Helping you achieve your personal vision based upon your individual needs, goals and risk tolerance..

10 Fundamental Truths of Investing

  1. Over the long term, stocks have had greater total returns than bonds.
  2.  Over the short term, stocks have been much more volatile than bonds
  3.  Over the short term, bonds have been much riskier than money market funds.
  4.  You will make investments that go down immediately after you buy.
  5.  You will sell investments that continue to go up after you are out.
  6.  You will hold some investments too long.
  7.  Someone, or some group of people, will always do better than you or at least say they are.
  8.  The media will general focus on the sensational, short term and negative none of which matter if you are an investor
  9. You don’t pay a financial advisor for information – you are paying for help in achieving your personal goals using their wisdom and personal guidance.
  10.  Money can only be made in the future – it’s impossible to invest in past returns.

Feel free to contact Randy Carver at (440) 974-0808 or randy.carver@raymondjames.com

 

 

 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. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Rising Interest Rates & You – Do they matter?

We are not market prognosticators nor do we believe that short term changes in the broader equity or fixed income markets should dictate your investment strategy.  Your portfolio should be allocated based on your overall vision, needs and risk tolerance.   We take a proactive approach rather than reacting to short term events working with you to develop a plan that is based on your vision.   Our role is to help you define your goals and then implement and monitor a plan that makes sense for you.  Part of this is being aware of broader legislative, economic and global events and recognizing potential risks for you while helping filter out the general noise from the media.

We believe that one risk many investors may face, without being aware of it, is interest rate risk.  Over the last several years, investors have grown accustomed to historically low interest rates and have benefited from risking bond prices as a result.   Ever since the Federal Reserve Board’s target fed funds rate–the rate at which banks lend to one another–hit a high above 19% in mid-1981, the long-term direction of rates has been downward. In the last decade, the Fed’s data1 shows the target rate has never been much higher than 6%.  Since December 2008, the Fed has kept it at a previously unheard-of level between 0.25% and zero to try to ensure that credit would be available to promote economic recovery.

Because bond prices typically rise when interest rates fall, that decline in yields has produced a bull market in bonds over the last decade.  But what happens when the trend reverses? Even if they continue to remain relatively stable for a while, ultra-low interest rates have nowhere to go but up. When the economic recovery begins to show signs of strength, at some point the Federal Reserve Board will typically begin to raise the target rate again. When that happens, bond prices will potentially  begin to reverse their long-term direction and should start to drop; perhaps dramatically.  Generally the longer the duration of the bond the larger the dip in price.  Often thought of as ‘safe’ or ‘stable’ investments many investors have not experienced large drops in bond prices.

There have been four times since World War II where investments considered conservative and prudent “failed on a scale that has threatened the stability of the financial system” 2.   The most recent being in 2008.  “The crisis of 2008 was a fairly routine postwar event.  Part of the routine was the hysteria of those who were caught in the trap – the media and the public.  During the municipal bond crisis, the third world debt crisis and the savings and loan crisis , the general consensus was that things were never as bad as things are now and that we were facing the end of the postwar economic boom”2

In reviewing and monitoring your portfolio we look at a number of factors affecting the fixed income investments as well as the equities.  If we feel adjustments should be made we will let you know.  As with all things our goal is to be proactive in allocating your holdings, rather than reacting to what has happened.

When interest rates rise, longer-term bonds typically feel the impact the most. In an extended period of rising interest rates, bond buyers become reluctant to tie up their money for longer periods because they foresee higher yields in the future; the later the bond’s maturity date, the greater the potential risk that its yield will eventually be superseded by that of newer bonds. As demand drops and yields increase to attract purchasers, prices fall.

There are various ways to manage that impact.  If you own individual bonds, you always have the option of holding them to maturity; in that case, you would suffer no loss of principal unless the borrower defaults.

We strongly recommend that you review your fixed income holdings with your financial advisor taking into consideration your risk tolerance, overall objectives and the potential impact of rising interest rates.  You may consider shortening the duration, changing investments or reallocating your portfolio.  If you are already working with us we will discuss this at your next review and contact you if any changes are recommended in the meantime.  No action should be needed on your part but we are always happy to answer questions or address any concerns in the meantime.  If you are not working with us we are happy to discuss you personal vision and review your portfolio in this context without any cost or obligation.  Just give us a call (440) 974-0808.

 

1-     Source: Federal Reserve Statistical Release Historical Data for Fed funds rate weekly since 1954.

