The Blog – Retirement & Financial Planning for people who can think

Ignore the Distractions

The steady diet of headlines pouring out of the Trump administration has been unsettling for most Americans, regardless of where they sit on the political spectrum.

We know equity markets loathe heightened uncertainty. What is happening in Washington is generating an enormous amount of political uncertainty. Yes, the word “impeachment” has even been bandied about in conventional circles. It was responsible for a one-day sell-off last month that cost the Dow 373 points (St. Louis Federal Reserve).

Blame the knee-jerk reaction on allegations President Trump asked then FBI Director James Comey to end an investigation of former National Security Advisor Michael Flynn. There hadn’t been much downside action in the major indexes recently, so talk of impeachment jarred the short-term crowd.

But, political as well as international uncertainty has yet to generate economic uncertainty. Hence, and this is important, we have seen little downside in stocks. It really is about the economy.

Given the comparisons to Watergate, let’s take a high-level look at what was happening economically in the early 1970s and compare it to today.

Table 1: Then vs. Now

1973-74	2017
Inflation rose to double-digit levels, peaking at over 12%	Inflation remains low
Interest rates were spiking higher; prime loan rate hit 12%	Interest rates remain low
OPEC oil embargo roils economy, oil prices rise four-fold	A glut of oil exists today and prices are well below levels of recent years
The unemployment rate jumped as the economy fell into a steep recession	Employment is rising, the unemployment rate is at a cyclical low, and the economy is expanding

Source: St. Louis Federal Reserve, U.S. State Dept.

As Table 1 illustrates, the fundamentals are radically different today.

Beyond the brief synopsis I provided above, I’ll stay out of the political weeds and let you form your own opinions. Stepping briefly into the political arena feels like I’ve stepped into a minefield! But I felt it was important to provide some context in relation to the markets.

My job is to be your financial advisor and financial confidant. That is where I focus my energy. I’d be happy to entertain any questions you may have about your portfolio, your financial plan, and how I believe various events of the day may impact your investments.

But let’s stick to your financial roadmap.

Table 2: Key Index Returns

	MTD %	YTD %	*3-year %**
Dow Jones Industrial Average	+0.3	+6.3	+7.9
NASDAQ Composite	+2.5	+15.1	+13.5
S&P 500 Index	+1.2	+7.7	+7.8
Russell 2000 Index	-2.2	+1.0	+6.5
MSCI World ex-USA**	+2.8	+11.0	-1.5
MSCI Emerging Markets**	+2.8	+16.6	-0.7
Bloomberg Barclays US Aggregate Bond TR	+0.8	+2.4	+2.5

Source: Wall Street Journal, MSCI.com, CNBC, Morningstar
MTD returns: April 28, 2017—May 31, 2017
YTD returns: December 30, 2016—May 31, 2017
*Annualized
**in US dollars

Shedding light on a confusing maze of options–financial literacy

I recently came across a definition of financial literacy in Wikipedia that I believe sums up the term well. I’ll paraphrase: “It refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.”

How do you manage money? How does one come up with financial goals and a plan to reach those financial goals? How do we make effective decisions with our financial resources?

These are easy questions that don’t command easy answers. You see, the financial arena is much more complex than it was 50 years ago. There is a downside to the proliferation of choices we have today. It adds a layer of complexity and creates confusion. Many don’t know where to begin. Many fall into paralysis by analysis.

One of my goals in my practice is to educate the investor. I know we cover various topics in our meetings, but I’ve learned that some folks feel uncomfortable about asking questions they perceive as too simple. Don’t we all?

Let me say this–there isn’t a bad question. I want you to be comfortable with what we recommend. I understand that you reach out to me for assistance with your finances, and I take that responsibility very seriously.

While the financial plans we advocate encompass basic principles, we do not take a cookie-cutter approach. Instead, we tailor our advice to your unique situation.

So, let’s review some of the assets we may recommend and briefly explain how they work.

So, let’s begin with something simple–stocks.

Investopedia defines a stock as “a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.” If the company pays a dividend, it provides you with income.

Stocks can rise and fall in value.

Next, bonds. When you purchase a bond, you are lending an entity money, usually the government or a corporation. For your cash, you will be paid interest, usually every six months.

The yield you receive is based on the credit risk of the firm. Bonds can rise or fall in value but are typically much less volatile than stocks.

The worst-case scenario with stocks or bonds–a company goes bankrupt and you lose your entire investment.

That’s one reason why we highly recommend you diversify. You are not putting all your eggs in one basket.

Diversification doesn’t eliminate risk, but it does spread out the risk, potentially enabling you to earn a return that has historically exceeded the return on a bank savings account.

Let’s look at three other investment vehicles.

One quick way to diversify is to choose what’s called a mutual fund or an exchange-traded fund (ETF).

Simply put, a mutual fund is managed by a professional who purchases a diversified portfolio of stocks and/or bonds. There are thousands of mutual funds to choose from, and we carefully select ones that we believe are best suited for your portfolio.

More recently, ETFs have become quite popular. Many have very low expenses and allow you to instantly diversify. Some are designed to mimic broad areas of the market, such as the S&P 500 Index. Others mimic an index that’s industry-specific, such as banking, health care, energy, or housing.

Both securities can rise or fall in value.

Let’s look at one more–the REIT, or real estate investment trust. A REIT is designed to produce income by investing in real estate. In many ways, it has characteristics that are similar to both a mutual fund and an ETF.

Like a good mutual fund, a publicly traded REIT allows one to instantly diversify among a broad portfolio of income-producing properties that would be inaccessible to the small investor. Unlike real estate, a publicly traded REIT is liquid.

Except under extraordinary circumstances, it can be quickly turned into cash. Like an ETF or mutual fund, it may rise or fall in value.

