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Forbes recognizes Randy Carver as one of the Top 250 Wealth Advisors In The United States

September 14, 2018 – FORBES published the 2018 Top Wealth Advisors list of 250 advisors.  For the third year in a row Randy Carver the President of Carver Financial Services Inc. and a registered Principal with Raymond James Financial Services Inc. was included in this prestigious list.  This year Shook Research set thresholds to minimize the number of nominations from the more than 400,000 advisors in the United States.   They received 25,732 nominations,  invited 9,596 to complete a survey did 7,174 telephone interviews and 1,503 in-person interviews before selecting the 250 on the list.

Full Story – https://www.forbes.com/profile/randy-carver/?list=top-wealth-advisors#6fd8c718739a

The Forbes ranking of America’s Top Wealth Advisors, developed by SHOOK research, is based on an algorithm of qualitative and quantitative data, rating thousands of wealth advisors with a minimum of seven years of experience. Ranking algorithm is based on quality of practice, including: telephone and in-person interviews, client retention, industry experience, review of  compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Investment performance is not a criteria because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC which does not receive compensation from the advisors or their firms in exchange for placement on the ranking. Research Summary (as of August 2018): 25,732 Advisor nominations were received, based on thresholds. 9,596 Advisors were invited to complete the online survey. 7,174 Advisors were interviewed by telephone. 1,503 Advisors were interviewed in-person at the Advisors’ location. Final list of the top 250 Advisors was then compiled based upon the quantitative criteria. Raymond James is not affiliated with Forbes or Shook Research, LLC. This ranking is not indicative of advisor’s future performance, is not an endorsement, and may not be representative of individual clients’ experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. 

Real Risks: Hurting Those We Are Trying to Help

We’ve all heard that when something sounds too good to be true, it usually is. Yet the promise of getting something for nothing can be compelling enough that we often act in ways that are detrimental in the long run. Moreover, we may make decisions based on perception rather than facts.  This can lead to actions that fail to meet our needs and objectives or are harmful to our future.  Plus, many seek instant gratification, often at the expense of their long-term well-being.

The promise of universal basic income (UBI), a social policy that guarantees a fixed, unconditional income from the government for everyone, free college tuition and free health care are all very appealing, especially to many younger Americans.

The problem is that “free” isn’t really free. Policies that provide so-called free college, free wages and free health care can negatively impact all us in the long run — most of all these youths. As with many things, the people these benefits are supposed to help are the ones who will be most hurt. Aside from the psychological impact of never really accomplishing anything, these policies can make our economy suffer and even fail.

We must get away from semantics, politics and labels and focus on the real problems that these “free programs” address.

A Fuzzy Understanding of Capitalism and Socialism

Many younger Americans find the socialist policy appealing without understanding what socialism really is.

Kate S. Rourke, in her article “You Owe Me: Examining a Generation of Entitlement,” says, “Children in the most recent generation of adults born between 1982 and 1995, known as ‘Generation Y,’ were raised to believe that it is their right to have everything given to them more than any other previous generation.” Socialism plays right into this mindset, especially the fuzzy, idealized, quite-unrealistic socialism being put forward today: “We all get our free lunch!” There is a sense that the government will provide these “free lunches” without any true sense of how they will get paid, other than “The rich must pay.”

Millennials are simply not that alarmed by the idea of socialism. For instance, a national Reason-Rupe survey found that 53 percent of 18- to 29-year-olds view socialism favorably, compared to only a quarter of Americans over 55.  At the same time, however, Millennials don’t like the idea of the government running things.

So what do millennials think socialism is? In that survey, respondents were asked to use their own words to describe socialism. Millennials who viewed socialism favorably were more likely to think of it as just people being kind or “being together,” as one millennial put it. Others thought of socialism as just a more generous social safety net where “the government pays for our own needs,” as another explained it. Some thought it referred to social media like Twitter and Facebook.

One definition of socialism is “a political and economic theory of social organization that advocates that the means of production, distribution and exchange should be owned or regulated by the community as a whole.”

Americans’ often fuzzy understanding of socialism can skew research results. A Harvard study revealed millennials’ apparent disregard for capitalism and favorable attitude toward capitalism but acknowledged, “It is more likely that the results are less a repudiation of capitalism and more a rejection of the ‘status quo,’ which is a strange mix of cronyism, capitalism and socialism.”

In the study, millennials did not indicate support for capitalism but do not view the government as a solution, either. Only 27 percent answered that they believed the government should do more to regulate the economy, and only 26 percent responded that government spending can increase economic growth.

Bernie Sanders Has Led the Way

That sentiment aligns with the way Bernie Sanders, independent U.S. senator from Vermont, presents socialism — as just a generous social safety net. This narrative says government is a benevolent caretaker and pays for everybody’s needs (from everybody’s pockets).

In a speech he delivered at Georgetown University, Sanders said democratic socialism “means that we create a government that works for all of us, not just powerful special interests. It means that economic rights must be an essential part of what America stands for.”

Ironically, when you start to dig a little deeper, many who claim to support socialism do not actually like the true definition of it — the idea of government running businesses. If socialism is framed as government running Uber, Amazon, Facebook, Google, Apple, etc., it does not go over well. The Reason-Rupe study mentioned earlier notes that millennial preferences may not be so different from older generations once terms are defined.

Socialism Has a Poor Track Record

In my opinion, we must move away from labels and perceptions and look at the facts. We have seen over and over that excessive government spending and an expectation of “free” services can  lead to economic ruin. Moreover, as counter intuitive as it is, lower tax rates can lead to higher tax revenues as people are incentivized to grow their businesses . Clearly, at some point, taxes will decrease if rates are too low; however, history has proven that that lower tax rates and less government regulation will lead to more economic prosperity and lower unemployment. Paying a guaranteed income to everyone will disincentivize many from working and will require higher tax revenue.

History has repeated itself many times in this regard. Whether it’s the USSR, China, Cuba, Vietnam, the former East Germany, North Korea, Laos, Nicaragua, Zimbabwe, Cambodia, Venezuela or any of the other failed experiments in socialism, it has never worked anywhere. About socialism, an article in Investor’s Business Daily says, “It’s led only to misery, deprivation, government control and a loss of basic human rights.”

Let’s look at just a few examples of countries in which socialist policies have been enacted.

  1. Cuba-  According to Investopedia, Cuba is one of the most prominent socialist nations, having a mostly state-run economy, a national health-care program, government-paid (free) education at all levels, subsidized housing, utilities, entertainment and even subsidized food programs. These subsidies compensate for the low salaries of Cuban workers.   According to Cuba’s National Office of Statistics Wages in Cuba averaged just $223.92 per year from 2008 to 2015 versus $60,200 in the United States (Wikipedia 8/12/18)

But state-run subsidies became insufficient to support the numerous social programs. Despite the enormous aid received from the unified Soviet Union (before it split), there were high poverty levels, a widening gap of rich and poor, and a massive burden on social programs. So today, Cuba is moving toward a parallel financial system — one that operates on the usual social programs in common sectors while operating as a free-market economy in the tourism, export and international business sectors.

