Pros and Cons: Fewer Regulations in the U.S.

By | Investments

One of the current administration’s persistent themes has been deregulation — cutting through the red tape in the rules of doing business. In one instance, Donald Trump was filmed standing beside mounds of paperwork to symbolize the amount of regulation the government has implemented since 1960.1

Perhaps the same can be said for the paperwork associated with our financial accounts, from bank statements to investment prospectuses to insurance policies. It’s important to recognize regulations often have two goals: To protect the consumer, and to protect the company providing the product or service.

We understand that sometimes the paperwork associated with your investments and insurance policies can be overwhelming, so please don’t hesitate to ask questions. We are here to help you fully understand your financial choices.

One such controversial regulation — currently being debated in Congress — is a rollback of the Dodd-Frank Act that was passed in 2010 to tighten rules on the banking system. Now that the economy has recovered from the recession, many legislators are in favor of loosening the banking rules, especially those affecting small community banks. Those who oppose reducing regulations fear the country will fall into the same bad practices and history will repeat itself. 2

Some regulations are so imbedded in our society that the affected industries now believe repealing them could cause more problems than keeping them. The most recent example was the EPA’s announcement to roll back emission standards for U.S. cars. However, the initiative has fallen flat with at least one auto manufacturer, stating it plans to implement the vehicle-emissions rules enacted under Barack Obama to continue addressing global warming considerations. Others think rolling back these regulations would increase their costs, especially if California implements its own emissions standards, which could lead to court battles.3

U.S. farmers are closely watching some of the regulations that have added extensive costs and delays to their businesses. They’re particularly interested in the Waters of the U.S. rule, although the EPA has postponed that rollback for two years. However, the Secretary of Agriculture announced that the USDA has identified 27 final rules that it plans to eliminate, saving $56 million per year.4

 

Content prepared by Kara Stefan Communications.

1 Michael Kranz. Business Insider. Dec. 17, 2017. “Trump cut literal red tape while standing next to a massive pile of paper to make a point about big government.” http://www.businessinsider.com/trump-stood-next-to-a-huge-pile-of-paper-showing-big-government-2017-12. Accessed April 27, 2018.

Sylvan Lane. The Hill. April 26, 2018. “House chairman eases demands on Dodd-Frank rollback.” http://thehill.com/business-a-lobbying/385066-house-chairman-eases-demands-on-dodd-frank-rollback. Accessed April 27, 2018.

Justin Worland. Time. April 5, 2018. “Scott Pruitt’s Rollback of Emissions Standards Is a Big Deal. Here’s Why the Rollout Fell Flat.” http://time.com/5228979/why-scott-pruitt-rollback-of-emissions-standards-fell-flat/. Accessed April 27, 2018.

4 Jacqui Fatka. Farm Futures. March 1, 2018. “Trump keeping regulatory rollback promises.” http://www.farmfutures.com/farm-policy/trump-keeping-regulatory-rollback-promises. Accessed April 27, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Handling Market Corrections Correctly

By | Investments

Today’s political environment and recent volatility in the U.S. stock markets, particularly February’s correction, caused concern for some investors.

If you’ve met with a financial advisor who designed a strategy to fit your individual financial goals, timeline and tolerance for risk, it’s generally recommended you stay the course.1 But that doesn’t mean to hold steady no matter what.

The occasional market correction (defined as a 10 percent decline)2 can be an opportunity to rebalance. If you’d like help identifying areas of your portfolio that may be ripe for a change during a temporary decline, please give us a call. We’d be happy to review your current financial situation.

Individuals with a longer investment timeline or who would like to see a wider range of diversification may wish to use a correction as a buying opportunity to get into emerging markets (EM). According to one investment strategist, “Compared to the S&P 500, EM equities trade at a lower multiple, are experiencing faster earnings growth, and are poised to benefit from strong global gross domestic product (GDP) growth and a relatively benign U.S. dollar.”3

Note that market corrections aren’t rare or necessarily unexpected. In the 40-year span from 1978 to 2017, there were 22 years that had a correction of 10+ percent.One money manager expects a 10 to 15 percent decline in the S&P 500 by the end of the year.5 Others believe the market has bottomed out for the year, with one commenting that the market technicals continue to support a long-term bullish trend.6

The variance in opinions illustrates how difficult it is to try timing the market. To avoid this practice, financial advisors may recommend investing on a weekly or monthly schedule.

Other suggested offerings may include index funds, exchange-traded funds (ETFs) or well-established dividend stocks.7

As always, it’s a good idea to speak with an experienced financial advisor before making any substantial changes to your portfolio, especially with regard to market movements.

 

Content prepared by Kara Stefan Communications.

