Getting Your Finances in Order for 2019

Summary

WSJ Your Money Briefing: Getting Your Finances in Order for 2019
Release Date: December 26, 2018
Host: J.R. Whalen
Guest: Richard Saperstein, Managing Director and Chief Investment Officer, Hightower Treasury Partners

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Episode Overview

In this episode, the Wall Street Journal’s Your Money Briefing podcast offers actionable tips for closing out 2018 and preparing personal finances for the year ahead. Host J.R. Whalen speaks with Richard Saperstein about organizing financial records, investment strategies for 2019, key economic surprises of the past year, and upcoming challenges—including the impact of Federal Reserve policy shifts and trends shaping the housing market.

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Key Discussion Points & Insights

1. Year-End Financial Organization

[00:35–01:55]

• Importance of gathering paperwork and being organized heading into 2019.
• Necessary documents include:
  • Account summaries
  • Asset allocation overviews
  • Mortgage statements (checking for interest rate resets or changes)
  • Tax-relevant documentation

“It’s important to look ahead as to what changes could occur in the environment and gather information that help you plan accordingly.”
—Richard Saperstein, [01:11]

2. Investment Sectors to Approach Cautiously in 2019

[01:55–02:34]

• Avoid emerging markets and maintain low exposure to international developed market equities due to U.S. Federal Reserve quantitative tightening, which pulls back liquidity that non-U.S. markets often rely on.
• These conditions create unpredictability for global investors.

“Currently we’re avoiding emerging markets as well as a very low exposure to international developed market equities... that’s causing a lot of agitation amongst non-US markets that have to gain access to dollars.”
—Richard Saperstein, [02:01]

3. Economic Surprises of 2018

[02:34–02:53]

• The unexpectedly strong fundamentals of the U.S. economy.
• Notable job growth and earnings performing above expectations.

“The biggest surprise has been the real fundamental strength in the economy, which [is] leading to tremendous jobs growth, strong economic conditions, and increased earnings that have been way above expectations.”
—Richard Saperstein, [02:38]

4. Common Mistakes in Financial Planning at Year’s Start

[03:14–03:46]

• Many overlook the Federal Reserve's influence on both the stock and bond markets.
• Those holding bond-heavy portfolios need to be especially vigilant regarding interest rate shifts.

"People with fixed income portfolios should pay closer attention as to what’s going to occur with interest rates and the ultimate impact on their bond portfolios."
—Richard Saperstein, [03:14]

• Importance of consulting advisors about potential equity portfolio adjustments.

5. Challenges Ahead for Investors in 2019

[03:46–04:59]

• Central banks, especially the Fed, are reversing years of aggressive, stimulative monetary policies ("reversing the thrusters").
• Actions include quantitative tightening, allowing bonds to roll off, and raising interest rates.
• This dramatic shift could introduce volatility and “friction” in markets.
• Critical to maintain “dry powder”—safe, liquid assets—to capitalize on possible dislocations.

“It’s very important that investors always have some safe dry powder in their portfolios by way of safe assets to take advantage of any market dislocations that might occur as a result of these very structural changes.”
—Richard Saperstein, [04:36]

6. Recommended “Dry Powder” Holdings

[05:01–05:17]

• High-grade short-term bonds and money market funds are advised for liquidity during storms.

“I would have very high grade short term bonds in the portfolio as well as some money market funds.”
—Richard Saperstein, [05:01]

7. Housing Market Outlook for 2019

[05:17–06:08]

• Expectation of a soft housing market, driven by:
  • Short-term: rising interest rates, increasing the cost of home ownership.
  • Long-term: “new urbanism,” with millennials preferring urban over suburban living, decreasing demand for single-family housing and cars.

“The more important longer term trend is what I’ll call the new urbanism, where... millennials... are now more desirous of living in urban environments. So that results in less demand for suburban housing as well as less need for cars.”
—Richard Saperstein, [05:19]

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Notable Quotes

• “It’s important to look ahead as to what changes could occur in the environment and gather information that help you plan accordingly.”
  —Richard Saperstein, [01:11]

• “Currently, we’re avoiding emerging markets as well as a very low exposure to international developed market equities... that’s causing a lot of agitation amongst non-US markets.”
  —Richard Saperstein, [02:01]

• “The biggest surprise has been the real fundamental strength in the economy... increased earnings that have been way above expectations.”
  —Richard Saperstein, [02:38]

• "People with fixed income portfolios should pay closer attention as to what’s going to occur with interest rates."
  —Richard Saperstein, [03:14]

• “…always have some safe dry powder in their portfolios by way of safe assets to take advantage of any market dislocations…”
  —Richard Saperstein, [04:36]

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Timeline of Important Segments

• 00:35 – Introduction to year-end financial organization
• 01:55 – Investment sectors to approach with caution in 2019
• 02:34 – 2018’s economic surprises
• 03:14 – Common end-of-year financial planning mistakes
• 03:46 – Macro challenges for investors in 2019
• 04:59 – Recommended conservative holdings for stability
• 05:19 – Softness in the housing market and “new urbanism” explained

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This episode is a concise, practical look at preparing your finances for the new year and understanding how macroeconomic shifts, especially those driven by the Federal Reserve, could affect your investment approach going forward.

