Market Analysis – September 2017

September Surprise!
On average, September is the worst month of the year for stock market performance. Going back to 1950, September has averaged an S&P 500 decline of 0.5%, but for September 2017, the S&P 500 gained 2.06% driven by strong corporate earnings and rapid global growth. I have never given any weight to trends like September being the weakest month of the year. Just when you might act on that trend and reduce your stock positions you miss out on a 2% gain in just 30 days.

Market Resilience
September overcame a series of threatening events:
1. Apple fell 6% in September after announcing three new iPhone models.
2. Arguments between the U.S. and North Korea grew louder.
3. The White House and Congress punted the debt ceiling deadline into December.
4. Another Republican repeal of Obamacare failed in the Senate.
5.The Federal Reserve still wants to raise interest rates in spite of weak inflation data.
In response to all these threats, the U.S. stock market grew more serene with the CBOE Volatility Index (VIX) closing out the third quarter near its lowest reading on record.

stock or currency exchange market displau screen board

Market Breadth
Year-to-date, nine of the eleven market sectors continue to gain value. Telecom and energy are the two sectors that are negative for 2017, and they posted nice gains in Q3. The Russell 2000, a small company index, reached an all-time high in Q3. In our portfolios, small company allocations produced the best gains in September followed by semiconductors as a subset of technology. International allocations came in third. The yield rose on the U.S. 10-year Treasury in September, and we are keeping our bond durations relatively short to reduce risk. Both taxable and tax-free bond allocations are positive for 2017.

Household Wealth
For the past seven quarters, overall U.S. household wealth rose while household debt reached the lowest level since 2000. Healthy household balance sheets indicate this economic expansion is far from over.


Market Analysis – December 2016

Expectations are running high for President-Elect Donald Trump and the Republican majority. Nobody knows exactly what is going to happen in regard to Trump’s business-friendly policies for tax cuts, tax reform, looser regulations, and infrastructure spending. With Republicans in majority control of the federal government (House, Senate, and White House) for the first time in a decade, optimism is growing for businesses, investors, and consumers. The University of Michigan reports that consumer confidence, which has been growing for a long time, is now at a 13-year high.

It's great success

The Brexit and Trump victories are two of the biggest political upsets in decades. Investors who timed out of the market in response Brexit and Trump were hurt financially about their decision. The resilience of the US stock market has proven itself once again.

Stock market results are often defined by investors’ mood about the future. If Republicans can deliver on business-friendly legislation, the mood of businesses and investors will likely remain positive. Obviously, Trump and Republicans could fall short of expectations. The best lesson for investors from 2016 is to not time the market. Determine the most appropriate investment strategy for you and stick with it. We do well when we separate our emotional reactions from our investment process. A Wall Street banker who strongly supported Clinton was quoted anonymously in the New York Times:

We lost. Now it is time to make some money.

 Because of the policy expectations, we are having success investing in funds that emphasize financials, industrials, materials, energy, technology, consumer discretionary, and small US companies. In our Stable Growth Strategy, we include the above sectors as much as possible; however Stable Growth emphasizes capital preservation and stability, so while it is doing its job, it is not keeping up with the Trump rally. This is another example of sticking with your strategy. The bond market experienced a lot of drama in 2016 as the 10-year US Treasury Note hit its lowest yield in history (1.37%) on July 8 and then rose to a high for the year at 2.6%. It has since backed off, closing the year at 2.45%. All of our taxable bond funds are still positive for 2016, but most of the tax-free funds are slightly negative. When tax cuts are expected in the future, tax-free bonds drop in value. You should continue to hold bonds to the degree they are part of your investment strategy. We always welcome your calls.

Happy New Year!

The Fed Should Stop Predicting Future Rate Increases

There was no surprise yesterday when the Fed announced a modest 0.25% rate increase, which still leaves interest rates at historic lows. The move is not surprising because the US economy is accelerating, the stock market has reached all-time highs, unemployment has fallen lower and faster than expected, and wages are finally increasing.

