Second Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

We’ve been busy meeting with investment managers this past quarter.  It’s always great to dig into the latest research and get a fresh perspective and some new ideas.  Angela Palacios shares some of the most notable take-aways from our second quarter meetings:

Scott Davis, Portfolio Manager Columbia Dividend Income

It is always a pleasure to receive a visit from Scott.  We have had the privilege to meet with him several times over the past years and each time we seem to glean interesting information.  He was pleased and flattered to be recently named by Morningstar as one of their “Ultimate Stock pickers.”  We discussed several top of mind topics, starting with the potential upcoming interest rate increase by the Federal Reserve.  Scott told us he wished they would just get it over with and do the first one soon.  He stated that markets move so quickly these days you want to be positioned for this happening well in advance.

Scott is also growing increasingly concerned over companies that are issuing debt at low rates today to buy back stock.  The concern isn’t necessarily for now, but in the future when they become dependent on this debt and need to refinance that debt at much higher rates.  Some companies could be in a lot of trouble at that point.

Heidi Richardson, Head of Investment Strategy for US iShares

Heidi was also talking about a rate hike, among other things.  She gave her list of things to know and do.

5 things to know:

1. Federal reserve should hike rates soon but she expects rates to remain low

2. Central Bank divergences (while US and England are raising interest rates, Japan, Canada and Europe are lowering rates)

3. She expects stocks to be a bumpy ride (low volatility of the past 5 years is over)

4. US economy is only inching upward slowly (they expect GDP growth of 2.5% this year)

5. Inflation is still very low and Europe will see deflation

5 things to do:

1. Prefer stocks over bonds (although bonds are still an important part of diversification)

2. Look overseas for investment opportunities

3. Watch your step in bonds (be choosy as many look fully to overvalued and liquidity may be sketchy)

4. Resist the urge to exit (fear of a bubble leads many to sit on the sidelines and wait to invest, but over time they expect the market to move higher)

5. Seek growth in a low growth world (low rates on cash continue to hurt those holding it)

Jeff Saut, Chief Investment Strategist and Managing Director of Equity Research for Raymond James

Jeff presented at the Raymond James conference in April and gave us his stages of a secular bull market (which he believes we are in now): 

1. Aftershock and rebuilding: this is the realization that you survived a bear market. Rebuilding is a sea change where stocks no longer react to negative news.

2. Guarded optimism: bear markets redistribute stocks to the rightful owners (this is the stage he thinks we are in).

3. Enthusiasm: fun stage of the bull market where generally everything you touch makes a profit.

4. Exuberance: feelings grow as nothing can go wrong, he feels we have a long way to go before we get to this stage.

5. Unreality: advanced stage of exuberance, frantic and chaotic, volumes pick up and there is a lot of turnover.

6. Cold Water and disillusionment: bursting of the bubble.

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

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Raymond James is not affiliated with and does not endorse the opinions or services of Scott Davis, Heidi Richardson or the companies they represent. 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 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. Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance is not a guarantee of future results.

Raymond James is not affiliated with and does not endorse the opinions or services of Scott Davis, Heidi Richardson or the companies they represent.  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 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. Investments mentioned may not be suitable for all investors.  Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance is  not a guarantee of future results.

Green Money: Tracking the Socially Responsible Investing Trend

Contributed by: Laurie Renchik, CFP®, MBA

The concept of using investment dollars to support environmental and societal initiatives is not a new idea.  For decades socially responsible investing, also called SRI, has been recognized as a broad investment category spurred on by religious values, social movements and concerns about health and the environment. Today the SRI landscape is changing.  There are new strategies that fall under the responsible investing umbrella with differing objectives, more exposure to a wider range of asset classes and a growing number of investment dollars being put to work.  This is good news for investors who have personal and financial goals to incorporate responsible investment strategies into their portfolios.

Navigating this emerging landscape is nuanced because there is no single term that describes the multiple approaches evolving from the original concept of responsible investing. Socially responsible investing (SRI), ESG investing (environmental, social and governance) and Impact investing make up three main categories. There are some distinct differences between the three.

At the most basic level, here are the philosophical guideposts:

SRI Investing:  Creating a portfolio that attempts to avoid investments in certain stocks or industries through negative screening according to defined ethical guidelines.

