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Investment Newsletter - Q3 2017 

Hard to believe that 2017 is more than half over, but it is (and yes, that means the days are getting shorter already...). 

A brief overview of recent market activity and expectations follows below. Our current investment topic is: " Tax Loss Harvesting - How to Limit your Tax Liability" .   We also have a recap of the performance of major market indices from the past quarter and for the year, some thoughts on the importance of having a financial advisoras well as the upcoming economic calendar. 

The second quarter of 2017 has seen the stock market continue it's upwards trajectory in general, though on the domestic front has not performed as well as internationally. The question, among others is will it continue? We put in Our Perspective... in more detail below, as well as a link to Morningstar's Market Outlook for Q3 2017 (available here)

You will find past investment articles , and recent stock market commentary and outlook , by clicking on the relevant Quick Links on the right , or peruse past investment topics by clicking the  Articles tab above or directly on our website. 

If there is a topic of interest you would like to see covered in the future, please reply back to this email to let us know, or click here . Likewise, i f you have any questions on this or anything else, feel free to reply back.
Investment Topic: Tax Loss Harvesting - How to Limit your Tax Liability
For our investment topic, " Tax Loss Harvesting - How to Limit your Tax Liability", we attempt to give a high-level overview of the topic in less than 3 pages. To learn more, please click here

Our Perspective on Recent Market News and Activity

Our synopsis of the past quarter, a look ahead, and putting it all in perspective:

The second quarter of 2017 was a continuation of the momentum that stocks have enjoyed especially since the second half of 2016.  The highlights for the second quarter of 2017 were the Dow Jones Industrial Average +3.32%, the S&P 500 Index +2.57%, MSCI EAFE International +5.03%, and Emerging Markets +5.47%.  Some other asset class returns for the quarter were Russell Mid Cap +2.27%, Russell 2000 Small Cap +2.12%, REITS +0.69%, Bloomberg Commodity Index -3.22%.  On the bond side, and through May 31st, the Barclays Aggregate bond index was +0.54, and the Barclays Muni Index was +1.23%.

In June, the U.S. central bank again raised short-term interest rates by a quarter point, marking its third rate hike since December of 2016.  This was a sign that the central bank believes the U.S. economy is on solid ground also upgrading its forecast for U.S. economic growth and unemployment this year.  Fed chair Janet Yellen said at a press conference, "It reflects the progress the economy has made".   The Fed's key interest rate will now hover in a range between 1-1.25%.  The unemployment rate fell to 4.3% and Fed leaders see that rate falling to 4.2% in 2018.    Fed officials also cut their forecast for inflation down to 1.6% which is down from an earlier March estimate of 1.9%.   The U.S economy's improvement has given the Fed confidence to start selling off some of the $4.5 trillion of holdings it compiled as a result of the financial crisis of 2007-2009.  The Fed plans to initially start selling about $10 billion a month of mortgage -backed securities and Treasuries later this year.  Most Fed officials see at least one more interest rate hike in 2017.  There is also the question of the future of Janet Yellen as the Fed Chair whose term is set to expire in February of next year.  President Trump has both complimented and criticized her in the past, leaving her future uncertain. 

The question heading into the 2nd quarter of 2017 still remains as the same question for the 3rd quarter of 2017; "Has the "Trump Effect" rally runs its course or does it still have room to grow"?  Our opinion remains the same on this point and it is that for long-term investors, it really does not matter.  Any attempts to try and rationalize or base investment decisions upon short-term expectations, historically proves to be an unwise decision.  One common theme however is that the market has seemed to price in a perfect execution of the Trump agenda items such as health care reform, lower regulations, lower taxes, infrastructure.  To date, all of these major agenda items remain as question marks, and has the market priced in the implementation and been premature to celebrate?  Time will tell.  

We wanted to take the opportunity to go over a change that have made within our portfolios which has been to increase exposure to the international markets.  The US markets have had a tremendous run since the trough of March 2009, rising nearly 250% more than doubling the returns of international stocks during that time.  For many years, the international markets have been a lag on performance.  That has started to change in 2017 and we believe that this trend is in its preliminary stages.  In our latest rebalancing of portfolios, you may have noticed that we have shifted more weighting into the International portion.  Additionally, in in some portfolios we have added in a new holding to capture the International Small Cap space.  We anticipate that these changes over time will add extra return as we believe that the rest of the world which has been trailing the U.S. markets by about 5 years is starting to see some of the growth that the U.S. markets saw much earlier.   
We continue to remind our clients that we create and manage portfolios that are extremely well diversified with each component serving a unique place within the portfolio.  We closely evaluate correlations between the various investments to make sure that all of the asset categories do not always move in the same direction at the same time.  This creates a portfolio that on a risk adjusted returns basis will not seek to hit "home runs" but will also help our clients better navigate through those difficult market periods where volatility rears its ugly head.  Fortunately, over the last year, the markets have remained bullish and fairly stable.  We enjoy those times when they occur and understand that volatility is always a distinct possibility at any point.  For many of our clients, that means we have hedges in to reduce volatility.  For 2017, they have not been needed and have acted as a lag on some of the upside.  We are okay with this because we know that over a full market cycle, and from a financial planning/goals based approach it will help get our clients from Point A to Point B with a smoother ride. 

