Schwartz Financial ­Weekly Commentary 12/11/17

The Markets

“It’s the hap- happiest season of all.”

While holidays don’t make everyone happy, investors should be feeling festive. The Standard & Poor’s 500 Index is up more than 18 percent year-to-date. The Dow Jones Global ex U.S. Index is up about 21 percent year-to-date (refer to the table), and Treasury bond yields are lower than they were at the start of the year.

In addition, the CBOE Volatility Index (VIX), a measure of how unpredictable investors expect the S&P 500 Index to be over the short-term, finished the week below 10. A low VIX reading means investors expect calm markets through the end of the year.

Some are wary of the optimism that pervades markets, though. Barron’s wrote:

“In fact, everything’s going well right now – really well…The Citigroup U.S. Economic Surprise Index – a metric designed to measure the extent to which economic data have been beating or missing expectations – is near its highest level since January 2014, a sign of just how smoothly everything’s been going. The problem is that once the data have been surprising by this much, for this long, it gets hard for good news to provide much more of a boost…”

There was a disappointing piece of economic news last week concerning wages. Unemployment has fallen to a 17-year low (4.1 percent), and unemployment in the manufacturing sector is at 2.6 percent, an all-time low. It appears demand for labor is high and supply is low. That should translate into higher wages, but it hasn’t yet. Average hourly earnings are up 2.5 percent year-on-year. That’s an improvement on October, but not much of one.

A lot of folks are scratching their heads wondering when inflation is going to move higher. The Fed has been expecting it to happen for a while. Maybe 2018 will be the year.

Data as of 12/8/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.4% 18.4% 18.0% 8.8% 13.3% 5.8%
Dow Jones Global ex-U.S. 0.0 21.0 20.8 4.1 4.7 -0.8
10-year Treasury Note (Yield Only) 2.4 NA 2.4 2.3 1.6 4.2
Gold (per ounce) -2.0 7.9 6.8 1.6 -6.1 4.5
Bloomberg Commodity Index -2.9 -4.0 -4.1 -9.2 -9.9 -7.2
DJ Equity All REIT Total Return Index -9.5 -1.1 -0.1 3.8 8.3 5.7
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Are you concerned about human obsolescence? Researchers from the University of Oxford and Yale University asked experts at several artificial intelligence (AI) conferences how long it would be before machines became better than humans at various tasks. The answers weren’t encouraging.

Overall, researchers think there is a 50 percent chance that AI will outperform humans at all tasks within 45 years. They also said it’s possible many jobs humans do now will be automated within 120 years. Asian survey participants expect the change to happen more quickly than North American participants do.

Wondering if this might affect you? Here are a few of the time frames as determined by averaging survey participants’ answers. Machines may be better at:

  • Translating languages by 2024
  • Writing high-school essays by 2026 (Would this be cheating?)
  • Driving trucks by 2027
  • Working in retail by 2031
  • Writing bestselling books by 2049
  • Working as surgeons by 2053

While the idea of human employment prospects becoming more limited is disturbing, there is still time to capitalize on shorter-term opportunities. For example, eSports is a booming industry. FactSet reported, “Last year’s League of Legends World Championship sold out the Los Angeles Staples Center in less than an hour…an additional 43 million tuned in online – for context, the 2016 NBA Finals Game 7 broke records with 30 million viewers…” The League of Legends champions took home about $1.5 million in 2017.

If you can’t picture yourself encouraging your loved ones to spend hours playing video games, perhaps an online or bricks and mortar eSports store is an option. According to reports from Statista, the eSports market is growing 40 percent year-over-year globally and is expected to generate about $1.5 billion by 2020.

Weekly Focus – Think About It

“Gamers always believe that an epic win is possible and that it’s always worth trying, and trying now. Gamers don’t sit around.”

–Jane McGonigal, American game designer and author

Value vs. Growth Investing (12/8/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.30 20.35 2.51 8.36 19.74 10.97 15.62
US Core 0.35 20.43 2.53 7.71 20.40 10.66 16.34
US Growth 0.14 28.26 1.39 7.61 26.89 11.96 16.16
US Large Cap 0.40 21.63 2.30 8.17 21.85 11.22 15.69
US Large Core 0.44 21.99 2.05 7.09 22.91 11.00 16.81
US Large Growth 0.33 29.86 1.31 7.46 29.16 12.57 16.70
US Large Val 0.43 13.70 3.68 10.05 14.03 10.05 13.60
US Mid Cap 0.20 18.23 3.03 8.69 15.76 10.40 15.71
US Mid Core 0.31 18.67 3.59 9.07 16.49 9.88 15.42
US Mid Growth -0.28 24.47 1.60 7.71 21.66 9.94 14.57
US Mid Val 0.64 11.70 4.05 9.37 9.23 11.34 17.13
US Small Cap -0.45 13.65 3.24 9.44 10.74 9.96 14.51
US Small Core -0.44 11.41 4.06 9.72 8.88 10.01 14.60
US Small Growth -0.67 22.61 1.62 8.96 19.07 11.23 14.98
US Small Val -0.21 7.28 4.24 9.68 4.59 8.56 13.88
US Value 0.43 12.85 3.78 9.89 12.35 10.23 14.35
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

12 Smart Planning Moves to Consider as Tax Reform Looms

It’s hard to believe, but another year is almost behind us. With January just around the corner, now is a great time to review various items you may want to consider as you get set to enter 2018. Many of the IRS publications referenced below are for tax year 2016. Changes are not anticipated when 2017 guides are published.

Before we get started, let me stress that it is my job to assist and help you! I can’t overemphasize this, and I would be happy to review the options that are best suited to your situation. When it comes to tax matters, I recommend you check with your tax advisor.

Right off the bat, let’s talk about what’s on everyone’s mind–tax reform.

  • Sweeping changes in the tax code were supposed to be enacted much earlier in the year, but Congress has been preoccupied with health care. Instead, changes appear to be in the pipeline for 2018.

Both the House and Senate have passed their respective versions of tax reform. The House and Senate will now convene a conference–a give-and-take session that is designed to craft a single bill that must then be approved by each chamber. Only then can the President sign the legislation, which will usher in a new tax code.

 That said, how we file for tax year 2018 may differ from how we file for tax year 2017.

 For example, will the alternative minimum tax (the AMT) be wiped from the tax code? Will Congress kill the estate tax?

Both the Senate and House proposals make few, if any, changes to retirement accounts, but we could see tweaks in a final bill.

Personally, I’m encouraged that the House and Senate have yet to materially alter the tax treatment for retirement accounts and the favorable treatment dividends and capital gains receive.

However, I should point out that the Senate bill changes the way we would account for capital gains, i.e., a first-in, first-out method to calculate gains when a stock is sold. That said, I’m reluctant to speculate how these key categories may emerge if tax reform is signed into law.

