Webinar in Review: 2017 Economic and Investment Update

Contributed by: Jaclyn Jackson

As the current bull market for U.S. stocks nears its eighth anniversary, is there potential room to grow or could we be heading for the next recession? In the face of slow growth, low interest rates, and low inflation how could "Trumped-Up" economics and an increasingly hawkish Federal Reserve, affect the economy and the markets going forward?

On February 21st, 2017, Vanguard Investment Strategy Group Education Specialist, Maria Quinn, and Center for Financial Planning Director of Investments, Angela Palacios, CFP®, teamed up to tackle these pressing questions with a market and economics insights webinar.  While Maria discussed market themes and outlooks, Angela focused on policy changes and their potential impact on investments.

Here is a recap of key points from the “Economic & Investment Update” webinar (as well as a link to the webinar replay).

• Global growth should stabilize, not stagnate. Risks to the global growth outlook is more balanced this year as U. S. and European policy adds to increasingly sound economic fundamentals that should, in part, offset weakness in the United Kingdom and Japan. Aided by labor productivity rebound, Vanguard believes U.S. growth could be 2.5% in 2017. Vanguard’s long term 2% U.S. growth trend is influenced by lower population growth and the exclusion of consumer-debt-fueled boost to growth evident between 1980 and the Global Financial Crisis.

• Deflationary forces are cyclically moderating. Central banks (globally) will struggle to meet 2% inflation targets. U.S. core inflation may modestly overshoot 2% this year, prompting the Fed to raise rates. U.S. wage growth has increased slightly and may continue to rise with productivity gains. Euro-area inflation will move towards target, but will like stay below it. There is deflation in Asia and monetary easing is not having the desired effect on nominal wage growth.

• Cautiously optimistic outlook indicates modest portfolio returns underscoring the value of investment discipline, realistic expectations, and low-cost strategies. Keep in mind, diversification doesn’t work every time, but it can work over time.

• Corporate tax and trade reform could have mixed implications. The U.S. has one of the highest corporate tax rates among developed countries. A lower corporate tax policy may curve current incentives for U.S. businesses to operate in other countries or take on too much debt. Lowering the corporate tax rate could benefit U.S. stock price performance or potentially increase the amount of dividends paid back to investors. On the other hand, it could increase inflation which may cause higher interest rates and strengthen the dollar.

  With respect to trade reform, a tariff, value added tax, or border added tax on imports could increase the cost of goods and build inflation in the U.S. Additionally, other countries may retaliate with tariffs on U.S. products, triggering trade wars. Another thought is that U.S. goods could become more expensive at home and in other countries creating a scenario where U.S. goods have higher prices and with lower demand.

• Tips for strategic action when markets are up include: planning for upcoming cash needs; rebalancing portfolios; making charitable contributions; and maintaining plan discipline.

If you missed the webinar, please check out the replay below. As always, if you have questions about topics discussed, please give us a call!

Jaclyn Jackson is a Portfolio Administrator and Financial Associate at Center for Financial Planning, Inc.®

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Any opinions are not necessarily those of Raymond James and are subject to change without notice. Raymond James is not affiliated with and does not endorse the opinions of Maria Quinn or Vanguard. 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. Past performance may not be indicative of future results. Dividends are not guaranteed and must be authorized by the company’s board of directors. There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct. 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 Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes. The BCOM tracks prices of futures contracts on physical commodities on the commodity markets. The BofA Merrill Lynch U.S. T-Bill 0-3 Month Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months. The MSCI EAFE (Europe, Australasia, and Far East) is a free float adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. Dow Jones Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Barclays US Corporate High Yield Index represents the universe of fixed rate, non-investment grade debt. The corporate sectors included in the index are Industrial, Utility, and Finance. The Barclays Capital US Aggregate Corporate Index (BAA) is an unmanaged index composed of all publicly issued, fixed interest rate, nonconvertible, investment grade corporate debt rated BAA with at least 1 year to maturity. TR—Total Return, includes performance of both capital gains as well as dividends reinvested. NR—Net Return indicates that this series approximates the minimum possible dividend reinvestment. The information contained in this presentation does not purport to be a complete description of the securities, markets, or developments referred to in this material. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Angela Palacios and Maria Quinn and not necessarily those of Raymond James. Investments mentioned may not be suitable for all investors. 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. 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. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Raymond James is not affiliated with and does not endorse the opinions or services of Maria Quinn.

