Investor PhD: Harvesting Losses and Avoiding Gains

Contributed by: Angela Palacios, CFP®

This may sound counter-intuitive, but taking some measures to harvest tax losses on positions and avoiding unnecessary capital gains distributions this time of year can go a long way in improving your net (after tax) returns.

Make sure you are reviewing your portfolio throughout the year for tax losses to harvest.  Stock losses were at their peak during mid-February, but if you waited until this fall to think about tax loss harvesting you have most likely missed the boat as much of those losses have been recovered and moved on to higher highs. The end of the year is rarely the best time of the year to harvest tax losses. 

Harvesting losses doesn’t mean you are giving up on the position entirely. When you sell to harvest a loss you cannot have had a purchase into that security within the 30 days prior to and after the sale.  If you do you are violating the wash sale rule and the loss is disallowed by the IRS. Despite these restrictions, there are several ways you can carry out a successful loss harvesting strategy.

Loss harvesting strategies:

• Sell the position and hold cash for 30 days before re-purchasing the position. The downside here is that you are out of the investment and give up potential returns (or losses) during the 30 day window.

• Sell and immediately buy a position that is similar to maintain market exposure rather than sitting in cash for those 30 days. After the 30 day window is up you can sell the temporary holding and re-purchase that original investment.

• Purchase the position more than 30 days before you want to try to harvest a loss. Then after the 30 day time window is up you can sell the originally owned block of shares at the loss. Being able to specifically identify a tax lot of the security to sell will open this option up to you.

Common mistakes some people make when harvesting:

• Dividend reinvests count!!! So if you think you may employ this strategy and the position pays and reinvests a monthly dividend you may want to consider having that dividend pay to cash and just reinvest it yourself when appropriate or you will violate the wash sale rule.

• Purchasing a similar position and that position pays out a capital gain during the short time you own it.

• Creating a gain when selling the fund you moved to temporarily that wipes out any loss you harvest. Make the loss you harvest meaningful or be comfortable holding the temporary position longer.

• Buying the position in your IRA. This will violate the wash sale rule just like if you bought it in your taxable account. This is identified by social security numbers on your tax filing. So any accounts held under those same tax payer IDs are not allowed to purchase the security in that 30 day window of harvesting the losses.

Personal circumstances vary widely so it is critical to work with your tax professional and financial advisor to discuss more complicated strategies like this!

Angela Palacios, CFP® 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.

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The information contained in this blog 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 you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Third Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

Special conference edition! September brought not only the beginning of school and cool evenings but also the Morningstar ETF conference. Jaclyn Jackson and I were able to take a few days away to attend some enlightening sessions full of hearty debate, idea sharing, and new information during the first week of September. Some of my key takeaways follow!

Key takeaways from the Morningstar ETF conference:

• The Sustainable investing (ESG or socially responsible preferences) space has grown rapidly in the past 5 years. 80% of companies in the S&P 500 published sustainability reports in 2015 verses only 20% in 2011. Sustainability reports discuss a variety of issues for the firm including pollution mitigation, water use, and best practices for attracting a diverse workforce. Institutions, women and younger investors have been driving this demand. To learn more click here.

• There is more than meets the eye when performing due diligence on index holdings and exchange traded investment options. A low expense ratio isn’t the bottom line of costs associated with an investment. Stocks that make up the index and how an index is built and changes over time can greatly impact unseen costs. Also the experience of the people trading the portfolio can have a large impact. 

• Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, shared her views on Central Bank Policies, recession probability, sluggish growth, and interest rates. She feels the risk of recession remains low. She also sees higher interest rates as a positive more than a negative. Savers are better for the economy then the spenders, according to Ms. Sonders, so it is time to give them a chance!

