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Welcome to MONTH-2-MONTH, an e-Newsletter from Alexander Financial Planning, Inc. MONTH-2-MONTH is intended to provide you with updates on AFP and timely financial planning and investment information on a variety of topics. You are welcome to forward this e-mail on to others.
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Make December Memories
Have your preparations reached a level of frenzy? Are you seeking that special gift or making a list of ingredients needed for a favorite dish? While these things are important and ways we display love and comfort, the true joy really comes from the time shared with those we hold dear. Cuddle up close by the fire and share a book or listen to music. Play a game or solve a puzzle. Engage in a conversation and share your hopes and dreams for the new year. These activities become cherished memories. As we count our blessings, many are less fortunate. Perform a simple random act of kindness, small or large doesn't matter. In addition to helping another, you'll also be making a deposit to your own account of compassion and humility.
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Happening at AFP:
We are working to complete tasks required to be done by year's end. Maria, who has been interning with us over the past 2 years as her schedule permits, has returned to assist over her holiday break. Intern, Jacquelyn is spending the holidays at home with her family in Pittsburgh.
Teri's World - Teri is looking forward to enjoying some time with her family over the holiday season. She is recovering from a bad cold and a week of laryngitis, but on the mend. She has also been gearing up for a mission trip she will be taking to Rwanda in January.
Wh
at a
bou
t Bob? - Bob & Christine have had a pretty quiet December. However, there are several fun activities coming up. They are looking forward to hosting the Franz family Christmas dinner, taking a Trolley ride around Columbus with a stop at the zoo to look at their lights and a few parties to attend. They hope everyone has a wonderful Holiday season and a wonderful New Year!!!
Tracey's Time - Cayleigh's extra-curricular activities have been curtailed temporarily due to breaking her arm playing in her first hockey game of the season. The full arm cast comes off on Friday to be replaced by a waterproof short arm cast, we hope. She is ready for the holiday break from school since it is two weeks of homework she wont have to complete left handed. Tracey and Andy are looking forward to spending quality time with all of their kids over the Holidays.
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POINTS OF REFERENCE
(Current Economic and Investment Information)
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- IMMIGRANTS- 43% of the Fortune 500 companies in 2017 (i.e., the 500 largest US companies as measured by annual revenues last year) were founded or co-founded by either an immigrant to the United States or by the child of an immigrant (source: Center for American Entrepreneurship).
- DEMOGRAPHICS - 50% of the US population lives in just 143 counties in the USA, i.e., just 4.6% of the 3,142 counties throughout the nation are home to half our citizens (source: Census Bureau).
- EDUCATION - Only 37% of all jobs in the United States require education beyond high school, i.e., 63% of American jobs require a high school diploma or less (source: Department of Labor).
- U.S. & SPENDING - Over the next decade (fiscal years 2019-2028), estimated discretionary spending by the US government is $14.1 trillion, an amount that is dwarfed by the government's $35.9 trillion of projected mandatory spending (source: Office of Management and Budget).
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JOBS & PRODUCTION - After adjusting for inflation, manufacturing output in the United States is up +62% over the last 30 years, i.e., 12/31/87 to 12/31/17. However, the number of manufacturing jobs in the United States have declined 29% over the same 30 years, falling from 17.8 million to 12.6 million (source: Department of Labor).
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COLLEGE COST - The average cost of tuition, fees, room and board during the 2017-2018 school year at an average 4-year public college was $20,770, up +5.5% per year over the last 30 years. If that same rate of inflation continues over the next decade, 1-year of college (at an average in-state public college) will cost $35,389 during the school year of 2027-2028 (source: College Board).
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ENERGY - California is the first state in the nation to require solar panels with new home construction beginning in the year 2020. A 5/09/18 vote by the California Energy Commission will add an estimated $9,500 to the cost of a new home. Solar power generated just 1.3% of electricity in the United States in 2017 (source: U.S. Energy Information Administration).
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COST OF LIVING - 46% of the San Francisco Bay Area residents surveyed plan to move from California within the "next few years" primarily due to the cost of housing and traffic (source: Bay Area Council poll).
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HOME OWNERSHIP - Twice as many American homeowners were created in the last year as had been created in the previous 10 years. The number of US homeowners grew by +1.8 million (to 77.9 million) over the 12 months ending 6/30/18, double the +0.9 million new homeowners that were added over the decade ending 6/30/17 (source: Census Bureau).