ESG Investing:  Integrating environmental, social and governance factors into fundamental investment analysis to the extent they are material to investment performance.

Impact Investing:  Investing in projects or companies with the express goal of effecting mission-related social or environmental change.

What does responsible investing mean to you? 

Incorporating responsible investment strategies into your portfolio is not a one-size-fits-all solution.  Your goals are specific to you and your objectives for the future.  Talk with your financial planner to better understand the opportunities available today to integrate responsible investment strategies in your portfolio.    

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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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 opinions are those of Laurie Renchik and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Does Investing Feel Overwhelming? You’re Not Alone.

This article is contributed by guest blogger Laura Garfield, a social media and marketing contractor for The Center and the author of The NeXt  Revolution, a business book researching the generational behavior of women in the workplace.

No matter your tax bracket or the credentials you have tacked on to the end your name, many women agree on at least this one thing:

Decisions on Investing can feel Overwhelming

I recently sat in on a session about Women and Investing at the Raymond James National Conference. The point was hammered home by Kristin Gibson, the Senior Director of Sales & Strategic Partnerships at Russell Investments. She said in a survey of high net worth women, most described investing as:

 “Overwhelming”

 “Complicated”

“Boring”

“Latin”

 These may not be your adjectives of choice. In fact, you may buck the trend and love every nuance of the investing process (I certainly know a few of these women … but can’t claim to be among them). But in general, women want to find a way to make investing not feel like scaling a steep climbing wall in heels and a pencil skirt. Some way to make investing approachable.

Using Your Natural Advantage

Women are naturally strong investors. It’s not a stereotype. Research backs this up. “When it comes to making investment decisions, gender plays a larger role than many people realize,” reports USAToday. Factors like risk aversion, ability to ask for advice, and taking your time … these are all traits that fall on the female side of the gender divide. Research indicates that women investors have these natural advantages:

• Are not over confident

• Are realistic and risk averse

• Research more and ask questions

When it comes to behavioral economics, the Washington Post interviewed Terry Odean, a University of California professor who has studied stock picking by gender for more than two decades. In a seven-year study, Odean found single female investors outperformed single men by 2.3 percent while female investment groups outperformed male counterparts by 4.6 percent. Odean told the Washington Post, “In our research, male investors traded 45 percent more than female investors. Men are just making a lot more bad decisions than women. More trading leads to lower performance.”

Finding the Right Ear

So back to the Overwhelming/Complicated/Boring/Latin part of the investing equation, if you’re going to flip those adjectives with a boost from your feminine advantage, you may need some help. A key to that is picking the right investment advisor. Research shows that women and men gather information about investing differently.

• Women want better communication, the chance to say what they mean

• Women build trust by collaborating & sharing information

In Kristin Gibson’s session at the conference, she summed up what most women are looking for in a financial advisor like this:

“I want someone who understands my situation.”

Whether that’s a man or a woman shouldn’t matter. What does matter is how well the advisor can listen, communicate and understand your needs. You may be looking for “straightforward” or you might want someone who is “motivational”. Whatever your word, when you find the best fit, that advisor will help you translate “investing” from Latin into English. If they can turn “boring” into “captivating” then you’ve really found a keeper.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Laura Garfield and those cited/quoted 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 services of Laura Garfield, Kristin Gibson or Russell Investments. 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.

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.

Volatility and Commodities (go together like a horse and carriage)

Contributed by: Matt Trujillo, CFP®

There has been a lot of press lately about the recent volatility in the crude oil markets.  Every smart person with a microphone is making predictions about how low it could go or where it ultimately might end up. I can’t open a financial website, magazine, or journal without seeing some sort of headline declaring that Oil is going to $10 a barrel!

All of this sensationalism would lead one to believe that this price behavior is something unusual for commodities and oil specifically. It’s a constant reminder how short sighted the media is and why it’s best not to make financial decisions solely based on what you hear on CNBC or Yahoo Finance.

Historical Perspective on Commodities

In fact, try going back over the last 100 years and study not just oil, but all commodities. You’ll see that large double-digit gains and large double-digit losses are quite common and almost expected in these types of markets.  If you have that kind of time (and that level of interest) click here to browse through all the various commodity prices and historical price data.

