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Disclosures

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining values. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. International investing involves additional risks associated to foreign currency, limited liquidity, government regulation, and the possibility of substantial volatility due to adverse political economic and other developments. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. This material contains forward-looking statements and there are no guarantees that these results will be achieved.

The views expressed herein are those of the authors and do not necessarily reflect the views of their companies. All opinions are subject to change without notice.

Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Past performance is no guarantee of future results.


For the sixth year, the North Bay Business Journal surveyed area wealth-management advisers, asking for common mistakes investors make, what investment signs they pay attention to and any upcoming important trends in investing.

Those who responded are listed alphabetically, except for two from outside the North Bay:

  1. Eric Aanes, Titus Wealth
  2. Patrick Bentivegna, Charles Schwab
  3. Ivar J. Bolander, Morgan Stanley
  4. David Brown, Encore
  5. Colten Christianson, Moss Adams
  6. Kelly Crane, Napa Valley Wealth
  7. Matthew Delaney, JDH Wealth
  8. Justin DeTray, Private Ocean
  9. Tom Hubert, Redwood Credit Union Wealth
  10. Mark Keating, Willow Creek Wealth
  11. Jonathan Leidy, Portico Wealth Advisors
  12. Lillian Meyers, Meyers Financial Services
  13. Jack Oliver, RBO & Co.
  14. Margarita Perry, Merrill Lynch; Pierce, Fenner & Smith
  15. Bruce Raabe, Relevant Wealth Advisors
  16. Chuck Root, Double Eagle Financial
  17. Tim Russell, Valley Oak Wealth
  18. Mike Schmitz, Schmitz Capital
  19. Michael S. Silva, Maverick Wealth
  20. Michael Maybrun and Michael Snow, Michael, Maybrun Morgan Stanley Smith Barney
  21. Montgomery Taylor, Montgomery Taylor Family of Companies
  22. Peter M. Tennyson, NorthBay Wealth
  23. Greg Onken, JPMorgan OS Group
  24. Kelly Trevethan, United Capital

Eric Aanes

President, Titus Wealth Management

700 Larkspur Landing Circle, Suite 109, Larkspur 94939; 415-461-4800; www.tituswealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

We watch unemployment, GDP growth and company earnings.

What mistakes do you see individual investors making in the current financial climate?

We see investors becoming too complacent and not rebalancing into areas of the market that are not doing as well. This in turn leads the investor to take on more risk by being over allocated to a certain asset class.

What trends are you anticipating will most impact investors over the next year?

The biggest factor will be rising interest rates in our opinion. How to mitigate duration risk in a portfolio is going to be very important.

Is there anything you would like to add?

Titus Wealth Management was just named the seventh fastest growing firm by Financial Advisor magazine.

Patrick Bentivegna, AAMS, AWMA

Senior financial consultant, Charles Schwab

200 Fourth St., Suite 100, Santa Rosa 95401; 707-569-7814; www.schwab.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

There are many important economic indicators that can impact the market, but three that I keep a close eye on are interest rates, corporate earnings, and investor sentiment. Interest rates are the great gravitational pull on the equity markets, and as they rise, it eventually becomes more difficult for markets to push forward as the higher interest rate environment slows down the overall economy. A lower interest rate environment helps support bull markets. Corporate earnings are the key driver for overall market expansion.

As earnings expand, so do market prices, which in turn drive economic growth and also provide support for equity valuations. Lastly and probably most important is investor sentiment. Investor sentiment tends to be a contrarian indicator at extremes and can portend a trend change in the near term future of the markets.

What mistakes do you see individual investors making in the current financial climate?

It’s difficult to make sound financial decisions without a plan that takes into account an individual’s situation and goals, but not enough people have a financial plan. For some, the roadblock might be high costs and minimums; for others, planning may seem like a dull and daunting task.

Disclosures

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining values. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. International investing involves additional risks associated to foreign currency, limited liquidity, government regulation, and the possibility of substantial volatility due to adverse political economic and other developments. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. This material contains forward-looking statements and there are no guarantees that these results will be achieved.

The views expressed herein are those of the authors and do not necessarily reflect the views of their companies. All opinions are subject to change without notice.

Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Past performance is no guarantee of future results.

In a Schwab survey of 1,000 Bay Area residents last year, we found that only 19 percent have a written financial plan. Research shows that those with a written financial plan are more confident in reaching their goals and exhibit better saving and investing behaviors than those without a plan. In fact, a study of Americans over the age of 50 showed that those who created financial plans and stuck with them achieved an average total net worth three times higher than those who didn’t.

What trends are you anticipating will most impact investors over the next year?

Ongoing uncertainty regarding Federal Reserve policy could lead to some periods of market volatility or pullbacks in the market. We are in uncharted territories, and that’s unnerving for investors. The Fed is attempting to gently raise rates from the prior zero bound, while soon also shrinking its behemoth $4.5 trillion balance sheet. Success would be if the Fed can gracefully divert the excess liquidity it’s created from financial assets to the real economy.

Stocks have had a remarkable run over the past eight-plus years, and the bull market is now in a mature phase. But liquidity remains ample, financial conditions loose and earnings growth healthy and those factors have underpinned this bull for much of its history.

Is there anything you would like to add?

It’s important for investors to stay engaged with their finances and invest based on tried and true principles, such as establishing a financial plan based upon your goals, being diversified and minimizing fees. While there’s a lot about investing that can’t be controlled, these are things that can be. If you work with a financial professional, ask questions to ensure that you understand how you’re invested, how much you’re paying, and how you’re tracking against your goals.

Ivar J. Bolander, CIMA, CPWA, CWS

Executive director, wealth adviser, Sonoma Wealth Management Group, Morgan Stanley

3562 Round Barn Circle, Santa Rosa 95403; 707-524-1068; www.morganstanleyfa.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

At Morgan Stanley, we follow dozens of inputs to understand the increasingly complex global economy we live in. GDP, corporate earnings and earnings revisions, along with the jobs numbers, are among the key economic indicators we watch. We also follow central bank activity focusing on the Fed and the European Central Bank and its respective monetary policy announcements.

I tend to focus on interest rates looking at the absolute level of rates globally and the shape or steepness of the yield curve. It’s also important to look at inflation rates and how the dollar is faring against a trade weighted basket of global currencies. Specifically, I watch where the dollar is trading against the Euro and Yen, as we have an international allocation in portfolios and may hedge that currency exposure periodically.

We also are closely following fiscal policy proposals for changes that affect corporate or individual tax rates, and are mindful of regulatory changes.

I strive to translate these observations and correlations into sound portfolio allocation decisions and security selection for clients.

What mistakes do you see individual investors making in the current financial climate?

In the current political environment, there is potential for investors to make emotional decisions that could disrupt solid long-term planning and portfolio construction. Investors benefit from sticking with the facts and ignoring the rhetoric. They should focus on tangible data such as earnings, interest rates, the dollar and other economic indicators.

I would caution investors not to reach for yield without fully understanding the risks inherent with extending maturities, lowering the credit quality of their fixed income portfolios or embracing more complex financial products.

In the equity area, I am concerned that investors will remain narrowly focused on the U.S. market and the S&P 500, and they will be slow to add international exposure to their portfolios and not adopt a more global equity allocation. Investors should remain diversified and not allow their portfolios to become concentrated in any one country, index, asset class or individual security.

What trends are you anticipating will most impact investors over the next year?

