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Financial News and Portfolio Management Discussion through August 19th

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks ended the week down on political turmoil, weak corporate earnings and terrorist attacks. The S&P 500 was down 0.7% and Dow fell 0.8% for the week. Abroad, Europe rose 0.6% and Japan sank 1.3% for the week. The yield on the 10 year Treasury was flat for the week ending at 2.20%.  Article

Weak earnings from retailers and declines in energy prices drove both sectors down and both were primary drivers in the decline in US Stocks for the week.

The pace of growth slowed in China in July as industrial output, retail and housing sales and fixed asset investment all ticked down from June and were lower than forecast.

US retail sales rose 0.6% in July, more than expected, and June’s rate was revised higher, but debt levels have increased and savings rates have fallen.

Minutes form the Fed’s July meeting showed that concerns over weak inflation is bringing reservations about the timing of the next interest rate increase. They originally expected to make another interest rate increase later this year. However, they were in agreement about beginning to unwind their balance sheet, perhaps as soon as September.  Article

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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Financial News and Portfolio Management Discussion through August 12th

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks posted their worst week since May on weak earnings from retailers and North Korea tensions. The S&P 500 fell 1.4% and the Dow dropped 1.1% for the week. Abroad, Japan eased 1.1% and Europe sank 2.7% for the week. The yield on the 10 year Treasury fell as investors moved to safe havens ending the week at 2.19%, its lowest level since June. The VIX hit the highest level of the year during the week.  Article

Worker productivity picked up in the second quarter rising 0.9% up from 0.1% in the first quarter. However, the pace remains well below the level required to see GDP growth accelerate.

US inflation continued to be subdued in July. The CPI rose 0.1% from the prior month and is up 1.7% over the trailing year, below the Fed’s target.

Vantiv agreed to buy Worldpay for $10.4 billion in a tie up of payment processing giants.

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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Don’t call it a Comeback, International Markets have been here for Years

In January we reviewed the topic of international diversification. With the conclusion of 2016 it had been four straight years that US stocks had outpaced international stocks. We heard from many people why should they continue to hold international stocks? The prospects in Europe looked bleak with the UK leaving the EU, China was a constant source of volatility and Japan posted another year of meager growth and inflation.

Our message was to remain disciplined to an equity strategy diversified globally. There are periods of time when the US outperforms and there are times when international markets outperform. We believed that eventually the recent trend would reverse. There have been multiple decade long periods over the past 110 years when international stocks outperformed and we believed they would eventually be in favor again. When exactly it would occur is unknowable, but if an allocation is not maintained an investor would miss out if there was a sustained rally. Also, with roughly 50% of the world stock market and more than 10,000 companies outside of the US, there is a significant investable universe that you would lose exposure to if only focused on the US.

What have we seen in 2017? A significant reversal in global stock market performance. While US stocks certainly continue to perform well, up almost 11% for the year, international stocks have soared, gaining over 18%. Going back over the past 12 months international stocks have outpaced US stocks by over 3%.

While the recent performance is not a guarantee of future results, it does show the benefits of remaining disciplined to an asset allocation strategy that has set targets to US and foreign stocks. By keeping that broad diversification, the portfolio is set to benefit if either perform well. It also likely reduces the overall volatility of the equity allocation.

We believe that an investor with a long time horizon and a desire for growth from their portfolio is best served by investing globally, and, by avoiding market timing, can best positon themselves to meet their long term investing goals.

 

Index Performance July YTD Trl 1 Yr
US Stock (Russell 3000) 1.89% 10.99% 16.14%
Foreign Stock (FTSE AW ex US) 3.54% 18.20% 19.15%
Total US Bond Mkt. (BarCap Aggregate) 0.43% 2.71% -0.51%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) 0.28% 1.08% -0.20%
Municipal Bonds (BarCap 1-10yr Muni) 0.68% 3.67% 0.62%
Cash (ML 3Month T-Bill) 0.08% 0.31% 0.49%

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results.  You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC.  This information was gathered from reliable sources but we cannot guarantee accuracy.  Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.

