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Market Insight

Market Insight - Yields on Cash Have Been Nearly Non-Existent, but That’s Beginning to Change

Submitted by Birchwood Financial Partners on May 7th, 2018

By Steve Dixon, CFA

It has been quite some time since the phrase “cash is king” has been uttered. In general, the idiom has been used to make the case for investing in cash securities, despite the unremarkable growth potential of the asset class. The benefits of investing in an asset that is likely to preserve its value in a broad stock market downturn can be underappreciated until that downturn actually occurs. In a market environment where stock market valuations are largely higher than average and bond prices are also exceptionally high, cash should be considered as an appropriate investment allocation in a balanced portfolio. The problem has been that the yield on cash securities has been nearly non-existent for almost a decade. But that’s beginning to change.

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Market Insight - The Sudden Return of Volatility to the Markets

Submitted by Birchwood Financial Partners on February 8th, 2018

By Steve Dixon, CFA

I’m sorry that my letter happens to be delayed this quarter. While finishing a first draft, the stock market reminded us all of its unpredictability and potential for sudden course corrections. Instead of sending this letter out in its original and dated form, we felt it obviously imperative to address the current market correction. At the same time, last year was such an uncommon year in the capital markets that I decided to retain much of the original letter’s content for your edification. Despite the understanding that market corrections may occur at anytime and for unpredictable reasons, they can still be unnerving. When market volatility increases it is important to remain disciplined and stick to your long-term investment strategy. Thank you for your continued interest in these periodic letters. The intent is to provide you with our interpretation of the current capital markets in the context of investing for the long-term and to regularly communicate our investment philosophy in managing your wealth.

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Market Insight - Exploring Current Stock Market Valuations

Submitted by Birchwood Financial Partners on November 2nd, 2017

By Steve Dixon, CFA

Defying the expectations of many market pundits, the stock market has continued higher in a nearly unchecked rise in 2017. The flawed, but tirelessly reported level of the Dow Jones Industrial Average (“DJIA”) teased 18,000 in the days leading up to last November’s elections. Fast-forward eleven months and the commonly used proxy for the U.S. stock market has recently surpassed 23,000. Along the way, the DJIA has never lost more than 2 percent in a single day, never been down by more than 5 percent from its all-time high at the time and has reset a fresh all-time high 59 times1. On average, the stock market suffers an intra-year decline of about 14 percent2. It is very uncommon to have such a placidly positive stock market.
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Market Insight - Distinguishing Risk from Volatility

Submitted by Birchwood Financial Partners on August 1st, 2017

By Steve Dixon, CFA

Investing is and has always been a balancing act of contradictions. President Harry Truman complained that he wanted someone to “give me a one-handed economist. All my economists say, ‘on the one hand…on the other’”. In today’s environment, we have elevated asset values in nearly all types of assets on one hand. But on the other hand, we have loose global monetary policy. Likewise, we have historically low levels of asset price volatility on one hand. But on the other hand, we have a geopolitical landscape that is disruptive and uncertain. So what can we do to weigh these factors and arrive at a decision on how to invest our assets?

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Market Insight - Balancing Pessimism and Optimism as Investors

Submitted by Birchwood Financial Partners on April 27th, 2017

By Steve Dixon, CFA

The first three months of the year have proven to be very agreeable for investors, perpetuating the antithesis of Murphy’s law. If you recall, Murphy’s law states that “anything that can go wrong, will go wrong”. The adage has always struck me as a sort of seasoned pessimist’s guideline for properly setting expectations. Don’t get your hopes up and you’ll find that disappointment comes infrequently. The present state of the markets has us considering what happens to markets when everyone seems to be assuming that Murphy’s law will be enacted by executive order at any moment.

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Market Insight - Examining the Investor Perception Pre- and Post Election

Submitted by Birchwood Financial Partners on February 3rd, 2017

By Steve Dixon, CFA

Everybody loves an underdog, right? In August, 2015, before the season began, the Leicester City Football Club in England faced seemingly insurmountable odds to win the Premier League title. Odds-makers chanced the club’s prospects for the title at an astonishing 5,000-to-1. To give you an idea of how ridiculously absurd those odds are here are some other odds that lend perspective. The U.S. Men’s Hockey Team was given 1,000-to-1 odds of winning the gold medal in the 1980 Olympics. The Minnesota Twins faced 500-to-1 odds of winning the World Series in 1987. The Cleveland Browns were given 200-to-1 odds of winning the Super Bowl this season (they finished the season with one win)1.

