Kelly Trevethan

Market Reflections: Were the ECB’s Bold Action Less that Meets the Eye?

March 30, 2016 by Kelly Trevethan Leave a Comment

What Did the European Central Bank Do?

The European Central Bank – eager to combat too-low inflation – acted decisively March 10 by announcing a package of rate cuts and an increase in its bond purchase program. It pushed its main deposit rate for excess reserves banks hold at the ECB further into negative territory, cutting the rate to -0.4% from -0.3%. To combat the potential adverse effects from negative rates on banks’ financial health, the ECB also announced a package of loans from the ECB to banks in which the ECB could actually pay banks to borrow – provided the banks then lend those funds out – under certain conditions. The ECB also will buy €80 billion per month of Eurozone bonds versus €60 billion previously – and the ECB will now also buy eligible investment grade corporate bonds. (One euro equals about $1.11.)

Stocks in Europe initially surged and the euro plunged, which we might expect. But then a curious thing happened as Mario Draghi, the head of the ECB, spoke: stocks fell and the euro rose (though stocks in both Europe and the U.S. rebounded the next day). The action in the euro was not what was supposed to happen; indeed, a primary (if unstated) goal of enacting such a monetary stimulus program was to cause the euro to fall in value.

Why Did the ECB Take the Action It Did?

A weaker currency would accomplish two key things. First, it would make European exports more competitive abroad and imports more expensive. A weaker euro would thus make European-made goods cheaper to foreign buyers, and would stimulate demand and economic growth, while discouraging competition from imports. But for those goods and services that are imported, they would become more expensive, helping to accomplish the ECB’s goal of increasing inflation up to, but not above, 2%.

Inflation in the Eurozone was -0.2% year over year in February, according to Eurostat, and that is certainly a disappointing outcome, especially because it fell from a 0.3% year over year increase in January. More inflation would make existing debts easier to repay, for one, and it would also encourage consumption and investment now, instead of postponing it (or abandoning new investment projects altogether).

Of course, goosing inflation can come from increasing demand for goods and services. That would reduce slack in the economy, as unemployment falls and wages might (hopefully) rise and as spare capacity is eroded. That’s why the ECB wants banks to lend, so as to get businesses to invest and consumers to spend. Giving banks free money to lend (and even charging them on certain assets for those funds they stash at the central bank) is one way to motivate banks to push loans on to creditworthy customers.

Why Were the Markets Initially Disappointed?

Eventually, investors realize that central bankers may be pushing on a string. Even if banks want to lend, and loans are cheap, it is beyond anyone’s power to force a would-be borrower from taking on a loan. That is particularly the case when confidence is reduced by the same central bank in question.

Indeed, the seeds of the program’s disappointment are sown into the policy statement itself. The ECB slashed its forecast for inflation this year – and lowered its projections for 2017 as well. It now expects consumer prices to rise by just 0.1% in 2016, having forecast in December they would rise by 1%, with inflation set to pick up to 1.3% in 2017 and 1.6% in 2018, still below its target of just below 2%.

The ECB also cut its growth forecasts, with Eurozone gross domestic product projected to increase by 1.4% this year and 1.7% next, identical to forecasts by the Organization for Economic Cooperation and Development. That compares to previous projected growth rates of 1.7% and 1.9% respectively.

So, if prices are expected to grow only slowly, and the economy might expand only modestly, what business would want to borrow to expand its operations? Similarly, why would consumers desire to leverage themselves further if their wages may not grow? When policy measures intended to reassure and to encourage consumption and investment are announced at the same time as forecasts that neither goal seems likely, it is easy to see why markets were disappointed.

Mr. Kelly Trevethan is a Certified Investment Management Analyst & Registered Financial Consultant. He is a Managing Director with United Capital Financial Advisers LLC, a national private wealth advisory firm with 79 offices across the nation. He can be reached at 415-418-2101. To obtain your free copy of the New York Times Bestselling book “The Money Code”, email him at Kelly.trevethan@unitedcp.com.

Disclosures

Investing involves risk, including possible loss of principal, and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this piece is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances.