 

  1. Greece – Stephen Moore is the Distinguished Visiting Fellow for Project for Economic Growth at The Heritage Foundation. He noted in 2015, when Greece was formally in default on its loans and facing more IMF and EU loans coming due, that “Greece was about to slide into fiscal oblivion.” He stated, “This is the natural and unavoidable consequence of socialism everywhere it has been tried. Financial collapse.” Unemployment— youth unemployment in particular — remains one of the biggest struggles in Greece. In 2016, 47.3 percent of the Greek population under age 25 was out of work. That’s nearly half the population and more than two times the average rate across the euro zone.  This situation is largely the result of large government pensions and benefits and declining tax revenue. Ironically, lower taxes on the wealthy generally increase tax revenue.

 

  1. Sweden – Prior to the first socialist democratic government, Sweden had the highest growth rate of all countries in Europe. From the late 19th century until about 1970, they were very much pro markets, economic freedom and minimal government involvement. Then Sweden’s socialist government from 1970 to 1991 attempted socialism, and it failed dismally. In fact, Sweden recorded the lowest growth rate in Western Europe.

Then, after 1991, the government introduced market reform, tax cuts and welfare cuts, which resulted in massive growth, allowing the country to have the second-highest growth rate in Europe, with only the UK being higher during this period. A Rational Standard article states, “Prosperity grows during economic freedom, and is hurt when moving away from this freedom.”

  1. Venezuela – The International Monetary Fund predicts that by the end of 2018, the annual inflation rate in Venezuela will reach 1 million percent. That means that a candy bar that cost $1 today would cost $10,000 at the end of the year. An article in The Washington Post explains why hyperinflations like those in Venezuela occur:

The government wants to spend much more money than it is collecting in taxes — so much more that no one is willing to lend it the money to cover the deficit. Instead, the government uses the central bank to finance the deficit. That puts more money in the economy, but since it’s chasing the same number of goods and services, prices rise to soak up all the extra cash. Unless the government manages to close its budget deficit, it must print even more money to buy the same amount of stuff.

The article goes on to say that Venezuelan president Nicolás Maduro stays on this destructive path while the country’s citizens starve because of socialism.

This is not an issue of left vs. right or of Democrat vs. Republican. This is an American issue. The rise in popularity of socialism in the United States should be a concern to all of us. Just how far have Americans leaned toward socialism? A 2017 survey of adults by The American Culture and Faith Institute (ACFI), 40 percent of adults said they preferred socialism to capitalism. That is alarming! I believe the people in this camp need to review what history has told us about socialism’s repeated failure and to understand what socialism really is.

Why Socialism Doesn’t Work

So why does socialism fail again and again? Mark J. Perry, Ph.D., a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus, gives this reason:

Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail.

In August 2018, we are seeing one of the strongest economies in history for the United States, with record employment, rising wages, strong corporate profits and rising markets. This is the result of less tax, less government regulation and more free markets. This benefits everyone, especially lower- and middle-income Americans. This economic prosperity is good news, especially for today’s younger generations to succeed.

We have an amazing opportunity to benefit all Americans with good jobs and a strong economy. Some of the people who are in favor of  socialist  policies have the best intentions. But it simply doesn’t matter if those espousing free wage and free college are doing so for their own political gains or because they believe it will benefit someone. What matters is that these policies can cripple our economy and country. This is not a political opinion but an economic fact. As we approach the midterm elections, it is important to consider and support candidates whose economic and social policies will benefit the country — regardless of party affiliation.

“Free” Higher Education Isn’t Free

In the 2016 election, Bernie Sanders made free higher education a cornerstone of his presidential campaign, helping him get to a 54 percent favorability rating among 18- to 29-year-olds, according to a Harvard poll. Introducing the bill in a press conference, Sanders said the United States is falling behind as a world leader in educating young people. He might not be wrong about that. Moreover, the sentiment that “Our job — if we are smart — is to make it easier for people to get the education they need, not harder,” is a good one, in our opinion.

How we accomplish this, however, is a matter for discussion. Creating incentives for people to develop a skill and for private business to support this goal makes a lot of sense. Sanders admitted that the plan is costly — and he wants Wall Street to pay for it. In July 2017, he introduced a bill that would abolish tuition and fees at public four-year colleges and universities for students from households making $125,000 or less per year and would make community college tuition-free for students from all income levels.

“Now, some people say that this legislation is expensive, and they’re right. It is,” he said. “Well, I’ll tell you how we’re going to pay for it. We are going to ask Wall Street to end their speculation. We’re going to put a speculation tax on Wall Street.”

This so called “speculation tax” or “speculation fee” will impact every working person who has a 401(k), IRA or any other type of investment. According to USA Today, the estimated cost of the program is $47 billion per year. That would cover, Sanders estimates, 67 percent of the $70 billion it costs for tuition at public colleges and universities. States, he proposes, would cover the remaining 33 percent. This could lead to additional state income tax that would impact everyone.

“Free” Health Care Isn’t Free, Either

The single-payer health-care system that Bernie Sanders and others advocate would shift payment for all health care services to the federal government, eliminate private health insurance plans and dump all Americans onto public health care coverage. One estimate predicts that the scheme will most certainly include a massive payroll tax hike, an additional 4 percent personal income tax on all Americans and at least an 8 percent tax hike on businesses (even the small ones). The plan would cost, by a conservative estimate, at minimum, $16 trillion to sustain, just for the next decade. This could mean giving everyone Medicare or a new health-care system.

And Neither is “Free” Income

Universal basic income (UBI) is a policy that guarantees a fixed, unconditional income to all members of a designated group or entire country.  For centuries, thinkers from Thomas Paine to Milton Friedman have kicked this concept around. Proponents claim UBI would be an efficient replacement for the United States expensive entitlement programs and, as a result, would actually reduce overall costs.

The reality is that UBI would just replace one pricey system for another. And unlike the current entitlement/welfare program, which has standards for determining who qualifies for certain aid, UBI would be given to everyone. This would dramatically increase the pool of citizens receiving benefits from the state and inflict massive expenses across the board. This would also create a disincentive for working, as we have seen in places like Greece, as mentioned. There are always claims that UBI could decrease, reform or even abolish our welfare system. But no one seems to have any idea about how this transition would actually look.”

The likely scenario is that UBI would be in addition to, not instead of, the current welfare program. The idea of changing Social Security is known as the third rail of politics” because the mere mention of it can mean political death. Anyone in the policy realm knows that there is no better way to alienate older constituents than by threatening to take away their Social Security benefits. In fact, the mere mention of decreases usually causes rooms full of senior citizens to fear for their well-being. Even if an alternative plan is presented to them, it does not calm their fears of what might happen during the transitionary period. It is for this reason that Social Security is often called the “third rail” of politics.

Also, trying to get individuals transitioned off of one welfare plan and into the next requires, at least temporarily, the funding of both programs. A decision to enact UBI would not magically abolish the American welfare system. America’s welfare program has been around for so long, it would take time to unroot it. Too many people have become reliant on our welfare state to have it simply wiped out overnight.

And who is going to pay for the process in the meantime? Well, the American taxpayer, of course.

If anything, incorporating UBI in America would most likely result in an additional layer of welfare being added on top of our existing programs. This would, in effect, increase the state’s power rather than decrease it. Governments are rarely keen on relinquishing their power, and there is great power in controlling the welfare of the citizenry. It is therefore highly unlikely that the welfare state as we know it today would simply cease to exist.

UBI creates the illusion of decreasing the welfare state, when the facts of the matter all point to the contrary. Everyone would like to live in a society where no one wants for anything and everyone is provided for. But we live in a society of individuals with individual aspirations and goals. Pretending that we can centrally plan a welfare system with so many distinct wants and needs is unrealistic and unobtainable.

