Market Sector Impact of Donald Trump's Presidential Win

Contributed by: Jaclyn Jackson

By appealing to white, blue collar voters, Donald Trump unexpectedly captured rustbelt states and secured the 2016 presidential election. Additionally, Republicans made a clean sweep taking both the House and Senate majority. Uncertainty remains as many await cabinet selections and the unveiling of comprehensive policy. Market industry professionals anticipate rising performance from equity sectors that benefit from tax reform, infrastructure stimulus, and deregulation. The “Post-Election Day Winners and Losers” chart gives us insight as to how market sectors have performed post-election. Below, I’ve explored how each sector could continue to win or lose under the Trump administration.

The Winners

Industrials/Materials: Throughout the campaign trail, Trump showed great enthusiasm for infrastructure spending. Accordingly, industrials picked up after the election. Civil infrastructure companies and military contractors will likely have more opportunity for government work under his administration. As a result, the material and industrial sectors should have legs to run. 

Energy: Companies linked to fossil fuel energy may see a lift under a Republican White House because of less regulation and slower adaptation to renewable energy. Trump’s support of coal energy positions the energy sector for rebound.

Healthcare: Assuredly, the Affordable Care Act is on the agenda for repeal under the Trump administration. Companies that have benefited from Obamacare may decline. In contrast, pharmaceutical and biotech stocks have rallied due to the President-elect’s relatively lenient stance on drug pricing. Yet, there are no sure signs this sector will remain a winner since Trump also favored prescription drugs importation (unconventional for GOP policy) during his campaign run. According to Morgan Stanley analysis, prescription drug importation could negatively impact pharmaceutical companies.

Financials: Banks have rallied as Trump’s victory points towards deregulating financials. Conversely, well-known investment management corporation, BlackRock, challenged that repealing the Dodd-Frank law may result in “simpler and blunter, but equally onerous rules.”

The Losers

Treasuries: As votes tallied in favor of Trump’s victory on election night, investors fled from equities to Treasuries. The risk-off approach, however, dissipated overnight; perhaps because Trump’s victory speech was more conciliatory than expected revealing hope for moderate governance. Ultimately, U.S. Treasury concerns hinge on whether Trump’s policies widen the deficit.

Emerging Markets: Mexico’s reliance on exports to the US leave it vulnerable to tariffs/trade wars, therefore, Mexico and countries alike (Brazil, Argentina, Columbia) could sell off. We’ve already witnessed the peso falling in response to Trump’s protectionist views. On the other hand, JPMorgan’s chief global strategist, Dr. David Kelly, encouraged investors to evaluate emerging markets by their own “strengths.” China and some countries in Latin America, for example, are adjusting well to growth and lack populous sentiment. Overall, emerging markets have forward momentum with improving economies, easing monetary policies, and a global focus on spending.

Developed Markets/Euro: Companies with money overseas in the technology, healthcare, industrials, and consumer discretionary sectors, could gain from Trump’s desire to incentivize business repatriation of offshore cash. Subsequently, the Euro has fallen provided high concentrations of US based multinationals’ earnings are in Europe.

Consumer Stocks: Consumer stocks could be hurt because tougher immigration restrictions may deter labor supply and consumer demand. Additionally, policies that force tariffs on countries like China and Mexico may unintentionally pass on the costs of tariffs to US consumers.

If you have questions about your portfolio or how these “winners and losers” might affect you and your future, please reach out to your planner. We’re always here to help and answer your questions!

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 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 Jaclyn Jackson 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. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. 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. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results.

Third Quarter Investment Commentary

Contributed by: Angela Palacios, CFP®

After a very interesting first half of the year with early negative returns, followed by Brexit in June, markets performed well in July and then quieted down in the month of August. September brought with it a bit of increased fluctuation when investors thought the Federal Reserve Board may raise rates at the September meeting but calmed back down when that fear subsided. As of October 1st the S&P 500 gained over 7.8% this year including dividends with nearly half of that gain (3.85%) coming in the third quarter. The year-to-date story, however, has not been told primarily by the S&P 500 as we have gotten so used to over the past several years. 

Diversification Works Again

This year other asset classes have had the opportunity to shine as Emerging markets; commodities and high yield have topped S&P 500 returns. Diversification seems to once again be working after a long drought. The chart below shows performance of various asset classes by year with the best performer’s bars on the top of the stack and worst relative performers on the bottom. Notice the Green line (S&P 500) has been near the top of the list for the past three years but that hasn’t been the norm over the last 14 years. This year we have returned to the more normal pattern where the S&P doesn’t dominate.