Space limits prevent a much more detailed survey of financial planning topics. Your needs may bend toward estate planning, retirement income planning, insurance, charitable giving, college savings, and other areas. In fact, I dedicated substantial space to retirement-income planning and college savings in recent newsletters.

That said, let me reiterate. I’m just an email or phone call away if you have questions.

Bottom line

Every situation is unique, but there are fundamental financial principles that guide our recommendations.

Finally, let me repeat, there are no bad questions. What we don’t know can hurt us. And financial ignorance can be extremely costly.

Let’s talk if you have questions. That’s what I’m here for.

Assisting you in pursuit of your financial goals and shedding light on financial complexities provides our team with an enormous amount of satisfaction. Financial literacy is just one of the avenues that will help place you on the road to reaching your goals and dreams.

———————————

All investing involves risk, including the potential loss of principal. No investment strategy, including diversification, can guarantee a profit or protect against loss. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. Bonds are also subject to other types of risks such as call, credit, liquidity, interest-rate, and general market risks. When redeemed, mutual fund shares may be worth more or less than the original amount invested. Given the fees and expenses associated with ETFs, there is potential that they may underperform the specific index being tracked. Indexes are unmanaged and cannot be invested in directly. An investment in a REIT involves a high degree of risk and is not suitable for all investors. All data are taken from sources believed to be reliable, but Royal Alliance makes no guarantee of their accuracy. All suggestions are general in nature and may or may not reflect your individual situation.

DANIEL F. YASHAREL, MSFS, CFP, RICP
Senior Partner
NWF Advisory Group
CA Insurance Lic. # 0678291

Master of Science in Financial Services
Certified Financial Planner™
Retirement Income Certified Professional
Chartered Advisor in Philanthropy
Accredited Estate Planner
Chartered Financial Consultant
Chartered Life Underwriter

Real integrity is doing the right thing,
knowing that nobody’s going to know whether you did it or not.

11835 W. Olympic Boulevard, Suite 1155E, Los Angeles, CA 90064
(310) 475-5854 Fax (310) 773-9888
e-mail: yasharel@nwfadvisory.com
————————————————————

Registered Representative offering securities through of Royal Alliance Associates, Inc., a registered broker-dealer and Member FINRA/SIPC.

Investment Advisory and Financial Planning Services offered through NWF Advisory Services, Inc., a Registered Investment Advisor which is not affiliated with Royal Alliance.

So, You Just Won the Lottery, Now What?

Successfully managing a financial windfall

We’ve all heard the stories. If not first hand, at least in various news reports and anecdotes.

Some “lucky” person picks the winning numbers, prances before the cameras in what can only be described as a media lovefest, and lives happily ever after, free of financial worries.

OK, the first two points are correct, but the happily ever after doesn’t always materialize. In fact, in most cases, sudden money leaves the winner worse off than prior to their windfall.

Many winners, who aren’t used to managing a large sum of money, mismanage the funds and wreck their lives in the process. As it turns out, it’s a variation on the theme of the Prodigal Son. Only the names and the details change.

Of course, odds of winning life-changing cash in a lottery are incredibly low.

We are more likely to be the recipient of an inheritance or an insurance settlement. And it’s the unexpected pile of cash that may create an initial sense of euphoria and a false sense of security.

“The vast majority of people blow through [a financial windfall or inheritance] quickly,” said Jay Zagorsky, an economist and research scientist at The Ohio State University and author of a study on receiving an inheritance.

Whether large or small, it can seem like “play money.” And that is where the danger may lurk.

So, that brings us to the next question. What should you do if you happen to be the beneficiary of a financial windfall?

10 steps to creating a firewall around your newfound stash of cash

First, do nothing. That’s right, do nothing. The temptation may be to buy a new car, take a luxury cruise, or upgrade your living arrangements. That can begin an unwise cascade of purchases that will likely leave you feeling regret.I suggest you wait at least six months before embarking on any life-changing decisions. The time spent waiting and planning allows the “shock” of your newfound wealth to wear off.Besides, you need to take time to learn exactly what you’ve inherited. Is it all cash? Is it stocks and bonds? Have you just become the owner of a business or real estate?
Talk to a trusted advisor. Find someone who has your interests at heart, not his or hers.If you are expecting to receive a windfall or have already received an unexpected inflow of assets, let’s talk and see how we can incorporate it into your overall financial plan.The suggestions I’ll provide below are what I call the basics, the fundamentals. They may not apply directly to you, but they are common sense tools designed to help you make smart decisions and prevent an expected or unexpected windfall from being squandered.
Doing nothing also means not quitting quit your job. It may be tempting, but lost wages and the lack of social interaction from your work buddies may lead to remorse, even if you don’t especially enjoy your job. Besides, without work, you run the risk of blowing through your money much quicker than you had anticipated.
Reduce debt. We’ve always provided a holistic approach to financial planning. Once things have settled down and you have a better understanding of your inheritance, it may be time to pay down or pay off high-interest debt. Once eliminated, you no longer have that onerous outflow of interest payments on your loans.
If you don’t have an emergency fund, now is the time. Set aside reserves of at least three to six months, preferably the latter. The future can sometimes throw you an unexpected curve ball. Having reserves set aside will reduce your financial stress.
Additionally, you may decide to allocate additional funds toward savings and retirement. Again, every one of our clients is unique, with various goals, personal circumstances, and financial resources. What our team recommends for one person may vary significantly from what’s best for another.
Think about tax and estate planning. No one is sure what may or may not happen to the tax code this year or next. It’s something I touch on below. But it’s critical that we get a handle on the tax ramifications of your inheritance in order to maximize the financial benefit.
For example, did you know that you may be required to take distributions if you inherit an IRA? What if you are already taking required mandatory distributions? You see, things can get tricky rapidly, but sound advice can quickly ease any concerns.Additionally, life changes are a great time to update your estate plan, especially if the inheritance increases the complexity of your financial situation.
Be cautious. Less-than-reputable salespeople and relatives may suddenly warm up to you, with the unspoken goal of separating you from your cash. That’s why a trusted advisor is critical. If you have a well-thought-out financial plan, it’s much easier to pass on potentially exploitative offers.
Consider charitable giving. Do you have a favorite charity? Would you like to help a niece or nephew finance their education? Now is the opportunity to explore the possibility of helping others.
Have some fun. There’s nothing wrong with treating yourself. As we provide counsel, we would like to leave some room for self-indulgence. Do you like to travel? Have you thought about an addition to you home, finishing your basement, remodeling your kitchen, or upgrading appliances? Maybe it’s those top-of-the-line golf clubs you’ve been eying or a new car.Or, maybe you’d like to spend money catching up on the everyday things of life you’ve been putting off. Everyone has a hot button. I know many of your goals. It would give me an immense amount of pleasure helping you achieve your dreams.