1 Joel Johnson. Forbes. April 18, 2018. “How to Bounce Back After a Market Correction.” https://www.forbes.com/sites/joeljohnson/2018/04/18/how-to-bounce-back-after-a-market-correction/#5910818ced05. Accessed April 20, 2018.

2 Ibid.

Luciano Siracusano III. WisdomTree. Feb. 26, 2018. “Is the Sell-Off Creating a Buying Opportunity in Emerging Markets?” https://www.wisdomtree.com/blog/2018-02-26/is-the-sell-off-creating-a-buying-opportunity-in-emerging-markets. Accessed April 20, 2018.

Arjun Deiva Sigamani. FactSet Research Systems. April 9, 2018. “A Historical Perspective of Market Corrections.” https://insight.factset.com/a-historical-perspective-of-market-corrections. Accessed April 20, 2018.

5 Michelle Fox. CNBC. April 19, 2018. “Brace for a 10-15% market correction this year, warns financial advisor.” https://www.cnbc.com/2018/04/19/brace-for-10-15-percent-market-correction-this-year-warns-financial-advisor.html. Accessed April 20, 2018.

John Lynch and Ryan Detrick. LPL Financial. April 16, 2018. “Did Stocks Bottom?” http://static.fmgsuite.com/media/documents/3ce7c6b0-61b8-46f7-959c-4fbb474ad289.pdf. Accessed April 20, 2018.

7 Sean Williams. USA Today. April 4, 2018. “5 investing strategies to survive a stock market correction.” https://www.usatoday.com/story/money/markets/2018/04/04/5-investing-strategies-to-survive-stock-market-correction/33535519. Accessed April 20, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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The Income Gap and the Economy

By | Planning

The income gap between the wealthy and the poor is widening in the U.S.1 Why does that matter? Because there are studies that indicate a wide swathe of income differentiation is not good for economic growth.

In the years following the Great Recession, we often heard how slowly the economy was recovering. That was true for most Americans, but not for the wealthiest 10 percent. A recent analysis of wealth distribution finds that the richest Americans saw their net worth rise 27 percent between 2007 and 2016. However, the rest of the population saw a decline in net worth, from an average of 5 percent for those in the 80 to 89.9 income percentile to 29 percent for those in the lowest fifth of wealth.2

Perhaps one way to join the group of people who can thrive during economic declines is to be financially prepared ahead of time. That may not be easy to do if your prospects for a good education and a good job are poor. But even for those who don’t come from affluent households, there are ways to help put yourself on the path toward long-term wealth. Start investing early — preferably in an employer-sponsored retirement plan that offers a contribution match. Establish an emergency fund so that an unexpected expense does not drain your investments and savings, taking away the opportunity for compounded interest earnings and potentially adding an extra tax liability. Avoid credit card debt like the plague.

For people who barely earn enough to live on, this can take great sacrifice. Even for people who have ample disposable income, it’s important to learn discipline in order to help maintain one’s financial situation in times of economic decline. If you would like help to establish savings and investment strategies, as well as asset protection strategies using insurance products, please give us a call.

One way to look at the issue of income differentiation is to evaluate where it currently exists, including, for example, between men and women. A recent survey found that 64 percent of women say their top financial priority is meeting daily living costs, compared to 60 percent of men who say that saving for retirement is their top financial priority.3 It seems unlikely that women are less concerned with how to provide for themselves in retirement. Instead, it would appear that many women, whose median annual earnings are $10,086 less than men’s, have more immediate concerns.4

Income disparity during earning years can create a big problem during retirement years. Retirees who were born during the Great Depression and World War II need to supplement only 27 percent of their retirement income with their own savings. However, that situation is expected to change dramatically by the time Generation X (those age 37 to 53) retires. Many will be without the “safety net” of employer pension plans, and they are expected to need to provide about 42 percent of their retirement income from their own savings.5 That means they must save a larger percentage of their pre-retirement income, which is easier to do if you’re financially stable, but it can be difficult when you live paycheck to paycheck.

There’s no question that the income gap has grown since the days when blue-collar workers could earn a good living at U.S. manufacturing jobs. In fact, from the end of World War II through the early 1970s, the U.S. experienced substantial economic growth and prosperity across all income levels. However, economic growth slowed after that, and the income gap widened, with lower- and middle-income families having sharply slower wage growth but top earners continuing to have strong growth.6

Some economists are coming to the conclusion that income inequality hurts growth. Researchers at the International Monetary Fund recently wrote, “If the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over a medium term.” Possible solutions, however, such as welfare programs, higher taxes on the rich and redistribution of wealth, are controversial. Others believe the studies failed to prove the relationship between inequality and lower growth.7

There is a bright spot for lower- and middle-class workers: U.S. manufacturing jobs have increased by almost a million since 2010, although there still are 6 million fewer such jobs than in 1980. However, factories are increasing automation — which may threaten the jobs of humans.8

And although the “Tax Cuts and Jobs Act” gives most Americans a tax decrease, it’s still the wealthy who may benefit the most. A household making $40,000 a year will receive an average $330 tax cut in 2019, while Americans making more than $3.6 million a year will average an $85,640 tax reduction.9

 

Content prepared by Kara Stefan Communications.