Our current system cannot be maintained because it’s too expensive. Period. Already, programs like Social Security are projected to run out of money within the next decade, and there is no plan for how to approach this coming storm. Why would anyone think a broader welfare state situation would be any different?

We Are Here For You!

˜Nobody knows what the future holds. Regardless of the new political and economic policy, world events or changes that come, we are here for you. Rather than plan based on speculation, we believe in planning based on your needs and current facts. Our customized and proactive approach allows you to adapt to any changes in our tax laws, social net, markets or economy.

We look forward to being your partner. Please contact us whenever we may be of service to you, your family and friends. Right now, we are taking clients only by referral. We are happy to meet, without cost or obligation, with anyone you feel would benefit from our personal Vision Planning™ process.   randy.carver@raymondjames.com  or (440) 974-0808.

 

 

 

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Carver Financial Services, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

 

Where Are We, and Where Are We Going? A Mid Year Update on Markets & The Economy

As the volume and pace of news continue to increase, it’s easy to get distracted from the opportunities and also the pitfalls that are before us. To help you keep your focus on your long-term financial plan, our team has developed and refined an investment process that is not dependent on forecasts, predictions or market timing.

Our process is focused on a customized asset allocation based on your current needs and long-term vision. Still, it is interesting, if not psychologically important, to get a sense of where we are and where we are going with regard to financial markets, the political landscape and the economy.

The Markets: We Predict a Correction

We believe a near-term correction is likely in the broader equity markets as people (ironically) become concerned about how well the economy is doing. Fear of higher inflation due to better corporate earnings, low unemployment and higher FED funds rates could be the trigger for this correction. We view this as healthy and not a reason for concern if you are invested properly.

We believe the coming drop could be 5 to 10 percent of the broader equity markets, followed by a strong rebound in the fourth quarter. Overall, we believe 2018 will be a good year for broader equity markets when all is said and done.

Over the years, one common mantra has been “Sell in May, and go away.” The idea is that the stock market goes into a slump in the summer, and activity picks up again after Labor Day. We do not believe in market timing or that you should adjust your portfolio in anticipation of a correction.

We also believe that interest rates will continue to rise and that we will see long-term taxable bond prices drop. Tax-exempts might be less impacted as the supply of quality tax-exempt bonds continues to be reduced.

Politics: November Will Be Key

It will be interesting to see what the outcome of the mid-term elections is. As we get closer to the mid-terms on November 6th, we will no doubt hear more from both sides about all the problems we have — the candidates and political parties all want to justify their bid for election.

Elections will be held for all 435 seats in the House of Representatives, the lower chamber of Congress. These are contested every two years, both alongside the presidential race and in mid-term elections. Also, 35 seats are up for grabs in the Senate, the upper chamber, which holds elections every two years for about one-third of its six-year positions.

In early May, six months ahead of midterm elections, data from registered voters across the country suggested that Republicans held a slight edge on the generic ballot in key Democratic states, including Florida, Indiana and Missouri. That indicates that voters in those states are ready to replace incumbent Democrat Senators. Slightly more voters said they would vote for a Democratic candidate (40 percent), compared to 35 percent for a Republican candidate, according to a report by Morning Consult, a company that specializes in online survey and market research.[1]

However, pundits who are prognosticating about the midterm results seem to make predictions based on their political leanings. So you can find just as many articles predicting that the Democrats will come out ahead in November as you can find predicting that the Republicans will prevail.

 “Politics is not worrying this country one-tenth
as much as where to find a parking space.”   —Will Rogers

The Economy: It’s All Good!

The indicators are some of the best we have seen in years. The one area that concerns some is the level of the federal deficit and debt. In our opinion, this is not a threat to the growth of the broader equity markets over the next few years because we have already seen massive tax cuts and regulatory reduction, which should help offset the debt as they begin to have an impact later this year.

The unemployment rate is the lowest since 1969, while inflation, as measured by the consumer price index, or CPI, remains low. The gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. GDP growth appears to be accelerating, and in our opinion, will move up as the tax and regulatory cuts have an impact. S&P 500 earnings per share jumped by more than 9 percent in 2017, according to FactSet, and are expected to grow even more in 2018. We are seeing record foreign investment in the United States. We expect U.S. companies to continue to repatriate funds that have been held overseas.

Global companies cashed in on newfound economic strength in Europe and Latin America as well as relative stability in China. For the first time in years, virtually all major global economies are growing at the same time. “During 2017, the global synchronized recovery turned into a global synchronized boom that is likely to continue in 2018,” Ed Yardeni, president of investment advisory Yardeni Research, wrote.[2]

Companies continue to accumulate record levels of cash, which can be deployed as higher dividends, bonuses and capital investments or stock buybacks. Any and all of those can help the broader markets and economy grow. Non-financial U.S. companies are sitting on an estimated $1.9 trillion in cash, more than double their 2008 totals, according to Moody’s. Corporate earnings were up 25 percent in the first quarter of 2018 versus the first quarter of 2017.

In May, jobless claims fell to the lowest rate since 1969. At the same time, continuing claims have averaged the lowest since 1973. In the past year, non-farm payrolls are up an average of 190,000 per month, matching the pace of the year ending in April 2017. Assuming a real GDP growth rate of 3.0 percent this year and next, we think the jobless rate could finish 2018 at 3.7 percent and then drop to 3.2 percent in 2019,  the lowest since 1953.

Two Areas of Concern: Debt and Trade Wars

Two areas of concern that continue to be highlighted by the media and doomsday soothsayers are the federal debt and the possibility of a trade war due to tariffs.

We have heard that the federal debt is growing to growing to unsustainable levels and destroying the U.S. economy for more than 30 years. While the absolute dollar amount of the debt continues to rise, the impact remains benign. Back in 1981, the public debt of the federal government was $1 trillion; today it’s more than $21 trillion. At some point, the theory goes, additional debt is going to be the fiscal straw that breaks the camel’s back. The problem with this theory is that, in spite of the record-high debt, the net interest on the debt — the cost to our government to satisfy interest payment obligations — was only 1.4 percent of GDP last year, hovering near the lowest levels in the past 50 years.

We believe that GDP will grow 3 to 4 percent, given the tax and regulatory cuts. Even if this is not the case and interest rates double on the debt, we would be well within historic norms. Doubling the interest rate to 4 percent would mean net interest relative to GDP would double as well, going from 1.4 percent to 2.8 percent. That certainly wouldn’t be pleasant, but it would be no different than the average net interest on the national debt from 1981 through 1999.

We also are hearing more concerns about a trade war due to the threat of tariffs by the United States. No doubt as we approach the midterm elections, this refrain will continue. We believe this is simply a negotiating tactic that might cause short-term volatility but will not have any longer-term impact. Other countries need the United States, and we do not foresee a trade war.

“No nation was ever ruined by trade.”—Benjamin Franklin

Protect Yourself from Inflation with Increased Income

We are not saying everything will be perfect. There is often a difference between good economics and social impact. We believe that higher inflation and a drop in fixed income values will impact many who are not invested properly. Those who react to any short-term market corrections and/or have too much fixed income will not benefit, and might even lose, despite the strong markets we expect. We will continue to hear more about technology replacing jobs and all the problems due to either a stronger or weaker U.S. dollar.

