REITs Get Prime Location in Major Market Indices

Contributed by: Jaclyn Jackson

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

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

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

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

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

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

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

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

Do You Have Warren Buffett’s Stomach for Volatility?

It is rare that I don’t agree with advice from Warren Buffett, but earlier this year we took different sides of a debate. His recommendation for a simple, flawless investment strategy was putting 90% of your assets in an equity fund designed to mirror the performance of the S&P 500 and 10% in cash.

This sounds great if you have nerves of steel and can make it work. But most people can’t stomach it.  Buffett is an amazing investor who understands his emotions and has a great ability to see the value of companies and what he owns.  But we’re not all Warren Buffett.  That is one of the reasons there are financial advisors in the world who help people understand appropriate volatility in their portfolio and what to do when that volatility spikes. 

Your Own Risk Tolerance

One common question I got during the downturn five years ago was when do we stop the bleeding?  One client said to me, “I had $1,200,000. Now I have about $1,000,000 due to the financial crisis and the market falling.  When do I do something?” To determine a time to sell really takes two correct decisions.  When to sell and when to buy back in. It is almost impossible to be right twice consistently.   

These difficult questions were most prevalent during the final weeks of the financial crisis in January to March of 2009.  And there was a lot more bad news to come. GM’s pending bankruptcy was front stage in the spring of 2009.  If someone was to try and time the exit and reentry during this period, it could have been devastating. Actually, the S&P soared over 30% from March to June in 2009 in the face of such horrible news and if someone sold out, it would be almost impossible to buy back in without paying more.  And those are the people on the sidelines that missed one of the greatest markets in history.

Nerves of Steel or Appropriate Allocation?

No one knows when a market downturn will occur or for how long it will go. More importantly to reap the benefits of long-term equity returns we need to be in to win.  Even more important, we need to have the right amount allocated so that we can withstand any type of downdraft and wait it out.  

So, while Buffett and his steely nerves might be able to stay invested through thick and thin with 90% of his wealth in the stock market, most people need less volatility to stay the course.  Buffet realized the value of companies when they were extremely cheap in 2009, while most investors could only see the losses from the past. Through those challenging times when people kept asking if it was time to do something, many investors benefited from staying the course through the last market cycle and went on to reap the benefits of this bull market.  I believe some nerves were enforced with regular meetings, appropriate plan design and investment portfolio allocation.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Holding stocks for the long-term does not ensure a profitable outcome. Investing always involves risk and investors may incur a profit or loss regardless of strategy selected. Inclusion of any index is for illustrative purposes only. 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. C14-036847

Our Gold Medal Standard: The Center’s Investment Scorecard Review

I’m always amazed by the almost superhuman springs, twists, turns, and flips gymnasts are able to perform with grace and precision.  Who could forget Kerri Strug’s seemingly impossible vault of handsprings, twisting dismount, and a perfect landing just seconds after tearing two ligaments on her ankle?  Watching from home, I remember anxiously waiting as the judges reviewed her vault with a fine-tooth comb; evaluating the form, height, length, and landing of her performance.  To my excitement, Kerri received winning scores and managed to catapult the 1996 US Olympic women’s gymnastics team to gold medal victory.

Giving Investments the Fine-Tooth Comb Treatment

Similarly, we aim to build model portfolios with “gold medal” worthy investments that are equipped to meet your goals even through adverse circumstances.  We too, like Olympic judges, evaluate each investment with a fine-tooth comb making sure it meets its purpose in your portfolios.  In fact, we routinely complete a seventeen-point criteria review of our model investments.  Our investment department team fondly refers to this process as the Morningstar Direct Fiduciary Scorecard Review.  For the review, we assess the following:

Performance and Volatility

We look at performance, risk-adjusted performance (alpha), and the volatility of the investment compared to the market (beta) for 1, 3, 5, and 10-year periods.  In order for investments to receive points for these metrics, they must place above 50% of comparable peers.  For these categories, score points are more heavily weighted towards the longer periods of time with the intent of crediting investments that consistently produce over long stretches of time.