Ryan Vlastelica. MarketWatch. April 6, 2018. “Why income inequality is holding back economic growth, in one chart.” https://www.marketwatch.com/story/why-income-inequality-is-holding-back-economic-growth-in-one-chart-2018-04-05. Accessed April 16, 2018.

2 Ibid.

Lee Barney. PlanSponsor. March 28, 2018. “Retirement Saving More of a Priority for Men than Women.” https://www.plansponsor.com/retirement-savings-priority-men-women/. Accessed April 16, 2018.

4 Sonam Sheth, Shayanne Gal and Skye Gould. Business Insider. April 10, 2018. “6 charts show how much more men make than women.” http://www.businessinsider.com/gender-wage-pay-gap-charts-2017-3. Accessed April 18, 2018.

5 Center for Retirement Research at Boston College. March 29, 2018. “Future Retirees Financially Fragile.” http://squaredawayblog.bc.edu/squared-away/future-retirees-financially-fragile/. Accessed April 16, 2018.

Chad Stone, Danilo Trisi, Arloc Sherman and Roderick Taylor. Center on Budget and Policy Priorities. Feb. 16, 2018. “A Guide to Statistics on Historical Trends in Income Inequality.” https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality. Accessed April 16, 2018.

7 Andreas Becker. Deutsche Welle. April 16, 2018. “Is inequality good or bad for the economy?” http://www.dw.com/en/is-inequality-good-or-bad-for-the-economy/a-43324466. Accessed April 18, 2018.

8 April Glaser. Recode. May 26, 2017. “Why manufacturing jobs are coming back to the U.S. — even as companies buy more robots.” https://www.recode.net/2017/5/26/15656120/manufacturing-jobs-automation-ai-us-increase-robot-sales-reshoring-offshoring. Accessed April 18, 2018.

9 Reuben Fischer-Baum, Kim Soffen and Heather Long. The Washington Post. Jan. 30, 2018. “Republicans say it’s a tax cut for the middle class. The biggest winners are the rich.” https://www.washingtonpost.com/graphics/2017/business/what-republican-tax-plans-could-mean-for-you/?utm_term=.cb6748a783ac. Accessed April 18, 2018.

Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

 

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Banking Trends

By | Technology

In its recent 2018 Banking Industry Outlook report, Deloitte identified six key themes that are driving trends for financial institutions today:1

  • Redefining what makes for a positive customer experience
  • Managing a myriad of technology platforms
  • Mitigating cyber risk
  • Adjusting to competition from fintech (financial technology) companies
  • Aligning business strategy with regulatory compliance
  • Reimagining the workforce to incorporate automation

Among these, cyber risk may be the most challenging and distressing for both bank management and their customers. In 2016 alone, more than 60 percent of all security breaches occurred in the financial services industry. However, banks are taking these threats seriously, with more than 85 percent of all financial institutions indicating in a recent survey that they were increasing their cybersecurity budgets.2

One of the weapons financial institutions are using to battle cyber fraud is artificial intelligence (AI). AI is incorporating behavioral science, cybersecurity principles and past experience to notice — in real time — fraudulent transactions.3

One of the biggest issues at the forefront of the banking industry today is the pending rollback of some provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The 2,300-page legislation was passed in the wake of the 2008 financial crisis and was designed to decrease risks in the banking system.4

Presently, there is a bill in Congress designed to exempt dozens of banks from some of the constraints of Dodd-Frank. While the new legislation enjoys bipartisan support, there is ongoing debate as to what provisions should be included.5

 

Content prepared by Kara Stefan Communications.

Deloitte. 2018. “2018 Banking Industry Outlook.” https://www2.deloitte.com/us/en/pages/financial-services/articles/banking-industry-outlook.html. Accessed March 29, 2018.

2 Guarav Sharma. Disruptor Daily. Dec. 21, 2017. “Top 10 Cybersecurity Trends in Financial Services and FinTech.” https://www.disruptordaily.com/top-10-cybersecurity-trends-financial-services-fintech/. Accessed March 29, 2018.

3 Ibid.

4 Investopedia. “Dodd-Frank Wall Street Reform and Consumer Protection Act.” https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp. Accessed April 10, 2018.