• Behavioral investing rounded out the sessions. Sarah Newcomb Ph.D., Behavioral Economist, rolled out Morningstar’s new tool kit on behavioral investing. In rocky markets we have a tendency to want to do something. Anything to make us feel better. Much like a soccer goalie during penalty kicks, the best thing they can do is to stay in the middle and do nothing, rather than try to anticipate and move in the wrong direction. Fans don’t like this though; they would rather see the goalie do something. In investing the best thing to do during turbulent markets is often to do nothing, but that goes against our own nature. Bottom line, we need to make a plan during calm times to prevent ourselves from making bad decisions in the moment.

Stay tuned all this week for more investment, market, and quarter three updates!

Angela Palacios, CFP® 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.

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The information contained in this blog 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. 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. 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.

Finding the Right Asset Allocation

Contributed by: Jaclyn Jackson

Most delicious meals start with a great recipe.  A recipe tells you what ingredients are needed to make a meal and, importantly, how much of each ingredient is needed to make the meal taste good.  Just like we need to know the right mix of ingredients for a tasty meal, we also need to to know the asset allocation mix that makes our investment journey palatable.

Determining the Right Mix

Asset allocation is considered one of the most impactful factors in meeting investment goals.  It is the foundational mix of asset classes (stocks, bonds, cash, and cash alternatives) used to structure your investment plan; your investment recipe.  There are many ways to determine your asset allocation.  Asking the following questions will help:

• What are my financial goals?

• When do I need to achieve my financial goals?

• How much money will I be investing now or over time to facilitate my financial goals?

Seasoning to Taste

Now, suppose equity markets were down 20% and your portfolio was suffering.  Would you be tempted to sell your stock positions and purchase bonds instead? Figuring out an asset allocation based on goals, time horizons, and resources is essential, but means nothing if you can’t stick with it.  For certain ingredients, a recipe may instruct us to “season to taste”. In other words, some things are subjective and our feelings greatly influence whether we have a negative or positive experience.  For asset allocation, understanding your risk tolerance helps uncover personal attitudes about your investment strategy during challenging market scenarios.  It gives insight about your ability or willingness to lose some or all of your investment in exchange for greater potential returns.  When deciding our risks tolerances, we must understand: 

• The risks and rewards associated with the investment tools we use.

• How we deal with stress, loss, or unforeseen outcomes

• The risks associated with investing

Following the Recipe

When we follow a recipe closely, our meal usually turns out the way we expected.   In the same way, committing to your asset allocation increases the likelihood of meeting your investment goals.  Understanding your risks tolerances can reveal tendencies to undermine your asset allocation (i.e. selling or buying assets classes when we should not). Fortunately, there are a few strategies you can employ to help stay on track.  

• If you are risk adverse, diversifying your investments between and among asset categories can help to improve your returns for the levels of risks taken.

• If you find yourself buying or selling assets at the wrong time, routinely (annually, quarterly, or semi-annually) rebalancing your portfolio will force you to trim from the asset classes that have performed well in the past and purchase investments that have the potential to perform well in the future.

• If you find yourself chasing performance or buying investments when they are expensive, buying investments at a fixed dollar amount over a scheduled time frame, dollar cost averaging, can help you to purchase more shares of an investment when it is down relative to other assets (prices are low) and less shares when it is up relative to other assets (more expensive).  Ultimately, this can lower your average share cost over time.

Finding the right asset allocation for you is one of the most important aspects of developing your investment plan.  Luckily, getting clear about investment goals, time horizons, resources, and risks tolerances can help you mix the best recipe of asset categories to make your investment journey deliciously successful.

Jaclyn Jackson is an Investment Research Associate at Center for Financial Planning, Inc.® and an Investment Representative with Raymond James Financial Services.

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This information is not a complete summary or statement of all available data necessary for making an investmentdecision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and are not necessarily those of RJFS or Raymond James. Every investor’s situation is unique and you should consider yourinvestment goals, risk tolerance and time horizon before making any investment or investment decision. Investing involves risk, investors may incur a profit or loss regardless of strategy or strategies employed. Asset allocation and diversification do not ensure a profit or guarantee against a loss. Dollar-cost averaging does not ensure a profit or protect against loss, investors should consider their financial ability to continue purchases through periods of low price levels.