With a financial plan in place that manages your windfall, you’ll feel much more secure enjoying the benefits of your wealth without the nagging worries that you might run through your nest egg with not much to show for it.

Holding pattern and the Trump tax cut plan

Stocks at home and overseas have experienced a run-up in prices over the last six months. After the S&P 500 Index claimed a new high on March 1 (St. Louis Federal Reserve), it has more or less held within a narrow range.

That hasn’t been the case for the tech-heavy NASDAQ Composite, which topped 6,000 for the first time last month (WSJ).

Admittedly, it’s an impressive comeback for an index that was clobbered in the post-dot-com era. But it’s a testament to the resilience of the U.S. economy and U.S. markets.

Table 1: Key Index Returns

	MTD %	YTD %	*3-year %**
Dow Jones Industrial Average	+1.3	+6.0	+8.4
NASDAQ Composite	+2.3	+12.3	+14.1
S&P 500 Index	+0.9	+6.5	+8.4
Russell 2000 Index	+1.0	+3.2	+7.8
MSCI World ex-USA**	+1.9	+8.0	-2.1
MSCI Emerging Markets**	+2.0	+13.4	-0.6
Bloomberg Barclays US Aggregate Bond TR	+0.8	+1.6	+2.7

Source: Wall Street Journal, MSCI.com, CNBC, Morningstar
MTD returns: March 31, 2017-April 28, 2017
YTD returns: December 30, 2016-April 28, 2017
*Annualized
**in US dollars

For the broader market, we’ve been in a wait-and-see mode.

For starters, there is the political angle, which has been a distraction. Republicans have yet to agree on a replacement for Obamacare. For now, it remains the law of the land.

But investors are more interested in tax reform and a significant cut in the corporate tax rate.

While a cut in the rate corporations pay could conceivably boost the incentive for firms to invest and expand, from the standpoint of a simple math equation, a lower tax rate translates into higher after-tax corporate profits.

And it’s rising profits that fuel stocks longer term.

Late last month, Team Trump unveiled its blueprint for tax simplification and tax cuts. And I’ve already received questions about its perceived impact.

Using data from the official White House website, Trump would like to:

Take the seven tax brackets we have today and reduce them to three: 10%, 25%, and 35%. But no mention of income thresholds.
Double the standard deduction for married people to $24,000.
Provide aid for child and dependent care expenses.
Repeal the AMT–the alternative minimum tax.
Repeal the Medicare surtax related to Obamacare.
Repeal the inheritance tax, the so-called “death tax.”
Retain deductions for mortgage interest, charitable giving, and retirement; all others would be repealed, including state and local taxes and property taxes.
Reduce the corporate tax rate from 35% to 15%.

Let me just say this: Trump’s proposal is simply a framework that he hopes will set the tone for the upcoming debate. Much more work must be done before details emerge.

If or when tax reform becomes a reality, we can make any necessary adjustments to your financial plan, capitalizing on positive changes or minimizing any provisions that may not be advantageous.

Until then, we are just speculating.

That said, I understand you may have concerns. If so, never feel as if you can’t pick up the phone and call me. I would love to hear from you and address any questions you may have.

As I’ve said repeatedly in these monthly newsletters and will say again, I am honored and humbled that you have entrusted me with the duty of serving as your financial advisor. It is a privilege that I don’t take lightly.

All investing involves risk and no strategy can guarantee success. All data are taken from sources believed to be reliable, but Royal Alliance makes no guarantee of their accuracy. All suggestions are general in nature and may or may not reflect your individual situation.

———————————

DANIEL F. YASHAREL, MSFS, CFP, RICP
Senior Partner NWF Advisory Group
CA Insurance Lic. # 0678291

Real integrity is doing the right thing,
knowing that nobody’s going to know whether you did it or not.

11835 W. Olympic Boulevard, Suite 1155E, Los Angeles, CA 90064

(310) 475-5854 Fax (310) 773-9888

e-mail: yasharel@nwfadvisory.com
————————————————————

Registered Representative offering securities through of Royal Alliance Associates, Inc., a registered broker-dealer and Member FINRA/SIPC.

Investment Advisory and Financial Planning Services offered through NWF Advisory Services, Inc., a Registered Investment Advisor which is not affiliated with Royal Alliance.

Monthly Market Insights

Monthly Market Insights – April 2017

Performance Data and Commentary as of 3/31/2017

DOMESTIC EQUITY

•US stocks posted a small gain in March, despite a mid-month pullback as President Trump’s health care bill to replace the Affordable Care Act failed in Congress. This reduced confidence in Trump’s ability to carry out policy initiatives, but the market rebounded as efforts quickly shifted to tax reform.