We have seen a decades-long trend of relatively low inflation, and now we might be at a point where this reverses. The 40-year trend of falling inflation was primarily generated by healthy global demographics, globalization, automation and central bank policy. Falling inflation translated directly to lower bond yields and provided fuel to rising equity and credit markets.

As inflation rises, the cost of everything, from food to utilities, goes up. To help protect your standard of living, your income must rise commensurately. It is important that your portfolio is positioned to generate growing income rather than fixed income. In this regard, we believe that fixed-income investments such as CDs and bonds might pose significant risk to people’s ability to maintain their lifestyles as the cost of goods and services increases and, in some cases, bonds lose value.

This is why we monitor and update your portfolio —we must recommend adjustments to help  meet your changing personal needs that are not based on past assumptions or rules of thumb.

We believe demographics will play a role in pushing inflation higher. Census data mark 2018 as the year that inflation demographics turn in favor of higher inflation as dependency ratios finally begin to rise after falling for several decades. The “age dependency ratio” is the ratio of dependents (people younger than 15 or older than 64) to the working-age population (ages 15 to 64). A growing body of research suggests a strong causal link between demographics and inflation. For instance, a recent Bank of International Settlements (BIS) study found a direct relationship among the working-age population, the number of dependents (both young and old) and the underlying trend of inflation.

The study strongly suggests that inflation retreats as the number of dependents decreases, relative to the working age population. This demographic condition is known as a “falling dependency ratio,” and it characterizes the U.S. experience since the 1970s, as the baby boomer generation moved through their work/life cycle.

Conversely, as the dependency ratio increases — as it did through the 1950s, ’60s and ’70s — there is a strong likelihood that the underlying inflation rate will increase.

As Always, We Are Focused on Your Current Needs and Future Vision

Our entire team continues to focus on helping to provide you with the income you need to do what you want today while working to  grow your portfolio to help you maintain and enhance your lifestyle in the future. We monitor and update your personal and customized portfolio allocation based on your needs and on changing tax laws. We are focused on net returns after fees, expenses and taxes, and we take a very proactive approach. It is important to have realistic expectations with regard to both income and return. We are here to help you craft a long-term plan to assist in meeting both your current goals and your long-term needs and vision.

Never has the pace of change, or volume of news, been this great, nor will it ever be this slow again. Our experienced team is here for you, whatever the future brings. Although we might not contact you, we are monitoring both your portfolio and events that might impact you. Our team is committed to continuing education so we can provide you with cutting-edge salutations. We use a team-based approach with highly qualified people who have both the training and experience to help you develop your vision plan.

We meet with thought leaders personally so we can understand what might impact you, without going through the filter of the media or other third parties. Other companies use cookie-cutter solutions for portfolios and rely on third-party information and research. Some companies are even using technology to replace staff and reduce personal contact with their clients. We believe that you should have a fully customized experience, so we continue to grow our team and use technology to provide a more personal experience, not less.

We appreciate being your partner and look forward to continuing to serve you. Please contact us whenever we can be of service to you, your family and friends. We are taking clients only by referral but are happy to meet, without cost or obligation, with someone you feel would benefit from our personal vision planning™ process. We are here for you.   Please contact us without cost or obligation to discuss your personal goals, to provide a second opinion on current financial and wealth planning or if we can otherwise be of service.

Randy Carver – randy.carver@raymondjames.com

www.carverfinancialservices.com   7473 Center St.  Mentor OH  44060

440) 974-0808

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you might incur a profit or loss, regardless of strategy selected.  These calculators are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Please note that Raymond James does not provide tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

[1]. Caroline Tanner, “Survey: On the Generic Ballot, Republicans Hold Slight Edge in Key Senate Races,” USA Today, May 4, 2018, https://www.usatoday.com/story/news/politics/onpolitics/2018/05/04/ahead-midterms-voters-indicate-they-vote-republican-key-states/581373002/.

[2]. Thomas Heath, “It Was a Year of Wins for Investors. Will Stocks Keep Climbing in 2018?” The Washington Post, December 29, 2017, https://www.washingtonpost.com/news/get-there/wp/2017/12/29/it-was-a-year-of-wins-for-investors-will-stocks-keep-climbing-in-2018/?noredirect=on&utm_term=.00c023a627d7.

2-Factor Authentication

Every day, innovations and advancement in technology alter our human experiences and how we relate to the outer world. From the way, we create our daily schedules, to the manner in which we communicate with loved ones, send and receive money, preserve memories and access healthcare. Groundbreaking technologies have brought us ease of life, faster and better ways of getting things done. They have also brought us new challenges with regard to privacy and secuirty.

The incessant security breaches, including most recently Equifax and Capital One, has become the gravest of threats online users face daily. Many people only use a username and passwords, which can be easily unraveled by cybercriminals. We recommend an extra layer of security that further confirms a user’s claimed identity to help protect oneself. 2-factor Authentication (also known as 2FA) offers users a higher level of security that helps prevent access to their accounts, even when their usernames and passwords have been compromised.

What’s the buzzword?

You’re familiar with the need for passwords and usernames when seeking entry into your online platforms like Facebook and Instagram. If you’ve ever had to provide additional information, such as a code sent to your mobile phone or an answer to your security question, then you’ve actually gone through a 2-factor authentication. A 2-factor authentication is a security layer that grants you access to your online account only after you must have proven your identity, by providing answers to 2 or 3 modeled questions or inputting a code.

Why does it make sense?

Think of it this way: some intruders got the details to your bank account, but before they can access it, they need to provide a code sent to your phone or the name of the place where you first had your first date? To access your information someone would need your mobile device or be able to read your mind! 2FA makes illegal access difficult, and that is why it makes more sense than just having a username and a password. Raymond James now requires 2FA for their Client Access system, but we also recommend turning this on for any and all online services you utilize.

How Do I Use 2FA

Turning 2FA on doesn’t have to be a difficult task depending on your device and the application you’re working on. Devices with the iOS operating system can have the 2FA feature turned on from the Security Setting. Social media accounts can also have their 2FA turned on from the account/security settings. You’ll usually be required to fill in the phone number or email you would want an access code to be sent in case of a security breach or any suspicious activities. 2-factor authentication avails you a greater security and higher level of control on your internet activities. Turning it on can be your gateway to a safer online experience. You can see if a website has 2FA, and get information on how to turn it on at:  https://twofactorauth.org/

Carver Financial Services, Inc. and Raymond James view the security of your personal information as critical and take steps every date to protect it.  2FA is something you can do to help yourself.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Carver Financial Services, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

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How Much Am I Really Earning? What’s The Best Way to Calculate My Return?

“It’s not how much money you make, but how much money you keep,
how hard it works for you, and how many
generations you keep it for.”
—Robert Kiyosaki – Founder of the Rich Dad Company

We all want to know how we are doing with our investment portfolios. The question is, how do we judge that, and are we looking at the wrong information?

Calculating your return on investment (ROI) seems simple. You simply take the gain of your investment, subtract the cost or expense of the investment and divide the total by the cost of the investment: ROI = (Gains – Cost)/Cost.

For example, if you buy 20 shares of stock for $10 a share, your investment cost is $200. If you sell those shares for $250, then your ROI is ($250–200)/$200, for 25 percent..

But financial advisors, and some sales organizations,  use other methods to calculate ROI, depending on a client’s situation and what they are trying to sell!  They can be confusing!  Here is an overview of just these three methods and some other things to consider.

