"Helping You Navigate the Course to Financial Freedom"
  May 2016
Why we buy what we buy
 
It's important to understand why we may recommend a particular stock, bond, or any investment for one person, and why that same security may not be appropriate for another.
 
In some ways, it's fair to ask, "Why is ABC, Inc. a good fit for Vince but not for Barbara?"
 
I've often compared a carefully crafted investment plan to a financial road map. When you embark on a vacation, a road map is the essential tool that keeps you on the road to your final destination. The same holds true for your financial destination, or what I refer to as your financial vision.
In This Issue
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What's necessary to get one individual to his or her destination may not be appropriate for someone else. Everyone starts at a different place, has a unique destination, and different likes/needs while travelling.
 
Think of it another way.  Let's say two people are interested in becoming physically fit. One of them is training for his or her first marathon and another hopes to become an accomplished tennis player.
 
The weekly regimen a physical trainer would prescribe might include some of the same exercises, say warm-ups and stretches, but the similarities may quickly end at that point.
 
The same holds true for retirees Charlie and Mary, whose financial plan is primarily designed for income and the preservation of capital, as compared to Suzanne, who won't be retiring for another 25 years. Unlike Charlie and Mary, Suzanne may have a much larger concentration of stocks and more aggressive investments that simply aren't the right fit for the other two.
 
Suzanne isn't nearly as concerned about a steep sell-off and might even relish the opportunity to buy more shares in the event of a decline. However, Charlie and Mary need a much more cautious approach. Hence, what I might recommend for one person, I may not recommend for another.
 
Simply put, much like an exercise plan, recommendations vary based upon individual goals.
 
Eschewing the flavor of the month
 
By taking such an approach, we may choose to avoid stocks that are hot today, or tips you may have heard from acquaintances or the popular press.
 
To visualize it yet another way, each investment sits in your portfolio for a reason, much like a piece in a puzzle. And a piece that fits into one puzzle may not be right for another puzzle.
 
Whatever your goals may be, the asset allocation we recommend is designed with your objectives in mind. Choosing investments outside the chosen strategy can lead you astray.
 
A review of the key themes
 
Let's take a look at recent financial events. There have been a number of factors that have dulled interest in stocks over the last year.
 
I've touched on a number of these in recent letters and I won't rehash. But I do want to touch on a couple of the broader themes that have had an influence on stocks in recent action.
 
Table 1: Key Index Returns-April 2016
  MTD % YTD % 3-year* %
Dow Jones Industrial Average +0.50 +2.00 +6.25
NASDAQ Composite -1.94 -4.63 +13.03
S&P 500 Index +0.27 +1.05 +9.03
Russell 2000 Index +1.51 -0.44 +6.26
MSCI World ex-USA** +2.82 +0.07 -1.34
MSCI Emerging Markets** +0.40 +5.80 -6.85
 
Source: Wall Street Journal, MSCI.com
MTD returns: March 31, 2016-April 29, 2016
YTD returns: December 31, 2015-April 29, 2016
*Annualized
**in US dollars
 
The economy
 
Let's start with the economy. Economic growth drives profit growth, and profit growth is the biggest factor that drives stock prices over the longer term.
 
On the one hand, fears of a recession that were present in January have receded, which have helped shares recover from a modest sell-off early in the year. But economic growth has been far from impressive.
 
A quick look at the latest data on Gross Domestic Product (GDP), which is the largest measure of goods and services in the economy, confirms this.
 
Preliminary data released late last month shows that first quarter GDP grew at an annual pace of 0.5%, down from a sluggish 1.4% rate in the final quarter of 2015.
 
Yes, we'll get two more revisions when more complete information rolls in, but it is not reflective of an economy that is moving ahead in high gear.
 
But did the economy really slow as much as the preliminary report suggested? In reality, that's up for debate.
 
Slow economic growth lends some support to corporate profits, but it does not significantly boost earnings over the short term.
 
The ebb and flow of the dollar
 
A second drag on stocks over the last year has been the strength in the dollar. For companies doing business primarily at home, it doesn't have much of an effect.
 
But for those larger multinationals that depend on a significant amount of sales from overseas, continued dollar strength has hurt at the margin.   Look at it this way - while  a U.S. citizen traveling abroad benefits from a strong dollar, a U.S. corporation must translate foreign sales back into more expensive dollars, which nibbles away at revenue.   But while  headwinds from the dollar remain, they are beginning to recede.
 
Could we see tailwinds to S&P 500 revenue in Q2 if the dollar remains at today's levels? It's a distinct possibility.
 