•Large cap stocks outperformed smaller caps, but the difference in returns narrowed from previous months. Volatility levels remained subdued, with March 21st the only day with a decline of more than 1% during 2017. Dividend stocks were mixed, with real estate hurt by weaker future prospects for mall and retail properties.

•Growth stocks outperformed value, benefiting from strength in the technology and consumer discretionary sectors. Value stocks were weighed down by weakness in the financial sector, amid uncertainty around policy changes. Energy stocks declined on lower oil prices, with increased US production and OPEC supply cuts unlikely to be extended past June.

The above views are those of AssetMark and are determined by considering the performance of market indices and the Portfolio Strategists' asset allocation.GICS® is The Global Industry Classification Standard (an industry taxonomy developed in 1999 by MSCI and Standard & Poor's (S&P) for use by the global financial community). *See below for indices used in the Style Return.

INTERNATIONAL EQUITY

• The MSCI EAFE international index outperformed US stocks for the month, with lessened political risk in Europe and improving economic data. International stocks rose 2.5% in local currency terms.

• European stocks benefited as businesses reported better economic conditions, while prospects for Le Pen being elected French President diminished. Britain initiated the process of Brexit, but fears of a broader eurozone breakup eased.

• The Asian region gained with lessened fears surrounding US trade policy. Japan was hurt by weaker data on household spending. Emerging markets were lifted by India, as its governing party was supported in the recent election.

COMMODITIES & CURRENCIES

• Commodities were weighed down by lower agricultural prices, with soybean plantings reaching record levels. Energy prices were mixed as oil prices declined, while natural gas prices rose on lower inventories and expectations for higher summer demand. Gold was down only marginally as the weaker dollar supported foreign demand.

• The US dollar declined versus the broad basket of foreign currencies, amid uncertainty around Trump policy plans. Emerging market currencies benefited on lessened fears over US trade policy – the Mexican peso rose 6.2% for the month.

FIXED INCOME

• The US fixed income market finished modestly down for the month, as the 10-year Treasury yield rose from 2.36% to 2.40%. Long-term bonds saw the larger declines with their greater sensitivity to rates. Credit spreads widened, which hurt corporate bonds including the high yield sector.

• International bonds posted modest gains, lifted by foreign currency gains versus the US dollar. Emerging market bonds benefited from improving prospects for economic growth and their higher yields.

GLOBAL DIVERSIFIED PORTFOLIOS
• Equity allocations lifted global portfolios during the month, with better results in the higher risk profiles. Global diversification benefited returns as international equities beat the US market.

• Fixed income saw smaller moves across most bond sectors. International bonds received a modest lift from exposure to foreign currencies, which appreciated versus the US dollar.

*Global Market Index returns use a combination of the MSCI ACWI equity index and Bloomberg Barclays Global Aggregate bond index corresponding to investor risk profile. For example, the Profile 1 index is comprised as follows: 20% MSCI ACWI / 80% Bloomberg Barclays Global Aggregate Index. Allocations are rebalanced on a monthly basis. All index data represents total return including the reinvestment of dividends for the stated period. All returns are obtained from Zephyr StyleAdvisor, except sector returns, which are from Morningstar Direct.

DOMESTIC EQUITY

Sector Returns: Sector returns are obtained from Morningstar Direct and reflect the returns of the S&P 500® Sector Indices. The 11 sector indices are classified using the Global Industry Classification Standard (GICS®), a four-tiered industry classification structure.

Style Returns: Style box returns based on S&P Indexes. All values are cumulative total return for stated period, including reinvestment of dividends. The Index used for each box from left to right, top to bottom are:

S&P 500 Value, S&P 500®, S&P 500 Growth

S&P MidCap 400 Value, S&P MidCap 400®, S&P MidCap 400 Growth

S&P SmallCap 600 Value, S&P SmallCap 600®, S&P SmallCap 600 Growth

INTERNATIONAL EQUITY

All indexes except S&P 500 provided by MSCI.

COMMODITIES & CURRENCIES

Commodities are represented by the Bloomberg Commodity Index. Foreign currencies are measured versus the US dollar with returns obtained from Zephyr StyleAdvisor. The US Dollar is represented by the Bloomberg US Dollar Index.

FIXED INCOME

The US Aggregate is the Bloomberg Barclays US Aggregate Bond Index; cash is represented by the Citigroup 3-month T-Bill Index; Short-Term is represented by the Bloomberg Barclays US Treasury 1-3 Year; Long-Term by the Bloomberg Barclays US Treasury Long Index; Governments by the Bloomberg Barclays US Government Intermediate Index; Corporates by the Bloomberg Barclays US Corporate Investment Grade Index; High Yield by the Bloomberg Barclays US Corporate High Yield Index; TIPS by the Bloomberg Barclays US Treasury TIPS Index; Municipals by the Bloomberg Barclays US Municipal Bond Index; International by the Bloomberg Barclays Global Aggregate ex-US Index; Emerging Markets by the Bloomberg Barclays Emerging Markets USD Aggregate Bond Index.

AssetMark, Inc.
1655 Grant Street 10th Floor
Concord, CA 94520-2445 800-664-5345

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for informational purposes only. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. It is not possible for one to invest in an index. Past performance does not guarantee future results.

AssetMark, Inc. is an investment adviser registered with the Securities and Exchange Commission. ©2017 AssetMark, Inc. All rights reserved.
6428 | M0000 | 3/2017 | EXP 9/30/17

For use with the general investing public.

A Republican Crack Up and the Stock Market

The death of repeal and replace, the Trump agenda, and stocks

There was no shortage of angst in the investment community that a Donald Trump victory in last year’s election would send shares down sharply, at least in the immediate aftermath of a Trump win.

