Unpacking Incentive Stock Options

Contributed by: Matt Trujillo, CFP®

What is an ISO?!

Some of you reading this might have been granted Incentive Stock Options (ISOs) in the past or perhaps this is something that your employer recently started to grant you. In either case it never hurts to get a refresher on what they are and some of the nuanced planning opportunities that go with them. ISOs are a form of stock option that employers can grant to employees often to reward employees' performance, encourage longevity with the company, and give employees a stake in the company's success. A stock option is a right to buy a specified number of the company's shares at a specified price for a certain period of time. ISOs are also known as qualified or statutory stock options because they must conform to specific requirements under the tax laws to qualify for preferential tax treatment.

The tax law requirements for ISOs include*:

• The strike price—the price you will pay to purchase the shares—must be at least equal to the stock's fair market value on the date the option is issued.

• To receive options, you must be an employee of the issuing company.

• The exercise date cannot be more than 10 years after the grant.

*Special rules may also apply if you own more than 10 percent of your employer's stock (by vote). Nonqualified stock options, another type of employee stock option, are separate from ISOs therefore receive different tax treatment.

Once you have been granted a stock option, you can buy the stock at the strike price even if the value of the stock has increased. If you choose to exercise a stock option, you must buy the stock within the specific time frame that was set when the option was purchased or granted to you. You are not required to exercise a stock option.

Your options may be subject to a vesting schedule developed by the company. Unvested options cannot be exercised until some date in the future, which often is tied to your continued employment. The stock that you receive upon exercise of an option may also be subject to a vesting schedule.

Assuming that a stock option satisfies the tax law requirements for an ISO, preferential tax treatment will be available for the sale of the stock acquired upon the exercise of the ISO, but only if the stock is held for a minimum holding period. The holding period determines if a sale of the stock you received through the exercise of an ISO is subject to taxation as ordinary income or as capital gain or loss.

To receive long-term capital gain treatment, you must hold the shares you acquired upon exercise of the option for at least:

• Two years from the date you were granted the option, and

• At least one year after the date that you exercised the option

So whether this is something new to you or something you’ve been handling for a long time, feel free to contact us with questions regarding the nuances around Incentive Stock Options.

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 information does not purport to be a complete description of Incentive Stock Options, this information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing in stocks always involves risk, including the possibility of losing one's entire investment. Specific tax matters should be discussed with a tax professional.

Webinar in Review: Summer Investment Update

Contributed by: Angela Palacios, CFP®

As summer heats up so have the headlines! From Brexit to the Election there has been much for investors to digest so far this year. On Thursday, July 28th, Melissa Joy, CFP®, Partner and Director of Wealth Management, and Angela Palacios, CFP®, Director of Investments, hosted a webinar to update investors on the economy, stocks, bond, and all the exciting headlines.

We started the year with all eyes on the Federal Reserve Board as investors wondered when the next interest rate hike would occur.

They have been watching several data points on the economy to assist them in making this decision, including:

• Unemployment and Wage Inflation

• Inflation (Core Consumer Price Index)

• Gross Domestic Product Growth

On all points there hasn’t been enough strength shown yet by the economy for the Fed to justify raising rates further since the last rate hike in December.

The election cycle is now in full swing. Melissa discussed how Brexit, the United Kingdom vote to leave the European Union, and the election here are very telling of a constituency that is tired of the status quo. We expect headlines for Brexit to make waves in the market over the next couple of years, similar to what we remember from the Greek debt crisis a few years ago, as deadlines approach and negotiations of the separation ramp up. 

While politics here in the U.S. will cause some very interesting negative headlines in the next few months, election years overall are usually some of the better performing years (past performance is not a guarantee of future results) despite this. 

Focusing on interest rates we shared our thoughts on record low rates both here in the U.S. and around the world. Low to negative rates are becoming the trend around the world making high quality U.S. government debt extremely attractive to investors outside the U.S. This anomaly is keeping our rates very low despite a Federal Reserve Board that is slowly trying to increase rates.