At Morgan Stanley, we believe that the global earnings outlook remains strong and that strength should carry through the first quarter of 2018. This outlook combined with strong global equity breadth and accommodative financial conditions lead us to continue to overweigh global equities versus bonds. Additionally, in anticipation of fiscal policy proposals, we are increasing our exposure to small- and mid- cap companies that are more affected by changes in corporate tax rates, deregulation, infrastructure construction and the effects of fiscal stimulus than are large multinationals. Given the strong performance of high yield bonds and compression in credit spreads, we would reduce this exposure and look to allocate those funds towards higher yields and better valuation. Lastly, the dollar seems to have peaked versus our major trading partners and we no longer recommend a 50 percent hedge against the Euro.2

Is there anything you would like to add?

It seems clear to me that the days of being focused only on the Fed are behind us and we must have a heightened awareness of fiscal policy both domestically and abroad if we are to have successful long-term portfolio allocations. At Morgan Stanley, we believe the value of advice and investor choice, and I would encourage investors to meet with their financial advisers to review their current portfolio and update accordingly as their personal situation changes.

David Brown, CFP

Encore Wealth Management, LLC

1605 Fourth St., Santa Rosa 95404; 707-578-5123; www.encorewealthmanagement.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Interest Rates, strength of U.S. dollar, consumer spending, unemployment rates.

What mistakes do you see individual investors making in the current financial climate?

A lot of investors make the mistake of not having a plan for retirement. It’s important for investors to have goals and objective and a plan to meet them.

What trends are you anticipating will most impact investors over the next year?

We have seen a steady increase in the cost of health care and housing. Rising costs directly effect consumer spending and saving alike.

Colten Christianson

Financial adviser, Moss Adams

3558 Round Barn Blvd., Suite 300, Santa Rosa 95403; 707-527-0800; www.mossadams.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

We believe we’re in the latter stages of a multi-year economic expansion, which means we’re looking for signs of potential weakness in the market and the economy. The following are strong economic indicators that help us assess market risk and the impact on client portfolios:

U.S. Treasury yield curve. A flattening yield curve is a sign of potential economic weakness. As such, we look at the yield spread between two- and 10-year treasury notes. It’s currently much flatter than it was two years ago, and lately the spread has compressed near the cycle lows, which portends caution.

Jobless claims. We look at the trend among initial jobless claims to see if companies are hiring or laying off workers. Because the economy is at full employment, the overall unemployment rate can obscure whether companies are continuing to hire, and if so, whether that rate is accelerating or slowing.

High-yield bond and equity market correlation. The decreasing correlation between HYBs and equity markets could indicate investors are concerned about whether issuers of HYBs will continue paying their debts and consequently, the possibility that default rates will rise in the near term.

HYB default rates. Increasing default rates, especially as measured by issuers, are usually an indicator of potential equity-market volatility and economic slowing. Earnings per share growth. A trend of slowing EPS growth can indicate potential economic contraction on the horizon.

What mistakes do you see individual investors making in the current financial climate?

Employing emotional decision making. Making investment and financial decisions based on emotion is a common mistake made by individuals, especially given the uncertain economic and political climate.

Timing the market. Some individuals believe they can successfully time the market by anticipating how and when the market will move. However, an investor must guess right twice to successfully employ this strategy—both when to get out and when to get back in — which is unlikely and prone to expensive errors. This strategy often results in losing out on market opportunities that would’ve been available if investors had stayed in the market.

Making dramatic changes. With the economic and political uncertainty we’re facing, it’s not uncommon to hear investors say they want to dramatically alter their asset allocation. This strategy might be rewarded if the market suddenly corrects, but if their portfolio is well diversified, investors will likely be better off avoiding dramatic changes. Instead, understanding the necessary level of risk for achieving their goals and steadfastly maintaining the right asset allocation allow investors to build a discipline of buying low and selling asset classes that have performed well.

What trends are you anticipating will most impact investors over the next year?

The global economic regime change that appears to be unfolding creates new risks for investors.

Because of resulting measures taken since the financial crisis, we’re shifting away from a central bank–led economic recovery characterized by monetary policy stimulus:

  • Quantitative easing
  • Financial repression (very low to negative interest rates)
  • Low inflationary to potentially deflationary environments
  • Low productivity growth

The new regime of economic nationalism employs the following strategies to drive growth:

  • Fiscal stimulus
  • Increasing debt levels
  • Protectionism or anti-globalization
  • Higher interest rates
  • Pro-business activities

The risks of economic nationalism include tightening monetary policy too quickly before growth materializes, which could lead to rising rates, higher prices, a stronger dollar, and increased potential for trade wars and more tariffs.

Investors can benefit from sorting the noise from actual signals regarding the economy’s future direction, allowing them to better assess risks and opportunities.

Is there anything you would like to add?

We advocate investors begin with the end in mind, which is the second habit described in Stephen Covey’s “The 7 Habits of Highly Effective People.” For example, you don’t start building a house by going to a home improvement store to buy sinks, lumber, and sheetrock. Instead, you create a blueprint that shows the kind of house you want to own, you price it out to make sure it’s within your budget, and then you get started. A comprehensive financial plan employs this same process to achieve success. A sustainable financial strategy avoids trying to time or outsmart the market, enabling you to manage your investments while taking on the appropriate level of risk. Pairing this with a wealth plan better equips you to achieve your goals.

Kelly Crane, CFP, CFA, CLU

President and chief investment officer, Napa Valley Wealth Management

1127 Pope St., Suite 101, St. Helena, 94574; 707-963-5096; www.NapaValleyWealthManagement.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

The top three key economic indicators we track are interest rates, GDP, and fund flows. The values of stock and bond investments are critically linked to the economic cycle; therefore, it’s important to validate where we are in the cycle and anticipate any change in direction. While the markets are a forward-looking indicator for the economy, the economic cycle (including interest rates, GDP, unemployment, and inflation) affects all investments—stocks, bonds, and alternatives. In a business expansion, we’ll generally see stock prices increase. In a contraction, especially with interest rate increases, we’ll generally see stocks and bonds dip. Our Investment Policy Committee publishes quarterly economic and market forecasts exactly along these lines. We analyze a wealth of historical and current data to forecast where we see worldwide economies and markets heading and then make proactive portfolio changes accordingly.

What mistakes do you see individual investors making in the current financial climate?

The number one mistake most individual investors make is emotional investing. In 2016, the average equity mutual fund investor underperformed the S&P 500 by 4.7 percent (source: Dalbar). This is primarily due to buying and selling at exactly the wrong times. When performance is strong, investors’ expectations are lofty and they buy, often taking too much risk in a high market. Right now (July 2017), fund flows show average investors pouring money into stocks. The downside of getting caught in a bad cycle is the time it takes to recoup the principal. For example, in a portfolio with a 60 percent stock: 40 percent bond mix that experiences a 50 percent loss in a bad downturn (like 2008), it would take the investor four to five years to earn back their losses and break even.

In a holistic wealth management strategy, the investor invests from their financial plan and thereby often limits risk. Their plan will calculate their true return goal, taking into account current and future expenses, liabilities, taxes, and so forth. So, if your plan calculates that you need 6 percent per year in order to achieve your long-term financial goals, then you’re able to confidently say no to larger risk and reduce the wild volatile swings that can sometimes take years to recoup. If you’re able to generate 80 percent of the return with 50 percent of the risk, you’re prudently managing your wealth for the long run.

What trends are you anticipating will most impact investors over the next year?

Rising interest rates and the end of the 30-plus-year bull run in bonds. For the past 36 years, interest rates have been in a slow, steady decline. While rates were held artificially low in recent years, interest-rate risk has slowly, quietly crept in.

Traditional bonds are riskier than ever in our lifetime and, unfortunately, are what most bond investors own. In a rising-rate environment, it’s vitally important for investors to understand that different bonds react in different ways to changing rates.