In reality, just the opposite happened, with stocks surging in the wake of his surprise victory.

The pre-election-day conventional wisdom didn’t pan out.

Instead, investors quickly warmed to the idea that a Republican President and a Republican Congress would quickly enact a pro-business agenda that would fuel economic growth, and by extension, corporate profit growth.

It was an ambitious agenda that included a steep cut in corporate taxes, individual tax cuts, and tax reform, regulatory reform, and new outlays for infrastructure and national defense.

Sure, Republicans have never been fond of boosting domestic spending, but tax cuts and regulatory relief have always been a staple in the conservative agenda. Even then, Trump could strike a deal with Democrats to boost much-needed spending on roads, bridges, and airports.

Of course, the Affordable Care Act, aka Obamacare, was dead, right? Republicans haven’t been shy about trying to repeal President Obama’s signature accomplishment ever since they obtained majorities in the House and Senate.

Well, proposing policy changes while still on the sidelines is one thing. Enacting those changes is another.

Much like a UFC fighting match, things got ugly fast, at least from the vantage point of the Republican leadership and President Trump.

Let me briefly stop here and emphasize that I am not taking a stance on Obamacare, nor am I arguing that the House Republican plan to repeal and replace was the right prescription for what ails the current system.

Instead–and this is critical–I want to view what happened on Capitol Hill through the eyes of a non-partisan investor who is invested in a diversified portfolio, one that includes a stake in the global economy and the major sectors of the U.S. economy.

Stocks and a political brick wall

If Republicans can’t enact their agenda, won’t that quash the so-called Trump rally? Won’t shares take a beating? I’ve seen a fair number of headlines that suggest such a scenario, so let’s address it.

I believe the stock market reaction to the failed repeal and replace effort sheds some light as to how the market may react to the potential gridlock over tax reform.

Let me explain.

The failure of the Republican health care plan has graphically highlighted the deep divisions within the Republican party. No longer do investors expect corporate and individual tax reform to sail through Congress–a stark contrast to market sentiment late last year.

So, what if tax reform goes the way of repeal and replace? Will stocks take a beating? Unlike the mixed reaction to health care reform, investors have been salivating over the prospect of a cut in the corporate tax rates.

There was little fallout in the market from the failure of Republican health care, with most major indexes rising in the week following the decision to shelve the bill (WSJ).

While a cut in corporate taxes might be considered the “crown jewel” for the market, what investors want is respectable economic growth that produces respectable corporate profit growth.

Put another way, if it doesn’t materially impact the U.S. economy and the economic outlook, investors have historically turned their focus back to the fundamentals.

Currently, Thomson Reuters estimates that Q1 S&P 500 profits will rise a strong 10.2% (estimate as of March 31), the best year-over-year advance in over two years. And estimates for the remainder of the year are promising.

There will be winners and losers among the politicos on Capitol Hill. Some of you will join in those celebrations, while others will seek solace. Ultimately, investors who maintain a disciplined approach and avoid being whipsawed by shifting bullish/bearish sentiment stand the best chance of reaching their financial goals.

If there are any additional questions or concerns you may have, feel free to email or call me. That’s what I’m here for and I’d be happy to offer additional insights.

Table 1: Key Index Returns

	MTD %	YTD %	*3-year %**
Dow Jones Industrial Average	-0.7	+4.6	+7.9
NASDAQ Composite	+1.5	+9.8	+12.1
S&P 500 Index	0.0	+5.5	+8.1
Russell 2000 Index	0.0	+2.1	+5.7
MSCI World ex-USA**	+2.1	+6.1	-2.3
MSCI Emerging Markets**	+2.4	+11.1	-1.2
Bloomberg Barclays US Aggregate Bond TR	-0.1	+0.8	+2.7

Source: Wall Street Journal, MSCI.com, CNBC, Morningstar

MTD returns: February 28, 2017—March 31, 2017

YTD returns: December 30, 2016—March 31, 2017

*Annualized

**in US dollars

Surging consumer confidence and the economy

Surveys of consumer and business confidence have surged since the election, including the Conference Board’s survey and the NFIB’s survey of small business sentiment.

A stirring of the “animal spirits” is seemingly a prerequisite for economic activity. Without rising optimism, consumers and businesses are less likely to spend and boost economic growth.

At the March meeting of the Federal Reserve, central bankers raised the fed funds rate by 0.25% to a range of 0.75%-1.00%, and Fed Chief Janet Yellen took a cautiously optimistic stance on the economy.

However, in response to a question at her quarterly press conference, she noted, “I wouldn’t say at this point that I have seen hard evidence of any change in spending decisions based on expectations about the future.

“I think it’s fair to say that many of my colleagues and I note a much more optimistic frame of mind among many, many businesses in recent months. But, I’d say, most of the business people that we’ve talked to also have a wait-and-see attitude and are very hopeful that they will be able to expand investment.…I’m not seeing that at this point (increased spending), but the shift in sentiment is obvious and notable.”

In other words, the good cheer being reflected in confidence surveys, including the highest reading in almost 17 years from the Conference Board’s Consumer Confidence Index, has yet to materially translate into faster growth.

One vivid example–the widely followed GDPNow model from the Atlanta Fed suggests Q1 GDP is set to rise a scant 0.9% on an annualized basis.

That may change between the March 31 reading and the release of the GDP report at month’s end, but it’s not a ringing endorsement of economic activity.

Bottom line

For the long-term investor, it all revolves around economic activity and earnings growth. I recognize I’ve hammered this theme home before. And I suspect I’ll bring it up in future communiques, too.

But my sincere desire is to see you reach the goals we’ve talked about in our many conversations. Getting sidetracked by the story of the month will only serve to delay the achievement of these goals.

