• Bill Bullock

2017 Second Quarter

Professor Robert Shiller, the winner of the 2013 Nobel Prize in Economic Sciences, said during a May 24th CNBC interview that bonds are a big concern as we face more Federal Reserve interest rate hikes in the months ahead. He went on to say that stocks could go up 50% over the next 10 years for an average of 5% per year. While 5% is below the long-term average for stocks, it would be higher than what he is expecting for bond returns over the next 10 years (he did not say what his bond return expectations are). That said, he emphasized that there seem to be better stock valuations outside of the US as overseas stocks have much lower cyclically adjusted price-to-earnings or CAPE ratios – a valuation metric he devised with the help of a graduate student. The lower the CAPE, the less expensive that index or security. That is where our 23% foreign equity position comes in. As you will see with the enclosed reports, our international mutual funds are some of the best performers within your portfolio so far in 2017. It is another reminder that being diversified pays off in the long-run. On the domestic side, corporate earnings and the potential corporate tax cuts promised by the Trump administration continue to drive the US stock market higher. If either or both of those variables falter in the latter half of 2017, we could see a drop in stock valuations.


In last quarter’s letter I wrote about Schwab’s new commission structure and their expense ratio discounts. This time I would like to touch on Schwab’s “Security Guarantee” as I have heard from a couple of you that you are concerned about this topic.


Schwab will cover 100% of any losses in any of your Schwab accounts due to unauthorized activity.” As clients of Schwab, they only ask that you: 1) “Safeguard your account access information. If you share this information with anyone, Schwab considers their activities to have been authorized by you.” 2) Report any unauthorized transactions to Schwab as quickly as possible. The number to dial is 888-3-SCHWAB. I believe these are two reasonable demands. The moral of the story is to keep your username and password to SchwabAlliance.com safe. If an unauthorized person does happen to gain access to your account, please verify the activity with Katie or myself prior to calling Schwab. By the way, I have NEVER had any unauthorized activity with any client Schwab account via the telephone or web. I’m hoping that streak will continue and we will never have to use the above telephone number. If you would like more information about the Schwab “Security Guarantee,” let us know.


For those of you saving for retirement, I have included an article that I read in the July 1-2, 2017 Wall Street Journal that I thought provided some helpful “rules of thumb” for figuring out if you are on the right track for retirement. I happen to believe one cannot have too many reminders when it comes to this subject.

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