Some react very quickly, such as 30-year Treasurys. Being extremely rate sensitive, they can lose 18 percent of their principal with every 1 percent rate increase.

The political environment. Despite the potential for tax cuts in near-term, our significant deficit needs to be funded. This makes tax increases for successful investors in the intermediate-to-long term highly likely.

ETFs: Their popularity and concerns. ETFs are a great way to capture asset-class exposure with very little expense, but there is downside potential in passive ETFs. While ETF popularity has soared, it has done so inside a bull market. They have yet to be tested in a downturn. Once we get into choppy or downward-moving markets, passive ETFs have no risk-management features.

Furthermore, indexing in inefficient markets may not be a sound strategy. We saw this in early 2016: When the high-yield market dipped roughly 10 percent over three months, many actively managed funds substantially outperformed high-yield ETFs (i.e., JNK and HYG) during the decline. For example, JNK fell nearly 4 percent further than MHCAX. For a tactical asset allocation strategy, active risk management is key.

Is there anything you would like to add?

For effective wealth management, it’s important for investors and small business owners to work closely with their financial team. Most critical is developing a personalized financial plan—and to do so before making investment decisions. Understanding your true return goals (calculated from your complete fiscal picture) and risk tolerance can help ensure your investment risk stays as low as possible to pursue your goals. Be sure your adviser is taking your taxes, risk, return, social awareness, and other goals into account on every transaction. Don’t get lumped into a broad array of investments that may not be the best for you personally.

Matthew Delaney

Managing partner, JDH Wealth Management, LLC

181 Concourse Blvd., Suite A, Santa Rosa, 95403; 707-542-1110; www.jdhwealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Investors try to make their investment decisions based on something they read or saw in the newspaper, on TV or on the internet. That’s all noise. When investors start paying attention to “economic signs” such as the new U.S. President, tense relations with foreign powers, technology trends, hot stock tips, etc., mistakes are made.

Do we live in volatile times? Of course. Investment worries and overconfidence are a constant. Both only harm your portfolio, long-term. We constantly remind investors: When you have the money, invest it. When you need the money, take it out. Worry less about the noise. Start focusing on the game plan. How much have you saved for retirement? Can you save more? Are you taking too much risk or not enough risk with your investments? Are you overspending each year? Instead of focusing on economic trends, these are the questions that will help people achieve their goals long term.

We advise to stay disciplined and diversified, keep costs low and save as much as you can. Ignore the noise. The world economy has always gone through periods of growth, downturns and uncertainty, and now isn’t any different. We continually help our clients focus on what matters.

What mistakes do you see individual investors making in the current financial climate?

We are seeing two extremes. On one side, overconfidence is promoting blind optimism. On the other side, outright pessimism is driving premature exit of the markets. Neither helps you in the long haul. Emotional decisions have no place in investing, yet emotional decisions are made all the time.

To avoid emotion-driven investing, a written investment policy statement should be in place. The IPS should be a road map of where the investor is headed, always there to reference. Too many investors skate to where the puck was, instead of skating to where puck is going. When one asset class has big gains at year-end, many investors see it as an opportunity to jump into that asset class. Unfortunately, good returns in one asset class at year-end don’t guarantee good returns for the following year. When investors make these reactionary decisions, they are, in essence, buying high and selling low. While everyone agrees that they want to buy low and sell high, emotional reactions often enter into the investing process without an investor recognizing it.

What trends are you anticipating will most impact investors over the next year?

The biggest change is within the retirement plan space. In the past, if advisers recommended a mutual fund that had a higher expense ratio, they could get paid more without disclosing this to their clients. While our firm has always taken on a fiduciary role to our clients, this has not always been the industry standard.

The Department of Labor’s recent changes to retirement plan management, now require advisers to take on a fiduciary role to their clients. This is a great thing for investors and is something that should have been required decades ago. The new changes allow retirement plan participants to be more confident in fee transparency. They aren’t being encouraged to invest in one thing over the other to line their adviser’s pockets. If only all advisers would take on the fiduciary role to their individual clients and not just retirement plan clients. Hopefully this next step will be seen in the next few decades.

Is there anything you would like to add?

While hope springs eternal, the data overwhelmingly shows that individual investors make less than stellar decisions. Greed and fear take turns rearing their ugly heads, and investors end up buying high and selling low. The average investor barely keeps up with annual inflation. It is time for investors to learn how to become more successful long-term.

A successful retirement isn’t built by focusing on market timing, trends, and other distractions. Keep spending down, put more money into 401(k) and IRA accounts, diversify, ignore the noise, and don’t lose focus on the end goal: providing for a secure retirement.

Justin DeTray

Adviser, principal, Private Ocean

100 Smith Ranch Road, San Rafael, 94903; 415.526.2900; www.privateocean.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

There is a common notion in the public and financial media that given enough information economists and financial advisers can predict the future — or at least have a better chance than average. But the truth is that economists and professional money managers are both equally bad when it comes to predicting what either markets or economies are going to do over the short run, say the next few years.

It is tempting to list some of the “key” economic indicators that people use (consumer price index, housing starts, unemployment, etc.) but these indicators, as well as countless others, are all lagging indicators. They tell you what happened in the past but offer very little insight into the future, possibly none. The only “indicator” out there that is considered to be a forward looking mechanism is in fact... the market.

The market (stocks, bonds, commodities, etc.) is considered to be a six to nine month forward-looking indicator meaning it is telling you what people think is going to be true sometime in the future. But even this is not always accurate. The economist Paul Samuelson was quoted as saying, “The stock market has forecast nine of the last five recessions.”*

From a long term investment standpoint, if you simply accept that we can’t predict the future you logically end up investing in a way that doesn’t require it. That is you broadly diversify between stocks and bonds and get on with enjoying life.

What mistakes do you see individual investors making in the current financial climate?

Individual investors tend to make the same mistakes in virtually all financial climates: They invest based on how they “feel” which is almost always backward-looking and wrong with regards to the future. The last eight years are a perfect example of this. The U.S. stock market has tripled since the bottom of 2009, and is 50 percent higher than the high of 2007, and yet this has been one of the most joyless rallies of all time with individual investors perpetually waiting for another crash.

I would describe the current financial climate as both unique and entirely usual. At any one point in time the market always looks unique to investors and journalists but in truth it is always the same.

There are no “good” markets or “bad” markets, it is just the market. People get into trouble by having expectations – both good and bad – about the market that isn’t based on historical evidence. Over time this tends to result in lower returns because individual investors will get out of the market when they think a recession is coming and get back in when things look clear. This is effectively like buying high and selling low, which is exactly backwards.

In addition to investing based on feelings, individual investors tend to underestimate the loss of purchasing power over time due to inflation. One of the most common mistakes we see with people heading into retirement, for example, is the desire to “protect” their savings.

The fixation to avoid touching the principal of their savings drives them towards investments that are not entirely suited for a 30 to 40 year retirement in which prices will double and possibly double again. Protecting ones purchasing power is what people should be concerned with and historically investing in companies (via the stock market) has been just about the best hedge against inflation out there.

What trends are you anticipating will most impact investors over the next year?

The best and most honest answer to this question – that anyone could give – is we have no idea. Of course a more common answer might be to say that we think interest rates will likely go up (unless they don’t). Or that the Federal Reserve is going to lighten their balance sheet by selling the assets they bought over the last eight years (unless they don’t). Or inflation will begin to pick up (unless it doesn’t). But this is all just speculation and it is not the basis of a long term investment plan.

