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What's Happening Now
Commonwealth Financial Network, our affiliate, has been ranked highest in overall satisfaction among independent advisors in the most recent JD Power poll of financial advisors and networks.  
The U.S. housing market appears to be headed for its worst slowdown in years. 

Facebook just had its worst day in stock market history.

Should the terminally ill be allowed to die?
Trump's economic scorecard 18 months into his presidency.

Comforting your children about troubled times isn't enough - be a helper.
New trend: people are buying cars at Costco.

How to replace your paycheck in retirement. 

Is algae the food of the future?

How to turn a teen's summer wages into millions. 
Easy ways to save money long term
July 2018
Everything you need to know about credit scores - that's what this month's contribution from Commonwealth Financial Network article gives us.  Your credit score is a way of indicating to lenders how secure they can be that you will uphold your side of the agreement.  It's also a way of making the credit-granting process more efficient. See the feature article below.

Did you know that efforts to diversify your investments can sometimes backfire?  The article from Kiplinger below points out that a recent study from the University of Chicago found that picking the cheapest option and placing all investments in one basket paid off more than diversification options.

Is algae the food of the future?  See the related piece in our What's Happening Now section to the left.

Hope you are keeping cool.

We'd like to hear from you. Please feel free to contact us by phone at 614-888-2121, toll-free 877-389-2121 or e-mail chornyak@chornyak.com with any questions or comments.

The basics of credit scores and credit reports 
As consumers, we know that having a good credit score is important. Whether you are applying for a loan or signing up for a credit card, your credit score plays a major role in determining if you will be approved. Your credit score can also have a significant impact on loan terms and borrowing costs.

What is a credit score?

When you borrow money from a lender or sign a contract pledging to make payments, the other party needs to assess how likely it is that you will fulfill your obligations. Your credit score is a measure of risk that helps lenders quantify this likelihood in real time.

Credit scores also help to make the credit process more efficient. In order to make a decision about whether to lend money, a lender needs to gather a great deal of information. The credit score speeds up this process immensely by giving the lender a quantifiable measure without having to collect all the data. In addition, the efficiency of using credit scores does a lot to increase the amount of credit available, which in turn pushes down the cost of credit to consumers. 

Types of credit scores

The FICO ® Score, created by the Fair Isaac Corporation, is the most commonly used credit measure. Although in this article we focus on FICO, you should be aware that other scores-for example, VantageScore and PLUS Score-evaluate credit worthiness using their own methodologies.

A consumer's base FICO Score ranges from 300 to 850-the higher the consumer's score, the lower his or her risk to lenders. During the past 25 years, the base FICO Score has undergone many revisions, and the scoring methodology has evolved to account for new data points. Currently, the most widely used measure is the FICO 8 Score. (Fair Isaac has several other scores whose methodology is specific to the type of lending decision being evaluated. For instance, a bank may use a different FICO Score for mortgage lending than it does for making decisions about issuing credit cards.)

How a FICO Score is calculated

When a consumer obtains credit, the lender reports the information to the three major U.S. credit bureaus: Equifax, Experian, and TransUnion. The information then goes into the individual's credit report, which provides the raw data used to calculate the credit score.

The credit report includes the consumer's personal information (e.g., date of birth, social security number), all of his or her account information, information about credit inquiries, and negative information such as bankruptcies and late payments. For calculating an individual's credit score, the FICO formula looks at five primary categories of information:
  1. The consumer's total amount of debt
  2. The combination of different types of accounts
  3. The consumer's history of making payments on time
  4. How old the consumer's credit history is
  5. The amount of new credit applied or shopped for
Although some categories like payment history and amount of debt are more heavily weighted in determining the FICO Score, the relative importance of a category can be affected by the aggregated information in the consumer's credit report.

Improving and maintaining your credit score

Now that you understand what goes into calculating a credit score and why the score is so important, let's look at some strategies for improving, maintaining, and protecting your score. It all starts with an initial check of your credit report.

Consumers may request their credit report once a year from each credit bureau. There is no cost to request the three reports, and they can be obtained easily online through www.annualcreditreport.com.

Once you receive your reports, check them diligently for accuracy. Cross-reference them with each other to be sure that the information is correct across the three bureaus. If you find inaccurate information-especially incorrect negative information-contact the credit bureaus to dispute the data.

Continue reading here.