The information and opinions expressed herein are obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital. Opinions expressed are current as of the date of this publication and are subject to change. Certain statements contained within are forward-looking statements including, but not limited to, predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Indices are unmanaged, do not consider the effect of transaction costs or fees, do not represent an actual account and cannot be invested to directly. International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and different accounting methodologies.

www.unitedcp.com

Filing Taxes Jointly or Separately for Married Couples

March 6, 2016 by Kelly Trevethan Leave a Comment

Married couples have the option to file jointly or separately on their federal income tax returns but as with most things tax-related, choosing which category is best is a highly individual and complex decision.In the vast majority of cases, it’s more advantageous for married couples to file jointly; however, there may be some instances when it’s better for the couple to submit separate returns.Let’s examine the advantages and disadvantages of filing jointly or separately, and the circumstances in which it might be best to consider “married filing separately.”

Advantages of filing jointly
There are many advantages to filing a joint tax return with your spouse. The IRS gives joint filers one of the largest standard deductions each year, allowing them to deduct a significant amount of their income immediately.

Couples who file jointly are eligible to deduct two exemption amounts from their income and they qualify for multiple tax credits such as the:

• Earned Income Tax Credit
• American Opportunity and Lifetime Learning Education Tax Credits
• Qualified Adoption Expenses
• Child and Dependent Care Tax Credit

Joint filers also receive higher income thresholds for certain taxes and deductions – this means they can earn a larger amount of income and still qualify for certain tax breaks.(For further information about the above tax credits, please visit the IRS website).

Consequences of filing tax returns separately
On the other hand, couples who file separately receive few tax considerations. Separate tax returns may give you a higher tax with a higher tax rate. The standard deduction for separate filers is far lower than that offered to joint filers.

• In 2015, married filing separately taxpayers only receive a standard deduction of $6,300compared to the$12,600 offered to those who filed jointly.
• If you file a separate return from your spouse, you are automatically disqualified from several of the tax deductions and credits mentioned earlier.
• In addition, separate filers are limited to a smaller IRA contribution deduction. They also cannot take the deduction for student loan interest, or the tuition and fees deduction.
• The capital loss deduction limit is $1,500 when filing separately, instead of $3,000 on a joint return.

When to file separately
In rare situations, filing separately may help you save on your tax return.For example, if you or your spouse has a large amount of out-of-pocket medical expenses to claim, filing separately may be advantageous. Since the IRS only allows you to deduct the amount of the expenses that exceeds 10% of your adjusted gross income (AGI), it can be difficult to claim most of your expenses if you and your spouse have a high AGI.

Filing separate returns in such a situation may be beneficial if it allows you to claim more of your available medical deductions by applying the 10% threshold to only one of your incomes.In addition, there is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses.If you or your spouse are 65 years or older or turned 65 during the tax year, you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income.The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.

How to decide which method to use
The best way to find out if you should file jointly or separately with your spouse is to prepare the tax return both ways. Double check your calculations and then look at the net refund or balance due from each method.

If you have any doubt about which method provides you with the greatest tax savings, please make sure to consult with a tax professional.

Disclosures: All data herein are obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. United Capital does not provide tax advice. Investors should consult their tax professional with questions about their particular circumstances.
© 2016 United Capital Financial Advisers, LLC. All Rights Reserved

What Does the Volatility in the Market Mean?

February 2, 2016 by Kelly Trevethan Leave a Comment

As humans, investors are naturally inclined to follow tendencies dictated by psychology. We extrapolate recent events into the future, and we are scarred by prior traumas. Sometimes, the two go hand in hand. More specifically, we have gotten to expect that markets go straight up, as they have done since March 2009 – but the minute that we see any deviation from those expectations, we anticipate a market meltdown like 2008. The reality is, though, that the future doesn’t always follow such extreme examples. And indeed, “extreme” is a word that can be used to describe both the disaster of the financial crisis and the tremendous bull market that followed, both almost without parallel.

In reality, though, the market is more inclined to follow a pattern seen throughout much of history. And that is one with more volatility than we have seen in the past seven years, and one that might neither go straight up nor straight down. We must recognize the tradeoffs that dictate the fact that, with higher potential reward comes the necessity to undertake more potential risk. And risk often means losses from time to time, in a way that is neither extraordinary nor necessarily predictive of looming calamity.

Yes, there are problems in the world. However, we can instead offer a few questions for you to consider. And importantly, in order to help you answer these questions, your financial adviser has the tools you need to help you in your financial life journey.

What should you do? For our clients, a likely answer may be to simply make no changes at all, as their United Capital financial adviser may have already established the investment strategy most appropriate for them. It is important, or perhaps we might even say, imperative, that you recognize the instinct to “do something” ignores the most basic principal that we may be merely returning to an era of more “normal” volatility.

