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Fourth Quarter Investment Commentary

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Contributed by: Angela Palacios, CFP® Angela Palacios

2016 kicks off with much of the same challenges as have plagued us for the second half of 2015.  The S&P 500 was up for the seventh straight year but that is where the excitement ended.  Broad markets delivered lackluster or negative returns.  The S&P 500 needed all of its dividends to get to a positive 1.38% return for 2015 while the Russell 2000 and MSCI EAFE representing small company stocks and international markets were down 4.42% and .82% respectively.

Volatility really picked up in the third quarter with a large drawdown while in the fourth quarter made up some ground.  We expect volatility to continue into the New Year as the year end brought no significant changes to our outlook.

Liftoff from Zero

The Federal Reserve Board (FED) continues to ease their foot slowly off the accelerator after years of easy money.  In December, The FED increased short term rates for the first time in nearly a decade.  This move was highly anticipated and thus bonds did not have a large knee-jerk negative reaction.  Bond markets had already priced in the rate move before it happened.

Looking forward, The FED is forecasting 4, quarter point rate increases for a total of a 1% rate increase in 2016.  The markets, as measured by interest rate futures, disagree as they are forecasting only .5% increase this year.  If The FED actually increases rates by 1% the bond market will adjust prices to reflect this leading to slight negative pressures on the prices of bonds.  Interest rates on bank accounts will lag behind the increases and likely only move upward slightly and slowly while mortgage rates should also increase slowly.

A bright spot in the bond market

The outlook for municipal bonds continues to be positive.  Puerto Rico announced a default on January 1 of $37 Million in debt but this was widely anticipated and didn’t spread into other markets.  Many municipalities continue to improve balance sheets with increased tax collection and the market as a whole seems to be on solid footing.

Bond Market Illiquidity

The negative performance in energy prices has led to increasing spreads between high yield bonds and investment grade fixed income.  When this occurs, prices on high yield bonds go down and they become harder to sell.  Over the past several years, investors have reached for yield in this category not understanding the risks involved.  This highlights the importance of understanding exactly what exposure you are taking on when investing in fixed income.

View on Emerging markets

Emerging market challenges continue into 2016.  Manufacturing in China continues to slow as well as their Gross Domestic Product growth, GDP, but the government is intervening in their stock market trying to prove they can provide a floor to asset prices. China’s slowdown has had a negative impact on commodity prices along with the glut in the oil market causing oil prices to be at their lowest levels since early 2009. 

These pressures have been brutal to emerging market country currencies that depend on exporting commodities.  In order for there to be a turnaround in this space we would need to see a change in investor sentiment, stronger economic growth, and a weakening of the U.S. dollar which we don’t see as likely in the near term.

The Economy

Locally our economy continues its slow grind in the positive direction.  Consumer spending remains strong with low gas prices and strong job growth increasing households’ purchasing power.  Housing is a bright spot and as rates increase borrowing terms may be relaxed a bit by lenders which would be helpful.  Inflation may start to pick up slightly from very low levels now.  As energy prices find a bottom this would cease being a negative effect on inflation and may even start to add to year-over-year inflation as we start to rise off the bottom.

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

Checkout my research summary in the quarterly Investment Pulse.

Checkout my research summary in the quarterly Investment Pulse.

I delve into Out of the Box Investing with a look at alternative investments.

I delve into Out of the Box Investing with a look at alternative investments.

Melissa Joy, CFP®, Partner, chimes in with a timely reminder of 5 Questions to ask yourself when stocks are down.

Melissa Joy, CFP®, Partner, chimes in with a timely reminder of 5 Questions to ask yourself when stocks are down.

Nick Boguth, Client Service Associate, giving his insight on Style Box Investing basics.

Nick Boguth, Client Service Associate, giving his insight on Style Box Investing basics.

Check out an article on Diversification from Jaclyn Jackson, Research Associate, to help better understand the benefits.

Check out an article on Diversification from Jaclyn Jackson, Research Associate, to help better understand the benefits.

Vice President and Global Market Strategist for J.P. Morgan, David Lebovitz, and The Center's Melissa Joy, CFP®, will discuss timely market and economic insights. REGISTER for the webinar!

Vice President and Global Market Strategist for J.P. Morgan, David Lebovitz, and The Center's Melissa Joy, CFP®, will discuss timely market and economic insights. REGISTER for the webinar!

