"This is just how 2008 felt.....I think"

In light of recent volatility in global markets and the steep sell-off of over the past week, we want to share a few comments that we hope will prove helpful in shaping your own views.

1.    A little perspective is always valuable
It is worth noting that although the US hasn’t seen a stock market decline of this magnitude in quite some time, market corrections are a normal and healthy part of market movement. While our market regime indicators (as well as those of most of our investment strategists) are elevated, they have not yet been triggered indicating this correction to be the next 2008. For this reason, we are reluctant to characterize today as either a buying or a selling opportunity. Instead we believe the next few days, or maybe weeks, will tell us whether the future of market prices will be driven by fundamental values or by fear. 

2.    In general, investors should not sell when a correction seems based on fundamentals
Historically, this type of decline has been limited in depth. In addition, fundamental corrections have tended to recover more quickly than the fear-driven market dislocations that take place when valuations become irrelevant and investor behavior is driven by anxiety.  At this time, markets have not become “irrational” in their pricing. While US stocks were down almost 4% for the day on Monday, the decline was much worse at the open before buyers who saw attractive valuations stepped in and brought the market well above its morning lows. 

3.    Fundamentals still look promising for US and European economies
While the challenges faced by China and emerging markets more broadly will slow growth in developed markets, there is little reason to believe these challenges will result in a global recession. The US and European economies still appear poised for growth, albeit slow growth. 

4.    They won’t ring a bell at the top: In reviewing the persistent market concerns, it’s important to remember that while they are worrisome, they are not a reason to panic and move to 100% cash. Over the course of our 30-year history, we’ve never tried to time market tops and we don’t have to. That’s because bull market peaks are usually slow, rounding affairs that take time to develop and are accompanied by increasing bearish warning flags. Unlike V-shaped market bottoms, tops give us a longer period to assess the weight of evidence and adjust the portfolio accordingly.  Even in the “crash” of 2008, investors had at least nine months surrounding the peak to step up defenses.

5.    The Fed may clarify its position on interest rates, boosting investor confidence
Beyond China, another factor in domestic investor anxiety is uncertainty about a Fed interest rate increase in September and what impact higher rates might have on the stock market. Last week's sharp sell-off in the US and global equity markets may encourage the Fed to delay raising interest rates until December or March, since the rate hike is not necessitated by inflation but rather a desire by the Fed to reload some monetary ammunition to stimulate the economy in the event of an economic slowdown. An indication from the Fed that it will delay raising rates might motivate buyers on the sideline. Conversely, even if rates rise, the certainty of the Fed’s move will provide investors greater confidence than the anxiety caused by the unknown.

6.    Market volatility helps show the value of a managed, diversified portfolio of investment styles
The past week only strengthens our conviction that diversified portfolios have higher likelihood of helping you stay on track. History has shown us that the opportunity cost of sitting in cash for long periods (waiting for the "all clear") far outweighs the losses associated with staying invested through a full market downturn. It is for this reason that we generally like to recommend a portion of most portfolios be allocated to tactical strategies with a discipline for when to reduce and when to add back equity market exposure.

At the hallmark of our investing process at FMN is the concept of diversification, both in what you own and in the strategy that is used to manage risk.  We’ll continue to use some of the most widely used methods of risk management; diversification, asset allocation, hedging, and the use of uncorrelated assets (investments that don’t move in lock step with the market).  If this correction proves to be similar to those seen in 2011 and 2012, we’ll certainly be looking to purchase at that time.  This is the only way to “buy low and sell high”, at some point you have to rebalance and actually purchase on these dips when the opportunity presents itself.  We’re not there yet, but we may be soon.

What does Puerto Rico’s debt crisis mean for investors?

While the world’s eyes were on Greece, Puerto Rico Governor Alejandro García Padilla announced last Sunday that the commonwealth could not pay its $72 billion in public debt. After decades of very slow growth and recession, the island’s central government is at the breaking point and wants the debt either deferred or renegotiated; analysts think it might run out of cash later this month.1

The municipal bond market is being noticeably impacted by this development. Mutual fund investors have long been attracted to Puerto Rico’s bonds, which offer sizable yields while being exempt from federal, state and local taxes. In 2014, the initial yield on Puerto Rico’s general-obligation bonds was 8.7%. According to Morningstar, 298 of 565 U.S. muni bond funds currently have some percentage of their assets in Puerto Rican debt.1,2  

