Letter to Our Clients - January 2014

Dear Clients and Friends,


Happy New Year!  We hope your holidays were wonderful and that 2014 has been a great year for you so far.  Everyone here at Advanced Wealth Management is doing well.  Last year was full of individual and collective successes for us, and we are excited for the year to come.


After Christmas, Bob and I went with our families to stay in a rustic lodge and basic cabins at the base of Mount Adams. This is a tradition that my family has had for a few years now, going up with our family and my aunt, uncle, and cousins to unplug and enjoy the Northwest wilderness. Because of the elevation and time of year, it is usually a winter wonderland, with snow on the ground and in the pines, and often we will have a few inches accumulate while we are there.  There are many opportunities for crisp morning walks around the area, snowshoeing, cross-country skiing, sledding and snowball fights. My dog loves to play in the snow and it is fun to see her hone her snowball catching skills every chance she gets.


This year, however, there was no snow. It had been an exceptionally dry winter all throughout the Northwest, and as our trip approached we anxiously watched the weather forecasts, hoping a snowstorm would come in time.  In the end, our winter wonderland, while still a wonderland, was not white.  Even though we were expecting and hoping for snow, we still had a fantastic time hiking every day, relaxing, catching up on reading, and having deep conversations around a roaring bonfire being stoked by Bob and my Uncle Tom. 


Our hope for and expectation of snow, and the lack thereof, made me think about all the other expectations and predictions that Bob and I always read about as the new year begins. We are inundated by predictions of what crops will be plentiful and scarce in the coming year, how much rainfall the computer models project, top analyst estimations of the economic outlook, and of course, prophecies about stock and bond market returns. Unfortunately these long-term predictions, like forecasts for snow in the Willamette Valley, are usually wrong or at least inconsistent.


As we read the newspapers and the financial press, the consensus right now is that the economy is predicted to continue to improve, the stock market should be up (though not as much as last year), and the world will continue on its current path. However, these predictions and projections are just that, and we really have no idea what 2014 holds in store for us. Often our view of the future is really just an expectation that the next twelve months will be like the last twelve months.  This can leave us ill-prepared for unexpected events. 


Bob and I tend to agree with the underlying data that lead to the forecasts we are seeing.  The economy is slowly improving, which builds the base for future stock market gains and for lower unemployment.  Stock markets are high, but we do not believe they are as completely overvalued as they have been in the past.  Bond markets are at an interesting juncture in history and will likely suffer when interest rates start to rise, but still serve an important role in a diversified portfolio.  The political situation in Washington D.C. is actually looking a little bit better as we have seen glimmers of compromise and cooperation.  I know that many of you were able to join our conference call with the Chief Investment Officer of Commonwealth Financial Network, Brad McMillan.  Brad summarized these themes and more, and eloquently outlined the reasons to be both cautious and optimistic. 


All that being said, what usually destroy long-term predictions are unanticipated events.  We have been saying for three years now that the stock markets are due for a significant pullback, because they simply cannot go up forever.  And yet, for the past three years, the markets have steadily risen in value.  Again we are saying that we expect a sell-off sometime in the future, and we would not be surprised to see it come sooner rather than later, but with the improving fundamentals of the economy, the sell-off we expect could still be years away. 


In short, going into 2014 we want to work with you to make sure that you are ready for anything. We want to make sure that whether there is snow on the ground or just frozen ground on your winter vacations, and whether the stock and bond markets go up, down, or sideways, that you will be well-positioned to continue enjoying the present while building for the future. We look forward to speaking with you soon, and again, Happy New Year!




Theodore R. Haley, CFP® AIF®

Vice President