Source: Blackrock

Rate Hike Kicked Down the Road

Not surprisingly the Federal Reserve opted not to raise interest rates last month. The dissention among the voting members, though, was surprising. Three members of the voting board voted for an interest rate increase going against Janet Yellen’s recommendations to hold course. This is the first noted dissention since 2014. The next meeting occurs in November just a few short days before the election. It is highly unlikely they will make waves that close to the election so it looks likely that if a rate increase occurs it will be at the December 13-14th meeting.

Election

I would be avoiding the elephant in the room if I didn’t mention the election. Jaclyn Jackson wrote a piece on political parties and their impact to your portfolio, I would encourage you to read this before making any rash investment decisions based on the election. The battle between Clinton and Trump is proving to fulfill every media fantasy. They both certainly make for excellent headlines. Trump will be doing his best to rally voters to change by making promises but also by making things seem worse in the economy than they likely are. While there is often some volatility leading into an election because of these negative headlines, usually after the decision has been made markets settle down and most often continue in a positive direction the remainder of the year.

Checkout Investment Pulse, by Angela Palacios, CFP®, a special summary of the Morningstar ETF conference she attended.

Harvesting tax loss may sound counter-intuitive but can go a long way to enhance net after-tax returns for investors. Find out some strategies to implement and common mistakes to avoid.

This month Nick Boguth, Investment Research Associate, gives us an introduction to cost basis methods and what we typically have our clients utilize.

Jaclyn Jackson, Investment Research Associate, explains to us how just like the right mix of ingredients for a tasty meal, we also need to know the asset allocation mix that makes our investment journey palatable.

If you have topics you would like us to cover in the future, please let us know! As always, we appreciate the opportunity to meet your financial planning and investment needs. Thank you!

Angela Palacios, CFP®
Director of Investments
Financial Advisor

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 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. 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 in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Investing always involves risk, including the loss of principal, and futures trading could present additional risk based on underlying commodities investments. Diversification does not ensure a profit or guarantee against a loss. 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.

Investor Basics: Cost Basis Accounting

Contributed by: Nicholas Boguth

Cost basis: one of the many things we at The Center monitor in order to serve our clients. Most of us know that cost basis is the original value of a security (usually the purchase price), but a lesser known fact is that there are many different accounting methods used to calculate tax liability when the decision is made to sell a security. The table below describes the different methods available.

This is important because the incorrect accounting method could lead to an unnecessary or unexpected amount of capital gains. Hypothetical example: you bought 50 shares of Tesla back in 2012 when it was $30, and another 50 shares in 2014 when it was $200. Now it is 10/5/16, and you went to sell 50 shares at its current price of $210. How much of your sale would be considered capital gains? Well, if your accounting method was FIFO, the answer would be $180 per share, whereas if your accounting method was minimum tax (The Center’s default option) then it would be $10 per share.

The outcomes between accounting methods can be drastically different, and each method has its place depending on your objective. Decision-making from client to client may vary which is where the help of a financial professional can come into play. Please read our Director of Investments, Angela Palacios’, CFP®, Investor Ph.D. blog for insight into more strategies that The Center practices in order to help minimize tax burden.

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. This is a hypothetical example for illustration purpose only and does not represent an actual investment. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Investor PhD: Harvesting Losses and Avoiding Gains

Contributed by: Angela Palacios, CFP®

This may sound counter-intuitive, but taking some measures to harvest tax losses on positions and avoiding unnecessary capital gains distributions this time of year can go a long way in improving your net (after tax) returns.

Make sure you are reviewing your portfolio throughout the year for tax losses to harvest.  Stock losses were at their peak during mid-February, but if you waited until this fall to think about tax loss harvesting you have most likely missed the boat as much of those losses have been recovered and moved on to higher highs. The end of the year is rarely the best time of the year to harvest tax losses. 

Harvesting losses doesn’t mean you are giving up on the position entirely. When you sell to harvest a loss you cannot have had a purchase into that security within the 30 days prior to and after the sale.  If you do you are violating the wash sale rule and the loss is disallowed by the IRS. Despite these restrictions, there are several ways you can carry out a successful loss harvesting strategy.

Loss harvesting strategies:

• Sell the position and hold cash for 30 days before re-purchasing the position. The downside here is that you are out of the investment and give up potential returns (or losses) during the 30 day window.

• Sell and immediately buy a position that is similar to maintain market exposure rather than sitting in cash for those 30 days. After the 30 day window is up you can sell the temporary holding and re-purchase that original investment.

• Purchase the position more than 30 days before you want to try to harvest a loss. Then after the 30 day time window is up you can sell the originally owned block of shares at the loss. Being able to specifically identify a tax lot of the security to sell will open this option up to you.