5 Sylvan Lane. The Hill. March 25, 2018. “Frustration mounts as Dodd-Frank rollback stalls.” http://thehill.com/policy/finance/380027-frustration-mounts-as-dodd-frank-rollback-stalls. Accessed March 29, 2018.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Inflation: Expectations for 2018

By | Featured

It seems as if inflation has been biding its time. Since the financial crisis a decade ago, growth in prices and wages has been muted.1 However, many financial analysts believe that’s about to change.

A jobs report from early March revealed continued hiring and a moderate increase in wages. The stock markets welcomed the news, responding with higher performance.2 However, the markets experienced volatility throughout the rest of the month and into April as trade tensions between the U.S. and China escalated.3

While the market is no stranger to daily fluctuations, inflation levels have remained low — and thus, so have interest rates. That appears to be changing. On March 21, the Federal Reserve raised the federal funds interest rate by a quarter of a percentage point and maintained its already-stated forecast of two more quarter-point rate increases this year.4

There are two important things to consider when creating a financial strategy. The first is what’s going on in the economy and how it may impact your assets. The second is to consider any changes to your personal financial circumstances and long-term goals. It’s important to work with an experienced financial advisor who can help keep you informed of any economic activity that could impact your investment portfolio’s mix yet keep you grounded so that any changes you make are aligned with your long-term goals. Please schedule some time with us if you have questions or concerns about how the potential for increasing inflation and interest rates could affect your situation.

The following are some of the factors expected to contribute to higher inflation this year:5

  • Tight labor market (i.e., more jobs than workers) could promote higher wage growth
  • Rising prices on raw materials
  • S. manufacturing growth increased at its fastest pace in three months at the end of 2017
  • Supply of manufacturing materials appears to be waning worldwide

So what happens in the investment markets when inflation rises? Generally, economic growth produces higher prices, which bodes well for financial, energy and materials stocks. On the other hand, regulated industries such as utilities and telecoms do not have as much flexibility to increase prices, and therefore may be negatively affected.6

In the bond markets, Treasury inflation-protected securities (TIPS) tend to rise because their face value adjusts based on changes in the consumer price index (CPI). Note that this may make them more attractive than corporate bonds or other government notes in a rising inflation environment.7

 

Content prepared by Kara Stefan Communications.

1 eTrade.com. Jan. 12, 2018. “Jack Frost still nipping inflation.” https://us.etrade.com/knowledge/markets-news/commentary-and-insights/jack-frost-still-nipping-inflation. Accessed March 20, 2018.

St. Louis Post-Dispatch. March 9, 2018. “U.S. stocks soar on strong jobs report; inflation fears ease.” http://www.stltoday.com/business/local/u-s-stocks-soar-on-strong-jobs-report-inflation-fears/article_ca79880d-941c-5dc6-8f3b-ccc22e77134e.html. Accessed March 20, 2018.

3 Nathaniel Meyersohn and Danielle Wiener-Bronner. CNN Money. April 4, 2018. “Stocks surge back for big gain after plunging on China tariffs.” http://money.cnn.com/2018/04/04/investing/us-stocks-markets-china-tariffs/index.html. Accessed April 5, 2018.

4 Paul Davidson. USA Today. March 21, 2018. “Fed raises rates, keeps forecast for 3 hikes in 2018.” https://www.usatoday.com/story/money/2018/03/21/fed-powell-hikes-interest-rates-consumer-loans/444986002/. Accessed April 5, 2018.

5 eTrade.com. Jan. 12, 2018. “Jack Frost still nipping inflation.” https://us.etrade.com/knowledge/markets-news/commentary-and-insights/jack-frost-still-nipping-inflation. Accessed March 20, 2018.

6 Ibid.

7 Ibid.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Putting a Value on Real Property

By | Featured

Real property generally refers to land, but it also can include structures, bodies of water and machinery.1 It typically denotes property of significant value, which is why state and local governments choose to impose taxes on our homes. These levies could be considered a progressive tax, in that people who own more expensive homes likely will pay higher property taxes.

For many retirees, their homes are among their most valuable assets, but they are just one piece of the financial picture. We can help you create a financial strategy that takes into account all your retirement assets and sources of income. Give us a call if you’d like to learn more about the use of investment and insurance products to help you pursue your retirement goals.

The way real property is valued can offer advantages and disadvantages to owners. During the 2008 recession and its real estate market decline, many home sellers and buyers experienced a substantial discrepancy between the appraised value and the market value of their homes. Appraised value is how much a licensed appraiser believes your home is worth, while market value is determined by just that — the market. In other words, it’s whatever buyers are willing to pay for the property. If the market value is lower than the appraised value, owners become “upside down” on their mortgages, which means they owe more than the home is worth.2

Then there’s the case of assessed value, which is usually conducted on behalf of the county or municipality that imposes property taxes.3 This value may be less than the market or appraised value, based on a calculation of various factors. A lower assessed value generally equals lower taxes, so there’s an advantage to the assessment not increasing — particularly for retirees planning to stay in their homes for the duration of their life.