United States Federal Reserve System symbol. Macro

The Fed says it is data driven, meaning they take the economic temperature at their regular meetings every six weeks. They look at trends in employment, wage increases, economic growth, inflation, and other factors. With the Fed announcement yesterday, they predicted three more increases in 2017. I believe this forecasting is a mistake. It contradicts the principle that they are data driven. They do not know what the data will show in six weeks or six months. When they raised rates 0.25% one year ago in December 2015, they forecast that they would raise rates three to four times in 2016, and they only did it once. These missed predictions weaken their credibility. They should just confirm their commitment to the data.


This move by the Fed is a vote of confidence in the economy. It does not indicate a need to change your appropriate long-term investment strategy based on your circumstances, needs, and goals.

Market Analysis – November 2016

Before the November 8 election, the strength of the US economy was well established, as demonstrated by the upward revision of Q3 growth (due to strong consumer spending) from 2.9% to 3.2% annualized. This, plus seven straight years of job growth and the strongest increases in wages since the Great Recession, combined with US home prices reaching a record high from the previous peak in 2006, put an end to housing’s lost decade. All these factors provided a fundamental underpinning to the market euphoria following Trump’s surprising victory, including Q3 corporate earnings growing by 5.2%, the strongest year-over-year growth since 2012. These underlying economic facts are important to remember to balance out the high hopes for what Trump might be able to accomplish.

stock or currency exchange market displau screen board

Many clients have asked why the market feared Trump so much and then quickly turned positive the day of his victory. I believe a strong factor is that Republicans ran the table on November 8 gaining control of the White House, the Senate, and the House of Representatives for the first time in a decade. If the Democrats had won back the Senate, the mood might now be a bit more muted. The past six years of gridlock in Washington appear to be over, bringing forth the real possibility of corporate and personal tax reform, deregulation, and fiscal stimulus by infrastructure investment. The Trump administration marks an era of business-friendly policies, and the market likes the possibilities.

We are having success investing in small cap retail, financial, and industrial funds. The small cap sector should benefit from Trump’s plans to improve domestic growth; the financial sector will benefit from higher interest rates and less regulation; and the industrial sector will grow from infrastructure and defense spending. “Overbought” and “oversold” are terms in market parlance. They refer to periods when the market gets over confident and then over reacts by becoming over fearful. These movements of advance and retreat are normal market behavior. It is possible that the November rally may have gotten ahead of itself (overbought) and a retreat (oversold) is to be expected at some point, but a retreat will not take away all the economic strength we have going in our favor.

In our Stable Growth strategy, which includes bond allocations, US treasuries had their worst month since 2009 as interest rates jumped up reducing the market value of bonds. I believe the sell-off in the bond market has gone too far (oversold), and that interest rates will level off. The bond market has already priced in a Dec. Fed rate hike. Our Stable Growth portfolios emphasize short to intermediate term bond funds, which trimmed their durations in November for protection. As usual, we welcome your calls.

2016 End-of-Year Actions to Enhance Your Retirement Savings

Making contributions to your retirement accounts is guaranteed to strengthen your financial and retirement plan. This year December 31 is on a Saturday, which means you should be planning those 2016 contributions now and targeting Thursday, December 29 to have them completed. Take these actions to keep your retirement on track:

Detail of blackbird eggs in nest

Retirement Nest Egg

1. Make the maximum contributions to your employer-sponsored retirement plan — 401(k), 403(b), 457, or TSP.

If you have not contributed the annual maximum amount of $18,000 to your employer-sponsored retirement account in 2016, you can reduce your taxes significantly by doing so now. The 2016 employee limit is $18,000 (without catch-up contributions). Many plans allow you to accelerate your contributions before the end of the year; we support that action, provided you can still manage your cash flow and expenses reasonably well. The best way to avoid having to accelerate your contributions toward the end of 2017 is to set your automatic deferral percentage in January. (To help your planning: 2017 contribution limits are the same as in 2016.)