 

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Financial News and Portfolio Management Discussion through August 5th

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks rose higher over the week on corporate earnings and another solid jobs report. The S&P 500 gained 0.2% and the Dow gained 1.2% and ended the week at a fresh all-time high. It also surged past the 22,000 level. Internationally, Europe % and Japan % for the week. The yield on the 10 year Treasury bond ended the week at 2.27%, down slightly from the previous week.  Article

The July jobs report topped estimates by showing 209,000 new hires and the unemployment rate fell to 4.3%, a 16 year low. It was the 82nd straight month of job creation. Average hourly earnings continued to increase at 2.5%.  Article

The Fed’s preferred measure of inflation was flat in June and is up 1.4% from the prior year, far below its 2% target and down from 2.2% in February.

Auto sales dropped significantly in July.

Eurozone inflation rose 1.2% in July slightly faster than expected.

Eurozone growth rose at a 2.3% pace in the second quarter and has outpaced the US over the past 18 months. Unemployment has steadily declined over the first half of the year as well.

Discovery agreed to buy Scripps Networks for $11.9 billion.

Of the 58% of firms in the S&P 500 that have reported earnings 72% topped analyst estimates.

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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Financial News and Portfolio Management Discussion through July 29th

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks edged down over the week on weakness from tech companies. The S&P 500 ticked down 0.1%, while the Dow, driven by a few firms reporting earnings, gained 1.2% for the week. Internationally, Europe fell 0.5% and Japan dropped 0.7% for the week. Oil surged over the week over concern of supply disruptions from Venezuela. Oil rose 8.6% to $49.71 a barrel. The yield on the 10 year Treasury ended the week at 2.29%, up from the previous week.  Article

The Fed announced after its July meeting that it would begin reducing its balance sheet of bond holdings “relatively soon.” Investors believe this could mean the September meeting. The Fed Funds rate remained in the 1% to 1.25% range.

US GDP rose 2.6% in the second quarter as the country entered its ninth year of economic expansion.  Article

Michael Kors agreed to buy Jimmy Choo for $1.2 billion.

Foxconn announced it would build a $10 billion factory in Wisconsin that would lead to 3,000 jobs.

With over half of companies in the S&P 500 reporting earnings, they are on track to grow 9.1% from a year earlier.

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

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Financial News and Portfolio Management Discussion through July 22nd

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks reached new record highs during the week on strong corporate earnings. The S&P 500 rose 0.5%, but the Dow eased 0.3% for the week. Internationally, Europe sank 1.7% and Japan ticked down 0.1% for the week. The yield on the 10 year Treasury fell to 2.23% posting its largest two week decline since March.  Article

Japan’s central bank pushed back its estimate on when it will reach 2% inflation and kept its current policy on hold.

The ECB delayed discussion on whether it should wind down its bod buying program over weakening global inflation.

Firms posting strong earnings include Netflix, United, Johnson and Johnson, UnitedHealth, American Express and Microsoft. All six of the biggest US banks topped expectations.

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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Getting What You Don’t Pay For

We have a guest blog post this month from Dimensional Fund Advisors addressing the issues of mutual fund and trading costs and their impact on performance.

Costs matter. Whether you’re buying a car or selecting an investment strategy, the costs you expect to pay are likely to be an important factor in making any major financial decision.  People rely on a lot of different information about costs to help inform these decisions. When you buy a car, for example, the sticker price tells you approximately how much you can expect to pay for the car itself. But the sticker price is only one part of the overall cost of owning a car. Other things like sales tax, the cost of insurance, expected routine maintenance costs, and the potential cost of unexpected repairs are also important to understand. Some of these costs are easily observed, and others are more difficult to assess. Similarly, when investing in mutual funds, different variables need to be considered to evaluate how cost‑effective a strategy may be for a particular investor.

Expense Ratios

Many types of costs lower the net return available to investors. One important cost is the expense ratio. Similar to the sticker price of a car, the expense ratio tells you a lot about what you can expect to pay for an investment strategy. Exhibit 1 helps illustrate why expense ratios are important and shows how hefty expense ratios can impact performance.

