Sequestration Frustration

After a debt-ceiling reprieve, the US government’s next big hurdle is the March 1st Sequester. What is sequestration and how does it affect you?

During the debt ceiling showdown in the summer of 2011, a group of arbitrary across-the-board spending cuts deemed unacceptable to both Democrats and Republicans was drafted to ensure action on deficit reduction. It wasn’t a solution, it was just a way to buy time and it’s called a sequester. Through a series of compromises, the deadline for the sequester has been moved to March 1, 2013 and separated from other components of the “fiscal cliff”.

When totaled, the sequester’s automatic spending cuts reduce government spending in 2013 by $85 billion (source: JP Morgan Market Bulletin, 2/19/13). Here’s a breakdown of cuts mapped out in the legislation through 2021.

What does the sequester mean to you as a citizen and investor?

Fiscal drag.The Congressional Budget Office estimates the initial impact to GDP in 2013 of around 0.56% if the sequester lasts from March through the end of the year (source: Washington Post, “The Sequester”, 2/20/2013).  This could mean uneasy stock markets, less hiring, and more muted recovery.

Arbitrary cuts. The punitive nature of across the board cuts may have an impact for you in other ways. Those most affected probably work within the government. Some could lose their jobs and those that don’t could find themselves working in a very constricted environment. For the average citizen,  daily encounters with the government may be slowed or changed. Some examples? Fewer food safety inspections, flight back-ups due to cuts at the FAA, slower federal court systems with lighter dockets meaning delays to cases, cuts to federally-funded scientific research, defense contracts, and reduced military benefits.

Market disruption.The idea of a sequester is popular with almost no one. This could translate into less confidence in stock markets and increased volatility. In the longer term, the failure to address debt and deficit issues could have even larger implications.

We can’t predict how everything relating to a spending sequester will fall out. Markets so far this year have turned the other cheek whether from fatigue with politically-inspired deadline drama or positive reaction to other news. We’ll keep you posted as Capitol Hill sorts things out in the coming weeks and months.

Required Disclaimer: 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 Melissa Joy, CFP® and not necessarily those of RJFS or Raymond James.

Let’s All Give Melissa Cyrus an Official Welcome!

 We would like to take a moment and officially recognize our newest team member Melissa Cyrus and applaud her recent accomplishment.  Melissa came aboard in May 2012 after two summer internships with The Center in 2010 and 2011. She has settled in nicely to her new role as a Client Service Assistant and recently passed the challenging Series 7 securities licensing exam as well as the Series 63 which cover state laws and regulations.  Congratulations Melissa!

Melissa earned her bachelor’s degree from Grand Valley State University with a double major in Finance and Economics.  When not at work, you might find Melissa playing basketball or running and in the summer she enjoys being on the water boating, kayaking or tubing. Melissa enjoys spending time with friends and family. And when it comes to mottos, she is a firm believer that you should be yourself because everyone else is taken.

Personal Emergency Reserve Savings

 The other day during my morning drive to work, I heard a rather startling statistic on our local news radio program – 40% of Michigan residents have NO (that means $0) savings!  Michigan is number 26 of the 50 states in savings rankings, which means that there are 24 states that are worse.  OUCH!

There is no doubt that with the market downturn of 2008 and the slow economic recovery in the last several years, many families had no choice but to dig into savings to survive. But that’s exactly one of the reasons that emergency reserve savings are so important!  Now that more people are back to work and are back to a more normal cash flow, it’s time to get back to business and build the reserves again.

How much emergency savings do you really need?   

Experts don’t always agree on an exact number, but many financial planners recommend having at least three to six months living expenses in an emergency fund, invested in cash or cash alternative investments.  For some, it is easier to pick a specific dollar amount as an achievable goal (say $10,000 or $20,000).  Clearly, the higher your monthly expenditures, the higher your reserve savings should be, especially if the majority of those monthly expenditures are non-discretionary.

Whether you are one of Michigan’s 40% with no savings, or are just someone who doesn’t have enough set aside for an emergency, start “reserving” some cash today. 