Ways to Calculate Your Return

When judging the return on an investment, or an entire portfolio, we need to understand how the return is calculated. There are many ways to calculate return, including time weighted, dollar weighted and simple average. Just looking at the percentage might not tell the entire story.

  1. Time-weighted return  – This methodology is sometimes called “reported return,” “portfolio return,” “investment return” and “geometric mean return.” It does not account for any cash inflows or outflows. Calculating your return using this method assumes that you don’t make any transactions at all. It’s like asking how much $100 invested on January 1st is worth today.  This method tracks the performance of your investments only. This makes it easy to compare your return to a benchmark, such as the S&P 500 Index, but may not reflect how you did if you added to withdrew funds.
  1. Dollar-weighted return  – This methodology is sometimes called “money-weighted return,” “personal rate of return” and “internal rate of return,” or IRR. It does account the timing and size of any cash inflows or outflows into or out of your portfolio. This calculation might seem more accurate because it takes your personal investment activities into consideration, but it’s harder to compare against a benchmark.
  1. Simple-average return –This methodology uses an average of two or more annual returns to calculate your overall return. For example, if you had a 20 percent return one year and then the investment went down 20 percent the next year, your average return is zero percent (20% – 20% = 0). However, the dollar value of your portfolio has actually gone down. Had you invested $100,000 and made 20 percent, the value of your investment would be $120,000. And then if the value dropped 20 percent, you would lose $24,000, and the value is now $96,000. So you are down 4 percent, despite the average return of zero percent.

Expense Can Be Misleading

One metric that can be misleading when calculating your return is expense. It’s certainly a consideration, but the most important factor is the net return. If one investment has an expense of 1 percent and a return of 4 percent, and another investment has an expense of 3 percent and a return of 10 percent, then the latter is better. Wouldn’t you rather earn 10 percent than 4 percent?

It is also important to understand all components of expense — both internal and external. This is something an experienced and trusted financial advisor can assist you with.

Don’t Forget Income Tax

Yet another consideration is the impact of income tax. A tax-exempt return of 4 percent could provide a better net return to you than a taxable investment that earns 7 percent, depending on which tax bracket you’re in. At the end of the day, it’s not how much you make; it’s what you keep that’s important. Understanding the potential tax implications of an investment and selecting investments that make sense for your personal situation are critical to making decisions that can maximize your net return.

When comparing one portfolio or investment to another, we believe you need to understand the return you are looking at and understand what you will net after fees, expenses and taxes. There are myriad factors to consider when evaluating investments and your portfolio.

The most important thing to consider, in our opinion, is whether or not the portfolio meets your needs, objectives and risk tolerance. We believe that the true value of a trusted and experienced advisor is not in selecting investments but in helping you achieve the highest potential net return that meets your needs and objectives in a manner consistent with your risk tolerance. In this way, a good advisor may more than makes up for the cost of his or her services.

Please feel free to contact us, without cost or obligation, to discuss your personal vision and how we can help you achieve it.  We are happy to provide a second opinion on any investments or portfolios.   Randy.carver@raymondjames.com or (440) 974-0808.

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you might incur a profit or loss, regardless of strategy selected.  These calculators are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.

Randy Carver named to Forbes’ List of Top Wealth Advisors

         

February 15, 2018 – Randy Carver was among the advisors named to the Forbes list of Best-In-State Wealth Advisors. The list recognizes advisors from national, regional and independent firms. 

The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors that are considered have a minimum of seven years’ experience, and the algorithm weights factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receives a fee in exchange for rankings. This ranking is not indicative of advisor’s future performance, is not an endorsement, and may not be representative of individual clients’ experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating.

Just the Facts, Ma’m- The Future is So Bright

When broader markets drop, many investors are understandably concerned. When markets move up, as they have done in 2017, many investors worry about when they will drop. After being a financial advisor more than 30 years, I have noticed that people like to worry, whether the markets are moving up or down.

Given the onslaught of media negativity and fear tactics being used to sell everything from newsletters to precious metals, the perception that we are constantly on the verge of economic collapse is not surprising. When we get past the hype and rhetoric, we see that now is one of the best times in history to be an investor — and really, just to be alive.

The Facts Dispel Negative Perceptions About the Economy

We have all heard famous phrases that are attributed to people who never uttered them: Marie Antoinette and “Let them eat cake” or Sherlock Holmes and “Elementary, my dear Watson.” Sometimes the phrases are made up, and sometimes they’re corruptions or rephrasing of something that was actually said. “Just the facts, ma’am” is a case of the latter. Jack Webb’s “Joe Friday” character typically used the phrase, “All we want are the facts, ma’am” and sometimes “All we know are the facts, ma’am” when questioning women in the course of police investigations. But he never said, “Just the facts, ma’am.”

When we look at just the facts regarding our economy, we get a very different picture than the broader perception many have based on what we hear in the press and via social media. We must move away from politics, media hype and social commentary to see where we are, based on just the facts. Once we look at just the facts, we may have an entirely different picture of where we are and where we are going.

Here are some positive facts that demonstrate the current health of the U.S. economy:

  • Foreign investments, both in terms of cash and infrastructure, continue to pour into the United States, and corporate cash and profits are at record levels.
  • As of November 8th, 2017, the Dow was up 19 percent, the S&P 500 was up 16 percent and the NASDAQ was up 26 percent on a year-to-date basis.
  • Factset estimates that the S&P 500’s earnings will grow from $131.58 in 2017 to $145.87 in 2018, up another 11 percent after growing about 10 percent in 2017.
  • GDP has grown at 3 percent for the past two quarters, and with  tax legislation passed, it is expected to accelerate.
  • At 4.1 percent, the unemployment rate is at a 16-plus-year low, which continues an eight-year trend, from 10 percent at the worst point of the Great Recession Manufacturing jobs have rebounded this year back to the levels of 2012 to 2014, and we continue to see re-shoring as companies bring jobs back to the United States that were moved overseas.
  • In November, the U.S. economy added 228,000 jobs, which was more than economists expected. Wall Street economists were forecasting payroll gains of 195,000 following the 261,000 jobs added in October. The unemployment rate is at its lowest level in more than 16 years!

While much of the market growth has been attributed to anticipated reductions in tax rates and regulation, we will have to see what actually transpires in the next six months. Having said that, there are not a lot of alternatives to the broader equity markets as fixed income and bank accounts continue to offer nominal returns, overseas investments present their own set of risk and real estate is not a viable alternative for many investors.

We See Strong Potential for Continued Growth

As we continue to see record earnings by companies and large amounts of cash overseas that potentially could be repatriated if there is a favorable tax situation, we believe there is strong potential for continued market growth. As always. we recommend a diversified investment approach based on your personal needs, objectives and risk tolerance. We have developed and refined an investment process that takes into account unexpected changes in the markets and economy so that you can maintain and enhance your standard of living.

If we take a broader view of the world today, we see how great a time it is to be alive and to be an investor. Technology continues to create opportunities that never existed for those who have the courage and insight to move behind all the negative hype.