While interest rates are low, many investors are turning more and more to equities to seek out yield and returns; however, it is important to remember that bonds have the potential to provide needed preservation even at these low rates during stock market corrections. When markets are comfortably up as we have seen this year investors often become complacent and don’t pay attention to their portfolios. Market highs present investors with some great opportunities to tune up their portfolios.

Melissa offered her checklist of what to do when markets are up:

• Make sure you have future cash needs set aside.

• Rebalance your portfolio.

• Consider charitable gifting.

• Reflect on your investment perspective.

• Make sure your plan is on track.

If you want to learn more on any of these topics check out the webinar recording below. If you still have questions, don’t hesitate to reach out to Melissa or Angela for further discussion.

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

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The information contained in this 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 opinions are those of Melissa Joy and Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Second Quarter Investment Commentary

Contributed by: Angela Palacios, CFP®

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

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

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

Brexit

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

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

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

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

Interest Rates

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

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

Your Plan and Portfolio

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

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

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

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

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

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

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

Sincerely,
Angela Palacios CFP®
Director of Investments

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

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

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

REITs Get Prime Location in Major Market Indices

Contributed by: Jaclyn Jackson

Any real estate broker would tell you, “location, location, location” is a key factor to consider when purchasing property. It comes as no surprise that on August 31st, 2016, Real Estate Investment Trusts (REITs - for more information on REITs check out the most recent Investor Ph.D.) will break away from Financials to claim prime residence as an individual sector in the Standard & Poor’s 500 and the MSCI market indexes. The new sector signifies the increasing importance of real estate as an asset class in global equity markets and is expected to strengthen the appeal of real estate investment trusts among a wider pool of investors.

With all the volatility markets have experienced this year (check out our First Quarter’s Investment Commentary for reference), investors may be curious about the implications of this change. The good news is that the REIT sector will likely produce positive changes that create better investment choices for investors, decrease volatility in the sector, and help investors build up portfolio diversification.

• More Options: Greater real estate investment visibility could spur the creation of new investment products; more REITs could go public; and non-real estate companies will have the opportunity to monetize their real estate holdings by spinning them into investment trusts. As a result, investors will have a greater variety of real estate investment options and can be more selective in choosing the best-fit investment product for their portfolio. 

• Greater Stability: Increased investment options and new investors might create positive equity flows for real estate equities which would ultimately increase sector liquidity. In other words, investors wouldn’t be stuck with their real estate investments and would be able to more easily sell and purchases real estate positions. Not to mention, a broadened investor base could also help curve the severity of real estate market cycles which would help the economy overall. Lastly, the separation from the Financials sector may help equity REIT stocks experience lower volatility.

• Increased Diversity: Typically, REITs have lower correlation to the performance of the broader market.  Therefore, greater access to REITs would allow investors to create more portfolio diversification. Investment diversification supports portfolio resilience and can help facilitate more consistent returns for long term investors. 

As stated by NAREIT Chair President and Highwoods Properties, Inc. CEO, Ed Fritsch, “REITs build, own, and operate the places where people live, work and play. These include state of the art industrial facilities, class A office buildings and welcoming homes, to name a few.” Let’s face it; real estate is ubiquitous to modern living and a growing part of major economies throughout the world. The individual REIT sector has the potential to create more diverse investment choices and develop new opportunities for investors.

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

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jaclyn Jackson and are not necessarily those of Raymond James. Be advised that investments in real estate and in REITs have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Additionally, investments in REIT's will fluctuate with the value of the underlying properties, and the price at redemption may be more or less than the original price paid. Diversification does not ensure a profit or guarantee against loss. Investing involves risk, investor may incur a profit or loss regardless of the strategies employed. Raymond James is not affiliated with Ed Fritsch or Highwoods Properties, Inc.

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

Contributed by: Angela Palacios, CFP®

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

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

REITs

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

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

ADRs

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

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

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

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

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The information contained in this post or blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Andrea Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Investing involves risk and you may incur a profit or loss regardless of strategy selected. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

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

Investor Basics: Stocks 101

Contributed by: Nicholas Boguth

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

What is a stock?

