Center Investing

Event in Review: 2019 Investment Outlook

With market volatility back, we came together to discuss what occurred in 2018 (particularly in the last quarter) and what we are thinking about for 2019.  If you weren’t able to attend, don’t sweat it, we have the cliff notes for you!

2019 Investment Outlook

On February 27th, 2019, Angela Palacios CFP®, AIF®, Director of Investments, CERTIFIED FINANCIAL PLANNER™, Nick Defenthaler CFP®, Senior Financial Planner, CERTIFIED FINANCIAL PLANNER ™, and Nick Boguth, Investment Research Associate teamed up to tackle these pressing questions and more.

Here is a recap of key points from the “2019 Investment Update”:

  • What spooked the markets last year:

    • Decelerating global growth lead by China

    • Declining earnings growth expectations

    • Higher short term interest rates in the U.S. and other parts of the world

    • Valuations started 2018 in elevated territory

    • UK BREXIT

    • Italian debt concerns

    • Trade issues

    • Government shutdown

    • Mueller investigation

  • What worked last year:

    • High quality fixed income rallied in this market

    • Bond duration – the more the better

    • Defensive & Low volatility stocks held up better than broad markets

    • Dividend paying stocks held up better than non-dividend paying stocks

    • Large cap equities held up better than small cap equities

    • In the last quarter of 2018 emerging and international developed markets held up better

  • Is a recession on the horizon: Recessions are mainly caused by four reasons throughout the world (Inflation, Reduction in exports, Financial Imbalance or commodity price crash). Currently inflation is benign here in the U.S., exports are healthy, financial excesses aren’t present (equity valuations and household debt are moderate), and our economy is highly driven by commodities.  So at this point it looks unlikely in the next year.

  • Yield curve: Flattened dramatically last year while the 2 and 5 year treasury bond yields did invert.  A traditional inversion is between the 2 and 10 year and is the signal usually watched for to telegraph a coming recession. We are keeping a close eye on this as this is becoming a potential concern.

  • Tax reform recap: Nick Defenthaler gave us an update on tax reform looking at the changes to income tax brackets, changes in the standard deduction and deductibility of state and local income taxes. If you’d like to hear more on this please listen in on our Year-end tax planning webinar for the details!

  • Client Portal: A Center for Financial Planning, Inc.® app??!!! We hope you are as excited as we are! Nick Boguth gave a quick demo of our new client portal and document vault. If you are interested in learning more or want to sign up for this service just reach out to your planner!

Angela Palacios, CFP®, AIF® is a partner and Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

Job Transition and Your Investments

The Center Contributed by: Center Investment Department

We at The Center know that people can be overwhelmed with difficult decisions, especially during stressful life events such as job loss or change.

Job Loss, Job Transition and Your Investments

GM recently announced plant closings and layoffs across the country, which will affect thousands of workers. This hits close to home for those of us in the Motor City and reminds us to look at your investment portfolio, ensure proper allocations, and ask these questions:

Am I close to retirement?

It may be time to scale back your portfolio’s risk. If you are invested within a target date retirement fund, this may already be happening for you.

How long before I have to use this money?

With funds you won't need for more than 5-10 years, you may want to ensure you are taking enough risk to help meet your goals. If you are invested within a target date retirement fund, this may already be happening for you.

What is my ability to take risk?

You may be able to take on more risk if you don't depend entirely on your portfolio. In this case, a target date fund may not be appropriate.

Do I get uneasy or worried when my portfolio drops by a certain percentage and feel the need to take action?

If this affects your decision making, even under normal circumstances, guidance from an advisor during a time of change may help alleviate additional stress.

What Can I do?

Review the investments in your account and your beneficiaries. We often neglect our 401(k) accounts in times of change.

Maintain a diversified portfolio to help stay on track for your retirement goals. Some plans offer an overwhelming number of choices, while other plan offerings seem insufficient to diversify a portfolio. Your advisor can help with your comprehensive investment strategy, especially during challenging times.

When you’ve spread assets among multiple financial institutions, maintaining an effective investment strategy – one that accurately reflects your goals, timing, and risk tolerance – may become difficult. Consolidate, and your financial professional can help ensure these assets are part of an overall allocation strategy that reflects your current financial situation and long-term retirement goals.

For more information on consolidating retirement accounts, read “Simplifying Your Retirement Plans.”


Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice.

Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.

2018 Fourth Quarter Investment Commentary

2018 4th Quarter Investment Commentary, Volatility, Interest Rates, Shutdown Slowdown, China Trade Negotiations, Global Concerns

The 2018 wild ride!

We’d love to see you at our investment outlook event on Wednesday, February 27th from 11:30am-1pm for lunch and a full update on 2018 and the year ahead.  You can register here

How times have changed! As I write this, I often like to look back and see what I was thinking about last year at the same time.  In the fourth quarter of 2017, we were talking about how low volatility had been for an extended period and that it was unlikely to continue.  Unfortunately, we were right.  In 2017, we had only eight sessions where the S&P 500 moved up or down more than 1% (versus the average which is 53 days in a given year since 1958)!  In 2018 the number of days up or down more than 1% numbered closer to 60.  While more than average, this is closer to average volatility than we had grown accustomed to.  December is usually the least volatile month on record but this time registered more than it’s share of wild swing days for the year. 

Volatility

While we tend to love unlimited volatility on the upside, we greatly dislike downside volatility. According to behavioral finance experts Daniel Kahneman and Amos Tversky we hate the downside about twice as much as we love the upside or loss aversion.This is a concept that is embedded deeply within our investment strategy. We work to design portfolios that prevent you from making short-term decisions that contradict your long-term goals. Diversification is a key part of this process. Up until the last quarter of 2018, this was a strategy that had long been out of favor in this bull market for US Large companies. However, we started to see the benefits return. Below is a chart showing returns for 2018 broken down a few different ways and for several different benchmarks. The first section is Year-to-date (2018 full year) returns. For the year, the Barclays Aggregate was the clear winner as it was up slightly (blue bar). However, for the first three quarters of the year, it was the clear loser except for emerging markets (EM had been 2017’s, clear winner). It wasn’t until the last quarter, when volatility struck, that bonds were able to shine. The S&P 500 (US large companies) and Russell 2000 (US small companies) indexes were the exact opposite story. For the first three quarters of the year, the rally continued in a strong way with these markets up well over 10%. Once volatility struck, this meant these markets also had the farthest to fall and experienced the most downside in the last quarter of the year giving back all of their prior returns and then some for the year. It is an excellent reminder of the importance of diversification.

Source: Morningstar Direct

Source: Morningstar Direct

So what has this market so spooked?

Interest rates

The Federal Reserve raised rates for the fourth and final time of the year in December but also lowered its expectations for rates moving forward. Economic data is little changed, but The Fed’s reaction to the data shifted more dovish. The Fed is concerned that by raising too far, too fast they will invert the yield curve.  They recognize it may be necessary to slow down.   The yield curve hasn’t inverted quite yet (this is defined by the two-year being higher than the ten-year yield) but it has gotten much closer to this scenario.  This is generally a good indicator that a recession is on the horizon but has not given this signal yet.

Shutdown Showdown

Democrats took control of the House on January 3rd as the government shutdown continued.  President Trump and the Senate don’t seem to be willing to bend on their request for money for the border wall while Democrats just as strongly oppose.  Ultimately, one side will have to bend to get the government fully back up and running and neither seem to have any incentive to make this happen yet.  Markets generally aren’t rattled by government shutdowns unless they are prolonged. However, right now, everything seems to be rattling the markets.  I don’t think you can specifically point to the government shut down as being a leading market concern but it is definitely on the scorecard.  The longer it extends, the more it will erode consumer and investor confidence too.

China Trade Negotiations

Trade negotiations seem to be moving along, but this is a slow process.  U.S. based companies are starting to report reduced sales into China, so we are beginning to see a direct effect to stock prices of domestic companies.  There is talk of a hard deadline in these discussions of March 1st because if some negotiations have not come to a close by then, the U.S. will impose another round of tariffs on Chinese imports. 

Global concerns

Brexit negotiations continue to stir up markets as it is not going as well as planned.Article 50 of the Lisbon Treaty was invoked on March 29, 2017.The UK has two years from this point to leave the European Union.So the deadline is fast approaching on March 29, 2019.Here is a helpful timeline of what is to come. Brexit is sure to cause some waves in the next few months.