Once again, let me emphasize that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

College Daze

A March Letter to Clients: College Daze

Ballooning college costs

The average cost of tuition and fees for the 2016–2017 school year is $33,480 at private colleges and $9,650 for state residents at public colleges. It averages $24,930 for out-of-state residents attending public universities, according to data provided by the College Board.

Of course, that doesn’t include an array of other expenses that push costs higher. The average cost of books can add another $1,200 per year, and room and board can run just over $10,000 (College Board). And we haven’t even discussed what the meal plan will run!

“If you look at the long-term trend, (college tuition) has been rising almost six percent above the rate of inflation,” said Ray Franke, a professor of education at the University of Massachusetts, Boston. “That’s brought immense pressure from the media and the general public, asking whether college is still worth it” (CNBC).

Many experts still believe a college degree is the ticket to boosting long-term income. While the soaring costs can be discouraging, savings plans have blossomed, enabling disciplined savers to sock away cash for their kids to go off to college.

So let’s look at some of the more well-known savings plans that are available.

Before I get started, let me say that for many of you the proliferation of savings plans has brought about quite a lot of confusion. And that’s without not even taking into account the wide array of investments that are available. My goal isn’t to cover the various plans in painstaking detail, but to touch on these in a high-level way.

I really do understand your confusion, as I’ve had numerous conversations on this topic with you over the years.

But when you’ve left my office, many of you feel as if an insurmountable burden has been lifted. Of course, college saving often requires a disciplined approach, but just having a plan is half the battle.

As I always say, my door is open. I’m just a phone call or email away. If you have questions about how to save for college or you want to be sure you are on track, let’s talk.

Custodial accounts

That said, let’s jump in and start with the custodial account, more formally known as the Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA).

Anyone can make a deposit into a custodial account, but it is managed by an adult, usually a parent or guardian. Any deposits are irrevocable gifts to the child and must be used for his or her benefit.

Generally speaking, the first $1,050 in earnings is considered tax-free and the next $1,050 is taxed at the child’s rate. Unearned income over $2,100 is taxed at the child’s parents’ tax rate. The kiddie tax rule now applies to children under age 19 and full-time college students under the age of 24 (Forbes, T. Rowe Price).

Please be aware, however, that various states require the funds to be turned over to the child when he or she reaches the age of majority, usually 18 – 21. However, there is no guarantee the child will want to spend any “windfall” on college. The siren song of Europe or a new car might be more attractive.

Also, for the purposes of financial aid, custodial accounts are considered assets of the student and could impact financial aid eligibility.

Coverdell Education Savings Account

Next, let’s look at the Coverdell Education Savings Account (ESA–IRS Pub 970). It’s available to you if your modified adjusted gross income is less than $110,000 ($220,000 if filing a joint return).

These plans offer tax-free investment growth and tax-free withdrawals when the funds are spent on qualified education expenses. In addition to college expenses, certain K-12 purchases are also considered qualified when using a Coverdell ESA.

Contributions, however, are limited to $2,000 annually.

529 college savings plans

This brings us to 529 college savings plans, a plan the Washington Post called the best way to save for college. But one many don’t use. [You may offer your views on the 529 here.]

The plan allows for various investments in stocks and bonds and is usually operated by the state or a college. As with a Roth IRA account, earnings are not subject to federal taxes when withdrawn, though you must use the cash for “qualified education” expenses, such as tuition, room and board, or books.

Contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary (IRS 529 Q&A), which puts the limit at a much higher level than an ESA. Anyone can contribute, not just the beneficiary’s parents. But anything in excess of $14,000 will be subject to the gift tax.

Moreover, 34 states and the District of Columbia give the account owner a full or partial state income tax deduction for their contributions to the state’s 529 plan (FinAid.org).

While a 529 can impact financial aid, it is not as onerous as funds in a custodial account. But be careful when it comes to fees.

Maybe it’s the confusing nature of the 529 that causes folks to bypass this savings vehicle. If that’s the case for you, I can’t this enough –please feel free to reach out with your questions. That is what I’m here for.

Prepaid tuition plans

Prepaid tuition plans may be an alternative to the 529 plan. These plans, administered by individual states and typically used for in-state school tuition, allow parents to pay for tuition credits in advance at a predetermined price. These plans retain the same tax benefits as 529 plans, but they are not subject to swings in the stock market.

However, if a child goes to an out-of-state school, you may not realize the full value of the plan.

If the family moves out of state but the child attends a participating school, the family can still use the plan but may be held responsible for the difference between out-of-state and in-state tuition, depending on the plan (FinAid.org).

Before enrolling in a prepaid plan, it is important to research a plan’s security and whether it’s backed by a guarantee. Also, inquire as to what happens if the plan starts to lose money.

Roth IRA account

Lastly, one more plan you might consider is a Roth IRA account. Yes, that’s right–a Roth IRA.

Like a 529 plan, the Roth IRA also allows for distributions free of federal income tax if the withdrawal is used to pay qualified higher education expenses, and such withdrawals are exempt from the 10% early distribution penalty (FinAid.org).

Moreover, the Roth in the parent’s name isn’t counted as an asset against the child for financial aid. However, it may reduce or eliminate aid in future years if the distribution is taken in the child’s first year of college.

At the fear of sounding redundant, let me say it one more time. I’m always happy to answer any questions or provide a more comprehensive review.

As always, when it comes to tax matters, feel free to consult with your tax advisor.