For those of you that don’t have that kind of time, let’s focus mainly on the last 10 years.  For illustrative purposes, we’ll use the annual performance data found here. This interactive chart shows the historical pricing performance for oil as well as several other commodities over the last 10 years. Using this data, let’s say I invested a hypothetical $10,000, and earned the returns illustrated on the chart. My original $10,000 would have grown to $12,351 after 2014.  This is equivalent to roughly a 2.3% average annual rate of return.  Not really anything to get overly excited about, but the path to get that 2.3% was quite dramatic. A few notable years: 2005: +40.48%, 2007: +57.22%, 2008: -53.53%, 2009: +77.94%, and 2014: -45.58%.  Quite the volatile rollercoaster ride…especially if you end up with a paltry 2.3% for enduring all of the swings!

As you can see, when it comes to Oil price volatility is nothing new. Commodity markets are not for the faint of heart and might make sense as a part of a well-diversified portfolio. If you are considering adding oil or any other commodity to your overall investment plan, please talk to a qualified professional first to make sure that it is a suitable investment for your risk tolerance and time horizon.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matthew Trujillo, CFP® 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. Past performance may not be indicative of future results. Hypothetical example provided in this article is for illustrative purposes only. Actual investor results will vary.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.

Why Active Money Managers are so Unpopular Right Now

Contributed by: Angela Palacios, CFP®

Today, maybe more than ever, active managers are the unpopular kid on the block.  Over the past 5 years, very few U.S. Large cap managers have managed to beat the S&P 500.  Last year, according to Morningstar Inc., was the worst year in modern history for active management underperformance in the U.S. stock category.  Investors tend to be very harsh on money managers, giving more importance to what they have done lately as opposed to over longer periods of time.

This is an old chart idea that never gets old.  Investors need to be often reminded of this.  We hold Wall Street to very tight standards, encouraging them to try to outperform or provide positive returns over very short periods of time when this is very difficult.  Looking at the S&P 500 if your investment time frame (holding period) is one year the chances of achieving a positive return are 68%. That’s only a little better than a coin flip. You are at the mercy of the market’s craziness.  As individual investors we are usually lucky in the sense that we have time on our side.  If our investment time frame is 20 years or more, then the markets have been kind to us offering positive returns 100% of the time.

Source: Robert Shiller, author's calculations. 1-day returns since 1930, via S&P Capital IQ.

Unfortunately, so many investors are busy chasing a benchmark or their neighbor’s returns that they are rarely happy.  You do have the opportunity to focus on the long term and have the odds in your favor, but will you?

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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http://www.ritholtz.com/blog/

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 obtained from sources is considered to be reliable, but Raymond James does 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.

Are we Seeing Inflation or Deflation in the US Economy?

Contributed by: Jaclyn Jackson

The Fed has created investor concern by stumbling away from its hope of 2% inflation.  That concern has given rise to a polarizing inflation/deflation debate. With a fragile recovery at stake, the Fed struggles against overcoming persistently low inflation rates and losing the public’s faith.  At the same time, investors build their cases for inflation or deflation; each side posing strong arguments for why either threatens the US economy.   

Evidence of Deflation

Investors who find themselves in the deflation camp argue that fears that the European Central Bank’s bond buying program will make the euro less attractive and send investors flocking to rising currencies.  As a result, European growth will improve, but at the expense of growth in the US, Switzerland, and other countries with strong currencies.

Moreover, January 2015 marked the third month in a row that prices for goods declined, clearly discouraging hope of a healthy growing US economy.  With a -0.1% price decline in January, goods actually cost less than they did one year ago. Similar to 2009, deflation affects falling prices, consumer spending, and adds pressure to corporate profit margins, typically spawning wage reductions and increased unemployment.

Not to mention, some dispute whether quantitative easing even worked.  The Fed made huge bond purchases with the intention of increasing the money supply.  Ideally, central bank asset purchases should increase bank reserves and the money supply, resulting in increased lending by banks. However, in reality, banks were so panicked during the financial crisis that they held on to the excess money and did not lend. There can’t be inflation without lending.

Argument for Inflation

Conversely, investors in the inflation camp argue that the energy sector, especially cheap gas prices, is the primary driver of falling goods prices.  Moreover, they believe recent price stabilizing marks the beginning of increasing gas prices moving forward. Essentially, as gas prices rebound, the inflation figures should also put deflation worries to bed.