Investment and financial planning

  • Is it time to rebalance your portfolio? Changes in the market can cause your asset allocation to shift. As we head into the homestretch, we’ve witnessed strong gains in stocks this year, both domestic and international. Year-end is a great time to review your portfolio and make any necessary adjustments.

Typically, I would counsel that profits should be taken next year, pushing the tax burden into tax year 2018.

But I must caution that there is an outside possibility the final version that may land on the President’s desk could produce changes in how capital gains are treated.

  • Review your income or portfolio strategy. Are you reaching a milestone in your life such as retirement or a change in your circumstances? Has your tolerance for taking risk changed? If so, this may be just the right time to evaluate your approach.

However, let me caution about making changes based simply on market performance.

One of my goals has always been to remove the emotional component from the investment plan. You know, the one that encourages investors to load up on stocks when the market is soaring and to sell when stocks have taken a beating.

We know that markets rise and fall. I get that declines can be unnerving, I really do. Yet over the long term, markets rise much more than they fall.

While stocks have been on a record run, it’s a good time for me to once again remind you that a disciplined approach that avoids emotional decisions has historically been the shortest path to reaching one’s financial goals.

I know I’ve said this before, but it is a key principle for successful investing.

  • Take stock of changes in your life and review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

Tax planning in the context of possible changes in the tax code

  • Tax loss deadline. You have until December 31, 2017 to harvest any tax losses and/or offset any capital gains. But be careful. There are distinctions between short- and long-term capital gains, and you must be aware of wash-sale rules (IRS Publication 550) that could disallow a capital loss.
  • This brings us to mutual funds and taxable distributions. This is a topic best discussed by using an example: If you buy a mutual fund on December 18 and it pays a dividend and capital gain December 20, you will be responsible for paying taxes on the entire distribution, even if the capital gains and dividends collected by the fund occurred throughout the entire year.

Yet, following the distribution, the net asset value of the fund will fall by the amount of the payout. Put another way, your investment in the fund remains the same. It’s a tax sting that’s best avoided. Therefore, it is usually a good idea to wait until after the annual distribution to make the purchase.

  • Required minimum distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70½, regardless of whether he or she is retired (IRS Retirement Plan and IRA Required Minimum Distributions FAQs).

The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of that year.

The RMD rules also apply to 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plans as well as SEP IRAs and Simple IRAs.

Don’t miss the deadline or you could be subject to steep penalties!

  • Contribute to a Roth IRA. A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal tax-free withdrawals if certain requirements are met. There are income limits, but if you qualify, you may contribute $5,500, or $6,500 if you are 50 or older (IRS Retirement Topics–IRA Contribution Limits).

If you satisfy the requirements, qualified distributions are tax-free. You can make contributions to your Roth IRA after you reach age 70½ and there are no requirements to take mandatory distributions.

You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your circumstances. The same contribution limit that applies to a Roth IRA also applies to traditional IRAs. Total contributions for both accounts cannot exceed the prescribed limit.

You can make 2017 IRA contributions until April 17, 2018 (Note: statewide holidays can impact final date).

  • Consider converting a traditional IRA to a Roth IRA. There are a number of items you may want to consider, including current and future tax rates as well as the potential for tax reform, but if the situation is right, it can be advantageous to convert to a Roth IRA.
  • College savings. Tax reform looms large over college savings accounts. A limited option, called the Coverdell Savings account (IRS Publication 970) gets the ax in the House bill. The Senate bill maintains the status quo, according to the Senate Finance Committee document, “Tax Cut and Jobs Act and College Access.”

Currently, total contributions for a beneficiary cannot exceed $2,000 in any year. Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income for the year is less than $110,000. For individuals filing joint returns, the amount is $220,000. Contribution limits get phased out after hitting the respective limits.

If reform passes, the House proposes that Coverdell Savings Accounts be converted into 529 plans. A 529 plan allows for much higher contribution limits, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary. Contributions, however, are not deductible.

  • Achieving a Better Life Experience (ABLE) account. This is a savings account for individuals with disabilities and their families. For 2017, you can contribute up to $14,000. Distributions are tax free if used to pay the beneficiary’s qualified disability expenses, which may include some education expenses (IRS Publication 907, Fidelity—ABLE).
  • Charitable giving. Whether it is cash, stocks, or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.  Did you know that you may qualify for what’s called a “qualified charitable distribution (QCD)?”  A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity (“Rules to Do an IRA Qualified Charitable Distribution”–www.kitces.com). The IRA owner must be at least 70½ when the distribution is made.

You might also consider a donor-advised fund. Once the donation is made, you can realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

Regards,

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ 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.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

 

12 Smart Planning Moves to Consider as Tax Reform Looms

It’s hard to believe, but another year is almost behind us. With January just around the corner, now is a great time to review various items you may want to consider as you get set to enter 2018. Many of the IRS publications referenced below are for tax year 2016. Changes are not anticipated when 2017 guides are published.

Before we get started, let me stress that it is my job to assist and help you! I can’t overemphasize this, and I would be happy to review the options that are best suited to your situation. When it comes to tax matters, I recommend you check with your tax advisor.

Right off the bat, let’s talk about what’s on everyone’s mind–tax reform.

  1. Sweeping changes in the tax code were supposed to be enacted much earlier in the year, but Congress has been preoccupied with health care. Instead, changes appear to be in the pipeline for 2018.

Both the House and Senate have passed their respective versions of tax reform. The House and Senate will now convene a conference–a give-and-take session that is designed to craft a single bill that must then be approved by each chamber. Only then can the President sign the legislation, which will usher in a new tax code.

 That said, how we file for tax year 2018 may differ from how we file for tax year 2017.

 For example, will the alternative minimum tax (the AMT) be wiped from the tax code? Will Congress kill the estate tax?

Both the Senate and House proposals make few, if any, changes to retirement accounts, but we could see tweaks in a final bill.

Personally, I’m encouraged that the House and Senate have yet to materially alter the tax treatment for retirement accounts and the favorable treatment dividends and capital gains receive.

However, I should point out that the Senate bill changes the way we would account for capital gains, i.e., a first-in, first-out method to calculate gains when a stock is sold. That said, I’m reluctant to speculate how these key categories may emerge if tax reform is signed into law.

Investment and financial planning

  • Is it time to rebalance your portfolio? Changes in the market can cause your asset allocation to shift. As we head into the homestretch, we’ve witnessed strong gains in stocks this year, both domestic and international. Year-end is a great time to review your portfolio and make any necessary adjustments.

Typically, I would counsel that profits should be taken next year, pushing the tax burden into tax year 2018.

But I must caution that there is an outside possibility the final version that may land on the President’s desk could produce changes in how capital gains are treated.