© 2018 Commonwealth Financial Network®

Don't fall into the diversification trap
F rom Kiplinger:

Most investors know the importance of diversification, more colloquially known as not putting all of your eggs in one basket. Having a variety of investments has always been considered a sound portfolio practice because it ensures that when one investment declines, you've at least got a chance of having something else that gains. But blindly following even a good rule of thumb can do more harm than good.
That's what behavioral finance researchers at Morningstar and the University of Chicago found in  a
. They asked a nationally representative sample of 3,622 people to allocate a hypothetical $10,000 among three actual exchange-traded funds that tracked Standard & Poor's 500-stock index. The three funds were essentially identical, except for fees: One ETF had an expense ratio of 0.40%, one charged 0.09% of assets, and the third charged 0.04%. Participants had all the information they needed to evaluate the funds. In fact, researchers experimented with different ways of displaying the fees and fund performance, which turned out to have no effect on which funds people chose. Half of the participants were told they could choose just one fund among the three; half were told they could allocate the money freely among all three funds.
The researchers discovered that when it comes to investment fees, diversification efforts can backfire. About 47% of the first group chose the cheapest fund option-the correct choice, given the identical makeup of the funds and similar performance records. But only 14% of investors with access to all three funds chose to put all of their money in the cheapest version. On average, those who could allocate freely put 27% of their money in the most expensive ETF, 31% in the middle-cost ETF and 42% in the cheapest.  
Freedom Can Be Expensive
The results show that when given the option, investors put a sizable portion of their money into high-cost investments when nearly identical low-cost options are available. "Investors are sensitive to fees, but an overreliance on diversification overrides that sensitivity," says Morningstar behavioral scientist Ray Sin. Experiment participants who "naively diversified," as behavioral scientists call the flawed strategy, incurred costs that were almost four times higher than those who invested only in the cheapest option. That's the kind of drag on returns that compounds over time, with disastrous consequences.  
Diversification snafus can be triggered by too many choices within a complex decision, say the researchers. That's practically the definition of investing. And lest you think this was merely a theoretical exercise, Sin says that an examination of Morningstar's database found multiple retirement plans with products that were essentially indistinguishable, except for their fees. "This is happening," he says. "You might be wasting your money."  

The researchers recommend that investment advisers take a cue from Costco and curate the choices they offer investors, similar to the way the retailer offers a limited selection of high-quality goods at reasonable prices. Investors can curate their portfolios on their own by remembering that diversification is meant to give you exposure to different asset classes, such as stocks or bonds, or different sectors, industries or investment styles within those categories-but not different funds of essentially the same type.  
Start by determining what's appropriate for your goals and ignoring the rest; a 30-year-old focused on growth does not have to sort through a lot of bond funds, for example. And be discrimin­ating within each category. For example, if you have more than one small-company growth stock fund, you've probably got too many. Finally, if you're choosing among substantially similar funds-nearly iden­tical in the case of index funds-lower expenses should be the most important factor in your decision.

Market Update
Market Update 
Strong July for global markets

Global markets had a strong July, rebounding from a volatile June. Here in the U.S., the S&P 500 Index gained 3.72 percent while the Dow Jones Industrial Average grew 4.83 percent. The Nasdaq lagged its counterparts with a gain of 2.19 percent, after a technology sell-off pulled down performance at month-end.

Better-than-expected fundamentals supported the positive returns. Spurred by the strong economy, corporate sales have taken off. Almost three-quarters of S&P 500 companies have rep
orted sales increases above expectations, which is significantly above the five-year average. The size of the beats has also been above average. Not only is sales growth doing well in absolute terms, but it is surpassing expectations, which is positive for market performance.

Sales matter, but it is the money a company keeps-its earnings-that matter more. The news here was also very good, with five out of six companies beating estimates thus far. Earnings growth for the third quarter is also better than expected; it was 21.3 percent as of July's end, up from an estimated 20 percent on June 30.

Fundamentals drive long-term performance, so the second quarter was very positive. Moreover, analysts project double-digit earnings growth for the rest of the year.

Technicals were also supportive for U.S. markets. Although it began the month below its 200-day moving average, the Dow finished July above this trend line. The other two major indices remained well above their respective averages throughout the month.

International markets bounced back in July after a weak June. The MSCI EAFE Index finished the period up 2.46 percent. Emerging markets posted similar returns, with the MSCI Emerging Markets Index rising 2.28 percent.

Technicals for developed and emerging markets were challenging in July, as the June pullback proved too deep to recover from in just one month. Both indices stayed below their long-term trend lines.