What’s more, if you exclude energy from consumer prices, staples such as food, shelter, and medical care have increased 1.9% from 2014.  When the most volatile categories like food and fuel are removed from the equation, core inflation is steady and up 1.6% from last January.  These numbers reflect the economy being more in line with the Fed’s 2% goal.

Despite looming worries, economists are still optimistic about the overall improvement of the US economy.  Many credit quantitative easing for keeping interest rates low, building job creation opportunities, and preventing the Great Recession from becoming the second Great Depression. However, it is also important to note that critics of quantitative easing say that a long-term effect could be high inflation.

The Verdict

This is not a black and white issue.  There are areas of inflation and deflation pulling the US economy in both directions.  We are watching bank stability, consumer spending, and credit to monitor the situation.  Yet, taking the glass half full perspective, investors can be comforted that the United States’ core inflation is key in differentiating the U.S. economy from more challenging economies like Japan and the Eurozone. 

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Jaclyn Jackson, Investment Research Associate 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. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. 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, Investment Research Associate 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. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss.

Is a Market Correction Coming Soon?

Contributed by: Matthew E. Chope, CFP®

I’ve said before that I believe market corrections are as natural as the day is long. That’s why, in my last blog, I shared 3 steps to prepare for market volatility. But how do you know if the winds of market change are about to blow? These are some indicators I like to watch.

The Bigger Picture: The Fed & Price Ratios

Beyond the US equity markets, there is more going on behind the scenes that can come into play. In my opinion the Federal Reserve has been keeping money extremely cheap for an extended period of time.  The Fed wants to stimulate the economy and encourage job growth. Recently low inflation has allowed the Fed to stay on this path.  This works very well for the US treasury also since low interest rates keep the US Government balance sheet solvent and interest expenses manageable.  It has also allowed banks the time needed to replenish balance sheets and squeeze out the bad debt on their books. 

Earnings are usually necessary to allow equities to sustain long-term values.  Generally, the price of a security today is the sum of all future discounted cash flows into perpetuity.  When earnings are stable and getting better and money is cheap this allows for higher price multiples like we are seeing today.  We are at or near the highest price ratios ever witnessed in the US equity markets.  The following chart is measuring the price to many other gauges of earnings cash flow and book value over the last 65 years.  It’s not much different if you view it over the last 200 years.

Ratios of various equity valuations

We are at this point in history because of cheap money, cheap labor and now even cheap energy (which is more of a positive shock).  Money, Labor and energy are the 3 main expenses that go into every income statement of most companies in the country. The next two charts give a valuation of corporate equities values to nominal GDP (price of publicly traded companies/gross domestic product)  the important thing to see here is that the chart is indicating very high prices compared to output from a historical standpoint.

The next chart below is very similar depiction of valuation. Each point on the chart is the price of S&P 500 stocks at that point in time divided by the previous 10 years of earnings for the S&P 500.

Shiller P/E for the S&P 500 Chart

More Indicators to Watch

From a historical standpoint, these 3 expenses for companies are close to, if not at, the lowest they have been for a generation or two.  It’s hard to see how it can get much better. On top of that, we have moderate energy prices again.  That indicates that earnings should be fantastic (and they are), but what's next?  When the cost of money increases and labor costs rise again (as projected for later this year or early 2016 in the chart below) we could see the earnings improvements slow and possibly fall.  And what if there is any type of energy shock the other way (and there always is eventually)?

The following chart from GMO provides some understanding of the last 50 years of initial unemployment claims.  When initial claims are high, we are usually deep into a recession. When they are rising, we are usually entering a recession. And when they are near the level we see today, the labor force is beginning to tighten, which typically leads to wage inflation and motivates the fed to increase interest rates and slow the economy down from overheating.

This chart is initial claims for unemployment 1965 to present.

Winds of Change?

The wind, which has been blowing behind us for so long, has allowed us to feel confident, but it’s beginning to slow considerably from some of the indicators I watch.  Over the next year we could see the economic winds actually begin to blow at us.  On top of that some don’t see a lot of room for upside in US equities over the next 7 years as shown in the chart below.  Those at GMO have forecast for US equities to have negative returns after counting for inflation.  So, if you haven’t recently, now may be the time to review your portfolio allocation, time frame and risk tolerance with your advisor.

