As we enter a new year, the world is experiencing a synchronized global expansion for the first time since 2007. This is a historically rare event, with 45 of 45 Organization of Economic Cooperation and Development (OECD) tracked economies expanding. (WSJ) US Gross Domestic Product (GDP) growth seems on track to exceed 3% for the third quarter in a row. Unemployment continues to trend lower without yet putting a strain on corporate earnings. Whatever one’s personal opinion about recent tax reform, it will most likely add to corporate earnings. Moreover, as the Federal Reserve begins to withdraw monetary stimulus, fiscal stimulus is likely to reduce its impact on growth. Prosperity is beginning to reach those who have the least ability to defend themselves in our globally competitive environment, as unemployment for those over 25 who lack a high school diploma fell to 5.2% in November. Whereas there were almost seven unemployed persons for each available US job in 2009, the latest numbers from the US Bureau of Labor Statistics puts that number closer to one to one. The usual pressure that low unemployment places on economic growth and corporate earnings may be ameliorated as those who have dropped out of the labor markets reenter. Interest rates are rising, but they remain very low when compared to long-term averages.

This does not mean there are no challenges. The US market is to a great extent being driven by enthusiasm. As a result, the price of the S&P 500 is at historically high valuations matched only by 1929 and exceeded only by the millennial internet bubble of 2000 (for valuations we are using the Cyclically Adjusted Price to Earnings Ratio, or C.A.P.E.). Interest rates are likely to rise three or four times in 2018, and while they will still be very low, the relative return of risk assets will change. So, while the short-term outlook is very good, price matters in the long term. In the US market, the five-year outlook is lackluster due to the high current price and the length of the current expansion. Trying to time the market runs the risk of leaving too much money on the table. At the same time, international markets still seem fairly priced for opportunity. Higher interest rates are a good thing for savers and retirees. What is most important right now is to make sure that our allocations are appropriate for our long-term goals and to monitor those allocations as they are impacted by price movements.
When is it appropriate to adjust your investment objective? One thing is for sure; it is never when we are emotionally swept up by market exuberance, or conversely, when we are in the grips of widespread panic. Instead, our objectives should be driven solely by life events. These are marriage, divorce, the birth of a child, impending or actual retirement, the death of a spouse, a reduction of income, a financial windfall, or an upcoming financial need. This is only a partial list as the possibilities are limitless. Being human, we all feel the effects of greed and fear. If we didn’t, we would probably be suffering from a neurological disorder of some type. In all aspects of our lives we develop strategies to overcome our desires to act impulsively and ultimately to suffer regret. Anyone who has gone on a diet understands the importance of setting goals and adopting psychological strategies to increase the possibility of success. These might be avoiding crash diets, measuring and recording our calories, our weight, and so forth. Our financial plans are exactly the same. There are many high-calorie temptations calling to us. These are exasperated by television, radio, friends and neighbors, all of whom will try to get you to deviate from your plan. “Oh go on, it is Christmas, have another piece of pie.”

The only solution is to ask yourself if anything has changed in your life that would necessitate a plan update. If not, then don’t change anything. Keep your plan current and measure your success against your own goals. Having worked for decades with many successful people, we know that every family is unique and everyone’s goals are different, complex, and ever changing.
  • Global stocks posted very strong gains for the year, led by emerging markets.
  • The steady rally in U.S. stocks was unprecedented.
  • Bond returns were in the low- to mid-single digits, with credit-oriented strategies outperforming core bonds.
  • Returns across the risk benchmarks (Morningstar Target Risk Indexes ) increased according their equity exposures, with the conservative index returning 7.0% for the year while the aggressive index returned 21.95%

The fourth quarter capped yet another stellar year for U.S. stocks. Larger-cap U.S. stocks (S&P 500 Index TR) gained 6.64% for the quarter and ended the year with a 21.83% total return. This was the ninth consecutive year of positive returns for the index—tying the historic 1990s bull market and capping a truly remarkable run from the depths of the 2008 financial crisis. The broad driver of the market’s rise for the year was rebounding corporate earnings growth, supported by solid economic data, synchronized global growth, still-quiescent inflation, and accommodative monetary policy. U.S. stocks got an additional catalyst in the fourth quarter with the passage of the Republican tax plan, presumably reflecting investors’ optimism about its potential to further boost corporate after-tax profits, at least over the shorter term.

We’re running out of superlatives to describe the U.S. stock market, but we’ll throw out a couple more factoids that reflect just how unprecedentedly steady its recent performance run has been. The market’s 1.11% gain in December crowned 2017 as the first year ever that stocks rose in each and every month. By year-end, the S&P 500 Index had rallied for more than 400 days without registering as little as a 3% decline. This is the longest such streak in 90 years of market history, according to Ned Davis Research.

Foreign stock returns were even stronger, with developed international markets gaining 25.62% (MSCI EAFE Index GR) for the year. In the fourth quarter, however, these markets couldn’t match the S&P 500, which gained 6.64%.