And more volatility is indeed normal. According to Ned Davis Research, stock market volatility over the last thirteen weeks through January 10this at the low end of the range of what is considered normal and typical. In fact, over the long span of time, the market experiences a decline of at least -10% once every 72 trading days on average. We haven’t experienced such a decline in a far longer period.

Might a Different Strategy Be Better for Me?
Consider discussing with your financial adviser. He or she can work with you, utilizing some of the industry’s innovative technologies to find where your portfolio should be positioned. If you do want a strategy that is designed to attempt to exit the market, or at least reduce risk exposure, during periods of substantial and sustained downturns, we do offer Tactical strategies. These are designed to help limit, but not avoid altogether, severe losses during a downturn. As we mentioned earlier, however, an increased focus on downside avoidance necessarily comes with decreased upside participation. As we at United Capital often say, “More of something often means less of something else.”

So have a conversation with your financial adviser. He or she is well equipped to help you handle market volatility. And above all else, a return to normal need not necessarily be feared.

Disclosures
The information contained herein is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. All data herein are obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. There are no investing strategies that guarantee a profit or protect against a loss. Tactical Asset allocation strategy is not for every investor due to its potential higher tax liabilities.

How Your Spending Patterns May Affect Your Investment Decisions

January 5, 2016 by Kelly Trevethan Leave a Comment

Working, saving, investing, and spending are the four pillars of financial life management, or FinLife®, as we call it. We can intuitively understand that the four actions are tightly interconnected, but what may be less obvious is that they are all equally important. While discussion of the fourth pillar, spending, may sometimes be neglected in favor of the other three, we feel that it is so important to a well-balanced FinLife® that we’re devoting an entire month to discussing the subject. After all, even the most diligent savers plan to spend their funds someday.

We’ll start off the topic of spending with a little whimsy. Consider the following sentence:After spending their whole life working,savers often plan to spend their retirement spending their savings. While admittedly repetitive, the sentence illustrates the profound importance generally attached to spending. Part of FinLife® is making choices that allow us to feel like we’re “spending” well.

For those still in the accumulation phase, there is a different nuance: how much they spend dictates how much they might save, which can affect how long they plan to work.Where you are with respect to working, saving, investing, and spending may mean that you need to approach your portfolio differently. Someone who is accumulating assets versus someone who is relying on their investments for cash flow needs (such as in retirement or for college expenses), may likely invest their entire portfolio very differently. United Capital has tools available for many different sets of investors, but let’s focus first on ways someone who is spending down their portfolio might think about investing their assets.

Consider how we think about investing, using a triad of low cost tracking, performance, protection and tax minimization.

Someone who is close to using their portfolio for cash flow needs may want to explore strategies that lie on the Protection axis, for example. These investors may want to attempt to limit downside volatility – even though it may limit upside potential – with the goal of preserving capital from which to draw during retirement.

Other investors, perhaps those already in retirement, may consider a strategy that focuses on income and preservation of capital, which can be found among any of the four attributes of low cost tracking, outperformance, protection or tax minimization, depending on the strategy in question. Indeed, when nearing or entering retirement, some investors may (perhaps incorrectly) approach investing and spending as binary decisions: either they are investing or they are spending. Unfortunately, they may not consider the two in tandem, despite a retirement that may span nearly as long as their working life.

That is where FinLife® comes in. These considerations of working, saving, investing, and spending are not meant to be viewed in isolation, but rather together. Investing in a manner that allows you to spend both prudently and confidently, for example, may be a useful way to approach your particular situation. How much you spend relative to the size of your portfolio can make a big difference to how you invest your assets. For some investors, shifting from an accumulation phase to the distribution phase of their investment process might not necessarily mean an abrupt shift in their entire portfolio allocation. For other investors, careful consideration to their asset allocation may be in order.

Your experienced United Capital financial adviser can help you determine what course best suits you and your particular situation. Considering how near or how far to your investment objectives you are may mean that changing your investment strategy could make sense.

It could also mean that your spending habits may need to change as well. Having discussed how some investors’ portfolios may need to be adapted to their spending needs in retirement;other investors may need to consider whether their spending patterns allow them to save enough to even reach their retirement goals. Since what is spent cannot be saved, if you are far from your retirement savings goals, then it may make sense to consult with your United Capital financial adviser to better understand successful approaches for modifying spending so that you can more reliably save enough.

We can see how these aspects are related. Considering the intersection of these variables may help you determine how to invest your portfolio, either more aggressively or more conservatively, and how much you must save versus spend. In turn, these decisions may affect how long you plan to work. In your financial life, every decision you make affects something else when it comes to working, saving, investing, and spending, and it is important to understand how. And that is the role of your experienced United Capital financial adviser.

