As this year has unfolded, investors have been treated to a highly unusual level of financial market calm amidst an equally unusual stretch of political volatility. It’s been eerily calm, in fact.

To put this in perspective, on only two trading days this year has the stock market ended up or down over 1%. In comparison, the number of such wide swings averaged nearly 40 trading days over the past nine years.

Predictably, investors now appear to expect continued calm. One common way of measuring their expectations is through a volatility index, known as the VIX. Today, the VIX index has touched 15-year lows on seven days in the past six weeks alone.

Prior to this, the VIX has only seen readings this low on four occasions, dating all the way back to another very calm period in late 2006 to early 2007. While not predictive, that prior period preceded extreme market volatility and the onset of a both a recession and a bear market.

It almost goes without saying that this lack of volatility has been surprising given the unpredictable political backdrop, a Federal Reserve that has now raised interest rates three times since last December and a US economy that has generally been disappointing relative to the high hopes at the start the year.

Within all of this calm, the first half of 2017 still produced continued gains for investors. Broadly speaking, the US stock market produced a first half return of roughly 6% to 8%. Broken down, the S&P 500 index (big company stocks) rose about 9% and the Russell 2000 index (smaller company stocks) provided a first-half return of about 5%.

Given that most investors are balanced to some degree, it’s important to note that the bond market’s year-to-date total return was about 2%.

Viewing stocks and bonds together, balanced investors willing to simply accept the gyrations of both good markets as well as bad markets experienced returns of about 4% to 6% for the first half of 2017. It’s fair to describe the year so far as a slow-and-calm upward grind.

In the face of these surprisingly solid results for passive investors, my advice is to not let this quiet calm breed an imprudent complacency in your portfolio.

With the Fed hell-bent on raising interest rates in the face of still-low inflation and still-tepid economic growth, with near-peak employment and near-peak auto production, with an historically high-priced stock market relative to company earnings and, finally, with our politicians soon shifting into full-campaign mode with little legislative action to accelerate their big plans for growth, I believe a very discriminating portfolio strategy continues to be both prudent and justified.

If history holds any predictive power – and it only loosely does! – we may average 1% daily swings in stock prices every few trading days before 2017 comes to a close. Now, that would make for one interesting ride, I must say!

It is my belief that honesty is always the best policy. Given that, I am happy to pass along some recent news from the world of finance that helps to tilt things in your favor.

This past Friday, the long-awaited Department of Labor “fiduciary duty” rule finally sprang to life. Despite the Trump administration’s immediate executive order to delay the Obama-era rule (a move with the likely aim to later squash it entirely), the wait is over.

In a nutshell, essentially all financial advisers must now place your interests above their own.

While it may sound like a common sense requirement, you’d be surprised at how pitched the battle has been to impose a robust and uniform fiduciary duty standard across the entire investment industry.

As a result of the new rule, all advisers who choose to provide advice on retirement plans, such as 401(k) accounts and, more expansively, all IRA accounts, now legally owe their clients a duty of good faith, honesty and trustworthy conduct.

It should be noted that this fiduciary duty certainly isn’t new to all types of financial advisers. Registered investment advisers who are strictly compensated on a fee-only basis have always operated as legal fiduciaries to their clients.

However, for professionals who sell financial products on a commissioned basis, such as annuities, insurance or some mutual funds, the new code of conduct now applies. Life just got a big tougher for them and a bit easier for the public.

As a key part of this new, uniform fiduciary duty rule, financial professionals must now operate by what’s known as an “Impartial Conduct Standard.” This standard has three parts that deserve mention.

First, financial advisers must now provide advice that reflects their clients’ personal circumstances, is prudent in its implementation and consistently reflects their underlying duty of loyalty to their clients. As part of their duty of loyalty, any advice they provide must also openly disclose any professional conflicts of interest that might exist.

Next, advisers must receive no more than “reasonable compensation” for the services they provide. Despite the clearly subjective nature of the word, reasonable, in my opinion its inclusion helps to impose a healthy gut-check on overall fee levels in our industry. This is a very good development, especially in a relationship where technical knowledge is so clearly in the hands of the professional.