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SOCIAL SECURITY - The total cost of the Social Security program in 2018 ($1.003 trillion) is projected to exceed its total income ($1.001 trillion), resulting in the program's first deficit since 1982 (source: Social Security).
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STATE BUDGETS- 30 of 50 US states do not have sufficient reserves set aside today to absorb the financial impact of an economic recession, forcing them to raise taxes/fees or reduce benefits (source: S&P Global).
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POPULATION - There are 102 cities in China with a population of at least 1 million, the largest Chinese city being Shanghai (22 million). There are 10 cities in the USA with a population of at least 1 million, the largest American city being New York City (9 million) (source: Census Bureau, The Guardian).
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About the Author
Stephen Auth, CFA
Overview
Executive Vice President
Chief Investment Officer, Equities, overseeing all of Federated's equity and asset allocation products globally
Joined Federated: 2000
Investment Experience: 37 Years
Responsible for overseeing Federated's Global portfolio management teams to maintain and enhance portfolio performance and assist in crafting the firm's international investment strategy.
Products Managed
Institutional Separate Accounts
EAFE Equity Strategy
Non-U.S. Small/Mid Cap Equity Strategy
Previous Associations
Director, Global Portfolio Management, Federated Investors
Senior Managing Director & Portfolio Manager, Prudential Investments
Education
B.A., Princeton University, Summa Cum Laude
M.B.A., Harvard Business School, with High Distinction
Volatile year ahead likely to end well
BY Stephen Auth, CFA
Federated
12-13-2018
As 2018 bounces up and down to a disappointing outcome relative to our expectations, it seems a particularly good time to consider what went right and wrong and where we might be heading in 2019.
Looking back
What is most disappointing to us about 2018 is that most fundamentals improved even while the market was roughly a wash. Tax reform passed late in 2017, offering the promise of a supply-side investment pickup that has been delayed but likely awaits more stable times. Earnings should end the year above $160, up 19% from 2017. Economic growth, fueled in the short term by the demand stimulus in the tax reform bill, was better than expected, close to 4%. Bond yields, after attempting to break higher in January, look now to end the year only modestly higher than their year-ago levels.
Why, then is the market flat and down almost 10% from intra-year highs and more importantly, why are the more economically sensitive areas of the market down 20% or more? Frankly, as we've expressed in several of our recent pieces, there is no perfect explanation despite all the narratives out there seeking one. As an old industry veteran once told me many years ago, "Steve, sometimes there are simply more sellers than buyers." Indeed, with the increasingly high share of market activity dominated by players with relatively short horizons (think ETF investors, hedge funds, risk parity funds, etc.), combined with concerns that we are "late cycle" (whatever that means), short-term news flow has driven markets more than ever.
Of late, headlines on the Fed, trade and oil have been key. And though all three seem to be moving in a market-positive direction (see " "), the market continues to fret with every early morning tweet on Xi, Huawei, Jay The bulls hit the trifecta Powell and Saudi Arabia. Piling on top are economists insisting that the cycle must end soon simply because it is old in age, despite it's being young in cumulative growth with few signs of typical late-cycle optimism and over investment/consumption. Behind the scenes, the Ouija board operators whom confused investors turn to when all else fails-the so-called technicians-are all issuing foreboding warnings about market death crosses, double tops and other scary "explanations."
Looking ahead
Given all the worries out there, and investors' insistence on "proof" that the good news that some (including us) foresee is real, 2019's first half looks to be what I call a "Missouri Market"-unlikely to advance until all the facts are in. Compiling the difficulties we are likely to experience in next year's first half: all the fourth-quarter 2018 worries that suggest corporate decision-makers across the economy may be simultaneously tapping the breaks awaiting longer-term developments. To us, this translates as an economic soft patch ahead, with growth "slowing" to maybe 2.5% in Q1 2019 before reaccelerating later in the year as the Fed actually pauses, Trump and Xi actually sign a trade deal and OPEC+ actually cut production and stabilize oil prices. Although soft patches can and sometimes do extend to something worse-even a full-blown recession-we see this as unlikely given the solidity of the banking system, reasonably tight corporate inventories and a healthy U.S. consumer.