The right foundation for a long term plan is accepting the uncertainty and randomness of the future and investing in a way that doesn’t require you to guess or make predictions about the future, because that can’t be done consistently over the long term. However, underlying this foundation is the assumption that life will go on. In spite of whatever the next financial or political calamity is, life will go on. Markets will continue to rise– over time – and investors will continue to be rewarded for patience and discipline with long term growth. I’m sure there will be some new financial disaster that no one thought of (short term), but in the long run life will go on.

Is there anything you would like to add?

A few final points.

It is important to remember that “consensus” view of either the economy or the market is the outcome that is probably the least likely to occur. Meaning whatever everyone thinks is going to happen, or whatever the dominate opinion is in the news, is likely already priced in to the market. By definition, the surprises are events that few people saw coming.

Successful long term financial planning is a combination of reasonable budgeting – saving while you are working and spending an appropriate amount when you are retired – and investing in a way that requires no guesswork.

Capturing long term global growth requires investing in as many companies as possible (diversification) and then ignoring the temptation to make changes. The best way to do this is to start with a portfolio that is right for the individual and will allow them to ride the long term ups and downs of the economy and the market. Making changes based on ones perception of the future rarely pans out.

Investing in the markets will not save someone who has not prepared for the future by saving. And saving alone, without investing, will not protect someone from inflation over the long run. Helping people understand either what they need to save in order to retire, or what they can spend in retirement based on their assets and investments is at the core of what we do.

Tom Hubert

Senior vice president of Auto, Insurance & Wealth Services and CFS program manager, Redwood Credit Union Wealth Management

3033 Cleveland Ave., Santa Rosa 95403; 707-576-5122; www.redwoodcu.org/investment

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

At RCU, our team stays up-to-date on all general market news, products, and economic happenings.

We take a long-term view when it comes to helping our members with their financial goals, as each individual has different needs and desires, and a unique style of investing. Bad news to one person might be good news to another.

We also know that taking emotional action on today’s news might affect reaching a future goal, so we encourage a more long-term perspective.

What mistakes do you see individual investors making in the current financial climate?

Many people don’t take an active role in their finances—but that’s really the number one thing you can do to affect your ability to build wealth.

The first step is to take time to learn about different aspects of money. Financial literacy is extremely important when it comes to wealth management, investments, and financial planning in general.

This is true for all ages — whether you’re just beginning to save, entering retirement soon, or already there. Many financial topics can be complicated, so we want to get as much information out to the community and to our membership as possible – and we encourage people to ask questions and seek guidance from someone they trust.

What trends are you anticipating will most impact investors over the next year?

Trends in the economic, political, and social environment are generally short-term in nature, but can sometimes be distracting to investors; a longer-term outlook driven by personalized objectives can be key to weathering temporary changes in the environment. Our team seeks to understand how someone needs their money to work for them now and what their future vision is so we can provide education and help them be prepared.

Is there anything you would like to add?

Set goals, make a plan, and find an adviser you connect with. This will create better ongoing communication, and is more likely to inspire you to engage with your financial strategy and take an active role in building wealth for the future. Taking the time to find an organization that has similar values to yours is a good first step.

Notes: Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal.

Investment representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Mark Keating

Partner, Willow Creek Wealth Management, Inc.

825 Gravenstein Highway N., Suite 5, Sebastopol, 95472; 707-829-1146; www.willowcreekwealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

While we consider and analyze the economic climate, we do not focus on anything in particular that will sway our disciplined investment strategy. We maintain a long-term perspective for client portfolio management as a successful investor should. Instead, we closely monitor the performance of individual investment asset classes such as U.S. Small and Large Company, International, Emerging Markets Stocks, Real Estate and Bonds to take advantage of short-term swings in the marketplace.

When these asset classes rise or fall in dramatic fashion or over a long period of time, we take advantage of the volatility — buying at bargain lows and selling at profitable highs.

It is a disciplined way to benefit from volatile markets that often confounds the average investor. It has proved to be an excellent strategy given the volatility we have experienced over the last 20 years. It has allowed our clients to successfully navigate the tech bubble through the great recession and take advantage of the current market highs.

What mistakes do you see individual investors making in the current financial climate?

We see investors being too cautious or too aggressive. With current bank savings rates close to zero, investors need to take some equity risk to achieve returns that substantially outpace inflation. Additionally, investors need to understand the risk/return relationship and choose a portfolio suited to their situation and goals.

Whether it’s stocks, bonds, or real estate (REITs), investors need to focus on the long-term returns of a globally diversified portfolio rather than the negative news of today. As is always the case, today’s news will inevitably be replaced by the news of tomorrow. For example, it’s very easy to forget what investors were fretting about even just a year ago (Think Brexit!).

What trends are you anticipating will most impact investors over the next year?

The political climate will continue to impact and influence investor decisions over the next year. However, we encourage our clients not to confuse politics with global stock market performance. Government policy influences corporate behavior, but companies don’t lose value based solely on the political climate. This is true overseas as well as in the United States. For example, when Britain chose to exit the EU (Brexit), International Stocks took a quick dive. Yet the markets recovered once the emotional turmoil waned within one week! The same can be said about U.S. Stocks when President Trump was elected. Stock market futures were down substantially the night of the election in anticipation of his victory, only to recover the losses the very next day. The secular bull market that began in March of 2009 continues its march higher despite political volatility throughout the world.

Is there anything you would like to add?

As we have been reaching new market highs seemingly every day, it’s important for investors to remember that a short-term correction or even a bear market is inevitable. Does this mean you should abandon your long-term investment strategy now? Absolutely not! Global stocks have had seven negative years since 1973. That means 84 percent of the time, the resilient stock market has been positive. Additionally, global stocks have returned more than 20 percent in 17 out of those 44 calendar years! In order to obtain the returns the stock market has provided, you must remain disciplined with your investment strategy through both the good and bad times.

Jonathan Leidy

Principal, Portico Wealth Advisors, LLC

17 E. Sir Francis Drake Blvd., Suite 218, Larkspur, 94939; 415-925-8700; www.porticowealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

We generally adhere to a prudent investment philosophy rooted in the pillars of cost containment, global diversification, and sound risk budgeting. In turn, we often find ourselves less anchored than other advisers to current economic signs or trends.

That noted, we are certainly not blind to developments in the broader economy and leverage data on interest rates, employment, credit cycles, volatility and corporate earnings, among others, to develop and refine our investment allocations.

These indicators have led us to adopt several modest near-term tilts relative to our standard models. In general, we are slightly tilted towards stocks over bonds, with a distinct emphasis on international stocks. For both domestic and international holdings, we favor low-volatility securities and those that pay dividends. In addition, we continue to add to what have historically been non-correlated assets, such as managed futures and market neutral positions, given the unprecedented levels of low volatility across financial markets over the past several years.

What mistakes do you see individual investors making in the current financial climate?

The two primary missteps we see clients making in the current financial climate are:

  1. Taking significant, and potentially excessive, risk in pursuit of outsized returns.
  2. Under-diversifying.

These two phenomena are highly related, as investors remain income starved in this Fed-fueled, “lower for longer” interest rate environment. In response, they have turned to more traditional areas of growth for return, e.g. stocks. In and of itself, tilting towards stock is not a problem; as noted above, we have adopted slight equity-over-bond tilts in our portfolios.

However, in periods of alarmingly low volatility, like the one we’re experiencing today, investors can be duped into taking on more risk than they would otherwise assume in more normal market conditions.

Moreover, given the notable superiority of a particular portion of today’s market, namely U.S. large-cap equity (or S&P 500 stocks), investors are not only underexposing themselves to preservation instruments like bonds, but are often further inclined to limit their exposure to other sorts of stocks, i.e. smaller domestic and non-U.S. equities.

Investors have historically been rewarded over the long-term by diversifying across a wide swaths of the global market and by allocating capital to areas that are currently underpriced, i.e. out of favor.

