Is the RECOVERY REAL? · What Should Your Retirement Plan Checklist Include? Every year, when our...

July 2020

PINNACLEQUARTERLY

Is the RECOVERYREAL?The Pinnacle Investment Team

Deb Kriebel

Creating Your Retirement PlanChecklist

Mindy Gasthalter

Are You Downsizing Or Moving InRetirement??

Pinnacleadvisory.comJuly 2020

6345 Woodside Court

Suite 100

Columbia, Maryland 21046

410.995.6630

410.505.0960 Fax

9155 S. Dadeland Blvd.

Suite 1212

Miami, Florida 33156-2739

305.274.1600

305.274.5002 Fax

July 2020

MARYLAND

FLORIDA

Table of Contents

What Should Your Retirement PlanChecklist Include?Deb Kriebel

2

5Five Things To Consider WhenDownsizing Or Moving In RetirementMindy Gasthalter

Is The Recovery Real? A PinnacleMarket OutlookKen Solow, Carl Noble, SeanDillon, Sauro Locatelli, Dan Mento

8


What Should Your Retirement PlanChecklist Include?

Every year, when our kids were young, we took asummer family vacation. We spent monthsdreaming about our vacation and planning our trip.We talked about where we would go… where wewould stay… and what sights we wanted to see.Our family saved money throughout the year to payfor our trip.

Planning for retirement is like planning a familysummer vacation… albeit an extended vacation. Buthow do you convert your dreams into reality? It isimportant that every retirement plan include some corefundamentals. I hope this retirement plan checklistwill help you plan for the exciting journey ahead.

Deb Kriebel, CFP®, MBAPartner, Wealth Manager


GoalsWrite down your goals. Where do you want to live?What activities will you enjoy doing every day? Willyou join a club or association? Do you enjoy travel?Will you visit family and friends? Will you find asense of community as you did in the workplace?Will you be happy with a different sense ofpurpose? Where will you find a new sense ofpurpose?

ExpensesCompile your fixed and variable expenses that areassociated with your goals. What will you typicallyspend each year? Have you included health care andlong-term care costs? Do you have any big eventscoming up, such as a graduation, a wedding orperhaps a new grandchild? Do you plan on puttingan addition on your current home or buying avacation condo?

IncomeRecord your sources of income. Do you qualify forSocial Security benefits? When will you claim yourbenefits? Will you receive a pension from a currentor past employer? Do you have an annuity? Howwill you convert your assets to cash flow?

TaxesIncorporate federal and state taxes into your plan.How much of your income will be subject to federalor state taxes? Will the withdrawals from your 401kor IRA be subject to federal and state taxes?

InflationAdd inflation to your plan. Remember to increaseyour expenses by inflation each year. As an example,a reasonable current rate of inflation for typicalexpenses would be 2- 2.5%. For health care and long-term care expenses, you should use a higher rate,such as 6 – 6.5%.

Net WorthAssemble a list of your assets and liabilities. What isyour net worth? How much of your assets are liquid

assets? How much is tied up in real estate orbusiness ownership? Which assets can be used forfuture expenses? How much are your debts? Do youstill have a mortgage? Are you planning on payingoff your mortgage or any other debts before youretire?

InsuranceSecure good health care coverage before you retire.Health care insurance is one of the most importantcomponents of your retirement plan. Make sure youhave good medical and dental insurance. Rememberto start the Medicare part A enrollment process 3months before your 65th birthday. Investigate long-term care insurance and see if it is necessary ordesired for your plan. Will you be subject to theMedicare income-related monthly adjustmentamount for Medicare parts B and D?

Estate PlanUpdate your estate plan. Make sure you havecurrent estate planning documents and yourbeneficiary designations are up to date. At aminimum, your suite of documents should include aPower of Attorney, Health Care Directive, Will, andpossibly a Revocable Trust. Is the ownership of yourassets in sync with your estate plan?