Puerto Rico’s Public Finance Corporation owes $94 million it must pay by July 15 and its central bank must pay $140 million in bond principal by August 1. Governor Padilla and his administration are quickly exploring their options – including the possibility of filing for Chapter 9 bankruptcy, a choice available only to cities under current U.S. laws.1,3

If the federal government does not permit a Chapter 9 bankruptcy for Puerto Rico, small investors and cities, counties and states that want to fund infrastructure projects will have to deal with some troubling question marks. Its bondholders may not be able to recoup some of their losses (not the case when Detroit and certain California cities filed for bankruptcy). The percentage of insured Puerto Rican bonds is unknown.1,3

This week, Padilla announced that the commonwealth would attempt to meet with bondholders and negotiate a years-long moratorium on debt payments. As Puerto Rico’s debt is worth about eight times as much as Detroit’s, state and local governments could soon be staring at higher borrowing costs if Puerto Rico pushes for debt relief.3,4

On a positive note, Puerto Rico’s government did pay off $1.9 billion in debt due July 1. So far, analysts have not noticed the kind of dramatic outflows from muni funds that would roil the municipal bond market. A sustained outflow would probably begin with these funds selling off some of their more liquid holdings, impacting high-grade bond prices to start.4,5

Jeffrey Lipton, head of municipal bond research and strategy at Oppenheimer and Co., told CNBC this week that there could be a “short-term municipal market dislocation” should a default or major restructuring of Puerto Rican debt occur. Barring those events, he said he did not foresee "a longer-term systemic threat to the municipal market.”4

On July 29, the Obama administration said there would be no bailout for Puerto Rico. It could be that Congress makes an exception for Puerto Rico and allows it to file for Chapter 9 bankruptcy. If not, then its government could try to convince bondholders to give it a reprieve by exchanging the bonds they now hold for long-term bonds at lower interest rates. There is no easy solution, and that means more anxiety for the world’s debt markets.6

1 - fortune.com/2015/06/29/puerto-rico-economy-crisis/ [6/29/15]

2 - blogs.wsj.com/moneybeat/2015/06/30/puerto-ricos-crisis-deals-a-blow-to-municipal-bond-funds/ [6/30/15]

3 - csmonitor.com/Business/2015/0629/Puerto-Rico-can-t-pay-its-debt-governor-says.-How-will-it-impact-investors-video [6/29/15]

4 - tinyurl.com/pjhugou [6/30/15]

5 - fortune.com/2015/07/01/puerto-rico-avoids-default/ [7/1/15]

6 - newyorker.com/business/currency/why-congress-should-let-puerto-rico-declare-bankruptcy [7/1/15]

Headwinds from Greece Shouldn't Prompt You to Sell

by: Ryan Maroney, CFP®

Right now, you may be watching financial websites and wondering:

how badly will the headwinds from Greece rattle Wall Street this month?

So far, the damage has not been disastrous. The S&P 500 lost 2.09% on June 29; in the six market days that followed, it saw everything from a 1.7% descent to a couple of advances exceeding 0.6%. This volatility suggests that while Wall Street is certainly anxious, it is eyeing the situation in Greece with at least some degree of composure. (The selloff in Chinese stocks has also weighed heavily on global markets.)1

Greece has a very unpleasant choice to make: it can agree to a severe new bailout deal by July 12, or leave the European Union and contend with bankruptcy.2

It is coming down to a battle of wills. The EU desperately needs Greece to stay in the euro. A “Grexit” will send the message that EU membership is optional and reversible, hardly the signal the EU wants to send to its other debt-riddled members (Portugal, Italy, Spain). In the best outcome for the EU, Greek Prime Minister Alexis Tsipras and his Syriza party throw in the towel and capitulate to the demands of the new bailout – meaning more austerity cuts, humiliation for Tsipras, and the preservation of the eurozone ideal. Alternately, the situation could drag on for weeks with delays and re-negotiations.

Still, this appears to be a short-term headwind for U.S. equities. Stateside, fundamental indicators are much stronger than they were in the fall and winter. A new earnings season is underway, and it may provide big upside surprises. You could argue that two other headwinds affecting stocks – dollar strength and the gradual tightening of Federal Reserve monetary policy – have lessened somewhat, with the U.S. Dollar Index losing 2.92% in the second quarter and futures markets now betting that the Fed makes its first move with interest rates in December rather than September.3,4

Investors with long-term horizons should definitely stay the course here. If there is a “Grexit,” there are reasons to believe the U.S. markets could withstand the shock reasonably well.