Tenure and Inception

We want your investments to be managed with the wisdom of experience and we want investments that have shown they’re able to adapt through different parts of a market cycle, therefore, we review manager tenure and product inception.

Size and Style

We evaluate the investment’s size and style to identify whether the investment has grown too large to maintain its investment strategy and integrity or whether an investment is too small to keep resources robust (i.e. research, analysts, etc.).

Expenses

We evaluate investment expenses so performance is not watered down by excessive fees.

Once scores have been tallied by the investment department team, our investment committee talks through each investment to determine whether it meets the gold medal standard.

We want to ensure your portfolio investments can perform through the springs, twist, turns, and flips of any market cycle with grace and precision.  The Morningstar Direct Fiduciary Scorecard Review is just one of the many ways we stress test your portfolios.  After all, due diligence is one of the key ingredients to maintaining our investment process and ensuring that we are investing your portfolios in the best products. So, the next time you review your portfolio, imagine each investment being able to do this gold winning move through even the toughest circumstances.

Investing involves risk and investors may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-035970

Raymond James Bank Deposit Program simplifies FDIC coverage

If you’re not familiar with the Raymond James Bank Deposit program, a quick read here could save you a big hassle. The program is designed to help you take advantage of up to $2,500,000 of FDIC coverage without putting any extra work on your plate.

What is FDIC?

The FDIC (Federal Deposit Insurance Corporation) covers cash deposit accounts, dollar for dollar, including principal and accrued interest up to a limit in the event of a bank failure.  It is funded by the premiums paid into the corporation by banks on the deposits they hold.  Historically, in the event of a failure, funds are available to depositors within days after the closing of the bank.

How much does FDIC cover?

Until October 2008 coverage was limited to $100,000 per depositor.  During the financial crisis in the fall of 2008 the government stepped in and increased the insurance limit temporarily to $250,000 to prevent bank runs from occurring as the financial crisis and subsequent bank failures accelerated.  Later in 2010 the increase in the limit was made permanent. 

How do you calculate the coverage you have?

For example, let’s say Joe has $250,000 at a bank between his checking, savings, CDs and money market accounts maximizing his coverage there.  If Joe was married to Sally, and these accounts were titled jointly, then they could have a combined coverage of up to $500,000.  The coverage is per bank meaning if Joe and Sally had $500,000 at 10 different banks they would have $5,000,000 in FDIC coverage.  But, for Joe and Sally, or anyone, having money spread out between multiple banks could be very confusing and time consuming to keep track of everything.

Gone are the days of playing games to maximize your FDIC insurance coverage on bank deposits! 

Insuring more than $250,000 per depositor

One account at Raymond James through the Raymond James Bank Deposit Program (RJBDP) can provide up to $2,500,000 ($5,000,000 for joint accounts) of total FDIC coverage.  The work is done behind the scenes by Raymond James as available cash is deposited into interest-bearing deposit accounts at up to 12 banks automatically for our clients.

Another way to qualify for more coverage is by holding deposits in different ownership categories (account types).  Below is a table of the categories and limits.  The RJBDP can then increase these limits according to the above numbers as well.

Source: Raymond James

As with all insurance, you hope you never need to use it.  Cash can play an important role in an overall financial plan and knowing it is protected can lend confidence.  When it comes to FDIC insurance coverage you likely have much more than you realize!

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

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. Laws, coverage, and program rules are subject to change. Hypothetical example is for informational purposes only, and does not represent and account or investor experience.

Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Bank, a federally chartered savings bank. Unless otherwise specified, products purchased from or held at Raymond James & Associates or Raymond James Financial Services are not insured by the FDIC, are not deposits or other obligations of Raymond James Bank, are not guaranteed by Raymond James Bank and are subject to investment risks, including possible loss of the principal invested. The FDIC insurance limit per depositor is $250,000. Coverage applies to total holdings per bank per depositor. Visit fdic.gov for more information.