 

2-     The Next 100 Years, George Friedman

 

 

 

 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Opinions are as of 4/26/15 and subject to change. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. There are special risks associated with investing with bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk, reinvestment risk, and unique tax consequences. To learn more about these risks and the suitability of these bonds for you, please contact our office. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Past performance is not a guarantee of future results.  Diversification and asset allocation do not ensure a profit or protect against a loss. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. You should discuss any tax or legal matters with the appropriate professional.

Increasing Government Revenues, Shifting The Tax Burden and helping Lower Income Americans- a proven but counter intuitive approach

The debate about changing the tax code comes up every election cycle.  The reality is that the way to increase revenues and shift the tax burden away from lower income families is  simple and proven but not politically expedient.  They key is to lower, not increase,  the income tax on the most productive Americans.  This is proven to help  tax revenues go up and the tax burden get shifted to this group, not away from it.  While this may seem counter intuitive  history can objectively show us what the impact of lowering tax rates is thus any debate about their efficacy is purely political.

Some of today’s issues such as health care reform, social security and immigration are often difficult to quantify objectively since we have not had experience with proposed changes. On the other hand we have objective experience with income tax cuts and their benefits. Tax cuts have historically shifted the tax burden from middle income people to the wealthiest Americans while creating jobs and increasing government revenue. Critics, often with the best of intentions, have said that extending tax cuts and further reducing income taxes will benefit the rich over the poor and will lead to more deficit spending.  This simply is not the case. The public is told we cannot afford tax cuts due to government spending on entitlements, defense and all of the other important things the government does. While cutting taxes in the face of mounting deficits may seem counterintuitive critics are ignoring history.  Past income tax rate cuts have increased government revenues, boosted our economy, created jobs and shifted the tax burden away from low income families to the middle and upper income folks. There is no doubt that we will have to deal with excessive government spending to balance the federal budget. Independent of that  reducing the top marginal tax rates,  while closing loopholes, is a proven way to increase government revenue and benefit all Americans with the burden shifting to those who can most afford it.

According to US Treasury statistics The Tax Equity and Fiscal Responsibility Act of 1982 (Pub.L. 97-248), also known as TEFRA increased revenues by $130 billion in its first four years – after tax rates were cut dramatically. The top rate was slashed from 70% to 50% . TEFRA was created in response to the recession at the time and faced fierce opposition who felt that taxes should be increased, not decreased, to offset government short falls. Sound like a familiar debate doesn’t it. TEFRA reduced the budget gap by generating revenue through closure of tax loopholes and introduction of tougher enforcement of tax rules, as opposed to changing marginal income tax rates.

The 1984 Deficit Reduction Act increased tax collections by $72 billion in the four years after taxes were cut again. The bulk of these revenue increases came from the wealthiest Americans. This should not have been a surprise.

Across-the-board tax cuts had been implemented in the 1920s as the Mellon tax cuts, and in the 1960s as the Kennedy tax cuts. In both cases the reduction of high marginal tax rates actually increased tax payments by “the rich,” and also increased their share of total individual income taxes paid. According to the IRS in 1981 the top 1 percent of income earners paid 17.6 percent of all personal income taxes, but by 1988 their share had jumped to 27.5 percent – after the top tax rate had been cut from 69.13% in 1981 to 28% in 1988.

The broad-based income tax cuts that President Reagan implemented in the 1980’s set off an entrepreneurial boom that propelled the growth of the economy for the next 20 years. Certainly the Clinton Presidency benefited from the tax cuts, and to Clinton’s credit, he even added his own cut by reducing the Capital Gains Tax.

Reagan’s detractors point to his lack of sensitivity for social issues and the legacy of his deficit spending- yet the legacy is a positive one. In the seven years following the Reagan tax cuts almost 20 million good paying jobs were created (US Dept. of Labor). According to the Bureau of Labor statistics inflation, measured by the consumer price index, increased 49.5% between 1977 and 1981. Between 1982 and 1986 inflation was 19.1% – much lower than prior to the tax cuts.

Those who object to the tax cuts need a vision that takes into account the aforementioned lessons of history. This is a case where those who would benefit the most from lower taxes could be hurt, with the best of intentions, by the current path we are going down. Clearly there is an optimal point below which taxes should not be cut but increasing taxes today does not make sense from either an economic or even social standpoint. Lower marginal  tax rates  stimulate growth, create good jobs, increase government revenues and shift the tax burden from low income families to upper income payers.

If all of the intellectual energy that is being used to debate historically established facts is channeled into constructive policy,   and not promoting partisan rhetoric, all Americans will benefit.   Regardless of the current or future regulatory and tax climate we are here for you.  Our team works with clients to maximize net returns in a manner consistent with their personal goals, objectives and risk tolerance.  We believe that this customized approach to personal vision planning® will give you the best results for your situation.  Please contact us, without cost or obligation, whenever we may be of service to you.

