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W MAKE GROW LIVE How Big Data Can Save Your Life; The Race to Driverless Cars; Can the Trumps Make Wine? Craig Venter on the Future of Aging; Six Health Investments; Tech Wealth Investing in Longevity 12 Steps to Living Better; Six Spring Getaways; The Best Cuban Cigars You Might Soon Be Able to Smoke ® THE EVOLUTION OF FINANCIAL INTELLIGENCE T H E S E A R C H F O R I M M O R TA L I T Y T E C H N O L O G I C A L A N D G E N E T I C E X P L O R A T I O N S T H A T A R E R E V O L U T I O N I Z I N G H U M A N L O N G E V I T Y 35 WO RT H .C O M VOLU M E 24 | E DI T ION 02 Wayne, NJ Leading Wealth Advisor Hallmark Capital Management, Inc. Steve Erikson, CFP®, President and Chief Executive Officer George R. Kress, CFA®, First Vice President Thomas S. Moore, CFA®, Executive Vice President, Chief Investment Officer Cynthia Bechmann, Senior Vice President, Chief Operating Officer How does inflation affect investments? By Thomas S. Moore Changes in the rate of inflation affect, either directly or indirectly, everything from the level of bond yields to stock market price-to-earnings ratios, commodity prices, foreign exchange ratios and effective income tax rates. The inflationary 1970s distorted all markets, but taming runaway inflation in the 1980s set the stage for a two-decade bull market for stocks and bonds. The conclusion? Inflation rates matter tremendously. So far this cycle, most of the potential inflationary effects from the upsurge in the money supply have been offset by the sluggish economy. Weak macroeconomic conditions, however, can restrain inflation only as long as they endure. Once the economy improves and downward pressures lighten, one would expect that higher inflation will begin to reassert itself. The signs of a cyclical upturn in inflation should become clearer as unused capacity and labor return to productive economic pursuits. Initially, any rise in inflation may be slight, but it could be persistent. Furthermore, it appears as if the Federal Reserve wants to see a higher rate of inflation, and we believe the Fed has the means to achieve it. Rightly or wrongly, its leaders believe they have the tools to contain inflation if it starts to accelerate too fast. That is a risky strategy but could turn out to be a good trade-off. Living through a short period of time with 2- to 3 percent inflation could be a small price to pay if it ultimately means achieving an extended period of strong economic growth with full employment. Many investors fear that higher inflation rates will stop the stock market dead in its tracks, but history does not bear this out. There is a relationship between inflation and how investors value stocks, but it is not a simple one. The most direct impact of higher inflation rates on stocks is to lower overall price-to-earnings ratios, which can cause a short-term dip. These have often turned out to be worthwhile buying opportunities, because higher rates of inflation bring better corporate pricing power, helping to boost profit margins. The positives from faster earnings growth offset the negatives from lower price-to-earnings ratios. The Standard & Poor’s 500 index has posted average annualized returns above 14 percent when inflation rates were very low (0- to 1.5 percent), but index returns were almost as good, at 13 percent, when inflation rates were higher (1.5- to 3 percent). As inflation rates climb beyond 3 percent, however, the effect shifts from positive to negative for stocks, and returns become progressively lower. Since inflation would be rising from extremely low levels, it should be a while before we have to worry about rates persistently above 3 percent. Bond yields still provide comparatively poor rates of return versus the earnings yield on stocks. In the past, it was only when bond yields began to reach a level close to the economy’s long-term nominal growth rate that investors thought of bonds as serious replacements for stocks on a risk-adjusted basis. In today’s environment, bond yields would have to top 5 percent to hit that target. Until then, we believe optimism for stocks is warranted. This article is not intended as investment, legal, accounting or tax advice. Any opinions, recommendations or indications of past performance contained in this article may be subject to risks and uncertainties beyond the control of Hallmark Capital Management, Inc. (Hallmark) and are no guarantee of future returns. Hallmark does not guarantee or certify the accuracy, completeness or timeliness of the information presented in this article. Hallmark is an investment advisor registered with the U.S. Securities and Exchange Commission. Registration with the SEC does not imply that Hallmark or any individual providing investment advisory services on behalf of Hallmark possesses a certain level of skill or training. © Hallmark Capital Management, Inc. All rights reserved. LIVE How to reach Hallmark We are delighted to offer our services and welcome the opportunity to speak with you. Steve Erikson, CFP®, and George R. Kress, CFA®, can be reached at 973.808.4144. GROW “Once the economy improves and downward pressures lighten, one would expect that higher inflation will begin to reassert itself.” MAKE —Thomas S. Moore H A L L M A RK CA PI TA L M A NAGE ME NT, I NC. Standing, left to right: George R. Kress, Thomas S. Moore; seated, left to right: Cynthia Bechmann, Steve Erikson About Hallmark Capital Management, Inc. ILLUSTRATION BY KEVIN SPROULS Hallmark Capital Management, Inc. (Hallmark) is dedicated to empowering clients to attain their financial goals by providing objective investment management and financial planning services. Hallmark employees remain committed to maintaining the highest degree of professionalism and integrity, while using their best judgment and wisdom on behalf of clients, as they have for more than 25 years. They have a fiduciary duty of care, loyalty, honesty and good faith to always place the best interests of clients ahead of their own. Assets Under Management $808 million (as of 12/31/13) Financial Services Experience Erikson, 30 years; Kress, 24 years; Moore, 34 years; Bechmann, 30 years Minimum Asset Requirement $500,000 (for investment services) Professional Services Provided Planning and money management services Number of Clients 353 (as of 12/31/13) Website www.hallcapmgt.com Primary Custodian for Investor Assets Multiple—please inquire Hallmark Capital Management, Inc. Email [email protected] [email protected] 1195 Hamburg Turnpike, Wayne, NJ 07470 973.808.4144 WORTH.COM A P R I L- M AY 2 0 1 5 085 Steve Erikson, CFP® President and Chief Executive Officer George R. Kress, CFA® First Vice President Thomas S. Moore, CFA® Executive Vice President, Chief Investment Officer Cynthia Bechmann Senior Vice President, Chief Operating Officer Hallmark Capital Management, Inc. 1195 Hamburg Turnpike Wayne, NJ 07470 Tel. 973.808.4144 [email protected] [email protected] www.hallcapmgt.com REPRINTED FROM ® the evolution of financial intelligence Hallmark Capital Management, Inc. is featured in Worth 2015 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a Sandow Media publication, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of Sandow Media LLC. See “About Us” for additional program details at http://www.worth.com/index.php/about-worth. ®