 
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To top off the global concerns, the Italians are making headlines again with debt concerns.  And just as interest rates are rising here at home, they are starting to rise overseas.  Finally yet importantly, the result of the Mueller investigations will come out soon.  This could cause a temporary shakeup in markets depending on what their findings are.

It is interesting to note that these headlines have existed for much of the year.  Up until early October, the US stock market seemed to brush them off in the wake of lower taxes.  However, lower taxes could only distract for so long until these headlines started to spill over into investor sentiment, which became clear in October.  It is important to remember to stay invested even through volatile events.  Missing the biggest up days can be devastating on your long-term returns and, true-to-form, we experienced many of those for 2018 when the markets appeared at their bleakest moments in the fourth quarter.  It is quite common that the largest up days occur during periods of downside volatility. 

We are happy to discuss your portfolio with you at any time you may feel uncomfortable with market swings.  We are monitoring your investments, making periodic changes when warranted and pro-actively rebalancing to take advantage of swings in the markets, both up and down.

We thank you for your continued trust.  Have a wonderful 2019!

Angela Palacios, CFP®, AIF®

Director of Investments

Financial Advisor, RJFS

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.


https://www.zerohedge.com/news/2018-12-04/neutoric-market-sp-has-risen-or-fallen-1-or-more-20-days-quarter https://www.bbc.com/news/uk-politics-32810887 Freedom Presentation by Nick Lacy, CFA, Chief Portfolio strategist.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations.
The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
Any opinions are those of Angela Palacios and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice.
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Mid-term Elections and the Market: 2018 Outcome

The Center Contributed by: Center Investment Department

Mid-term Election and the Market: 2018 Outcome

Voting day came and went much as the markets had anticipated.  Democrats flipped the House of Representatives over to their control while the Senate maintained and even strengthened their republican majority.  From a legislative policy perspective, we expect the republican agenda to slow.  Mid-term election implications may include:

  • The President can continue to act alone regarding trade policies but had bi-partisan support for cracking down on China’s trade and intellectual property practices anyway

  • Democrats are going to scrutinize and investigate President Trump, his cabinet officials and executive actions…yes, even more!

  • Any further tax cuts are unlikely

  • Democrats will likely get to work on some infrastructure spending

  • Affordable Care act will be strongly defended

While markets care about legislation and the far-reaching impact those decisions make, long-term markets are agnostic to election results. Information and how markets digest the information affect investment outcomes more than politics.  Frankly, markets do not really care which side is in control.  In fact, the new balance of power sets a similar stage for the strongest historical performance in the S&P 500 for a republican president.  Want to learn more, check out this blog, “Mid-Term Elections and the Market.”


Any opinions are those of the author and not necessarily those of RJFS. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investing involves risk and investors may incur a profit or a loss. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

2018 Third Quarter Investment Commentary

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Diversified portfolios continue their uphill battle as the U.S. Stock market continues to be one of the few sources of positive returns this year.  In August, the current bull market became the longest on record since World War II by avoiding a 20% drawdown during that time.  Recently, the equity markets fell sharply even though the near-term prospects for the economy remain strong, but there are concerns about the November election, trade policy disruptions, FED policy and labor market constraints. Increased volatility and see-sawing markets are likely to continue in the near term.

*annualized

*annualized

Bonds have continued to be under the pressure of gradually rising interest rates.  Since December 2016, the Fed has raised short-term rates by .25% during 8 of the last 15 meetings.  The last time we experienced rising interest rates was 2004-2006.  During this period, the Fed raised short-term rates by .25% in 17 consecutive meetings in contrast!  This time, they are taking a far more measured pace trying to increase borrowing costs for businesses and consumers to keep the economy from overheating.

International and especially emerging markets are struggling the most this year due to trade war concerns and a strong U.S. dollar even though they were the darlings of 2017.

Trade War Tracking

Since the trade war is at the top of the headlines each day, I thought it would be interesting to share a scorecard.  The below chart shows the tariffs that are still only in the proposal state (diagonal lines) and tariffs that have been put into place. You can see that only a small amount had been implemented before September. On September 21st, the next $200 Billion of tariffs were put into place (China 301 Part 1).  These are tariffs on an extensive list of goods and will start at a 10% tariff, escalating to a 25% tariff in January 2019.  China retaliated by placing tariffs on another $60 Billion in U.S. goods.  This list was smaller and the amount of tariffs placed on them was lower than the market anticipated which is why we didn’t see any negative reactions from the stock market during this round.