Table 1: Key Index Returns

	MTD %	YTD %	*3-year %**
Dow Jones Industrial Average	+4.8	+5.3	+8.4
NASDAQ Composite	+3.8	+8.2	+10.6
S&P 500 Index	+3.7	+5.6	+8.3
Russell 2000 Index	+1.8	+2.2	+5.4
MSCI World ex-USA**	+0.9	+3.9	-3.2
MSCI Emerging Markets**	+3.0	+8.6	-1.1
Bloomberg Barclays US Aggregate Bond TR	+0.7	+0.9	+2.6

Source: Wall Street Journal, MSCI.com, CNBC, Morningstar

MTD returns: January 31, 2017—February 28, 2017

YTD returns: December 30, 2016—February 28, 2017

*Annualized

**in US dollars

Awash in a pool of politics

The market narrative that has dominated the news cycle since November has been the election. Some of you were pleased with the outcome and some were disappointed.

As I’ve said before, it’s not my job to pass judgment over President Trump. It’s my job to discuss and monitor market-moving events, both political and economic, through the bipartisan lens of the market. I’m just monitoring how investors sift through and react to external stimuli. Today, that external stimulus is a President who has been proposing policies generally deemed friendly by markets.

Fed Chief Janet Yellen summed it up well during her semiannual testimony before two Congressional committees when she was asked what she believes is driving stocks higher. “I think market participants likely are anticipating shifts in fiscal policy (tax cuts, infrastructure spending) that will stimulate (economic) growth and perhaps raise earnings,” Yellen opined.

One theme I’ve harped on in recent years has been the fact that earnings and the expectation of where earnings are going are the biggest influence over the long-term direction of stocks. And investors who are pricing in faster economic growth are also pricing in an acceleration in profit growth.

The devil is in the details…or is it?

As the month came to a close, markets were clamoring for specifics on fiscal policy, not just generalities. There were concerns that we might see a selloff if Trump’s February 28^th address to Congress didn’t offer details.

Well, it was light on detailed-policy prescriptions, but markets didn’t seem to care because we saw a different Trump, a “Presidential” Trump. It almost reminded me of his conciliatory victory speech in the early morning hours after the election. And shares reacted in a similar fashion, soaring to new highs on March 1.

Trump’s controversial positions and the division we are seeing in the nation just don’t seem to matter as long as the economy continues to expand and earnings come in at a respectable pace. We’ll eventually see volatility return. But forecasters who have been dismissing the rally have been finding themselves on the losing side.

Why? It’s simple. Predicting short-term market moves is next to impossible. It’s why we have always taken a long-term view and recommend investment plans we believe will help you reach your financial goals with the least amount of risk.

I hope you’ve found this review to be educational.

Let me emphasize again that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

———————————

DANIEL F. YASHAREL, MSFS, CFP, RICP
Senior Partner NWF Advisory Group
CA Insurance Lic. # 0678291

Real integrity is doing the right thing,
knowing that nobody’s going to know whether you did it or not.

11835 W. Olympic Boulevard, Suite 1155E, Los Angeles, CA 90064

(310) 475-5854 Fax (310) 773-9888

e-mail: yasharel@nwfadvisory.com
————————————————————

Registered Representative offering securities through of Royal Alliance Associates, Inc., a registered broker-dealer and Member FINRA/SIPC.

Investment Advisory and Financial Planning Services offered through NWF Advisory Services, Inc., a Registered Investment Advisor which is not affiliated with Royal Alliance

Income in our golden years

February 2017

Income in our golden years

As adults, we know the importance of saving for retirement. It’s really easy. Just set up an automatic withdrawal from each month’s paycheck and direct it into a retirement account. What becomes trickier is the amount we should be saving and how we should best invest it.

But what happens as we enter retirement? We’ve been saving money our entire lives. In theory, we know what’s needed–simply rely on savings, Social Security, and if we have one, a pension.

Put another way, we are in a transition period that moves us away from retirement planning to retirement income planning.

Over the years, I’ve had many clients and colleagues reach out to me as they recognize that the seemingly simple concept of relying on savings really isn’t so simple.

At this juncture, I could stuff this newsletter with facts and information, overwhelming many of you.

Instead, I want to provide a high-level overview of two key components of retirement income planning.

But let me emphasize–I would be delighted to answer any questions you may have. I am simply an email or phone call away.

Two key aspects

A survey a couple of years ago by the American Institute of CPAs revealed that two prime retirement income planning concerns are (1) running out of money and (2) how to more efficiently and effectively tap into assets.

That shouldn’t be a surprise. “How much money do I have to live on each month?” is a common question. And, “Which accounts and in what amounts should I pull funds from?” comes up often.

Let’s start with the first question. Sources of income during retirement may include Social Security, assets, earnings from part-time work, earnings from an annuity, and a pension.

Social Security, a pension, and the annuity are reasonably stable. For most folks, however, it’s not enough to live on, and a lifetime of savings plays a key role in filling the gap.

Some of you are in a position to live off interest and dividends, only withdrawing principal for special needs. Many, however, must rely on carefully meting out and using much of their lifetime savings.

One approach is to employ what’s called a “sustainable withdrawal rate.” One common method is called the 4% rule, which some of you may have heard of.

Simply stated: Withdraw 4% each year from your savings, an amount you may decide to keep constant or increase to keep pace with inflation.

This was once a helpful rule of thumb, but low interest rates have made it less than ideal for today’s retirees.

Let’s look at another scenario. We can always increase the annual withdrawal rate to 5% or more; however, if we raise it too high, there is the risk of running low or running out of savings.

Instead, you should consider a withdrawal rate based on your time horizon, asset allocation, and confidence level.

Questions we can consider include:

How many years do you want to plan for?
What asset mix between stocks and bonds are you comfortable with?
What level of confidence do you want to have that your money will last?

A lower withdrawal rate will increase the odds the portfolio will last through your retirement years– that’s intuitive. But it also means less discretionary income.

This dilemma also illustrates the need to keep an eye on capital appreciation, especially in today’s low-rate environment. It’s why I’m likely to recommend that your portfolio includes a mix of stocks.

