Investment Planning

Is Your Portfolio Off to the Races?

 We just got to enjoy what has been called “The Greatest Two Minutes in Sports.”  I have always been a fan of the Kentucky Derby, the horses, the outrageous hats, wondering who is wearing the hats, and a blanket of roses.  I’ve had the privilege of actually going down to Louisville to watch but I have never been part of the glamorous, hat-wearing crowd. We’ve always watched from the infield, though “watch” is a loose term. It is more like standing on your tip toes to see a blur of horses run by you for about one-tenth of a second and then return to drinking your mint julep.  But it is fun nonetheless. 

This year the market has felt a lot like we have been off to the races.  It has been one of the strongest starts to the year this decade.  Is it too much too fast?  A new chart put out by Russell Investments says maybe not.

 

For additional disclosure and interpretive guidance on this chart, please click on the following link: http://www.russell.com/Helping-Advisors/Markets/acd.aspx?d=t 

How to interpret the chart:

  1. The gray bar is the full range of 1 year returns the asset class has experienced throughout history
  2. The blue portion of the bar is where returns fall most of the time (68%)
  3. The number highlighted in orange is where returns fell for the 12 months that ended as of March 31st, 2013

Even with the strong returns, as of recently, most indexes are still hovering near “middle of the road” returns for the past 12 months.  So perhaps it hasn’t been too much too quickly.

If you are seeking some advice on an appropriate strategy for your portfolio, put the odds in your favor and contact your Financial Planner today!

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 asinvestment updates at The Center.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  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.

My Meetings with Some of Our Portfolio Managers and Their Teams

 Over the last 22 years I have come to realize on many occasions that we are not in the numbers business but in the people business.  Clients like to know that we understand their investments, and more importantly, the people behind the investments.  While numbers are crucial and we spend a lot of time in the depths of many calculations, I find the most value when I get to understand the people behind the numbers. 

Recently, I met with many of the managers from the PIMCO family of funds.  PIMCO has been a long time resource, providing portfolio management services for the funds of Center clients for over a decade. I alone have made this trip 3 times in the last 10 years while others from the Center have also made the trip. These onsite visits take time, usually a day of travel to their offices and back and many hours of sitting, talking and listening to their strategies, philosophies and themes.  I listen to their logic, really  like to see that passion that drives them to succeed for Center clients.

I joke with our investment department about passion, “The managers we want jump out of bed like a piece of toast in the morning to get to work.”  These managers could retire but they would prefer to manage money rather than golf.  I always find these meetings with our managers as worthy time spent.  I have come back from meetings with conviction in people and their teams we have in place and sometimes found that we need to look elsewhere for a replacement.

Some things can’t be discerned in the numbers alone.

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. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The 3 Missing Bull Market Killers

 Every day I get questions from clients regarding the market being high.  Yes, the market’s nominal price is at an all-time high.  But consider the following situation: Over 20 years, with an average annual gain of 9% per year, the equity market could be looking at a DOW JONES average in the 80,000 range.  Twenty years ago the Dow Jones was hovering around 3,500 and since then we have had a 12 year period when the Dow did not make a new high, but still averaged almost 9% a year.   

The three things that tend to kill a bull market are inflation, interest rates, and valuations, and none of them are present yet.

A Look at Inflation

Notice that we are tracking at one of the lowest rates in history. You’ll see the Consumer price Index is well below the 10-year average. Just compare the difference between the price level of consumer goods and services in 2013 and in early 1980’s:

Sources: Bloomberg and Legg Mason. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary. The graph above is for illustrative purposes only and is not reflective an actual investment.

I don’t think I would be the first to remind you that interest rates are still at the lowest levels in history. This chart tracks interest rates and inflation as both trended down in recent years.

Interest Rates and Inflation

And when looking at the final potential bull killer, equity valuations, you’ll see the measures are in line with historical averages.  Not expensive and not cheap.

Equity Valuations

History as our guide would tell us that until all three or at least one of the bull market killers are present this bull is still alive and well.

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. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  The Dow Jones Industrial Average (DJIA) is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.

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Got Savings Bonds?

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 Ahhh….savings bonds.  Throughout the years, savings bonds have been popular gifts. Grandma and grandpa have given their grandchildren savings bonds for birthdays to encourage saving for the future.  They were easily available savings vehicles that you could purchase at your local bank or, in some instances, through payroll deduction.  The paper certificates are those you might stumble across in a stack of old papers or locked away in your safety deposit box. 

