Writer: Max Crampton-Thomas
2 min read September 2021 — First Coast Wealth Advisors is a fiduciary financial planner serving Jacksonville and Saint Augustine. In an interview with Invest:, Director of Financial Planning Chris Draughon discussed what makes the Jacksonville metropolitan area a special business ecosystem, the current state of the financial markets and things to consider when looking toward the future.
What makes Jacksonville a great region to conduct business?
Historically, this region has been a transportation, banking and healthcare hub. From a business climate point of view, there has been a push for further growth and diversification over the last several years. From a lifestyle point of view, the environment provides folks with a wide range of experiences through a variety of communities, locales and nature. There are a wide range of places that people can find themselves in. The education system, particularly here in St. Johns County, is well respected. It’s because of our lifestyle and educational opportunities that this area between St. Augustine and Jacksonville is growing rapidly. This is a good region to participate in for a work-life balance.
What is causing high asset values today?
When we look at the stock market and see the S&P 500 at 4,500, that’s a big number. It was at $107 when I was born in 1973. On its face, that’s a big number, but we have to compare that number to make sense of whether it’s a good or bad number. In relative terms, it’s not necessarily out of whack with historical norms. If you compare the S&P 500 gains to corporate profits, for example, I think it’s fairly valued. For the second quarter of 2021, revenue for S&P 500 companies has grown by about 9% since the second quarter of 2019 but corporate profits grew by more than 30%. As a result, the value of the stock market is up about 30% over that period of time. Just because the number is large doesn’t mean it’s out of line with where it should be. We have to look at things from a relative basis.
What is the function of bonds in a low interest rate market?
In our strategies, bonds aren’t necessarily used to produce income; they are used to provide balance to the allocation. They are there to diversify and dampen drawdowns, which reduces the overall degree of fluctuation that a portfolio will experience. That is one half of the equation in determining a safe, reliable draw from the portfolio, and interest rates aren’t necessarily a function of that. While interest rates have declined since 2007, that doesn’t mean that the return bonds earned in a portfolio have declined with them. Their function is more to provide stability, not necessarily interest or income production. Bonds as an asset class returned over 9% in 2020 with a yield at 50 basis points. Those who were reliant upon bonds for yield were out of luck, while those reliant on it for balancing the boat were just fine.
Where does investor confidence stand today?
All of our clients are humans and so they behave like humans. Many of them are influenced by the media they listen to. There is a high degree of skepticism about the progress that’s being made in the economy. As humans, people are more concerned about the things that could go wrong than the things that could go right. We tell our clients they have to separate current events, whether they’re political or not, from their portfolio. At the end of the day, what drives value appreciation is the generation of corporate profits.
What is your outlook for the financial markets?
The world seems to always be ending, it just never ends. So, when we look at planning for our future and taking action to enable us to get to a place where we have financial freedom, we need to be mindful that we have a high degree of ingenuity embedded in us. Despite what may seem challenging at the moment, we have a history of finding a way through such challenges and coming out better. That optimism, that ingenuity, is not going away, so we have to be mindful to look through the forest rather than the tree in front of us.
For more information, visit: https://firstcoastadvisors.com/