Common mistakes some people make when harvesting:

• Dividend reinvests count!!! So if you think you may employ this strategy and the position pays and reinvests a monthly dividend you may want to consider having that dividend pay to cash and just reinvest it yourself when appropriate or you will violate the wash sale rule.

• Purchasing a similar position and that position pays out a capital gain during the short time you own it.

• Creating a gain when selling the fund you moved to temporarily that wipes out any loss you harvest. Make the loss you harvest meaningful or be comfortable holding the temporary position longer.

• Buying the position in your IRA. This will violate the wash sale rule just like if you bought it in your taxable account. This is identified by social security numbers on your tax filing. So any accounts held under those same tax payer IDs are not allowed to purchase the security in that 30 day window of harvesting the losses.

Personal circumstances vary widely so it is critical to work with your tax professional and financial advisor to discuss more complicated strategies like this!

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 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 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. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Third Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

Special conference edition! September brought not only the beginning of school and cool evenings but also the Morningstar ETF conference. Jaclyn Jackson and I were able to take a few days away to attend some enlightening sessions full of hearty debate, idea sharing, and new information during the first week of September. Some of my key takeaways follow!

Key takeaways from the Morningstar ETF conference:

• The Sustainable investing (ESG or socially responsible preferences) space has grown rapidly in the past 5 years. 80% of companies in the S&P 500 published sustainability reports in 2015 verses only 20% in 2011. Sustainability reports discuss a variety of issues for the firm including pollution mitigation, water use, and best practices for attracting a diverse workforce. Institutions, women and younger investors have been driving this demand. To learn more click here.

• There is more than meets the eye when performing due diligence on index holdings and exchange traded investment options. A low expense ratio isn’t the bottom line of costs associated with an investment. Stocks that make up the index and how an index is built and changes over time can greatly impact unseen costs. Also the experience of the people trading the portfolio can have a large impact. 

• Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, shared her views on Central Bank Policies, recession probability, sluggish growth, and interest rates. She feels the risk of recession remains low. She also sees higher interest rates as a positive more than a negative. Savers are better for the economy then the spenders, according to Ms. Sonders, so it is time to give them a chance!

• Behavioral investing rounded out the sessions. Sarah Newcomb Ph.D., Behavioral Economist, rolled out Morningstar’s new tool kit on behavioral investing. In rocky markets we have a tendency to want to do something. Anything to make us feel better. Much like a soccer goalie during penalty kicks, the best thing they can do is to stay in the middle and do nothing, rather than try to anticipate and move in the wrong direction. Fans don’t like this though; they would rather see the goalie do something. In investing the best thing to do during turbulent markets is often to do nothing, but that goes against our own nature. Bottom line, we need to make a plan during calm times to prevent ourselves from making bad decisions in the moment.

Stay tuned all this week for more investment, market, and quarter three updates!

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 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 Angela Palacios and not necessarily those of Raymond James. 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. 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.

Finding the Right Asset Allocation

Contributed by: Jaclyn Jackson

Most delicious meals start with a great recipe.  A recipe tells you what ingredients are needed to make a meal and, importantly, how much of each ingredient is needed to make the meal taste good.  Just like we need to know the right mix of ingredients for a tasty meal, we also need to to know the asset allocation mix that makes our investment journey palatable.

Determining the Right Mix

Asset allocation is considered one of the most impactful factors in meeting investment goals.  It is the foundational mix of asset classes (stocks, bonds, cash, and cash alternatives) used to structure your investment plan; your investment recipe.  There are many ways to determine your asset allocation.  Asking the following questions will help:

• What are my financial goals?

• When do I need to achieve my financial goals?

• How much money will I be investing now or over time to facilitate my financial goals?

Seasoning to Taste

Now, suppose equity markets were down 20% and your portfolio was suffering.  Would you be tempted to sell your stock positions and purchase bonds instead? Figuring out an asset allocation based on goals, time horizons, and resources is essential, but means nothing if you can’t stick with it.  For certain ingredients, a recipe may instruct us to “season to taste”. In other words, some things are subjective and our feelings greatly influence whether we have a negative or positive experience.  For asset allocation, understanding your risk tolerance helps uncover personal attitudes about your investment strategy during challenging market scenarios.  It gives insight about your ability or willingness to lose some or all of your investment in exchange for greater potential returns.  When deciding our risks tolerances, we must understand: 

• The risks and rewards associated with the investment tools we use.

• How we deal with stress, loss, or unforeseen outcomes

• The risks associated with investing

Following the Recipe

When we follow a recipe closely, our meal usually turns out the way we expected.   In the same way, committing to your asset allocation increases the likelihood of meeting your investment goals.  Understanding your risks tolerances can reveal tendencies to undermine your asset allocation (i.e. selling or buying assets classes when we should not). Fortunately, there are a few strategies you can employ to help stay on track.  