What do you do if you find that you have savings bond certificates?

  • Check the dates.  All savings bonds have a maturity date; a date at which they stop accruing interest (i.e. Series EE bonds accrue interest for 30 years).  You can use any number of online savings bond calculators to find out if your bonds have matured.
  • Transition to Electronic Bonds.  The U.S. Treasury recently stopped issuing paper bonds to save costs.  If you own paper bonds that are still accruing interest, consider establishing a Treasury Direct account to convert your paper bonds to electronic bonds.  This helps eliminate the risk of loss or damage to the physical bond certificates.  If/when your bonds have matured, you can cash them in and have the proceeds deposited to your bank through Treasury Direct.
  • Check the registration on the bonds.  Savings bonds seem to be easily forgotten.  It is not uncommon for a client to find a bond in the name a deceased relative, in a former/maiden name, or in custodial registration for a child who is now a well-established adult.  Updating the registration on active savings bonds now can prevent headaches later.  Registration changes can be handled through Treasury Direct.
  • Last but not least, document that you own savings bonds.  List these holdings with your financial planner and on your Personal Record Keeping Document to ensure that these assets are not forgotten if something happens to you.

While savings bonds are not as en vogue today as they were in past decades, they can still be valuable assets.  It is worth taking the time to bring the old bonds into the current century with Treasury Direct.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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Parents and Children Misaligned on Finances

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 As the mother of a teen and a pre-teen, I can testify that parents and children often speak different languages. Like when my daughter says "I'm going to die," it doesn't generally mean she's seriously ill; it more likely means she got a hole in her favorite pants! I live for the promise of the day when my children are grown and we will be able to communicate on the same plane.  After reading the recent Intra-Family Generations Study conducted by Fidelity Investments, I’m not so sure that will ever happen…at least when it comes to finances.

The Intra Family Generations Study found that parents and their adult children are on different pages when it comes to several key family financial issues, including retirement planning, inheritance planning, and caring for elderly parents.  The study found that 97% of parents and children surveyed disagreed on whether adult children will care for their elderly parents if they need long term care assistance.  Children tend to overestimate the value of their parents’ assets (by an average of $100,000 or more) and parents are overly critical of their children’s financial decisions.  In addition, while 24% of adult children surveyed say they will need to help their parents in retirement, 97% of parents say they won’t need help.  Clearly, there are misunderstandings between the generations.

So why, you might ask, are adult children and parents so disconnected?  According to the study, (which I can vouch for in my personal experience) families simply don’t talk about financial issues.  Talking about things like investments, debts, savings shortfalls, income taxes, or estate planning is taboo in many families. 

Most interestingly, the study did find that 60% of adult children and 68% of parents indicated that they would be more comfortable discussing these important financial issues with a third party financial professional than with each other.  Financial planners are the ideal financial professionals to lead productive family meetings.

If you find yourself as either a parent who has not discussed future financial issues with your adult children or as an adult child who has not discussed long term care or financial issues with your parent, contact your financial planner to schedule your family meeting today.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  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 websites users and/or members.

The Earnings Upset

 My husband, brother-in-law and friends will never forget one Saturday afternoon spent at “The Big House”.  University of Michigan was playing Toledo and was expected to win by a large margin as they usually did against their regional MAC opponents.  I remember this particular game because they had much-coveted press box seats and sideline passes that my brother-in-law acquired in a charity auction.  They were expecting more excitement from the prestige of visiting the sidelines and sitting in the press box than from the game.  Little did they know what was in store that day.  For the first time ever Michigan lost to a MAC team with a score of 13-10!

The fourth quarter 2012 earnings season started much like the fans’ attitudes for Toledo before this game.  People were dismissing it as a lost quarter and game before it even began.  After Hurricane Sandy and the Fiscal Cliff debacle, many thought earnings would be a bust before they were even reported.  However, a little more than half way through corporate earnings releases, stocks are soaring for the year (at least as of writing this) and earnings are looking half-way decent.

  • Revenue Growth has been solid, up 3.3% so far.  Cost cutting continues to be the name of the game here.  70% of companies that have reported have beaten revenue forecasts, which are above average (66%).
  • Demand from emerging markets has fueled growth at large multinational companies.
  • A Narrowing Trade Deficit for the fourth quarter as reported by the U.S. Commerce Department means we are exporting more and importing less. This keeps more dollars in the U.S. and has also helped boost corporate earnings.