Although this discipline is directly in line with the famed No. 1 Rule of Investing: “Buy low, sell high,” it is something that many investors struggle to do systematically. There is always something “new and shiny,” ala the S&P 500 most recently (or even more acutely the so-called FAANG stocks: Facebook, Amazon, Apple, Netflix and Google), that the 24-hour news media is more than happy to dangle in front of the investing public. However, in our experience, investors would be much better served by resisting the temptations of undue return-seeking and under-diversification, as both have proven to be detrimental to long-term wealth outcomes.

What trends are you anticipating will most impact investors over the next year?

The trends investors face heading into ’18 are not likely that different than they were this past year. Specifically, with equity valuations already fair, or in some cases stretched, and economic growth persistently sluggish, investment gains may be challenging to come by. Given current interest rate levels and policies, the same is true for bonds.

Further, the U.S. has not experienced a recession since the ’08–’09 Financial Crisis. Likewise, the stock market, as represented by the S&P 500, has not declined more than 20 percent since 2011. While we aren’t predicting any cataclysms in the coming year, volatility is likely to increase from its current, historically-low level. As such, we recommend amplified caution and a renewed focus on protecting capital, in particular for those investors who are reliant on their portfolios to service near- to mid-term goals.

Is there anything you would like to add?

Our firm not only provided financial advice to individuals and their families, but also provides consultancy services to companies and organizations that sponsor retirement plans, e.g. 401(k)s, 403(b)s, 457(b), etc.

In that arena, the most significant development over the past twelve months is the adoption of the Department of Labor’s Fiduciary Rule. The rule, effective June 9th, elevates all financial professionals who work with ERISA-governed retirement plans to fiduciary status. In laymen’s terms, all retirement plan advisers must pledge to place their clients’ interests above their own at all times when making recommendations. Brokers, or those advisers that are compensated with commissions, may continue to work with ERISA plans. However, they must also formally exempt themselves from the rule in their regulatory filings and provide all clients with a disclosure document stating as much. Despite being rolled out earlier this year, the rule will not be fully in force until January 2018.

At Portico, we have always acted as a fiduciary to our retirement plan clients, happily sharing the responsibilities associated with providing the plan with them. Thus the passage of the DOL’s new rule does not greatly affect how we do business.

However, with this new edict, plan sponsors have more duty than ever to understand the following: with whom they are working; of those various providers, which, if any, are acting as fiduciaries; and what the ramifications are in the event they are not.

Lillian Meyers, CFP, CDFA, EA

Registered Investment Adviser, Meyers Financial Services, Inc.

670 W. Napa St., Suite C, Sonoma 95476; 707-935-1124

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

How much income they need. Inflation and the impact this will make to my clients life, Taxation how much they will keep and the strategies to protect the portfolio and clients life style, Time horizon and their needs and wants and whether there is enough time to accomplish their goals and dreams.

What mistakes do you see individual investors making in the current financial climate?

Not willing to pay or seek professional help. It really is about “What we know”, “What we think we know” and “What we don’t know”. What we don’t know well takes away your freedom to be free to make good decisions. There are many myths about how to build wealth and how to keep it. Knowing that you need help to move forward is critical to each person’s life style and helping to work together to keeping what you have earned and worked so hard for.

What trends are you anticipating will most impact investors over the next year?

As more and more wealth is being passed on the impact to the investor as I see it “How to leave their estate and legacy.” Family values and Family heritage is a trend I am finding very important to my clients. With different programs helping us trace our heritage I am finding they are starting to care about the past to help the future. They are very concern with their children and grandchildren. They want to make sure the next generation like Warren Buffett has said, “enough money so they would feel they can do anything but not so much that they could do nothing.

Is there anything you would like to add?

I help families and individuals to fully understand which dangerous (mistakes and errors) they may be exposed to and the impact on their money and future.

I offer complimentary 57 minutes to find out if I can help or not and if we are the right fit.

John “Jack” M. Oliver

Managing partner, RBO & Co., LLC

1478 Railroad Ave., St. Helena, 94574; 707-963-1231; www.rboco.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

  • Interest rates
  • Inflation
  • Employment numbers
  • Fundamental valuation of S&P 500

Although we closely watch economic signs, we liken them to the weather…difficult to forecast and make successful investment decisions based on them.

What mistakes do you see individual investors making in the current financial?

Trying to anticipate the next “move.”

Not investing enough in high quality stocks. Worrying too much about political climate.

What trends are you anticipating will most impact investors over the next year?

We agree with the following quote: “We have long felt that the only value of stock forecasters is to make fortune-tellers look good.” — Warren Buffett

Is there anything you would like to add?

At RBO & Co. we believe the best financial plan is to spend less than you make, have a “sleep well at night” amount of savings in cash equivalents (treasury bills) and invest the rest of your investment capital in high quality stocks that have strong margins and a history of growing their businesses faster than inflation.

If your companies keep performing and your personal balance sheet is strong, then you can afford to hold on to your investments for a long, long time (thereby avoiding taxes, transaction costs, and the risk of making a new bad investment.

Margarita Perry

Senior vice president for wealth management, portfolio adviser, Merrill Lynch, Pierce, Fenner & Smith Inc.

2 Belvedere Place, Suite 100, Mill Valley 94941; 415-289-8823

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Employment, inflation, interest rates, consumer activity. The employment number gives us a good glimpse into how well our economy is doing. Interest rates and inflation go hand in hand.

The cost of borrowing and how much we pay for goods and services impact the amount of disposable cash consumers have to spend which in turn impact growth in our economy.

Consumer activity, the spending habits of consumers here and overseas is important. What and where are they buying. Is the retail consumer going to the mall or are they buying over the internet? High end or low end, is it back to school time or the holidays. If the consumer is feeling good about the economy, have job security and have a comfort with their financial position, they will spend more.

There are a lot of economic gages out there and it is difficult to interpret them and how they will influence the markets over time. I look at these indicators and others to get a sense of where the markets are going and what trends seem to be forming to best position my client portfolio’s.

What mistakes do you see individual investors making in the current financial climate?

Letting fear creep into their financial decision process. A lot of investors have been on the sidelines in cash worrying that the markets have gone up too quickly or the fear of what impact the new Trump Administration would have on the markets overall.

The constant media coverage and the bashing on both sides has only fueled this angst among investors. It is very easy to react to current headline news, my job is to reassure and to keep my clients focused on their own financial wellbeing and their long term goals.

All this noise can distract and sometimes influence clients to put their financial plan on hold.

When I sit down and do a comprehensive plan with my clients, I do this without any influence of the current headlines. Sound strategic planning will hold up over time and will pay off. The process works, but you need to take the time in the beginning to listen to your clients’ needs and desires and to break down all of their options. It is critical to really hear what your clients’ fears and concerns are and why they have them. So much of what we hear day to day will not come to pass so being disciplined in your planning process is paramount to financial success.

Is there anything you would like to add?

If President Trump is able to bring some of his campaign promises to fruition that could really help the momentum going forward in the markets. There have been so much political posturing that I think clients are forgetting that the economy is slowly chugging along and is doing ok, not great but ok. We just had a good jobs number, with low inflation and albeit slow growth, this could carry us upward through the end of the year. I do think that volatility which has been very low is starting to creep up and we could have a summer pull back which would be healthy, we have not had a market correction in a long time.

If we do, that may be a good time to pick up some high quality stocks at a good price. And, if by chance Congress can pull it together and we see tax reform, infrastructure spending or repatriation of overseas funds this could really help the markets going into 2018.