Dow Milestone Making Headlines

Contributed by: Angela Palacios, CFP®

In late January the Dow Jones Industrial Average eclipsed a much awaited level of 20,000. Many investors are left wondering “Does this mean I should buy or should I sell?” Depending on who you listen to, you could get very conflicting answers. Valuations are in the eye of the beholder. Depending on the metrics you utilize to judge valuations the markets can look overvalued to even slightly undervalued. Perhaps a history lesson of Dow milestones is in order.

Dow 2,000

30 years ago on January 8th, 1987 the Dow first hit 2,000. Many felt that the Dow would likely take a breather and trade sideways for a while. Eight months later, however, the Dow nearly reached 2,800! Little did investors know that later in October the Dow would experience a day that would live on in infamy: Black Monday. 

The Dow went on to finish the year out positively.

Dow 10,000

At the height of the dotcom bubble in March 1999, the Dow eclipsed 10,000 and shortly thereafter, 11,000. The excitement was palpable. I recall this very vividly as I had just started my career. No one wanted to even think about owning bonds in their portfolio even though the ten year treasury was paying a rate of 6% (wouldn’t that be nice!). The next three years the DOW experienced a gut wrenching drop back below 7,000.

Dow 15,000

You probably don’t even remember headlines from this milestone reached in early 2013 as investors still didn’t believe in the bull market run after living through the depths experienced in March 2009. This market, as you know has quietly proceeded to hit the 20,000 mark less than four years later.

Dow 20,000

That brings us full circle back to today. Many industry professionals have welcomed this milestone with indifference. Milestones contain exactly zero information regarding what the future holds for the market. What I do know, is that excitement is not palpable like the euphoria experienced back in the late 90’s. Regardless of whether or not you traded brilliantly around these milestones, sticking to your investment discipline and simply staying invested through the time periods from Dow 2,000 to Dow 20,000 has created some handsome returns regardless of the bumps along the way. Who would have thought back in 2009 when the Dow was trading right around 7,000 at its low we would be celebrating Dow 20,000 just 8 short years later?

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 Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index used to measure the daily stock price movements of 30 large, publicly owned U.S. companies. 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. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This content does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk, investor may incur a profit or loss regardless of the strategy or strategies employed.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index used to measure the daily stock price movements of 30 large, publicly owned U.S. companies. 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. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This content does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk, investor may incur a profit or loss regardless of the strategy or strategies employed.

Tax Terms: Carried Interest and the Buffett Rule

Contributed by: Matt Trujillo, CFP®

If you followed the 2016 campaign coverage as closely as I did, than you probably heard some tax-related terms repeated time and time again. Two terms in particular were “carried interest” and the “Buffet Rule.” For those that aren’t terribly familiar with these terms I will attempt to give a brief description of each.

What is "Carried Interest?”

Carried interest refers generally to the compensation structure that applies to managers of private investment funds, including private-equity funds and hedge funds. As a result of the carried interest rule, fund managers' compensation is taxed at lower long-term capital gain tax rates rather than at ordinary income tax rates. Both Clinton and Trump released plans calling for carried interest to be taxed as ordinary income.

What is the "Buffett Rule?”

In a 2011 opinion piece, Warren Buffett, chairman and CEO of Berkshire Hathaway, argued that he and his "mega-rich friends" weren't paying their fair share of taxes, noting that the rate at which he paid taxes (total tax as a percentage of taxable income) was lower than the other 20 people in his office (Warren E. Buffett, "Stop Coddling the Super-Rich," New York Times, August 14, 2011).

As Buffett pointed out, this is partially attributable to the fact that the ultra-wealthy typically receive a high proportion of their income from long-term capital gains and qualified dividends, which are generally taxed at lower rates than those that typically apply to wages and other ordinary income.

The "Buffett Rule" has since come to stand for the tenet that people making more than $1 million annually should not pay a smaller share of their income in taxes than middle-class families pay. As a result, some have proposed that those making over $1 million in annual income should have a flat minimum tax of 30%.

What is the right thing to do? That is not for this humble author to decide. But at least now, some of you can be better informed about what these terms mean the next time you hear them on the news!

The tax environment is evolving rapidly. Be sure to talk to a qualified professional before implementing any changes to your tax and investment strategy.