To get started, here are a few tips to consider:

• Save aggressively.  Use payroll deduction from your paycheck, if possible, or budget in savings (i.e. have an amount automatically moved from your checking to a savings or investment account on a monthly or bi-monthly basis).
• Reduce your discretionary spending.  Remind yourself that this is likely a temporary adjustment until your reserve savings reach an adequate level.
• Consider other resources until reserves are built.  Do you have cash value life insurance that you can borrow from if you have an urgent need?  Do you have other investments generating income that can be pulled off to build reserves? 

Hopefully, you’ll never have to tap into the funds you are committing to setting aside. But it is impossible to know what is around the next bend and it is always best to be prepared. The time to start (or continue) building your emergency reserves is now!  Consult a Certified Financial Planner™ for these and other ways to help save for your financial future.

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.

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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 information is not a complete summary or statement of all available data necessary for making an investment decision.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Center Client Gives Back to his Community

 Lee and Susan Riddell, longtime clients of Marilyn Gunther, CFP^® have been Center Clients for nearly 25 years.  Susan is a gifted quilter and crafts person.  Lee retired from a career at Ford Motor Company and was recently featured in an article written by Robert Norris for Cincinnati.com, a Gannett Company.   

The following quote taken from the article provides insight as to how Lee Riddell shares his many talents and what successful retirement means to him and Susan.  “This is my community.  Do I want to be a spectator or a participant?”  One of the ways Lee participates is by volunteering with Habitat for Humanity affiliate in Phoenix.  He helped Katrina victims rebuild and more recently went to Kentucky to help rebuild a home taken down by a tornado in March 2012. 

Marilyn Gunther said, “It has been such a pleasure to see Lee and Susan successfully retire.“

Photo: Lee Riddell, left, joined a volunteer team that included AmeriCorps worker Kevin Slowe from Jamaica in building a home last fall in Dry Ridge.

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Investment performance was not used to determine which clients to include in this spotlight. It is not known whether the above clients approve or disapprove of Marilyn Gunther/Center for Financial Planning or the advisory services provided.  The criteria used to select this client was random.

Markets Welcome the New Year - 1st Quarter 2013

“Happy New Year!”  At least that’s what stock markets seem to be thinking. While 2012 posted solid returns across asset classes, 2013 has had a more exaggerated “off to the races” feeling for stocks. Money which was piled up on the sideline, whether from fear of the fiscal cliff or general concerns or fatigue, seems to be rushing back in to riskier investments like stocks.

Who hasn’t been happy in the new year? Government bond holders have a slight taste of potential negative returns as interest rates rose. The Barclay’s Capital Aggregate Bond Index returns fell by 0.70% through the end of January. Interest rates have risen in several small periods over the past year with some corresponding bond losses, but a clean slate of fresh “Year to Date” performance numbers may highlight these negatives more easily than hiccups buried within the year.

US GDP growth from the 4th quarter was markedly lower than expected falling by 0.1% as reported by the Commerce Department. What was ailing the US economy? Much of the blame goes to reduced spending, especially in the defense sector as there was anticipation of spending cuts related to the fiscal cliff. This is likely to be revised upward, though, because the trade deficit narrowed unexpectedly during the end of the year.

Washington’s grip on business page headlines is not done, but an agreement to avoid the so-called fiscal cliff as well as delay the debt ceiling limits seems to have been a welcome break from posturing and threats for a few weeks. We still have spending cuts to deal with in the next couple months so the respite may be short-lived. We are not fans of can kicking, but we also do not want government dysfunction to hijack the investment realm. We’ll keep you posted as developments unfold.

While growth has been muted, employment numbers continue to slowly look better as more people return to look for jobs and less new unemployment claims are registered. These numbers are an important factor in our economic picture today and while the US unemployment recovery is certainly sluggish, the direction of the numbers (more jobs, less unemployed) remains critical. In tandem with unemployment is housing which has been a major drag to the economy since 2008. Encouraging positive numbers have been reported from 2012 into 2013 for both housing prices and activity. This is a welcomed trend!