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.

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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.

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 Matthew Chope, CFP® 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. 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 S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

3 Ways to Prepare for a Market Correction

Contributed by: Matthew E. Chope, CFP®

Markets need to correct from time to time – I believe it’s as natural as the day is long. We may even be past due. I attend a lot of conferences and lectures about everything related to finances, financial planning, investments and economics – All the fun stuff!  Well, fun to me.

Recently, I heard the presenter talk about this chart, the “S&P 500 Growth/Value index Ratio”.  He actually said the S&P 500 still has a ways to go - like 25% before it's at the same peak of 2000. My thought was: Why anyone would want to get back to the type of silliness we had in 2000? 

Three years ago I did not see excesses in the market valuations and most economic indicators were still getting better, and rightly so.  I believe today valuations are rich.

Economic Cycle in Extra Innings

Someone asked me recently what inning we’re in for this economic cycle. I responded: Probably the 13th inning! The average lifespan of a US economic cycle is 4.9 years and we are almost at our 6th year.  However, there may be time left. We could see the rest of this inning, maybe more, before a 10% downturn or more.  A 10% downturn is a very normal annual event, historically speaking. And we have not had a 10% downturn in the Dow or S&P 500 since the 3rd quarter of 2011 -- almost 3 ½ years.

3 Steps to Prepare for Volatility

At The Center, we strongly believe in a philosophy of investing, not attempting to time the market.  So I’m not here telling you this a market top.  No one is smart enough to do such a thing with any consistency and getting in and out can be more detrimental than staying put over the long haul. These are the 3 steps I suggest to my clients no matter the market cycle:

1. Make sure your long-term allocation is still appropriate

2. Double check that your time frame is correct for the investments in your portfolio

3. Review and consider your risk tolerance for those investments

If there is money you need in the next 12 months for a project or money invested for less than 5 years, discuss with your planner where to put this so that it has less volatility. In my next blog, I’ll take a look at the bigger picture and what to watch for signs of a potential downturn. 

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.

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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.

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 Matthew Chope, CFP® 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. 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 S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

First Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

We hit the ground running this year with a flurry of meetings with top notch investment managers.  In January Angela Palacios attended the ETF.com conference where international investing was a hot topic.  Angela shares some interesting insights along with notable quotes from some of our top money managers.

Ryan Barksdale of Vanguard: Due Diligence process

Melissa and Angela sat down with Ryan to discuss how Vanguard structures their investment committee in making key decisions as well as how they evaluate a company they are looking to bring on as a partner in making investment decisions.  Ryan discussed with us their manager oversight and selection process.  The keys in their investment selection process include low cost, top talent and patience.

Giorgio Caputo a portfolio manager and analyst at First Eagle

On the global front, First Eagle’s Giorgio Caputo noted that international valuations seem to be becoming more attractive relative to the US.   And with global confidence at multi-year lows and depressed earnings, if anything goes right things would start to look attractive. US quality positions have been reaching their cash targets and they’ve been replaced with overseas holding. Caputo noted that their investors pay a tax by holding cash, high quality bonds, and golds in order to get lower risk as measured by volatility in the portfolios.

It was noteworthy that Caputo was meeting with us on January 23rd, which was the day that Mario Draghi announced new quantitative easing initiatives in Europe. Caputo mentioned that the trend has been to buy on rumor and sell on fact. This seemed to be repeated with the announcements.

Discussion turned to the global fears on deflation. Caputo noted the perplexing conundrum that worldwide labor pools are shrinking as populations age, but wage growth isn’t increasing with a tighter labor pool. He blamed this on a deflation pulse which is coming from the automation of equipment. Whereas a new factory 30 years ago might have employed 1,000 workers, today a similar factory might only employ 10 or 20 people with machines taking care of the rest.

Notable Quotes from some of our top managers shareholder letters

From Steven Romick President of FPA notes it has been rough weather for some time for deep-value investors.  However, rather than letting the market’s and its price fluctuations drive them, they remain patient, picking companies that are easy to earn a return on for the price they are paying.  They have to often sit in cash and wait for these opportunities as they are now, at least partially.