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

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

What are the different types of stock?

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

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

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

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

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

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

Second Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

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

Jeff Sherman of Doubleline

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

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

Is there a catalyst for higher rates?

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

Automotive industry worries

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

Benjamin Allen of Parnassus

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

Brian Wesbury, Chief Economist for First Trust Advisors

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

On Inflation

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

On Lifestyle

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

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

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

BREXIT—What the Separation Means for You

Contributed by: Nicholas Boguth

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

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

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

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

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

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

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Boguth and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Webinar in Review: Aligning your Values with your Investments

Contributed by: Clare Lilek

In the investment world and in our conversations with clients, there has been a lot more talk about Socially Responsible Investing (SRI), Impact Investing, and Environment, Social, and Governance (ESG) based investing practices. But what does it all mean? Laurie Renchik, CFP®, partner and lead planner, and Angela Palacios, CFP®, Director of Investments, hosted a webinar on the blossoming social investing trend and how to align your values with your investments. Basically, how you can use your investment dollars to support and directly impact your social values in a sustainable long term approach without diminishing returns.

First, Angela described the difference between SRI, Impact, and ESG investing, which all get thrown around when talking about aligning your values with your investments. Check out the chart below for a quick, and helpful, recap on the various terms:

Currently, ESG Investing is the direction the market could be heading, which breaks down in Environment, Social, and Governance related factors. Social factors can include labor policy practices; governance looks at the diversity of leadership and point of view on company boards; and environment refers to the environmental impact a company’s production has. ESG is a lens through which to evaluate a company and is a positive screen to identify certain behaviors that not only align with particular investor values, but can also be a guide to help reduce costs and help to increase business (potentially less law suits, less environmental cleanup necessary, diverse boards creating better business practices, etc).

When attempting to align your values with your investing dollars, Laurie emphasized the importance of setting priorities. She suggests writing down your values and seeing where they most strongly lie, whether that is in social innovation, environmental stewardship, corporate governance, or perhaps a combination of all three. Once you prioritize your values, you and your financial planner can discuss risk potential and growth options to find a portfolio that most effectively aligns your interests with your ultimate financial goals. Taking a holistic approach to your social financial planning, by matching your financial goals with your social values, can be implemented more easily with the help of an Investment Policy Statement. Using an Investment Policy Statement can provide a blueprint for future investments and their trajectory, while simultaneously acting as a report card for past performance. Laurie reviewed a particular example to further explain the concept.

Overall, the webinar provided clarity for the various terms and definitions floating around for this blossoming social trend, while providing real tools for assessing sustainability and performance. For more information on this topic, please watch the entire webinar via the link below, and feel free to contact Angela or Laurie with specific questions or if you want help aligning your values with your investments.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. 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. 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 Angela Palacios and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The Most Hated Bull Market

Contributed by: Angela Palacios, CFP®

Investors seem to be skeptical of the second longest bull market run since World War II. For a refresher, a bull market is when share prices consistenly rise. Below, we see a comparison of the longest bull markets since World War II. The green line is our current bull market run. We have now surpassed the duration of the run in the early 1950’s but aren’t even close to the longest run that occurred through the 1990’s. 

The past 18 months have brought a fair share of hiccups in the market exhausting bullish sentiment, which is the percent of investors who have a bullish outlook for the coming six months. The S&P 500 has rallied strongly since the lows reached in February erasing negative returns for the year as of the writing of this piece. The following graph illustrates market sentiment among investors. The red line represents the S&P 500 while the blue line represents the percent of investors who are bullish (expecting upward price movement in the market). What’s unusual is that despite the recent rally investors remain skeptical and this usually isn’t the case. When markets rally this strongly bullish sentiment usually rises.

Market peaks don’t usually happen when bullish sentiment is this low.

Bull markets don’t simply die of old age.

Regardless of whether this market is loved or hated, the Center’s investment team  continues to monitor the markets and the economy closely for signs of recession while remaining committed to a diversified investment strategy.

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

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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 we do not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss.

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