Finally, to fulfill their duty, financial advisers must also avoid making misleading statements to their clients. While this is obviously a base-level expectation of all clients, it spotlights honesty as the cornerstone of any client-adviser relationship. After all, acting with professional integrity is essentially what it means to have a fiduciary duty.

Unsurprisingly, it likely took many hundreds of pages of government rule-making to codify what we’ve always known; honesty is the best policy. Nevertheless, I am quite pleased it is now the law of the land for many more financial professionals. The public will be better served as a result.

Note: This post was originally published on Frontstreetfoundation.org

It is my professional opinion that today’s stock market and bond market are both generally overpriced. If I am correct, future returns for passive investors will be lower than hoped-for and the implications will be quite large.

The US is facing a substantial pile of age-related liabilities. I am not talking about the tens of trillions in federal government debt. I am also not talking about the many trillions more in mortgage, auto, student loan and credit card debts either.

Instead, I am talking about the very real funding shortfalls in government, corporate pension plans and the critically thin level of household retirement savings we see across the nation.

According to one study by the Economic Policy Institute and another by the Government Accountability Office, retirement readiness for most pre-retiree households in the US is downright alarming.

For the cohort of people age 55-64, the average retirement savings is about $100,000. However, this doesn’t paint the whole picture. To provide further perspective on a widening wealth gap, about 10% of this age group have retirement savings of at least $500,000, while nearly half have zero saved for retirement. The situation is clearly about the few haves and the many have-nots.

Further, at the corporate pension plan level, a glance at these plans’ funding status shows a shortfall totaling hundreds of billions of dollars.

In addition, layering on the officially estimated shortfalls in both state and local government pension plans, their funding deficits alone add up to yet another $1.5 trillion.

Everywhere you look, our increasingly aging population appears poised to expose what has been decades of looming financial issues.

What do these trillions of dollars have to do with the stock and bond market? Plenty.

Using the longer term measure of the stock market’s price level today relative to companies capacity to earn profits – measured by the Shiller Price-to-Earnings ratio, among multiple other reputable, value yardsticks – today’s stock market ranks in history as one of the most expensive ever.

The same can be said about most forms of bonds as well. Interest rates around the globe are hovering at rock bottom low levels. This means bond prices are likewise hovering near all-time highs.

A truism of investing is the higher price you pay today, the lower your returns will be over time. Price acts like gravity; silently pulling down future returns.

Given this, it’s nerve-racking to realize that the trillions of funding deficits across government, corporate and private households widely use the assumption of future investment returns in the range of 7% to 8% per year. Let me non-eloquently say, fat chance!

In contrast, it’s much safer to assume that passive stock market investors will earn, at best, low single digit annual returns over the next decade. Of course, with currently very low interest rates and some irrefutable math, bonds are slated to do no better.

As a result, the longer-term implications are big and our retirement system’s dependency on high returns grows ever larger. We certainly do live in interesting times!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Retirement is a process, not a single point in time. Clearly, it’s one that’s best navigated only once.

Reading the key signposts of success along the way will certainly help keep you on the path to a fulfilling retirement. These include aligning your career choice and earnings potential with your natural-born talents and having the discipline to right-size the cost of your lifestyle with that of your income. These are simple, but tough, things.

Beyond strictly financial-related signposts, there are also qualitative pitfalls to avoid. These may include the personal choices you make to avoid a costly divorce or even actions you take to strengthen your biggest asset, your own health.

At the upcoming Front Street Foundation Money Series presentation on Wednesday, May 17th, we’ll work to guide attendees along the pathway of what I call, The Big Transition, and highlight some tangible planning tools for success before and after retirement.

As a preview, I remember a key investing lesson of Warren Buffett’s that I think is worthy of deeper thought for both near- and current-retirees. As many know, Buffett is famous for loving to buy stocks when the market falls. The reason, he explains, is that he’s always a “net buyer” of stocks over time. In other words, he’s always got new money to invest.

