Broker Check

2017 - 4th Quarter

Happy New Year!  Here we go again, just two months into 2018 and it seems like a year since 2017! 

2017 – Stats

Stocks had a great year in 2017!  The S&P 500 was up 16.98%; the NASDAQ was up 27.24% and the EAFE was up 21.8%.  Bonds were less exciting but held their own.  The Barclay’s US Aggregate was up 3.54% in 2017.

 

The Stock Market 

2018 started off with a bang.  Stocks were up sharply in January then amidst inflation and interest rate worries investors sold off in mid-February.  The markets calmed down for about a week and then began to climb back up.  Late last week Trump announced his intention to impose tariffs on steel and aluminum imports and down the markets went again as investors panned the move and worried about international trade wars and rising prices.  

 

Interest rates: What’s the Worry? 

The Federal Reserve has been gradually raising the Federal Reserve rate since December of 2015.  The Fed is under pressure to “normalize” rates so that they have some ability to stimulate our economy the next time we fall into recession.  To date, economic growth has not been curtailed by rising rates.  But now that unemployment rates are 4.1% and wages are rising, investors are concerned that the Fed will be forced to escalate rate increases to keep inflation from rising beyond their 2% target rate.  Right now, inflation is just shy of 2% but as employers are forced to raise wages to keep employees they will likely raise prices to offset the expense.  Our new tax law is also expected to drive inflation higher. Although the long-term impact of the tax law is not clear, almost everyone I follow expects that growth will pick up in the next two years as companies repatriate assets and take advantage of much lower tax rates to grow their companies and hire new employees.  I’ve read that the unemployment rate might drop as low as 3.7% this year – which is considered full employment.  If wages rise and prices rise, inflation will pick up.   The worry is that it will become a vicious circle: wages rise, prices rise, inflation rises so wages rise, prices rise, and inflation rises and so on….  If this happens, it’s likely our economy will over-heat and we’ll have our next recession.

Despite the above, most economists aren’t predicting a recession for the next 18 to 24 months.

 

What about tariffs?

It’s too early to know how this will play out.  It’s somewhat baffling that a Republican president is planning to impose tariffs.  Protectionism is not popular with traditional conservatives.  The vast majority of economists are not fans of protectionism.  Without a doubt, our closest allies are not happy.  This is indeed very bad news for Canada, Mexico, Europe, China and just about any place else in the world.

If Mr. Trump goes through with this, it’s likely our trading partners will respond in kind.  To offset the ultimate additional costs of materials, manufacturers will pass their increased cost on to consumers. 

By the way, Trump doesn’t need Congress’s approval to impose tariffs. 

 

The New Tax Law

Last year Congress hurriedly passed, and Trump signed into law, a new tax bill.  Most notably, corporate tax rates dropped from 35% to a flat 21%.  Individual tax rates dropped for most individual taxpayers too, however, there’s a big difference.  Corporate tax law changes are permanent while the individual tax rate changes revert to where they were before the law passed in the year 2025.  Not one Democrat in the Senate or the House voted yes to pass the bill.  “Permanent” and “temporary” are transient terms in Washington D.C.  If the majority party in Congress changes hands in 2018 or 2020 this bill could be history long before 2025!

Unfortunately, California and other primarily blue states with high state tax rates got hit hard with this bill.  Up to $10,000 in state taxes (that’s income, property and sales) is still deductible if you itemize but not a penny more.  Mortgage interest deductions are limited to a maximum $750,000 home loan and home equity line (HELOC) interest is only deductible if used for home improvements and that’s retroactive.  The standard deduction per taxpayer almost doubled and is now $12,000, if you don’t itemize or your itemized deductions are minimal you may indeed pay less income tax. 

You may have noticed that your net pay is higher since the beginning of the year.  Be sure to adjust your exemptions to avoid giving the IRS an interest free loan.

I have enclosed a fact sheet that highlights the major changes in the tax law for your information.

 

What to Do?