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While we are also actively negotiating trade policies with many countries, the focus and largest amount of potential tariffs are against Chinese imports.   According to the office of the U.S. Trade Representative “The United States will impose tariffs on…Chinese imports and take other actions in response to China’s policies that coerce American companies into transferring their technology and intellectual property to domestic Chinese Enterprises.  These policies bolster China’s stated intention of seizing economic leadership in advance technology as set forth in its industrial plans, such as ‘Made in China 2025.’”

While markets are more volatile this year seeming to be swayed by the latest tariff headline daily, local markets are still boasting 10.56%  returns on the S&P500 for the year through the end of September. This says to us that markets think this trade war is survivable and possibly even beneficial to the U.S.  While tariffs are generally a negative for an economy over the long-term, investors often, only see the short-term benefits these types of strong-arm policies can bring. 

The point of free trade is that each group of producers focus on what they are best at and can produce the most efficiently (also at the lowest price/best quality).They can then sell their products and use the money to purchase what they need from the most efficient producer.This process usually stretches your dollar the farthest when it comes to purchasing power.Tariffs place an additional tax on the consumer as they usually result in higher prices for us or reduced margins for companies (or a combination of the two).We don’t share the markets rosy outlook, as we believe this trade war will result, eventually, in inflation and supply chain disruptions.It takes time to ramp up production domestically of products that become too expensive to import.When companies face the uncertainty of what retaliatory actions are coming next, they are apprehensive to make the investments required to ramp up local production in the first place. 

Unemployment

We also have to consider that the unemployment rate is back to very low levels (blue line shows below 4% unemployment) and participations rates (gray bar) remain steady.  Where are we going to get all of the new workers required to start producing items locally rather than importing? 

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We don’t think this is how Trump foresees the end game.  He hopes to force China to remove the tariffs they have historically imposed on our goods to put us on a level playing field of no tariffs, no subsidies and preventing intellectual property drain.  Whether he is right and China will be forced to come to the negotiation table remains to be seen.  Volatility should continue at slightly higher levels if this trade war continues to ramp up.

Politics

Mid-term elections are coming up, and that always puts politics at the top of everyone’s minds.  There is also fear of impeachment that we often hear from clients and how that could affect portfolios.  Impeachment is the process where the House of Representatives through a simple majority brings charges against a government official.  After the government official is impeached, the process then moves to the Senate to try the accused.  This must pass the Senate by a 2/3’s majority vote.  If this happened, President Trump would be removed from the office, and the Vice President would take his place. 

There is little to refer to in recent history to understand how markets would react here in the U.S. if this were to happen.  Bill Clinton was impeached in 1998, and Richard Nixon resigned during the Impeachment proceedings but was never actually impeached.  There have been recent unsuccessful attempts to impeach Donald Trump, George W. Bush, and, yes, even Barack Obama.  When Bill Clinton was impeached markets were down in bear market territory (over 20% peak to trough on the S&P 500) for a short time before it rallied back.  The Russian Ruble Crisis also occurred at the same time, so it is hard to say that the impact to markets was solely due to the impeachment process. So while President Trump likes to boast that the “Markets will crash and that everyone will be poor” if he were impeached that is likely not the case. 

While we don’t think this has a high likelihood of happening, if it did, short-term volatility would probably occur while there is uncertainty and this is one of the many reasons why we maintain a diversified portfolio.  If stocks retreated, it is likely that our bond portfolios would perform well and even a possibility that international investments would strengthen in the face of a weaker dollar.  We believe a diversified portfolio with short-term needs set aside in cash or cash equivalents is one of the most effective solutions to an extremely rare event like this.

While this bull market may be getting old, it is important to remember they do not simply die of old age; rather they are killed by recessions.The yield curve is getting dangerously close to inverting but has not, thus not signaling a recession…yet.We are keeping a close eye on the yield curve and trade war as these items could quickly spill us over into a risk of recession. Markets can breeze along seemingly unconcerned by these types of risk until they aren’t.When sentiment swings from optimistic to pessimistic, it can happen almost overnight.As a result, we continue to maintain that having a diversified portfolio is extremely important.We are actively taking advantage of rebalancing opportunities to make sure your portfolios are prepared.If you have any questions or would like to speak with us more on these topics, please don’t hesitate to reach out to us!

