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January 2019 White Paper

REVISITING THE FIVE FUNDAMENTALS

Hey, we get it. The 4th quarter of 2018 was a difficult period to be invested in the equity markets. After a 2017 when volatility reached an unprecedented low and the markets seemingly appreciated every day; 2018 saw two early 1,000 point declines on the Dow Jones Industrial Average (DJIA) on February 5th and 8th and finished the year with 2, 3 and 4% swings in both directions.

Let's take a look back at volatility in the S&P 500 in 2017 compared to 2018.


The list of notable swings experienced by the equity markets in December is long;


Months like December make us, as investment professionals, remember what we believe in as a firm. There are 5 basic fundamentals that have always proven reliable to a successful investor in the equity markets. Let's start the year with a recap of these fundamentals.

#1 - Understand the Risks of Investing.
Before you commit to investing it's important to understand the risk and timing trade-offs of an investment portfolio. There are no tricks, the longer you are committed to invest, the better your chances to be rewarded with a gain.

To drive the point home, a chart showing the best and worst case range of stock market returns over different time horizons may be helpful. The longer you hold on to stocks, the less variable your returns are, as the up and downs of the market become more muted over time.

Historically, over a one-year time interval, stocks can make wild swings, ranging from a 54% gain to a 43% loss. But if you're investing for a longer time, and looking at a 10 year horizon, average returns fell in a much smaller range, with a return range of +20.1 to -1.4%.



#2 - Understand Investor Emotions.
It's important to understand that when you enter the equity markets you must be committed. You must have the discipline and the fortitude to buy when the sky is darkest. By the same token, you also need the discipline to humbly sell and take profits just when you feel like you have solved the Rubik's cube and your picks will only go higher. We have used the chart below many times over the past 90 days. When investors reach fear, panic and despondency (as has occurred in the most recent quarter) the markets are usually set for a turn-around. But that's the exact moment when most investors exit the markets with an "I can't take it anymore" utterance. Many of those same investors only feel ready to return to the markets when optimism and euphoria once again take hold. Unfortunately, that is the moment of maximum financial risk.



#3 - Ignore the Noise.
Investors have a very difficult time buying when it's the darkest and selling during sustained rallies to re-balance their portfolios. A Charles Schwab study analyzed the returns of some popular funds in comparison with the actual returns in those funds experienced by individual investors. What they found was that individual investors, in the aggregate, experienced lower returns than the funds they were invested in - evidence of that consistent investor mistake of getting in late when things are already good (and preparing for a downturn) and getting out early when things turn bad (and are preparing for an upturn).



#4 - Patience Pays.
Inevitably, markets do correct. It never feels good no matter how fiscally or mentally prepared you are. Corrections are the natural re-setting of company valuations and are part of the normal order in the markets. The good news is that markets have batted nearly 1.000 in their ability to recover from a correction and move higher in a reasonably short period of time. Since World War II the markets have experienced 10 monthly sell-offs greater than 10% and only once (1973) have the markets not moved higher over the next 12 months.



#5 - Markets Can't Be Timed.
Missing even just the best 20 trading days over a 15 year period can cut your potential return in half. Wouldn't it be great to miss the bad days and only be invested on the good days? Of course, nobody has ever solved that riddle . . . nobody! Having a plan and staying fully invested over the longterm has proven time and time again that it's the simplest and best way to achieve consistent returns.



There's nothing new in this White Paper, but just as the markets need to reset from time to time, we too need to occasionally revisit the basics. WT Wealth Management has written over 75 monthly white papers since 2013 trying to educate our clients by lifting back the curtain that covers the mystery of the equity markets - which have always been a tremendous way to accumulate wealth if you don't outsmart yourself. Years like 2017 - with extremely low volatility and steady market appreciation - are the exception. Years like 2018 - with greater volatility and sometimes increasing / sometimes decreasing valuations - are closer to the norm.

    To recap the five fundamentals to long-term investing success:
  1. understand the risks
  2. understand the emotions of investing
  3. understand that investors habitually do the wrong thing at the wrong time
  4. understand that markets recover after corrections
  5. understand that market timing doesn't work

To be clear: Just because we recently experienced a market correction doesn't guarantee there's a rally around the corner or that magical returns are inevitably ahead. We have many unresolved issues facing us in 2019. What will the Federal Reserve do on interest rates? When will the trade war with China end? What will reports on domestic and global economic growth show? What will corporate earnings look like in Q1? What will corporate forward guidance be for 2019? How will new congress work with the President? Does the Mueller investigation come in to play? How will Brexit end? The list goes on. But regardless of the current uncertainties, we believe that following the five fundamentals of investing will maximize your chances of longterm success.

Lastly, we encourage you, as always, to be in touch with your financial advisor to schedule a meeting, revisit your plan, review your goals and make sure that the noise doesn't deter you from realizing your dreams.

Disclosure


WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV.

WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives - thus making the account "separate" and distinct from all others we manage.

An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.

Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost.

In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax.

Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon.

WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.

Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly.

WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

WARRANTIES & DISCLAIMERS

There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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