 

 

 

Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James.  All information from sources believed accurate but not guaranteed.  No tax or legal advice is intended.

Benchmark YOU

There is a natural tendency to want to compare our own portfolio to the Dow Jones Average or S&P 500 Index because that is what the media defines as ‘the market’.  This is misleading at best and dangerous to our financial future at worst.  Very few of us actually invest in the S&P or DOW and frankly most of us don’t invest specifically to match the market but rather to meet our personal income needs.

We design portfolios that are based upon meeting your individual goals in a manger that is consistent with your risk tolerance, tax situation and myriad of other factors.  When looking at any benchmark – including the DOW or S&P – there is no consideration for these things.  If your goal is a balanced portfolio with income and growth, you will tend to lag the 100% equity benchmark when markets are going up – but do better when they are going down.  Over meaningful periods of time this means your portfolio should better meet your needs and outperform.

If someone wants to just look at performance they need to create a benchmark that reflects their personal portfolio.  In most cases this will include international holdings, fixed income, cash, and all sizes of stock capitalization (large, medium and small).  Ultimately, though the true measure of success should be if you can maintain and enhance your lifestyle over time.  This is benchmark you.

We seek to generate the highest level of net return (after fee’s, tax, expenses, etc.) in a manner that is consistent with your personal risk tolerance, current income needs, tax situation and estate planning objectives.  This may or may not correlate in any given period with the DOW or S&P 500 nor is it intended to.  Please contact us if you have questions, concerns or if we can otherwise be of service.  We are here for you.

 

 

 

The S&P 500 and the DOW Jones Average are passively managed indices  that  are  generally considered representative of the U.S. stock market. Inclusion of these indexes is for illustrative purposes only. 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.  The opinion expressed in this article is that of Randy Carver as of 04/02/2015  and not Raymond James Financial Services Inc.

Are We Due For A Market Correction?

We believe that it is difficult if not impossible to try and time the markets and that investors are better off developing a long term asset allocation and sticking with it. We also believe that the longer term outlook (next 5 – 10 years) is extremely good for the broader equity markets.   While we are not predicting a correction – market drops are a normal part of longer term growth and we may be getting a little spoiled.

 Consider the fact that from 1900 – 12/31/2014 (source NED Davis Research) There have been:

388 drops of 5% or more – about 3.4 per year which would be @ 880 points on the DOW today

123 drops of 10% or more – about 1 per year or @ 1,760 points on the DOW today

32 drops of 20% or more – about 1 every 3.4 years

While we did have some significant volatility in 2013 we have not seen a large drop since 2008-2009 and therefore based on historical precedent we are due for a correction. As always past performance doesn’t guarantee future results but it can give us some insight when looking at more than 100 year of history.

The broader stock market indices have been positive on a total return basis in 11 of the last 12 years (2003-2014). The 1 down year that occurred since 2003 was a 37.0% drop in 2008. It is interesting to note that while the broader market has trended upwards over longer periods it does fluctuate both up and down. Over the last 50 years (i.e., 1964-2013) the S & P index has been down 47% of the days over that period. The split between up and down days during calendar year 2013 was 58% up and 42% down.   We believe that for the majority of investors, equity investments should be viewed as longer term and assets that may be needed in the shorter term (2 – 3 years or less) should generally not be put into equities.

The S&P 500 stock index has gained an average of +10.0% per year (total return) over the last 50 years (i.e., the years 1964-2013). However, this is an average and there has not been any single calendar year in which the market actually gained +10.0% in the last half century.   It’s also important to note that one cannot invest directly in an index and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.

 

So What Should We Do?

Make sure that your allocation currently reflects both your long term needs and also your risk tolerance

Keep enough cash and short fixed holdings for six months planned expenses plus another six month emergency reserve

  1.  Don’t fall prey to the emotions of either greed – investing too aggressively or fear – moving out of the markets when they are down
  2. Work with your financial advisor to make sure your plan accurately reflects your personal vision, needs, goals and risk tolerance. Make sure to communicate with your advisor when any of these change.
  3. Recognize that by reducing market exposure you may also increase the risk of inflation.

Please contact your financial advisor to discuss your personal needs, objectives and goals. We are here to help you with your planning and appreciate the opportunity to be your partner.

 

 

 

 

 

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.   Any opinions are those of Randy Carver and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Asset allocation does not ensure a profit or protect against a loss.

