Broker Check

January Newsletter

 January 4, 2019


“…Bought the Lows; Sold the Highs…”

Thank the Gods for a new year!  2018 was certainly tumultuous as volatility ruled the entire year.  The volatility did create many opportunities as we “sold high” when the markets peaked, and we ended the year “buying low” when investors sold at the bottom, because it became increasingly difficult to get a decent night’s sleep!  The results of our time-tested strategy will pay off, but looking at the investment returns for 2018 the portfolio experienced a troublesome final quarter of the year. It was a year of increasing uncertainty on many fronts, filled with seemingly never-ending pessimism in the final quarter of the year. 

As we start this brand-new year, we have renewed optimism that 2019 can produce more normal and rewarding investment returns.  Today, I watched and listened to Larry Kudlow (chief economic advisor to the President) report signs of robust US economic growth ahead from an expanding economy fueled by a strengthening labor market and continuing low inflation.  I then listened to Federal Reserve Chairman Powell report that the current economic data is on track to sustain “good momentum for 2019”.  He went on to say that the Fed will be patient as the economic signals unfold throughout the year and that the Fed can be flexible regarding additional interest rate hikes.  After digesting the Fed’s remarks, the US markets all rose significantly, reversing the January 3rd dramatic declines resulting from concerns over slowing global growth.

We do have concerns about the strength of several international economies.  Although hard data is difficult to get from China, it seems to us and many market observers that China’s economy is not doing well.  As the world’s second largest economy, what happens in China will have a ripple effect around the globe.  We also have an eye on Europe as Brexit will certainly have a significant impact on that region.  As a member of the “global economy”, what happens beyond our borders will impact US companies and consumers that rely on goods and services from abroad.  Remember, the US equity markets make up roughly one-half of the world’s equity markets.  Sticking with our globally diversified strategy, our international equity allocations are positioned well to take advantage of future rebounds abroad.

Now, to the numbers.  Given the dramatic volatility in both 2017 and 2018, we believe that looking at the two years together represents a more meaningful picture of our globally diversified portfolio of equities and income investments.  Accordingly, our aggregate one and two-year results are:

* After all Fees ** Current Yield on ten-year US Treasury Note is under 2.7%

The important take-away from this data is that the net return on the total portfolio for the two-year period ended December 31, 2018, (after all the highs from 2017 and all the lows from 2018), was 4.58 percent which is not too far off the current cash flow yield of 4.90 percent.  The other important take-away is that over the two-year period all managed accounts reported significant gains from “selling high” and those gains were used to fund distributions or were reinvested back into the portfolios to rebalance each client’s portfolio in line with the client’s Investment Policy Statement.  Also, in late 2018 we harvested some losses in taxable accounts that had accumulated significant capital gains during 2018.  At this point in time, we have reinvested all available cash not needed for planned distributions into equity allocations by “buying low” in December 2018 and the first few down days of 2019.   Those actions have paid off nicely as all equity allocations were positively impacted today from the strong jobs report and the possibility of fewer interest rate hikes.

It is important to note again that the negative impact of rising interest rates on our current fixed income portfolio will most likely never be realized.  The entire income portfolio continues to reflect un-realized valuation declines reflecting the difference between yield rates at initial investment and rates today reflecting higher rates for newly issued income investments. For the two-year period ended December 2018 that “drag” on income portfolio returns was over three percent. The bond ladder valuation declines will disappear upon maturity of the bonds and the alternative income portfolio will generally be held indefinitely to generate the higher dividend yields (which are tax-advantaged in all taxable accounts). 

Looking into 2019 and beyond, we continue to believe that total portfolio returns will be in the five-to-seven percent range if the underlying economies we invest in remain fundamentally strong.  Having said that, we also believe that the markets do not like uncertainty and that volatility will continue.

Enclosed with this letter are your December 31, 2018 portfolio reports reflecting the way we manage all your accounts collectively.  Also included for all taxable accounts are Realized Gain and Loss schedules to give to your tax preparer for reconciliation of your Form 1099.   

In the first quarter of 2019, TD Ameritrade Institutional will send out notifications to clients whose accounts have discrepancies regarding Social Security numbers associated with account titles.  This is a rare occurrence; however, if you receive a notification pertaining to this, please call our office and we will help you complete the necessary forms to update the account. 

There is a new and improved TD Ameritrade Institutional website for you to use to view your accounts. It will allow you the opportunity to retrieve your tax documents for 2018.  Also, you can see your accounts as one combined portfolio, which will include: balances, asset summaries and holdings activity. To access this new platform, log into and click on Try the new advisor client now, then click the Set it as your default box.  Additionally, your inbox will get some relief this year; starting in January you will receive only one electronic notification for all accounts announcing that statements are ready for viewing.

Intelligent Investment Management would like to announce a change in our monthly letter format.  We will be rotating letter styles from month-to-month to vary and improve the information we provide to clients.  The following rotating formats will be used: 

  • Market analysis with your quarterly reports
  • Financial planning ideas
  • A timely email message concerning investments, retirement, tax planning and other interesting stuff!

We wish you all a happy and healthy New Year.  As always, please contact us if you have any questions.



Intelligent Investment Management, LLP                      


G.Stephen Wheeldon, CFP®                                        Laura Vaughan, FPQP™