3 Reasons Discretionary Investment Management could be Right for You

Contributed by: Angela Palacios, CFP®

We all have busy lives. Whether you are getting down to business or enjoyingyour retirement to the fullest who wants to worry about missing a call from their advisor because something in their portfolio needs to be changed? Perhaps cash needs to be raised to meet that monthly withdrawal to your checking account so you can keep paying your traveling expenses. Or money has to be deposited to your investment account, if you are still saving, and needs to be invested. Regardless of your situation, many investors find it difficult to make time to manage their investment portfolios. We argue this is far too important to be left for a moment when you happen to have some spare time. 

What is Discretionary Management?

It is the process of delegating day-to-day investment decisions to your financial planner. Establishing an Investment Policy Statement that identifies the guidelines you need your portfolio managed within is the first and arguably the most important step. Investment decisions are then made on your behalf within the scope of this statement. It is kind of like utilizing a target date strategy in your employer’s 401(k). You tell it how old you are and when you are going to retire and all of the asset allocation, rebalancing and buy/sell decisions are made for you.

3 reasons this can be a suitable option for investors:

1. Frees up your time to do what you love most. Time is the resource we all struggle to get our hands on. Need I say more?

2. Markets move quickly and sometimes portfolios must also to respond. Changes can happen in a timely fashion whether you are within reach on your cell phone or not.

3. May reduce the potential for poor investor behavior. Let those not emotionally charged by fluctuations in the market make decisions on your behalf.

If you have questions on whether or not this is right for you and your portfolio don’t hesitate to contact us.  We’d be happy to help!

Angela Palacios, CFP® 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.

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The information contained in this blog 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. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Second Quarter Investment Commentary

Contributed by: Angela Palacios, CFP®

Ever heard of the Chinese curse?  “May you live in interesting times.”   We certainly have the interesting part covered this year! 

Voters are showing that around the world they are fed up with the status quo. Donald Trump became the presumptive nominee as the republican candidate for President of the United States while David Cameron, Prime Minister of the United Kingdom, announced he will be stepping down after the UK voted to leave the European Union. 

Unfortunately, “interesting” usually translates to volatility in the markets and this quarter has been no exception. With the S&P 500 up 2.46% for the quarter and 3.84% as of June 30th for the year, the ride has not been as smooth as it may appear on the surface especially during the last trading week of the second quarter.

Brexit

An affirmative vote for the UK to leave the EU, or Brexit, caused a couple of days of uncomfortable downside volatility, but it did not last long. The media has a hay day with these “interesting” events and we find ourselves having to sift through the hype to dig into what an event really has to do with our portfolios. 

Let’s put some perspective around this. The United Kingdom only represents about 4% of the world’s GDP compared to the U.S. contributing 22% according to the World Bank’s Gross Domestic Product figures for 2015. In fact, the separation could take two years, after they invoke an agreement called article 50, to iron out the details and in the end may not even harm the world’s economy.  Article 50 must be invoked by the Prime Minister and likely won’t be done until later this year after David Cameron is replaced. 

The point here is that all is yet unknown and Brexit will certainly continue to cause headlines on occasion over the coming years as well as short term potential volatility. 

Overall, this should not impact long term returns in a significant way for most asset classes outside of the UK, and therefore we aren’t recommending a change to a diversified long-term investment strategy.   Our international holdings remain spread around the world and there are no outsized positions within the UK. These periods of short term volatility may be viewed as buying opportunities for our international portfolio managers.

Interest Rates

The Federal Reserve voted to stay their hand at the June meeting and did not raise interest rates again but left an opening to possibly raise rates at the July meeting. Economic data has come in at its continued slow growth trajectory while inflation has been benign causing the lack of interest rate increases by the Fed. The Fed was also concerned about the Brexit vote occurring one week after their meeting and this may have caused them to hold off as well. 