So, while positive earnings are usually the earliest released, it still should be a very decent show for corporate earnings for the end of last year.  Luckily for investors and the University of Toledo critics they now understand, “That’s why we play the game.”  As for my husband and his friends, they did enjoy the excitement of watching kick-off from the sidelines and the free snacks in the press box, if not a Michigan win!

http://www.usatoday.com/story/money/2013/02/06/corporate-profit-investors-earnings/1896885/

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 asinvestment updates at The Center.

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.  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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of the authors and not necessarily those of Raymond James.  Investing involves risk and investors may incur a profit or a loss.  Investing in emerging markets can be riskier than investing in well-established foreign markets.  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 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.

Helping Clients with Asset Allocation

 In most books that discuss asset allocation, the author will mention at some point the relevance of strategic asset allocation and it being a prominent component to the investor’s outcome, which is typically measured in volatility and return.   At the Center for Financial Planning one of our core investment beliefs works with strategic asset allocation.  We believe there is an appropriate mix of assets that can help investors pursue their personal set of goals during volatile market conditions.  

Below is a chart of a new client that recently came in for a financial plan overhaul.  You can see they had quite a difference in their current allocation to that of our recommended strategic allocation.  The current allocation in blue is overweight US Large Cap stocks and International Large Cap stocks while underweight in some of the more non-correlated assets like Strategic Income and Strategic Equity.  We were able to look over their outside investments in 401k’s, and 403b’s to help obtain what we determined to be a suitable mix, designed to keep them within their volatility comfort range as well as on track to reach their return expectations over the long haul.


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 Matthew Cope and not necessarily those of RJFS or Raymond James. Investing involved risk and asset allocation 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 Fixed income includes: Non U.S. bonds, TIPS, less than high quality corporates and other bonds not in core fixed.
3. Strategic Equity includes: Hybrid managers, REITS, hedgeing strategies, commodities, etc.

5 Charts We are Thinking About

 In December the Federal Reserve (FED) announced yet another round of Quantitative Easing (QE) as Operation Twist was coming to an end. Through QE 4 the government will purchase $45 Billion in US Treasuries…every month…until unemployment comes down to 6.5%.  So we were wondering how long this could take.  The following chart lays out some scenarios.  At the current pace jobs are being added to the economy, it should take until mid-2015.

Despite all of the money the FED has been pumping into the economy the Velocity of that money has continued to slow.  Velocity means simply the rate the money is spent.  Following is a simple example of money velocity:

  • In a year I am paid $100 for going to work
  • I turn around and spend $50 to get my clothing dry-cleaned
  • Then my dry cleaner spends $30 of those dollars to buy food

The $100 in the economy was actually used to purchase $180 of goods and services over a year.  Therefore, the velocity is 1.8 ($180/$100).  Velocity of money is significant because we won’t likely see inflation in the economy until this picks up from the current record low levels over the past 50 years.

Source: Federal Reserve Bank of St. Louis

Note:  M2 Money Supply is a measure of the total money supply.  M2 includes everything in M1 and also savings and other time deposits.

Since money is not being spent with any speed, people must be saving.  Savings have increased dramatically for individuals in the U.S. as interest rates on personal savings accounts and money markets have been plummenting.  Many have moved from equities into bonds at record rates as bond rates have reached record lows.  Overall, according to the chart below, people are saving more but fewer are investing in financial markets and investing in savings accounts instead.  As you can see in the chart below the increase in percent of savings flowing into Money Markets rose from 29 to 61% over the past 4 years while the amount invested in financial markets has come down from 71 to 39% of total savings.  If investors turn a corner and start to regain faith in the financial markets, money might start flowing back that way.  This could create long-term tailwinds for stock and/or bond markets.

The chart below shows total Inflation over the past 12 years.  For example, College tuition and fees have gone up 120.8% in the last 12 years, if a college charge $6,000 per year in 2000 to attend now it would charge $13,250!  So if inflation is similar over the next 12 years how are we supposed to keep up with rising prices while earning less than .25% on our savings accounts meaning that same $6,000 invested at .25% over 12 years compounded annually will give us a meager $6,182?

Lastly, taxes are on everyone’s mind.  On January 2nd a bill passed that will impact what everyone owes this year.  I found the table below to be a helpful summary of the impact of this bill.  For example, someone making around $85,000 per year will pay $1,147 more in taxes in 2013 than they paid in 2012.