Real estate appears to be a popular asset for many affluent investors, thanks to its finite supply and the fact that demand will generally continue to grow as the population increases. A recent survey of the portfolios of affluent investors revealed:4

  • The principal residence of an affluent investor typically represents up to 30% of his or her total assets
  • Beyond the principal residence, between 4-6% of assets are in real estate
  • Among all investors, 20% own a second or vacation home
  • Among ultra high net worth investors ($5 million to $25 million), 32% own a second or vacation home

Factors that may have some impact on property values in the future relate to transportation. For example, the rise of driverless cars could have an impact on the real estate market. Transportation experts say they could make public transit less necessary to commuters, thus affecting property values near train stations and other public transit.5

Another interesting trend is in commercial real estate. You may have noticed vast, empty parking lots sitting aside malls and shopping plazas where storefronts are empty. As the country shifts more toward buying online, brick-and-mortar stores are being abandoned. Lower demand for retail shopping spaces could lower rents or require landlords to rethink how they use the space.6

 

Content prepared by Kara Stefan Communications.

 

1 Investopedia. “Real Property.” https://www.investopedia.com/terms/r/real-property.asp. Accessed April 6, 2018.

2 Angela Colley. Realtor.com. Jan. 22, 2015. “What Is a Upside-Down Mortgage?” https://www.realtor.com/advice/finance/what-is-upside-down-mortgage/. Accessed April 6, 2018.

3 Chris Seabury. Investopedia. “How property taxes are calculated.” https://www.investopedia.com/articles/tax/09/calculate-property-tax.asp. Accessed April 6, 2018.

4 Spectrem Group. 2018. “How Investors Appraise Real Estate.” https://spectrem.com/Content/-how-investors-appraise-real-estate.aspx. Accessed March 15, 2018.

Ely Razin. Forbes. March 11, 2018. “How Driverless Cars Could Disrupt The Real Estate Industry.” https://www.forbes.com/sites/elyrazin/2018/03/11/how-driverless-cars-could-disrupt-the-real-estate-industry/#61039ab013c1. Accessed March 15, 2018.

6 Richard Kestenbaum. Forbes. May 30, 2017. “This Is What Will Happen To All The Empty Stores You’re Seeing.” https://www.forbes.com/sites/richardkestenbaum/2017/05/30/this-is-what-will-happen-to-all-the-empty-stores-youre-seeing/#58aea44bb78b. Accessed April 6, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Investing in Europe

By | Investments

It’s often said that when one asset class falters, others are likely rising. To some extent, this may be occurring with U.S. equities. The stock market correction that started in February amid fears of rising inflation has continued through March with the threat of a global trade war.1

According to Bank of America Merrill Lynch, money that’s been flowing out of U.S. equity funds since the beginning of the year appears to be re-emerging in Europe. Just as all markets experience periodic ups and downs, Europe appears to be in an upswing. In general, European equities boast reasonable valuations and some of the highest dividends in the world.2

Investors with an asset allocation strategy that takes into consideration their risk tolerance, investment timeline and financial goals can make investment changes within those guidelines. For example, small moves from U.S. equities to European stocks may open up performance opportunities without significantly changing one’s asset strategy.

If you’re interested in diversifying to capture more stocks abroad, mutual funds may offer a viable way to incorporate these securities. We will only provide investment advisory services after we have assessed your financial situation. If you’re interested in a comprehensive review of this nature, we’d be happy to schedule a time to discuss this with you further.

European stocks are presently attractive because the continent is further behind in the economic growth cycle than the U.S. While European equity markets have lagged in recent years, they now appear to offer greater potential relative to other markets as they play catch-up. Moreover, the euro-zone monetary policy looks to be supportive, and the region’s service sector is growing at the fastest rate since August 2007.3

Although sudden price peaks and drops based on political news are generally temporary, it is worth noting the influence. President Donald Trump’s recent announcement regarding new global tariffs on steel and aluminum, along with his threat to increase tariffs on the import of foreign cars, could have been expected to impact German stocks, particularly in the auto industry. Last year, 35 percent of the 17.25 million vehicles sold in the U.S. were imported. Losses resulting from lower exports and/or higher tariffs on vehicles produced by German car makers would be expected to result in a 10 percent drop in profits, which would typically impact share prices.4

However, Trump announced on March 22 that several allies, including the European Union, were exempt from the steel and aluminum tariffs.5 This news most likely came as a relief to the European Union — as well as some U.S. manufacturers. The EU has expressed growing concerns about Trump’s protectionist stance on trade and has threatened punitive tariffs of its own on motorcycles, clothing, bourbon whiskey and a host of other products.6

Of course, EU countries have their own political problems that may influence domestic stock prices. For example, Italy’s recent election that created a balanced stalemate in parliament could have a negative impact on the European economy.7

 

Content prepared by Kara Stefan Communications.

