4th Quarter 2018

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In 2018, US investors experienced negative returns in almost every major asset class. The exception to this was US bonds which had a return for the year of 0.0%. Every other asset class, both domestic and international, declined in value for the year. This was a particularly alarming turn of events for US equity investors who, as recently as last quarter, were enjoying year-to-date returns of 10.6% and strong economic fundamentals that provided a promising near-term outlook. A mere three months later, full year returns for US stocks were negative 4.4% and negative 8.9% for global stocks. Investors should keep in mind that the market correction they’ve just experienced (a negative 19.3% return from the market’s high point in September through its low on December 24th) is disorienting but not extraordinary. Market drops of between 15 and 20% occur roughly once every three years on average.

The outlook for interest rates

Although unemployment is low, automation and other factors have allowed inflation to remain contained. Even if the most recent Fed projection of two rate increases in 2019 turns out to be reliable, this implies a Fed Funds rate of roughly only 3.00%. The prospect of low inflation suggests that the relatively flat yield curve we have today (the 10-year yield is only 25 basis points or so higher than the Fed Funds rate) will likely continue into the future. While the yield curve may steepen slightly in 2019 (longer maturity yields rising more than shorter maturity) due to the combination of the Fed’s program to normalize its balance sheet and continued growth in the federal budget deficit, global growth prospects and the lack of inflationary pressure suggests the yield curve will remain relatively flat.

NERT Model Allocation – Choices for every investor

The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.

Return                                             4th QTR            1 YR                 3YRS             5YRS

Stable Income                               -1.00%              -.83%               3.50%            2.55%

Conservative Income                    -3.46%            -2.17%               4.10%            3.05%

Traditional Pension                       -7.17%            -3.62%               5.41%            4.17%

Equity Oriented                             -9.26%            -4.49%               6.00%            4.31%

John E. Ryan, CFA

Acorn Financial Advisory Services, LLC