Investor Ph.D. Series: 6 points you should know about Technical Analysis

Contributed by: Angela Palacios, CFP®

While most often investors apply fundamental analysis when picking a suitable security to invest in, a less widely used strategy called technical analysis could be just as important. 

Why would you use it?

Here’s the scenario: you’ve researched and decided, “There is a strategy I have to invest in.” Perhaps it is a company that makes a widget and you think, “This is the best widget ever made and it is going to change everyone’s life!” Fundamental analysis helps you decide if Widget Producer A or Widget Producer B is the better-run company that is worthy of your investment dollars. But, does it matter what price you pay for that investment? Yes! This is where technical analysis can play a role in your portfolio decision making.

What is it?

Technical analysis, at its most basic level, only looks at supply and demand for a security. It attempts to find a trend or pattern in the price movement and volume of a traded security and decide if that trend is more likely to continue or reverse course.

How does it work?

Understanding basic assumptions behind technical analysis can be a key concept. First, it assumes that markets are efficient at all times; meaning everything that can be known about a company is known by all investors and reflected in the current price at which it is trading. Second, security prices move in trends; or, essentially, an object in motion stays in motion (or is much more likely to in the future). Third, history repeats itself. Investor behavior that caused prior patterns to occur is assumed to still be present and will likely repeat.

Which indicators are most commonly followed?

There are many indicators you can pick from when conducting technical research. Most investors that do this type of analysis have their favorites that fit with their own unique investing style. Some examples are: moving averages, volume, Oscillators, Bollinger Bands, Fibonacci levels, trend lines or relative strength.

Where can I find this information?

There are many resources that have a “fee for service” out there that can be used to conduct technical analysis. Yahoo! Finance, on the other hand, is a free resource available online for anyone to view. Their interactive charts help make it easy to view many of the most common indicators with the click of a button.

Can anyone do this?

Yes! However, it can take time, consistency, skill, and experience to be able to do technical analysis well; and even then, so-called “experts” can get it wrong quite often.

While there is no silver bullet in investing, blending both fundamental and technical analysis can help investors toward a potentially better outcome. Is this a fool’s errand or the potential secret sauce? I will leave that up to the individual to decide!

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.

Investor Basics: Intro to Fundamental Analysis

Contributed by: Nicholas Boguth

There are two major types of analysis when it comes to investing: Technical Analysis, which you can read more about in Angela Palacios', CFP®, Investor PhD blog, and Fundamental Analysis, which I will break down for you right now.

Ultimately, fundamental analysis is an evaluation of the financial position and performance of a company or strategy.

When doing fundamental analysis on a stock, the process involves breaking down all of the quantitative information found on the company’s financial statements. Digging into a company’s balance sheet tells you about their current position as it pertains to assets, liabilities, and shareholders’ equity. The information on income statements and statements of cash flow reveals how the company has performed, or how much expense, revenue, or profit it generated. Fundamental analysis also involves looking at qualitative factors such as management, the business model, accounting practices, and competitors. All of this data is then analyzed, compared to peers, and used to make an investment decision.

The graphic above lays out The Center’s investment selection process. You will see that there is both quantitative and qualitative fundamental analysis done when choosing the strategies in our model. The process is slightly different when comparing all strategies as opposed to only stocks, but the same considerations have to be taken into account before making an investment decision. We look at quantitative factors such as manager tenure, ownership, costs, risk metrics, and return metrics, just to name a few. We also look at a vast amount of qualitative information about the fund companies, managers, and investment team. Fundamental analysis is step one to selecting each individual strategy for our portfolios. If you have questions on how we build portfolios or fundamental analysis, please reach out to our investment team!

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. 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.

Asset Flow Watch: First Quarter 2017

Contributed by: Jaclyn Jackson

The U.S. economy showed improvement, even before last year’s election, and data since continues to trend well. Overall, consumer confidence and optimism remained high with the Trump administration policy most of the first quarter. One of the most common ways to monitor consumer confidence and investor sentiment is to watch fund inflows and outflows. Market analysts use fund flows to measure investor sentiment within asset classes, sectors, or markets. This information (combined with other economic indicators) helps savvy investors identify trends and determine potential investment opportunities.

Asset Flows: What Investors Did This Quarter

This quarter, investor demand increased in global stocks and taxable bonds. While at a slower pace, the Trump agenda (lower taxes, infrastructure spending, deregulation, etc.) continued to lure investors into US equities. In February, US equities saw double the flows they’d received in January (reflecting fewer outflows from active managers). Hopeful economic data from Europe generated inflows for international equities, which primarily went to passive strategies. Yet, the most divergent trend from 2016’s fourth quarter is that fixed income flows started a comeback with a favor toward taxable bonds, specifically, intermediate term bonds. In spite of looming rate-hikes, March 31st ended as fixed income’s twelfth consecutive week of inflows.