Bruce Raabe

Founder, Relevant Wealth Advisors

2 Belvedere Place, Suite 350, Mill Valley 94941; 415-925-4000; www.RelevantWealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Overall economic growth and growth trends. This is typically measured by GDP and provides a high level indication of economic expansion or contraction.

Corporate earnings and earnings growth. This is a key quarterly indicator of how successful companies are at taking advantage of the current economic climate. Interest Rates and Rate Trends – This sets the stage for opportunities and headwinds for investors and creditors. It also provides important insight into the health of our economy.

Unemployment and consumer confidence. These indicators provide an early look at the potential trajectory of the economy.

What mistakes do you see individual investors making in the current financial climate?

Too often, financial advisers do not take the time to have a deep collaborative relationship with their clients.

This requires a disciplined approach that must be driven by the adviser. Understanding a client’s priorities and risk tolerance is essential in establishing a proper asset allocation before selecting specific investments. Considering a family’s entire net worth (assets and liabilities) should be part of any comprehensive plan to properly lay the foundation for the investment selection process. Of course, tracking and benchmarking results is imperative in determining if we are on track.

Beyond investment strategies and performance, busy families often ignore advanced planning strategies such as tax mitigation, estate planning, insurance, family gifting, and philanthropy. How you use and protect your wealth is even more important than growing it.

Finally, ensuring your financial success does not derail your own family’s happiness is the last step in our process. Avoiding the wealth-happiness paradox is not as simple as it may seem.

What trends are you anticipating will most impact investors over the next year?

With the equity markets at all-time highs and interest rates likely to remain low, identifying attractive investments will certainly be challenging. Information overload is also a major distraction from achieving long term goals. Never before has there been a better time to work with a comprehensive wealth advisor to ensure your strategy will stand the test of time. From an investment perspective, international markets and alternative strategies look compelling and offer an attractive uncorrelated risk/return profile for investors.

Is there anything you would like to add?

Studies show that most investors are not satisfied with their wealth advisers but none-the-less take no action to find a perfect fit for their needs. With most asset classes reaching record levels, now is the time to act before economic cycles shift and investment strategies begin to adjust. Relevant Wealth Advisers partners with families and family foundations with assets between $10 million and $100 million to ensure they achieve all that is important to them while protecting the legacy they have worked so hard to create

Chuck Root

Managing director, Double Eagle Financial

2300 Bethards Drive, Suite R, Santa Rosa 95405; 707-576-1313; www.double-eaglefinancial.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Since risk management is primary and critical, I watch the volatility of the market first. I have about 6 personal indicators that I watch for whats happening in the market. They tell me when to be in cash, for risk management, and when to be invested in the market. At times, I have a major cash position.

What mistakes do you see individual investors making in the current financial climate?

I find that people do not take risk seriously enough. Regardless of age or financial amount, no one wants to lose money. We pay very close attention to not losing money. Of course there can be surprises, but if you plan to keep any losses at a minimum, risk management is doable. When we talk to new clients, they always focus on return, that is not the primary focus. Return is a result of paying attention to the dominant market sector and risk management.

What trends are you anticipating will most impact investors over the next year?

For the next four months we see a sideways market, then in the fall the market will stabilize and have more of an upward bias. We pay attention to “seasonality” so that we can minimize high risk.

Is there anything you would like to add?

We feel it’s important to not go along with the crowd, even though there have been Nobel Laureates who have written nice papers about market based returns. Since 2000, investors have spent 74 percent of their time recovering from losses in the market. Given an extra 1 percent per year, compounded return over 20 years, the total compounding effect will return 50 percent additional return.

Example if you have a $100,000 401(k) that earning an extra 1 percent you will see $50,000 extra in your account. Forget fancy charts and Monte Carlo simulations, risk management is critical.

Tim Russell

Founder and wealth adviser, Valley Oak Wealth Management

2 Ranch Drive, Novato 94945; 415-898-4439; www.valleyoakwm.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Consumer confidence index, consumer sentiment index and CEO confidence index. Typically, these gauges start to tumble early in a downturn.

ISM* Purchasing Managers Index and the ISM New Orders Index-An improving index are signs of a robust market.

Institute for Supply Management service sectors indexes for both business activity and new orders. Service sectors account for two-thirds of U.S. economy, so it’s an important indicator to watch.

What mistakes do you see individual investors making in the current financial climate?

Being greedy. Taking on additional risk in an aging bull market. Not rebalancing their accounts and taking profits.

What trends are you anticipating will most impact investors over the next year?

Rising interest rates. Most individuals know that bonds go down in value when interest rates go up. They just do not realize how much. A 1 percent increase in interest rates could make the 30 year treasury decrease 16 percent. Owning the right type of fixed income is critical in today’s investment environment.

Is there anything you would like to add?

Another trend is the Proliferation of Index funds. This is a concern for the following reasons:

Possible liquidity issues as experienced in dramatic structural challenges in market distress.

Assets flowing into the most popular exchange-traded funds are funneling investments into the largest and most overvalued stocks in the market, driving them higher because the S&P is a cap weighted index. So money invested into these popular ETF’s is not evenly distributed in all 500 stocks.

Michael J. Schmitz

Chief operating officer and vice president of investments, Schmitz Capital Partners, LLC

655 Redwood Highway, Suite 109, Mill Valley, 94941; 415-381-9076; www.schmitzcapital.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

The U.S. economy has enjoyed a fairly long period of stable growth and it’s no surprise that it has coincided with years of accommodative central bank policy. There are a myriad of reasons we believe modest growth could continue including low unemployment, low inflation, high consumer confidence, deregulation/business-friendly/favorable tax policy, and global trade improvement.

However, many of the world’s major central banks are at the tail end of the ultra-accommodative monetary policy cycle, so the modest growth environment leaves very little margin to absorb any potential pullbacks. Disparate global growth results, polarized political environments, and divergent monetary policy responses have the potential to create bouts of sharp volatility at times, particularly in equities. The Fed may more gradual in its rate hiking cycle due to conflicting mandates (inflation vs. employment) because we are approaching “full employment” and inflation has remained stubbornly low.

Traditional tightening is a tool used to cool down an overheating economy, but the Fed has used this tightening cycle to migrate away from the “zero zone” rate conundrum. However, maneuvering rates can upset delicate growth, and any future rate hikes by the Fed may be another potential source of volatility. The record-setting financial markets are ripe for a correction, but the timing and severity is uncertain. The impact of rising interest rates, upside surprises in U.S. inflation, negative headline economic data, or negative surprises out of Europe, the Middle East and Asia, could lead to increased volatility in the global capital markets and impact the gradually improving, but still fragile, U.S. economy.

What mistakes do you see individual investors making in the current financial climate?

Complacency and overconfidence are becoming very real risks. Theoretically, investors should be realistic about their appetite for risk and implement portfolio strategies within that risk tolerance in order to meet their long-term goals. However, since risk carries a “recency effect” (e.g. investors’ most recent investment experiences are often what they expect to happen in the future), the record-breaking trajectory of many domestic (and international) indices have certainly induced some continued market mania, and potentially dangerous passivity. Given our current modest growth environment outlook, we believe investors should resist becoming too complacent or too confident. It is very easy to get lulled into the notion that things will continue along the same trajectory. Exposing oneself to greater risk can prove particularly painful in the event of a correction, especially when one’s risk tolerance and circumstances have not substantially changed. However, extreme risk aversion and underexposure to an appropriate amount of risk can cause an inadvertent reduction in wealth.