Bond markets remind us once again why it is important to hold them within a diversified portfolio. As volatility picks up they rarely fail to cushion our overall portfolio returns and this quarter has been no exception with the Barclays Aggregate Bond Index up 2.21%.

Your Plan and Portfolio

While interesting times may lead to volatility you can bet that some portions of your portfolio may outperform others in any year.  At the Center, we monitor the allocation of your portfolio on a regular basis.  When volatility presents an opportunity to rebalance we will act on your behalf or notify you if a change is needed.  Adding money to your portfolio, managing positions, and tax loss harvesting are some of the strategies that we can take advantage of during periods of volatility. We also anticipate future cash needs so funds are available regardless of market returns.

Here is some additional information we want to share with you this quarter:

Checkout Investment Pulse, by Angela Palacios, CFP®, summarizing some of the research done over the past quarter by our Investment Department.

Investors often avoid that which they don’t understand despite the diversification or return benefits an asset class may provide. Check out Investor Ph.D .

This month Nick Boguth, Investment Research Associate, delves into the equities with a primer on investing in common and preferred stocks.

Jaclyn Jackson, Investment Research Associate, discusses some important developments for the Real Estate Investment Trust asset class.

We strive to keep you informed! You may tune in to our webinars for market updates (there is one coming up soon, Summer Market Update: Staying cool while markets are turbulent. Click here for information and to register). These are meant to supplement your conversations with us so don’t hesitate to reach out any time you have questions or concerns. Thank you for placing your trust in us!

Sincerely,
Angela Palacios CFP®
Director of Investments

Angela Palacios, CFP® 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.

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Please note that all indices are unmanaged and investors cannot invest directly in an index. An investor who purchases an investment product which attempts to mimic the performance of an index will incur expenses that would reduce returns. Standard & Poor’s 500 (S&P 500): Measures changes in stock market conditions based on the average performance of 500 widely held common stocks. Represents approximately 68% of the investable U.S. equity market. US Bonds represented by Barclay’s US Aggregate Bond Index a market-weighted index of US bonds. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James.

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. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Investor Ph.D. Series: ADRs, and REITs …Oh My!

Contributed by: Angela Palacios, CFP®

Dorothy risked everything and traveled into the unknown when going into the haunted forest on her quest to return to Kansas.  At the Center, we prefer to walk in with our eyes wide open. Our Investment Department and Investment Committee conducts thorough research before recommending securities for your portfolio. Investors and advisors tend to stick with what they know when building their portfolios. In doing so, they can overlook opportunities to potentially increase returns or add diversification.  In other cases, investors may jump into less familiar asset classes at the wrong time.

In this installment of Investor Ph.D. we want to take you beyond just investing in domestic equity and preferred securities explained by Nick Boguth. Following are some assets we have considered that may not be at the forefront of your mind.

REITs

REITs or Real Estate Investment Trusts can offer the benefits of diversification, income stream and capital appreciation to an equity portfolio. A REIT is a company that owns income producing real estate. REITs can trade similarly to a stock traded on a stock exchange and be highly liquid or they can be private, non-liquid investments. They pay out all or most of the income they receive from their properties as dividends to investors and, in turn, investors pay the taxes on those dividends. Typical REITs can own commercial or private real estate including apartments, shopping malls, hospitals, hotels, nursing homes, industrial facilities, infrastructure, offices, student housing, storage centers, and timberlands.

A REOC or Real Estate Operating Company is similar to a REIT. The distinction that separates them is a REOC will take the earnings and income streams from their investments and reinvest into the business rather than paying it out to the shareholders. An investor would not expect an income stream from this type of investment, only capital appreciation.