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Market Insight - What is the Superior Investing Methodology?

Submitted by Birchwood Financial Partners on October 25th, 2016

By Steve Dixon, CFA

With considerably less animosity or entertainment value, there is another major debate raging at the moment that doesn’t involve our choices for the next U.S. president. It is one that is perennial, has been analyzed exhaustively by scholars and has staunch advocates at opposite sides of the debate. The conflicting wisdom of Warren Buffett illustrates why investors can’t seem to make a clear determination on whether passive or active investing is the superior methodology.

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Market Insight - Paradox of High Stocks and Low Bonds

Submitted by Birchwood Financial Partners on July 23rd, 2016

By Steve Dixon, CFA

I’ve always had a fascination with the night sky, watching the stars and learning to identify planets and constellations. I remember “camping” in a friend’s backyard when I was young and watching the northern lights, back when they were still visible from Minnetonka. Last fall, I got a rare treat on my way in to the office as I caught a glimpse of a spectacular green meteor streaking through the early dawn sky. It’s difficult to not be in awe of the rarity of what we have on Earth when gazing into the infinite darkness of the night sky. Still yet, to realize that the earliest civilizations of humans have been staring up at the same scattering of brightly twinkling stars for over 5,000 years allows us to briefly relate to our ancient ancestors.

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Market Insight - Reviewing a Choppy Start to 2016

Submitted by Birchwood Financial Partners on April 21st, 2016

By Steve Dixon, CFA

I was recently invited to speak to a class of students at Mound-Westonka High School about the stock market.  Nothing spells excitement to high school students like a guest speaker about the stock market!  These kids were different though, in that they were very good at hiding their boredom as I spoke--only kidding, of course, they were very attentive and asked excellent questions.  After all, they were in the middle of playing The Stock Market GameTM (“SMG”)1 and competing against dozens of other teams around the state to invest a virtual $100,000 for about three months.  In all honesty, I have mixed feelings about the SMG since it does a wonderful job of introducing young people to investing and provides the opportunity for teachers to instill important lessons about being responsible and prudent with your finances.  At the same time though, over such a short period it’s difficult for students to see the value of truly investing rather than just trading or speculating.  Graph 1 illustrates how the value of the S&P 500 Index changed during the first quarter. 

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Market Insight - Importance of Long-Term Strategy in Global Markets

Submitted by Birchwood Financial Partners on January 23rd, 2016

By Steve Dixon, CFA

In keeping a review of 2015 brief, I’m attempting to live by the wise words of Bambi’s bushy-tailed friend Thumper, “if you can’t say somethin’ nice, don’t say nothin’ at all”.  While Birchwood enjoyed celebrating its 25th year in business, last year will go down as a disappointing one for investors.  With stock and bond indexes ending the year roughly where they started, growth of invested capital was a struggle.  Marked by a tepid first half of the year, markets sold off sharply during the third quarter only to recover much of the lost ground over the final two months of the year.  Perhaps most memorable about 2015 from an investment standpoint was the wide anticipation that the Federal Reserve would raise the Fed Funds interest rate for the first time in nearly ten years.  Since announcing the increase in the short-term interest rate, the S&P 500 Index of U.S. stock prices has lost over 12 percent of its value1 and long-term U.S. interest rates have actually fallen2.

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Birchwood Financial Partners and our editorial staff. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Birchwood Financial Partners is an SEC Registered Investment Advisor (Registration does not imply a certain level of skill or training). Please note that Birchwood Financial Partners nor any of it agents give legal advice or detailed tax advice. The presence of this web site shall in no way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any State other than the States of AZ, CA, FL, IA, IL, MN, OR, TX, WI or where otherwise legally permitted. Birchwood is not affiliated with or endorsed by any government agency.

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