  • Review your income or portfolio strategy. Are you reaching a milestone in your life such as retirement or a change in your circumstances? Has your tolerance for taking risk changed? If so, this may be just the right time to evaluate your approach.

However, let me caution about making changes based simply on market performance.

One of my goals has always been to remove the emotional component from the investment plan. You know, the one that encourages investors to load up on stocks when the market is soaring and to sell when stocks have taken a beating.

We know that markets rise and fall. I get that declines can be unnerving, I really do. Yet over the long term, markets rise much more than they fall.

While stocks have been on a record run, it’s a good time for me to once again remind you that a disciplined approach that avoids emotional decisions has historically been the shortest path to reaching one’s financial goals.

I know I’ve said this before, but it is a key principle for successful investing.

  • Take stock of changes in your life and review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

Tax planning in the context of possible changes in the tax code

  • Tax loss deadline. You have until December 31, 2017 to harvest any tax losses and/or offset any capital gains. But be careful. There are distinctions between short- and long-term capital gains, and you must be aware of wash-sale rules (IRS Publication 550) that could disallow a capital loss.
  • This brings us to mutual funds and taxable distributions. This is a topic best discussed by using an example: If you buy a mutual fund on December 18 and it pays a dividend and capital gain December 20, you will be responsible for paying taxes on the entire distribution, even if the capital gains and dividends collected by the fund occurred throughout the entire year.

Yet, following the distribution, the net asset value of the fund will fall by the amount of the payout. Put another way, your investment in the fund remains the same. It’s a tax sting that’s best avoided. Therefore, it is usually a good idea to wait until after the annual distribution to make the purchase.

  • Required minimum distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70½, regardless of whether he or she is retired (IRS Retirement Plan and IRA Required Minimum Distributions FAQs).

The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of that year.

The RMD rules also apply to 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plans as well as SEP IRAs and Simple IRAs.

Don’t miss the deadline or you could be subject to steep penalties!

  • Contribute to a Roth IRA. A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal tax-free withdrawals if certain requirements are met. There are income limits, but if you qualify, you may contribute $5,500, or $6,500 if you are 50 or older (IRS Retirement Topics–IRA Contribution Limits).

If you satisfy the requirements, qualified distributions are tax-free. You can make contributions to your Roth IRA after you reach age 70½ and there are no requirements to take mandatory distributions.

You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your circumstances. The same contribution limit that applies to a Roth IRA also applies to traditional IRAs. Total contributions for both accounts cannot exceed the prescribed limit.

You can make 2017 IRA contributions until April 17, 2018 (Note: statewide holidays can impact final date).

  • Consider converting a traditional IRA to a Roth IRA. There are a number of items you may want to consider, including current and future tax rates as well as the potential for tax reform, but if the situation is right, it can be advantageous to convert to a Roth IRA.
  • College savings. Tax reform looms large over college savings accounts. A limited option, called the Coverdell Savings account (IRS Publication 970) gets the ax in the House bill. The Senate bill maintains the status quo, according to the Senate Finance Committee document, “Tax Cut and Jobs Act and College Access.”

Currently, total contributions for a beneficiary cannot exceed $2,000 in any year. Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income for the year is less than $110,000. For individuals filing joint returns, the amount is $220,000. Contribution limits get phased out after hitting the respective limits.

If reform passes, the House proposes that Coverdell Savings Accounts be converted into 529 plans. A 529 plan allows for much higher contribution limits, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary. Contributions, however, are not deductible.

  • Achieving a Better Life Experience (ABLE) account. This is a savings account for individuals with disabilities and their families. For 2017, you can contribute up to $14,000. Distributions are tax free if used to pay the beneficiary’s qualified disability expenses, which may include some education expenses (IRS Publication 907, Fidelity—ABLE).
  • Charitable giving. Whether it is cash, stocks, or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.  Did you know that you may qualify for what’s called a “qualified charitable distribution (QCD)?”  A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity (“Rules to Do an IRA Qualified Charitable Distribution”–www.kitces.com). The IRA owner must be at least 70½ when the distribution is made.

You might also consider a donor-advised fund. Once the donation is made, you can realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

 

Schwartz Financial Weekly Commentary 12/4/17

The Markets

What will it take to shake investors’ confidence?

From the perspective of unsettling events, last week was jam-packed. North Korea claimed to have the capability to strike the United States with a nuclear missile, tax reform continued to travel a controversial path through the House and Senate, and former national security adviser Michael Flynn pled guilty to lying to the FBI about conversations with Russia’s ambassador.

U.S. stock markets weren’t immune to these events and some lost value. However, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index didn’t stay down for long. Both indices finished the week higher.

Barron’s reported black-box trading may have been the reason “…the Dow shed 400 points from peak to trough in a matter of minutes. The drop happened so quickly that some opined that humans couldn’t have been responsible for the tumble. ‘No way real traders were moving that fast,’ says Andrew Brenner, head of international fixed income securities at NatAlliance Securities. ‘Clearly, it was algorithms taking over.’”

Investor sentiment remained largely undented. The AAII Sentiment Survey showed slightly more investors were bullish near week’s end than had been the previous week. Bearishness was also up, gaining 2.6 percent. Fewer investors were neutral about markets. Despite an increase in bullish sentiment, the level was below the historic average for bullishness for the 39th time in 2017. (The AAII survey runs from Thursday to Thursday, so it did not reflect any changes in sentiment that may have occurred after reports of Michael Flynn’s indictment and cooperation with special investigators.)

The CNN/Money Fear & Greed Index is an investor sentiment gauge that relies on seven market indicators – stock price momentum, strength, and breadth, put and call options, junk bond demand, market volatility, and safe haven demand – to measure whether fear or greed is driving the market. Last week, the needle was in the Greed range, as it has been for some time.

Data as of 12/1/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.5% 18.0% 20.6% 8.8% 13.4% 6.0%
Dow Jones Global ex-U.S. -1.6 21.1 23.8 3.8 4.9 -0.7
10-year Treasury Note (Yield Only) 2.4 NA 2.4 2.2 1.6 3.9
Gold (per ounce) -1.2 10.0 9.8 2.2 -5.8 5.0
Bloomberg Commodity Index -0.6 -1.2 -0.5 -9.0 -9.6 -6.9
DJ Equity All REIT Total Return Index -0.5 9.2 15.8 7.5 10.7 7.3
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

retirement requirements. For a number of years, policymakers have been focused on finding ways to help Americans become better financially prepared for retirement. Studies have found having access to payroll-deduction retirement savings plans at work makes it 15 times more likely Americans will save for the future. Consequently, policymakers have focused their attention on smaller companies. About 36 percent of Americans work for companies with fewer than 100 employees, and many of these businesses do not offer retirement plans.