Careful diversification and financial planning are tools to help support investor patience in choppy markets.  Don’t forget Warren Buffett’s wise advice, “The stock market is a device for transferring money from the impatient to the patient.”  Patience remains a cornerstone to our investment process here at The Center. We appreciate your continued trust.   If you have any questions or would like to discuss further, do not hesitate to reach out to us!

On behalf of everyone here at The Center,

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.

David Lebovitz and JP Morgan are not affliated with Raymond James. 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. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. 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. Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investing in emerging markets can be riskier than investing in well-established foreign markets. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. There are special risks associated with investing with bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk, reinvestment risk, and unique tax consequences. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. 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.

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Don’t Lose Faith in Diversification

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Contributed by: Jaclyn Jackson Jaclyn Jackson

As investors, we’ve always been taught that portfolio diversification is essentially for good portfolio performance.  Yet, we’ve experienced three consecutive years that have some of us second guessing that old adage.  Case and point, evaluating the broad bull market from March 2009-December 2012 and the mostly flat market from December 2012–September 2015, it is clear that sometimes diversified asset classes perform well and at other times they do not.  During the period of March 2009 through November 2012, diversification generally helped returns.  From December 2012 until August 2015 diversification away from any “core” asset classes generally hurt returns.

Source: PIMCO

Source: PIMCO

Source: PIMCO

Source: PIMCO

Core asset classes (top) reflect the overall positive direction of the most common markets during both periods. Comparatively, diversified asset classes (bottom) generally helped portfolio returns from 2009-2012 as indicated by the blue lines showing positive returns, but thereafter generally detracted from returns as indicated by the red bars with low to negative performance. Based on this data, it’s easy to consider using a core-only investment strategy without the frills (or frustrations) of diverse investments.  However, there is one key point that we can draw from the diversified asset graph; unlike core assets, diversified assets don’t move in tandem with the market.  Believe it or not, that’s actually what’s great about them.

Many people think diversification is meant to improve returns, but it would be useful to reframe that idea; diversification is meant to improve returns for the level of risks taken. In other words, diversified investments work to balance core investments during down or volatile markets.  Let’s look back at the market bottom of 2009.

The graph illustrates that a non-diversified (stock-only) portfolio lost almost double the amount of a diversified portfolio.  Moreover, the diversified portfolio bounced back to its pre-crisis value more than a year before the stock-only portfolio.  This type of resilience is especially important for retired investors that rely on income from their portfolios. 

Not only is portfolio diversification useful for people who’ve met investment goals, it is equally helpful to long-term investors.  For investors still working toward financial goals, portfolio diversification can help produce more consistent returns, thereby increasing the prospects of reaching those goals.  The diagram below ranks the best (higher) to worst (lower) performance of 10 asset classes from 1995-2014.  The black squares represent a diversified portfolio.

Source: SPAR, FactSet Research Systems Inc.

Source: SPAR, FactSet Research Systems Inc.

The black squares generally middle the diagram.  As evident, the range of returns for a diversified portfolio was more consistent than individual asset classes.  Returns with less variability are more reliable for setting long-term investment goals.

Admittedly, portfolio diversification over the last three years has made it difficult for many to stick with their investment strategy.  Yet, portfolio diversification still holds merit: it can help mitigate portfolio risk; it can boost portfolio resilience; and it can provide investors the consistency necessary to set and meet financial goals.

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

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 Jaclyn Jackson and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Diversification and asset allocation do not ensure a profit or protect against a loss. 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. 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.

