A Message from Principal Financial Advisors, Inc.

The year that was: 2017

2017 was a fantastic year for risk assets, despite all the concerns identified at the start of the year. Investor worries about politics, geopolitics, trade, and central bank policy were summarily dismissed as markets focused on the strength of the economy, disentangling fears from fundamentals.1

While domestic political risk has been contained this year, geopolitical risk has grown. Tensions between the United States and North Korea have escalated, while developments across the Middle East are causing increased concerns. Markets have so far dismissed the growing risk, instead focusing on the underlying economic picture.

After a year notable for the shock Brexit result and the divisive U.S. presidential election, it was unsurprising that investors were concerned about politics in 2017. Nowhere was this more pertinent than in Europe. The threat of a populist or Euro-sceptic party winning one of the elections in the Netherlands, France, or Germany did not materialize and the immediate risk waned. The risk has not disappeared and coalition building in Germany is taking time. Spain continues to grapple with Catalonia’s bid for independence and Italian elections are set to take place in March 2018. New Italian electoral law makes it harder for populist parties to win, but given that polls are showing the largest populist party, Five Star Movement, is leading with over 25% of the vote, the risk is not insignificant.

2017 was the year that central banks around the world started raising interest rates and normalizing monetary policy, feared by many investors. Weak inflation allowed central banks to move at a snail’s pace, while strong economic growth helped support investor sentiment.

While the Trump administration eventually managed to pull off its tax reform agenda, its aggressive protectionist campaign rhetoric did not fully play out – to the relief of many of the world’s economies.

Changes PFA made along the way

2017 was also a busy year for Principal Financial Advisors, Inc. (PFA). As a reminder, here are some of the changes we implemented in an effort to help you achieve the investment goals of your retirement plan:

  • We evaluated the valuations of U.S. and International Equities and modified our equity allocation from a 75/25 split between U.S./International Equities to a 70/30 split.
  • We evaluated the investment options we use in the large value category and decided to remove LargeCap Value2 from the line-up and transfer the assets to Equity Income3.

Looking ahead to 2018

As the 3(38) fiduciary to your plan, Principal Financial Advisors takes great care to prudently manage plan assets. In times of political uncertainty and market volatility, our mission remains constant: We develop and implement customized asset allocation strategies for your plan’s assets based on the plan’s unique situation, and we closely monitor results and the markets on an ongoing basis.

On behalf of everyone at Principal Financial Advisors, thank you for your continued business and we wish you success in 2018!

Sincerely,

Randy Welch
President, Principal Financial Advisors, Inc.

1. Economic commentary from Principal Global Investors, https://blog.principal.com/2017/12/28/short-and-sharp-2017-the-year-that-dismissed-investor-concerns/, Seema Shah, Global Investment Strategist

2. The LargeCap Value Separate Account is sub-advised by Principal Global Investors

3. The Equity Income Separate Account is sub-advised by Principal Global Investors

Before directing retirement funds to a separate account, investors should carefully consider the investment objectives, risks, charges and expenses of the separate account as well as their individual risk tolerance, time horizon and goals. For additional information contact us at 1-800-547-7754 or by visiting principal.com.

Investment options are subject to investment risk. Shares or unit values will fluctuate and investments, when redeemed, may be worth more or less than their original cost.

Principal Financial Advisors, Inc. is a registered investment adviser and member company of the Principal Financial Group®. Registration does not imply any specific level of skill or training.

Insurance products, plan administrative services, and Separate Accounts which are available through a group annuity contract are provided by Principal Life Insurance Company, a member of the Principal Financial Group, Des Moines, IA 50392. See the group annuity contract for the full name of the Separate Account. Certain Separate Accounts may not be available in all states or U.S. commonwealths. Principal Life Insurance Company reserves the right to defer payments or transfers from Principal Life Separate Accounts as permitted by the group annuity contracts providing access to the Separate Accounts or as required by applicable law. Such deferment will be based on factors that may include situations such as: unstable or disorderly financial markets; investment conditions which do not allow for an orderly investment transaction; or investment, liquidity, and other risks inherent in real estate (such as those associated with general and local economic conditions). If you elect to allocate funds to a Separate Account, you may not be able to immediately withdraw them.

Asset allocation strategies are developed using Separate Accounts available through a group annuity contract of Principal Life Insurance Company.

No investment strategy, such as diversification or asset allocation, can guarantee a profit or protect against loss in periods of declining value.

Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Small-cap and mid-cap investment options are subject to more fluctuation in value and may have additional risks than other investment options with stocks of larger, more stable companies. Fixed income investment options (inclusive of U.S. Treasury Inflation-Protected Securities) are subject to interest rate risk, and their value will decline as interest rates rise. Neither the principal of bond investment options nor their yields are guaranteed by the U.S. or any other government entity. International and global investment options are subject to additional risk due to fluctuating exchange rates, foreign accounting and financial policies, and other economic and political environments. The risks associated with investing in emerging market debt include currency fluctuations, economic instability and adverse political developments. Emerging markets debt may be less liquid and markets may lack established legal, political, business and social framework to support securities markets. High yield investment options are subject to greater credit risk and volatility that is associated with high yield bonds. Each index-based investment option is invested in the stocks or bonds of the index it tracks. Performance of indexes reflects the unmanaged result for the market segment the selected stocks or bonds represents. There is no assurance an index-based investment option will match the performance of the index tracked.

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January 2018
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