 

1 Liz Ann Sonders, Jeffrey Kleintop and Brad Sorensen. Charles Scwab. “Navigating the Changing Market Environment.” https://www.schwab.com/resource-center/insights/content/market-perspective. Accessed April 4, 2018.

2 Blaise Robinson. Bloomberg. Feb. 23, 2018. “Equity Investors Fleeing Wall Street Are Turning to Europe.” https://www.bloomberg.com/news/articles/2018-02-23/equity-investors-fleeing-wall-street-are-turning-to-europe. Accessed March 9, 2018.

3 Dewi John. IPE.com. March 2018. “European Equities: Catching up with global growth.” https://www.ipe.com/investment/asset-class-reports/european-equities/european-equities-outlook-catching-up-with-global-growth/10023457.article. Accessed March 9, 2018.

4 Neil Winton. Forbes. March 5, 2018. “Trump Auto Tariff Threat Slams VW, BMW Shares, But Experts Call It A Bluff.” https://www.forbes.com/sites/neilwinton/2018/03/05/vw-bmw-shares-fall-after-trump-auto-tariff-threat-but-experts-call-it-a-bluff/#601d687b6bcb. Accessed March 9, 2018.

5 Jim Tankersley and Jack Ewing. The New York Times. March 22, 2018. “U.S. Exempts Allies From Steel and Aluminum Tariffs.” https://www.nytimes.com/2018/03/22/business/us-eu-tariffs-steel-aluminum.html. Accessed March 22, 2018.

6 Viktoria Dendrinou and Jonathan Stearns. Bloomberg. March 6, 2018. “EU Raises Stakes for Trump by Aiming Levies at GOP Heartland.” https://www.bloomberg.com/news/articles/2018-03-06/eu-targets-u-s-shirts-to-motorbikes-in-tariff-retaliation-plan. Accessed March 9, 2018.

Vickii Oliphant. Express. March 5, 2018. “Italian election 2018: What will Italy general election mean for Eurozone and euro?” https://www.express.co.uk/news/world/926368/Italian-election-2018-Italy-general-election-Euro-Eurozone-economy. Accessed March 22, 2018.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Investment Themes for This Year

By | Investments

In the investment community, all eyes are on inflation this year. Economic analysts at Merrill Lynch anticipate further tightening in the labor market, to the tune of 3.9 percent unemployment by the end of 2018. Along with the tightened labor situation, they also expect personal consumption expenditure (PCE) inflation rising to 1.8 percent by year end and 2.0 percent by the end of 2019.1

As of this writing, inflation is at 1.7 percent. There is speculation that new Federal Reserve Chairman Jerome Powell may be open to inflation flowing as high as 2.5 percent before making any dramatic moves in interest rates, in an effort to extend the more than eight-year expansion in U.S. growth.2

It’s been a very good run for U.S. investors, but there are indicators that we could see more volatility this year. As such, individuals approaching retirement may want to consider ways to help reduce the impact of market volatility on their retirement assets. We’re happy to review your current situation and recommend strategies using a variety of investment and insurance products to help you pursue your long-term goals; just give us a call.

Below are some investment trends we see for 2018:

Value Stocks

Growth stocks have been outperforming value stocks for quite some time, but it looks as if that could change. Stocks that are considered undervalued have high relative dividend yields, low price-to-book ratios and/or low price-to-earnings ratios. These stocks offer the opportunity to thrive in a somewhat volatile market.3

Millennials

Much like their baby boomer parents, millennials are expected to drive innovation and previously under-explored markets in the future. As a demographic, they are tech savvy, environmentally aware and focused on sustainability, clean energy and impact investing. Perhaps more significantly, this generation is projected to inherit nearly $4 trillion in the United Kingdom and North America alone, which means they may have the means to act on their well-cultivated interests and passions.4

Autonomy

Transportation continues to be an issue in America, and we could be looking at a future ripe with automated cars, buses and other vehicles that do not require drivers. Public agencies may do well to focus on long-term city development plans that can accommodate driverless cars and other innovations.5

eGroceries

You may think that Amazon’s recent acquisition of Whole Foods has heralded a new era of buying groceries online. However, it’s a trend that has been going on for years, driven by investment by brick-and-mortar retailers, with online grocery shopper numbers more than doubling in a little over a year. According to recent research from the Food Marketing Institute (FMI) and Nielsen, almost 50 percent of Americans purchased groceries online in the past three months. The trend, however, is dominated by younger adults: millennials at 61 percent and generation X at 55 percent. FMI and Nielsen predict that many as 70 percent of U.S. shoppers could be buying groceries online by 2022.6

Content prepared by Kara Stefan Communications.