Our Lives Have Improved Drastically — And Will Get Even Better

“The world has never been a better place to live in,” says science writer Matt Ridley, “and it will keep on getting better.” He provides these facts to back up his statement:

Compared with 50 years ago, when I was just four years old, the average human now earns nearly three times as much money (corrected for inflation), eats one-third more calories, buries two-thirds fewer children and can expect to live one-third longer. One reason we are richer, healthier, taller, cleverer, longer-lived and freer than ever before is that the four most basic human needs — food, clothing, fuel and shelter — have grown markedly cheaper. Take one example: In 1800, a candle providing one hour’s light cost six hours’ work. In the 1880s, the same light from a kerosene lamp took 15 minutes’ work to pay for. In 1950, it was eight seconds. Today, it’s half a second. In these terms, we are 43,200 times better off than in 1800.[1]

The reality is that humans are actually safer, wealthier, healthier, freer, less hungry and more literate than ever before, Johan Norberg argues in his 2017 book Progress: 10 Reason to Look Forward to the Future. We all have access to better technology, health care and standard of living than ever before.

As we approach the mid-term elections, we will no doubt hear more political rhetoric presented as economic facts.  It is important to note that what is good economic policy is not necessary good social policy and therefore we must differentiate between the two when making wealth management decisions.

We are here to help separate fact from fiction and assess what is important to you. We do believe that there are great investment opportunities for those who are prepared, and as always, there are potential pitfalls for those who are not. As always we are here for you to help sort through the noise to determine what is relevant to your situation. Feel free to contact us any time, without cost or obligation.

Randy Carver, RJFS registered principal  and President of CFS.,  Randy.carver@raymondjames.com  or (440) 974-0808.

[1]. Matt Ridley, “Cheer Up! 17 Reasons It’s a Great Time to Be Alive,” Reader’s Digest, https://www.rd.com/health/healthy-eating/cheer-up-17-reasons-its-a-great-time-to-be-alive/.
The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ Composite Index is an unmanaged index of securities traded on the NASDAQ system. Index performance does not include transaction costs or other fees, which will affect actual investment performance. You cannot invest directly in any index and past performance doesn’t guarantee future results. Raymond James is not affiliated with any of the entities or individuals mentioned herein.

Cutting Taxes to Increase Revenue- Politics, Perception and Facts

Once again, tax simplification and cuts are being debated. There is general agreement that the tax code needs to be simplified, but there are a lot of differing opinions and perceptions about how to do this. Moreover, the impact of tax policy is counter intuitive. This is further complicated by political considerations and comments by the media, politicians and so-called experts.

To get past the politics and perception, we need to look at the facts.

Lowering top marginal tax rates to increase tax revenue is counter intuitive and portrayed as a break for the wealthy. One would think that if you have higher taxes, you have higher revenues, yet this is not always the case. Certainly there is a point at which lowering marginal rates too much causes revenues to dip. However, there can be no disagreement about how lowering personal marginal rates in the past has increased revenue and GDP.

There is bipartisan agreement that the corporate tax rate is too high. The sticking point with cutting the corporate rate is disagreement on what else this may be tied to and what to do with funds that have already been earned but are offshore.

The other factor that is being debated, primarily along political lines, is that lower tax rates can increase the growth of the economy, and  therefore the government actually takes in more dollars. This has been shown to be the case, so the only reason that some want to debate this is political.  Essentially as tax rates go down the government is getting a smaller piece of of a larger pie. Just the prospect of lower taxes has helped GDP growth increase since the election in 2016.

Just over a year ago, on September 25th, 2016, Donald Trump spoke at the Economic Club of New York. He joined the ranks of John F. Kennedy and Ronald Reagan in espousing a plan of reducing marginal tax rates for both individuals and corporations.

JFK’s Tax Cuts Increased GDP in the 1960s

On December 14, 1962, then-President John F. Kennedy unveiled a tax-cut plan to revive the long-stagnant U.S. economy in a speech at the same Economic Club. President Kennedy proposed lowering marginal tax rates for all taxpayers and reducing the corporate tax. He advised lowering the top tax rate from 91 to 65 percent and closing tax loopholes. He understood the counter intuitive nature of this plan, stating, “In short, it is a paradoxical truth that tax rates are too high today and tax revenues too low, and the soundest way to raise revenues in the long run is to cut rates now.” Then, as now, critics (and the uninformed) contended that lower tax rates would result in lower tax revenue. Then, as now, they were wrong.

In 1962, corporate rates were dropped. In 1964, Kennedy’s broader tax cuts were passed into law, after his assassination. In 1965, GDP grew by 10.7 percent and in 1966 by 7.99 percent.[1]

Reagan’s Tax Cuts Grew the Economy in the 1980s

By the late 1970s and early 1980s, we were once again faced with high unemployment and, paradoxically, also high inflation—so-called “stagflation.” Ronald Reagan acknowledged many times that he was following in Kennedy’s footsteps in proposing, and ultimately cutting, personal tax rates from 70 percent to 28 percent. He also cut corporate taxes and closed numerous loopholes. Once again, the American economy grew, unemployment went down and the broader equity markets moved up. Critics had claimed these cuts would be a break for the wealthy (as today’s critics also claim) and that they would reduce tax revenue. Once again, they were wrong.

According to U.S. Treasury statistics, The Tax Equity and Fiscal Responsibility Act of 1982, also known as TEFRA, increased revenues by $130 billion in its first four years. The bulk of these revenue increases came from the wealthiest Americans. In 1981, when the top marginal rate was 70 percent, the top 10 percent of income earners paid 48 percent of all income tax, and the bottom 50 percent paid 7.5 percent of all tax (source: Joint Economic Committee for the US Congress report, 1996).

President Trump’s Tax-Cut Plan Should Benefit the Economy

Currently the top 1 percent of income earners in the United States are paying 49 percent of all taxes, and the top 10 percent of earners are paying 82 percent of all income tax.[2] There is a limit to how much more the government can tax the top 1 percent to 10 percent of earners. The tax system is already unduly progressive, and there is only so much the government can take without hindering growth further. Increasing taxes thwarts economic growth and entrepreneurial spirit, whereas reducing taxes can accelerate growth and ironically shift the tax burden from low- and middle-class earners to higher-income people. Donald Trump set a goal of 4 percent economic growth, which would double the rate of growth over the past 15 years. Critics called the growth goal unrealistic and the plan a break for the wealthy. We have seen that a 4 percent growth rate is not only possible; when looking at the impact of previous cuts, we believe this figure may be very conservative, especially when combined with decreased regulation, which stimulates economic growth. Because a number of so-called loopholes are closed in all plans being proposed, lower- and middle-income tax payers would likely  see a reduction in taxes, while the bulk of the taxes are paid by the top 1 percent to 10 percent of income earners. The ultimate goal is to help all Americans, especially those who have lower incomes. The centerpiece of the Trump plan is a reduction in business tax rates for large and small firms, to 15 percent from the current uncompetitive 35 to 40 percent. He offered a 10 percent repatriation rate to incentivize American firms overseas to bring $2.5 trillion home. While we believe the actual rate will be somewhat higher, we believe that the corporate rate will be reduced and that this will greatly benefit the economy and country. An article in the National Review indicates similar optimism in Trump’s plan. The article states, “While such large cuts would lead to an immediate revenue shortfall, the difference could be at least partially made up by eliminating damaging deductions and exemptions in other parts of the federal tax code. A corporate rate cut could also be expected to broaden the tax base, further offsetting its own costs by spurring more investment, the repatriation of profits, the relocation of business headquarters… Cutting the corporate-tax rate in itself will increase GDP, and evidence suggests it will lead to higher wages for workers, too.”[3] Once we move beyond politics and perception and look at the facts, it is clear that cutting taxes helps the country, especially lower- and middle-income Americans. Regardless of which plan you believe in, there is no question that the top 10 percent of income earners are paying more income tax than ever before, both in terms of dollars and total percentage of taxes being paid. Finally, generating revenue is only half of the issue. The other part is what the government spends. Less than 15 percent of the government budget is for discretionary spending, and more than 65 percent is for entitlements such as Medicare, Medicaid, Social Security, welfare, etc. At some point, the government is going to have to look at these items and make some tough decisions.  But that’s another discussion.