There are a range of considerations to work throughand plan prior to retirement, and for many, a fewyear’s head start is a big help, allowing them towork through some of the many emotionalconsiderations that go with the financial andpractical aspects of the next phase of your life. Thisisn’t a comprehensive check list, but more like aguide or series of conversation starters, to spur thethought process toward crafting a final plan. If youhave questions about what should be considered,what should or shouldn’t be included, be sure to askyour financial advisor. Retirement happiness isn’tautomatic… you have to give it some considerationand thought in advance to reach the goal you’vebeen saving for a lifetime to achieve.

Disclosures

Pinnacle Advisory Group, Inc. (“Pinnacle”) is aregistered investment advisor. Advisory services are onlyoffered to clients or prospective clients where Pinnacleand its representatives are properly licensed or exemptfrom licensure.

The information provided is for educational andinformational purposes only and does not constituteinvestment advice and it should not be relied on as such.It should not be considered a solicitation to buy or an offerto sell a security. It does not take into account anyinvestor’s particular investment objectives, strategies, taxstatus or investment horizon. You should consult yourattorney or tax advisor.

Deb Kriebel, CFP®, MBA is a partner and WealthManager at Pinnacle Advisory Group.

Email: [email protected]: pinnacleadvisory.com/team/dkriebel/


Five Things to Consider WhenDownsizing or Moving in Retirement

As a Wealth Manager, one of the questions I ask myclients is “Are you considering moving when youretire?”

If you are thinking about moving or downsizingwhen you retire, there are a few basic things thatyou may want to consider:

Mindy Gasthalter, CFP®, MBAWealth Manager


Do you want to move to be closer tofamily?This is a classic reason why clients think aboutmoving. Recently, a client told me he is consideringmoving to Maine and/or Arizona in 2022 when heretires. Why? Because one daughter lives in Maineand the other daughter lives in Arizona.

Remember that moving to be closer to familydoesn’t guarantee that you will see them more oftenor that they will be there to help. In many cases, theyhave their own lives and their own families; theassumption that they will be there as you age is nota promise.

What about public transportation, or isit a walking community?As we age, driving may no longer be a good option.Do you want to be in a place that has good,accessible public transportation, or one wherewalking is an option? Having to drive 10 minutes toget milk may be all well and good when you are 68,but perhaps not the best option when you are 85. Afriend who retired about eight years ago refuses toconsider leaving Washington, D.C. because heknows that when he reaches the age when he shouldno longer drive, getting around town will be veryeasy (Metro, buses, or walking).

Do you want to move to be closer togood, high-quality medical care?For many people, this is a big consideration. Beingnearby to at least one good, high quality hospital is anecessity. If there is no hospital nearby, you may notwant to consider it. You want to know that if youneed care, you don’t have to drive (or be driven) 50miles to find it.

Does the place that you are moving tooffer the activities that you enjoy?Moving to Maine to be near your child may soundgreat, but if you are a theater lover and the nearesttheater is 45 minutes away, that might not be a good

fit. People have heard me say many times that Iwon’t retire to Rehoboth where I’ve had a secondhome for more than 20 years because they don’thave any of the cultural activities that I enjoy.

Not a good fit; I love being there, but I couldn’t livethere.

What type of property do you want tomove to?As you downsize, does that mean going from asingle family home to a townhouse, in a communitywhere they mow the lawn, plow the snow, and takecare of the maintenance? Does it mean staying in asingle family home but moving to one that is all onone floor? Does this mean moving to a condo? Doesthis mean moving to a Continuing Care RetirementCommunity (CCRC) where you can start inindependent living but know that if you need morecare, you can move to another wing/building in thesame community?

There are many options to consider when thinkingabout what type of retirement residence is best.

No matter what your answers are to the questionsabove, here’s an important final point: The last thingyou need to consider is time. In other words, give


yourself time to think about your options. Don’trush into making a decision. Planning now helpsbecause you don’t want to wait until you have tomake a decision. It’s much better to make thesechoices while we are healthy, active, and able.

Disclosure

Pinnacle Advisory Group, Inc. (“Pinnacle”) is aregistered investment advisor. Advisory services are onlyoffered to clients or prospective clients where Pinnacleand its representatives are properly licensed or exemptfrom licensure.

