2F11&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F4%2F11&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F6%2F06&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F6%2F06&x=0&y=0 [2/5/16]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F6%2F06&x=0&y=0 [2/5/16]

8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [2/5/16]

9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [2/5/16] 

 


doctors life podcast

The Doctor’s Life Podcast Episode 008- How’s Your Financial Health?

It’s that time of the year when you’re looking at bills from the holidays, maybe a job offer or going after a job offer, and tax season is starting to roll around. It’s time to ask yourself about your financial health. Sometimes you have to be brutally honest with yourself when assessing your financial health. Nick Schneider is in studio this week to help you determine your financial health.

All episodes of The Doctor’s Life Podcast are available here, iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…


2015 US Physicians’ Financial Preparedness Report Is Out!

ama

The 2015 US Physicians’ Financial Preparedness Report has been released, and the results are eye opening. If you’re a young physician questioning your current financial position, you are not alone. I highly recommend taking a look at the entire 2015 US Physicians’ Financial Preparedness Report put together by AMA Insurance. Denise Friday from AMA Insurance has a summary of the 2015 US Physicians’ Financial Preparedness Report. Continue reading…


doctors life podcast

The Doctor’s Life Podcast Episode 006- Capitalizing On Your 401k

401k. Those three numbers and a letter makes most of us excited yet completely confused. Your 401k is a solid investment tool that employers provide, yet, if it is not done properly, means you are setting yourself up for failure later on when you close in on your retirement. Did you know you can actually change what is on your 401k throughout your career? It makes sense, but how do you change-up your 401k? Nick Schneider is hopping on to The Doctor’s Life Podcast to give you a run down on the life of your 401k.

All episodes of The Doctor’s Life Podcast are available here, iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes. Continue reading…


doctors life podcast

The Doctor’s Life Podcast Episode 005- You’re Paying Too Much In Taxes

Well, we are about to wrap up 2015. That means it’s about time to dive in to your taxes. Some of us look forward to that refund from the IRS and already have that check spent. That also means we are paying too much on our taxes. Nick Schneider is back on The Doctor’s Life Podcast with a few tips on how to avoid paying too much on your taxes and some easy ways to get Uncle Sam out of your pocket.

All episodes of The Doctor’s Life Podcast are available here, iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes.

Continue reading…


How Gen Xers Can Get Their Retirement Saving Back on Track

How Gen Xers Can Get Their Retirement Savings Back on Track

Steps that may help to address a savings shortfall.  

 Provided by Amber Nabity

Were you born within the years 1965-1980? That makes you a member of Generation X, and it means you are between ages 35-50. Gen Xers now constitute “the sandwich generation” – how time flies.1

Broadly speaking, GenX is the first generation that has had to save for retirement without traditional pension plans. In addition, most Gen Xers will probably retire after 2033 – the year in which Social Security predicts its trust funds will run dry, barring federal government intervention.1

With eldercare responsibilities, kids, and student loans, this demographic is challenged to save for retirement. In fact, 34% of Gen Xers participating in a recent Northwestern Mutual survey stated they had no idea how much retirement income would be sufficient for them. In April, Bankrate found that just 12% of Gen Xers direct more than 15% of their incomes into savings; about 40% were saving 5% or less of their incomes. More disturbingly, 46% of Gen Xers who responded to a May Allianz Life retirement preparedness survey indicated that they would “just figure it out when I get there.”1,2 Continue reading…


doctors life podcast

The Doctor’s Life Podcast Episode 002- The 50/30/20 Rule

In this episode of The Doctor’s Life Podcast, Nick Schneider dives in to the 50/30/20 rule. From buying a car, home, saving for a college fund, going on vacation, or even eating out, the 50/30/20 rule is one to have in the back of your mind.

All episodes of The Doctor’s Life Podcast are available here, iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes.

 


A Look at Target-Date Funds

Are these low-maintenance investments vital to retirement planning, or overrated?

Provided by Nick Schneider

Do target-date funds represent smart choices, or just convenient ones? These funds have become ubiquitous in employer-sponsored retirement plans and their popularity has soared in the past decade. According to Morningstar, net inflows into target-date funds tripled during 2007-13. Asset management analysts Cerulli Associates project that 63% of all 401(k) contributions will be directed into TDFs by 2018.1,2

Fans of target-date funds praise how they have simplified investing for retirement. Still, they have a central problem: their leading attribute may also be their biggest drawback.

How do TDFs work? The idea behind a target-date fund is to make investing and saving for retirement as low-maintenance as possible. TDFs feature gradual, automatic adjustment of asset allocations in light of an expected retirement date, along with diversification across a wide range of asset classes. An investor can simply “set it and forget it” and make ongoing contributions to the fund with the confidence that its balance of equity and fixed-income investments will become more risk-averse as retirement nears.

Continue reading…