January 2018 Newsletter

Welcome! Here is a review of 2017 financial results and what you can expect out of the new year! 



Strong market returns and low volatility underscore investor’s optimism that the current global environment of modest growth and little inflation will continue for at least another year. We agree with this medium-term outlook but argue the chances of a short-term correction (down 5 to 15%) are underappreciated.

In our view, the solution to this challenge is not a shiny new investment scheme or a shift to a more aggressive portfolio. Rather, our market outlook underscores the need for investors to remain disciplined for the long-term, be globally diversified, and be prepared for realistic (lower) returns using a low-cost, tax-efficient portfolio.

This January newsletter will review in-depth 2017 results, and the economic and market outlooks for 2018. We will return to our standard format next month.


2017 Results of Lorenz Financial’s Benchmarks

Lorenz Financial uses the following exchange traded funds (ETFs) as our benchmarks for the various broad segments of the stock, bond, and real estate and international markets. Below are the 2017 returns of these indexes.

VTI – Total US Stock Market Index ETF grew 21.21%
EFA – Europe, Far East, Australia Developed Markets Index ETF grew 25.10%

VNQ – US Real Estate Investment Trust Index ETF grew 4.91%
VNQI – Global, ex-US, Real Estate Investment Trust ETF grew 26.92%

BSV – Short-Term Investment-Grade Bond Index ETF grew 1.20%
BIV – Intermediate-Term Investment-Grade Bond Index ETF grew 3.55%

These are index ETFs. Some investors prefer to invest in managed funds. Nine of our eleven managed mutual funds in the Lorenz Financial portfolios grew more than their respective indexes.


US Labor Market

Employment data continues to improve. Manufacturing added 31,000 jobs and health care added 30,000 jobs in November.

The Labor Dept defines the broadest measure of unemployment as a metric labeled U-6. This includes total unemployed, all persons marginally attached to the labor force, and total employed part time for economic reasons, which is measured as a percent of the civilian labor force. This metric is now at 8%. In April 2007, this metric’s hit a low point (low is good) of 7.9%. It peaked in January 2010 at 18.0%. Employment and unemployment numbers have now recovered from the Great Recession, but average hourly pay increased only 2.5% over the past year.


The Federal Reserve

The economy and unemployment has improved, and on December 13 the Fed increased the federal funds rate by 0.25%. This is the rate banks lend excess reserves to other banks on an overnight basis. As the federal funds rate goes up, so does the rate paid by the US Treasury’s 30-day and 90-day treasury bills.  Eventually, short-term bank CD rates will also go up.


2018 Economic Outlook for the US

Further tightening in the US labor markets will eventually bring about wage inflation. This will be a good thing as long as overall inflation does not increase much above 2%. Very long term, the low birth rate in the US will significantly contribute to lower GDP growth.

Looking to 2018 and beyond, an unknown is certainly the planned reduction of the Fed’s balance sheet. Starting in January, the Fed will be selling $20B worth of bonds per month. Likely they will increase this pace per month as the year progresses.

The low level of interest rates, global expansion, very low unemployment, and a large tax reduction law in effect on January 1 will keep the stock market moving higher throughout the year. This will certainly not be straight up — no bull market is. A correction is very likely sometime this year (likely down 5% to down 15%). Just remember a correction DOES NOT END A BULL MARKET. For most investors, their plan should be “just ride it out.” Remember, it takes patience and courage to be successful in the stock market. An Australian friend of Mark’s frequently said, “Don’t worry mate, she’ll be right.” Sounds like good advice.


401K & IRA Contribution Limits for 2018

401K investors can contribute $500 more in 2018 or up to $18,500. If during 2018 the investor turns 50 or is over 50, the investor is permitted to contribute another $6,000 or $24,500 total. This is called the catch-up provision. The $6,000 maximum did not increase for 2018.

Limits for IRAs in 2018 did not change from 2017. The standard contribution maximum is $5,500 per person or if over 50, an additional $1,000, or $6,500 total. A key difference with IRAs is only one spouse needs to work for the stay-at-home spouse to also contribute to an IRA.



Lorenz Financial supports the statements of the following noteworthy people regarding bitcoin.

Jamie Dimon, CEO of JP Morgan Chase Bank, said the digital currency is a “fraud,” and his firm would fire any employee that traded it “in a second for being stupid.” Jamie added that bitcoin was “dangerous.”

Federal Reserve Chair, Janet Yellen, said bitcoin is “not a stable source of value” and is “a highly speculative asset.”

Lorenz Financial does not recommend speculating. Instead, we advocate long term investing. In our opinion, the price of bitcoin is determined by frenzied buying, which eventually will be followed by frenzied selling. We are reminded of the child’s toy from the 1950’s. It had a cubic shape with a handle on one side. Crank the handle and a tune played. The tune ends with “POP goes the weasel!” Bitcoin? Yeah, its like “POP goes the weasel!”






Need help with your portfolio?

Lorenz Financial is ready to help you! Check out our resources page on our website for great finance tips and information, and contact us today to get started on planning your financial future!


Lorenz Financial Services, LLC is a West Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.