The information provided is for educational andinformational purposes only and does not constituteinvestment advice and it should not be relied on as such.It should not be considered a solicitation to buy or an offerto sell a security. It does not take into account anyinvestor’s particular investment objectives, strategies, taxstatus or investment horizon. You should consult yourattorney or tax advisor.

Mindy Gasthalter, CFP®, MBA, is a WealthManager at Pinnacle Advisory Group.

Email: [email protected]: pinnacleadvisory.com/team/mgasthalter/


The first half of 2020 was a real doozy. After a gut-wrenchingfreefall into the fastest bear market decline in history in thefirst quarter as the COVID-19 pandemic unfolded, the stockmarket seemed to defy logic by turning on a dime anddelivering one of the strongest rallies in nearly 100 years fromits late March low. While certainly a welcome reprieve forinvestors who were still reeling from the market’s collapse, italso left even the most grizzled market participants scratchingtheir heads and trying to make sense of the moves.

By the end of the quarter, the S&P 500 Index (includingdividends) had recovered to a loss of just -3.2% on the year byposting its best quarter since 1998 with a gain of 20.2%.Developed international equities weren’t far behind, gainingmore than 15%. Diversified commodities also gained, butgold was the clear winner within that asset class with a gainof 14%. Bonds managed to deliver modest gains, mostlythanks to corporate credit outperforming. Treasury bondswere flat, with the 10-year Treasury yielding a paltry 0.65%.

Ken Solow, CFP®

Chief Investment Officer

Carl Noble, CFA®

Senior Analyst

Sean Dillon, CMT, CFTe®

Technical Analyst

Sauro Locatelli, CFA®,FRM™

Quantitative Analyst

Dan Mento, CFA®

Fixed Income Analyst

MARKET OUTLOOK


The Big Reopening

The stock market rally was driven largely by signsthat the U.S. economy was beginning the process ofreopening from a virtual standstill. It may seem like adistant memory considering how things have back-tracked as the third quarter gets underway, but theU.S. was able to “bend the curve” lower in terms ofslowing the rate of new infections beginning in earlyApril. According to data from the Johns HopkinsCoronavirus Resource Center, infections peaked atjust under 35,000 per day based on a 7-day averageon April 9th, and began a slow but steady declinefrom there. This allowed states to start to lift stringentrestrictions that were put in place to slow the spreadof the coronavirus. From late April and into earlyMay, stay at home orders were either lifted or easedin many states around the country.

By that point, economists were braced for adisastrous downturn but were hampered by a lack ofvisibility due to most major economic data beingreported on a lag. Instead, they began to focus onalternative but more timely sources of data, includingrestaurant reservation activity as measured by OpenTable, airport travelers passing through TSAcheckpoints, and mobility data collected through

smartphone usage by Apple and Google. All of thesereflected a sudden collapse in the economy, but beingmore real-time they also were the first to indicate thefaintest signs of a pulse as the economy began toslowly reopen in parts of the country. For instance,data tracked by Open Table showed that the numberof seated diners at U.S. restaurants measured on ayear-over-year basis utterly collapsed from flatgrowth on March 8th to nearly -100% by March 20, asrestaurant shutdowns were imposed across thecountry. This largely remained the case until thebeginning of May, when it began to slowly creephigher, and by the end of the quarter this datashowed the number of diners had “improved” to-62.5% year over year. While still an awfulenvironment for the restaurant industry, it did showthings were starting to head in the right direction.

As the situation stands today, there remains debateabout the ultimate shape of the economic rebound—whether it will snap back quickly in a V-shape, orproceed less rapidly in more of a U or W pattern.However, there’s no denying that at least for thesecond quarter, the underlying trend in economicdata was one of steady improvement, albeit fromvery depressed levels in many cases. Initially, thiswas apparent in the aforementioned alternative data