Moving on to bonds, the core bond index (BBgBarc US Aggregate Bond Index TR) gained 3.54% in 2017. This return was close to the index’s yield at the start of the year, as intermediate-term interest rates changed little during the year with the benchmark 10-year Treasury yield ending at 2.4%. Although the Federal Reserve raised short-term rates three times (75 basis points total), yields at the long end of the Treasury curve declined and the yield curve flattened. Corporate bonds across all credit qualities and maturities had positive returns.
Until recently, the majority of the returns investors have experienced were the direct result of quantitative easing; the purchase by central banks of (mostly) bonds. Just as during the Great Depression the government bought crops to increase the price and rescue farmers, the recent purchases of bonds created scarcity with the purpose of lowering interest rates and supporting stock and bond prices. This phenomenon has been repeated throughout the world. This tremendous increase in world liquidity must now be withdrawn as global economies shift into high gear. The question is whether or not this can be done without stalling growth on the one hand, or before markets and economies overheat on the other. No one knows how it will all work out. What is sure is that central banks need to put themselves in a position where resources are available to them when the next turndown occurs. In the meantime, the key to success over the long term is to maintain a cool head and a clear perspective. Our job is to help you do that.

Thank you for your continued confidence and trust. All of us at Treasure Coast Financial Planning wish you and yours a very happy, healthy, peaceful, and prosperous New Year.
Pershing will be mailing 2017 1099 tax statements in four phases: January 31, February 15, February 28 and March 15. The date you receive your 1099 will depend on the type of holdings in your account. Please be aware that even if you receive your 1099 on one of the earlier dates, holdings of some issuers may not have provided final 2017 tax information by the time of mailing; in this case, Pershing will issue a Pending 1099 Notice identifying the particular holdings impacting the mailing of your final 1099. Also, please keep in mind that issuers of securities periodically report updated or corrected information which will require Pershing to send a corrected 1099. If we prepare your income tax return for you, please provide whatever information you have available at the time of your scheduled appointment. Unfortunately, it is not practical for us to wait until everyone has every required document to start processing returns. There is much we can do to start your tax preparation. As you receive the last pieces of information, we will be able to finalize the returns. Thank you in advance for your patience and understanding.
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Test Your Knowledge

Match the Country
to its Rate
Where does the U.S stand compared to some other OECD countries in taxing personal Income? *
Test Your Knowledge Answers: Australia 49.0, Canada 53.5, France 54.5, Germany 47.5, New Zealand 33.0, Norway 38.7, Spain 45.0, Switzerland 41.7, UK 45.0, USA 46.3.
Certain material in this work is proprietary to and copyrighted by Litman Gregory Analytics and is used by Treasure Coast Financial Planning with permission. Reproduction or distribution of this material is prohibited and all rights are reserved.
Information contained herein is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The identification of specific funds and model portfolios is being made on the assumption that an investor would participate in that investment on a long-term basis (in excess of four years). With respect to any such identification, there can be no assurance that the fund or group of funds will in fact perform in the manner suggested by the investment profile provided with that fund or group. Past performance does not guarantee future results.
Index is shown for illustrative purposes only; it is not possible to invest directly in an index. Index returns do not reflect the effect of management fees or expenses.
* All indexes as of 12/29/2017, with the exception of MSCI EAFE GR USD which is, as of 01/01/2018. Performance figures provided by Morningstar.
Morningstar Target Risk Indexes: The Morningstar Target Risk Index family is designed to meet the needs of investors who would like to maintain a target level of equity exposure through a portfolio diversified across equities, bonds and inflation-hedged instruments. Asset class weights are adjusted annually to incorporate Ibbetsons Associates’ (a Morningstar company) updated assumptions. The indexes are rebalanced quarterly and priced daily. These indexes include performance of both capital gains as well as dividends reinvested. Morningstar assume reinvestment of dividends on the last day of the month rather than every day during the month.
The Morningstar Conservative Target Risk Index seeks approximately 20% exposure to global equity markets and an 80% exposure to global bond markets, inflation hedges and cash.
The Morningstar Moderately Conservative Target Risk Index seeks approximately 40% exposure to global equity markets and a 60% exposure to global bond markets, inflation hedges and cash.
The Morningstar Moderate Target Risk Index seeks approximately 60% exposure to global equity markets and a 40% exposure to global bond markets, inflation hedges and cash.
The Morningstar Moderately Aggressive Target Risk Index seeks approximately 80% exposure to global equity markets and a 20% exposure to global bond markets, inflation hedges and cash.
The Morningstar Aggressive Target Risk Index seeks approximately 95% exposure to global equity markets and a 5% exposure to global bond markets, inflation hedges and cash.
Market Index Abbreviations
Return Type
GR: For MSCI index series only. GR indicates that total return is calculated reinvesting gross dividends. This series approximates the maximum possible dividend reinvestment. The amount reinvested is the entire dividend distributed to individuals residing in the country of the company, but does not include tax credits.
TR: Represents Total Return.
Currency Type
USD: Indicates an index that is US dollar priced.
*2016 rates do not reflect recent tax legislation, or state and local taxes.