"Helping You Navigate the Course to Financial Freedom"
November 2016
Finally, It's Over!
 
The people have spoken (or should I say the Electoral College has spoken)! Overnight markets reacted violently. But I always caution against watching stocks on a daily basis, because it's too easy to get caught up in the daily volatility that inevitably will occur. If we go back to last summer's late August swoon, it might have been tempting to bail when shares were near their bottom and financial reports bordered on hysteria.
 
Or, fast forward a few months to the start of 2016. Remember how stocks were hit by one worry after another? "The S&P 500 and Nasdaq posted their worst start to a year since 2001, while it was the worst for the Dow since 2008," according to an early January headline by Reuters.
 
Anytime stock comparisons run up against 2001 or 2008, it's natural to start asking questions. But it can also generate needless worry.
 
Monitoring daily moves in stocks may not always bring about volatility. Instead, it may be as exciting as watching the paint dry.
 
The S&P 500 Index closed at an all-time high 2,190 on August 15 (St. Louis Federal Reserve). We then preceded to close within 3% of the all-time high for the next 54-straight business days ending October 31 (St. Louis Federal Reserve). That's the longest streak since 1928, according to LPL Research.
 
The sheer boredom in this broad-based index of 500 larger companies contrasts sharply with the circus that has unfolded. You know, the now finished 2016 presidential election.
 
Charges and counter charges have been levied by the candidates. Reality TV couldn't have done a better job scripting the antics in this campaign. Sadly, however, this isn't reality TV. Now we'll just have to wait and see how the election rhetoric plays out, i.e. what will translate into real policy and what was just for "show".

Short-term market gyrations are the playground of traders. Long-term investors with long-term plans shouldn't be distracted by daily movements.

Eventually, longer-term money will eventually set its sights on the boring fundamentals that have tugged at shares for many years - the economy, profits and expectations of profit growth, and Federal Reserve policy.

In This Issue
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Did You Know?
 
Leslie Beck was recently elected to serve on The Strategic Financial Alliance's Strategic Advisory Council (SAC). The SAC was created to assist SFA in building a premier independent financial services organization. The SAC serves as a representative and liaison to SFA's advisor base, presenting issues and initiatives for discussion and implementation. SAC members serve three-year terms. Leslie's term will begin January 1 2017 .

Table 1: Key Index Returns
 
MTD %
YTD %
3-year* %
Dow Jones Industrial Average
-0.9
+4.1
+5.3
NASDAQ Composite
-2.3
+3.6
+9.8
S&P 500 Index
-1.9
+4.0
+6.6
Russell 2000 Index
-4.8
+3.7
+2.4
MSCI World ex-USA**
-2.0
-1.5
-4.0
MSCI Emerging Markets**
+0.2
+14.0
-4.4
Source: Wall Street Journal, MSCI.com
MTD returns: Sep 30, 2016-Oct 31, 2016
YTD returns: Dec 31, 2015-Oct 31, 2016
*Annualized
**in US dollars
 
You paid how much for that?!

Tune into well-known economists and Federal Reserve officials and you'll hear that one reason interest rates have been slow to rise has been a rate of inflation that's too low. Yes, you heard it right, prices aren't rising fast enough.
 
While some of you are thinking about the cheap price of gasoline, others can't help but point to everything from college and health insurance costs, the latest rise in your cable bill, or even the cost of popcorn at the movies.
 
Key measures of pricing, such as the Consumer Price Index (CPI) and the lesser known PCE Price Index (the one the Fed prefers), have held below the Fed's inflation target of 2% for over three years (BLS, BEA).
 
I readily acknowledge that everyone's monthly basket of goods and services is unique. A person who puts 6,000 miles on her Prius each year won't benefit nearly as much from lower gasoline prices as the person who racks up 25,000 on her SUV. Still, the major price gauges really do a good job of monitoring the overall price level.
 
