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Second Quarter 2017 Investment Commentary

The second quarter proved to be another very strong period for global stock markets. Larger-cap U.S. stocks (Vanguard 500 Index) gained 3.1%, developed international stocks (Vanguard Developed Markets ETF) rose 6.4%, European stocks (Vanguard FTSE Europe ETF) jumped 8.4%, and emerging-market stocks (Vanguard Emerging Markets ETF) rose by 3.4%. First half 2017 stock performance was even stronger. Larger-cap U.S. stocks surged 9.3%, while international indexes were each up in the mid-teens. In a reversal of May’s sector trends, U.S. financial stocks rallied in June on strong results from the Federal Reserve’s “stress tests” plus more positive sentiment given rising interest rates, while technology shares declined. Commodities prices and energy stocks remain a weak spot amid a global rally in risky assets. Oil prices fell 14% during the quarter and nearly 20% for the first half of 2017 on fears that production will continue to outstrip demand.   As we look back...
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Investing Terms: From Alpha to Zeta (Part 1)

If you watch CNBC or read the Wall Street Journal, you may hear or see terms and acronyms mentioned by market analysts, investment professionals and the financial press. What do these terms mean?  Although there are many, many terms you may encounter, let’s explain a few of the terms you may need to understand or could be interested in. Alpha:  Alpha is the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM).  Alpha could be generated by investors selecting specific holdings and/or weightings based on investment analysis.   Beta:  Alpha and beta are two of the five standard technical risk calculations, the other three being the standard deviation, R-squared, and Sharpe ratio.  Beta represents the overall volatility of an investment relative to the market, which has a beta of 1.0.  If an investment has a Beta of 1.2, it would be...
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My Employer Sponsors a 401k Plan – How do I Get Started? What Do I Need to Know?

You know you should be saving for retirement but it’s difficult to make it a priority when it seems so far away.  You have current financial demands – living expenses, paying down student loans, rent/mortgage, etc. and it feels like you don’t have much to contribute to retirement right now, but all you have to do is start with something!  A 25 year-old who starts saving $100 a month, with a 7% rate of return would have close to $265,000 by age 65. One of the biggest advantages that we have is time.  We have time to save and time for our money to grow.  Creating these habits of saving now will pay off greatly when you reach retirement.   How Much Should I Contribute? Most employer 401k plans include a match up to a specified percentage of your contributions.  By not contributing to your 401k, you are turning down part...
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Hope And Luck Are Not Successful Investment Approaches

We get it; when markets are turbulent, particularly when stocks fall unexpectedly, resisting the urge to start looking for reasons to bail out of the market can be a tall order. Yet the future is inherently uncertain; there are no guarantees in life or when it comes to investing. Anything can happen.   If you have a sound investment process though, these are the times when you really need to stick with it, remaining disciplined and consistent in executing it. Otherwise, you will be at the whim of both your emotions and the market’s random moves. It’s possible to get lucky once or twice by exiting the market right before a big drop or jumping in just before an extended rally. But hope and luck are neither sustainable nor successful investment approaches.   One of the few truisms about investing is that stocks will go up and they will go down....
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Observations On College Savings

My oldest baby boy turned 8 this week.  So hard for me to believe!  Double it and I have a teenage driver closing in on a college decision.  Speaking of college decision, we have an Indiana CollegeChoice 529 plan in place for him.  He is reaching an age where an automatic adjustment is happening within the account.  We have benefited from the Indiana state income tax credit currently available for the last 8 years – 20% of the contributions (up to $5,000 annually) made by the taxpayer.  As we round out this birthday, we are reviewing if we are on track for the college savings goal we set. As I look at college savings for our family, I thought I would share observations I have made planning for college for our family and helping others do the same: 1.)    Make sure you know that you are in a financial place to...
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An Introduction to Mutual Funds and ETFs