Sources: BTN Research, Yahoofinance.com, dowjones.com)

Barron’s Magazine names Randy Carver as one of the top advisors in the Nation – again

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February 1st, 2015,  Barron’s Magazine named Randy Carver as one of  the top advisors in the Nation and one of Ohio’s best financial advisors.  Randy has been recognized by Barron’s each year since 2008.   The rankings are based on data provided by the nation’s most productive advisors. Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance isn’t an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking abilities.

 

Markets and Election Years…. Can Politics Predict Performance?

Election years have traditionally been market-friendly, but that doesn’t mean you should base your portfolio decisions on politics. It seems that the election cycle starts earlier with each election and this year is no exception as the 2016 race has already begun.

Those with a close eye on the stock market are always on the lookout for correlations that might help them take advantage of the next market cycle. With an election year approaching – a time that has boded well historically for equities – you may question whether or not political races should affect your investment strategy. A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a new U.S. president. According to this theory, after the first year, the market improves until the cycle begins again with the next presidential election.

Pre-election years in particular have produced an average annual return of 11.3% since 1900 (Source Ned Davis Research).   Since 1940 the Dow has risen in 100% of third years, gaining an average of 22.3%. That contrasts with an average gain of just 3.1% during all non-third years since 1940. In years one, two, and four, the market has risen 57% of the time (source Barrons 10/2/14) .

What about third years of a president’s second term, as is the case today? It certainly seems plausible that the Presidential Election Year Cycle would be weaker during second terms, since re-election is not an option. But there is no historical support for this suspicion, since — as the table shows — the market in the past has been slightly stronger during third years of second terms than in first terms (source Barrons 10/2/14))

 

Dow Jones Industrial Average

Since 1896 Since 1940
Average Gain % of Time Up Average Gain % of Time Up
All 3rd years 15.0% 82% 22.3% 100%
All non-3rd years 4.4% 58% 3.1% 57%
All 3rd years following 2nd years in which market gained 18.2% 86% 22.1% 100%
All 3rd years following 2nd years in which market fell 11.7% 79% 22.4% 100%
All 3rd years of second terms 18.4% 90% 24.6% 100%
All 3rd years of first terms 13.1% 78% 21.1% 100%
All second-term 3rd years that followed 2nd years in which market gained 18.7% 83% 28.2% 100%
All second-term 3rd years that followed 2nd years in which market fell 17.8% 100% 21.1% 100%

 

Numerous studies show that the stock market has tended to perform well in the two years leading up to a presidential election.   While substantial evidence suggests that the market does go up more often than not in election and pre-election years, it is my belief that relying on this trend is not a good way for long-term investors to pursue their goals.

Though the data appears to demonstrate a reasonable correlation between the election cycle and the market’s performance, this does not necessarily prove that one event has always caused the other. It could be coincidence. Nevertheless, various theories have attempted to explain why the stock market might be sensitive to the political seasons.

One popular theory suggests that the incumbent party leverages economic policies to give the market a slight nudge just before election time, then allows the market to appropriately correct itself once elections are over. Another theory proposes that investor confidence tends to rise based on the lofty promises of candidates vying for office, then tapers off as some of those promises fall by the wayside.

Regardless of which theory, if any, you choose to believe there are a myriad of factors that affect the markets and isolated factors such as political elections never explain the whole story.

It’s also important to note that there have been a few major exceptions to this trend in the past – 1987, a pre-election year, saw the worst market crash in U.S. history and in 2008 we saw a decline of almost 38%.

While it may be academically interesting to look at election cycles and market performance is it is clear that investment decisions shouldn’t be based solely on any theory.   Investment decisions should be based on sound fundamentals, and, most important, your individual goals and circumstances. As always please contact us with questions or to discuss you personal wealth management vision and objectives.

 

 

 

 

The Dow Jones Industrial Average is an unmanaged index of 30 widely held U.S. companies commonly used to measure stock market performance. Investors cannot invest directly in the Dow Jones Industrial Average. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Past performance is no guarantee of future results. Index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

The Value of Advice

Why should we pay an advisor- financial or otherwise?   What value do they add?  This can be answered in several ways and depends on what services the advisor is providing you and your family.

A financial advisor can help you define your personal goals and vision and then develop a plan to achieve them.   Once the plan is developed they can help monitor the plan and make specific recommendations on an ongoing basis.   Certainly you may be able to do this on your own, and there is a cost for the advice, so is it worth it?  The answer depends largely on you, your needs and your expectations.

