Live Sessions

Market Update: May 08 2020

  • Unemployment
  • Dividend Payers
  • Fixed Income Annuities

Here is a recap of our live Q&A session held on 5/8/20 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management.  Please join our next Q&A on Friday, May 15, 2020 at 10 am.

Details for our next event can be found here

With record levels of unemployment why is the market continuing to go up?

As we had discussed on previous calls the market movements are mostly virus related at this point. Good news has generally led to positive market days and visa versa with bad news. Lately the market seems to be really focused on the progress of states opening businesses. Remember the market and economy are not the same thing. The stock market is a voting machine for future expectations of the economy and the health of corporate America. The question for investors is did the market already factor in the depths of the distress in the economy during the initial downturn and now it is pricing in the ultimate recovery? Another factor potentially driving the market surge is investors’ “Fear of missing out” on market returns if the market lows stand. We also believe that the Federal Reserve and the government cash infusions in the markets and in the form of stimulus has been a catalyst for the market movements in light of bad economic data. The question remains…Are government actions going to be enough to prevent a re-test of the market lows in late March? Only time will tell.

Should I play it safe and just buy Value Stocks, or Dividend Payers?

First and foremost, I think we need to suggest that there is no such thing as “safe“ in the stock market. Rather, there are different degrees of risk. In theory, dividend paying stocks may pose a little less risk of volatility than non-dividend paying, or growth stocks. The theory…if a company has sufficient enough cash reserves and cash flow to pay a dividend to its shareholders, then it must have more financial stability and be less susceptible to economic pressures.  In addition, if the company is paying a 2 1/2% dividend, and the share price drops by 5%, your total return is only a -2.5. So, the Dividend helps to cushion volatility a little bit.

Unfortunately, however, life doesn’t always work out the way we planned. Consider the fact that, in this volatile market over the last two months, many growth indexes have outperformed their value index counterpart.   So…are dividends and value stocks safer than growth?  In theory, maybe. But Dave and I have been talking the last few weeks about the importance of balance and diversification, and this year‘s market performance is a great example of why that is so important.

I’m hearing a lot about fixed indexed annuities, should I be putting some money in that?

Unfortunately, we’re not able to give specific investment advice in these calls. Whether or not a product like that is a fit depends on many, many variables: age, other savings, how the rest of your investment portfolio is allocated, income need, and so on. In addition, I believe fixed index annuities may do more harm to someone that has been invested through this market. The reason is that fixed indexannuities, by their very definition, have a cap on what you can earn each year and those caps tend to be relatively low today. So, if you have a portfolio that is down 10% year to date and you sell off and move proceeds to a fixed index annuity, even in the best of markets it could very well take over two years to recover that 10% loss. I personally believe that the better time for a fixed indexed annuity is when the market is high and your portfolio is rich with gains that you want to protect.

You don’t hear much about variable indexed annuities in the media these days, but that is a different animal and can have greater upside potential to assist with portfolio recovery.  There is some risk of downside, unlike in fixed index annuities, but not necessarily the same risk as if you were investing in the market index itself.  Suffice it to say that these types of products have a fit in some portfolios, and Dave and I have positioned them in some portfolios accordingly, but you need to really understand the features, restrictions, and costs associated with them to determine if they’re a right fit for you. 

The views and opinions expressed herein are those of the author(s) and date noted and may or may not represent the views of Beacon Financial Advisory or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. There is no guarantee that any strategies discussed will result in a positive outcome. You should discuss any legal, tax or financial matters with the appropriate professional.

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States and controls the Federal Funds Rate (aka Fed Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Growth funds focus on companies that managers believe will experience faster than average growth as measured by revenues, earnings, or cash flow. Growth fund managers also look carefully at the way a company manages its business. For instance, many growth-oriented companies are more likely to reinvest profits in expansion projects or acquisitions, rather than use them to pay out dividends to shareholders.

While growth funds are expected to offer the potential for higher returns, they also generally represent a greater risk when compared to value funds. They tend to do better than the overall market when stock prices in general are rising, while underperforming the market as stock prices fall, taking into account that past performance does not guarantee future results. As a result, investing in growth funds may require a slightly higher tolerance for risk, as well as a longer time horizon.

The goal of value funds is to find proverbial diamonds in the rough; that is, companies whose stock prices don’t necessarily reflect their fundamental worth. The reasons for these stocks being undervalued by the market can vary. Sometimes a company or industry has fallen on hard times. Other times a poor quarterly earnings report or some external event can temporarily depress a company’s stock price and create a longer-term buying opportunity. In searching for these companies, managers look for what many experts call a "margin of safety." This means that the market has discounted a security more than it should have and that its market value, the price at which it is trading, is less than its intrinsic value, the present value of its future cash flows. One example would be a stock that is trading at $90, but whose intrinsic value is $100.

In general, value funds focus on perceived safety rather than growth, often investing in mature companies that are primarily using their earnings to pay dividends. As a result, value funds tend to produce more current income than growth funds, although they also offer the potential for long-term appreciation if the market recognizes the true value of the stocks in which they invest.

Indexed Annuities are not securities. Interest payments are contractual obligations of the insurance company. Refer to policy for specifics regarding when interest is credited (usually only for funds held for of a specified term) and how interest is calculated (may be less than actual index due to expenses and exclusion of dividend earnings of the index). Past performance of the index is no guarantee of future changes in the index or of future indexed interest earnings.

A variable annuity is an insurance contract which offers three basic features not commonly found in mutual funds: (1) annuity payout options that can provide guaranteed income for life; (2) a death benefit; and (3) tax-deferred treatment of earnings. The separate account of a variable annuity is not a mutual fund. While separate accounts may have a name similar to a mutual fund, it is not the same pool of funds and will experience different performance than the mutual fund of the same or similar name. In addition, the financial ratings of the issuing insurance company do not apply to any non-guaranteed separate accounts. The value of the separate accounts that are not guaranteed will fluctuate in response to market changes and other factors. Variable annuities are designed to be long-term investments and early withdrawals may be subject to tax penalties and charges. Please obtain a prospectus for complete information including charges and expenses. Read it carefully before you invest or send money.

Advisory services offered through Beacon Financial Advisory LLC or Lincoln Investment, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC.,,, Tartan Wealth Management, FNA Wealth Management, and the above firms are independent, and non- affiliated.