Equities often demand significant patience and consistent participation in the market to compensate for periods of underperformance and increased volatility. Therefore, a rising interest environment should not necessarily send a message to blindly reallocate to equities, but should serve as an opportunity to evaluate appetite for equity risk in the context of a correction. Bonds also play an important role in portfolios and investors don’t necessarily need be fearful of rising interest rates, but they should approach fixed income securities with careful analysis. Evaluating yield curve positioning, interest rate risk exposure, and duration risk would be prudent considerations.

What trends are you anticipating will most impact investors over the next year?

We would expect to see:

Elevated volatility in global financial markets. Stable and modest global economic growth, record-setting index surges, and already priced-in optimism mean many areas of the global markets are frothy and may be fully valued. We expect bouts of volatility surges to coincide with unexpected pressures (political, economic or otherwise) that might appear in a highly connected world with a delicate economic and geopolitical balance.

Continued domestic growth and some inflation creep — potential for upside inflation surprises given its below levels the Fed would prefer.

Highly contentious political environment, rising populism and escalating geopolitical tensions.

Continued monetary policy tightening domestically (interest rate hikes in the U.S.) and expansionary monetary policy in many major economies overseas.

Potential allocation shifts back to emerging markets and developed markets overseas, which have lagged, but have favorable demographics, relative valuations and growth outlooks.

Potential allocation shifts to strategies in the hopes of minimizing volatility and capturing a higher Sharpe Ratio a measure of risk-adjusted returns).

Potential allocation shifts in fixed income portion of portfolios in an effort to reduce interest rate risk, overall duration.

The need to consider active management to nimbly react to changing conditions and make tactical adjustments to take advantage of opportunities and mitigate downside when volatility arises.

Is there anything you would like to add?

The combination of recovering domestic growth, low inflation and ultra-accommodative monetary policy have generally benefited equities during this sustained market run. However, it has also created substantial debate and a fair amount of future uncertainty. The relatively stable economic environment characterized by low unemployment, modest growth, stubbornly low inflation and rising rates may continue to fuel financial market ascent.

On the other hand, U.S. equity markets seem to be elevated and “frothy” once again, and may have already priced-in continued recovery and improving growth. Although overreaction to corrections, and continued insistence on waiting for the “next” pullback has proved costly for those who have waited to allocate, modest growth potential can mean less capacity to absorb negative shocks and sudden bouts of volatility. Markets can move away from fundamentals, and move away for prolonged periods of time, so a rotation away from equities and into fixed income is not necessarily the answer.

Unfortunately, the bond market is no safe haven for diversifying away from market risk. It can be incredibly delicate, primarily because of default risk and interest rate risk. The fear of rising interest rates and the impact on bond prices loom, but the Fed may take a more gradual approach given low inflation and a tight labor market. The uncertainly about how quickly and how high interest rates will rise makes prematurely rotating out of fixed income (into a potentially more volatile equity market), or just blindly into shorter-maturity securities, a risky strategy.

This particular environment takes extra special attention and continued diligence. In order to avoid some of the common behavioral-based investor pitfalls, we believe that successful investing will be predicated upon a thorough investment process, a carefully crafted investment plan that includes an understanding of the true nature of investment risk and continual monitoring and evaluation of that plan as the highly dynamic economic climate changes.

We believe that in order to achieve investment objectives, in this climate investors must create an investment policy that addresses their unique investment goals, time horizon, timing of net portfolio additions or withdrawals, and, most importantly, their risk tolerance (understanding of the relationship and tradeoffs between risk and return and their own ability, willingness and need to accept market risk).

Michael S. Silva

Maverick Wealth Management

921 Transport Way, Suite 31, Petaluma, 94954; 800-MAVERICK; info@maverickwealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Maverick Wealth Management is a research driven investment advisory firm. We closely monitor key economic indicators to gauge the overall health of the U.S. economy and how that affects the investments we make in our client portfolios.

Employment. Perhaps the most important indicator of the health of an economy is employment.

The U.S. Bureau of Labor and Statistics releases its monthly unemployment report. Market participants eagerly await these reports and they often result in some of the biggest one-day movements in both bond and stock markets. The basic premise is that when people are out of work, they cannot make the necessary purchases that propel corporate profits.

Inflation. The mandate of the Federal Reserve is to promote economic growth and price stability in the economy. Price stability is measured as the rate of change in inflation, so market participants eagerly monitor monthly inflation reports in order to determine the future course of Federal Reserve monetary policy.

Consumer activity. Changes in the activity level of consumers have a direct impact on corporate profits and stock prices. One of the most effective ways is to measure consumer confidence is by determining how consumers feel about their future economic prospects. The theory is that when consumers feel more confident, they are more likely to spend.

And because markets are forward looking, there is a tendency for stock prices to reflect the future opinions of consumers today.

What mistakes do you see individual investors making in the current financial climate?

Trying to time the market.

Often times, investors feel that they can time the market, buy when it is going up and sell at a higher price. Most academic research to date has proven market timing is an ineffective, and costly, investment strategy. More importantly, market timing is not investing - It is speculation. Maverick Wealth Management prides itself in buying great companies for the long term. This helps take the emotion out of the investment process and is more tax-efficient over the long haul.

Working with an ineffective adviser.

It is important for investors, should they decide to have their money managed professionally, to make sure that their financial adviser fully discloses any potential conflicts of interest providing investment advice.

Traditional stock brokers are salespeople who earn commissions for the investment advice they provide for their clients. Maverick Wealth Management is a Registered Investment Advisor and is held to a fiduciary standard in placing their clients’ interests first when providing investment advice.

It is also important to have periodic meetings, at least twice a year, to monitor the performance of your portfolio and to make sure you are on track in meeting your investment objectives.

What trends are you anticipating will most impact investors over the next year?

The volatility in the markets will continue through the year and the foreseeable future.

With the equity markets trading at or near all-time highs, the markets will continue to experience increased volatility, especially around earnings season and the release of key economic indicators. It is imperative that investors monitor their portfolios to see if the risk/reward of their investment strategies is in line with their long term investment objectives.

The combination of new market highs, the current political drama, and the incessant barrage of financial information that we are all subject to on a daily basis, makes it even more critical for investors to step back and re-consider their long term goals and objectives in conjunction with their current situations prior to making any emotional decisions during periods of increased volatility.

Is there anything you would like to add?

Investing in the stock market is an art and a science. The markets will always present new opportunities, through volatility.

Opportunities to add to current portfolio positions when the markets are lower, and opportunities to consider selling in market strength. It is imperative for investors to not get emotional with their investments.

Greed and fear are the basic emotions that rule the day in investing. The individual investor needs to control these emotions in order to achieve their long-term investment success.

At Maverick Wealth Management, we use valuation software that assists us in determining the intrinsic value of each company’s stock that we are considering buying. We also use this to determine the price that we would sell that stock once that price has met our determined fair market price.

Buy Low, Sell High, and Repeat is the investment philosophy that we employ with each of our client portfolios. We would advise investors to always consider their long term goals and objectives as priority number one!

Michael Maybrun

First Vice president, Portfolio management Director

Michael Snow

Financial Adviser

Morgan Stanley Smith Barney, LLC

3562 Round Barn Circle, Santa Rosa 95403; 707-571-5748; www.morganstanleyfa.com/michael.snow/

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

  • Interest rates and inflation
  • Corporate earnings and earnings estimates
  • International markets

What mistakes do you see individual investors making in the current financial climate?

Emotional buying during good times and selling during turbulent times. In our experience many investors instinctively tend to sell when markets are down, and buy only after they have recovered. That “Sell Low and Buy High” tendency damages investment returns. Having a long-term financial plan with an appropriate investment strategy, and working with a professional to monitor it and help clients manage it in a consistent fashion can help them stay on course during good and tough times.

What trends are you anticipating will most impact investors over the next year?