Looking ahead
 
The Fed appears to be on the sidelines right now, although that is also subject to change based on recent "Fed Speak".  So let's take a quick peek at Europe. In June, Britain will vote yes/no on a referendum to remain in the European Union (E.U.). Coined "Brexit," a vote against remaining in the 28-nation federation could create a new round of uncertainty in Europe.
 
The latest polls put those who want to remain in the E.U. in a slight lead (Reuters), which suggests this issue may get more coverage in the days and weeks ahead.
Markets hate heightened uncertainty, which could add to volatility in stocks.
 
But as I've consistently counseled, please look past short-term events that can create short-term waves, especially when they originate overseas.
 
Over the medium and long term, U.S. markets take their cues from what's happening at home.  That leads to my final point.
 
Stick with the plan that has been purposely crafted for your unique situation. Markets will go through cycles that take us to new highs and markets will also enter periods of volatility. Making decisions in haste based on an emotional reaction to current circumstances is rarely profitable over the long term.  ###

I am not a Process (and neither are You!)
   
I received a call the other day from someone claiming to be my banking "account manager".  For a little background, I have had a checking account at the same bank since I began earning an income.  Over time my little community bank underwent takeover after takeover until it is now part of a nationwide banking behemoth.  As you might expect, the personnel turnover during that same time period has been tremendous - I have had no relationship with anyone at that bank for years.
 
The individual on the other end of the line said it was quite "urgent" (his word, not mine) that he meet with me.  When I asked if it was something we could discuss over the phone, he was adamant that it could not - he needed me to come to his office sooner rather than later.
 
A bit alarmed at his language (was something wrong with my accounts?  Had I been hacked?) I offered to come down right away.  He seemed startled at that, and said the bank would be closing in five minutes, but could I come down the next day?  We made an appointment to meet the next afternoon, and I hung up the phone.
 
Ruminating about the exchange further, I was torn between worrying something was actually wrong, and suspecting this was a marketing ruse to try to sell me some service I did not need or want (I had successfully repelled those phone inquiries in the past).    However, in case it was the former rather than the latter, I dutifully arrived at my appointment on time the next day.
 
After waiting over 15 minutes, I was finally called into a plexiglass-enclosed cubicle, where a pleasant-looking young man asked me for two forms of ID!  (for my own protection, he instructed me).   As he began asking me various "background" questions (address, employment,  income, etc.) I interrupted to ask about the "urgent" nature of the summons.  Here is where things got interesting.
 
As I suspected, there was no "urgent" issue - nothing was wrong with my accounts.  He explained that the language he used was part of the bank's "Process" to get clients into the office so he could discuss the various services (read "sales") available through the bank.  He sheepishly apologized as I objected to the deception.  He then asked me, as a financial planner, what "process" I used with current and potential clients.
 
He was taken aback when I explained I had no "process", at least not in the way he used the word.  Rather, I engage clients and prospects in personal and reflective thinking to co- create a vision of what they truly wanted from life, and then help them use their resources to get there.
 
He seemed confused, and asked me what triggers I used to "close" accounts, referring to that old ABC sales adage to "Always Be Closing".  I laughed and told him I had none - I just had conversations.  It was up to the client or prospect how they wanted to proceed - if indeed they wanted to proceed!
 
He wondered if I ever had clients who didn't take the recommended advice - he offered up that many of his own clients did not carry out his recommendations.  I told him that I didn't impose advice on my clients - rather, we worked together to develop solutions that the clients felt were achievable.  But I recognize that change is difficult - even change we want!  Planning is a journey, not a destination I explained.
 
He then told me about his own situation - he had a young college-educated wife who was currently home with two young children.  He gave her a "budget" and the funds to carry it out, but she always seemed to run out of money before the end of the month.  I asked if this was a budget they had worked on together, and he admitted she had not had much input.  I gently suggested that she might not be wholly vested in the goals behind the budget, and suggested further conversation about their vision of the future.  Make it fun, I said.  Take the kids out for picnic over the holiday weekend, and have everyone draw pictures of the future.  Compare his pictures with those of his wife, and see how they match and how they differ.   How could they work their budget to encompass all their pictures of the future?
 
He looked at me thoughtfully, then stated that our time was up.  He gave me his card, and said that he hoped to speak with me more often in the future.
 
While I experienced many emotions during that meeting including exasperation and anger, I left feeling sad.  Sad that he had been trained to think that selling was the same as planning.  Sad that his clients were being manipulated through the use of words like "urgent" and "necessary".  And sad that as long as firms continue to treat clients as "processes" rather than individuals, true financial well-being will continue to be an elusive goal for most.
 
You will never be a "process" at Compass Wealth Management.

 

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