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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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 Matt Trujillo, CFP®, and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. 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.

Fourth Quarter Investment Commentary

Contributed by: Angela Palacios, CFP®

2016 has been the year of the stock market taking major geopolitical news in stride. From the UK Brexit vote to an unexpected Trump victory in the U.S. presidential election, the market has shrugged off some major news that could have jolted it in a very negative way. Equity markets, however, once again demonstrated their resilience, and along the way this has become the second longest bull market in US history as of April of 2016. The S&P 500 ended the year up strong returning 11.96%, while bonds gave back great returns in the first three quarters of the year (they were up 5.8% as of 9/30/16) to end up only 2.65% on the Barclays US Aggregate Bond Index. International markets continued to struggle as they were nearly flat in 2016 with a 1% return for the MSCI EAFE while emerging markets bounced back strongly returning 8.5% on the MSCI Emerging Markets index.

Source: JP Morgan

2017 is likely to usher in a market driven more by fiscal policy than by monetary policy. The Federal Reserve is anticipated to continue their slow pace of raising interest rates into the New Year while Trump takes office very soon and launches his 100 day action plan. So if you choose not to give up and move to Canada, here is what we are watching in the New Year!

Trump’s 100 Day Action Plan:

Donald Trump has plans to shake up many potential areas such as trade, Obamacare, immigration, education (common core), tax code, and infrastructure improvements. Political risk could amplify volatility globally, although it hasn’t yet. This populist movement as shown by Brexit and our own election (people fed up with the status quo) is a theme likely to continue abroad as France, Germany, and Holland will host their own elections in 2017. The U.S. dollar has reached its highest level in 14 years in the wake of the presidential election, and a strong dollar has traditionally been a headwind for the earnings of large companies with significant international exposure. Taken together, these factors tell a somewhat cautionary tale for equities going into 2017.

The Economy:

Our economy continues to chug along with unemployment at very low levels. According to the Bureau of Labor Statistics as of November 2016 we were at 4.6% unemployment. We are considered at full employment now. This means that wage inflation is starting to pick up, although slowly, which could start to be reflected in the overall inflation rate creeping up in the U.S even though it has been subdued for an extended period of time. Inflation currently stands at 1.7% (bls.gov). 

A Note on Diversification:

2016 has tested our patience on diversification yet again. Locally, The U.S.’s flavor of the month benchmark has morphed from the S&P500 to the Dow as the benchmark to keep up with. Pure U.S. equity exposure has continued to drastically outperform a diversified portfolio to historically unusual levels. This year other asset classes have had the opportunity to shine as Emerging markets*, small cap equities** and high yield debt*** have also performed well. Diversification seems to once again be working after a long drought. We, at The Center, still see merit to utilizing a diversified approach when it comes to managing our investments. As geopolitical risk rears its ugly head around the world, it will likely be important to tap into the long-term returns of many different asset classes to hopefully limit portfolio volatility.

We understand that you need to retire and achieve your goals regardless of what markets are doing. This is why we build portfolios to be all weather and stick by our strategy of diversification as a sound long-term approach to investing. It is a task that we take very seriously and we thank you for your continued trust in us.

Checkout Investment Pulse, by Angela Palacios, CFP®, a summary of investment focused meetings for the quarter.

Does the order in which you achieve your average returns really matter?  Of course, it all depends.  Check out when the sequence of returns matter!

Nick Boguth, Investment Research Associate dives into the surprising reality of what it takes to dig out of the hole of negative returns.

Jaclyn Jackson, Portfolio Coordinator, discusses the trends of investor behavior during significant events over recent history.

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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* As measured by the MCSI EAFE Index
** As measured by the Russell 2000 Index
*** As measured by the Barclays Aggregate Bond Index
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, CFP®, 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. Diversification does not ensure a profit or guarantee against a loss. 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. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. 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. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Investor Ph.D.: Sequence of Returns

Contributed by: Angela Palacios, CFP®

When planning for our goals, we often think in terms of “What return will we average over time?” But does it matter what pattern these returns happen in? What if they are choppy or we experience very negative returns right before we need the money or as we are drawing it? The answer can be startlingly different depending on what phase of your goal you are in.