“Our money is invested alongside yours so we’re willing to look stupid for a time rather than act stupidly”

Rob Arnott Chairman and CEO of Research Affiliates notes that diversification in a bull market is always painful. 

History and common sense suggest some serious caution going forward, given a potentially toxic brew of historically high valuation levels, peak earnings, an economic expansion that’s about to enter its seventh year, the markets’ evident addiction to monetary stimulus as the primary fuel for further rallies, and the stark divergence between U.S. stocks and pretty much everything else.

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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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. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Raymond James is not affiliated with and does not endorse the opinions or services of Ryan Barksdale, Giogio Caputo, Steven Romick, Rob Arnott, or the companies they represent.

Investment Commentary - January 2015

2014 was highlighted by the continued dominance of America’s large cap stock bull market and a bond surprise with US treasuries providing returns to investors. We like to think of markets in cycles and you may be feeling more and more used to stock returns as it’s been more than five years since we had negative returns in US large company stocks (generally). Moreover, you may wonder why you would own anything but US stocks and bonds given a divergence of returns between US large companies and almost everything else.

The Curse of Diversification?

If you have a diversified portfolio of different types of stocks and bonds as we recommend through asset allocation, it may to be frustrating to see the largest US benchmarks with double-digit returns while other different types of stocks have been more mediocre. Using 2014 as an example, small cap stocks as measured by the Russell 2000 were up 4.89% vs. 13.69% for the S&P 500. Meanwhile, foreign stocks as measured by the MSCI All-Cap World Ex-US were down for the year return -3.87%.

As you can see from the chart below, the drop-off was precipitous. While we have made some adjustments to our recommended mix of stocks, we continue to recommend a commitment to diversification.

It is difficult to overstate the power that diversification has in terms of long-term investment returns. By long-term, we don’t mean one year or three years but over decades which is ultimately the time horizon for most of our clients at least for some of your money. Indeed, the SEC refers to “The Magic of Diversification” on their website educating investors. They go on to note, “The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.” Source.

Bond Redux

While we have been amongst the majority of investors who have been concerned about rising interest rates over the next five to ten years, bonds reiterated their unwillingness to be predictable in 2014 by returning close to their lows in terms of yields. The ten-year treasury yields 1.93% today (January 12). That number seems impossibly low, likely manipulated by a very accommodating federal reserve. It’s not difficult, though, to see why it may stay that low for some time when you notice that the German ten-year bond yields 0.47% and a Spanish bond – much less creditworthy than Uncle Sam – pays just 1.64%.

Predicting short-term bond returns is a fool’s errand. That said, the very low bond yield – about the same as inflation – coupled by forewarning from the federal reserve that rates may go higher this year means our outlook is unchanged. From year-to-year we can’t predict the returns of bonds, but over the next several years, yields will likely go higher. This march higher would be likely to accelerate if there were signs of inflation which seems to be the farthest thing from reality with CPI less than 2% right now. As with all things, it’s healthy to not assume anything.

We have more to share in our investment commentary website http://centerinvesting.com.

• Tim Wyman shares his personal frustration with diversification last year with  “Why I Dislike a Diversified Portfolio…in 2014”

• Our investment strategy quarterly is updated and available

• I share an update on oil prices and other geopolitical events and how they might affect markets

• Angie Palacios has a research roundup from the second half of 2014

• On a housekeeping note, we have established an informational page for tax information

You will not find us making predictions for investment returns in 2015. We can predict that your commitment to financial planning coupled with a long-term outlook when working with us to make investment decisions will have a positive impact on your ability to meet your financial and life goals. We appreciate your partnership and trust in allowing us to work together to meet your needs.

As always, please don’t hesitate to contact us for any questions or conversations.

On behalf of everyone here at The Center,

Melissa Joy, CFP®
Director of Wealth Management

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2013, Melissa was honored by Financial Advisor magazine in the Research All Star List for the third consecutive year. In addition to her contributions to Money Centered blogs, she writes investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

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 Melissa Joy & Center for Financial Planning, Inc. 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 you may incur a profit or loss regardless of strategy selected. 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 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 is an unmanaged index of small cap securities which generally involve greater risks. 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. C15-001750