• If you are risk adverse, diversifying your investments between and among asset categories can help to improve your returns for the levels of risks taken.

• If you find yourself buying or selling assets at the wrong time, routinely (annually, quarterly, or semi-annually) rebalancing your portfolio will force you to trim from the asset classes that have performed well in the past and purchase investments that have the potential to perform well in the future.

• If you find yourself chasing performance or buying investments when they are expensive, buying investments at a fixed dollar amount over a scheduled time frame, dollar cost averaging, can help you to purchase more shares of an investment when it is down relative to other assets (prices are low) and less shares when it is up relative to other assets (more expensive).  Ultimately, this can lower your average share cost over time.

Finding the right asset allocation for you is one of the most important aspects of developing your investment plan.  Luckily, getting clear about investment goals, time horizons, resources, and risks tolerances can help you mix the best recipe of asset categories to make your investment journey deliciously successful.

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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This information is not a complete summary or statement of all available data necessary for making an investmentdecision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and are not necessarily those of RJFS or Raymond James. Every investor’s situation is unique and you should consider yourinvestment goals, risk tolerance and time horizon before making any investment or investment decision. Investing involves risk, investors may incur a profit or loss regardless of strategy or strategies employed. Asset allocation and diversification do not ensure a profit or guarantee against a loss. Dollar-cost averaging does not ensure a profit or protect against loss, investors should consider their financial ability to continue purchases through periods of low price levels.

What is a Non-Qualified Stock Option (NSO)?

Contributed by: Center for Financial Planning, Inc.

A stock option is a right to buy a specified amount of company shares at a specified price for a certain period of time, as Matt Trujillo, CFP® introduced last month in his blog on ISOs. Unlike ISOs, NSOs (also sometimes referred to as NQSOs) do not receive special federal tax treatment and are more commonly granted by employers. Often preferred by established companies, NSOs granted to an employee will result in ordinary income when exercised and are easier to administer as they do not have to adhere to rules specific to ISOs. Like any stock option, the intent is to give extra incentive to focus participants on increasing the company’s stock price. They are a flexible tool that can allow companies and participants to take advantage of stock price growth at a fairly low cost.

The Basics:

• Initiation date of the contract is known as the grant date. This is not a taxable event.

• Employees must comply with a specific vesting schedule to exercise.

• Exercise date is the date an employee is allowed to take full ownership of the specified lot of shares.

• After the expiration date, the employee no longer has the right to purchase the company stock under the agreement terms.

Taxation:

• In contrast to ISOs, NSOs result in additional taxable income to the recipient at the time of exercise, which is the difference between the exercise price and the market value on the exercise date.

• To determine the amount of tax to be paid, the exercise price is subtracted from the market price on the date the option is exercised. This is called the bargain element which is considered compensation to the employee and is taxed at their ordinary income rate.

• The sale of the security results in another taxable event. If sold less than a year from the exercise date, the transaction is considered as a short-term capital gain and is subject to ordinary income tax rates. If the employee waits a year or more from the exercise date, the transaction is considered a long-term capital gain (LTCG) and taxed at the applicable tax rates (which are much more favorable than ordinary income tax rates).

Planning Opportunities:

Some plans may allow participants to exercise unvested options when they are no longer “subject to a significant risk of forfeiture.” This may be referred to as “early exercise” or “exercise before vest.” This can allow the exerciser of the options to realize ordinary income at a more favorable time when the difference between the exercise price and market value of the stock is low.

Ideally, if you know that you are going to be exercising NSOs that will generate a large amount of ordinary income tax, you can look to lower your income in other ways to reduce your tax burden (ex: maxing out your contribution to your employer’s retirement plan, accelerating charitable contributions, utilizing deferred compensation if available).

Perhaps the most important planning consideration is the effect that stock options will have on your overall asset allocation. It often makes sense to pay the taxes on your stock options to make sure your portfolio is properly diversified.

Hopefully this information is helpful if you are new to NSOs or even if you’ve held them for years but don’t fully understand them. Many employees may not fully understand their stock options. Here at The Center we are always looking at your entire comprehensive financial plan, and stock option strategy is a small but important part of your total financial picture. Consult your financial planner and/or tax specialist to determine the best execution strategy for your stock options.

Any opinions are those of the author and not necessarily those of RJFS or 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. 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. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. 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.

http://www.investopedia.com/articles/optioninvestor/07/esoabout.asp
http://www.payscale.com/compensation-today/2013/01/non-qualified-stock-options-are-much-better-than-they-sound
https://turbotax.intuit.com/tax-tools/tax-tips/Investments-and-Taxes/Non-Qualified-Stock-Options/INF12046.html

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.