If you are accumulating for a future goal the sequence of how to help achieve your returns in general doesn’t matter as long as you average what you need at the end. Look at the following example:

Source: Blackrock

The chart below shows two 30-year income scenarios. The solid line shows a withdrawal plan that started off with three years of negative returns in a row. The dotted line repre­sents a withdrawal plan with the negative years at the end. Both plans started with $250,000 and both took out $12,500 per year inflated by 3% for inflation. No other actions were taken to manage income withdrawals. Both plans had a 6.6% average annual rate of return on the underlying investment for the 30-year period.

These nuances are why it is critical to work with a financial planner to plan for and pursue your goals!

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, CFP®, 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.

Investor Basics: Drawdowns 101

Contributed by: Nicholas Boguth

It is imperative to try to avoid major drawdowns when investing. This may seem intuitive, but let’s take a closer look.

Drawdown is a metric used to measure risk. It is a measure of the peak-to-trough decline of an investment or portfolio. Minimizing drawdown is arguably more important than seeking large returns when it comes to investing, and here is why:

Below is a simple chart showing the returns investors would need to get back to where they started if they lost 10%, 30%, and 50%. The math is relatively simple: if you start with $100 and proceed to lose 50%, you now have $50. In order to get back to the $100 that you started with, your $50 would have to gain $50, or increase by 100%.

So the math is simple, but who really cares about the hypothetical? Let’s look at how the S&P 500 actually performed compared to diversified portfolios during the drawdown that started in ’07. The chart below, from JPMorgan’s Guide to the Markets, shows how the S&P 500 lost over 50%, and took 3 FULL YEARS before it recovered back to its peak. Compare that to the 40/60 portfolio. Since the drawdown was significantly less, it was a much quicker recovery and broke even after just 6 months. This is why it is important to try to avoid major drawdowns when investing.

For a more in depth look on drawdowns and sequence of returns, check out the Investor PhD blog written by our Director of Investments, Angela Palacios, CFP®.

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. 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. 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.

Investment Lessons of 2016

Contributed by: Jaclyn Jackson

As we embrace the fresh start of a new year, it is important that we retrace our steps to learn from our investment victories and missteps during 2016. I’m optimistic that reflection can help us become better investors in 2017.

A Look Back on 2016 Market Performance:

• First Quarter: US large equities beat US small and mid-equities (SMIDs) in the first quarter as both had positive runs. We witnessed value stocks shifting to outperform growth stocks and commodities make a comeback. Meanwhile, gold became one of the best performing assets. 

• Second Quarter: All three domestic market caps continued to have positive returns with U.S. SMIDs beginning to overtake U.S. large equities. Taking advantage of an improved energy sector, high yield bonds performed well. Emerging markets had both ups and downs, but rebounded by June. Yet, the unexpected BREXIT vote shook the MSCI EAFE and MSCI EAFE Small Cap indices emphasizing a flight to safety. Gold benefited from the flight as demand increased and the US dollar slightly upped the Euro. 

• Third Quarter: Domestic equities continued their success into the third quarter. Driven by the rising prices of crude oil, energy was up. Concurrently, high yield bonds also continued to recover. The price of gold fell, but ended the quarter positive overall. Internationals had positive returns. A weaker US dollar supported international fixed income returns. 

• Fourth Quarter:  The beginning of the fourth quarter was rough all around, but US equities rebounded by November. Election results helped US equity index funds see their largest monthly inflows in two years. Anticipated policy changes brought gains to commodities and financials, but hurt interest rate sensitive stocks. International investments for US investors were negatively impacted by a strengthened dollar.

Asset Flows: What Investors Did in 2016

Source: Morningstar Direct 2016

After an equity selloff in January 2016, investors flocked to fixed income most of the year. In a year of sluggish growth for the US, Europe, and Japan, bonds provided hope for those seeking modest but relatively predictable returns. As the inflow/outflows graph shows, taxable and municipal bond fund flows dominated without waiver. Apart from commodities (gold) and sector equity, all other categories were out of favor for most of the year. A post-election U-turn helped November bring in inflows for U.S. equity index funds, but it remains that the 2016 investor theme was seeking predictability (through bonds) in an unpredictable environment (populism, political uncertainty, and looming fiscal and monetary policies concerns).

