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.

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.

Investment Lessons of 2016

Contributed by: Jaclyn Jackson

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

A Look Back on 2016 Market Performance:

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

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

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

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

Asset Flows: What Investors Did in 2016

Source: Morningstar Direct 2016

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

Lessons Moving Forward

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

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

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

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

Year-End Financial Checklist: Tips to End the Year on a High Note (UPDATED)

Contributed by: Jaclyn Jackson

This post was written in December 2015 as a helpful reminder of things you can do to strengthen your finances and get things in order for the upcoming year. Many of the tips are still useful, but I’ve updated to reflect potential policy changes in 2017.   

1. Harvest your losses – Tax-loss harvesting generates losses that can be used to reduce current taxes while maintaining your asset allocation. Take advantage of this method by selling the investments that are trading at a significant loss and replacing it with a similar investment. In light of potential 2017 tax cuts, it is also important to consider whether you may land in a lower tax bracket. If that is the case, postpone realizing capital gains and losses until next year.

2. Taking Advantage of Deductions – If marginal tax rates decrease significantly in 2017, now is a great time to get the most “bang for your buck” from deductions. In other words, consider paying medical expenses, real property taxes, fourth quarter state income taxes, or your January mortgage this month instead.

3. Max out contributions – While you have until you file your tax return, it may be easier to take some of your end-of-year bonus to max out your annual retirement contribution.  Traditional and Roth IRAs allow you to contribute $5,500 each year (with an additional $1,000 for people over age 50). You can contribute up to $18,000 for 401(k)s, 403(b)s, and 457 plans.

4. Take RMDs – Don’t forget to take the required minimum distribution (RMD) from your IRA.  The penalty for not taking your RMD on time is a 50% tax on what should have been distributed. RMDs should be taken annually starting the year following the year you reach 70 ½ years of age.

5. Rebalance your portfolio – It is important to rebalance your portfolio periodically to make sure you are not overweight an asset class that has outperformed over the course of the year. This helps maintain the investment objective best suited for you.

6. Use up FSA money - If you haven’t depleted the money in your flexible spending account (FSA) for healthcare expenses, now is the time to squeeze in those annual check-ups. Some plan sponsors allow employees to roll over up to $500 of unused amounts, but that is not always the case (check with your employer to see if that option is available to you).

7. Donate to a charity – Instead of cash, consider donating highly appreciated securities to avoid paying capital gains tax. Typically, there is no tax to you once the security is transferred and there is no tax to the charity once they sell the security. If you’re not sure where you want to donate, a Donor Advised Fund is a great option. By gifting to a Donor Advised Fund, you could get a tax deduction this year and distribute the funds to a charity later. Again, considering the possibility of decreased marginal tax rates in 2017, you may be better off moving your 2017 contributions into 2016.

8. Review your credit score – With all of the money transactions done during the holiday season, it makes sense to review your credit score at the end of the year. You can go to annualcreditreport.com to request a free credit report from the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion. Requesting one of the reports every four months will help you keep a pulse on your credit status throughout the year.

Bonus:  If there have been changes to your family (new baby, marriage, divorce, or death), consider these bonus tips:

• Adjust your tax withholds

• Review insurance coverage

• Update financial goals, emergency funds, and budget

• Review beneficiaries on estate planning documents, retirement accounts, and insurance policies.

• Start a 529 plan

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

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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 opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. 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. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

Market Sector Impact of Donald Trump's Presidential Win

Contributed by: Jaclyn Jackson

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

The Winners

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

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

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

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

The Losers

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

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

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

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

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

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

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results.

Finding the Right Asset Allocation

Contributed by: Jaclyn Jackson

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

Determining the Right Mix

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

• What are my financial goals?

• When do I need to achieve my financial goals?

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

Seasoning to Taste

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

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

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

• The risks associated with investing

Following the Recipe

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

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

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

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

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

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

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

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.

Political Parties and their Impact on Your Portfolio

Contributed by: Jaclyn Jackson

Primary season could be worrisome for some investors as they try to figure out who will become our next president, how that person’s political ideologies will influence stock markets, and ultimately how that may impact their investment portfolio performance. I’ve explored the most common myth about political parties and its effect on the US stock market - the result is pleasantly surprising. 

Myth:  Big government ideologies held by Democrats make them worse for the stock markets while small government and small business driven ideologies make Republicans best for the stock markets. 

Bust:  Whether a Democrat or Republican is elected, historical data indicates that it has no statistically significant bearing on US equity markets. Illustrated below, both parties have experienced a similar amount of presidential terms with positive equity returns based on the Dow Jones Industrial Average from 1900-2012. 