It’s important to remember that your financial plan is about you, your goals and long-term objectives.  If we’re lucky enough to be around for a while we will most certainly experience more recessions and recoveries.  It’s best to hold your course.  There are, however, a few things I suggest you do now:

  • Raise cash if your cash reserves are down or you will need to access cash from your portfolio (to supplement income or to pay for an extraordinary expense) in the next year or two.
  • Rebalance your portfolio. The stock market did very well in 2017 and some sectors of the markets did much better than others. 
  • Fixed income investments including bonds and cash do not have much, if any, appreciation potential. They still need to be part of a well-balanced portfolio.  They can help reduce volatility and risk and provide a place to access liquidity when stocks are down.
  • If you haven’t been in for an annual review, be sure to schedule one. If something changes in your financial situation or your objectives and goals, please let us know.
  • If you haven’t already done so, please contact your homeowner’s insurance agent and be sure you have adequate coverage to cover replacement cost and upgrades to current building codes. Find out what coverage you have if you need to live away from your home while it’s being repaired or rebuilt.  Many insurance companies require a detailed list and documentation of lost or stolen items.  I suggest you take pictures of everything in your home and be sure to include closet, drawer, garage and out buildings items.

 

What’s New in the Office?

I’m excited to share that Alan Dorin has passed his Series 7 securities license exam!   We’re proud of him; it’s a tough test and he studied long and hard to prepare.

We’re looking forward to our first client meeting of the year.  It’s scheduled for Thursday evening, March 15.  Our computer consultant, Christopher Wright will share cyber security tips and I will interview professional fiduciary, Jacquelynne Ocaña.   These are, in my opinion, extremely relevant and timely topics. 

Our office is all put back together!  For those of you who don’t know, a very inebriated young man drove his truck into my conference room the end of December!  I’m grateful my husband is a contractor and was able to get to work on it right away.  It looks even better than before and it’s so exciting to have it back!

 

In Conclusion…

As always, I want to thank you for your continued confidence and business. I hope your year is off to a good start and wish you and your loved ones’ happiness, health and prosperity.

 

Best wishes,

Jan

 

 

 

References:  Investopedia.com; Wallstreet Journal.com; LPL Weekly Economic Commentary; LPL Bond Market Perspectives

 

References:  Wall Street Journal; Morningstar.com; Oppenheimer Funds: Emerging Markets Insights: Creative Innovation; LPL Research

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All investing involves risk including loss of principal.  No strategy assures success or protects against loss.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.  Bonds are subject to market and interest rate risk if sold prior to maturity.  Bond values will decline as interest rates rise and bonds are subject to availability and change in price.  International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.  These risks are often heightened for investments in emerging markets.  The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.  Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.  Active management is when investment managers attempt to outperform the market by predicting market activity and can add value to portfolios by anticipating market cycles and continuously changing asset allocation over time. 

Financial planning offered through JL Schneider & Associates, a Registered Investment Advisor and a separate entity from LPL Financial.

Jan Schneider, CFP ®, is a Registered Principal and Investment Advisor Representative with, and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

900 MENDOCINO AVENUE, SANTA ROSA, CA  95401 (707) 522-8000  FAX (707) 522-8008

CA INSURANCE LICENSE #0560988

Financial planning offered through JL Schneider & Associates, a Registered Investment Advisor and a separate entity from LPL Financial.

Jan Schneider, CFP ®, is a Registered Principal and Investment Advisor Representative with, and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

900 MENDOCINO AVENUE, SANTA ROSA, CA  95401 (707) 522-8000  FAX (707) 522-8008

CA INSURANCE LICENSE #0560988

Financial planning offered through JL Schneider & Associates, a Registered Investment Advisor and a separate entity from LPL Financial.

Jan Schneider, CFP ®, is a Registered Principal and Investment Advisor Representative with, and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

900 MENDOCINO AVENUE, SANTA ROSA, CA  95401 (707) 522-8000  FAX (707) 522-8008

CA INSURANCE LICENSE #0560988

Financial planning offered through JL Schneider & Associates, a Registered Investment Advisor and a separate entity from LPL Financial.

Jan Schneider, CFP ®, is a Registered Principal and Investment Advisor Representative with, and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

900 MENDOCINO AVENUE, SANTA ROSA, CA  95401 (707) 522-8000  FAX (707) 522-8008

CA INSURANCE LICENSE #0560988

Financial planning offered through JL Schneider & Associates, a Registered Investment Advisor and a separate entity from LPL Financial.

Jan Schneider, CFP ®, is a Registered Principal and Investment Advisor Representative with, and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

900 MENDOCINO AVENUE, SANTA ROSA, CA  95401 (707) 522-8000  FAX (707) 522-8008

CA INSURANCE LICENSE #0560988