Thank you for your continued trust!

On behalf of everyone here at The Center,

Angela Palacios, CFP®, AIF®
Director of Investments
Financial Advisor, RJFS

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.


The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Implementing Your Asset Allocation

The Center Contributed by: Center Investment Department

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At Center for Financial Planning, Inc.®, one of our core investment beliefs revolves around utilizing a strategic asset allocation. We believe there is an appropriate mix of assets that can help investors meet their goals based on well-established and enduring asset classes. This can vary over time depending on your objectives and evolving markets. Finding the right combination of these asset classes and allocation to each plays a pivotal role in managing risk and aiding in ensuring stabilizing returns. In previous blog posts, we’ve discussed the purpose of asset allocation and how to determine the proper asset allocation.  Now let us wrap up this subject with a hypothetical example of the implementation.

Below is a chart of a financial plan overhaul.  You can see there is quite a difference between the current allocation and a recommended allocation.  The current allocation (in blue) is overweight US Large Cap stocks and International Large Cap stocks while underweight the bond asset categories that we define as Core Fixed Income and Strategic Income.  The financial plan takes into consideration any outside accounts like 401k’s, insurance, and/or annuity products to truly understand an entire investment portfolio and determine a suitable asset mix. This helps keep a client within their volatility comfort range as well as on track to reach their return expectations over the long haul.

Source: Morningstar

Source: Morningstar

The recommendation involves selling some of the positions that fall within the overweight asset classes while adding to the underweight bond asset classes.  The end result should be a portfolio with less risk which can be important leading into those early years of retirement if returns had been excellent in recent years it would be important to have a careful eye toward taxes and work with a CPA to construct a tax efficient strategy to divest some of the risk. 

If you are unsure how your asset allocation stacks up, seek out a financial planner so they can assist you in developing an appropriate strategy tailored to your unique needs.


These asset allocations are presented only as examples and are not intended as investment advice. Actual investor results will vary. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Although derived from information which we believe to be reliable, we cannot guarantee the completeness or accuracy of the information above. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investments mentioned may not be suitable for all investors. Any opinions are those of Angela Palacios and not necessarily those of RJFS or Raymond James. Investing involves risk and asset allocation and diversification does not ensure a profit or protect against a loss. 1. Core Fixed Income includes: U.S. Government bonds and high quality corporates 2. Strategic Income includes: Non U.S. bonds, TIPS, high yield corporates and other bonds not in core fixed. 3. Strategic Equity includes: REITS, hedging strategies, commodities, managed futures etc. Large cap (sometimes "big cap") refers to a company with a market capitalization value of more than $10 billion. Large cap is a shortened version of the term "large market capitalization. Smaller mid caps, which are defined as those that fall below a certain market-cap breakpoint, and "small plus smaller mid caps", which include both companies considered small-cap and the smaller mid-cap companies. Mid caps are typically defined as companies with market caps that are between $2 billion and $10 billion. Mid-cap stocks tend to be riskier than large-cap stocks but less risky than small-cap stocks. Small caps are typically defined as companies with market caps that are less than $2 billion. Many small caps are young companies with significant growth potential. However, the risk of failure is greater with small-cap stocks than with large-cap and mid-cap stocks.

Is there a loss when a municipal bond purchased at a premium matures at par value?

The Center Contributed by: Center Investment Department

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Investors often erroneously believe that they will lose money when purchasing a bond at a premium and allow it to mature at a lower par value.  In order to understand why this is not the case we should step back and explain some bond basics.

Coupon and Par Value explained

Bonds pay interest to you, the investor. A coupon is simply the amount of money that you receive at each interest payment (typically every six months). Par value, or the issuer’s price of a bond, is typically $1000. If a bond has a 5% coupon, then you receive 5% of $1000 every year; or $25 every 6 months.  The price you pay is often expressed as a percent of par value.  So if it is selling at $103 you are paying 103% of the par value, or $1,030. (1,000*1.03).

Why would you pay a premium?

