Stock Markets

Returns from various stock market indices over several periods ending June 30, 2018 are shown to the right.  Here are a few highlights:

  • Domestic stocks continue to lead the way. REITs were up nicely for the quarter, but non-domestic stocks were down.  Due to political turmoil and the specter of a trade war, stocks traded in developed international markets are reflecting uncertainty.
  • Emerging markets gave back much of their positive result of recent periods. This is driven by increasing interest rates and the strength of the dollar.
  • Returns from domestic small-cap stocks have done well over these periods.
  • Look at the variability among the different markets over the shorter periods and how it tends to even out over longer periods. Keep in mind:  ten years in capital markets is a short period over which there can be plenty of anomalies.

Bond Markets


The Yield Curves graph to the right shows the yield to maturity of U.S. Treasury securities, from short-term (one month) to the long-term (twenty years).  Recent changes in these curves are presented below.  Note:

  • Look how short-term yields have climbed over the past year with little change in longer-term yields. As yields move up, prices and returns go down.
  • There is not much change over the quarter. Notice the flatness of today’s yield curve – hardly any difference between 5-year and 10-year yields.  A flat yield curve is generally an indicator of a difficult economic environment ahead.
  • While there is no sign of it yet, it seems reasonable to expect increasing inflation due to the introduction of tariffs, plus today’s robust economy and low unemployment.  Expectations of increasing inflation should produce higher yields for longer-term bonds.

A recent headline in the Wall Street Journal declared, “A Generation of Americans Is Entering Old Age the Least Prepared in Decades.”  The article starts out by stating, “Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president.”  It is a familiar story with some updated, and alarming, statistics.

Consider the following statements from the article:

  • In total, more than 40% of households headed by people aged 55 through 70 lack sufficient resources to maintain their living standard in retirement.
  • Median personal income of Americans 55 through 69 leveled off after the year 2000 – for the first time since data became available in 1950 (according to analysis done by the Urban Institute). Median income for people 25 through 54 is below its 2000 peak.
  • Americans aged 60 through 69 have more debt, including six times as much student-loan debt in 2017 than they did in 2004 (according to New York Federal Reserve data adjusted for inflation).
  • Households with 401(k) investments and at least one worker aged 55 through 64 had a median $135,000 in tax-advantaged retirement accounts as of 2016 (according to the latest calculations from Boston College’s retirement center)…that would produce about $600 a month in annuity income for life.
  • Health care costs – since 1999, average worker contributions have risen 281% during a period of 47% inflation.
  • The cost of higher education continues to rise much faster than inflation, causing student-loan debt to rise for students, and often for parents.
  • Life expectancy continues to increase, so people in their 50’s and 60’s are often helping aging and ill parents while figuring out their kids’ college expenses.

Individual stories of financial insecurity often start with familiar hardships.  At Rockbridge, we have clients affected by all of the common, but unfortunate, life events including job loss, personal illness, divorce, ailing parents or children, and student-loan debt for themselves or their kids.

One interesting change I noted – we now talk more often about “approaching retirement age,” rather than “approaching retirement.” Some people still choose to retire early, and others are forced to retire, but more people are choosing to continue working because they need the income or prefer the lifestyle.

At Rockbridge, we think people should make decisions that enhance their financial security whether they plan to retire or not.  The trends noted above make financial security a more difficult goal to obtain.  Planning early, and adjusting often, will allow people to be better prepared as they approach retirement age.  If you have not reviewed your plan lately, give us a call.