Sources: Bloomberg, Oppenheimer Funds. As of 12/31/14.

Even though Democrats edge out Republicans by return percentage, there really isn’t much difference once you adjust for the normal variation in stock market returns. The results are reassuring; markets aren’t largely swayed by the president’s political party. 

Tips for Politic-Proofing Your Portfolio

While political parties don’t necessarily dictate market performance, they do generate policy plays that influence the economy. Divergent policy priorities around issues like individual taxes, the environment, healthcare, financial regulation, Fed policy, etc. could affect specific market sectors (i.e. healthcare, energy, utilities, and financials). 

Yet, investors can be confident in deploying two key strategies to help armor their portfolios against sector specific market fluctuations: diversification and long term investing. Diversification works to improve portfolio risk return characteristics by spreading investment exposure across different asset classes. In other words, it can assist in buffering your portfolio from concentrated portfolio swings to help achieve better risk-adjusted returns. Likewise, long term investing generally guards against short term sector movements by providing those who stick to their investment strategy less volatile returns over time. When you have a well suited, diversified long term investment strategy, you don’t have to fall into the trap of investing based on the political climate.

For more information of the benefits of diversified investing, click here.

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

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Jaclyn Jackson 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. Past performance is not a guarantee of future results. 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. 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. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Diversification does not ensure a profit or guarantee against a loss. Holding investments for the long term does not insure a profitable outcome.

How Should I Use My Tax Refund?

Contributed by: Jaclyn Jackson

Tax filing season is over and many people are entitled to get money back from Uncle Sam.  While most of us are tempted to buy the latest gadget or book a vacation, there may be a better way to use your tax refund. If you are pondering what to do with your tax refund, here are a few questions to help determine whether you should SAVE, INVEST, or SPEND it.

Have you been delaying one of the following: car repair, dental or vision checks, or home improvement?

If you answered yes: SPEND

If you had to be conservative with your income last year and as a result postponed car, health, or home maintenance, you can use your tax refund to get those things done.  Postponing routine maintenance to save money short term may add up to huge expenses long term (i.e. having to purchase a new car, incurring major medical expenses, or dealing with costly home repairs.)

Do you have debt with high interest rates?

If you answered yes: SPEND

High interest rates really hurt over time. For instance, let’s say you have a $5,000 balance at 15% APR and only paid the minimum each month.  It would take you almost nine years to pay off the debt and cost you an additional $2,118 interest (a 42% increase to your original loan) for a total payment of $7,118. Use your tax return to dig out of the hole and get debt down as much as possible.

Could benefit from buying or increasing your insurance?

If you answered yes: SPEND

1. Consider personal umbrella insurance for expenses that exceed your normal home or auto liability coverage.

2. Make sure you have enough life insurance.

3. Beef up your insurance to protect against extreme weather conditions like flooding or different types of storm damage that are not normally included in a standard policy.  Similarly, you can use your tax refund to physically your home from tough weather conditions; clean gutters, trim low hanging branches, seal windows, repair your roof, stock an emergency kit, buy a generator, etc.

Have you had to use emergency funds the last couple of years to meet expenses?

If you answered yes: SAVE

Stuff happens and usually at unpredictable times, so it’s understandable that you may have dipped into your emergency reserves. You can use your tax refund to replenish rainy day funds.  The rule of thumb is to have at least 3-6 months of your expenses saved for emergencies. 

Are you considered a contract or contingent employee?

If you answered yes: SAVE

Temporary and contract employment has become pretty common in our labor-competitive economy where high paying positions are few and far between. If you paid estimated taxes, you may be eligible for a tax refund. Take this opportunity to build up savings to buffer against slow seasons or gaps in employment. 

Could you benefit from building up retirement savings?

If you answered yes: INVEST

Get ahead of the game with an early 2016 contribution to your Roth IRA or traditional IRA.  You can add up to $5,500 to your account (or $6,500 if you are age 50 or older).  Investing in a work sponsored retirement plan like a 401(k), 403(b), or 457(b) is also recommended so you could beef up your contributions for the rest of the year and use the refund to supplement your cash flow in the meantime. 

Are you interested saving for your child’s college education?

If you answered yes: INVEST

College expenses aren’t getting any cheaper and there’s no time like the present to start saving for your child’s college tuition.  Money invested in a 529 account could be used tax-free for college bills with the added bonus of a state income tax deduction for you contribution.

Could you benefit professionally from entering a certification program, attending conferences/seminar, or joining a professional organization?