Although the markets could start the year where they've left off, and perhaps even temporarily plumb new depths before stabilizing, we see several good reasons we should eventually head higher, perhaps not until the second half of the year. First and foremost, by then the uncertainty around the Fed, trade, and oil should be resolved, freeing up economic players everywhere to move forward more confidently with their investment and spending plans. With this, earnings growth is likely to reaccelerate toward our 2019 target of $170 to $175. As the much touted "second derivative" turns up, investor concerns about being late cycle should ebb. As confidence rises, the gradual expansion of the market multiple, which began in the depths of 2010 but stalled out this year, should resume, re-achieving a relatively undemanding 18 P/E on trailing earnings, compared to today's Christmas bargain of 16. This should eventually get us to our longstanding 3,100 target on the S&P 500, if not by midyear as we've been expecting, then by year-end at least. This gives the market upside on a 12-month view of roughly 15%.
At Federated, we are remaining at 70% of max overweight positions in stocks in our PRISM stock-bond portfolio model, with a view to add further to equities on another break lower if we are fortunate enough to get one. And if our friends from Missouri are all doubting us here, all the better. Bull markets need the balance of Investors cautious and ready to sell on all breaks higher. "More for me", said the bull.
Total Return Roller Coaster
Given the steep dive in the markets this quarter, it is important to remember that investing in general needs to be viewed through a longer term lens than just a quarter, a year or a five year hold. After all, the purpose of investing is to allow our money to grow and maintain purchasing power over the long-term. This is why it is so important to have an emergency fund for your short-term cash flow needs. So let's look at some longer term time frames to keep things in perspective.
Below are two charts that resonate for those who follow economic and market cycles. First, let's imagine that 5-years ago you invested $10,000 in the S&P 500. How much would it be worth today (through November 30, 2018), with dividends reinvested but adjusted for inflation? Your purchasing power would have increased to $15,777 for an annualized real return of 9.15%. Had we posed the same question in March 2009, the answer would have been a depressing $6,654. The -8.12% real return would have cut the purchasing power of your initial investment by a third.
The first chart shows a 10 year time-frame. As of the end of last month, your $10K invested 10 years ago would have grown to about $33.87K adjusted for inflation, an annualized real return of 12.26%. A 15 year hold is only slightly more profitable, $26K adjusted for inflation for an annualized return of 6.4%.If we extend our investment horizon to 20 years, as the second chart shows, the roller coaster is less volatile with higher lows and lower highs.
As these charts illustrate, and as many investors have discovered during the 21st century so far, investing can feel like an emotional roller coaster. Stepping back and looking at a longer time-frame may help to gain a broader perspective. Economic environments and being mindful of some key long-term trends (i.e. interest rates, direction of the dollar, etc.) also helps in properly allocating a portfolio.
Eight Simple Tricks to Keep Hackers
From Ruining Christmas Shopping
By Geoffrey A. Fowler
The Washington Post
On the first day of Christmas, a hacker said to me ... I stole your i-den-ti-tee.
I know you're thinking - really, Tech Guy? But there's a real Grinch prowling your phone and computer this holiday season: cyberthieves after your money, your passwords and your personal data.
I've got some advice to keep hackers from ruining your Christmas.
We're easier targets under holiday stress. The desperate hunt for Junior's must-have Poopsie Slime Surprise (this year's hot toy) makes you more inclined to trust an unknown online merchant. Decking the halls makes you a little less mindful about clicking on that email you thought came from your bank. Even on old reliable Amazon, fraudsters prey on you through fake reviews, shady gift cards and sneaky shipping fees. (Amazon founder and CEO Jeffrey P. Bezos also owns The Washington Post, but I review all tech with the same critical eye.)
Hackers mostly want money, so the shopping season is big business. Security firm Carbon Black says there was a 58 percent increase in attempted cyber attacks on its corporate clients during the 2017 holiday shopping season compared to the rest of the year.
And we need to adjust to a new reality in the online world: Data breaches are now extremely common. This year's major hacking targets included lots of big, familiar brands such as Marriott, Under Armour and Saks Fifth Avenue. Through no fault of your own, any data - including passwords and credit card numbers - you hand over to a company have a decent chance of someday getting stolen.
So what should you do? There are a few steps that help even when you're not shopping: Make sure your phone, computer, WiFi router and other connected gadgets are running the latest updates available. (Hackers know their way into older software.) And if your phone or computer is more than five or six years old, ask Santa for a new one. There is no way to keep an old device secure past a certain point.
Beyond that, practice defensive shopping. Here are eight pretty simple rules I learned from security pros that are especially useful now, but work all year.
1. Don't click on links in emails. Not even the "order confirmation" ones.
The No. 1 way hackers get to you and your family is through phishing scams. These are emails or messages that pretend to be from someone legitimate, but actually are trying to trick you into handing over information like a password. That's how the hackers got Hillary Clinton's 2016 presidential campaign - John Podesta clicked on a link in a phishing email.
