THE WEEK ON WALL STREET
Stocks ended last week with modest losses, masking a volatile five-day trading period that saw investors embrace recession concerns and then dismiss the slow-down talk as speculation as the week progressed. The Dow Jones Industrial Average slipped 0.60 percent, while the S&P 500 Index ended flat (-0.04 percent). The Nasdaq Composite dipped 0.18 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, fell 1.21 percent.
FACT OF THE WEEK
Like any style of music, hip hop has roots in other forms, and its evolution was shaped by many different artists, but there’s a case to be made that it came to life precisely on August 11, 1973, at a birthday party in the recreation room of an apartment building in the west Bronx, New York City. The location of that birthplace was 1520 Sedgwick Avenue, and the man who presided over that historic party was the birthday girl’s brother, Clive Campbell—better known to history as DJ Kool Herc, founding father of hip hop.
Born and raised to the age of 10 in Kingston, Jamaica, DJ Kool Herc began spinning records at parties and between sets his father’s band played while he was a teenager in the Bronx in the early 1970s. Herc often emulated the style of Jamaican “selectors” (DJs) by “toasting” (i.e., talking) over the records he spun, but his historical significance has nothing to do with rapping. Kool Herc’s contribution to hip-hop was even more fundamental.
By the summer of 1973, DJ Kool Herc had been using and refining his break-beat style for the better part of a year. His sister’s party on August 11, however, put him before his biggest crowd ever and with the most powerful sound system he’d ever worked. It was the success of that party that would begin a grassroots musical revolution, fully six years before the term “hip hop” even entered the popular vocabulary.
MARKET MINUTE
Stocks Stage Comeback
Monday was the worst day for the S&P 500 and the Dow in nearly two years. As recession talk grew louder, investors took a “risk off” position. On Monday, the Japanese market had its worst drop since 1987 as market participants unwound positions from a popular trading strategy called a “carry trade” amid a global sell-off in stock prices. But on Thursday, initial jobless claims fell less than expected—a positive sign for the labor markets— which quieted some of the recession talk. Also, as the week progressed, there was growing speculation that the July jobs report was more of an outlier than a lead indicator of a pending recession. By Friday’s close, all three major averages had regained most of the week’s losses.
Mortgage Update
Last Thursday, the average rate on a 30-year fixed mortgage dropped to 6.47 percent—a 15-month low. Many home buyers welcomed the news, and it appeared to help support Thursday’s rally. But the announcement left some wondering whether rates would continue to trend lower. Mortgage rates are tied to the interest rates set by the Federal Reserve. Some speculated the drop was due to market participants anticipating the Fed would adjust rates in September, which remains anything but certain.
FINANCIAL STRATEGY OF THE WEEK
Your Changing Definition of Risk in Retirement
During your accumulation years, you may have categorized your risk as “conservative,” “moderate,” or “aggressive,” and that guided how your portfolio was built. Maybe you concerned yourself with finding the “best-performing funds,” even though you knew past performance does not guarantee future results.
What occurs with many retirees is a change in mindset—it’s less about finding the “best-performing fund” and more about consistent performance. It may be less about a risk continuum—that stretches from conservative to aggressive—and more about balancing the objectives of maximizing your income and sustaining it for a lifetime.
You may even find yourself willing to forego return potential for steady income. A change in your mindset may drive changes in how you shape your portfolio and the investments you choose to fill it.
Let’s examine how this might look at an individual level.
Still Believe
During your working years, you understood the short-term volatility of the stock market but accepted it for its growth potential over longer time periods. You’re now in retirement and still believe in that concept. In fact, you know stocks remain important to your financial strategy over a 30-year or more retirement period.¹
But you’ve also come to understand that withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining. How you define your risk tolerance may not have changed, but you understand the new risks introduced by retirement. Consequently, it’s not so much about managing your exposure to stocks, but considering new strategies that adapt to this new landscape.¹
Shift the Risk
For instance, it may mean that you hold more cash than you ever did when you were earning a paycheck. It also may mean that you consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities for just that reason.
The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
The march of time affords us ever-changing perspectives on life, and that is never more true than during retirement.
1. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. This is a hypothetical example used for illustrative purposes only.