US economic reports aren’t the only positives. The notion of recovery is starting to be contemplated in Europe and while the Euro economies certainly aren’t out of the woods, the Euro itself seems more viable. In China, new leadership has also allayed fears of a hard landing in Asia. In the US, corporations continue to post strong earnings and a new reality in domestic energy production is starting to change some dynamics for US competitiveness.

January’s buying stampede cannot sustain itself for 12 months and we’re sure 2013 will have its investing ups and downs as does any other year. That said, those who continually forecast doom and gloom for US markets would be hard-pressed to explain the rising tide we’ve witnessed since the beginning of 2012.

Things are never as good or as bad as they may appear. Better returns may tip the investing scales from fear to greed. Don’t get too excited chasing returns of yesterday. We still recommend a prudent, diversified and consistent approach to investing as you strive to reach the finish line for each of your personal financial planning goals.

On behalf of everyone here at The Center,

Melissa Joy, CFP®

Partner, Director of Investments

Required Disclaimer: 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 Melissa Joy, CFP® and not necessarily those of RJFS or Raymond James. Investing involves risk and diversification does not ensure a profit or protect against a loss. 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. The Barclays Capital Aggregate Bond Index is a broad base index maintained by Barclays Capital and is often used to represent investment grade bonds being traded in United States. 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.

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.

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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.

Center Office Closed in Observance of Presidents' Day

 Please note: Our offices, along with the financial markets, will be closed Monday, February 18, for the Presidents’ Day holiday. Of course, you can access your account(s) using Raymond James Investor Access at any time, year-round.

We set aside the third Monday in February so that we may reflect on the exploits of not just our first president, but all our nation’s great past leaders. But there are some things that many don’t know about these great men, some things that might cast a new light on their place in history.

So, for this Presidents’ Day holiday, reflect on these interesting facts:

George Washington’s teeth were not wooden. In fact, they were made of much sterner stuff: gold, ivory, a touch of lead and some actual animal teeth.

John Quincy Adams was quite the swimmer, as evidenced by his regular early morning skinny-dips in the Potomac.

Martin Van Buren popularized the phrase “OK” – he was from Kinderhook, N.Y., and got the nickname “Old Kinderhook,” or “O.K.,” which came to mean that everything was alright.

Millard Fillmore married his teacher – she was only two years older than him, but still.

U.S. Grant once got a speeding ticket – for riding his horse too fast through the nation’s capital.

Grover Cleveland married the same girl he had been legal guardian of since she was 11. They married in the White House when she turned 21, but still.

Woodrow Wilson is the only U.S. President with a doctorate degree. He received his Ph.D. in political science and history, naturally, from Johns Hopkins.

Warren G. Harding once lost the entire White House china collection playing poker; whereas Richard Nixon funded his first congressional campaign from his winnings at the poker table.

Jimmy Carter was the first U.S. President to be born in a hospital.

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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.

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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.

Center Supports the IOG’s Programs to Engage and Educate Seniors

 The Center is proud of our partnership with the Wayne State University Institute of Gerontology (IOG).  The IOG is committed to engaging and educating seniors in our communities. One of their premier events is the Art of Aging Successfully Annual Senior Conference, which brings hundreds of seniors together to experience well-respected keynote speakers and break-out workshops promoting creative expression, social connection and information on ways to positively embrace all facets of aging.  In addition, time is provided to take a stroll through the Gallery Walk, which is a display of art created by local area seniors.  Sandy Adams has attended this event for the last three years and says, “Art of Aging is a wonderful event.  The energy and creativity of those that attend is inspiring.” This year’s conference will be held on Thursday, March 21, 2013, at the Greater Grace Conference Center in Detroit and is sure to be another sell-out event.  Sandy sits on the Board of Visitor’s for the Institute of Gerontology and will be representing the Center at the Art of Aging event.  To view the conference schedule or to register, go to http://www.iog.wayne.edu/seniors/art-of-aging.php.