The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. The investments you choose should correspond to your financial needs, goals, and risk tolerance. For assistance in determining your financial situation, consult an investment professional. For more information on any MFS product, including performance, please visit mfs.com. Investing in foreign and/or emerging market securities involves interest rate, currency exchange rate, economic, and political risks. These risks are magnified in emerging or developing markets as compared with domestic markets. Investing in small and/or mid-sized companies involves more risk than that customarily associated with investing in more-established companies. Bonds, if held to maturity, provide a fixed rate of return and a fixed principal value. Bond funds will fluctuate and, when redeemed, may be worth more or less than their original cost. Note that the diversified portfolio’s assets were rebalanced at the end of every quarter. Diversification does not guarantee a profit or protect against a loss. to maintain the equal allocations throughout the period. Standard deviation reflects a portfolio’s total return volatility, which is based on a minimum of 36 monthly returns. The larger the portfolio’s standard deviation, the greater the portfolio’s volatility. Investments in debt instruments may decline in value as the result of declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall), therefore the Fund’s share price may decline during rising rate environments as the underlying debt instruments in the portfolio adjust to the rise in rates. Funds that consist of debt instruments with longer durations are generally more sensitive to a rise in interest rates than those with shorter durations. At times, and particularly during periods of market turmoil, all or a large portion of segments of the market may not have an active trading market. As a result, it may be difficult to value these investments and it may not be possible to sell a particular investment or type of investment at any particular time or at an acceptable price. https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

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Investment Basics: Style Box Investing

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Contributed by: Nicholas Boguth Nicholas Boguth

Among the plethora of data points used to describe any security, there are two that are fundamental for a basic understanding of  stocks and bonds. For equities, the two pieces of data are market capitalization (size) and investment style (value/growth). For fixed income securities, the data points are interest rate sensitivity (duration) and credit quality.  These characteristics are important parts of every security’s risk/return profile, and are key in determining if and how an investment should fit in your portfolio.

In order to help investors easily identify these two key characteristics of securities, Morningstar created a useful tool – the style box. There is a separate box for equities and fixed income securities. The equity style box shows value to growth investment styles on the horizontal axis and small to large market caps on the vertical axis.  For fixed income, the horizontal axis shows limited to extensive interest rate sensitivity and the vertical axis shows low to high credit quality.

As investors, the first decision you have to make is to determine your capacity for risk. Once determined, you are able to choose investments that align with the level of risk you are willing to take.  Growth stocks typically carry more risk than value stocks, and small-cap stocks are usually riskier than large-cap.  Bonds can have limited to extensive interest rate risk based on duration (longer duration = more interest rate risk), and a bond with low credit quality is normally riskier than one with high credit quality.  Looking at the style box, this means that a security that falls in the bottom-right square will typically bear more risk (and hopefully opportunity for more return), and a security that falls in the top left box will typically have less risk. 

The style box is especially useful because not only does it indicate those fundamental data points of a single security, but you can plot all your investments on it to see the characteristics of your entire portfolio as well.   Not every individual security chosen for your portfolio has to match your exact risk profile.  In fact, when you build a portfolio, you may diversify and end up with securities that scatter all over the style box.  The suitability of investments refers to your portfolio as a whole, not individual investments, so it is acceptable to have some lower risk and some higher risk securities.  That being said, the style box does not operate on tic-tac-toe-like rules where a diversified portfolio is one with all of the boxes checked off.  It does not explain everything there is to know about a diversified portfolio, but it is a very useful tool that is essential to investment basics.

Nicholas Boguth is a Client Service Associate at Center for Financial Planning, Inc.

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 Nick Boguth and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Diversification and asset allocation do not ensure a profit or protect against a loss. Investments mentioned may not be suitable for all investors. Past performance is not a guarantee of future results.

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Leaving a Legacy – “Lessons from Dan”

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Contributed by: Sandra Adams, CFP® Sandy Adams

A new year has begun and it feels a bit different at The Center.  Dan Boyce, the last of our founding partners, has now retired and is off to start his life of new adventures. While he will not be physically be with us on a regular basis, he leaves behind a legacy of lessons that will live within all of us for the rest of our lives.

Dan was, without even trying, a mentor to us all. He taught us to be better – personally and professionally.  He taught us to develop the vision that created The Center – something that started as a business, but has turned into much more for our employees and for our clients alike. He taught us to be better people – for ourselves, for our families, for our co-workers, and for our clients. He taught us to believe in ourselves and to be the best that we could possibly be; to never stop growing and to never stop pursuing greatness.  He taught us never-ending gratitude and kindness – he exemplified this with his words AND actions.  He was the ultimate example of honesty and integrity – values The Center is built on.  And last, but not least, Dan led by example in his quest to live his plan – something he is on his way to doing now!

Please check out our video “Lessons from Dan,” below where our staff shares their favorite lesson learned from Dan over the years.  Feel free to share your favorite lessons from Dan with us.  We look forward to hearing from you!