5 Steps to Being Cautious While Still Taking Life’s Chances

In the arena of finance, risk is inherent.  Think about the risks you take everyday. When it comes to investment expectations there is always the risk that the outcome will be different than anticipated. When it comes to the income your family depends upon, there is always the risk of job loss. When it comes to budgeting, there is always the risk of inflation, which could leave you without enough to keep up with the rising cost of things around you. When it comes to your family, there is always the risk that someone could face a health challenge or a long-term illness.

Learning About Risk

After 25 years working with people, I have seen families lose children and grandchildren to tragedy.  I have witnessed divorce and marriage and have seen first-hand financial windfall and destruction. Helping clients through all this has helped me gain a better understanding of risk tolerance and realize that risk preferences vary greatly.  Most people want to avoid risk as much as possible, but many have to learn that the hard way.  Remember your first loss? The big one? How did it affect you? If it was truly the big one, then it made you sit up and take notice.  It left an impression on you and your decisions.  And it may have given you a deeper understanding of what risk really means.

5 Steps to Managing Risk

Despite the fact that we all must learn to live with risk, there are steps we can take to help mitigate the downside when it comes to financial planning:

1. Diversification, asset allocation and rebalancing: While this won’t make you rich quick, it should help reduce overall portfolio volatility.

2. Insurance: For a relatively small cost you can provide for the safety of a young and growing family for many years and provide protection in case of premature death or disability.

3. Emergency Funds: Always maintain the appropriate emergency balance for your situation.  A simple rule of thumb is 3-6 months of expenses. Then you may want to consider choosing investments that are marketable and liquid for your taxable portfolios.

4. Long-term Care Insurance: To avoid a catastrophic financial blow if a spouse develops a long-term illness and needs expensive health assistance, consider long-term care insurance when you’re in your late 50s.

5. Estate Planning:  By taking just a few minutes to write out a plan, there’s a better chance of things happening as you wish. Write a holographic will (handwritten and signed) or go to your state website and pull off the appropriate documents (like wills, powers of attorney, patient advocate designations, etc.). Complete them or set up a meeting with an estate planning attorney to help you with this process. 

If you need help getting started with any of these steps or making a personal plan to help you prepare for life’s inherent risks, contact me at matthew.chope@centerfinplan.com.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute investment advice. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Diversification and asset allocation do not ensure a profit or protection against loss. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Investing involves risk and you may incur a profit or loss regardless of strategy selected. C14-005525

Health Care Costs: The Retirement Planning Wildcard

Planning ahead for retirement income needs, we typically think about how much it will cost us to live day-to-day (food, clothing, shelter) and to do those things we want to do, like travel and helping grandkids pay for college.  The costs we don’t often think about, those that could potentially wreak havoc on retirement income planning, are health care costs.  According to an October 2012 article from the Employee Benefits Research Institute, an average 65 year-old couple will need $283,000 to have a 90% chance of having enough money to cover health care expenses over their remaining lifetimes (excluding long-term care).

Longevity is a critical factor driving health care costs.  According to the Social Security Administration’s 2020 study, for a couple, both 66 years of age, there is a 1 in 2 chance that one will live to age 90 and a 1 in 4 chance that one will live to age 95.  Add to these longevity statistics the fact that Medicare is now means-tested, so the more income you generate in retirement, the higher your Medicare premiums.

So, what can you do to proactively plan for this potential large retirement cost?

1. If you plan to retire early, plan on the costs of self-insuring from retirement to age 65.  Some employer’s may offer retiree healthcare, or you can purchase insurance on the Health Insurance Exchange through the Affordable Care Act (these are still dollars out of your pocket in retirement).

2. Consider taking advantage of Roth 401(k)s, Roth IRAs (if you qualify), or converting IRA dollars to ROTH IRAs in years that it makes sense from an income tax perspective.  This will give you tax-free dollars to use for potential retirement health care expenses that won’t increase your income for determining Medicare premiums in retirement.