Greece only accounts for 0.3% of the world economy to begin with, and its largest creditors are the European Union and International Monetary Fund, not private-sector banks. Foreign investment in Greek banks at the end of 2014 was 15% of what it had been four years earlier. Most Greek bonds are owned by other European countries.5      

When investors respond to market moves with fear, they sell impulsively rather than rationally and set themselves up to buy high (and sell low) when conditions normalize. Any deal might send markets rallying in Europe, and that rally might turn into a global one, meaning you want to be invested when it occurs.

Whatever occurs in the next month, quarter or the balance of the year should not sway you from your retirement saving strategy or your long-term vision for building and enhancing wealth. Over the years, the equities markets will run through bull and bear cycles and experience all manner of upsets. In the big picture, selloffs, corrections, and even bear markets are short-term, and your investing is long-term. Headwinds arise, but they also cease. Do not be surprised if stocks ride through these Greek headwinds and gain momentum.  

FMN financial advisors may be reached at 949-455-0300 or requests@fmncc.com

www.fmncc.com

1 - investing.com/indices/us-spx-500-historical-data [7/8/15]

2 - usatoday.com/story/money/2015/07/07/greece-eurozone-meeting/29804091/ [7/7/15]

3 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [7/5/15]

4 - washingtonpost.com/blogs/wonkblog/wp/2015/06/17/federal-reserve-rate-hike-likely-before-year-end/ [6/17/15]

5 - money.cnn.com/2015/07/05/investing/what-to-expect-market-greece-vote/ [7/5/15]

Getting It All Together for Retirement

Where is everything? Time to organize and centralize your documents.

Provided by Ryan Maroney, CFP®

Before retirement begins, gather what you need. Put as much documentation as you can in one place, for you and those you love. It could be a password-protected online vault; it could be a file cabinet; it could be a file folder. Regardless of what it is, by centralizing the location of important papers you are saving yourself from disorganization and headaches in the future.

What should go in the vault, cabinet or folder(s)? Crucial financial information and more. You will want to include...

Those quarterly/annual statements. Recent performance paperwork for IRAs, 401(k)s, funds, brokerage accounts and so forth. Include the statements from the latest quarter and the statements from the end of the previous calendar year (that is, the last Q4 statement you received). You no longer get paper statements? Print out the equivalent, or if you really want to minimize clutter, just print out the links to the online statements. (Someone is going to need your passwords, of course.) These documents can also become handy in figuring out a retirement income distribution strategy.

Healthcare benefit info. Are you enrolled in Medicare or a Medicare Advantage plan? Are you in a group health plan? Do you pay for your own health coverage? Own a long term care policy? Gather the policies together in your new retirement command center, and include related literature so you can study their benefit summaries, coverage options, and rules and regulations. Contact info for insurers, HMOs, your doctor(s) and the insurance agent who sold you a particular policy should also go in here.

Life insurance info. Do you have a straight term insurance policy, no potential for cash value whatsoever? Keep a record of when the level premiums end. If you have a whole life policy, you need paperwork communicating the death benefit, the present cash value in the policy and the required monthly premiums.

Beneficiary designation forms. Few pre-retirees realize that beneficiary designations often take priority over requests made in a will when it comes to 401(k)s, 403(b)s and IRAs. Hopefully, you have retained copies of these forms. If not, you can request them from the account custodians and review the choices you have made. Are they choices you would still make today? By reviewing them in the company of a retirement planner or an attorney, you can gauge the tax efficiency of the eventual transfer of assets.1

Social Security basics. If you have not claimed benefits yet, put your Social Security card, your W-2 form from last year, certified copies of your birth certificate, marriage license or divorce papers in one place, and military discharge paperwork and a copy of your W-2 form for last year (or Schedule SE and Schedule C plus 1040 form, if you work for yourself), and military discharge papers or proof of citizenship, if applicable. Take a look at your Social Security statement that tracks your accrued benefits (online or hard copy) and make a screengrab of it or print it out.2

Pension matters. Will you receive a bona fide pension in retirement? If so, you want to collect any special letters or bulletins from your employer. You want your Individual Benefit Statement telling you about the benefits you have earned and for which you may become eligible; you also want the Summary Plan Description and contact info for someone at the employee benefits department where you worked.

Real estate documents. Gather up your deed, mortgage docs, property tax statements and homeowner insurance policy. Also, make a list of the contents of your home and their estimated value – you may be away from your home more in retirement, so those items may be more vulnerable as a consequence.

Estate planning paperwork. Put copies of your estate plan and any trust paperwork within the collection, and of course a will. In case of a crisis of mind or body, your loved ones may need to find a durable power of attorney or health care directive, so include those documents if you have them and let them know where to find them.