Many economists believe that the global economy is in an expansionary phase. We tend to agree, but are keeping an eye out for corporate earnings, interest rates and other confirming data.

Montgomery Taylor, CPA, CFP

Wealth adviser, Montgomery Taylor & Company, LLC

707-576-8700; www.TaxWiseAdvisor.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

We keep our eyes on what matters most—actual changes in the long term stock market cycle. One of the indicators comes from a Price Momentum Oscillator sell signal on a monthly stock chart. We also monitor the PMO for buy signals on the weekly chart. With these buy and sell signals, we tactically tilt the asset allocations to include more or less cash (risk) based on how cash ranks against the other asset classes on a relative strength basis. In other words, we take advantage of long term uptrends in the market and minimize our losses in downtrends.

What mistakes do you see individual investors making in the current financial climate?

The current financial climate is tenuous. The stock market doesn’t like uncertainty and there is lots to be uncertain about—like the sustainability of the Trump rally and when will the market crash?

People, especially those nearing retirement are too complacent and not watching for changing trends in the market. What seems to be most absent from individuals portfolio management is a buy and sell discipline. They need to establish rules to follow, so they can protect their investments.

What trends are you anticipating will most impact investors over the next year?

There are so many big issues on the table right now, like the repeal of Obamacare, tax reform, and the Fed raising interest rates. These changes, even the idea of these changes, can move markets. History shows us that investors get emotional and over-react. I don’t know what the outcome will be, but I’m prepared to adjust our portfolios and protect the clients I manage money for.

Is there anything you would like to add?

Yes, our parents and grandparents could buy and hold stock in great companies like Avon, RadioShack, Chevron, Exxon Mobile, Enron, WorldCom, and General Motors, collect their dividends and never worry about the principle. In our day and age, that is dangerous.

These companies are not too big to fail—and take your wealth with them. You need to monitor your stock, have a sell discipline and make sure it is working hard for you.

Peter M. Tennyson

President, North Bay Wealth Management

135 Keller St., Suite C, Petaluma, CA 94952; 707-971-7069; www.northbaywealth.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

Even the most ardent economist would not presume to predict the future based on data from the overall economy.

There are some useful barometers out there to determine which way the wind is blowing. As an advisor with a background in economics, you need to know that indicators are just that, they point to the possibility of something happening.

They are not definitive signposts saying, ‘exit here.’ The first and most obvious indicator would be the stock market itself. If companies are profiting, then their stocks are rising. The failing of this indicator comes into play when you have stock bubbles.

Another often quoted metric is Gross Domestic Product or simply GDP. This metric shows the overall health of the economy by including all economic output contained within the United States. If GDP is rising then the overall economy must be growing.

Unemployment is self-explanatory but has considerable impact on the psychology of investors and consumers.

When you hear about high unemployment, you start to reconsider any major purchases or expenses. This is a case where the phrase “perception meets reality”, comes true.

If you perceive that the economy will be tanking, you will pull back on expenses. If most people follow suit, then the economy will likely experience the very thing you sought to protect yourself from.

What mistakes do you see individual investors making in the current financial climate?

Investors tend to get caught up in what a behavioral finance economist would call a “positive feedback loop.” Translation: People tend to buy stocks because of past performance and therefore bid up the stock price in hopes of similar returns. Often this results in mediocre performance and the sage wisdom of buy low, sell high becomes the reverse.

What trends are you anticipating will most impact investors over the next year?

I believe politics will impact investors the most over the next year.

They tend to have a more knee jerk reaction to political news then the major institutions.A prime example would be Brexit last year. The market fell over 700 points in the days following the news. And in less than a few weeks, The DOW was at a new all-time high.

Is there anything you would like to add?

A well-diversified portfolio utilizing exceptionally low cost mutual funds or ETFs and an actionable financial plan is key to long term success. As Warren Buffet aptly put it, “ Someone sitting in the shade today because someone planted a tree a long time ago.”

Outside the North Bay

Greg Onken

Managing director, OS Group, JP Morgan Securities

560 Mission St., Suite 2400, San Francisco; 415-772-3123; www.jpmorgansecurities.com/pages/am/securities/inves

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

We are always mindful a several key economic indicators that broadly fall in to a few buckets: the cost of capital (interest rates), the business cycle and how valuations (both relative and absolute) are being manifested in that cycle (as this is a leading indicator), demographics as it influences labor cost and wages, inflation and consumer demand, and lastly, “flow of funds” which translates into supply and demand, velocity of money and economic activity.

What mistakes do you see individual investors making in the current financial climate?

To our chagrin, investors continue to make the same mistakes over and over:

  1. Investors buy what they wished they had owned, chasing a security, a market or a sector often without regard to price.
  2. Investors extrapolate current trends into the future, calculating that the current direction of an investment will continue uninterrupted.
  3. Investors frequently fail to ask, “What if I am wrong?” which causes a miscalculation of risk – usually manifesting itself in over-optimism or over-pessimism.
  4. Investors lack discipline to stick with a solid investment if the near-term price action doesn’t offer reward. More importantly, this short-termism leads most investor to do the opposite of what a good investor does which is buy high and sell low. All sound strategies will work over time but not all the time. And price matters! Because price determines the “margin of safety.”

What trends are you anticipating will most impact investors over the next year?

We are most focused on the trend of rising interest rates and/or a reaction to a natural and normal 10 percent correction in major equity indexes. Investors have been convinced that indexes are the way to go utilizing “passive” ETFs because of the low costs and potential tax efficiencies.

Everything they have been told is true, but in order for the truth to be realized an investor has to have the discipline to stay invested through long-term cycles.

It has been awhile since the major indices posted a 15 percent-plus correction and it will be interesting to study investor behavior when it happens. Will they sell and attempt to become market timers or will they adhere to the discipline required. We’re betting on emotion.

If one thinks of interest rates as the cost of money and acknowledges that the artificially low price of money has been a contributing factor, if not the fuel, for asset price appreciation (and justifiably so) while also being mindful that low rates haven’t been set by the market but by Central Bank policy, then one has to ponder what happens when rates move from the artificial lows.

If rates are to begin to rise (specifically in the U.S.) it seemingly will affect asset prices. The question is: how much and how fast.

We have an opinion, but that’s what our clients pay us for.

Is there anything you would like to add?

Wealth management is not exclusively asset management.

We advise our clients on both sides of the balance sheet ledger: assets and liabilities.

And as the cost of capital has been the cheapest asset in the world for several years, this has proven to be valuable, differentiating service and approach.

It has garnered better returns and superior risk management for our clients.

Human behavior is constant.

Emotional reactions to price changes and the over estimation of current trends is why an experienced, thoughtful adviser is a valuable asset for any investor. Work with a team that demonstrates a thoughtful, patient, goal–based approach and only benchmark against yourself and your family’s long-term goals and you will be a successful investor.

Kelly Trevethan

Managing director, United Capital

1350 Treat Blvd., Suite 340, Walnut Creek, 94596; 415-418-2101; www.unitedcapitalSF.com

When it comes to managing client portfolios, what are the three to five key economic signs you watch most?

We focus on understanding our client’s emotions around risk and their responses to volatility. Spending time worrying about the things we can’t control is a waste of time and energy.

What mistakes do you see individual investors making in the current financial climate?

If investors do not know how their capacity for risk or their emotional response to a decline of significance, they will continue to receive sub-par investment results due to them not being able to remain on the investment playing field.

What trends are you anticipating will most impact investors over the next year?

A lack of exposure to international and emerging market equities.

Is there anything you would like to add?

The better we know how are clients make decisions around spending money and investing, the better we will be at helping them achieve their desired financial life outcomes.