Exp Ratios

(Click to enlarge)

*See footnote

This data shows that funds with higher average expense ratios had lower rates of outperformance. For the 15-year period through 2016, only 9% of the highest-cost equity funds outperformed their benchmarks. This data indicates that a high expense ratio is often a challenging hurdle for funds to overcome, especially over longer horizons. From the investor’s point of view, an expense ratio of 0.25% vs. 0.75% means savings of $5,000 per year on a $1 million account. As Exhibit 2 helps to illustrate, those dollars can really add up over longer periods.

Exp Ratio over time

(Click to enlarge)

**See footnote

While the expense ratio is an important piece of information for an investor to evaluate, what matters most when gauging the true cost‑effectiveness of an investment strategy is the “total cost of ownership.” Similar to the car example, total cost of ownership is more holistic than any one figure. It looks at things that are readily observable, like expense ratios, but also at things that are more difficult to assess, like trading costs and tax impact. It is important for investors to be aware of these and other costs and to realize that an expense ratio, while useful, is not an all‑inclusive metric for total cost of ownership.

Trading Costs

For example, while an expense ratio includes the fund’s investment management fee and expenses for fund accounting and shareholder reporting (among other items), it doesn’t include the potentially substantial cost of trading securities within the fund. Overall trading costs are a function of the amount of trading, or turnover, and the cost of each trade. If a manager trades excessively, costs like commissions and the price impact from trading can eat away at returns. Viewed through the lens of our car analogy, this impact is similar to excessively jamming your brakes or accelerating quickly. By regularly demanding immediacy like this when it may not be necessary, the more wear and tear your car is likely to experience and the more fuel you will end up using. These actions can increase your total cost of ownership. Additionally, excessive trading can also lead to negative tax consequences for the fund, which can increase the cost of ownership for investors holding funds in taxable accounts. The best way to try to decrease the impact of trading costs is for funds to avoid trading excessively and pay close attention to effectively minimizing cost per trade. Employing a flexible investment approach that reduces the need for immediacy, thereby enabling opportunistic execution, is one way to potentially help accomplish this goal. Keeping turnover low, remaining flexible, and transacting only when the potential benefits of a trade outweigh the costs can help keep overall trading costs down and help reduce the total cost of ownership.

Conclusion

The total cost of ownership of a mutual fund can be difficult to assess and requires a thorough understanding of costs beyond what an expense ratio can tell investors on its own. A good advisor can help investors look beyond any one cost metric and instead evaluate the total cost of ownership of an investment program—and ultimately help clients decide if a given strategy is right for them.

 

 

 

 

*The sample includes funds at the beginning of the 15-year period ending December 31, 2016. Funds are sorted into quartiles within their category based on average expense ratio over the sample period. The chart shows the percentage of winner and loser funds by expense ratio quartile; winners are funds that survived and outperformed their respective Morningstar category benchmark, and losers are funds that either did not survive or did not outperform their respective Morningstar category benchmark. US-domiciled open-end mutual fund data is from Morningstar and Center for Research in Security Prices (CRSP) from the University of Chicago. Equity fund sample includes the Morningstar historical categories: Diversified Emerging Markets, Europe Stock, Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Blend, Foreign Small/Mid Growth, Foreign Small/Mid Value, Japan Stock, Large Blend, Large Growth, Large Value, Mid-Cap Blend, Mid-Cap Value, Miscellaneous Region, Pacific/Asia ex-Japan Stock, Small Blend, Small Growth, Small Value, and World Stock. For additional information regarding the Morningstar historical categories, please see “The Morningstar Category Classifications” at morningstardirect.morningstar.com/clientcomm/Morningstar_Categories_US_April_2016.pdf. Index funds and fund-of-funds are excluded from the sample. The return, expense ratio, and turnover for funds with multiple share classes are taken as the asset-weighted average of the individual share class observations. For additional methodology, please refer to Dimensional Fund Advisor’s brochure, The 2017 Mutual Fund Landscape. Past performance is no guarantee of future results.