Source: The New York Times

We use this data and more to help shape the direction our investments and financial planning recommendations for clients take over the coming years.

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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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4 Things Corporations Can Do With Their Cash

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 After a few very profitable years, many corporations have record amounts of cash on hand.  Wouldn’t this be a nice problem?  I have yet to experience this but feel I am up for the challenge.  I always have an idea of what I could do with extra money...a cute pair of shoes, turn my bathroom into a Tuscan escape, or even set foot on Antarctica.  I could go on for days.  Publicly traded Corporations, on the other hand, have a much more limited list of what they can do with extra cash on the books.  They can:

  1. Invest in their own securities through stock buyback programs
  2. Invest in capital, Research and Development, or hire more employees
  3. Acquire other companies
  4. Return the money to shareholders in the form of dividends

The first point is one I would like to dwell on.  Generally, when stock buybacks are announced, investors assume that this will automatically add value to the stock price.  This is logical, fewer shares outstanding means that the remaining shares own a larger slice of the company.  However, this is not always the case.  Often repurchased shares go right back out as part of compensation packages.  Also companies don’t always complete share repurchase programs if they need to use the cash in another way.

The irony is companies are usually flush with cash after business has been booming for a couple years or longer and after their stock prices have already jumped substantially.  This is when they tend to go on their shopping sprees.  When prices are down, in the midst of a crisis like early 2009, companies usually hold on to any cash they may have left, fearfully, rather than taking advantage of short-term depressions in their stock prices. 

David Zion an analyst and accountant for Credit Suisse came out with an excellent report on many stock buybacks over the past decade.  It shows that corporations are just as prone to poor investment behavior with their cash as many investors (maybe even worse).  Looking at one of the largest buyback programs over the eight years of the study, according to the Credit Suisse report, Hewlett Packard (HPQ) averaged an annualized loss of 11.3%!

Many experts are postulating that an increase in dividend taxes, which may occur next year, could lead to an increase in corporate stock buybacks (capital gains could be taxed at a much lower rate than dividends).  Be very skeptical, though, since stock buybacks are no guarantee of generating capital gains!

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 materials are accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily of RJFS or Raymond James.  Raymond James Financial Services, Inc., Its affiliates, officers, directors or branch offices may in the normal course of business have a position in securities mentioned in this report.  This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.  As of 12/5/12 close, HPQ was trading at $13.82/share.  HPQ is not closely followed by Raymond James Research.

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What Better than the Gift of Financial Education and Support?

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 I don’t know about you, but I can hardly believe that it is already time for the holidays.  It seems like just yesterday that I was racking my brain to come up with creative gift giving ideas for all of those people on my list.  I find that it is just as hard to find gifts for adults as it is for children.  But there is one gift I’ve found that transcends generations – the gift of financial education. 

I know, financial education does not sound as attractive or exciting as say, an iPad or a Wine of the Month Club membership, but it is a gift that can keep on giving for a lifetime.  What am I talking about when I suggest a gift of financial education?  Here are just a few ideas:

For Younger  Kids (elementary – high school):

  • If you’re trying to stay away from more electronics, there are hundreds of books, workbooks and other resources available from Jump$tart Coalition (JumpStart.org)
  • Games like Monopoly, The Game of Life, and PayDay are great (Most are available as both traditional board games or for the computer, Wii, etc.)
  • Make a contribution to a 529 College Education fund to support the child’s future education.

For Older Kids (college - young adults):

  • If your gift recipient has had earned income during the year, consider contributing to a ROTH IRA in their name. 
  • Gift shares of a mutual fund or stock introduce them to investing and help them start an investment portfolio.
  • Make a payment towards their outstanding student loan debt.

For Young Adults and Beyond:

  • Fund a year of a credit monitoring service to protect their credit and financial identity from fraud.
  • Purchase financial software to help them with budgeting and financial tracking (i.e. Quicken)
  • Pay for a consultation with a Certified Financial Planner ™ (my personal favorite!).  This can help provide basic financial education and guidance for getting them set on the right financial path.

Giving a gift tied to financial education and support may not make you the hero of the holidays, but you can be certain that the gift will long be remembered as one that lasted long after the holiday decorations are put away for another year.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investments mentioned may not be suitable for all investors.

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