sources, as well as some traditional survey-basedindicators that were viewed skeptically since theydidn’t reflect “hard” or actual data, such as themonthly Purchasing Manager’s Indexes that ask asample of manufacturing companies if businessimproved or not compared to the prior month. Butthe most unexpected and concrete example ofeconomic healing arrived on June 5 with the monthlyemployment report, which showed that there was ajob gain of 2.5 million in May, which far surpassedthe official consensus expectation of a loss of 8million jobs. The sudden restart of the economy andsubsequent broad improvement in economic datawas also captured in the Citigroup EconomicSurprise Index, which is designed to gauge whethereconomic data turns out to be better or worse thanofficial economist forecasts. This indicator sank to anear record low of -145 on April 30th as economistsscrambled to revise their estimates lower, but hassince surged to a record high of +181 by the end ofthe quarter, which underscores that they grew overlypessimistic even as data started picking up.

However, complicating all of this is that on June 8,the Business Cycle Dating Committee of the NationalBureau of Economic Research, which is the official ar-biter of business cycles in the U.S., officially declaredthat the economy peaked in February, meaning that arecession began in March. This was actually one ofthe quickest decisions that they’ve made, which is of-ten determined on a considerable lag. But the severityof this particular downturn sped up that process. Thebig question now is, could this end up being theshortest duration recession on record? Currently, theshortest is the 1980 recession that lasted six months.Based on the degree of economic improvement overthe past few months, it’s possible that the trough ofthis recession is determined to have been reached inMay, meaning it would be the shortest on record byfar in lasting only two months. Whether this turnsout to be the case or not will depend on whether thecurrent rebound can sustain over the remainder of

the year. But there seems to be a good chance that thetrough of the recession has passed, especially whenfactoring in the tremendous amount of fiscal andmonetary stimulus that’s been marshaled over thepast few months—as long as the country can avoidanother full shutdown.

Are We in a New Bull Market?

Considering everything that’s happened over thepast few months, in some ways it’s hard to believethat the S&P 500 was down by just -3.2% for the yearat the end of the quarter. The market has experienceda stunning rally of 38.9% from its low on March 23rd.With the common definition of a bull market beingan increase of 20% from a recent low, which the S&P500 hit back on April 8th, it’s naturally raised thequestion of whether or not we’ve already entered anew bull market? To some, that may seem preposter-ous considering the current state of the economy andthe ongoing pandemic. Others are quick to point tothe fact that prior bear markets did experience largecountertrend rallies that ultimately failed. But it’s im-portant to consider that bull markets are born of in-vestor despair, and often take hold when an econom-ic downturn is at its nadir.

There is concern related to recent gains being increas-ingly led by a small group of large cap Growth stocksthat belong primarily to the Technology, ConsumerDiscretionary, and Communication Services sectors.An index of the so-called FANG+ stocks (Facebook,Apple, Netflix, Google, Amazon, Microsoft) hasgained 25% through the end of the second quarter,compared to a loss of -6.5% for the remaining 494companies in the S&P 500. That’s certainly a widedisparity, and does raise some questions regardingwhether the current rally is sufficiently broad enoughto sustain further gains.

However, although there may be some frothinessbuilding in those stocks, there’s other evidence show-


ing that the gains from the March 23rd bottom havebeen widespread. For starters, all 11 sectors of theS&P 500 Index have risen by more than 20% sincethen. In addition, the strength and size of the moveoff the bottom has triggered several different techni-cal indicators that are designed to measure “thrusts,”which often occurs in the early stages of a bull marketand have reliably forecasted additional gains over thenext six to twelve months. Lastly, the character of therally so far actually compares favorably to the initialstages of major bull markets that began in 1982 and2009, as Jim Paulsen of the Leuthold Group recentlypointed out. He noted that not only are they trackingclosely together in terms of the magnitude of thegains at this point, but those two bull markets werelaunched in the wake of very severe economic down-turns, as is this case this time, too.

