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market spotlight | monthly review

The Markets (as of market close September 29, 2017)

Trading during the summer months is customarily slow, and the summer of 2017 proved no different. July kicked off the third quarter with equity markets enjoying noteworthy gains over their June closing values. Both the Dow (2.54%) and S&P 500 (1.93%) posted significant gains, as did the Global Dow (3.13%). The Nasdaq posted a very favorable 3.38% monthly increase. The yield on long-term bonds changed very little from June as investors seemed to focus on surging equities. Crude oil prices reached $50 per barrel by the end of July after closing June at $46 per barrel. The national average retail regular gasoline price was $2.269 per gallon on July 31, down from the June 26 selling price of $2.288. 

Equities held their own in August, despite hurricanes that devastated several southern states and Puerto Rico, causing extraordinary economic loss. Conflicts both at home and abroad certainly influenced investor sentiment. Clashes between protestors in Charlottesville, Virginia, and escalating tensions between the United States and North Korea dominated the news. Nevertheless, a late-month rally in August pushed equities ahead of their July values. The Russell 2000 decreased from its July closing value as energy stocks plunged. The Dow and S&P 500 posted marginal gains, while the Nasdaq led the month ticking up 1.27%. Long-term bond prices rose, with the yield on 10-year Treasuries falling to 2.12%, or 17 basis points below July’s end-of-month yield.

did you know?

Managing client expectations is a cornerstone of building strong relationships. When you work with clients or prospective clients, it’s important to get on the same page. Here are steps you can take to build trust and avoid confusion down the road:

  • Educate clients on how products work and how volatility and other forces can impact those investments
  • Develop a comprehensive plan together, one that matches the client’s risk tolerance and allows them to reach their investment and retirement goals
  • Set realistic expectations for the clients that are focused on “real returns” that factor in volatility rather than annual rate of return

Source: Investopedia

bright ideas
Manage Client Expectations Through the Reality of Returns:
Why Educating Your Clients on the Math of Losses Builds Trust and Long-term Relationships

As an advisor, selling the returns of a portfolio can not only trigger compliance concerns, it can create client relationships that are as turbulent as the market itself. Too often transactions take place based on a product’s performance-or its perceived or potential performance. But what happens when that product doesn’t live up to expectations?

Education is Key

By shifting away from performance and toward client education, you and your clients can feel the calm confidence that comes with understanding the strategy that is going to work. To accomplish this, it is critical to teach the Beacon investment philosophy and communicate the power of losses on real returns.

The Reality of Returns

If you could choose between a 0% cumulative return and a 20% cumulative return, which would you choose? We have asked this question to rooms full of advisors shocked to find out the answer may not be as easy as you think!

Click here to download our newest client appointment tool:

Misleading Numbers and What You Can Do About It.

The rate of return can be completely misleading. As we see in our two investment examples in the client presentation tool above, one has large volatile swings. While it’s up dramatically one year, it nosedives the next. If you present the options to the client, without educating them on the underlying factors of volatility, which one do you think they’ll take?

“Mr. & Mrs. Client, you have two investment options. Option one goes up 10 one year and goes down 10 the next. It’s a zero percent cumulative return. Option two goes up 60 the first year and drops 40 the next for a 20 percent cumulative return. Which would you like to buy?” Presented that way, with a fixation on returns, most clients are going to take that second option. In their minds, they’re up 20 percent. And they’d be wrong. [CC1]

The Math of Losses

From our accompanying chart, we see that option one wound up with $99,000 of the original $100,000 invested, while option two, the option with a 20 percent cumulative return netted only $96,000. How is that possible? It’s due to standard deviation and range. Standard deviation measures the dispersion of a set of data from its mean and sheds light on the historical volatility of that investment. The range is the difference between the low and high prices for a security or index over a specific period. The more volatile the security or index, the wider the range. Your client needs to understand that the volatility of a product can quickly offset its rate of return; after all, it does not take a 30% gain to recover from a 30% loss, it takes 43% just to get back to even!

The Bottom Line

We encourage you to walk through this new client download in your appointments, along with any number of the client education tools available to you on the Advisor Toolbox designed to help you create engaging, impactful and educational conversations about real returns. By building this foundation of education, you can manage expectations and earn a long-term client who trusts the process and philosophy going to work on their behalf. For more information on how you can educate clients on the math of losses and the reality of returns, contact your wholesaler today!

beacon news

Be sure to visit Beacon’s News & Press page for the latest credibility pieces to share with your clients and prospects, and follow Beacon on LinkedIn for the latest updates as they happen!

“Create Your Own Portfolio Benchmark”-U.S. News

“Slash Your Retirement Risk interview” -MoneyLife with Chuck Jaffe Podcast



Beacon Capital Management, Inc. is an investment advisory firm registered with the Securities and Exchange Commission. Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, or excluded or exempted from registration requirements.

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