Tax returns. Should you only keep your 1040 and state return from the previous year? How about those for the past 7 years? Have you kept every one since 1982 or 1974? At the very least, you should have a copy of returns from the prior year in this collection.

A list of your digital assets. We all have them now, and they are far from trivial – the contents of a cloud, a photo library, or a Facebook page may be vital to your image or your business. Passwords must be compiled too, of course. 

This will take a little work, but you will be glad you did it someday. Consider this a Saturday morning or weekend project. It may lead to some discoveries and possibly prompt some alterations to your financial picture as you prepare for retirement.

FMN financial advisors may be reached at 949-455-0300 or requests@fmncc.com

www.fmncc.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - fpanet.org/ToolsResources/ArticlesBooksChecklists/Articles/Retirement/10EssentialDocumentsforRetirement/ [9/12/11]

2 - cbsnews.com/8301-505146_162-57573910/planning-for-retirement-take-inventory/ [3/18/13]

Are Your Kids Delaying Your Retirement?

Some baby boomers are supporting their “boomerang” children.

Are you providing some financial support to your adult children? Has that hurt your retirement prospects?

It seems that the wealthier you are, the greater your chances of lending a helping hand to your kids. Pew Research Center data compiled in late 2014 revealed that 38% of American parents had given financial assistance to their grown children in the past 12 months, including 73% of higher-income parents.

The latest Bank of America/USA Today Better Money Habits Millennial Report shows that 22% of 30- to 34-year-olds get financial help from their moms and dads. Twenty percent of married or cohabiting millennials receive such help as well.

Do these households feel burdened? According to the Pew survey, no: 89% of parents who had helped their grown children financially said it was emotionally rewarding to do so. Just 30% said it was stressful.

Other surveys paint a different picture. Earlier this year, the financial research firm Hearts & Wallets presented a poll of 5,500 U.S. households headed by baby boomers. The major finding: boomers who were not supporting their adult children were nearly 2½ times more likely to be fully retired than their peers (52% versus 21%).

In TD Ameritrade’s 2015 Financial Disruptions Survey, 66% of Americans said their long-term saving and retirement plans had been disrupted by external circumstances; 24% cited “supporting others” as the reason. In addition, the Hearts & Wallets researchers told MarketWatch that boomers who lent financial assistance to their grown children were 25% more likely to report “heightened financial anxiety” than other boomers; 52% were ill at ease about assuming investment risk.

Economic factors pressure young adults to turn to the bank of Mom & Dad. Thirty or forty years ago, it was entirely possible in many areas of the U.S. for a young couple to buy a home, raise a couple of kids and save 5-10% percent of their incomes. For millennials, that is sheer fantasy. In fact, the savings rate for Americans younger than 35 now stands at -1.8%.

Housing costs are impossibly high; so are tuition costs. The jobs they accept frequently pay too little and lack the kind of employee benefits preceding generations could count on. The Bank of America/USA Today survey found that 20% of millennials carrying education debt had put off starting a family because of it; 20% had taken jobs for which they were overqualified. The average monthly student loan payment for a millennial was $201.

Since 2007, the inflation-adjusted median wage for Americans aged 25-34 has declined in nearly every major industry (health care being the exception). Wage growth for younger workers is 60% of what it is for older workers. The real shocker, according to Federal Reserve Bank of San Francisco data: while overall U.S. wages rose 15% between 2007-14, wages for entry-level business and finance jobs only rose 2.6% in that period.

It is wonderful to help, but not if it hurts your retirement. When a couple in their fifties or sixties assumes additional household expenses, the risk to their retirement savings increases. Additionally, their retirement vision risks being amended and compromised.

The bottom line is that a couple should not offer long-run financial help. That will not do a young college graduate any favors. Setting expectations is only reasonable: establishing a deadline when the support ends is another step toward instilling financial responsibility in your son or daughter. A contract, a rental agreement, an encouragement to find a place with a good friend – these are not harsh measures, just rational ones.

With no ground rules and the bank of Mom and Dad providing financial assistance without end, a “boomerang” son or daughter may stay in the bedroom or basement for years and a boomer couple may end up retiring years later than they previously imagined. Putting a foot down is not mean – younger and older adults face economic challenges alike, and couples in their fifties and sixties need to stand up for their retirement dreams.