Last July, Oregon launched OregonSaves, the state’s auto-IRA program. Companies that don’t have workplace retirement plans are required to facilitate the program by:

  • Providing information to set up Roth IRA accounts for employees
  • Making payroll deductions to the Roth accounts
  • Delivering updated employee information

California, Connecticut, Illinois, Maryland, and Massachusetts are working on similar programs.

Some business owners have embraced the auto-IRA opportunity, while others object to having the government involved. A Pew Charitable Trusts survey of 1,600 small and mid-sized business owners found 51 percent would prefer to sponsor their own retirement plans rather than participate in a state-run plan.

Many employers who participated in focus groups were not aware low-cost retirement plan options are available in the marketplace. Pew researchers noted:

“Most [small and medium-sized employers] did not have a full understanding of how 401(k) plans work, and few were familiar with plans or incentives designed for small businesses, such as the Simplified Employee Pension (SEP) Plan, the Savings Incentive Match Plan for Employees (SIMPLE), or the small employer tax credit for retirement plan startup costs.”

If you’re interested in learning more about retirement plan options for small businesses, sole proprietorships, or freelancers, contact your financial professional.

Weekly Focus – Think About It

“Humanity is a lot like me. It’s an aging movie star, grappling with all the newness around it, wondering whether it got it right in the first place and still trying to find a way to keep on shining regardless.”

–Shah Rukh Khan, Indian film actor

Value vs. Growth Investing (12/1/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 1.50 19.99 2.75 7.32 22.76 11.01 15.60
US Core 1.77 20.01 3.07 6.81 23.10 10.82 16.40
US Growth 0.01 28.08 2.27 7.11 30.42 11.90 15.94
US Large Cap 1.52 21.15 2.51 7.07 24.21 11.21 15.62
US Large Core 1.72 21.45 2.82 6.20 24.81 11.13 16.85
US Large Growth 0.03 29.43 2.03 6.83 31.95 12.43 16.35
US Large Val 3.03 13.21 2.77 8.20 16.41 10.04 13.72
US Mid Cap 1.50 17.99 3.43 7.76 19.85 10.48 15.80
US Mid Core 1.86 18.30 3.50 8.17 20.55 10.07 15.50
US Mid Growth 0.15 24.83 3.14 7.57 26.40 9.99 14.69
US Mid Val 2.68 10.98 3.68 7.49 12.66 11.32 17.19
US Small Cap 1.35 14.16 3.29 8.67 16.85 10.39 14.69
US Small Core 2.02 11.91 4.12 8.77 14.82 10.33 14.76
US Small Growth -0.54 23.44 2.40 8.80 26.07 11.76 15.13
US Small Val 2.86 7.51 3.41 8.44 10.04 9.01 14.09
US Value 2.95 12.37 2.98 8.08 15.20 10.25 14.47
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

Holiday Open House

Please stop by and join us.  All we ask is that you bring a slightly used winter coat for someone who could use help staying warm this winter.

MLS Holiday Event 2014

Regards,

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ 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.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

 

Schwartz Financial Weekly Commentary 11/27/17

The Markets

There was a lot to be thankful for last week.

Stock markets around the world may have ripened to full-slip sweetness this year. Emerging markets have delivered the most attractive returns year-to-date. The MSCI Emerging Markets Index was up 34 percent year-to-date, last week. The United States and Europe have marched higher, too. The Standard & Poor’s 500 Index was up about 16 percent year-to-date, while the Euro Stoxx Index was up 11.3 percent, reported Barron’s and The Wall Street Journal.

The question is, “Have markets become overripe?’ As you might expect, opinions on the matter vary:

  • Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC, “I don’t see the elements of a bear market but I certainly think 2018 can bring us a correction or at least just a more challenging market.”
  • David Lebovitz, global market strategist with J.P. Morgan Asset Management, wrote in Barron’s, “Healthy earnings growth suggests that there is still upside in U.S. equities, but this area of the global equity market is most expensive relative to its long-term average. However, history has shown us that expensive stock markets can get more expensive before they get cheaper, as multiples tend to expand in the final stages of a bull market.”
  • Peter Boockvar, chief market analyst at the Lindsey Group, told CNBC, “This boat is now standing room only…I still can’t figure out why some think there is no euphoria in markets when one has to go back 30 years to see this wide a spread between bulls and bears.”

Boockvar was referring to an early November Investors Intelligence Sentiment Survey, which gauges the attitudes of U.S. advisors. CNBC reported 63.5 percent of those surveyed were bullish and just 14.4 percent were bearish. A gap of 30 points is a sign of elevated risk, while a 40-point difference suggests defensive measures may be appropriate.

Individual investors aren’t quite as confident. Last week’s AAII Sentiment Survey showed 35.5 percent were bullish, 29 percent were bearish, and the remainder were neutral. It’s important to note, there was a distinct shift toward bullishness and away from bearishness in last week’s survey.

Data as of 11/24/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.9% 16.2% 17.6% 7.9% 13.1% 6.3%
Dow Jones Global ex-U.S. 1.8 23.0 25.8 4.1 5.5 -0.3
10-year Treasury Note (Yield Only) 2.3 NA 2.4 2.3 1.7 3.9
Gold (per ounce) 0.5 11.3 8.8 2.5 -5.9 4.5
Bloomberg Commodity Index 0.3 -0.6 2.3 -9.5 -9.5 -7.1
DJ Equity All REIT Total Return Index 0.5 9.8 14.5 8.1 10.9 8.1
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

and some people worry about zombies. Turkeys have played a central role in the history of the United States. In a letter to his daughter, Ben Franklin offered praise for the bird, which he called, “…a true original native of America…(though a little vain and silly tis true, but not the worse emblem for that) a bird of courage, and would not hesitate to attack a grenadier of the British guards who should presume to invade his farm yard with a red coat on.”

He was correct about turkeys’ aggressive streaks, but lately they haven’t been after the British. Nope. Turkeys have been terrorizing Americans. WBUR in Boston reports turkeys, which had disappeared from New England in the 1800s, have been successfully reintroduced to the region.

The victory isn’t being celebrated in all quarters, though. According to reports, turkeys seem to prefer suburbia where they’ve been “clashing with residents who say they destroy gardens, damage cars, chase pets, and attack people.”

The problem isn’t unique to Massachusetts.

In fact, turkey aggression has become so acute wildlife officials have offered the equivalent of a wild turkey survival guide. First, they recommend, cover windows and shiny objects (turkeys may respond aggressively to sparkly items and their own reflections). Second, Americans who are being intimidated by turkeys should not “…hesitate to scare or threaten a bold, aggressive turkey with loud noises, swatting with a broom, or water sprayed from a hose. A dog on a leash is also an effective deterrent.”