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. 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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Fourth Quarter Investment Pulse

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Contributed by: Angela Palacios, CFP® Angela Palacios

During a very busy fourth quarter we spent some time reflecting and learning from respected experts in our industry.

October 15th Charles De Vaulx of IVA (International Value Advisors) visited our offices to participate in The Center’s first annual chili cook off.  While stopping by, Charles discussed his views on global markets and economies as well as the lack of buying opportunities out there yet. 

Charles De Vaulx, Chief Investment Officer and Portfolio Manager for IVA (International Value Advisors)

He debunked the argument by many that low interest rates justify higher price-to-earnings ratios.  He states rates are low because the world is imbalanced and de-leveraging hasn’t actually happened yet.  While many households have de-levered, governments have increased their leverage.  Debt has simply changed pockets but it is still all out there. 

Charles also argued that circumstances are very complex right now with low interest rates, countries devaluing currencies, and deflationary pressures despite the availability of low cost debt.  Even the sharpest minds are struggling knowing what to do right now. 

Some of their best decisions have simply been to stay out of trouble.  They still stand at nearly 40% in cash because they argue cash is what is needed to invest with the buy low/sell high mindset.

Mathew Murphy, Vice President and Global Fixed Income portfolio specialist for Eaton Vance

In December, Jaclyn Jackson listened to Mathew’s views on the global fixed income markets.  He stated the markets are anticipating the Federal Reserve Board (FED) to hike rates twice for a total of .5% increase in 2016. The FED wants to keep monetary policy loose and continue to increase the labor force. 

On inflation, the Fed is targeting is 2% PCU (Personal Consumption Expenditure Index) – which is very difficult to generate.  It is around 1.5% currently.  Fed is continuing to let the economy run hot because of this.  In the 1980s, the dollar was strong and by December 1985 OPEC pumped for market share in the oil markets (similar to today).  The Fed was concerned about strength in the dollar and lowering oil prices.  In 1985, in response the FED stopped hiking rates and inflation began to peak.  Today, Mathew believes the market is not pricing in interest rate hikes correctly; we are at risk of having more.   It is probable the Fed will have to move faster than the market anticipates. 

The credit story remains on a positive note here in the U.S.  Mathew doesn’t see a recession approaching, and he doesn’t think the credit cycle will turn over despite the issues in bond market liquidity in December.

Mark Peterson, Director Investment Strategy and Education from BlackRock on low returns and reaching for risk

Mark feels there is a lot of risk in portfolios today.  Low returns are a concern and causing money managers and individual investors to reach for returns and thus taking on more risk.  Low volatility for years lulled investors into a false sense of security. He favors municipal bonds as he believes they are still reasonably priced and offer tax advantages.  As a result, Mark feels high quality municipals should be a good buffer to stock market volatility.

He also argues traditional equity diversification does not help the way it has in the past; it doesn’t reduce volatility the same way because correlations between markets are so much higher than they were 15-20 years ago.  He suggests the way to combat these changes in your portfolio is to utilize low-volatility equities and alternative equity strategies like Long/short and global macro strategies.

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.

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 the professionals listed and not necessarily those of Raymond James. The 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 Charles De Vaulx, Matthew Murphy, Mark Peterson, International Value Advisors, Eaton Vance, or BlackRock. 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. Investments mentioned may not be suitable for all investors. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Contributing to your Human Capital AKA Investing in Yourself

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Human capital – “the collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community,” as defined by dictionary.com.  In my mind, however, I have a more simplistic definition – an investment in YOU.  As financial professionals, a major part of our job when working with clients, like you, is aligning your investment portfolio with your individual goals and objectives, which is typically comprised of various mutual funds or ETFs. However, in many cases, the best investment we can ever make is in ourselves – something we can oftentimes overlook or we don’t truly appreciate how big of an impact this investment can have on our lives.

Investing and financial planning both contain many factors or variables that we have either very little or virtually no control over—for example, what the S&P 500 performs for the year, tax policies, how retirement plan contribution limits change, etc. So when working with clients, we prefer to really focus on the things that we can control, like savings vs. spending, portfolio risk, debt load, etc., and maximizing your own human capital falls within this category.