Join Us for a Tax Legislation Review at Breakfast on January 13th, 2018 

We will be reviewing actual tax legislation at our 22nd Annual Resource Breakfast on Saturday, January 13th, 2018. You are welcome to join us, without cost or obligation, to hear about the new tax rules and a number of other timely topics such as cybersecurity.  To RSVP just give our office a call (440) 974-0808 or click here.

We Are Here to Help You on Your Financial Journey

Our role at Carver Financial Services Inc. is to help you prepare for whatever may transpire with taxes, the economy, benefits or otherwise. We are here to help you achieve your personal vision for the future and your life, whatever that may be. Change is always difficult and is often politicized. This can present an opportunity for those who are informed and prepared.

We are always happy to meet with you to discuss your vison and wealth planning — without cost or obligation. Each person’s needs and objectives are unique; therefore, your planning should be as well.   This is a dynamic process as regulations, the economy and your needs change.

We appreciate the opportunity to be your partner on this interesting journey. Please contact us whenever we may be of service at Randy.carver@raymondjames.com or (440) 974-0808.

__________

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.
[1]. “U.S. GDP Growth Rate by Year,” http://www.multpl.com/us-gdp-growth-rate/table/by-year.
[2]. “Fairness and Tax Policy,” Joint Committee on Taxation, March 2015, file:///C:/Users/Libbye/Downloads/x-48-15%20(2).pdf.
[3]. Ryan Bourne, “Evidence Suggests That Lower Corporate-Tax Rates Increase GDP and Boost Worker Wages,” National Review, September 27, 2017, http://www.nationalreview.com/article/451811/corporate-tax-cuts-benefit-ordinary-workers.

How to Protect Yourself: Lessons from Harvey, Irma and Equifax

The vision of Carver Financial Services Inc. has always been making people’s lives better. A big part of this vision is protecting and enhancing your lifestyle. We cannot always be prepared for the unforeseen, but we can take steps to protect the quality of our lives and our future when disaster strikes. We never know when we could be impacted by a natural disaster, a financial crisis or a man-made issue. This month we experienced two major hurricanes and a huge hack of personal data.

You could face a local problem, such as being stuck in your car in a snowstorm, or you could be affected by something as widespread as a weather event like Hurricanes Harvey or Irma. All kinds of natural, and financial, disasters can occur. The key is to be prepared for whatever may happen.

As always, please contact us with questions, and let us know if we can be of service in any other way.

Here are 10 tips for getting yourself and your family prepared for various types of disasters.

Ensure Your Personal Comfort and Safety

  • If there is a warning of a hurricane, tornado, earthquake or other natural disasters, get your cars, pets and personal property out of the expected path well ahead of the storm.
  • Keep a three- to five-day supply of water in your home. A gallon of fresh water per family member per day is a rule of thumb. Keep nonperishable food in your home. If there is a power outage, your refrigerator won’t work unless you have a generator at home. Nuts, dried fruit, energy bars and canned goods are good choices. Make sure you have a manual can opener!
  • If you live in an area where there are power outages or where the loss of power (such as a very cold climate) can be dangerous, consider buying a whole-house generator.
  • Keep a small amount of cash at home, not a large sum, but enough for a couple of days in case credit cards and ATMs are not working because of a power outage.
  • Buy a spare power source for your cell phone and/or a hand-crank light charger.
  • Buy a manually powered or battery-operated radio so you can listen to developments in your area concerning evacuations.
  • Tools to use in case you need to turn off utilities, such as pliers or a wrench.
  • Sanitary wipes and trash bags with ties. If you lose all your utilities, you need to handle your family’s bathroom needs in a sanitary way so no one gets sick.
  • Put together a survival kit that includes first-aid supplies, dust masks, a flashlight with extra batteries and heat-reflective blankets.
  • Utilize a credit monitoring service to alert you to potential identity theft and credit issues.

Protect Your Stuff

Robert Hunter, director of insurance at the Consumer Federation of America, estimates that only 2 in 10 homeowners whose homes were damaged by Hurricane Harvey have flood insurance coverage. Those who now have flooded basements, soaked furniture, water-damaged walls, and collapsed roofs will have significant out-of-pocket expenses.[1]

Don’t let this happen to you! If you haven’t done so already, do a full insurance review and make sure you have proper insurance coverage for your home, jewelry, and other valuables so you can be reimbursed in case of theft or a natural disaster. Also get flood and/or earthquake insurance if you live in areas that experience these types of disasters.

Work closely with your insurance agent or financial advisor to make sure your insurance coverage fits your needs. Many people make costly assumptions. For example, you cannot assume that a standard policy will protect you if your house develops mold or sewage-backup problems. Many homeowners’ policies do not cover this type of damage. Another costly assumption is that if you live outside California, you don’t need earthquake coverage. The truth is that Alaska, Hawaii, Nevada, and Washington all have more earthquakes than California.[2]

We recommend that you take a video of your home and all the furniture and other items in it. This can be very helpful in remembering what you had and in documenting the contents of your home for insurance purposes in the event of a complete loss. Upload this list to cloud-based storage.

Equip Your Vehicle

Even if there is not a widespread disaster, you could be stranded in your car. If you live in a very cold climate, keep a blanket, some water, and a jump-start kit in your car.

Here are some items you will need if you get stranded in your car: a spare tire in good condition, a tire inflator and sealer, jumper cables, a tire-pressure gauge, your car’s operating manual, duct tape, WD-40, a first-aid kit, a flashlight with good batteries, a multi-tool, matches, a candle in a can for winter emergencies, energy bars, bottled water, a weather radio, a seat-belt cutter and window breaker, flares or a reflective triangle, printed maps, an ice scraper, a Mylar space blanket and a carpet remnant you can put under your tires to gain traction in the snow.[3]

Protect Your Identity and Personal Information

In early September, credit-monitoring service Equifax announced that 143 million Americans’ personal information had been compromised five weeks earlier. This massive data breach of consumers’ personal information is one of the worst data breaches in history.  One way to protect yourself after this latest breach is to place a credit freeze on your security file with Equifax at https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp and also with the other credit bureaus’ Transunion and Experion. While a deterrent, credit freezes do not prevent thieves from gaining access to existing accounts.