Climbing trees is not an effective way to escape the menacing fowl. Domestic turkeys cannot fly, but wild turkeys can soar at speeds of up to 55 mph for short distances, according to LiveScience.com. Next time you spot a rafter of turkeys, remember: “Turkeys in the wild are far stronger and faster than the ones that land on Thanksgiving tables.”

Weekly Focus – Think About It

“Three econometricians [people who prepare economic statistics] go hunting, and they spot a large deer. The first econometrician fires but his shot goes three-feet wide to the left. The second econometrician, he fires also, but he misses. His shot goes three feet to the right. The third econometrician starts jumping up and down shouting: We got it! We got it!”

–Planet Money, radio show

Please help our office provide a warm winter to those in need

coat drive

Value vs. Growth Investing (11/17/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 1.01 18.21 1.59 7.58 20.11 10.11 15.41
US Core 1.01 17.93 1.14 6.78 20.12 10.14 16.08
US Growth 1.36 28.06 3.91 9.41 27.78 11.32 16.17
US Large Cap 1.00 19.34 1.53 7.19 21.73 10.43 15.41
US Large Core 1.04 19.40 1.09 6.13 21.95 10.67 16.49
US Large Growth 1.32 29.40 4.05 8.98 29.60 11.95 16.61
US Large Val 0.58 9.88 -0.79 6.23 13.93 8.57 13.15
US Mid Cap 0.84 16.25 1.80 8.12 16.78 9.30 15.63
US Mid Core 0.73 16.14 1.32 8.17 17.41 8.92 15.29
US Mid Growth 1.23 24.64 3.55 9.83 22.97 9.08 14.76
US Mid Val 0.50 8.09 0.34 6.08 9.68 9.77 16.80
US Small Cap 1.63 12.64 1.58 10.13 13.75 9.04 14.68
US Small Core 1.54 9.70 1.10 8.96 11.15 8.72 14.59
US Small Growth 2.15 24.11 3.52 13.03 23.08 10.93 15.53
US Small Val 1.10 4.52 -0.14 8.14 7.02 7.32 13.78
US Value 0.60 9.15 -0.53 6.33 12.56 8.75 13.95
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

A Tidbit From Bill Gates To Your Children and Grandchildren

bill gates

Regards,

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ 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.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

Schwartz Financial Weekly Commentary 11/20/17

The Markets

Are investors more like tigers or African wild dogs?

It appears investors – retail and institutional – have become rather like predators. They patiently stalk shares, waiting for a dip, and then they strike – buying stocks when prices fall.

Consider last week. Barron’s described it like this: “The Dow traded down nearly 80 points on Monday, 170 points on Tuesday, and 170 points on Wednesday, but each time the blue-chip benchmark finished off its lows. That was followed by the Dow’s 187-point rally on Thursday, as everyone bought the dips.”

Investors’ remarkable behavior led the publication to speculate, “What if higher volatility, instead of scaring investors away from the stock market, brings them in? In that case, this bull market could still have a long way to go.”

Buying low and selling high is a foundational principle of investing. However, it remains to be seen how successful buying dips will prove to be in a market that some believe is too highly valued.

One measure of valuation is the 12-month trailing price-to-earnings (P/E) ratio, which tracks a company’s current share price against its earnings during the previous 12 months. Last week, FactSet reported the trailing P/E ratio for the Standard & Poor’s 500 Index was 22. The five-year average is 18.2, and the 10-year average is 16.9. Some prefer to look at forward P/E ratios, which compare share price to expected future earnings. The forward P/E ratio for the Standard & Poor’s 500 Index was 18, while the five-year average is 15.7, and the 10-year average is 14.1.

Only time will tell whether investors’ dip buying will more closely resemble the hunts of tigers or those of African wild dogs. When hunting prey, tigers are successful 5 to 10 percent of the time. African wild dogs take down prey 85 percent of the time, according to BBC’s Discover Wildlife.

As always, much will depend on the investments selected.

Data as of 11/17/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.1% 15.2% 17.9% 8.1% 13.2% 6.1%
Dow Jones Global ex-U.S. -0.4 20.8 24.5 3.9 5.6 -0.4
10-year Treasury Note (Yield Only) 2.4 NA 2.3 2.3 1.6 4.1
Gold (per ounce) 0.0 10.8 4.7 2.8 -5.8 5.1
Bloomberg Commodity Index -0.6 -0.9 4.9 -9.6 -9.5 -7.0
DJ Equity All REIT Total Return Index -0.6 9.3 16.2 8.3 11.0 7.5
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

and now for something completely different. Online sales aren’t the only threat to traditional brick-and-mortar retailers. Direct-to-consumer (DTC – also abbreviated as D2C) companies have been implementing a brand new business model. They’re skipping retailers and selling direct to consumers. Early entries in the DTC space targeted product areas dominated by big, established companies that have been enjoying high profit margins. DTC firms often are offering better price points and far superior customer service, reports Forbes.

In the future, some may remember the emergence of DTC as the onset of the razor wars. In 2010, the world’s largest razor blade company had 70 percent market share in the United States. Its gross margins (sales minus the cost of the product) were as high as 60 percent, reported The Economist. Soon after, the company found itself competing with two subscription razor blade services offering no cost trials and money-back guarantees. The DTC business model proved to be attractive and the market share of the world’s largest maker of razor blades has fallen to 54 percent.

Will DTC have staying power? The Economist wrote:

“…a growing number of startups are reimagining everyday household items – from pants and socks to toothbrushes and cookware. These [DTC] companies bypass conventional retailers and bring their products straight to customers via their online stores. They began several years ago to catch the attention of venture-capital (VC) firms, which have poured in more than $3bn since 2012. But the success of some [DTC] firms has attracted a lot of wannabes, making this a crowded market and leaving some wondering whether the boom has reached its limits.”

While analysts ponder the viability of the new business model, the behemoths of consumer goods and retailing have begun buying DTC firms. Consequently, we may see a steady stream of new entrants to the market.

We hope you have a wonderful Thanksgiving celebration!

Weekly Focus – Think About It

“Intelligence alone does not get us where we need to go or even necessarily where we want to go. For that, the human creature must exercise harder-won capacities of wisdom, and wise action.”