 

1 Michelle Meyer. Merrill Lynch. Nov. 19, 2017. “Investing Insights for the Year Ahead/Interest Rates, Policy and the Search for Missing Inflation.” https://www.ml.com/articles/market-updates.html. Accessed March 1, 2018.

2 Rich Miller and Shelly Hagan. Bloomberg. Feb. 26, 2018. “Powell Could Put Up With 2.5% Inflation to Keep Growth Pumping.” https://www.bloomberg.com/news/articles/2018-02-26/powell-may-accept-inflation-overshoot-to-extend-u-s-expansion. Accessed March 1, 2018.

3 Kevin Mahn. Forbes. Jan. 5, 2017. “Top 10 Investment Themes For 2018.” https://www.forbes.com/sites/advisor/2018/01/05/top-10-investment-themes-for-2018/#652c30027dff. Accessed March 1, 2018.

4 Alice Ross and Hugo Greenhalgh. Financial Times. Nov. 17, 2017. “$4tn wealth transfer sparks battle for kids of the rich.” https://www.ft.com/content/aa704cbc-c9dd-11e7-ab18-7a9fb7d6163e. Accessed March 1, 2018.

Daniel Terdiman and Mark Sullivan. FastCompany. Jan. 2, 2018. “The Most Important Tech Trends Of 2018, According to Top VC.” https://www.fastcompany.com/40503654/the-most-important-tech-trends-of-2018-according-to-top-vcs. Accessed March 1, 2018.

Deborah Weinswig. Forbes. March 1, 2018. “Online Grocery Set to Boom in 2018 (As Amazon Acknowledges Online Grocery A Tough Market to Crack).” https://www.forbes.com/sites/deborahweinswig/2018/03/01/online-grocery-set-to-boom-in-2018-as-amazon-acknowledges-online-grocery-a-tough-market-to-crack/#335f2c8e520b. Accessed March 1, 2018.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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The New Tax Law: Things to Consider

By | Featured

Who will be affected by the new tax legislation that went into effect Jan. 1? That is a question many are asking.

While “everyone” is likely to see some changes, here’s an idea of how many people fell into each income group. In 2015:1

  • About 1.4 million Americans accounted for the top 1% of income earners. These Americans earned at least $480,930 of adjusted gross income that year and paid about 40% of all federal income taxes.
  • The top 50% of taxpayers earned at least $39,275.
  • 71 million taxpayers earned less than $39,275 and paid 2.8% of all the income taxes.

Our tax liability is about as personal as our investment choices, career path, favorite foods and what we wear to work in the yard. In short, no matter what’s in the new tax law, it’s likely to affect your tax return differently from your neighbor’s. If you anticipate significant changes, we suggest you seek the counsel of an experienced tax advisor. We can help you find one if you’d like a recommendation.

By the same token, it’s a good idea to work with your financial professional when strategizing a tax-efficient plan, because most financial decisions are intertwined. It’s good for the left hand to know what the right hand is doing.

According to a survey from Willis Towers Watson, two-thirds of employers surveyed say they’ve either made or are considering making enhancements to their employee benefits as a result of the Tax Cuts and Jobs Act. Among them:2

  • 26% are increasing contributions to their sponsored retirement plans.
  • 34% are considering expanding personal financial planning programs for workers.
  • 19% are considering increasing or accelerating contributions to defined benefit plans.

Social Security recipients also may see a change. The new tax law will make cost-of-living adjustments using the Chained Consumer Price Index (CPI) rather than the traditional CPI.3 The difference is that growth of the Chained CPI is generally a few tenths of a percentage point lower the traditional CPI. This could mean slower growth in Social Security benefits.4

Homeowners who take the state and local tax deduction (SALT) as a part of their itemized deductions are going to see a cap ($10,000) on the amount of interest they can deduct from their 2018 return. This mostly is expected to affect residents of states with high income taxes.5

The new law also caps the mortgage interest deduction on home purchases made after Dec. 14, 2017, at $750,000 in mortgage debt, a decrease from the previous cap of $1 million. Further, it eliminated the deduction for interest paid on a home equity loan, for both current accounts and new ones opened in the future.6

Content prepared by Kara Stefan Communications.

1 Kevin McCormally. Kiplinger. Nov. 1, 2017. “Where You Rank as a Taxpayer.” https://www.kiplinger.com/article/taxes/T054-C000-S001-how-you-rank-as-a-taxpayer.html. Accessed Feb. 22, 2018.