When you buy a municipal bond at a premium price (or more than the $1,000 par value), you may be doing so because you are getting a higher coupon rate.  For example, let’s say the going market interest rate for a par value bond you are looking at is 3%.  If you found a bond that is paying a coupon of 4% with the same maturity you may think, “Jackpot!”  However, in order to buy this bond you are going to have to pay more than the $1,000 par value for the 3% bond. To better understand this we use the measure of yield to maturity (the rate at which the sum of all future cash flows from the bond is equal to the current price of the bond).  Ultimately, the yield to maturity should be very similar between the two bonds, you will just get more current income from the premium bond as it has a higher coupon, but you pay a higher price to get it.  Unfortunately, you don’t get to write off this “loss” when the bond matures and only pays you back the $1,000 par value.  The premium of this bond is amortized down each year and is being returned to you in the form of the higher coupon rate.  See the example below.

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Once the bond finally matures, you have amortized out all of the premium over the life of owning the bond and your cost basis would ultimately be the par value now.  Fortunately, you don’t have to worry about calculating this yourself.  IRS guidelines require your custodian to calculate and report this on your yearly 1099 Form.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Tim Wyman and not necessarily those of Raymond James. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. Investments mentioned may not be suitable for all investors. Investing involves risk and investors may incur a profit or a loss. Please include if clients are able to click on the link: Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Sustainable Investments and Your Portfolio

Laurie Renchik Contributed by: Laurie Renchik, CFP®, MBA

Planning for a sustainable retirement is one that will financially support you for a lifetime. The financial planning process is dynamic as life unfolds and is subject to new information and changing circumstances along the way. 

One of the changes I see happening today is that a growing number of retirement savers are thinking more seriously about how a sustainable investment strategy fits into their overall investment plan. 

In tandem, the sustainable investment landscape is also evolving and growing.  Once a niche market, sustainable investing is becoming mainstream moving from a limited universe of investments focused on screening objectionable exposures to a range of solutions to achieve sustainable outcomes.  In fact, US investments focused on sustainable objectives grew 135% in the four year period from 2012 through 2016.**  With this volume of growth comes opportunity.  Demographic shifts, government policies and corporate views on environmental and social risk are the primary forces driving growth and change today.

For example, sustainable investing today includes Exclusionary Screens, ESG factors and Impact Targets.  Exclusionary screens avoid exposure to companies who operate in controversial sectors such as fossil fuels, tobacco or weapons.  ESG Factors invest in companies whose practices rank highly by Environmental, Social, and Governance (ESG) performance standards.  Impact Targets invest in companies whose products and solutions target measurable social or environmental impact.

If your goal is to create a sustainable retirement and in tandem allocate a portion of your investments to supporting a sustainable global future we can help. 

Our top priority is to create the best plan coupled with the best investment portfolio for you.  If that means taking sustainable investment preferences into consideration we have the resources and solutions available to build on traditional portfolio analytics to understand your current exposures and relevant sustainability factors.  We can set targets to improve the sustainability of your portfolio based on your personal objectives and measure performance data over time.

Contact us today to learn more!  Sustainable investing can drive positive social or environmental impact alongside financial results, allowing investors to accomplish more with their money.  Opportunity awaits.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc.® In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.


**Year over year growth in sustainable assets in the U.S. 2012 to 2016. Source: Global Sustainable Investment Alliance. Views expressed are not necessarily those of Raymond James Financial Services and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur.  Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.

2018 2nd Quarter Investment Commentary

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Helping our clients achieve their goals is truly a team effort here at The Center.  You may not have met or spoken to the investment team here at The Center, but we are an important resource leveraged to help you achieve your goals.  Watch the video below to learn more about the investment team and how we help you reach your financial planning destination!   We are always here to help so please don’t hesitate to reach out to us! 

Rebalancing

The investment team monitors and rebalances your portfolio, in addition to portfolio construction.  It is equally important to continue to monitor portfolios and their compliance with your investing preferences and objectives as it is to determine what the proper investments are.  Rebalancing is a key part of this process.  See our recent blog post on how to rebalance a portfolio to understand the reasons and mechanics behind the process.  The most important way to be successful is to get invested and stay invested.  Rebalancing your portfolio on occasion will help you stay the course for the long-term.

Market Update

The story has stayed much the same over the past quarter with trade tensions remaining center stage.  Volatility remains, while trade war talks have spilled over into action and interest rates continue to rise.  Synchronized global growth is slowing but is not yet slow; so, do not expect growth to immediately fall off the cliff from a peak to a trough. 