Positioning

In light of the economic improvement and possibilityof being in a new bull market, Pinnacle’s DynamicPrime portfolios were gradually repositioned from adefensive posture to neutral from an overall riskstandpoint by the end of the quarter. This involved acombination of purchasing cyclical U.S. equitysectors, international equities, gold, and corporatecredit within fixed income. Overall, portfolios aretilted towards cyclical Growth equity sectors thattend to benefit in low growth and low inflationenvironments, with a corresponding underweight tocyclical Value sectors. Within commodities, wecontinue to carry an overweight to gold and actuallyadded to that during the quarter. We believe that thecurrent environment is very conducive for gold tocontinue to perform well, with interest rates so lowthat they’re actually negative on an inflation-adjustedbasis and plenty of liquidity being provided bycentral banks around the world.

We’re now closely watching the behavior of the U.S.dollar, which has started to weaken. If the dollar fellsignificantly from here, it could have several

implications for security selection within portfolios,potentially boosting the attractiveness of cyclicalValue sectors and international equities.

Looking Ahead

As the quarter drew to a close, risks to the marketoutlook seemed to be on the rise again. Newinfections stopped falling and began surging in partsof the country, reaching a new record high of morethan 45,000 per day by the end of the quarter. Somestates were reluctantly moving towards imposingnew restrictions on certain activities in what seemedlike a replay of March and April. In addition,investors are also bracing for second quarter earningsseason which is just about to get underway.Expectations are very low, with current estimatespredicting a -45% contraction on a year over yearbasis. Perhaps more importantly, in the first quarter,many companies withdrew future guidance due tothe amount of uncertainty created by the pandemic.What these companies are willing to disclose thisquarter in terms of their assessment of businessconditions going forward will be closely watched.And last but not least, the November election is nowless than four months away, with current polling datasuggesting that there’s an increasing possibility therewill be a change in leadership. A lot can happenbetween now and November so it’s too early to havea high degree of confidence in the outcome, but apotential risk to the market is that a newadministration would likely implement a verydifferent economic policy backed in part by highertaxes. All of which leads to the question: Is thisrecovery for real? Or were the past couple of monthsa temporary reprieve that’s destined to falter?

While there are certainly risks looking ahead, and therecovery is bound to be uneven, we do believe thatthe worst is behind us and that the trajectory shouldremain up—assuming that the recent spike in thenumber of cases of the virus doesn’t result in anothercomplete shutdown of the economy. Unfortunately,


COVID-19 will remain a part of life until a vaccine iseventually available, but in some ways the country isbetter prepared to manage this compared to the ini-tial outbreak in March (based on medical advancessince then as well as social distancing measures thatcan make a real difference in slowing the spreadwhen properly followed). In addition, a potential sil-ver lining to the economic downturn is that it’s creat-ed a significant amount of slack in the economy,which should prevent inflation from picking upmeaningfully anytime soon; that will allow the Fed tomaintain a highly accommodative monetary policyfor an extended period of time. Indeed, Fed Chair JayPowell recently claimed that they’re “not even think-ing about thinking about raising rates.”

In addition, there’s a strong possibility of anotherround of fiscal stimulus being enacted in the comingweeks that’s projected to be about $1 trillion, which

should provide additional support to both consumersand businesses with emergency unemploymentbenefits currently scheduled to run out on July 31.In our view, there has been enough improvement inboth the economy and financial markets to bepositioned at a neutral level of risk in clientportfolios. Volatility is likely to remain elevated untilthere’s more clarity about future business conditions,as well as on the medical front with developments inCOVID-19 treatments (or even a vaccine) that wouldgive consumers the confidence to resume normalactivities. In the meantime, we will continue todiligently monitor incoming data, and continue tolook for investment opportunities that exist in achallenging environment.


Pinnacle Advisory Group, Inc. (“Pinnacle”) is aregistered investment advisor. Advisory services areonly offered to clients or prospective clients wherePinnacle and its representatives are properly licensedor exempt from licensure.

The information provided is for educational andinformational purposes only and does not constituteinvestment advice and it should not be relied on assuch. It should not be considered a solicitation to buyor an offer to sell a security. It does not take intoaccount any investor's particular investmentobjectives, strategies, tax status or investmenthorizon. You should consult your attorney or taxadvisor.