For other retirement plans such as a traditional IRA or Simplified Employee Pensions plan or SEP, check with your financial planner or tax professional.

Note: The amount of taxes you save is based on your marginal tax rate for an individual or joint return. If you’re in the 33% bracket, for every additional $1,000 you contribute to your 401(k) style retirement plan, you should save $330 in taxes.

2. If you are age 50 or older, take advantage of catch-up contributions.

At age 50 or older, you are allowed to make additional contributions to your employer-sponsored retirement plan — 401(k), 403(b), 457, or TSP. In 2016, you can defer an additional $6,000 from your salary into your retirement savings account for a maximum of $24,000 ($18,000 plus $6,000).


3. If you turned 70½, remember to take your Required Minimum Distribution.

After you reach the age of 70½, you are required to take a Required Minimum Distribution (RMD) from your retirement savings by December 31 of each year (except for the first time, when this distribution can be delayed until April 1 of the following year).

Therefore, if you happened to turn 70½ this year (2016), you can either: 1) take your first annual RMD by December 31, 2016 or 2) delay your 2016 RMD until April 1, 2017. In either case, you must also take your 2017 RMD by December 31, 2017.

If you turned 70½ last year (2015) or before, you must take RMDs from all of your IRA and 401(k) retirement accounts prior to December 31, 2016 or be subject to a maximum penalty of 50% of the amount you should have withdrawn. These distributions are taxed as ordinary income for the current tax year.

RMD tips:

Request that your annual RMD be broken into a monthly or quarterly automatic distribution in 2017 to avoid future RMD penalties.

If you have several retirement accounts, you can take your RMD from each account (which will preserve a record within the account that you in fact took the RMD), or you can take it from just one or some accounts, as long as it adds up to the full required RMD of your total retirement accounts.

wrapped up 100 dollar bills.

Use a QCD to minimize taxes and thereby enhance your retirement savings.

4. Use the Qualified Charitable Distribution (QCD) rule to minimize taxes. 

If you would like to avoid paying taxes on your RMD, and you are planning to make charitable contributions for 2016, you can do both in one step by taking advantage of the QCD rule. This rule allows you to use your RMD (or a portion of it) as a donation to a preferred charity or charities and have that amount of your distribution excluded from your gross income calculation for tax purposes.

Caveat: You must make the distribution to the charity directly from your IRA or 401(k) plan! To benefit from this rule, you must have a check issued by your broker or investment advisor directly to the charity or charities. Taking the distribution yourself and then paying the charity using your own checks subjects you to taxes on the distribution. You are limited to a maximum annual charitable contribution of $100,000 under this rule. Call your brokerage or investment advisor or tax professional for assistance if needed.

QCD Tip:

If you want to use the QCD rule to make multiple contributions to different charities, make a list of those charities and the dollar amounts, and send your list to your investment advisor or broker now to get ahead of the December rush. Also, keep a copy of this list handy; you can use it next year because the QCD rule became permanent in 2015.

In summary, be kind to yourself, your family, and your favorite charity — and help your retirement plan — by making retirement account contributions for 2016 before it’s too late!

Our Investment Perspective — Stay Calm and Carry On

Last night was very unsettling to many Americans. There are many issues in this election, but as your Chief Investment Officer, I am focused on your money and your investments:

1. We do well when we separate our emotional reactions from our investment process. A first rule is to not make any immediate, knee-jerk moves in response to the election outcome. The US stock market is incredibly resilient, and a recent example is the market’s reaction to Brexit in June. After an initial, sharp drop, the market recovered within the month.