ADRs

ADRs, or American Depository Receipts, are shares of a foreign company that trade on an American stock exchange. ADRs make investing in foreign securities much easier than having to factor in currency exchanges, costs, and logistics of trading on a foreign stock exchange. A bank purchases a block of shares from the foreign company, bundles them, and reissues on a domestic exchange denominated in U.S. dollars. The U.S. investor avoids foreign taxation while the foreign company enjoys increased access and availability to the wealthy North American markets. Once the ADR is listed on the U.S. stock exchange its price is driven by supply and demand. This can result in pricing of the security here to not follow exactly the pricing of the security in its home market. When this happens there is an arbitrage opportunity if the price is too high or too low when you translate its value back into the value in the home country’s currency and exchange. ADRs offer diversification and capital appreciation for investors by adding an international component to portfolios.

We have owned these types of investments for our clients through some of our money managers. We tread carefully into these spaces as many investors have been reaching for yield causing these investments to appear richly valued compared to their historical valuations.

Utilizing these types of securities doesn’t have to be as scary as it was for Dorothy to travel into the haunted forest. Arm yourself with knowledge and a good Financial Planner to help make the best decisions for your financial plan!

Angela Palacios, CFP® 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.

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The information contained in this post or blog 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 Andrea 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. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Investing involves risk and you may incur a profit or loss regardless of strategy selected. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Investor Basics: Stocks 101

Contributed by: Nicholas Boguth

Earlier in the Investor Basics series, we went over the basics of bonds. Now we’re going to switch gears to the equity side of the investment universe, and gain a better understanding of the basics of stocks.

What is a stock?

A stock is a claim on a company’s assets, or in other words, a share in ownership. If you own a stock, then you own a piece of the company.

The major difference between stocks and bonds is that bonds have a contractual agreement to pay interest until the bond retires, while owners of stocks have a claim to assets so they hope to make money on capital or price appreciation and/or dividend income. Another major difference between stocks and bonds is that owners of stocks do not get paid in the event of a company’s bankruptcy until after all the bond holders are paid. For these reasons, stocks are typically considered “more volatile” investments.

What are the different types of stock?

There are two main types of stocks – common and preferred.

When hearing people talk about stocks in everyday conversation, it is usually safe to assume that they are talking about common stock. Common stocks are much more prevalent in the market. The major difference in characteristics of common stocks and preferred stocks are – 1. Common stocks do not have a fixed dividend, while preferred stocks do, and 2. Common stocks allow the investor to vote on corporate matters such as who makes up the board of directors, while preferred stocks do not.

Voting rights depend on the number of shares that you own. If you own 1000 shares, you have 1000 votes to cast. Most companies allow votes to be cast by proxy, so the individual investor does not have to be present at things like annual meetings in order to cast a vote. Proxy votes can typically be sent in by mail, or nowadays it is common that you will be alerted via email that you are able to vote on a company’s policy and you may cast it quickly online.

Preferred stocks may not allow the investor to vote on policies, but they do have a fixed dividend that is typically higher than the dividend of a common stock, and in the event of liquidation will be paid before common shareholders (but after bond holders). You may note that a fixed dividend sounds a lot like the fixed interest payment of a bond. This is true, but there is no contractual obligation to pay the dividend on stocks. These similarities typically make preferred shares act like something in between a stock and a bond – something that does not participate in the price movement of a company as much as a common stock, but receives a fixed dividend similar to the interest payment of a bond.

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.

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This information does not purport to be a complete description of the securities referred to in this material, it is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Investing in common stocks always involves risk, including the possibility of losing one's entire investment. Dividends are subject to change and are not guaranteed, dividends must be authorized by a company's board of directors.

Second Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

We’ve been busy with research this quarter. We listened to discussions on everything ranging from interest rates, to the current state of the economy, to social investing. Here’s a peek into what we’ve been learning! 

Jeff Sherman of Doubleline

Jeff is Doubleline’s head of macro asset allocation and a lead portfolio manager. He shared his thoughts on the fixed income markets as well as some interesting insight into the automotive industry.

Jeff feels yield is a good predictor of 12 month returns so if you want to know what types of returns you will get from your bond portfolio you need not look past its yield. Unfortunately, yields are very low right now.

Is there a catalyst for higher rates?