The views expressed in this commentary are subjectto change based on market and other conditions.These documents may contain certain statements thatmay be deemed forward�looking statements. Pleasenote that any such statements are not guarantees ofany future performance and actual results ordevelopments may differ materially from thoseprojected. Any projections, market outlooks, orestimates are based upon certain assumptions andshould not be construed as indicative of actual eventsthat will occur.

Past performance shown is not indicative of futureresults, which could differ substantially. Indexreturns are unmanaged and do not reflect thededuction of any fees or expenses. Index returnsreflect all items of income, gain and loss and thereinvestment of dividends and other income. Youcannot invest directly in an Index.

Risk associated with equity investing include stockvalues which may fluctuate in response to theactivities of individual companies and general marketand economic conditions.

Investing in foreign domiciled securities may involverisk of capital loss from unfavorable fluctuation incurrency values, withholding taxes, from differencesin generally accepted accounting principles or fromeconomic or political instability in other nations.

Although bonds generally present less short-termrisk and volatility risk than stocks, bonds containinterest rate risks; the risk of issuer default; issuercredit risk; liquidity risk; and inflation risk.

Disclosures


Pinnacle's Three Dynamic Strategies

Pinnacle’s Prime Series offers investors an array ofactively managed portfolios that are globallydiversified and designed to provide market-likereturns with less risk. Our Prime Series is comprisedof five distinct options that include conservativeportfolios that prioritize stability and income,moderate portfolios seeking a balance of stability andgrowth, and growth portfolios designed forappreciation and growth.

The Prime Series portfolios are managed by ourexperienced investment team to pursue valueanywhere in the world—in any asset class—and

evaluate opportunities using both qualitativejudgment and quantitative tools. Our over-archingstrategy is based on long-term economic themeswhere we build our portfolios in line with thestrengths and weaknesses in the market. Ourinvestment team evaluates the qualitative andquantitative data, adjusting our portfoliosaccordingly. These portfolios have been managed byour investment team since 2002 through all marketcycles. The Prime Series should appeal to clients whowant an active, tactical management strategy thatblends qualitative judgment and quantitative tools.

PRIME SERIES

Pinnacle’s Market Series provides an investor with aglobally diversified portfolio that is primarilymanaged with strategic asset allocation andcomplimented with tactical management in a smallerportion of the portfolio. The strategic holdings arelow cost and efficient, and the satellite portionprovides a way for the portfolio to increase returnpotential when markets are cheap, and dampen riskwhen markets are expensive or volatility increases.

The series offers three portfolios to investors:Conservative, Moderate, and Appreciation. The

strategic allocation comprises 70% of the portfolioand is diversified across twelve asset classes that aresystematically rebalanced to retain targetedallocations. The tactical allocation comprises 30% ofthe portfolio and consists of U.S. stocks and fixedincome securities. The tactical satellite includes theflexibility to move between stocks, bonds, or cash,and rotates between them depending on marketvaluations and technical conditions. By combiningboth strategic and tactical strategies, the MarketSeries offers the benefits of both passive and activemanagement.

MARKET SERIES

The Pinnacle Quantitative Portfolio providesinvestors with an actively managed portfolio that usesa ‘Core and Satellite’ approach to combine tacticalasset management and quantitative analysis. TheCore strategy invests approximately 60% of theportfolio in our Dynamic Moderate Growth model,which strikes a balanced approach between capitalappreciation and income. The Satellite strategycomprises about 40% of the portfolio and usessophisticated quantitative analysis that leveragesvalue and momentum data as it rotates equity sectors,

bonds, and cash to balance growth and risk.Our proprietary quantitative model evaluates currentmarket conditions based on a set of valuation andtechnical indicators, and rotates the allocationbetween ten U.S. equity sectors and bonds or cash.This portfolio will appeal to clients who are lookingfor a heavily rules-based approach to investing andare willing to make aggressive allocation changesdepending on market conditions.

QUANTITATIVE SERIES

HEADQUARTERS6345 Woodside CourtSuite 100Columbia, MD [email protected]

FLORIDA BRANCH9155 S. Dadeland Blvd.Suite 1212Miami, FL 33156-2739305.274.1600

WEBSITEpinnacleadvisory.com

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