Construction heavy equipment; caterpillar of excavator

Post-Election Investment Perspective

2. After the initial shock of Trump’s victory, I believe the market is digesting Trump’s three top fiscal policy priorities:

  • There will be corporate and personal tax reform. This is long overdue and has been stalled by gridlock in Washington. It is likely that Republicans who now control the three branches of government will be able to fix the policy that keeps $2 trillion trapped overseas in our large multi-national companies. Tim Cook of Apple said that as CEO he could not justify repatriating Apple’s foreign profits because the taxes due would be 40%. This will now change, and it will be good for the US economy and stock market.
  • Trump will spend significantly on infrastructure; Caterpillar is up 7% so far today.
  • The Republicans will roll back regulations. Not everyone will like how they do this, but it will benefit business in the near term.

3. Our whole team of analysts and advisors are watching investment results with utmost concentration. We work diligently with you to make sure you have the appropriate investment strategy for your long-term future. Please call your advisor if you care to discuss your investment strategy and how it is responding to post-election developments.

Yours truly,

Jim Bell, CFP®
Chief Investment Officer
President and Founder

Market Analysis – October 2016

A Growth Spurt for the US Economy, a headline in the October 29 Wall Street Journal, refers to the Commerce Department’s announcement that the US Gross Domestic Product (GDP) rose at a 2.9% annual rate for the third quarter ending in September. This is the fastest pace for GDP growth in two years, following the past three quarters below 2% growth. On October 31, another report announced that consumer spending climbed in September by the most in three months as incomes grew, signaling strength in the most important part of the US economy. These results show a solid handoff into the final quarter of 2016 and a chance for better growth in 2017.

stock or currency exchange market displau screen board

The 2.9% GDP growth announced October 28 helped the Dow Jones Industrial Average jump more than 80 points, but then fell to -8.5 after the FBI said it was reviewing new evidence regarding its email investigation of Hillary Clinton. As I wrote in last month’s letter, most analysts agree the US market favors a Clinton win at the polls November 8. Nate Silver’s 538 Forecast as of 6:30 pm on October 31 still has Hillary as a 75% favorite.

Also, business spending on research and development surged at an annual rate of 17% in the second quarter of 2016. This is the strongest research and development spending growth since 2006, which is significant, because during this recovery it has been weak. Economists consider research and development investment to be the most likely cause of a breakout in productivity and economic growth.

The 10-year US Treasury yield was 1.605% at the start of October and 1.834% at month’s end. This interest rate increase of 23 basis points or 14.3% meant negative bond performance in October. Bonds are a significant component of our Stable Growth and Cash Reserve strategies; fortunately, we emphasize short to intermediate-term bonds, which mitigates interest rate risk.

It seems we are all holding our breath to get past November 8, but there is no guarantee that eliminating the election uncertainty will have an immediate positive effect. Focusing on economic/investment fundamentals is strongly preferred to focusing on this disturbing election.

Qualified Charitable Distributions from IRAs

If you are age 70 ½ or older and have money in an IRA account, you must, as you may know, take a “required minimum distribution” or RMD from your account (excluding Roth IRAs). Not doing so can result in big trouble and penalties with the IRS. If you want to meet this requirement without increasing your taxable income — and support your favorite charity in the process, you might consider utilizing the Qualified Charitable Distribution (QCD) rule before the end of the calendar year.

wrapped up 100 dollar bills.

A QCD is an otherwise taxable distribution from a traditional IRA, owned by an individual who is age 70 ½ or older, that is paid directly from the IRA to a qualified charity. The maximum dollar amount of a QCD is limited to $100,000 per year, per taxpayer. A married couple, where both are subject to an RMD, may each contribute up to $100,000.

To complete a QCD from an IRA to a charity, you must:

  1. Be subject to a Requirement Minimum Distribution.
  2. Work with your IRA custodian and request a check made payable directly to the charity.
  3. Make certain the distribution does not have tax withholding.

While many custodians will mail the check directly to the charity, consider having the check made payable to the charity, then sent to you for forwarding to the charity. This allows you to keep a paper trail of the request and know the date of mailing.

Taking advantage of a Qualified Charitable Distribution takes a little extra coordination, but the benefit to your charity, and your taxes, make it worth the effort.


In addition to this Bell Finance Blog, you may want to read the insights at
the Bell Career/Life Coaching Blog.