–Krista Tippett, American journalist and author

Value vs. Growth Investing (11/17/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.10 17.03 0.97 7.01 20.08 10.29 16.01
US Core -0.19 16.75 0.46 5.93 19.72 10.29 16.66
US Growth 0.29 26.35 2.42 8.71 26.98 11.54 16.81
US Large Cap -0.20 18.16 0.90 6.55 21.40 10.56 16.02
US Large Core -0.69 18.17 0.24 5.18 21.08 10.71 17.05
US Large Growth 0.03 27.71 2.39 8.17 28.63 12.16 17.30
US Large Val 0.03 9.25 -0.10 6.11 14.75 8.72 13.73
US Mid Cap 0.81 15.28 1.47 7.86 17.35 9.70 16.23
US Mid Core 0.95 15.29 1.34 7.62 18.01 9.42 15.96
US Mid Growth 0.91 23.12 2.74 9.70 22.39 9.37 15.28
US Mid Val 0.54 7.55 0.16 6.06 11.35 10.17 17.42
US Small Cap 1.15 10.84 0.28 9.37 14.72 9.19 15.19
US Small Core 1.37 8.03 -0.01 8.25 12.15 8.92 15.18
US Small Growth 1.30 21.50 1.86 11.86 23.20 11.01 15.86
US Small Val 0.75 3.38 -1.23 7.82 8.85 7.52 14.39
US Value 0.18 8.50 -0.12 6.21 13.65 8.95 14.54
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

Keep Your Fork . . .

There was a woman who had been diagnosed with a terminal illness and had been given three months to live.  So as she was getting her things “in order,” she contacted her pastor and had him come to her house to discuss certain aspects of her final wishes.

She told him which songs she wanted sung at the service, what scriptures she would like read, and what outfit she wanted to be buried in.  The woman also requested to be buried with her favorite Bible.  Everything was in order and the pastor was preparing to leave when the woman suddenly remembered something very important to her.

“There’s one more thing,” she said excitedly.

“What’s that?” came the pastor’s reply.

“This is very important,” the woman continued, “I want to be buried with a fork in my right hand.”

The pastor stood looking at the woman, not knowing quite what to say.

“That surprises you, doesn’t it?” the woman asked.

“Well to be honest, I’m puzzled by the request,” said the pastor.

The woman explained.  “In all my years of attending church socials and potluck dinners, I always remember that when the dishes of the main course were being cleared, someone would inevitably lean over and say, “Keep your fork.”  It was my favorite part because I knew that something better was coming . . .like velvety chocolate cake or deep-dish apple pie.  Something wonderful, and with substance!  So, I just want people to see me there in that casket with a fork in my hand and I want them to wonder, ‘What’s with the fork?’  Then I want you to tell them:  ‘Keep your fork.  The best is yet to come.’”

The pastor’s eyes welled up with tears of joy as he hugged the woman good-bye.  He knew this would be one of the last times he would see her before her death.  But he also knew that the woman had a better grasp of heaven than he did.  She knew that something better was coming.

At the funeral, people were walking by the woman’s casket and they saw the pretty dress she was wearing and her favorite Bible and the fork placed in her right hand.  Over and over the pastor heard the question:  “What’s with the fork?”  and over and over he smiled.

During his message, the pastor told the people of the conversation he had with the woman shortly before she died.  He also told them about the fork and about what it symbolized to her.  The pastor told the people how he could not stop thinking about the fork and told them that they probably would not be able to stop thinking about it either.  He was right.

So the next time you reach down for your fork, let it remind you, oh so gently, that the best is yet to come.

PLEASE ESPECIALLY THIS YEAR, AFTER ALL THIS NATION HAS BEEN THROUGH, HAVE A VERY HAPPY THANKSGIVING!

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

 

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ 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.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

Schwartz Financial Weekly Commentary 11/13/17

The Markets

Selling it overseas.

Most of the companies in the Standard & Poor’s 500 (S&P 500) Index have reported third quarter earnings per share (EPS), which is the profit earned per share of stock outstanding during the period. Many have done quite well.

With more than 90 percent of companies reporting, the total EPS growth rate for the S&P 500 has exceeded expectations, reported FactSet. In aggregate, the growth rate accelerated from 3.1 percent on September 30 to 6.1 percent last week.

It’s interesting to note companies that sell more products and services outside the United States experienced significant increases in EPS when compared to companies that sell more at home. S&P 500 companies with:

  • More than one-half of sales in the United States had an aggregate growth rate of 2.3 percent.
  • Less than one-half of sales in the United States had an aggregate growth rate of 13.4 percent.

The disparity owed much to the weaker U.S. dollar and faster economic growth in other countries, including emerging markets.

Investors weren’t all that appreciative of strong corporate performance. They rewarded positive EPS surprises less than average and penalized negative EPS surprises more than average. On November 10, FactSet explained:

“…it may be due to the high valuation of the index relative to recent averages. As of today, the forward 12-month P/E [price-to-earnings] ratio for the S&P 500 is 18.0… Prior to the month of October, the forward 12-month P/E had not been equal to (or above) 18.0 since 2002. Thus, despite the number and magnitude of positive earnings surprises in recent quarters, the market may be reluctant to push valuations even higher in aggregate.”

Last week, major U.S. stock indices ended their multi-week winning streaks and finished lower.

Data as of 11/10/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.2% 15.3% 19.1% 8.2% 13.4% 6.0%
Dow Jones Global ex-U.S. -0.3 21.3 23.0 4.0 5.7 -0.5
10-year Treasury Note (Yield Only) 2.4 NA 2.1 2.4 1.6 4.2
Gold (per ounce) 1.4 10.8 1.3 3.4 -5.8 4.8
Bloomberg Commodity Index 0.5 -0.3 4.1 -9.2 -9.1 -7.1
DJ Equity All REIT Total Return Index 2.7 9.9 17.9 8.2 11.1 7.3
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

The Winter holidays are almost here. It’s that time of year when people search and search for just-the-right gifts at just-the-right-prices for friends and loved ones. The National Retail Federation expects holiday sales to rise by 3.6 percent to 4.0 percent this year and total about $680 billion. The average consumer expects to spend about $970 on the holidays. Here are a few gift ideas for the hard-to-buy-for individuals on your list:

  • For coffee lovers. It’s an experience shared by coffee drinkers everywhere. You pour a cup, doctor it up, and before you can take a sip, you are called away. By the time you return, the coffee is cold. A ceramic mug with a microprocessor-controlled heating system can solve the problem.
  • For the outdoorsy. Anyone who spends time in the sun knows the importance of sunscreen. The mystery is when to reapply it. The outdoorsy folks in your family may appreciate a UV patch. It’s a wearable decal that changes color when it’s time to reapply sunscreen.
  • For the indoorsy. Series bingers and show streamers will love ‘wallpaper’ television. It’s a new kind of TV that viewers ‘peel and stick’ to their walls using magnetic mats.
  • For the fashion-conscious environmentalist. Soon, clothing may be made of synthetic spider silk and bio-manufactured leather. It’s unlikely they’ll be available this winter, but you could give tickets to the Museum of Modern Art in New York City. Clothing made of these fabrics is on display through January 2018.
  • For the insomniac. Know someone who has trouble sleeping? A white noise machine or an air purifier with a fan can provide constant, soothing sound that may help lull them to sleep.
  • For the vision impaired. There are all kinds of gadgets that can make life a little easier for people with low or no vision. Try a wristband that shakes to give directions or a new ‘feeling fireworks’ display that simulates the visual experience through touch.