3. Work with your financial planner to determine if a vehicle like a non-qualified deferred annuity might make sense for a portion of your investment portfolio, again dollars that can be tax advantaged when determining Medicare premiums.

4. Most importantly, work with your financial planner to simulate the need for future retirement income for health care expenses.  Although you will never know what your exact need will be, providing flexibility in your planning to accommodate for these expenses may help provide you confidence for future retirement.

Contact your financial planner to discuss how you can plan to pay for your retirement health care needs.

Sandra Adams, CFP®is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are this of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Every investor’s situation is unique and you should consult with your financial advisor about your individual situation prior to making an investment decision. Please discuss any tax or legal matters with the appropriate professional. C14-005524

Investment risk is real. Every day. Every year. In up and down markets.

It is generally in good times – when, for example, US Equities are performing well  – that we all could use a friendly reminder like this:

The management of investment risk is constant in successful investing.     

Benjamin Graham, known as the “father of value investing”, dedicated much of his book, The Intelligent Investor, to risk.  One of his many timeless quotes states, “The essence of investment management is the management of risks, not the management of returns.”  This statement can be counterintuitive to many investors.  Risk does not have to be an alarm; rather a healthy dose of reality in all investment environments.

Our Take on Risk

How do we at The Center attempt to manage risk as stewards of approximately $850 million dollars? 

•   Executing a defined investment process

•   Individual investment policy statements

•   Asset Allocation – both Strategic and Tactical

•   Rebalancing guidelines

We have been managing client assets for over 28 years.  We fully understand and appreciate that investment returns are important. We also know that risk is an important element in constructing portfolios intended to fund some of life’s most important goals such as sending a child or grandchild to college, funding a long and successful retirement, having sufficient funds for long-term health needs, and passing a legacy to loved ones.  While no one can guarantee future investment returns, our experience suggests that those following our risk management tactics above may better stay on track with their financial plan. 

If you are a client, we welcome the opportunity to talk more about how your portfolio is constructed.  Not a client?  We’d enjoy the opportunity to share our experience and review your goals and risk.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Investing involves risk and investors may incur a profit or a loss. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. C14-004278

Risk vs. Reward: Finding the Right Asset Balance for You

There are inherent risks in investing (you can’t control the market) but there are potential payoffs that help people tolerate that risk (like funding retirement). To better understand your own tolerance for risk, you need to first get the gist of asset allocation.  Asset allocation is a technique used to spread your investment dollars across different asset classes.  Stocks, bonds, and cash or cash alternatives, among others, are generally the most common components of an asset allocation strategy. 

Determining risk tolerance

Deciding on an appropriate allocation is an important exercise because it may be the most important investment decision you make due to the impact it can have on your overall return.  Your financial goals, time frame and personal resources all contribute to the equation. A risk profile questionnaire is a widely accepted method to help advisors and investors make asset allocation decisions.  

However, there are two significant limitations to relying solely on a risk questionnaire to make the asset allocation decision.  First, the way people think about risk is not stable and very often varies with market conditions.  Behavioral science research tells us that when the market goes up, the pain of past plunges typically fades as investors feel they can accept more risk.  The dynamic reverses when markets correct or go down.  Suddenly, the market elicits fear in the hearts of investors and tolerance for risk diminishes.

The second limitation with risk questionnaires is they don’t measure an individual’s need to take risk.  The purpose of an investment portfolio is to support the financial planning objectives or desired lifestyle. The plan will articulate the why as well as the how.  It helps answer questions like, “So, can I retire?” or, “Do I have enough to feel confident?”  The specific goals and time frames are the determinants of how much risk to take, even if there is a willingness to take on additional risk.

Committing to an asset allocation

Picking an asset allocation is important, but committing to it is even more important; especially in light of our changing attitudes about risk and reward.  Don't hesitate to get professional help if you need it. And be sure to periodically review your portfolio to ensure that your chosen mix of investments continues to serve your investment needs as your circumstances change over time.

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

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any 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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  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 allocation does not ensure a profit or guarantee against a loss.