Disclosures: United Capital Financial Advisers, LLC (“United Capital”) provides financial life management and makes recommendations based on the specific needs and circumstances of each client. For clients with managed accounts, United Capital has discretionary authority over investment decisions. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this piece is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances.

Certain statements are forward-looking statements, including but not limited to, predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. There are no investment strategies that guarantee a profit or protect against a loss.

www.unitedcp.com

How to choose the right “Financial Life Manager”

December 7, 2015 by Kelly Trevethan Leave a Comment

No matter what your financial goals may be, hiring a “Financial Life Manager” may help you achieve them. Whether you are planning for retirement, buying your first house, paying off debt or wish to invest some of your hard-earned cash, a “Financial Life Manager” may help you along every step of the way to help ensure you meet your financial goals. But not all financial advisers are created equal and hiring the wrong one could have serious consequences.

Find out what to look for and how to choose a financial adviser:

Check Their Credentials:
The first step of choosing your financial adviser is checking their credentials. A Certified Investment Management Analyst (CIMA), Registered Investment Consultant (RFC), or Certified Financial Planner (CFP®), are some of the credentials you may consider. In order for an adviser to obtain a CIMA, RFC or CFP certification, the adviser must go through rigorous testing, ongoing continuing education requirements, and meet certain regulations concerning many of the different aspects of financial planning.

1. Ask Friends and Family: Ask people you know if they have any recommendations for a financial adviser in your area. This way, you will get a firsthand account of what type of services the financial planner offers and whether they could provide the kind of help you’re looking for.

2. Understand How They Get Paid: Some financial advisers get paid by commission when they sell you an investment product. Other advisers operate on a fee only scale, meaning they do not get paid from commissions. You might also be able to find a group of advisers that charge per hour for small projects.

3. Read Their Code of Ethics: As the old saying goes, the devil is in the details. While it may be tedious, read through each adviser’s code of ethics, and make sure they have your best interests at heart. Look for terms like “fiduciary,” which means they strive to look after your best interests at all times. Registered representatives who are not advisers are held to a suitability standard, which is a lesser standard.

4. Consider Specialization: The conversation with multimillionaires needs to be different than a conversation with two college graduates starting to build their lives together. Make sure that the team you are considering to hire has specific experience doing what you need. Finding the right “Financial Life Manager” for your specific goals may make or break your success.

5. Make sure to do your due diligence so you may feel that you are in good hands: The right “Financial Life Manager” will assist you along every step of the way, hopefully helping to turn your financial dreams into realities.

Mr. Kelly Trevethanis a Certified Investment Management Analyst& Registered Financial Consultant. He is aManaging Director with United Capital Financial Advisers LLC, a national private wealth advisory firmwith 79 offices across the nation. He can be reached at 415-418-2101.To obtainyour free copy of the New York Times Bestselling book “The Money Code”, email him at Kelly.trevethan@unitedcp.com.

Do You Have a Master Wealth Plan?

November 4, 2015 by Kelly Trevethan Leave a Comment

Kathy and John realized their long planned retirement days would have to be postponed. Two events caught them by surprise: Their substantial portfolio had lost nearly one third of its value and Kathy’s mother, who watched her wealth disappear in the financial meltdown, suffered a debilitating stroke, which required 24-hour care. Like many people, Kathy and John never had a master wealth plan.
Just as successful institutions make every financial decision based on a specific master plan that outlines their focus on what they can control and what may impact their financial security, every person should have a master wealth plan as well.

Your master plan is the product of an honest conversation about where you are today and where you are going. It’s a living document that lays out assumptions about your future and helps you focus on the factors that you can control today. Equally important, your plan assumptions are continuously reassessed over time.

Your master plan demonstrates the impact and consequences of every decision and helps you make the appropriate trade-offs based on what you value most. It helps you prepare for and adjust to foreseen and unforeseen events in your life and in the financial markets.

A master wealth plan has four steps:

1. Identify your financial life goals.
Oftentimes, couples don’t know each other’s goals or they don’t have the same goals. Through candid discussions, couples begin to align their goals as they understand each other’s objectives. A private wealth counselor works to help the couple identify and clarify their goals and aspirations, which is the foundation of the master plan.

