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The Pitfalls of Individual Security Selection

While there is no universally “right” way to invest, investors should know that individual stock selection carries more risk than relying instead on asset class allocation. Asset class allocation means investing across different classes of securities, rather than focusing on specific securities within the asset classes. It means allocating a percentage of assets respectively to equities, bonds, cash, and sometimes commodities. Because thoughtful asset class allocation spreads risk through diversification, the odds of long-term success increase when contrasted with the person who invests solely in individual securities.

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A Realistic and Consistent Approach to Investing is Crucial

The irony of investing is that people often feel most comfortable buying stocks when the market is “high” and expensive. They see others growing assets and do not want to miss out. That’s fine. One of the most valuable--and most often ignored-- pieces of investment advice is that you cannot time the market. While historical performance does not guarantee future performance, since 1926 the S&P 500 stock index has delivered an average return of approximately 10%. Instead of sitting on the sidelines, waiting for the “perfect” moment to invest, it is best to get in and start participating in the growth of the American economy and world markets.

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Strategies for Concentrated Stock Positions: Charitable Remainder Trust

A Charitable Remainder Trust (CRT) is an estate planning tool that can generate a long-term income stream for you, or other beneficiaries, while allowing the remaining assets to be donated to your favorite charity. A CRT is an advantageous donation vehicle that allows you to make contributions to a trust and be eligible for a partial tax deduction. This deduction is based on the CRT’s remainder amount that will pass to charitable beneficiaries after you receive income for a term that you define upon its creation. You, or another beneficiary, can receive income for either a term of 20 years or less or for life, and then name one or more charities to receive the remainder of the donated assets after the term is completed.

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Pacific Wealth Management Market Comment (July '22)

Investors around the world remain primarily focused on inflation. Globally, central banks are aggressively increasing interest rates to tamp down the highest inflation we have experienced since 1981. The COVID pandemic famously precipitated an unprecedented government response with the injection of trillions of dollars of monetary and fiscal stimulus. With all that money sloshing around the world’s economy, combined with extraordinary pent-up consumer demand resulting from lockdowns, supplies of inventories quickly dwindled and prices have been rising ever since. The challenge facing the global central bankers was underscored when Jerome Powell recently told a European Central Bank forum in Portugal, “We now understand better how little we understand about inflation”. Recently Powell has acknowledged the U. S. Federal Reserve Bank is prepared to continue increasing interest rates aggressively through year-end to slow down the economy and increase unemployment, at the risk of recession. We believe a recession is more probable than a soft landing for the economy. Despite the low unemployment levels, that recession may have already begun.

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Buy The Dip?

After the significant decline in price over the last 6 months, it may appear that the market is now a 'bargain'. The forward P/E (10-yr average 2009 – 2019 Price/Earnings Ratio) of the S&P 500 at a price of $4000 and EPS (Earnings Per Share) of $237.18 is 16.9. This is below the 5-year average (18) and equal to the 10-year average (16.90). However, the 5 and 10-year averages are heavily skewed by the pandemic surge in forward multiples which rose to over 23 in the back half of 2020 as investors, flush with stimulus cash and backed by historically accommodative monetary policy, bid up stock prices to historic levels.

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From Here to Where Webinar

Stock Markets have nearly erased the gains of 2021 as inflation persists and a war rages on in Ukraine. Tune into the May 2022 edition of Pacific Wealth Management's Proactive Asset Management Webinar to learn about why markets are so challenging this year, and how PWM is navigating the investment landscape.

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