During the holidays, phishers try to fake you out with emails that look like they're an "order confirmation" from a retailer, an overdraft alert from the bank or a delivery message from the post office or UPS. Think you're smart enough to tell the difference between a real and fake email? You're not. They've come a long way from messages from Nigerian princes. Phishers have gotten so sneaky, even the pros get tripped up. It's just not worth clicking.
But what if that email has a deal you want, or a bank alert you need to check out? You still don't need to click on the email. Pull up your web browser and type in the related website directly. Or open your bank or the retailer's trusted app on your phone.
2. Use PayPal, Apple Pay, Samsung Pay or Android Pay whenever possible.
Paying with one of these newer services keeps your credit card number out of the hands of merchants. So when a merchant eventually gets hacked, it can't leak your 16-digit account number.
How does this work? PayPal and Apple Pay use an extra layer of security called tokenization that makes sure the bill gets paid, but generates a one-time-only code to do so. You're still paying through a credit card that you've enrolled with PayPal or Apple, but your information stays more private.
Banks issuing credit cards are responsible for fraud - and they use artificial intelligence and your typical spending patterns to look out for shady transactions behind the scenes. But having your credit card number stolen is still a hassle worth avoiding.
3. When a site asks you to set a password, don't reuse an old one.
If you're shopping on a site you don't frequent, use "guest" checkout instead of setting up an account. The less information you share, the better.
But if you have no choice, don't use a password you've used elsewhere. When a site gets hacked, the bad guys scoop up names, emails and passwords. So if you're using the same password for an unimportant website as, say, your bank - you could get in big trouble.
Your password may already be floating around out there and up for grabs. The website haveibeenpwned.com lists the ones we know about. (Go and check yours: It is a real nightmare before Christmas.)
Okay, but how are you supposed to keep track of different passwords for all these different sites? You can't, which is why I recommend using a password manager program. It's a little annoying at first, but eventually you'll wonder how you ever managed without one.
4. Only interact with Amazon merchants through the Amazon website.
Amazon isn't the only company that sells stuff on Amazon. Half the merchandise sold there these days is from third-party sellers, who are supposed to run everything through Amazon. So if a merchant ever asks you to email them directly, pay through some other channel or use gift cards, just say no and contact Amazon customer service.
Sometimes merchants might try to scam you by charging very little for a product but a ridiculous sum for shipping. That violates Amazon's rules, too.
5. Don't put too much faith in Amazon ratings.
They're no guarantees of quality. Some merchants pay for fake reviews that boost their rankings in Amazon's search listings. Others may beg customers to take down bad reviews - it happened to a colleague last week. (Both violate Amazon's rules.)
Amazon polices its store for fraud, but merchants set their own return policies. Even when they're legitimate, online ratings don't necessarily communicate what you think. What's "average" isn't three stars - it's usually closer to 4.3 stars. The most important information is the total number of reviews, and the honesty of what you read in the good and bad reviews.
6. Turn on alerts for all credit card transactions.
You probably get alerts on your smartphone for all sorts of unimportant things, such as Facebook likes, doorbuster sales and news about the Kardashians. So you definitely should turn them on for credit cards and bank accounts. That way, you'll know every time a purchase goes through - and you can leap into action if it wasn't your charge.
Every bank does this slightly differently: Some let you sign up for text-message or email alerts via their websites. Dedicated bank apps let you sign up for smartphone push alerts. Some banks, such as Chase, let you use an app to lock and unlock cards.
7. Don't shop on WiFi at the mall, airport, coffee shop or hotel.
Public WiFi is just that: public. Hackers who want to snoop on your laptop or phone can do so with relative ease if you join one of those networks. Digitally speaking, you're walking around the airport as naked as the day you were born.
You're more protected if you use a virtual private network, or VPN, which encrypts all the data coming in and out of your device.
8. Look for the lock logo in your Web browser - but don't rely on it.
The lock icon that appears in your browser's address bar means that a site is encrypted, so prying eyes on the open Internet can't easily see the data going back and forth. Using encryption is a best practice for all sorts of sites, but it's critical on any site that has your sensitive personal information, like your bank details. Any site that doesn't have it isn't prepared to protect you.
Unfortunately, the lock isn't a guarantee that a retailer is legitimate. Lately, fraudulent sites have also started using encryption in the hopes of duping us into trusting them.
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"It's not how much we give but how much we put into giving.
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-Mother Theresa
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