Forward Steps

We’ve witnessed post-election equity runs correlated with the anticipation of “business-beneficial” tax and regulation reform. Nonetheless, the House’s inability to repeal/replace the Affordable Care Act leaves doubt that the Trump agenda will progress as expected. Late 2016’s boost in stock returns could have overweighed portions of your equity allocation. At the same time, you may have also noticed a decrease or underweight to your bond allocation. Consider rebalancing back to your target allocation. In the face of Trump agenda uncertainty, rebalancing should help protect recent capital growth accumulation. As always, if you have questions or concerns when it comes to your portfolio, we are always happy to help!

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 it is accurate or complete. Any opinions are those of Jaclyn Jackson and are not necessarily those of Raymond James. This information is not a complete summary or statement of all available data necessary for making and investment decision and does not constitute a recommendation. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Asset allocation does not ensure a profit or guarantee against loss. Past performance is not a guarantee of future results.

First Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

During the first quarter of the year, managers and strategists are eager to travel and get the word out on what they think is to come in the New Year. This quarter was no exception. Here is a summary of some of the standout guest speakers we were able to host at the Center!

Priscilla Hancock, Global Fixed Income Strategist of JP Morgan

Priscilla Hancock stopped by to visit our office to discuss the current state of the municipal bond market. Priscilla’s insight into this market is both logical and insightful. She discussed that, for the most part, municipal bonds are less expensive now. Investors often worry about the performance of their municipal bonds in an environment of falling tax rates—which it seems we are on the verge of. Investors have sold off the space recently for that reason. But she has found there is very little to no correlation between municipal bond performance and tax rates over the long term. The municipal bond market is driven primarily by the retail investor, so you or I. We can benefit from the tax-advantaged status that the interest from municipal bonds produces. As rates fall, municipal bonds tend not to experience as much price appreciation because retail investors focus more on the yield a bond provides rather than the total return aspect they can provide. So as rates fall, the retail investor tends to sell. As rates rise, they experience the opposite effect. Rates then start to look attractive again, so investors may resume buying and help prevent prices declining, as much as treasuries, while rates rise.

Wendell Birkhofer, Senior Vice President, Investment Policy Committee Member of Dodge & Cox

Wendell Birkhofer brought Dodge & Cox’s unique value-based outlook to discuss equity markets both here in the U.S. and abroad. They are seeing value in financials here in the U.S. and also in Europe. Regulation changes and interest rate increases are a couple of the market forces that tend to be favorable to bank stocks—and are occurring right now. There is pent-up cash on hand at banks that could potentially get paid to shareholders in the future—if regulations loosen under the new Trump administration. In the U.S. markets, they see middling valuations (although some pockets are expensive). This tends to be a favorable environment for active management over passive management from their perspective. They also continue to find good value in emerging markets, while countries like Japan still struggle with corporate governance headwinds.

Ted Chen, Portfolio Manager and Aditya Bindal, Ph.D, Chief Risk Officer with Water Island Capital

Short volatility and the illusion of diversification were the topics we discussed with Mr. Chen and Mr. Bindal. They shared their groundbreaking research on the topics to a packed conference room of Center staff. They discussed how since the 2008 market crisis, the volatility of volatility has been off the charts (this is how much the VIX, a measurement of volatility in the equity markets, has, itself, been volatile). The markets have seen volatility spikes to the tune of two standard deviation events fourteen times over the past nine years! Alternative investment strategies are supposed to be uncorrelated to equity markets; however, they showed us that during these volatility spikes, most investment strategies lost value. This is what they call “short volatility.” They went on to share that true alternative strategies should possess characteristics, such as: low beta, market neutrality, and a lack of correlation regardless of low or high volatility time periods. These concepts are something we explore in our own portfolio construction process, and they have given us some excellent food for thought to chew on in the coming months and years!

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. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income tax professional to assess the impact of holding such securities on your tax liability. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. 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. Alternative Investments involve substantial risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including minimum net worth tests. These risks include but are not limited to: limited or no liquidity, tax considerations, incentive fee structures, speculative investment strategies, and different regulatory and reporting requirements. There is no assurance that any investment will meet its investment objectives or that substantial losses will be avoided. Diversification does not ensure a profit or guarantee against a loss. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investments mentioned may not be suitable for all investors. Raymond James is not affiliated with Priscilla Hancock, JP Morgan, Wendell Birkhofer, Dodge & Cox, Ted Chen, Aditya Bindal and/or Water Island Capital.