The simple answer, they think, is no. There has to be pressure from somewhere in the economy for rates to rise. GDP (gross domestic product) growth, a general rise in the price of goods (inflation), or wage inflation could trigger rates to rise. They don’t see any of these scenarios happening in the economy right now leading them to believe rates will be on the rise anytime soon. 

Automotive industry worries

They are worried about the automotive market because there have been a lot of subprime loans given to consumers to buy cars. Car dealerships are even starting to lease pre-owned vehicles—because inventories are very high—which has never been done before. Inventories are unusually high right now because cars are lasting longer and Uber is taking over and replacing the need to own a car in many markets. These factors spell trouble for the industry. 

Benjamin Allen of Parnassus

Social investing has been an area of focus for our research over the past couple of years. The process of incorporating a social or ESG overlay to our portfolios for those interested has many more options and research available now. Ben spoke about their process that starts with fundamental research just like any other asset manager. What makes them different is they also apply a lens for social factors including environmental and corporate governance. Their company is 32 years old, completely independent and employee owned. He discussed the importance of this independence in being able to develop their own personal edge for clients which has been a big driver of their success. It sounds like a little company I know…The Center! Our very own 30 year history as independent and employee owned.

Brian Wesbury, Chief Economist for First Trust Advisors

While attending a financial planning conference recently, Matt Trujillo, CFP®, had the opportunity to listen to Brian Wesbury speak. Often seen on CNBC, Fox News, and Bloomberg TV he always has an interesting viewpoint. He touched on two prevalent topics: inflation and current American lifestyles.

On Inflation

He noted that banks are holding onto large excess reserves and that’s why we haven’t seen much inflation and growth because they aren’t lending the money out. He referred to the M2 money supply which has grown very little over the last 10 years. M2 is a measure of money supply that includes cash and checking deposits (M1) as well as “near money.” “Near money" in M2 includes savings deposits, money markets, and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

On Lifestyle

Brian talked about how there has been very little wage growth but that our lifestyles have still grown due to dramatic innovations in technology. In 1995 if you wanted to purchase 1 Gigabyte of hard drive space it would have cost you $45,000. Then he pulled out his iPhone and said he had 64GB of space, which would have been worth $2.8 Million back in 1995! Another example is Facebook, the world’s most popular media owner, creates no content. Does this increase in lifestyle makeup for the lack of wage increases? He is not the first economist we have heard refer to this phenomenon. I believe that much research is to come on this topic.

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

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios and are not necessarily those of Raymond James. This information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James is not affiliated with and does not endorse the opinions or services of Jeff Sherman, Benjamin Allen, Brian Wesbury or the companies/organizations they represent. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Past performance is not a guarantee of future results. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

BREXIT—What the Separation Means for You

Contributed by: Nicholas Boguth

In case you missed it, Great Britain voted to leave the European Union yesterday. Here’s a recap of why this vote took place, what the arguments were on each side, and what the vote means for you, the U.S. investor.

It costs Great Britain nearly $10 billion to be a member of the European Union. What does a country like Great Britain gain from the $10B membership fee? The EU spends its budget on economic stabilization, job creation, and security for European citizens. Its members also get the benefit of being a part of the largest trade bloc in the world.

This vote took place now because David Cameron, Prime Minister of Great Britain, campaigned on the promise that he would negotiate better terms of Great Britain’s membership to the European Union. Great Britain has been at a divide for the past few years when it came to key issues related to the European Union. Proponents of leaving the EU cited issues such as the price tag of membership, weak borders as a result of the EU’s immigration and free movement of people policies, and the limit of business growth because of strict general lawmaking. The argument of those who wanted to remain in the EU was centered on the economic benefit of the trade bloc that allowed for free trade between Great Britain and the other members.

Now that Great Britain has voted to leave the EU, they will begin a two year negotiation to determine the details of the separation - the largest of issues being the details of trade between the now independent Great Britain and the remaining EU member countries.