Of course, flexibility and ongoing monitoring are critical. This isn’t a “set and forget” portfolio. Adjustments can be made based on your personal situation. So, it’s important we monitor and modify as necessary.

Let’s move to the next question–withdrawal order. Which accounts should you tap first if your goal is to maximize spending during your lifetime?

Let’s start with the required minimum distribution from tax-deferred accounts such as IRAs. At 70 ½ years old, the IRS requires that you take a minimum distribution each year. Miss it and you’ll pay a big penalty
Taxable interest, dividends, and capital gains distributions may be the next best source of income.

If additional funds are needed, your anticipated future tax bracket comes into play. Let me explain.

If we expect a higher marginal tax bracket in the future, withdrawing from the traditional IRA today may be the most advantageous choice. But be careful the distribution doesn’t push you into a higher tax bracket in the year you take it.

If you anticipate a lower tax bracket down the road, a Roth IRA may be the best option for today’s income needs. If cash is still needed or desired, then look to a traditional IRA.

However, there is one big advantage to leaving the Roth alone. You continue to take advantage of the tax-free umbrella the Roth provides. Or, you can hold on to the Roth for unexpected expenses.

Moreover, the Roth can be used as an estate planning vehicle because heirs may be able to sidestep federal taxes when withdrawing from it.

These are just a couple of ideas designed to provide you with the proper framework as you enter or gear up for retirement. It is a broad overview that’s designed to shed light on a situation that’s unfamiliar to many retirees.

Each situation is unique, which means there are many other aspects of retirement income planning that could be useful for your specific situation.

My door is always open

As I have stressed, I’m always happy to answer any questions or provide a more comprehensive review tailored to your needs. And as always, when it comes to tax matters, consult with your tax advisor.

Table 1: Key Index Returns

	MTD %	YTD %	*3-year %**
Dow Jones Industrial Average	+0.5	+0.5	+8.2
NASDAQ Composite	+4.3	+4.3	+11.0
S&P 500 Index	+1.8	+1.8	+8.5
Russell 2000 Index	+0.3	+0.3	+6.4
MSCI World ex-USA**	+2.9	+2.9	-1.9
MSCI Emerging Markets**	+5.5	+5.5	-1.0
Bloomberg Barclays US Aggregate Bond TR	+0.2	+0.2	+2.6

Source: Wall Street Journal, MSCI.com, Morningstar
MTD returns: Dec. 30, 2016—Jan. 31, 2017
YTD returns: Dec. 30, 2016—Jan. 31, 2017
*Annualized
**in US dollars

Trumped up

A recurring theme you’ve heard from me is that stocks take their longer-term cues from what’s happening to corporate profits and expectations of corporate profits, how the economy is expected to perform (which support profits), and what’s happening to interest rates.

But shorter term, any number of events or issues can creep on to the horizon and create distractions. Recall when problems in Greece and Europe bubbled to the surface. It’s just one example.

Like an 800-pound gorilla, the dominant theme that impacted markets last month and since the election has been the impending Presidency of Donald Trump.

Before I go on, let me say that while the political discourse has been unusually bitter, I really believe that our differences as Americans are dwarfed by what unifies us.

That said, I recognize the obvious–Donald Trump is a controversial figure that elicits a myriad of opinions from Americans.

Injecting politics into any commentary has risks. We all have different viewpoints and filters and what’s said can be innocently misinterpreted. But I feel it would be a disservice to you to avoid any mention of Trump in this month’s letter.

My goal is not to praise or criticize Trump’s policies, only to view them through the narrow prism of the market, whether favorable or unfavorable. So let’s dig in.

Following his win, expectations of corporate and individual tax reform were among several policy prescriptions that fueled gains.

Moreover, regulatory reform and higher defense spending are expected to receive a warm reception from a sympathetic Congress. While Republicans have historically turned a cold shoulder to higher domestic spending, investors are still betting on some type of increase in infrastructure outlays.

Yet, we also have an administration that has railed against globalism and has shunned large, multilateral trade deals.

Markets like the former positions; they cast a wary eye on the latter, fearing the prospect of a damaging trade war.

However, early optimism has turned to caution. Few things move quickly through the halls of Congress. Competing interests seem set to slow down corporate tax reform. And Trump, who ran as a very unconventional candidate, has yet to shed his unorthodox ways.

I recognize his style appeals to some folks, but his more controversial initiatives and unorthodox ways have created some uneasiness among investors. In addition, there are concerns his pro-growth initiatives that fueled gains late last year could get bogged down in Congress.

I suspect we’ll eventually see tax reform. It’s a key policy initiative for the new President. Still, patience will be needed.

Elsewhere, themes that have supported shares during the long-running bull market remain in place. Economic growth has yet to abate and there are few signs from leading indicators that it will stall. Plus, corporate profits are rising (Thomson Reuters). And for now, the Fed maintains that any series of rate hikes are expected to occur gradually.

I hope you’ve found this review to be educational.

Let me emphasize again that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

———————————

DANIEL F. YASHAREL, MSFS, CFP, RICP
Senior Partner NWF Advisory Group
CA Insurance Lic. # 0678291

Real integrity is doing the right thing,
knowing that nobody’s going to know whether you did it or not.

11835 W. Olympic Boulevard, Suite 1155E, Los Angeles, CA 90064

(310) 475-5854 Fax (310) 773-9888

e-mail: yasharel@nwfadvisory.com
————————————————————

Registered Representative offering securities through of Royal Alliance Associates, Inc., a registered broker-dealer and Member FINRA/SIPC.

Investment Advisory and Financial Planning Services offered through NWF Advisory Services, Inc., a Registered Investment Advisor which is not affiliated with Royal Alliance.