His advice for investors is very logical. When you’re constantly investing your savings – like a person does in a 401(k) plan – it’s great to see bargain stock prices. Counterintuitively, bad news is good news.

However, it’s important to note that Buffett’s publicly-stated “long run” is, as he repeatedly says, forever. In this way, his advice is clearly best suited for the younger investor still early on their path to retirement.

What about for the not-so-young? Those nearing or already in retirement inherently know they are not quite like Warren Buffett. And, I’m not talking about relative intellect here.

Those approaching the end of their wealth accumulation phase and pondering the distribution phase may need to rethink some of Buffett’s universal nuggets of investing wisdom.

As you transition between these phases, your years of methodically investing new dollars in the stock market are steadily shrinking. Simultaneously, your years of consistently drawing from your life savings is ever approaching. Like your body, your recovery time for market losses just isn’t the same!

Your likely transition in thinking ironically reminds me of wisdom handed down by Buffett’s not-as-famous, but equally fascinating investor sidekick, Charlie Munger. His advice, when faced with a vexing problem, is to turn an especially tough question on its ear, “Invert, always invert!”

When you apply this advice to your own possibly vexing transition toward retirement, some new thoughts are bound to emerge.

Join Jason P. Tank, CFA for his Money Series presentation on “The Big Transition Toward Retirement” held on Wed., May 17 at 6:30pm in the McGuire Room at the Traverse Area District Library. Register at frontstreetfoundation.org or call (231) 714-6459.

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Attention to all parents and grandparents of a college-bound high school student: our next Front Street Foundation Money Series event will provide your young loved ones with financial lessons that are certain to save them emotional anguish and money for years to come!

That’s quite a claim, but I’ll stand behind it. In fact, for the most enterprising high school students with a willingness to learn from the mistakes of others, we’ll put some money on it.

For the first fifteen students who attend our April 19th event, whether you drag them to it or not, we’ll award a $10 gift card to Brew located in downtown Traverse City.

Our upcoming Money Series presenter, Pam Boyce, is both my colleague and a former MSU instructor of personal finance for over fifteen years. She will share her financial survival tips for college students gleaned from the personal insights and experiences of her many former students.

With the cost of college rising unabated, with student loan debt hitting record levels and with the growing need for a college degree in an increasingly competitive economy, today’s students simply need more personal finance know-how than any previous generation. The stakes are higher than they’ve ever been.

Understanding the benefits and pitfalls of credit is a prime example. Without the ability to borrow money and manage debt responsibly, many doors in life remain closed or only open up much later in life. The lessons of debt often start with the funding of a college education.

Given this, establishing a sound credit rating from the get-go is important. For many, that process starts in college when many students are issued their first credit card. If used wisely, it can be a benefit later in life. If used unwisely, as far too many do, it can lead to serious financial hardship.

Student loans are a particularly complex form of credit that deserves thoughtful consideration from students.

I remember reading an astounding statistic during the Great Recession of ‘07-’09. When the nation’s official jobless rate peaked at 10% – matching the unemployment rate of those with only a high school diploma – college educated workers were less than half as likely to be jobless.

This proved definitively that not only does a college degree allow for significantly greater earnings over a lifetime, importantly it also increases the stability of those earnings during the tougher times.

However, borrowing significant sums to get that valuable college degree – without regard for the type of job you are seeking, without consideration of the lower cost routes available and without establishing basic budgeting habits while in college – can often lead to decades of financial struggle.

In fact, stretching too far financially for your degree or unconsciously burning through borrowed money during those college years can cause serious delays in many of life’s natural milestones; getting married, buying a home, starting a business or even starting a family.

Pam Boyce’s upcoming Money Series presentation is designed to speak directly to high school students; admittedly a demographic that’s less-than-likely to actually read this column!

Do your part by taking your child or grandchild out on a rare date on Wednesday, April 19th at 6:30pm to the McGuire Room at the Traverse Area District Library. They might even thank you by treating you to a cup of coffee at Brew! Register at frontstreetfoundation.org or call (231) 714-6459.