Transcript

[A]

Still running global payroll like a relay race deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you Already use Workday SAP Netsuite operate like a local everywhere visit d e l.com WSJ that's d e e l.com WSJ.

[B]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. This week we're looking ahead to 2019 and ways you can be smarter with your money. Finishing out the year means gearing up and getting together paperwork and receipts that have accumulated and making sure you're in tune with your financial Planner's outlook for 2019. Richard Saperstein is Managing Director and Chief Investment Officer at Hightower Treasury Partners. He's he's got some thoughts on what to expect in the new year. So Rich, let's start with the kinds of records people should be gathering up and putting in a safe and organized place to have when they talk to their financial planner.

[C]

Well, I think it's important to look ahead as to what changes could occur in the environment and gather information that help you plan accordingly. So that would be assembling account documents and and being able to determine an overview of your asset allocation. In addition, it's important to understand what the interest rate is that you're paying on your potential home mortgage and to determine if there's any changes or resets in that interest rate. Other than that, you'll need your standard accounting documents for your tax advisor. But it's important just to be ready for what's going on in 2019.

[B]

So for those investors in the market who are looking to enter the market, what sectors would you avoid in 2019?

[C]

Currently we're avoiding emerging markets as well as a very low exposure to international developed market equities. The reason for that is because of Fed quantitative tightening where they're basically pulling back the liquidity that they've put out post crisis and that's causing a lot of agitation amongst non US Markets that have to gain access to dollars.

[B]

What has surprised you Most economically about 2018?

[C]

The biggest surprise has been the real fundamental strength in the economy which leading to tremendous jobs growth, strong economic conditions and increased earnings that have been way above expectations.

[B]

And we'll have more with Richard Saperstein here on youn Money Briefing right after this. We're back with Richard Saperstein and tips for getting your finances in order for the New Year what do you see as the most common mistakes people make when they're planning things out near the start of the year or I don't

[C]

believe that people pay attention to Fed actions and the impact that the Fed can have on the stock and bond markets. As a result, people with fixed income portfolios should pay closer attention as to what's going to occur with interest rates and the ultimate impact on their bond portfolios. In addition, it's very important to speak with your advisor to identify what, if any, changes should be applied to the equity side of your portfolio.

[B]

So, Rich, what are the challenges on the horizon facing investors that they should be aware of that are coming at them in 2019?

[C]

Investors must realize that following the crisis, the Fed and global central banks have pursued very unorthodox and aggressive monetary policies to stimulate economies that resulted in zero interest rate environments, as well as central banks priority purchasing large amount of securities and injecting tremendous amounts of liquidity into the system. Now, post crisis, we're in a very strong recovery and global central banks, specifically the Fed, are now reversing the thrusters on that global flow of liquidity. So as that money now reverts back either through quantitative tightening or allowing bond purchases to roll off, as well as rising interest rates and in the way of increasing Fed funds, that's going to cause friction in various markets. It's very important that investors always have some safe dry powder in their portfolios by way of safe assets to take advantage of any market dislocations that might occur as a result of these very structural changes.

[B]

So have some cash put aside.

[C]

I would have very high grade short term bonds in the portfolio as well as some money market funds. We've experienced very robust financial markets and I think it's time to build some dry powder as we start seeing the Fed normalize its policies and any changes

[B]

you see in the housing market in the year ahead.

[C]

We see a soft housing market going forward as a result of two factors, one more short term, one longer term. The short term one is the structurally rising interest rates that we've seen occur over the last few years, raising the cost of housing and the cost of borrowing. The more important longer term trend is what I'll call the new urbanism, where the millennials or the next generation that might be moving, typically having kids and moving out to the suburbs, are now more desirous of living in urban environments. So that results in less demand for suburban housing as well as less need for cars. So we're seeing peak auto sales in 2016 and we think those trends continue over the long term.

[B]

All right. That is Richard Saperstein from Hightower Treasury Partners here in our studio. Richard, thanks for being with us.

[C]

It's my pleasure. Thank you.

[B]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[A]

Still running global payroll like a relay race. Deal replaces fragmented payroll vendors with one global system. No third parties. Hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery. And deal plugs into what you Already use Workday SAP NetSuite operate like a local everywhere. Visit d e l.com WSJ that's D E L. Com WSJ.