**For illustrative purposes only and not representative of an actual investment. This hypothetical illustration is intended to show the potential impact of higher expense ratios and does not represent any investor’s actual experience. Assumes a starting account balance of $1,000,000 and a 6% compound annual growth rate less expense ratios of 0.25% and 0.75% applied over a 15-year time horizon. Taxes and other potential costs are not reflected. Actual results may vary significantly. Changing the assumptions would result in different outcomes. For example, the savings and difference between the ending account balances would be lower if the starting investment amount was lower.

There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results.  You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC.  This information was gathered from reliable sources but we cannot guarantee accuracy.  Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.

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Financial News and Portfolio Management Discussion through July 8th

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks edged up over the week aided by bank stocks. The S&P 500 ticked up just under 0.1% and the Dow gained 0.3% for the week. Internationally, Europe rose 0.2%, while Japan was down 0.5% for the week. The yield on the 10 year Treasury bond continued its recent rise ending the week at 2.39%. Oil prices sagged with a barrel ending the week at $44.23 down 3.9% on the week.  Article

US employers added 222,000 workers in June well ahead of expectations. The unemployment rate rose to 4.4% as more people entered the workforce. Average hourly earnings rose 2.5% in June much lower than historical levels. In addition, April and May were revised higher.  Article

US auto sales fell 2% over the first half of the year and 3% in June.

At the Fed’s June meeting they began planning for reducing their balance sheet and the debate moved to when that process would begin. September was considered likely.

QVC and the Home Shopping Network are merging in a $2.1 billion deal.

Berkshire Hathaway is buying Energy Future Holdings, one of the largest power transmission companies in the US, for $9 billion.

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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Financial News and Portfolio Management Discussion through July 1st

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks ended the first half of the year on a down note as stocks declined on hawkish comments from global central bankers. The S&P 500 fell 0.6% and the Dow ticked down 0.2% for the week. Abroad, Japan sank 0.5% and Europe dropped 2.1% for the week. The yield on the 10 year Treasury rose over the week to 2.30% posting its largest weekly yield increase since March. Oil prices recovered to a degree rising 7% to finish at $46.04 a barrel.  Article

ECB president Draghi alluded to the ECB cutting back its stimulus in response to improving growth in Europe.   On the news the euro surged 1.4%, its largest one day gain against the dollar and eurozone bonds fell.  Article

The chiefs of the Bank of England and the Bank of Canada said they would be pairing back stimulus in the future.

Italy said it was prepared to spend as much as $19 billion to shut down two regional banks.

Durable goods orders fell in May for the second straight monthly declining 1.1%, more than expected. However for the year to date orders have gained over 2016.

National US banks all passed the Fed stress tests and their capital plans were approved by the Fed. As a result, big banks will increase share repurchases and dividend payouts to their highest levels in years.  Article

The US grew at a 1.4% rate in the first quarter, in the final revision to GDP growth.

Economic confidence in the Eurozone reached its highest level since 2007.

Inflation eased for the third consecutive month in May to 1.4% from a year earlier. It’s the lowest level in six months and well below the fed’s target of 2%.

The EU gave Google a record fine of $2.7 billion saying the search engine favored its own online shopping service over others.  Article

Office supply store Staples was bought by private equity fund Sycamore for $6.9 billion.

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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Financial News and Portfolio Management Discussion through June 24th

All the news you need to stay informed about what’s currently driving the market – courtesy of Raffa Wealth Management, LLC.

US stocks edged up over the week aided by healthcare and pharmaceutical stocks. The S&P 500 rose 0.2% and the Dow ticked up less than 0.1% for the week. Abroad, Japan gained 1.0% and Europe declined 0.3% for the week. Oil fell 4.4% for the week to $43.01 a barrel entering bear market territory. The yield on the 10 year Treasury fell slightly to finish the week at 2.15%.  Article

The largest US banks passed the Fed’s stress tests providing more ammunition for calls of reduced regulations.

New home sales rose 2.9% in May and prices hit a record high.

Travis Kalanick, the embattled founder and CEO of Uber was forced to resign.  Article

Oracle posted earnings that well outpaced expectations.

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

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    Raffa Wealth Management
    1899 L Street, NW
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    Tel: 202-955-6734