This vote contributed to investor uncertainty in the previous months, and the decisions that are made over the next couple years will undoubtedly contribute to investor uncertainty as media outlets continue to make noise as they do all too well. The key for investors is to be able to filter through the noise to make well informed decisions. Events such as Brexit are great examples of systematic risk that contributes to volatility and risk in portfolios, something that we continually monitor in our portfolios here at The Center. 

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.

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The information contained in this blog 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 Nick Boguth and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

First Quarter 2016 Investment Commentary

Contributed by: Angela Palacios, CFP®

The relatively benign appearing performance year-to-date of the S&P 500 of 1.35% does not tell the full story of the storm beneath.  Markets started out the year spooked by China and the prospects of four interest rate increases being projected by the Federal Reserve (the Fed).  Recessionary fears seemed to spike mid-February and then recede as economic data such as retail sales, manufacturing, employment, and consumer sentiment came in slightly better than expected or at least didn’t surprise to the downside. 

Janet Yellen, chair of the Fed, ended the quarter with a noticeably dovish speech justifying the Federal Open Market Committee’s lower path for rate increases by citing global growth risks.  The Fed now anticipates only two interest rate increases this year instead of their original four.  Meanwhile, interest rates overseas pushed farther into negative territory while the Bank of Japan introduced their own negative interest rate policy leaving the U.S. as one of the few havens in the world that is still providing yield. 

Last Year’s Losers are this Year’s Winners

2015 positive market returns were driven very narrowly by just a handful of stocks.  This year has turned on a dime with the worst performing companies of 2015 being the best performers in 2016.  The below chart breaks the S&P 500 up into 10 groups based on 2015 performance.  Group one represents the best performing stocks in 2015 and group ten represents the worst performing stocks in 2015.  The green and red bars represent performance from each of these groups during the first quarter of 2016.

*Bespoke Investment Group

Moderation in the U.S. Dollar

The dollar slowing its steady advance has helped to ease some of the headwinds for commodities, namely oil, as well as emerging markets debt and equities.  The dollar has given up some of its gains from 2015, due to lowered expectations of the Fed hiking rates.  It is quite common for currency markets to over-react to the monetary policy differences that we are seeing between the U.S. and other countries (negative interest rates overseas versus interest rate increases here at home) so we may yet see the dollar move back into slow strengthening mode.

Summer Real Estate Sizzles

Current housing markets seem to have a severe lack of supply of single family homes similar to the late 1990’s and early 2000’s.  Yet new homes being built are at much lower levels then they were during those years.  Prices will likely continue their upward trend of the past few years as demand continues to exceed supply.  Mortgage rates continue to be low especially after the Fed decided to put on the brakes of raising rates.  All of these factors should equate to a favorable market for home sellers. 

Here is some additional information we want to share with you this quarter:

Checkout the quarterly Investment Pulse, by Angela Palacios, CFP®, summarizing some of the research done over the past quarter by our Investment Department. 

In honor of the Game of Thrones premier, Angie Palacios, CFP®, has also discovered a Game of Negative Interest rates that’s playing out in our world right now. Check out Investor Ph.D.

Confused by interest rates and interbank lending? Nick Boguth, Investment Research Associate, breaks it down for you in Investor Basics by using Game of Thrones.

It’s tax season, which also means refunds may be coming your way! Check out these scenarios from Jaclyn Jackson, Investment Research Associate, and see what the smartest plan for your refund is!

Quarters like this one remind us of the importance of diversification.  While a well-diversified portfolio will likely never generate the highest returns possible it also shouldn’t generate the lowest returns.  The primary goal is to manage your risk and keep the end goal of your financial plan at the forefront.  The key to success in investing is developing that plan with realistic goals and then sticking to it even during times like February when it is tempting to deviate. 

We thank you for your continued trust in us to help you through all types of markets to reach your goals.  If ever you have questions, please, don’t hesitate to reach out to me, your planner or any other members of our staff.

Angela Palacios, CFP®
Director of Investments
Financial Advisor

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.

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The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James.