From a personal standpoint you must first ask yourself if you have the experience and knowledge to handle your own wealth management.  Then there is the question of what your time is worth and if you could better spend it in your own profession or enjoying leisure activities.   Besides having specialized knowledge about tax,  estate planning and investment issues financial advisers may offer a tremendous amount of value by providing independent and objective advice when dealing with emotional decisions impacting one’s financial well-being.  This is important for the same reasons that a doctor doesn’t practice medicine on him or herself and lawyers do not represent themselves. Having an objective third party is very important when dealing with decisions.

From a purely objective standpoint research by David Blanchett and Paul Kaplan of Morningstar has quantified the value that financial planners can provide.  Their research shows that financial planners help individuals generate roughly 1.82% excess return each year, creating roughly 29% higher retirement income wealth.  This means even if an adviser is charging a 1% fee per year for the management of assets, the financial advice still has a huge impact on generating additional retirement income (source forbes.com 8/24/14).

A 2011 report by HSBC (The Future of Retirement Global Report- Life after work?) showed that those with financial plans accumulated nearly 250% more retirement savings than those without a financial plan in place.  Furthermore, nearly 44% of those who have a financial plan in place save more money each year for retirement. A qualified advisor will help develop, implement, monitor and update your plan.

Our firm seeks to provide a wide range of services and advice based upon your Personal Vision Planning ™ .   We are happy to discuss the potential fee’s and expense at any time without cost or obligation.   We can then decide if there is a good fit. We are not the right firm for everybody and everyone is not a good fit for us. If it does make sense to work on your own we can help decide that as well.   Once we agree that we should be partners we will work with you so that we both understand what your vision is and then come up with a plan to achieve it.   As with many things the value you receive from working with any advisors is directly related to the information and insight that you provide to them.

We look forward to speaking with you at any time to discuss your personal vision and how we may help you to achieve it.

Fast Track 50 Winner – again

October 29, 2014 Carver Financial was once again recognized as one of the The Lake-Geauga Fast Track 50 winners for 2014. The Fast Track 50 recognizes the contribution of local companies to Lake and Geauga county economies. The Fast Track 50 Committee compiles a list of the fastest-growing companies in Ohio’s Lake and Geauga counties. Companies are ranked by sales and employment growth over the previous five-year period and the top 50 are recognized.

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The World Is A Scary Place

The new year is around the corner and the media has written   “The Economy is booming and Americans revel in the prosperity after bouncing back from a recession.   Advancements in technology are changing the way we live and there is hope of more progress.  But anxiety lurks beneath the New Years’  optimism.  Will these new technologies change the world beyond recognition?  Has the environment been dangerously damaged?  A global epidemic is raging, with no cure in sight”.  Does this all sound familiar as we approach the 2015 New Year?

The headlines and events are from 1899 – more than 114 years ago!  The epidemic is tuberculosis – not Ebola.  The technology is the telegraph and automobile – not social media and genomics.  The environmental damage was to the Western frontier – not climate change.   We have always worried about the markets, economy, environment and illness and the world has always been a scary place.  What we are facing today is not different than 115 years ago – the names have changed but the concerns remain the same.  The biggest difference is the news cycle has been compressed from weeks to seconds and we are so focused on the short term that it’s easy to lose sight of the bigger picture.

In the end we believe it’s the unforeseen or considered risks that affect most of us – not those we hear about in the media.  In other words it’s not the bus we see coming that hits’ us – it’s the one we don’t see.   In this regard we believe that the things we need to  plan for are:.

  1. Unreasonable expectations as to markets, volatility and withdrawals. If we draw too much from our funds they will be depleted over time.  We believe markets will continue to move up over longer periods but there will be short term volatility.
  2. Higher medical expense for regular and catastrophic care. Having insurance both for medical and long term care is an important way to protect your assets and lifestyle
  3. Making shifts to your portfolio due to short term market and media events. Once allocated the portfolio should be re-balanced but this should not be done reacting to things that are happening but done on a proactive basis.  This is why it is important to meet and discuss your needs, objectives, risk tolerance and tax situation with your advisor.

The world can be a scary place and the media will continue to focus on the negative and short term.   We also believe that the next five to ten years could provide large gains for the broader markets and for those who participate.

We have historically high levels of corporate profits and cash while we have relatively low energy costs relative to the rest of the world.    We have continued innovation that leads the world and one of the most productive work forces globally.

While the events will change – concern and a negative media bias have remained the same for the last 115 years.  During that time those who have invested have typically profited while those who have focused on the wrong things have not.   Please contact us with questions, concerns or whenever we can be of service.

 

 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Any opinions are those of Randy Carver and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or loss regardless of strategy selected.