So how do we focus on things we can control? Some examples include:

  • Being intentional with the degree you pursue

  • Obtaining professional designations after college

  • Taking classes to become an expert in an area of interest that can progress your career

  • Taking on additional responsibilities in the workplace to earn more than the standard cost of living pay increase

  • Moving to a new city with more opportunity for you

  • Hiring additional staff or a career coach

The list could go on and on. You may notice that many of the items that go into the investment in one’s self or “human capital” require capital!  I challenge you to not think of these items as “expenses,” but to rather look at them as a necessary component in your ongoing saga of investing in yourself.  This paradigm shift will improve your outlook and more than likely increase the likelihood of your success. 

Making the right choices and committing to investing in yourself typically translates into increasing the value of your future earnings, a major component of your own human capital.  Does this mean you give yourself carte blanche while investing in yourself?  Of course not!  Those who truly maximize their human capital are strategic with their investments and think long-term; very similar to how we approach the investments we recommend to clients.    

As we ring in a new year, it’s a good time to take a step back and think of the ways you want to invest in yourself in 2016 by laying out a plan of what you want to achieve over the next few years. Just as we help clients align goals with the investments we help them make, you should do the same with your own human capital, because chances are, investing in yourself will be one of the best decisions you’ll ever make. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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 Nick Defenthaler and not necessarily those of Raymond James. Keep in mind that individuals cannot invest directly in any index. 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.

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Out of the Box Investing

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Contributed by: Angela Palacios, CFP® Angela Palacios

With volatility creeping back into stock and bond markets after a long reprieve since 2008, investors are wondering where they can find returns again that aren’t tied to traditional markets, or have very low correlations.  While there are even more investment options out there than there are stuffed animals on my daughter’s bed, not all are worth your time. Here at the Center we sift through thousands of different investment options and distill them down into options that are potentially worth your time.

Alternative investments, investments other than traditional, long-only assets like stocks, bonds or cash, take many different shapes and sizes for us.  Over the past 5 or 6 years most alternatives have been a difficult place to make money as any diversification away from the largest companies in the U.S. have produced challenging comparative returns. However, over longer periods of time diversification can pay off. 

Global Macro Tactical Managers

These types of managers can “go anywhere” in the world and buy whatever and wherever they find value.  They can go up and down the capital spectrum of a company buying the debt they issue or use their common stock. These managers can also hold other assets such as cash or gold when they see trouble on the horizon. 

Long/Short Strategies

These types of strategies are similar to “hedge funds” that garner a lot of headlines. They seek to purchase some company stock and own them for their potential upside return but then they can also sell another company’s stock short; selling stock you don’t own, to potentially make money if that stock price goes down. These types of strategies can do well (or poorly) in both up and down markets. Some managers are more aggressive and try to make bets on overall market directions while others try to take a market neutral strategy and provide more bond-like returns and risk.

Real Assets

Physical or tangible assets like commodities, metals, real estate, wine, art, coins, or baseball cards can fall in this category.  Be careful as to not confuse a hobby with investments.  The two can merge but specific knowledge and a lack of emotional attachment must be had by the investor.

Private Equity

Investing in promising private companies can be a source of excellent investor returns. An investor commits a certain amount of money (usually at least $250,000) to a manager for investing in private companies. The money is generally tied up, or illiquid, for 5-8 years. In the end the invested capital and returns are usually paid out after those private companies invested in are taken public or sold off to other private equity investors.  Private equity is generally only available to accredited investors, which the SEC defines as earned income that exceeds $200,000 per year ($300,000 for married couples) for the past 2 years; accredited investors are also expected to earn that same amount of money for the current year or have at least $1,000,000 net worth, exclusive of primary residence. Often private equity firms place even more stringent guidelines on their accredited investors requiring a net worth of $5,000,000 in order to buy in to a strategy.

There are many concerns in the alternative space that must be addressed.  So what makes an alternative investment viable to us and our clients?

Affordability

First and foremost an investment option must be affordable.  Costs can erode much of an investment return especially once inflation is factored in so affordability is of utmost importance. Leverage, using borrowed money to advance returns, can lead to higher costs. For example, coin collecting; a hobby many often try to pass off as investing, is actually very difficult to make money for the masses.  There is a large markup when purchasing coins from a dealer that it is rare to be able to turn around and sell these coins for a profit within reasonable amount of time. 