Market Analysis – September 2016

The decision by the Federal Reserve at their September meeting to not raise interest rates brought some sunshine to the market. Financial and Technology stocks performed well in the third quarter. This alleviated concerns that advances in stocks are not sustainable unless the financial sector participates in the gains. The financial sector is rallying in spite of a couple problems. One is the thinly capitalized Deutsche Bank facing a potential huge fine in the US for its role in the 2008 mortgage crisis.The other is the sordid scandal unfolding at Wells Fargo over its unethical sales practices in retail banking operations. The prospect of the Fed raising rates by year-end strengthens banks because higher rates will increase their profitability.

The US Election

Now that we are past the first presidential debate, the odds point to Hillary Clinton as our Very close image of the red, white, and blue colors of an American president. Markets would likely prefer a Clinton win as Trump would bring major shifts in policy and considerable uncertainty. It seems clear Clinton believes trade is a net job producer for the US. From a market perspective, Clinton will be viewed more favorably on trade and immigration policy.

Stable Growth and Cash Reserve Strategies

Our Stable Growth Strategy is a combination of our conservative Class 4 Total Return Funds and our Class 5 Bond Funds. The goal of Stable Growth is to reduce market risk while aiming to grow ahead of inflation. Our Cash Reserve Strategy is even more conservative consisting of 100% bond funds. The Cash Reserve goal is to provide a better return than is available from banks and money market funds. Both these strategies have performed positively this year as conservative allocations have turned out well.

Heads Up

Each time a mutual fund or Exchange Traded Fund (ETF) pays shareholders a dividend or capital gain distribution, the share price declines by the same amount as the distribution. For example, a fund closes the trading day with a share price of $10.00. The next day the fund pays out a dividend of 32¢, and the share price of the fund will decline 32¢ to $9.68. Most shareholders reinvest distributions back into the funds, so the next day they automatically buy 32¢ more shares for each share they own. They now own more shares, and the total value of all the shares they own is accounted for by the 32¢ per share that was reinvested. Funds tend to pay out more capital gain distributions at the end of the year, so beware when you see a share price drop an unusual amount; check to see if the fund is paying a distribution.

A New Savings Plan to Help the Disabled Attend College: 529A

Millions of students will enroll in college this year, many using money from a 529 tax-advantaged savings plan to help defray the ever-growing cost of higher education. These plans have been in existence, in one form or another, since the late 1980s and have become the cornerstone for college financial planning. Two of the greatest benefits of 529 plans are: account earnings grow free from federal income tax, and withdrawals are tax-free as long as the proceeds are used for qualified higher education expenses.

Young disabled man studying at the table at home

What if significant disabilities stand between your child and college?

What if Disabled?

But what if significant disabilities stand between your child and college? Any family with a disabled member will tell you: even if college expenses are not in the future, it doesn’t mean significant educational expenses will not exist. Fortunately for these families, a new tax-advantaged savings plan was introduced in late 2014, through the Stephen Beck, Jr., Achieving a Better Life Experience Act, known by the acronym ABLE Act.

Long List of Covered Expenses

The plan, referred to as 529A or 529ABLE, is similar to an education 529 plan in that earnings on the contributions are not taxed as they accumulate and are tax-free when withdrawn if they are used to pay for qualified disability expenses for the designated beneficiary. The list of qualifying expenses is long, covering a greater range than 529 expenses, and includes education, housing, transportation, employment training and support, technology and personal support services.

Easier than a Special Needs Trust

Having a 529A account does not disqualify an individual from receiving federal and state aid for the disabled, such as Supplemental Security Income or Medicaid, as long as the amount held in the 529A does not exceed $100,000. This account can offer an easier, cheaper option than a special needs trust.

There are significant differences between the 529 and 529A plans. Final regulations for the 529A plan will be issued by the IRS later this year, and should be reviewed to determine if this plan could be right for your family. In the meantime, you can find more information by visiting