And here lies the disconnect. From an investment perspective, markets (including the stock and bond markets), the Fed, and economists are going to key in on the major indexes such as the CPI and the PCE.
 
That said, the CPI is beginning to detect risi ng inflation in parts of the economy. In particular, the price paid for services is advancing at a moderate clip, up 3.0% from a year ago (BLS)
 
Notably, medical care has started to rise at a much faster pace, up nearly 5% over the past year, and the cost of shelter (primarily rent as actual home prices aren't included in the CPI), have accelerated to almost 3.5%.
 
Despite important pockets of the economy which are experiencing pricing pressures, it is unlikely that we will see much reaction from the Federal Reserve. The Fed's focus remains on overall economic growth.
 
You see, the Fed wants to keep interest rates low in order to squeeze extra job growth out of the economy. Unfortunately for savers, any interest rate hikes are likely to be gradual unless overall inflation rises sharply. And with a new political regime, any policy changes by the Federal Reserve may be put on hold for now.
 
Epilogue
 
I know that for some of you, this year's election has been particularly difficult. You are rightly concerned about the direction of the nation, and you fear the leadership that will take the helm next year won't be in the country's best interest.
 
I won't comment on the many pressing issues of the day, nor will I comment on our new commander-in-chief.
 
I will leave you with something I wrote just a couple of months ago, and something I wholeheartedly subscribe.
 
In his 2015 letter to shareholders, Warren Buffett said, "For 240 years it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs (Bloomberg - Warren Buffett's 2015 Shareholder letter, Annotated)."
 
A growing economy fueled by innovation and entrepreneurship has been the biggest driver of stocks over the many decades. As Buffett emphasized, betting against America isn't a winning hand. And he didn't qualify his remarks based on the outcome of the election.
 
I hope you've found this review to be educational and helpful. As I always emphasize, it is my job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me a call. ##


Social Security Increase for 2017

The Social Security Administration recently announced its Cost of Living Adjustment (COLA) for 2017. Benefits for recipients in 2017 will increase by 0.3%, the smallest increase on record according to Yahoo Finance. The miniscule amount is a result of lower food and gasoline costs on a year-over-year basis. As a result, the average beneficiary will see a rise of only $5 per month in their benefit, according to the Social Security Administration Fact Sheet.
 
The maximum amount of earnings subject to the Social Security (OASDI) tax in 2017 will rise from $118,500 to $127,200 (there is no limit on the amount of earnings subject to the Medicare portion of the tax). Since 2013, individuals with earned income of over $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes.
 
While the Center for Medicare and Medicaid Services has not announced the 2017 Medicare Part B premium as of this writing, the low COLA for social security could result in substantially higher premiums for high-earning retirees, due to the complicated "hold harmless" provision of the Social Security Act.
 
Under this provision, Medicare can't pass along a Medicare premium increase that's higher than Social Security's annual COLA for those who are covered by the hold harmless provision, an estimated 70% of beneficiaries (Wall Street Journal). But who are the unlucky 30% NOT covered by this provision? It includes those who are new to Medicare in 2017; those who receive Medicare but have deferred or are not eligible for Social Security benefits; those already paying higher premiums because of higher incomes; and lower-income individuals eligible for both Medicare and Medicaid.
 
These unlucky 30 percenters may wind up with Medicare premium increases of over 20%, as the burden of increased overall costs in the Medicare system will fall primarily on them, by law. Last year, Congress temporarily reduced a projected 52% premium increase for those not covered by the hold harmless provision to only 16%. Whether that will happen again in an especially acrimonious election year is anyone's guess.
 
Please call us if you have questions about your Medicare premiums for 2017.

Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA), Member FINRA, SIPC. Supervising office at 678-954-4000. Financial planning offered by Compass Wealth Management LLC. Leslie Beck and Martin Siesta are registered representatives and investment advisor representatives of SFA, which is otherwise unaffiliated with Compass Wealth Management. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.  For more information visit www.compasswealthmanagement.net