U.S. markets remain in consolidation mode after a strong 2017 as investors waffle between getting comfortable with the lower rate of growth while having a strong economic and earnings outlook.  The U.S. market ended the quarter on a higher note up 3.43% for the S&P 500 despite the ups and downs throughout the quarter with China and U.S. relations.  Despite being up as much as 6.6% and down as much as 4.4% throughout the year so far we are up 2.65% through the end of the second quarter for the S&P 500. 

Bond markets have continued to struggle with bonds giving back what they are earning via interest payments, and then some, as the Bloomberg Barclays US Aggregate bond index is down 1.6% year to date.  Interest rates continue to increase at a well-telegraphed pace by the Federal Reserve with two more increases expected this year. 

In contrast to the U.S. market, international markets are struggling for the year with the MSCI EAFE posting a -2.75% so far.  In stark contrast, domestic small company stocks are enjoying a nice tailwind from the corporate tax reform so far this year.  The Russell 2000 is posting a startling 7.6% return year-to-date, all of which occurred in the second quarter.

Inflation continues its slow creep back into our economy with wages slowly starting to increase.  Just as slowing growth in the economy is not yet slow, rising inflation is not high inflation.  We are still at very low levels of inflation when you look at the history of our domestic economy.  Our investment committee has decided to add an allocation to an inflation-focused real asset strategy.  We want to add exposure within the portfolios to a strategy that would have the potential to respond more favorably than the broad equity markets to rising inflation. 

Preview of exciting changes

The investment team has been working on some exciting developments for your experience.  We will soon have a “Center for Financial Planning, Inc®” app for your smartphone where you can view returns, asset allocation and even your probability of success for your financial plan.  This new portal will be available to all who are interested.  More information and training on how to set up and view information will be coming later this year so watch your inboxes!  As always, please feel free to reach out if you ever have any questions.

On behalf of everyone here at The Center,
Angela Palacios, CFP®, AIF®
Director of Investments
Financial Advisor 

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.


The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and no strategy can ensure success. The process of rebalancing may carry tax consequences. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Diversification and strategic asset allocation do not ensure a profit or protect against a loss. The S&P 500 is an unmanaged index of 500 widely held stocks. The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. These international securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.

Under the Hood: Investment Allocation for 529 Savings Plans

Contributed by: Matthew E. Chope, CFP® Matt Chope

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As many parents and grandparents know, 529 plans can be a wonderful strategy for families to help build college tuition savings for their children.  Not only do the plans benefit students, but they also carry advantages for the account creators or donors. The student can potentially enjoy tax-deferred growth with federally tax-free distributions if used for qualified educational expenses. Advantages to the donor include complete control of the account, high contribution limits, and no age restrictions or income limitations to inhibit investing.  It’s no surprise that 529 savings plans have become popular savings vehicles.

Have you ever wondered how 529 college savings plans are invested to meet time-sensitive tuition expenses? 

Age-based investment funds make this challenge easily manageable.  The graph below shows the glide path of equity allocations for 529 savings plans at various ages of the beneficiary from 2010 to 2013.

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  • Generally, 80% of the portfolio is invested in equities at age 0 and reduces to 10% by the time the beneficiary is enrolled in college. 
  • Since 2010, plan investment managers have become more conservative in the beginning (age 0) and end (age 19) stages of plans.
  • Investment managers have become 6-7% more equity aggressive during ages 5-15 to meet tuition goals. 

To meet tuition needs within 18 years, the graph reveals that investment managers are becoming more aggressive during the middle of a student’s investment time horizon, but they are also growing more cautious about preserving money closer to the end of the student’s investment time frame.  Interestingly, the graph also reveals that investment managers still rely on bonds as one of the safest places to preserve money (90% of the portfolio by age 19), despite the negative reputation bonds have received in our current rising rate environment. 

The glide path is designed to allow for an outcome with minimal surprises to all investors, no matter the economic environment when it’s time for college.  Some cycles will end on a poor note with markets crashing, while in other times markets will be soaring as students begin to tap the funds.  Ultimately, the guide path is designed to gradually reduce investors’ risk and exposure to market disruptions in the final years of saving, when investors are closest to needing the money they’ve worked so hard to save.  

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer's official statement and should be read carefully before investing. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.

As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.


The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and are not necessarily those of Raymond James.