We strongly recommend that you use a credit-monitoring service such as Lifelock or Identity Guard. You can see a list of such services at:

http://www.nextadvisor.com/credit_report_monitoring/compare.php

In addition, to make it more difficult for criminals to hack into your accounts, we recommend using two-factor authentication (2FA) where available. This adds a second level of authentication to an account login. Raymond James Investor access offers this service, as do widely used companies such as Google, Apple, and Microsoft. When you enter only your username and one password, that is considered single-factor authentication. In contrast, 2FA requires you to use two out of three types of credentials before you can access an account. This can include the following:

  • Something you know, such as a personal identification number (PIN), password or a pattern
  • Something you have, such as an ATM card, phone or vehicle key fob
  • Something you are, such as a biometric like a fingerprint or voice print
  • Something that is texted to your phone

According to the website SecurityIntelligence, public adoption of 2FA has been slow. For example, a Dropbox official recently reported that less than 1 percent of the company’s customers had taken advantage of its 2FA option. Online services are often reluctant to introduce any inconvenience into the login process. But attitudes are beginning to change because of recent, well-publicized thefts of large password files.[4]

Please note that two-factor authentication is not the same as two-form authentication. The latter technique uses a second login gate, such as a challenge question, to validate a user’s identity. It is the least effective form of two-factor security, although it’s better than nothing.

Prevent a Financial Crisis

Finally, let’s talk about how to protect yourself from a future financial crisis.

Markets can and do fluctuate sometimes to extremes. It is important to have enough cash and cash equivalents on hand for near-term needs while having a portfolio that is allocated in a way that meets both your long-term goals and your risk tolerance.

We are not referring to cash in the home but rather in a money market or bank account. In this regard, we recommend a six-month reserve plus any funds you anticipate taking out for larger purchases. Your portfolio should be proactively reviewed and updated with an eye to the future, rather than the past. Your planning should take a holistic approach that looks at your tax status, estate planning goals, insurance, and income needs now and in the future. As we are often told, past performance does not guarantee future results.

Moreover, it is not how much you make that is important, but how much you keep after taxes, fees, and expenses. We are always focused on your net return and meeting your needs, not on beating a random index.

We are happy to discuss your personal vision and review your portfolio to make sure it aligns with your goals and objectives. We also have a very powerful planning tool that will analyze the probability that your current portfolio will achieve your stated goals, and more importantly, provide a guide for making adjustments.

There is neither a cost nor any obligation for us to review your situation. Please contact us at (440) 974-0808 or me at randy.carver@raymondjames.com.

[1]. Bernard Condon and Ken Sweet, USA Today, “About 80% of Hurricane Harvey Victims Do Not Have Flood Insurance, Face Big Bills,” August 29, 2017, https://www.usatoday.com/story/money/2017/08/29/hurricane-harvey-houston-flood-insurance-damages-claims/611910001/.

[2]. Bryan Ochalla, “16 Common Homeowners’ Insurance Mistakes,” June 4, 2017. QuoteWizard, https://quotewizard.com/home-insurance/homeowners-insurance-mistakes.

[3]. Melanie Pinola, “30 Essential Things You Should Keep in Your Car,” Lifehacker, September 6, 2013, http://lifehacker.com/30-essential-things-you-should-keep-in-your-car-1263514115.

[4]. Paul Gillin, “Two-Factor Authentication: A Little Goes a Long Way,” SecurityIntelligence, January 30, 2017, https://securityintelligence.com/two-factor-authentication-a-little-goes-a-long-way/.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  Investing involves risk and you may incur a profit or loss regardless of strategy selected. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

For Success – Wait Out the Storms

We’ve learned from Hurricane Harvey and other devastating storms that when the authorities tell you to evacuate, it’s best to get out of town, where there is no threat of catastrophe. But this is not the strategy we need to use for stock-market storms.

Human nature sometimes works against us when it comes to putting money in an investment and keeping it there for a while. When many investors watch the news and see that the market is fluctuating, their first instinct can be to panic and move that money out of the stock market and into a different class of investment. But your best bet is to leave it right where it is.

Stocks Grew Even During the 2007 Economic Crisis

Case in point: stocks invested 10 years ago, during one of the worst stock market performances in history, have done better than you might expect. In August 2007, when the global financial crisis began to erupt with the halting of withdrawals from some BNP Paribas funds, it launched an 18-month period of wealth destruction and economic peril.

Many investors bailed out of the stock market. But those who held tight for the next few scary years made out pretty well. In the 10 years since that crisis began, the Standard & Poor’s 500 index has returned 7.8 percent, annualized, including dividends. That’s not far below the very long-term average yearly return of just under 10 percent.[1] In fact, investments left in the stock market during that time did better than some other investments:

  10-year total return Maximum pullback
S&P 500 +7.8%/year –47%
Aggregate Bond Index +4.3%/year –9.8%

Source: FactSet

In this market downturn, investors were helped by “the most aggressive central bank support programs ever conceived, a long corporate profits boom and one of the longest bull markets in history, which has taken equity valuations to the upper end of their historical range.”[2]

From the Calm to the Storm

In the summer of 2007, there was a decent bull market following the tech meltdown of 2000–02. Stocks had been rising nicely for five years, gaining about 12 percent a year with dividends. And the market was reasonably valued, at 15 times forecast earnings for the following year ¾ a similar multiple as a few years earlier and comfortably below the current 17.8 times. Investment gurus often noted the lack of retail-investor participation as a reason that stocks had plenty of room to run higher. On August 9, 2007, the BNP fund closures sparked a swift stock sell-off.

Here is a summary of what happened next. You can see what great restraint it took for the wise investors to keep from bailing out of stocks:

  • In December 2007, two months after the market crested, Wall Street strategists still predicted a 10 percent gain for the S&P 500 for 2008. They were wrong!
  • The financial strain spread from subprime mortgages, to the entire credit market and then to the real economy. Stocks were liquidated, losing 20 percent from their peak and earning bear market status by mid-September 2008.
  • On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman’s bankruptcy filing was the largest in history.[3] The result was unprecedented tumult of the financial system and an all-out liquidation of stocks.
  • Stocks bottomed out in March 2009 with the Dow just under 7,000 after a number of erratic rallies. The investor who got into stocks on Aug. 9, 2007, was down 47 percent, and the conservative Vanguard Balanced fund was off 26 percent, in just 17 months.
  • At many points up through 2010, the trailing 10-year return on U.S. stocks was negative, making many investors question whether the market would ever be a wise investment again.
  • In 2011, the European debt crisis and debt-ceiling standoff, combined with a variety of recession scares and reports of anxiety from the Fed, prolonged investors’ worries.[4]

Yet after all that, a standard portfolio allocated with 60% equity and 40% fixed income returned a decent 6.8 percent over the same span, with roughly half the downside volatility experienced by the S&P 500.

Be Patient!

What can we learn from this? The clear message is to be patient and not let emotional reactions to market fluctuations dictate your moves. The passage of time in the markets can help make up for bad timing. So when your “fight or flight” instinct kicks in, choose “fight” ¾ fight the inclination to flee the market!  A trusted advisor can help navigate this.

We take a proactive approach to managing income and cash so that you should not have to liquidate then we experience corrections.  Please contact us with any questions on your portfolio or if we can otherwise be of service.

Randy Carver (440) 974-0808  or randy.carver@raymondjames.com

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Past performance is not a guarantee of future results.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.

[1]. Michael Santoli, “Investors Posted Solid Returns Even if They Bought Just as Financial Crisis Erupted 10 Years Ago,” CNBC, August 9, 2017, https://www.cnbc.com/2017/08/09/even-if-you-bought-just-as-the-global-financial-crisis-erupted-10-years-ago.html.

[2]. Ibid.

[3] “Case Study: The Collapse of Lehman Brothers,” Investopedia, February 16, 2017, http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp.

[4]. Santoli, “Investors Posted Solid Returns….” CNBC.