If you’re stressing because you cannot find the right gift, remember the best gift is time. Instead of buying things, invite the people on your gift list to join you for an event or an activity.

Weekly Focus – Think About It

“I slept and I dreamed that life is all joy. I woke and I saw that life is all service. I served and I saw that service is joy.”

–Kahlil Gibran, Lebanese writer and poet

Value vs Growth Investing (11/10/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market -0.21 16.92 1.16 6.60 21.60 10.29 15.66
US Core 0.13 16.97 1.39 5.96 21.73 10.34 16.43
US Growth 0.04 25.98 2.74 8.59 28.38 11.55 16.50
US Large Cap -0.19 18.40 1.45 6.53 22.52 10.72 15.74
US Large Core 0.21 18.99 1.96 5.88 23.20 10.99 16.96
US Large Growth 0.18 27.67 3.11 8.31 29.53 12.34 17.07
US Large Val -0.99 9.21 -0.84 5.21 15.14 8.76 13.22
US Mid Cap -0.03 14.35 0.94 6.69 19.52 9.35 15.75
US Mid Core 0.12 14.21 0.72 6.40 19.23 9.02 15.45
US Mid Growth -0.03 22.02 2.09 9.08 25.04 9.07 14.81
US Mid Val -0.21 6.97 -0.12 4.35 14.10 9.86 16.95
US Small Cap -0.94 9.58 -1.20 7.05 18.00 8.48 14.45
US Small Core -0.63 6.57 -2.06 5.48 15.53 8.17 14.41
US Small Growth -1.19 19.95 0.71 10.19 25.73 10.16 15.11
US Small Val -0.97 2.61 -2.43 5.34 12.68 7.00 13.71
US Value -0.84 8.31 -0.81 5.05 14.81 8.88 14.03
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

Republican Tax Plan Q&A

Q: What exactly are Republicans trying to do – and why? 

Might as well start with the basics.  During last year’s presidential campaign, Donald Trump promised significant tax cuts, something long advocated by most Republican politicians.  But because Republicans now control the White House and both chambers of Congress, they decided to pair tax cuts with a more ambitious goal: rewriting the entire tax code.

Over the decades, our nation’s tax code has ballooned in size.  It contains so many provisions, credits, loopholes, and deductions that it takes a true professional – or a well-coded piece of software – to understand it all.  In fact, Republicans claim the tax code has inflated 169% over the past thirty years.1

Both parties generally agree tax reform is needed, but it’s there that consensus ends.  That’s because tax reform inevitably means changes…and even members of the same political party often disagree on what those changes should be.  That’s why there hasn’t been a significant overhaul of the tax code since 1986.

Q: What have Republicans done so far? 

On September 27, President Trump unveiled his version of tax reform, as decided on by members of his cabinet and certain key members of Congress.  From there, the action moved to the House.  (That’s because Article I of the Constitution dictates all bills raising revenue must originate in the House.)

After over a month of debate, the House Ways and Means Committee released the “Tax Cuts and Jobs Act.”  On November 6, the Committee began what’s called a “markup” of the bill, where members can propose changes and rewrites before the bill goes to the rest of the House for a vote.

On November 9, the Senate Finance Committee released their own version of the bill, which contains some significant differences.  Let’s start by examining the House version.

Q: What does the “Tax Cuts and Jobs Act” do, exactly? 

Okay, take a deep breath.  There’s a lot of ground to cover here.  Broadly speaking, the bill does the following:

  • Reduce the number of personal income brackets
  • Remove or restrict many different tax breaks
  • Abolish both the estate tax and the alternative minimum tax
  • Cut corporate tax rates

Let’s take each of these one at a time.

Personal Income Brackets

Currently, there are seven tax brackets.  This bill will reduce that number to four.  (This differs from President Trump’s original plan, which called for only three brackets.)  See the table on the following page for more information. 2

Current Tax Brackets Proposed Tax Brackets Income for Individuals Income for Married Couples
10% 12% $12,000-$45,000 $24,000-$90,000
15%
25% 25% Up to $200,000 Up to $260,000
28%
33% 35% Up to $500,000 Up to $1 million
35%
39.6% 39.6% Above $500,000 Above $1 million

For most individuals earning $12,000 or less, and couples earning $24,000 or less, the tax rate is essentially zero.

Naturally, whether people actually pay more or less will come down to a variety of factors, not just which bracket they fall in.  That’s because of changes to both…

Standard & Itemized Deductions

As the IRS explains it, the standard deduction is a “dollar amount that reduces the amount of income on which you are taxed.”3  Under the Tax Cuts & Jobs bill, the standard deduction would go from $6,350 to $12,000 for singles, and from $12,700 to $24,000 for married couples filing jointly.4

But when it comes to the standard deduction, there’s a catch: you can’t take it if you itemize deductions.  So, while the bill doubles the standard deduction, that benefit could be offset for many people because of changes to itemized deductions.

Here are some changes to common itemized deductions.

Mortgage interest: Currently, people can deduct up to $1 million on mortgage interest payments for newly purchased homes.  The bill retains this deduction, but lowers the cap to only $500,000.  Additionally, homeowners can only deduct mortgage interest on their principal residence.  This deduction does not apply to a second home.4

State and local taxes: A popular deduction is to write off state and local tax payments from federal tax payments.  Originally, the Republican tax plan called for removing this particular tax break altogether, and you may have seen that reported in the news.  This did not sit well with representatives from high-tax states, however, so a compromise was reached.  Now, the bill specifies that people can still deduct up to $10,000 on local property taxes, but can no longer deduct other state and local taxes, like income or sales taxes.4

Medical expenses, tax preparation fees, alimony payments, student loan interest and moving expenses:  All these tax breaks are eliminated under the bill.5

On the other hand, the bill expands the child tax credit from $1,000 to $1,600 for any child under seventeen.  Additionally, this credit would be available to more people.  Currently, married couples making over $110,000 a year are ineligible for the tax credit; the bill raises that level to $230,000.5

Eliminating the AMT and Estate Tax

The Alternative Minimum Tax (AMT) is a tax on a certain range of high-income people, specifically those who make between $200,000 and $1 million.  It was designed to “prevent taxpayers from escaping their fair share of tax liability through tax breaks8”; however, the AMT has often been derided as unfair and needlessly complex.  The House Republican tax plan would abolish the AMT, which is welcome news for many investors.

The estate tax, meanwhile, has long been in the cross-hairs of many Republicans, who believe it’s inherently unfair to tax someone’s estate after death, since they have already paid taxes on that estate while alive.  The bill would repeal this tax entirely, albeit not until 2024.