Lessons Moving Forward

• Fear of the unknown can’t guide our investment decisions.  It is understandable to seek refuge when things are uncertain, but we may miss out on opportunities hiding under our shells. Buying bonds in 2016 may have helped limit negative exposure to curveball events, but if you used some of your portfolio’s equity budget to purchase them, you also missed the US equity run that persisted throughout the year. Similarly, portfolios placed on the sidelines after the US elections missed the equity surge that began shortly after. People who remained invested in equities in 2016 felt the hit of BREXIT as well as its fast recovery. They also experienced value stock comebacks. A diversified portfolio can help you maintain market participation and mitigate bumps in the road (market volatility) over time.

• 2016 reminded us that the world is unpredictable. No matter how smart, how informed, how technological, or well-researched - nobody can predict the future. In other words, we can’t allow predictions about the markets or economy change our long term, comprehensive investment plan. Admittedly, it is important to pay attention to what is happening in the world. Our gaze, however, should be focused on the long-term implications of that news. Multiple portfolio changes based on short-term noise undermines our investment strategy. We need to give ourselves the time to really understand and unravel the true long term risks/threats to our portfolio before modifying our strategy. 

Jaclyn Jackson is a Portfolio Administrator and Financial Associate at Center for Financial Planning, Inc.®

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This information does not purport to be a complete description of the securities, markets, or developments referred to in this material, it has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Jaclyn Jackson and are not necessarily those of RJFS or Raymond James. 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, investors may incur a profit or loss regardless of the strategy or strategies employed. Diversification does not ensure a profit or guarantee against loss. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price being be subject to wide fluctuation; the market being relatively limited; the sources being concentrated in countries that have the potential for instability; and the market being unregulated. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. The MSCI EAFE Small Cap Index is an equity index which captures small cap representation across Developed Markets countries around the world, excluding the US and Canada. Please note that direct investment in an index is not possible. Past performance is not a guarantee of future results.

Fourth Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

Some great research this quarter!  From a headline grabber, to sage words of wisdom from long tenured investors, take a look!

Kevin O’Leary from Shark Tank – 11/18/16 CFA® Society of Michigan

The investment department had the opportunity to listen to “Mr. Wonderful” himself discuss what he has learned being an entrepreneur and his outlook for 2017.  Highlights included that he prefers to invest in companies run by women because they set and accomplish achievable goals for themselves and their employees.  He also discussed his plan for the future generations of O’Learys.  He is not interested in handing his children a privileged life on a platter.  Rather he will pay for them from birth through college and then they are on their own to make their way in life.  The same will happen for their children and so on.  He said his mother taught him this important lesson:

“The only birds that dies leaving the nest are the ones that don't learn how to fly.”

Kevin's predictions for 2017 included:

1. Donald Trump wins the election (he called this a week before the election on television)

2. Oil will end 2017 under $50

3. The 10 year US Treasury bond interest rate will end the year under 3%

4. The S&P 500 will end 2017 at 2,300

5. Financials will underperform the S&P 500 in 2017

6. Real Estate Investment Trusts will outperform the S&P 500 in 2017

7. Energy will underperform the S&P500 in 2017

8. Russell 2000 will outperform the S&P 500 in 2017

9. Europe (currency unhedged) will surprise in 2017 and outperform US markets

Investment team gathers before the presentation: From left to right: Jaclyn Jackson, Portfolio Administrator and Financial Associate, Lauren Adams CFA®, Director of Client Services, Melissa Joy CFP®, Partner; Angela Palacios CFP®, Director of Investments; Nicholas Boguth, Investment Research Associate

David Fisher of American Funds

It was a pleasure learning from David Fisher, equity portfolio manager at Capital Group, and his 50 years of investment experience.  David spent time discussing the culture of their firm and how important it has been over the years to attract and retain high quality investment professionals.  Analysts are compensated on how they perform relative to a benchmark rather than relative to each other.  They feel this has contributed strongly to their years of serving clients well.  David spent his career researching media, consumer electronic and electrical equipment companies.   He discussed how vastly those markets have changed over the years.  He said:

“If you don’t obsolete yourself, someone else will obsolete you.”

He was referring to Eastman Kodak.  Remember those cameras?  The type where you would have to take your film in to develop?  The company held the patent to digital technology and didn’t develop it because it would have put their profitable film and camera areas out of business!  Oops!

