A Message from Principal Financial Advisors, Inc.

The year that was: 2018

What a difference a year makes, but not in a good way. After a fantastic run for stocks in 2017, 2018 was rough. Stocks suffered their worst year since 2008. In fact, no major risk asset had positive returns, only cash and U.S. treasuries were in the green for the year. Higher interest rates and a tightening Fed dragged the markets down. Slowing global growth was another strain. Trade tensions intermittently hit prices as well.

At the start of the year, the markets were buoyant. Prices melted up broadly throughout most of January. It felt like 2017’s successes would continue. But then, the flash crash hit markets in early February. Volatility spiked, and the Dow had its worst day for point decline in history. U.S. markets did recover, and volatility receded. With strong growth and tax reform boosting earnings, the S&P 500 moved up, hitting a new high by September. But, ex- U.S. stocks trended down. Growth was decelerating in Europe and China. Fed policy and a strong dollar took their toll. Weak links, Turkey and Argentina, cracked under the stress of tightening financial conditions.

By the fall, the U.S. market was no longer immune to rising rates and slower global growth. The 10 year U.S. treasury moved above 3.2% in October,1 U.S. stocks started to drop. By yearend, sentiment worsened considerably. A hawkish December Fed meeting stoked fears a fed policy error could force the U.S. economy into recession. It was the worst December for U.S. stocks since 1931. But some positive trends did appear. Emerging markets started to outperform despite broader market volatility. Currencies stabilized, and valuations were attractive.

Changes PFA made along the way

2018 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 70/30 split between U.S./International Equities to a 65/35 split.
  • We evaluated the investment options we use in the Mid value category and decided to remove MidCap Value III2 from the line-up and transfer the assets to MidCap Value I3.

Looking ahead to 2019

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 tailored 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 2019!

Sincerely,

Randy Welch
President, Principal Financial Advisors, Inc.

1. Sourced by Bloomberg
2. The MidCap Value III Separate Account is sub-advised by Principal Global Investors and Barrow Hanley
3. The MidCap Value I Separate Account is sub-advised by LA Capital Management and Victory

Unless otherwise noted, the information in this document has been derived from sources believed to be accurate as of February 2019. Information derived from sources other than Principal Financial Advisors or its affiliates is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity. This material contains general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, recommendation or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice.

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.

Investing involves risk, including possible loss of principal.
Asset allocation and diversification does not ensure a profit or protect against a loss.

Small and mid-cap stocks may have additional risks including greater price volatility.

Principal Financial Advisors, Inc. is a registered investment adviser and member of Principal Global Investors. Principal Global Investors leads global asset management and is a member of the Principal Financial Group®.
Asset allocation strategies are developed using Separate Accounts available through a group annuity contract of Principal Life Insurance Company.

Investment manager/sub-advisor means either the Investment Adviser or Sub-Adviser to the investment option or the underlying asset(s).  Principal Life Insurance Company is the Investment Manager as defined by ERISA, with regard to the assets of the Separate Accounts.

Separate Accounts are available through a group annuity contract with Principal Life Insurance Co. Insurance products and plan administrative services provided through Principal Life Insurance Company, a member of the Principal Financial Group, Des Moines, Iowa 50392. See the group annuity contract for the full name of the Separate Account. Certain investment options and contract riders 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 orderly investment transactions; 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.

PQ10979-26
February 2019
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