If you answered yes: INVEST

It’s always a good idea to invest in your development.  Why not use your tax refund to propel your future?  Try a public speaking or professional writing course; attend a conference that will give you useful information or potentially widen your network.   

Did you answer “no” to all the questions above?

If you answered yes: HAVE FUN

Buy the latest gadget.  Book the vacation.  You’ve earned it!

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

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. 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 Jaclyn Jackson and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Please include: 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. Hypothetical examples are for illustration purposes only.

Don’t Lose Faith in Diversification

Contributed by: Jaclyn Jackson

As investors, we’ve always been taught that portfolio diversification is essentially for good portfolio performance.  Yet, we’ve experienced three consecutive years that have some of us second guessing that old adage.  Case and point, evaluating the broad bull market from March 2009-December 2012 and the mostly flat market from December 2012–September 2015, it is clear that sometimes diversified asset classes perform well and at other times they do not.  During the period of March 2009 through November 2012, diversification generally helped returns.  From December 2012 until August 2015 diversification away from any “core” asset classes generally hurt returns.

Source: PIMCO

Source: PIMCO

Core asset classes (top) reflect the overall positive direction of the most common markets during both periods. Comparatively, diversified asset classes (bottom) generally helped portfolio returns from 2009-2012 as indicated by the blue lines showing positive returns, but thereafter generally detracted from returns as indicated by the red bars with low to negative performance. Based on this data, it’s easy to consider using a core-only investment strategy without the frills (or frustrations) of diverse investments.  However, there is one key point that we can draw from the diversified asset graph; unlike core assets, diversified assets don’t move in tandem with the market.  Believe it or not, that’s actually what’s great about them.

Many people think diversification is meant to improve returns, but it would be useful to reframe that idea; diversification is meant to improve returns for the level of risks taken. In other words, diversified investments work to balance core investments during down or volatile markets.  Let’s look back at the market bottom of 2009.

The graph illustrates that a non-diversified (stock-only) portfolio lost almost double the amount of a diversified portfolio.  Moreover, the diversified portfolio bounced back to its pre-crisis value more than a year before the stock-only portfolio.  This type of resilience is especially important for retired investors that rely on income from their portfolios. 

Not only is portfolio diversification useful for people who’ve met investment goals, it is equally helpful to long-term investors.  For investors still working toward financial goals, portfolio diversification can help produce more consistent returns, thereby increasing the prospects of reaching those goals.  The diagram below ranks the best (higher) to worst (lower) performance of 10 asset classes from 1995-2014.  The black squares represent a diversified portfolio.

Source: SPAR, FactSet Research Systems Inc.

The black squares generally middle the diagram.  As evident, the range of returns for a diversified portfolio was more consistent than individual asset classes.  Returns with less variability are more reliable for setting long-term investment goals.

Admittedly, portfolio diversification over the last three years has made it difficult for many to stick with their investment strategy.  Yet, portfolio diversification still holds merit: it can help mitigate portfolio risk; it can boost portfolio resilience; and it can provide investors the consistency necessary to set and meet financial goals.

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

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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 Jaclyn Jackson 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. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Past performance is not a guarantee of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. The investments you choose should correspond to your financial needs, goals, and risk tolerance. For assistance in determining your financial situation, consult an investment professional. For more information on any MFS product, including performance, please visit mfs.com. Investing in foreign and/or emerging market securities involves interest rate, currency exchange rate, economic, and political risks. These risks are magnified in emerging or developing markets as compared with domestic markets. Investing in small and/or mid-sized companies involves more risk than that customarily associated with investing in more-established companies. Bonds, if held to maturity, provide a fixed rate of return and a fixed principal value. Bond funds will fluctuate and, when redeemed, may be worth more or less than their original cost. Note that the diversified portfolio’s assets were rebalanced at the end of every quarter. Diversification does not guarantee a profit or protect against a loss. to maintain the equal allocations throughout the period. Standard deviation reflects a portfolio’s total return volatility, which is based on a minimum of 36 monthly returns. The larger the portfolio’s standard deviation, the greater the portfolio’s volatility. Investments in debt instruments may decline in value as the result of declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall), therefore the Fund’s share price may decline during rising rate environments as the underlying debt instruments in the portfolio adjust to the rise in rates. Funds that consist of debt instruments with longer durations are generally more sensitive to a rise in interest rates than those with shorter durations. At times, and particularly during periods of market turmoil, all or a large portion of segments of the market may not have an active trading market. As a result, it may be difficult to value these investments and it may not be possible to sell a particular investment or type of investment at any particular time or at an acceptable price. https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default