June 2017

November 15, 2019

It certainly has been interesting to follow the news flow coming out of Washington these past few months! Hopes of tax reform and infrastructure stimulus now seem to be more of a discussion for 2018 and beyond. Although the stock market has taken all of this in stride, I caution that many of us have gotten too complacent, with a market that appears as though it cannot go down for more than a day or two without recovering. While we think the next recession is still probably a few years away, we may only be a headline or two away from a correction (which is defined as a drop of 10% or more). Corrections of 10% happen on average every year or two. While we expect something like this to be temporary, it can still be very unnerving to see, especially after an extended period of subdued volatility.

Our role is to help guide you through the ups and downs in the market and we continue to stress the importance of rebalancing some of that stock market growth back to the fixed income side of your portfolio. It is essential that you reach out to us if you have any concerns on your current allocation. Oftentimes our value is most important in times of market distress, as we help you stay with the original investment plan that you had put in place. Vanguard notes that an Advisor, as a behavioral coach, can act as an emotional circuit breaker, circumventing clients' tendencies to chase returns or run for cover in emotionally charged markets.

Our Team here spends a great deal of time working on each of the items below to bring you the best possible outcome and it's a far more detailed process than meets the eye. Listed are the main principles that we use to develop each individualized plan:

Setting a proper asset allocation, striking the right balance between stocks and bonds for each client's unique situation.
Designing an investment portfolio to take advantage of US Markets, Developed International, Emerging Markets, and Real Estate; then combining Large, Medium and Small Capitalization stocks of all sectors of the market, including appropriate Fixed income choices to diversify credit risk, liquidity risk, interest rate risk and duration risk.
Determining the best cost effective implementation of investments, using the lowest cost funds in the industry.
Using a thoughtful withdrawal strategy that can minimize taxes paid over the course of one's retirement, thereby increasing the net after tax return and ultimately the longevity of the portfolio.
Specifically targeting assets to be held in taxable accounts vs. non-taxable accounts so we can control how assets are taxed. This strategy seeks to improve the after tax return on your investments.
Advising on strategies for charitable giving. Proper planning of when, what and how, can help to maximize the donor's charitable intentions as well as overall tax planning goals.
Our experience has shown us that by implementing a fully integrated process which incorporates financial and legacy planning (lowest cost investment management, retirement, estate and tax planning) in one office, not only helps to simplify matters, but also improves the overall results of your plan.

The 2nd quarter of 2017 has been a strong quarter for the US and many International Stock Markets. The S&P 500 Index is up almost 4% in the second quarter alone and almost 9% year-to-date. Many International Stock Markets have started to turn, as their year to date performance has outpaced the US, a stark contrast to the last few years. Certain Sectors of the market have come on strong as well, with Technology and Healthcare outperforming so far in 2017. (Healthcare was the worst performer in 2016). Our investing philosophy, for good reason, has been to stay well diversified, by owning US Stocks, International Stocks, Emerging Market Stocks of Large, Medium and Small Cap companies, all sectors of the market, including both growth and value style. Attached we have included a chart that shows the trailing 1 year returns (6/30/16-6/30/17) on the Vanguard Stock Funds that we use to build the stock side of the portfolio.

It's more of the same on the interest rate front. As short term interest rates have bumped up a bit, longer term interest rates have continued to hold steady and even drop a bit, with the Benchmark US 10 Year Treasury yield dropping from 2.45% at the start of the year, to 2.30% at the end of June, 2017. Not necessarily what one would expected with the Federal Reserve moving to raise interest rates. The attached piece from Morningstar gives a nice depiction of interest rates in other developed countries around the world. It's entirely possible that interest rates around the world will have a limiting factor on how quickly rates in the US can move up, as our economies today are more intertwined than ever. There are many moving parts to the Fixed Income market and our Investment Committee continues to monitor the fixed income market in an effort to improve yields where possible, without taking on unnecessary risk.

One strategy of note that we want to mention and may be very beneficial to some, is the use of Qualified Charitable Distributions direct from IRA's as a way to minimize tax. A QCD is a charitable donation that counts toward the required minimum distribution (from the IRA) but is not recognized as income for tax purposes. Because many tax related items, including itemized deductions and exemption phase outs, net investment tax, taxability of Social Security, and Medicare Part B premiums are based on adjusted gross income, QCD's are potentially more attractive than taking the RMD and then making deductible gifts. (This may sound complicated but if you are required to take required minimum IRA distributions each year and you give to charities on an annual basis - please feel free to give us a call to discuss this option).

Soon we will be mailing out invitations for a client dinner event that will take place in August. We hope to see many of you there, along with any family or friends that may be here visiting. In the meantime, please do not hesitate to call with any questions.


Bryan Bastoni, CFP