Scott Davis, Portfolio Manager of Columbia Dividend Income Fund

We have sat down many times with Scott.  He brings great perspective to our portfolios with his dividend growth focused strategy.  Many investors have chased dividend yields over the past few years when they found their bond portfolios lacking.  Scott argues that the quality of the dividend rather than the yield is most important.  Dividends are not contractually committed to like bond interest.  It is completely up to a Board of Directors whether the dividend is paid or not.  A high yield is only positive if it is sustainable.  A stock price generally depreciates very strongly before a dividend cut occurs, which is why the work Scott does is so important. 

He also discusses with corporate management the type of shareholders that they want to have.  A company’s shareholder base changes when they commit to paying/growing a dividend.  When doing this they have a more stable investor base that tends to hold a position longer term.

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. Holding investments for the long term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investments mentioned may not be suitable for all investors. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. 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. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Dividends are not guaranteed and must be authorized by the company's board of directors. Raymond James is not affiliated with and does not endorse the opinions or services of Kevin O'Leary, David Fisher, Capital Group, Scott Davis and/or Columbia Dividend Income Fund.

China's Currency - Revisited

Contributed by: Nicholas Boguth

I want to revisit a topic I first discussed back in March – China’s currency.

In the previous blog, I explained why China was devaluing their currency and what potential effects it could have on their economy. As previously stated, one of the biggest risks with currency devaluing is the risk of capital outflow. If investors think that there are better opportunities elsewhere, they will move themselves or their money into a country with stronger currency prospects. In the chart below, we can see this exact event currently happening in China.

http://www.tradingeconomics.com/china/capital-flows

This is a topic that catches a lot of headlines, and it should be useful to have some background to filter through all the noise. We are likely to see headlines about how China is managing its currency well into the New Year; maybe headlines about Chinese goods getting cheaper as the US Dollar strengthens relative to the yuan, or you may have already seen the most recent headline about China placing restrictions to attempt to slow the capital outflow from the country. They want to slow this mass capital outflow because it is increasing their supply of yuan and triggering inflation that can be harmful in excess. We will stay tuned and observe how the country acts and reacts going forward. If you have any questions about these changes, don’t hesitate to reach out to the Investment Department 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. 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. Past performance may not be indicative of future results.

Restricted Stock Units vs Employee Stock Options

Contributed by: Kali Hassinger, CFP®

Some of you may be familiar with the blanket term "stock options." In the past, this term was most likely referring to Employee Stock Options (or ESOs). ESOs were frequently offered as an employee benefit and form of compensation, but, over time, employers have adapted stock options to better benefit both the employee and themselves.

ESOs provided the employee the right to buy a certain number of company shares at a predetermined price for a specific period of time. These options, however, would lose their value if the stock price dropped below the predetermined price, thus becoming essentially worthless to the employee. As an alternative to this format, a large number of employers are now utilizing another type of stock option known as Restricted Stock Units (or RSUs). This option is referred to as a "full value stock grant" because, unlike ESOs, RSUs are worth the "full value" of the stock shares when the grant vests. This means that the RSU will always have value to the employee upon vesting (assuming the stock price doesn't reach $0). In this sense, the RSU is more advantageous to the employee than the ESO.

As opposed to some other types of stock options, the employer is not transferring stock ownership or allocating any outstanding stock to the employee until the predetermined RSU vesting date. The shares granted with RSUs are essentially a promise between the employer and employee, but no shares are received by the employee until vesting. Since there is no "constructive receipt" (IRS term!) of the shares, there is also no taxation until vesting.

For example, if an employer grants 5,000 shares of company stock to an employee as an RSU, the employee won't be sure of how much the grant is worth until vesting. If this stock is valued at $25 upon vesting, the employee would have $125,000 of compensation income (reported on the W-2) that year.

As you can imagine, vesting can cause a large jump in taxable income for the year, so the employee may have to select how to withhold for taxes. Some usual options include paying cash, selling or holding back shares within the grant to cover taxes, or selling all shares and withholding cash from the proceeds. In some RSU plan structures, the employee is allowed to defer receipt of the shares after vesting in order to avoid income taxes during high earning years. In most cases, however, the employee will still have to pay Social Security and Medicare taxes the year the grant vests.

Although there are a few differences between the old school stock option and the newer Restricted Stock Unit hybrid, these options can provide the same incentive for employees. If you have any questions about your own stock options, please reach out to us!

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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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 Kali Hassinger, CFP® 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 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. This is a hypothetical example for illustration purpose only and does not represent an actual investment.