2 Nasdaq. Jan. 25, 2018. “Tax law fueling changes to employer benefits and compensation programs, Willis Towers Watson survey finds.” https://globenewswire.com/news-release/2018/01/25/1305044/0/en/Tax-law-fueling-changes-to-employer-benefits-and-compensation-programs-Willis-Towers-Watson-survey-finds.html. Accessed March 6, 2018.

3 Robert Powell. The Street. Jan. 26, 2018. “How the New Tax Law Affect Tax Brackets and Roth Conversions.” https://www.thestreet.com/story/14463562/1/how-the-new-tax-law-affect-tax-brackets-and-roth-conversions.html. Accessed Feb. 22, 2018.

4 Sho Chandra. Bloomberg. Dec. 19, 2017. “What You Need to Know About ‘Chained CPI’” https://www.bloomberg.com/news/articles/2017-11-20/why-chained-cpi-has-links-to-u-s-tax-debate-quicktake-q-a. Accessed Feb. 22, 2018.

Amelia Josephson. SmartAsset. Jan. 18, 2018. “Changes to State and Local Tax Deduction — Explained.”https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained. Accessed March 6, 2018.

Samantha Sharf. Jan. 9, 2018. “How the New Tax Law Will Impact Your Housing Costs.” https://www.forbes.com/sites/samanthasharf/2018/01/09/what-in-the-final-tax-bill-could-impact-your-housing-costs/#243c76c32c08. Accessed Feb. 22, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Balancing Investor Euphoria With Market Reality

By | Investments

Many social media users share nearly all aspects of their lives, from photos of cute kids and pets to their political views. And now, we even are seeing posts from exuberant investors bragging about their investment returns. For example, consider this social media post:1

“I strived to become a 401(k) millionaire someday, and this week, thanks to years of consistent savings and a long bull market, that goal has come to fruition, at the ripe age of 45.” This message was accompanied by a snapshot of his actual account statement.

Indeed, every investor proud of his or her success should be applauded for diligent and prudent investing over time. However, it’s worth noting that what goes up generally comes down. The question is: When?

If you’ve achieved significant gains over the past few years, we’d like to help you ensure that your current financial strategy still fits within the context of your own goals, risk tolerance and investment timeline. Feel free to contact us for a comprehensive review of your financial situation to help determine the next move to help you pursue your financial goals.

Strong stock market performance is generally attributed to a wide range of factors, including the prevailing policies of the current presidential administration. While fiscal policy can have a near-term influence on investor and business confidence, other contributing factors are more long term in nature. For example, changes in monetary policy may take six to twelve months to impact the financial markets.2

The same can be true for market declines. While an occasional one-day freefall does occur, most of the time a correction, such as the one that occurred in early February, is the culmination of contributing factors over time. In fact, stock market analysts had been predicting a correction for quite some time, so it did not come as a surprise to many in the industry when it happened.3 Moving forward, analysts expect continued volatility that could damper some of those proud moments many investors have shared.4

Even if investors’ exuberance has been dampened somewhat because of the recent market volatility, it’s important to remember what got them there in the first place: Disciplined investing. As such, a stock price slide can present the opportunity to buy when prices are low — further positioning a portfolio for future gains.In other words, perhaps euphoria and prudence can go hand in hand.

Content prepared by Kara Stefan Communications.

1 Sally French. MarketWatch. Feb. 1, 2018. “People are bragging about becoming 401(k) millionaires — and posting their balances to social media.” https://www.marketwatch.com/story/people-are-bragging-about-becoming-401k-millionaires—-and-posting-their-balances-to-social-media-2018-01-29. Accessed Feb. 12, 2018.

2 Oliver Pursche. Kiplinger. March 21, 2017. “The Fed/Trump Face-off: When Fiscal and Monetary Policy Collide.” https://www.kiplinger.com/article/investing/T023-C032-S014-fed-vs-trump-when-fiscal-and-monetary-policy-colli.html. Accessed Feb. 12, 2018.

3 Eric Rosenbaum. CNBC. Nov. 27, 2017. “Chance of US stock market correction now at 70 percent: Vanguard Group.” https://www.cnbc.com/2017/11/27/chance-of-us-stock-market-correction-now-at-70-percent-vanguard.html. Accessed Feb. 12, 2018.

Cecile Vannucci. Bloomberg. Feb. 9, 2018. “Volatility Explosion Is Sparking a Rush to Hedge at Any Cost.” https://www.bloomberg.com/news/articles/2018-02-09/a-conundrum-for-hedgers-now-that-you-need-it-the-vix-is-at-32. Accessed Feb. 12, 2018.

Kristine Owram. Bloomberg. Feb. 12, 2018. “Morgan Stanley Strategist Who Predicted Volatility Says Buy Now.” https://www.bloomberg.com/news/articles/2018-02-12/morgan-stanley-strategist-who-predicted-volatility-says-buy-now. Accessed Feb. 12, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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