What is important to remember is that as changes occur in your own personal situation, that we revisit your plan, and maintain a disciplined approach which has historically provided the greatest dividends.  We always encourage your questions, thoughts and always welcome an appointment to get into much more details should you desire.
Major Market Indices

Below is the Q2 '17 price return performance of some of the major indices:

Index Q2 2017 2017 YTD
US Treasury 3 Month T-Bill
0.23% 0.39%
Barclay's US Aggregate Bond Index*
*as of 5/31/17
Barclay's Municipal Bond Index*
*as of 5/31/17
1.23% 2.11%
S&P 500 Index
Dow Jones Industrial Average 3.32% 8.03%
MSCI EAFE (International Equities) 5.03%  11.83%
MSCI Emerging Markets  5.47% 17.22%
Russell Mid Cap 
2.27% 7.07%
Russell 2000 Index (Small-Cap Stocks)
2.12% 4.29%
Bloomberg Commodity Index
-3.22% -5.61%
Credit Suisse Long/Short Equity*
*as of 5/31/17
1.75% 6.83%
Morningstar REIT Index 0.69% -0.50%

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  The Added Value of a Financial Advisor, and more specifically, a Registered Investment Advisor

Why use a Financial Advisor? According to recent research from Vanguard (the Vanguard article is available here), the reasons given are that while an advisor should be able to give peace of mind that your investments and financial picture are being looked over by a professional, but that it "may add about 3 percentage points of value in net portfolio returns over time."

In what ways? Among them are:
  • Financial planning
  • Portfolio construction
  • Suitable asset allocation and diversification
  • Asset location (between taxable and tax-advantaged accounts)
  • Risk tolerance 
  • Tax loss harvesting (click here for our article on this subject, which is also this quarter's investment topic) 
  • Total return and income investing as applicable
  • Objective re-balancing
  • Spending strategy for draw-downs
  • Use of low-cost investments such as index-based funds
  • Ongoing guidance to stay on track
"A goal without a plan is a wish. A plan without action is futile". An advisor should be doing a financial plan to make sure you have a road-map to achieve your goals, and to then help implement it and monitor your progress and adjust as needed. 

An analogy we use is if you are planning to sail from Long Island to Connecticut, you should have a map and/or the necessary tools to get from one side to the other. It is expected that at least some slight adjustments will need to be made to stay on course. However, it is when things do not go smoothly, and that rough waters are encountered, more adjustments may be needed, and those can be made and the destination can still be reached. Often it is best to "stay the course" as there should be built in an expectation that it won't be all smooth sailing, and it is okay as long as it is planned for. 

It is that last point that an advisor offers value, as someone that can help assure and give proper insight when market turbulence hits, and when many investors get extremely concerned, and tend to react emotionally, and often over-react. An advisor should help you plan for the worst, essentially hold your hand through tough times as needed, and it all should work out for the best.

An interesting fact many people are not aware of, and that is that not all financial advisors work the same way. There is a lot that is on that subject, and of late it has been in the news as the Department of Labor (DoL) has come out with requirements that are affecting stockbrokers and financial advisors. We feel that the best model is that of an independent Registered Investment Advisor (RIA). RIA's are legally required to act as a fiduciary, which means to work in the clients best interest (this is what the DoL is looking to put in place, which most of the public assumed was already a fact). 

In addition to being an RIA, we think that even better is someone that works in a fee-only model. Being a fee-only RIA means that for the client, there is no reason to wonder if the investments being purchased are done so as the advisor would be better compensated, as the compensation stays the same no matter what the investments are, and the advisor basically only would make more money if the account value is going up. For specific information on the benefits of working with a Registered Investment Advisor, TD Ameritrade has a 2 page piece on that that is accessible by clicking here

On the Investment Horizon
Upcoming Key Dates on the Economic Calendar 

  • First Friday of each month: Unemployment report for the prior month, released at 8:30AM.

  • Tuesday, July 4: Independence Day - Markets are closed. 
  • Wednesday, July 5: Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.
  • Tuesday July 25 - Wednesday, July 26: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM. 
  • Friday, July 28 at 8:30AM: GDP, 2nd quarter advance estimate. 

  • Wednesday, August 30 at 8:30AM: GDP, 2nd quarter preliminary estimate. 

  •  Monday, September 4: Labor Day - Markets are closed. 
  • Tuesday September 19 - Wednesday, September 20: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
  • Wednesday, September 20 at 2:30PM: Fed Chair Janet Yellen to hold her quarterly press conference to explain the FOMC's latest quarterly economic projections.
  • Thursday,  September 28 at 8:30AM: GDP, 2nd quarter final. 

If you desire an appointment, have any questions on any of this material, or any other financial subjects may relate to your own financial circumstance, please reach out to us at the contact information below:






Brian Cohen, CCO; email:; phone: 631-923-2487
Joe Favorito, CFP®; email:; phone: 631-930-5336

Direct office email: 

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