2. Understand the five financial control factors.
There are five aspects of your financial life, which you can control and which become the basis for your master plan assumptions. These assumptions may change as you pursue your lifestyle and long-term goals. The control factors are:

• Spending – lifestyle level you wish to maintain
• Savings – money dedicated for investment
• Timing – when you want the event to occur
• Risk – the level of volatility in your investment portfolio
• Legacy – assets you want to transfer to heirs or maintain as a safety net

3. Measure the probability of success.
To measure the likelihood of your plan’s success, a private wealth counselor will use advanced scenario analysis software that considers thousands of simulations of “financial lifetimes” with inputs of actual and hypothetical historical market performance. These scenarios include optimistic and pessimistic circumstances that have never occurred in the markets’ history, which demonstrates your plan’s ability to withstand the unexpected.

4. Make adjustments along the way.
Your plan is a living document that should be consistently updated to ensure its effectiveness over time. Unexpected changes can influence financial situations and decisions. These include changes in the tax code, a sudden rise in inflation, an inheritance or unforeseen illness, all of which require a review of your master wealth plan and adjustment of your control factors.

Don’t let the volatile financial market or life’s events catch you by surprise. By having a master wealth plan, you ensure that your goals, which you’ve worked hard to achieve, will occur as planned.

Kelly Trevethan CIMA is a Managing Director at United Capital Financial Advisers, LLC, a private wealth counseling firm with more than 80 offices around the country. He can be reached at (415) 418-2101 or at kelly.trevethan@unitedcp.com.

More of Something Often Means Less of Something Else

October 3, 2015 by Kelly Trevethan Leave a Comment

At United Capital, we often say, “More of something often means less of something else.” We repeat this phrase to ourselves and to our clients because we believe that it captures an important investment truth that can help us reach our investment goals.In fact, it resonates so strongly with us that we’ve aligned our investment platform around prioritizing sometimes-conflicting goals.We’ve outlined how investors must choose between strategies that emphasize outperformance, protection, tax minimization, or low cost tracking to a benchmark. So what does this really mean? We contend that it highlights the investment choices we need to make when identifying the investment goal for a specific, individual account.

Consider, for example, the resources that must be expended in order to achieve outperformance relative to a benchmark index, and how that must necessarily move away from “low cost”solutions. Moreover,if that strategy successfully outperforms a benchmark, it will no longer closely track that benchmark, much less be tax efficient. In a similar vein, a strategy whose primary focus is on risk avoidance can’t, at the same time, take aggressive positions that could pay off handsomely, because it could instead suffer notable losses if the investment thesis doesn’t pan out. No investment professional has a crystal ball, so it is impossible to invest in a strategy that can exploit potential profits yet takes no risks at all. Opportunities, by definition, come with some sort of risk or another. Otherwise, they are not opportunities.

By prioritizing which matters most to you for each of your particular accounts – low cost tracking, outperformance, tax minimization, or protection – we aim to provide solutions that best fit with your highest need for a specific account. Of course, these are spectrums, not a yes/no decision. One can have degrees to which an investment focuses on say outperformance. In fact, the spectrum can be quite broad. Even within the same investment series, you can choose, hypothetically, between a 100% equity version and a balanced version that contains varying elements of fixed income.

Of course, every investor is a complex individual and often has many nuanced investment objectives and accompanying emotions about investing. The answer of how to address these competing agendas is to reconcile your asset constituencies with your various, competing investment goals. Many clients have different accounts representing distinct pools of funds, each with a separate time horizon and investment objective. One may invest a retirement account entirely different from the college savings account for a child now entering high school. And then the same client may have one pool of funds with which they can take absolutely no risk and another pool of funds with which they can afford to take significant risks, depending on the ultimate goals that those funds serve. Each account may have a different objective – and thus a different solution, on a different axis on our platform, all aggregating up to a very multi-faceted approach to investing.

That means that our paradigm of viewing our investment platform holds true when one disaggregates your entire finances into a more easily understood (not to mention more actionable) framework of how to invest each of your individual accounts. And it is at this juncture where our platform fits into the equation.

By identifying where a particular portfolio fits along these axes, you can easily conceptualize the idea that more of something often means less of something else. A greater emphasis on protection by necessity means that one can’t focus on outperformance or follow a lowest-cost index strategy, and so on. By putting investments into this framework – and selecting investment vehicles that match your specific and mutually exclusive goals for an account – we can best help you achieve your goals. And by understanding this trade-off upfront, your journey to your investment destination will likely take a more satisfying and appealing route.

Disclosures
Investing involves risk, including possible loss of principal, and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this piece is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances.

An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the returns presented.