Webinar in Review: Stock Option Optimization

Contributed by: Emily Lucido

If you have non-qualified stock options, restricted stock units, or incentive stock options but don't fully understand them, you're not alone. What exactly are stock options? Why do employers offer them? How do they factor into your overall financial game plan? In a recent webinar hosted by Nick Defenthaler, CFP®, he answers all these questions in a simplified manner and discusses what it could mean to be offered a stock option from your employer and how to go about maximizing them.

Employee stock options can be an incredible add-on to employee compensation. Typically, those that are eligible are people within a higher level executive position at their workplace, or are with a startup firm. In most cases, employers use stock options as a way to attract, retain, and motivate employees which can then potentially drive up the company stock price.

What is vesting?

One very important part of stock options is the vesting schedule. Every company has a different structure for vesting. The vesting schedule can depend upon a variety of things including the company you work for, as well as, your position at the company. The chart below represents a three year vesting schedule:

In the above example, each year, you receive 33% more of the stock options, ultimately leading you to year three where you end up with 100%, having access to all options (which is where the incentive to stay with your employer comes in). So, if you were to leave the company in year two, you would only end up with 67% of options vested.

What are the most popular forms and how do they function?

• Non-Qualified Stock Options (NSO)

  • A written offer from an employer to sell stock to an employee at a specific price within a specific time period

  • With NSO’s the market price has to be greater than the exercise price for the option to have value

    • Can be seen as a more risky form of equity compensation

  • Tax implications: when you are granted or “given” stock options, there is no tax

    • If you exercise those options there could be a taxable event if there is a gain

    • The gain is taxed as ordinary income, as a form of “compensation”

• Restricted Stock Unit (RSU)

  • Similar to NSO’s, RSUs are a written offer from an employer to sell stock to an employee at a specific price within a specific time period

  • Main difference: As long as the company stock has value there will be value in your stock option. It is not determined by the market price as NSO’s are

    • Can be seen as more conservative form of equity compensation

  • Tax implications: Same as NSO’s - when you are granted or “given” stock options, there is no tax liability

    • Tax is due upon vesting

    • Also taxed as ordinary income, as a form of “compensation”

    • In most cases, we recommend selling the shares of RSU once they vest, in order to reduce risk and to diversify

An important note when thinking of stock options and whether to exercise or not:

“Don’t let the tax tail wag the investment dog.”

• Simply put, don’t let taxes be your only reason for deciding whether to exercise or not

• If you choose not to exercise because you are worried about the tax implications, the stock could easily go down in price, losing the potential gain you could have made

Overall, stock options have many benefits to them and can be extremely valuable when used effectively. There are many more opportunities you can take advantage of, so take a moment to listen to the webinar below as Nick goes into more detail on what you can do to effectively manage your portfolio when considering your stock options.

Emily Lucido is a Client Service Associate at Center for Financial Planning, Inc.®

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This information does not purport to be a complete description of employer stock options or employer stock option planning strategies, and should not be construed as a recommendation. This information has been obtained from sources considered to be reliable but we do not guarantee that it is accurate or complete. Opinions expressed are those of Emily Lucido and are not necessarily those of Raymond James. 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.

Investor Basics: Inflation 101

Contributed by: Nicholas Boguth

The most basic definition of inflation is “the rise in price of goods and services.”

Below you will see the Bureau of Labor Statistics’ (BLS) inflation data for the past 10 years, but what do these numbers mean?

Let’s look at last year for an example – average inflation was 1.3%. That means the price of goods and services in the U.S. increased by about 1% last year. It does not necessarily mean that the t-shirt you bought last year for $10.00 is now going to cost $10.10, but rather 1.3% was the average change of all the goods and services that the BLS measures.

Inflation is largely determined by the supply of money, which is why it is a major long-term goal of The Fed to target a certain inflation rate (that target right now is 2%). Keeping a clear inflation goal can promote price stability, interest rate stability, and aligns with The Fed’s goal to help maximize employment.

Since The Fed has explicitly stated that it will be targeting a 2% long-term inflation rate, you may see why investing can be a very important tool for personal retirement planning. If The Fed nails the 2% target, $1 that sits in your change jar for the next 20 years will likely only buy you the equivalent of what $0.67 will buy you today. Feel free to talk to us about strategies about how to combat the effects of inflation!

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 Consumer Price Index is a measure of inflation compiled by the US Bureau of Labor Studies. 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.

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.