Finally, fixed income had a difficult July, as a rise in rates on the long end of the curve at month-end upset markets. The yield for the 10-year U.S. Treasury rose from 2.87 percent to 2.96 percent during the month. Typically, rising rates are bad for bond returns, and the Bloomberg Barclays Aggregate Bond Index rose just 0.02 percent in July.

High-yield corporate bonds, usually less tied to interest-rate moves, had a better month. Interest rate spreads compressed slightly in July. The Bloomberg Barclays U.S. Corporate High Yield Index rose 1.09 percent, showing that investors are still comfortable paying up for higher yields.

Economic reports point to faster growth
The global economy continued to grow, and the U.S. in particular grew faster in the second quarter. Second-quarter U.S. gross domestic product (GDP) growth came in at 4.1 percent, the highest level since 2014, as illustrated in the chart below. Meanwhile, first-quarter growth was revised up from 2 percent to 2.2 percent.

The growth was broad based, engendered by higher consumer spending, solid business investment, and faster government spending growth, along with a notable bump from a surge in exports.

Job growth remains healthy as well, despite a lackluster report in July, which came in at 157,000 new jobs versus expectations for 193,000. What this headline figure doesn't show is that June's strong employment report was revised up from 213,000 jobs to 248,000, accounting for most of July's shortfall. The unemployment rate also improved from 4 percent to 3.9 percent, and average weekly hours worked stayed steady at 34.5.

The strong jobs market has helped support consumer confidence. The most recent Conference Board confidence survey rose to its third-highest level since 2000.

With consumers able and willing to spend, consumer spending growth also accelerated. It rose 4 percent against expectations for a more modest 3-percent gain. Retail sales data was also solid, with a 0.5-percent uptick and an upward revision to the prior month's number. If consumers can continue to spend as they did in the second quarter, we may see GDP growth of more than 3 percent for the rest of 2018.

Although consumers were a bright spot in the second quarter, they weren't alone in driving growth. Businesses were also confident and willing to spend. The Institute for Supply Management's Manufacturing and Nonmanufacturing indices continued to post high expansionary numbers, as faster growth and lower corporate taxes led to healthy levels of investment. Business investment for the second quarter grew 7.3 percent, and durable goods orders for June rose a respectable 1 percent. Export growth of 9.3 percent was another bright spot, although here the details suggest that such a large increase isn't likely to be repeated.

The Federal Reserve (Fed) also seems to be on board with the continuing recovery. Fed Chair Jerome Powell declared victory in congressional testimony in July, with both unemployment and inflation at Fed targets. This is a more positive take on the economy than we have had from the Fed in years, and it ratified the positive data we saw last month.

But housing disappoints
Not all the news was good. Housing, a key economic sector, appears to have slowed. Both existing and new home sales declined in June, with new home sales falling 5.3 percent. Homebuilder confidence, though still high, appears to be rolling over. Rising construction costs have lowered the profitability of new housing and led to a declining trend in housing starts and permits. During the past few years, builders have been able to pass along cost increases to homebuyers. Given today's higher prices and rising mortgage rates, however, this trend may be nearing its end.

Some of the slowdown in housing can be attributed to low levels of supply, but another key factor is slumping affordability. Housing prices are climbing faster than incomes, and, as mentioned already, mortgage rates are ticking up.

Housing is among the key drivers of the U.S. economy and a proxy for overall consumer confidence. Even though the financial markets remain strong, and the economy continues to grow, any slowdown in housing growth must be taken seriously.

Political concerns muted but still there
In July, political stories grabbed the headlines, but domestic markets took the events in stride. Overall, the market's perception of policy risks seemed to recede, as North Korea moved out of the headlines, and the trade war between Europe and the U.S. was put on hold. China, however, remains a major area of trade concern, with renewed U.S. tariff threats rattling markets at month-end.

In the months ahead, the midterm elections could lead to increased volatility. With a potential government shutdown in play, as well as the disruption brought about by the campaigns, political risks are more likely to rise than to fall. This will be something to keep an eye on as we move toward November.

Prospects remain positive
Despite very real risks, the positive economic news from July points to continued healthy growth for the rest of 2018. And politics notwithstanding, a healthy economy and rising profits should support the markets. That's good news, but it doesn't mean we won't see volatility.

We should expect that, at some point, the news won't be as good. But we should take it in stride. Whatever happens, a well-diversified portfolio that matches risk-and-return guidelines is the best path to follow for achieving long-term financial goals.

Co-authored by Brad McMillan, managing principal, chief investment officer, and Sam Millette, fixed income analyst, at Commonwealth Financial Network®.

All information according to Bloomberg, unless stated otherwise.