Liquidity

If you can’t get to your money when you need it, what’s the point?  Think about owning hard assets like real estate.  There can be many complications when trying to sell real estate, ranging from a lack of qualified buyers in an area or a property not meeting inspection requirements etc.  If you are trying to close up a deceased loved one’s estate and most of the assets are tied up in illiquid real estate but the government wants their estate tax payment, this can be a real concern!

Understandable

Often alternative strategies we run into are so difficult to understand how the manager is actually making money or applying an investment concept that it is un-investible to us.  Lack of transparency can also lead to a lack of understanding. Often these managers won’t want to give away their intellectual capital by disclosing what they own. If we cannot understand an investment, when it will do well and when it could underperform, we may risk losing conviction and selling at the wrong time.

Alternative investments should not take the place of all of your traditional investments but rather should be used to diversify your portfolio if appropriate. It’s important to keep in mind that many of these alternative investment strategies are quite young and have bloomed during a market environment that has not been kind to them. To determine which strategies are right for you please speak to your Financial Planner!

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.

http://www.sec.gov/investor/alerts/ib_accreditedinvestors.pdf 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 not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investments mentioned may not be suitable for all investors. 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. Diversification and asset allocation do not ensure a profit or protect against a loss.

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Social Security Cost-of-Living Adjustment in 2016

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Contributed by: James Smiertka James Smiertka

You may have already heard, but there will be no Social Security cost-of-living adjustment (COLA) in 2016. This doesn’t happen incredibly often—it’s only the third instance in the past 40 years. Over the past 8 years, the total of annual social security COLA has been only 14.3%, compared to 69.6% in the period from 1975 to 1982. Yearly Social Security COLA depends on the Consumer Price Index as the Social Security Administration states, “monthly Social Security and Supplemental Security Income (SSI) benefits will not automatically increase in 2016 as there was no increase in the Consumer Price Index (CPI-W) from the third quarter of 2014 to the third quarter of 2015”.

The CPI-W value was affected by the significant decrease in the price of gasoline and fluctuations in other areas as well, but as the prices of housing and medical care continue to rise, critics argue that the CPI-W does not accurately reflect the spending of older, retired individuals. Experts argue that the actual cost-of-living for a Social Security beneficiary is increasing as many costs to retirees have increased at a higher rate than the 2.2% average COLA increase since 2000.

It’s known that the lack of a 2016 COLA will impact nearly 70 million people, including retirees, disabled workers, spouses, and children who receive benefits. Some retirees may actually see a drop in their Social Security benefit for 2016 due to the 0% COLA and the potential increase in Medicare Part B premiums (see Matt Trujillo’s blog on Medicare Part B increases for more information).

Everyone’s retirement scenario is unique, and although the 2016 COLA is not likely to have a huge impact, you can contact your financial planner at Center for Financial Planning, Inc. with any questions or concerns about your specific plan.

James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.

This material is being provided for information purposes only. Any opinions are those of James Smiertka and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

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Audience Gets Involved at DCWS “Set The Tempo”

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The Center proudly sponsored Set The Tempo, a two-part Detroit Chamber Winds & Strings (DCWS) concert performed at Kirk in the Hills Presbyterian Church in Bloomfield Hills, MI.  Our commitment to the DCWS is longstanding and we proudly support the performances this talented group brings to audiences.  Involving the audience directly in the artistic process was a prominent theme for this innovative musical performance.

The first half of the concert featured works of three composers who are participating in a competition with composers across the country.  The three were selected from forty applicants in our region who were given 14 days to write a five minute piece for a prescribed instrumentation, which in this case included clarinet, violin and piano.  The audience was directly involved as we all had a collective vote in the competitive process.

The concert’s second half featured a performance by DCWS musicians of Wagner’s Siegfried Idyll.  DCWS Artistic Advisor, H. Robert Reynolds, led an interactive rehearsal of the work, with audience members again participating in the artistic decision making.

Set The Tempo was a different experience than a typical chamber music concert.  It required an adventuresome, intellectually curious audience and from what we observed was enjoyed by all.

Our thanks to Maury Okun, Executive Director of Detroit Chamber Winds and Strings and the musicians for providing a wonderful Sunday afternoon of musical discovery and enjoyment.

Raymond James is not affiliated with DCWS.

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