Corporate Tax Rates

One of the centerpoints of the bill is what it does for businesses.  Here are some of the most significant changes:

  • Permanently reduce the top corporate tax rate from 35% to 20%. Additionally, the bill would abolish the corporate version of the AMT.6
  • Allow businesses to write off any new equipment costs. However, this deduction expires after five years. 6
  • Decrease the pass-through rate to 25% from 39.6%.6 A pass-through is a type of business where business income is passed directly to the owners.  That means only the owner is taxed, not the business itself.  This is designed to prevent business owners from effectively having to pay taxes twice, on both their personal income and their business income.
  • Create a minimum tax on foreign earnings so corporations can’t just move their money overseas and not pay taxes. 6

Q: What does the bill NOT do? 

During the runup to the bill’s release, the media reported many possible changes, some of which didn’t end up making it into the final bill.  For example:

  • Previously, it was reported that some Republicans were considering lowering the cap on 401(k) pre-tax contributions. This is NOT in the current bill.
  • The bill also does NOT make any changes to the Earned Income Tax Credit, a break specifically for lower-income families.
  • Most importantly for investors, the bill leaves taxation on investment income untouched. This includes taxes on dividends and capital gains.  However, it should be noted that some investors may pay less in taxes on investment income because the plan would move them to a lower tax bracket.

Q: Okay, so what happens now? 

In two words: a lot.

In more words: as of this writing, Senate Republicans have just released their own tax plan.  (More on this in a moment.)  Assuming both bills pass in their respective chambers, the Joint Committee on Taxation would take over.  This is a small group of senators and representatives whose job is to meld the two bills into one before sending it to the White House for the president’s signature.

Here’s the thing: while all that sounds simple enough, politics make it anything but.

Currently, Republicans own a much slimmer majority in the Senate than they do in the House.  As a result, they have two options when it comes to passing a tax bill: recruit Democratic support, or use a process called budget reconciliation.

Given the unlikelihood of the two parties working together, Republicans are likely to use the second approach.  Reconciliation allows certain bills that change spending, revenue, or federal debt to be passed with a simple majority.  That means Republicans in the Senate can pass their bill with only 51 votes.  To use budget reconciliation, though, the bill must not increase the Federal deficit by over $1.5 trillion over ten years.7

While budget reconciliation effectively gives Republicans a way to hold off Democratic opposition, it also creates a problem.  They cannot afford any dissension in their own ranks.  If more than a few Republicans decide not to back the bill, reconciliation dies – and in all likelihood, the bill with it.  This is what happened when Senate Republicans tried to repeal the Affordable Care Act earlier in the year.

Here’s why this little civics lesson matters: the Senate Republicans’ plan contains significant changes from the House version, in order to win the support of both moderate and conservative Republicans senators, who tend to have different priorities.

Q: What differences does the Senate version of the bill contain? 

A few examples: under the Senate version, the new corporate tax rate described above does not go into effect until 2019, whereas the House version kicks in immediately.9  Additionally, the Senate bill does not repeal the estate tax, in order to appease members of the party’s moderate wing.

But those probably aren’t even the biggest changes.  Remember how the House plan reduced the number of individual tax brackets from seven to four?  The Senate bill retains those seven brackets, although the rates for some of those brackets have changed.  The top tax bracket, for instance, would decrease from 39.6% to 38.5%.9

Furthermore, the Senate version “fully removes the ability of households to deduct their state and local taxes” from their federal taxes.9  (The House version, you’ll recall, allows people to still deduct their state and local property taxes.)

These are major departures from both the House bill and President Trump’s original plan.  It remains to be seen how the two bills will be reconciled…or if they even can be.

Q: So that means we don’t really know what the final tax bill will look like? 

Exactly.  In the end, it could be fairly close to everything we talked about in this letter.  Or, certain provisions could look very different.

Q: Then why do I need to know about any of this? 

Preparation!  When it comes to your finances, it’s always good to avoid surprises.  By knowing which changes are being considered, we can start to prepare ourselves for how those changes will affect us.  As Shakespeare said, “All things are ready, if our mind be so.”

Or, as I like to put it: “No one ever wished they were less prepared.”

Q: What do we do now? 

My team and I will continue to monitor all the news coming out of Washington.  As both the Senate and House bills move down the pipe, we will keep tabs on any changes and how they may affect you.

This letter is not intended to be a complete, exhaustive breakdown of everything in the Republican tax plan.  So, here’s what you should do: stay informed, and write down any questions you have whenever they occur to you.  Hear something on the radio that doesn’t make sense?  Write it down.  Read something in the newspaper and want to know what it means?  Write it down.  Then, feel free to contact me with any questions.  As always, I’ll do my best to answer them.

Additionally, if you would ever like me to confer with your personal tax advisor, I would be happy to do so.

Finally, always remember that we at Schwartz Financial are here to help you feel confident about your financial future.  Please let us know if there’s ever anything we can do.

Sources

1 “A Better Way: Our Vision for a Confident America,” Speaker of the House, June 24, 2016.  https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf
2 Alice Parlapiano, “Six Charts That Help Explain the Republican Tax Plan,” The New York Times, November 2, 2017.  https://www.nytimes.com/interactive/2017/09/27/us/politics/six-charts-to-explain-the-republican-tax-plan.html
3 “Standard Deduction at a Glance,” Internal Revenue Service, https://www.irs.gov/credits-deductions/individuals/standard-deduction-at-a-glance
4 “What’s in the Republican tax reform bill,” The Washington Post, November 2, 2017.  https://www.washingtonpost.com/graphics/2017/business/tax-bill-q-and-a/?utm_term=.4b27a352d293
5 Jeanne Sahadi, “What’s in the House tax bill for people,” CNN Money, November 3, 2017.  http://money.cnn.com/2017/11/02/news/economy/house-tax-reform-bill-individuals/index.html?iid=EL
6 David Floyd, “Trump’s Tax Reform Plan,” Investopedia, November 9, 2017.  https://www.investopedia.com/news/trumps-tax-reform-what-can-be-done/
7 Bob Bryan, “Republicans just passed a huge tax reform test by the skin of their teeth,” Business Insider, November 2, 2017.  http://www.businessinsider.com/trump-gop-tax-reform-bill-deficit-debt-budget-2017-11
8 “Alternative Minimum Tax – AMT,” Investopedia, https://www.investopedia.com/terms/a/alternativeminimumtax.asp?lgl=myfinance-layout-no-ads
9 Richard Rubin, “Senate Tax Plan Differs from House,” The Wall Street Journal, November 9, 2017.  https://www.wsj.com/articles/senate-tax-plan-differs-from-house-on-individual-rates-timing-of-corporate-rate-cut-1510257621

Regards,

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

 

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