A mutual fund pools money received from investors, and issues fund shares to shareholders. It then invests in securities (stocks, bonds and money market instruments) related to the fund's investment objective. The fund provides shareholders with professional investment management, diversification, liquidity and investing convenience. For these services, the fund charges fees and incurs internal expenses for operating the fund, all of which are charged proportionately against a shareholder's assets in the fund. There also may be front- end (purchase) or back-end (sale) charges (loads), which are sales commissions charged upon buying or selling the mutual fund. However, there are no-load mutual funds available that do not charge sales or redemption fees. Purchases and sales take place between investors and the mutual fund.  Mutual funds issue and redeem shares of the fund at their net asset value (NAV), which is the price at which you can buy or sell a share that is calculated after...
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First Quarter 2017 Key Takeaways

The buoyant mood that pushed stocks higher through year-end 2016 continued into the first quarter as signs of an improving global economy continued to mount. Stock indexes were up across the board. Emerging-market (EM) stocks were the star performers.  (MSCI EM index +11.6%).  Their double-digit gains eclipsed returns for developed international stocks (up 8%), and both outperformed larger-cap U.S. stocks (up 6%). Price-to-earnings multiples in most EM countries’ equity markets remain at the lower end of their 20-year averages, and we expect growth in emerging countries to outpace that of developed markets over the long term.   Investors took the Federal Reserve’s widely anticipated rate hike on March 15 in stride, treating it as another indicator of the U.S. economy’s return to form.  Wage growth has returned, unemployment is well below 5%, and inflation is close to the 2% target.  The Fed is now turning its attention to reducing its $4.5...
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Charitable Giving 101 – A 30,000 Foot Review of Giving

As we quickly close in on the end of another tax filing season, I thought it would be helpful to explain some of the basics of charitable giving as they relate to income tax.  Obviously, there are many different reasons people give to charitable institutions (i.e. a personal connection to a charity, religious beliefs, tax planning methods, etc.).  Whatever the reason you have to give, I hope this short discussion helps provide clarity and quality information as you plan ahead for taxes in 2017.   Giving Basics: One of the major tax planning tools that can be utilized is charitable giving.  When you give you to a qualifying charitable organization (501(c)3 organization), your contribution qualifies for a tax deduction that lands on Schedule A – Itemized Deductions.  You can give cash, real property, personal property, stocks, and many other different assets.  Most of your gifts (i.e. cash, most personal property, etc.)...
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The Tough Job of Continuous Accumulation

Every paycheck, you may see a line item reducing your net pay titled pre-tax 401k.  If you are making a ROTH 401k contribution, that net pay looks even lower.  If eligible, you may be contributing to an IRA, a ROTH IRA, or a HSA.  You may be adding money to a 529 plan for your children’s college education.  You may be doing savings into a brokerage or bank account for short-term goals, a business acquisition, and/or for retirement.  You see Social Security and Medicare tax being withheld from your paycheck, and you comply because you must while wondering if those programs will provide any benefit to you when you reach age of eligibility.  On the spending side, you may be making sacrifices to provide for the savings level you have committed to. If you are doing retirement savings while balancing current spending and other savings goals, I have noted the following...
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Why Retirees Need Equities

Interest rates have been declining since 1981.  Long-term U.S. Treasury bond yields peaked at 15.21% in October of 1981 and reached a record low of 2.11% in July 2016. In 1960, 41% of private-sector workers were covered by pension plans, but by 2008 only 20% were covered by a defined-benefit pension plan.  Most retirees now need to produce income from tax-deferred accounts or taxable investments in addition to Social Security benefits in order to meet retirement income needs.  Social Security was introduced in 1935 as a program to provide some continuing income after retirement.   However, the estimated average monthly benefit for all retired workers in January 2016 was only $1,341 per month ($16,092 annually).  The Federal poverty level for a family of two for 2017 is $16,240. Retirees are faced with several risks in their retirement years.   The first is longevity risk, the risk of outliving your assets.   Associated to longevity...
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