Ryan Maroney, CFP® may be reached at 949-455-0300 or requests@fmncc.com 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - pewsocialtrends.org/2015/05/21/5-helping-adult-children/ [5/21/15]

2 - newsroom.bankofamerica.com/press-releases/consumer-banking/parents-great-recession-influence-millennial-money-views-and-habits/ [4/21/15]

3 - marketwatch.com/story/are-your-kids-ruining-your-retirement-2015-05-05 [5/5/15]

4 - amtd.com/newsroom/press-releases/press-release-details/2015/Financial-Disruptions-Cost-Americans-25-Trillion-in-Lost-Retirement-Savings/default.aspx [2/17/15]

5 - theatlantic.com/business/archive/2014/12/millennials-arent-saving-money-because-theyre-not-making-money/383338/ [12/3/14]

6 - theatlantic.com/business/archive/2014/07/millennial-entry-level-wages-terrible-horrible-just-really-bad/374884/ [7/23/14]

The Economic Journey of Your Morning Coffee

This morning 130 million Americans began their day in the same way—drinking their first cup of coffee.¹ Few, if any, took a moment during this morning ritual to contemplate or marvel the complex journey that brought their coffee from farm to kitchen table.

Coffee is the U.S.’s largest food import.² It wields an economic impact that starts with farmers from Brazil to Vietnam and ends with the barista at your local coffeehouse, involving hundreds of truckers, shippers, roasters and retail workers in between.

The beans brewed for your morning coffee may have changed hands up to 150 times. And the original bean farmer can expect between 10 to 12 cents of every dollar spent on retail coffee.³

Like many agricultural enterprises, coffee is grown on large plantations and small farms alike. Harvests are purchased by coffee mills located proximate to coffee growing regions, either directly from the plantation and farm cooperative, or via a trader who buys from the farmer in the hopes of re-selling at a higher price.

The mills take these “cherries”—so called because the beans are red—and brings them through a milling process that dries them and removes their husks to reveal the inner green bean.

The green beans are brought into the U.S. by importers and sold to roasters and major coffee brands whose roasting facilities are typically located in coastal cities with seaports that can receive the coffee shipments.

Once roasted, coffee will be ground (or left as whole beans), packaged and shipped to distribution centers around the country for eventual delivery to retail outlets.

Coffee’s journey to your table may travel a different path given the rise of specialty roasters and a growing connection between coffee retailers and farmers that removes many of these middlemen.

1. Coffee Universe, July 15, 2013.
2. Globalexchange.org, May 8, 2014
3. PBS.org, May 2014

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG, LLC, to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Faulkner Media Group.

Withdrawals in Retirement - Clear and Wrong?

Many of us grew up with the concept that regular, periodic contributions to our retirement account was a sound investment strategy. The idea was that in a fluctuating market a regular schedule of a set investment amount, generally speaking, would mean that we bought more shares when prices were low and less shares when prices were high.¹ 

Does this mean that taking regular, periodic withdrawals during retirement makes similar good sense? 

Actually, it can be quite problematic. 

Systematic withdrawals do the precise opposite of systematic investments by selling fewer shares when the price is high and more shares when the price is low. This, in effect, reduces the number of shares that may be able to participate in any subsequent market recovery. 

Here’s an example

In the accumulation phase, if a portfolio falls by 25%, it will require approximately a 33% return to get back to its pre-decline value.² 

In the distribution phase, if you withdraw 5% of your portfolio for income and suffer the same 10% market decline, you would need to see an 18% market rebound to get back to pre-decline value.² 

Sequence of Returns

In the accumulation phase, investors tend to focus on average annual rates of return, less on the sequence of the returns. If you’re a buy-and-hold investor, ignoring short-term fluctuations may be a sound long-term approach. 
If you are in retirement, however, you absolutely care about the sequence of the annual returns. 

For instance, comparable portfolios might deliver the same average annual return over a 20- or 30-year period, but have radically different consequences to how long your savings may last. Generally speaking, negative returns in the early years of your retirement can potentially reduce how long your assets can be expected to last. 

American writer H.L. Mencken once remarked that, “For every complex problem there is an answer that is clear, simple, and wrong.”³ 

Anticipating a lifetime of withdrawals from a defined asset pool over an indefinite period of time is a complex challenge for which there is no simple solution. Pursuing this challenge can require creative approaches and persistent vigilance. 

Sources: Dollar-cost averaging does not protect against a loss in a declining market or guarantee a profit in rising market. Dollar-cost averaging is the process of investing a fixed amount of money in an investment vehicle at regular intervals, usually monthly, for an extended period of time regardless of price. Investors should evaluate their financial ability to continue making purchases through periods of declining and rising prices. The return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost. 
This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. 
BrainyQuote, June 2013 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2013 FMG Suite.