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While the S&P 500 remained near its all-time high, the recent massive selloff in the technology sector went mostly unnoticed. But for investors who follow the so-called “FANG” stocks (Facebook, Amazon, Netflix, Google) the hit was painful: About $60 billion in value was wiped out in just one afternoon, representing the largest selloff in nearly 2 years.

The wipeout was a function of just how big these companies have become and the position they are in with new tax reform looming. Tech companies are expected to receive little benefit given its already-low average tax rate of 18.5% (below the 20% proposed rate).

This has caused investors to rotate out of the tech stocks and into the financial services sector, which stands to benefit more from a corporate tax rate that would drop from the current 35% to 20%.

Interestingly, the S&P 500 was relatively unaffected while this rotation into financials and out of tech ensued.  The index’s volatility actually remained low, as did correlations among the S&P 500’s member stocks.

In other words, the diversity offered by the S&P 500 Index allowed for the index too remain relatively unscathed by the trading within the tech and financial sectors, a key reminder to investors that having proper exposure across the markets continues to be important with the S&P 500 near its all-time high.

 

What Are Your Own Possibilities?

You can't take it with youSometimes, the pursuit of wealth can leave a void in our lives—a place left empty because we lacked the energy or time to pursue a dream. There is a saying: “Wealth is not an end, it is a means to an end.” The problem is that the complexity of creating wealth and the subsequent financial planning often gets in the way of seeing and pursuing an end truly aligned with your highest purpose in life.

My life’s work has been focused on this critical unmet need. I hope to help people see the possibilities that open up once you escape from the chaos and confusion that characterize so much of the wealth management field today. I absolutely know it is possible to put a large portion of wealth management on automatic; I have built the system, structure, support and discipline to achieve this; and I’ve seen how using these benefits helps people define and achieve their highest ambitions. This approach is both effective and rewarding.

Clients are surprised sometimes when I ask them about their higher purpose and possibilities. It is not that they feel I’m prying; they just don’t expect an advisor to be concerned with such matters. I tell them that these are the most important questions for them to consider when it comes to financial planning.

At this point in your journey toward financial strength, you already may have great momentum. All you need to reach the goal line is to exercise self-control in a few vital areas. I call these personal finance disciplines the High Five because they are the key to achieving your highest potential in life. They are:

  • Saving Awareness and Control
  • Spending Awareness and Control
  • Work Ethic
  • Goal-Setting
  • Learning

 

By automating or delegating a huge share of the discipline needed to master wealth, you can reserve your energy for situations when it is needed most. This is one of the secrets of the successful people with whom I have the privilege to work. They devote their best to challenges associated with their greatest ambitions, rather than squandering valuable energy on secondary pursuits.

Joseph-mediumThe financial markets are now closed for the year and with all of the theatrics the verdict is in. Those investors with the following five characteristics prevail over those who fall victim to a host of mistakes and unsuccessful approaches:

  1. Investing from a superior position of financial strength.
  2. Being well prepared for a range of possible outcomes.
  3. Having an investment philosophy and approach you can confidently stick with and win with through thick and thin.
  4. Tuning out the noise, taming the emotion and focusing on what you can control.
  5. Investing for long-term success and, in the process, avoiding anxiety-toxic predictions, moves, comparisons, concentrations and traps.

What are tactical adjustments? In their 1986 asset allocation research, Brinson, Beebower, & Hood defined tactical asset allocation as:

“…strategically altering the investment mix weights away from normal in an attempt to capture excess returns from short-term fluctuations in asset class prices (market timing);”

When it comes to tactical asset allocation, a growing body of evidence shows investors who make tactical moves in their portfolios do best when both technical analysis and fundamental analysis align.

The role of tax strategies in trading and managing investment portfolios

Certain tax strategies can add a meaningful boost to portfolio performance because taxes are an explicit cost to any portfolio and, therefore, a detractor from performance. Although tax situations are unique to each individual, any strategy that limits or delays the tax bill and retains more after-tax return for investors will face little argument.

“Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between evasion and avoidance is fine yet definite. One who avoids tax does not conceal or misrepresent. He shapes events to reduce or eliminate tax liability and upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or making things seem other than what they are.”— Internal Revenue Manual Code 9.1.3.3.2.1 (05-15-2008) 26 USC §7201 – Avoidance Distinguished from Evasion

Assuming all investors pay taxes either now or later, the chart below illustrates the benefit of delaying taxes. We assume a portfolio of 60% stocks, 40% bonds that is rebalanced every year. The solid line depicts the growth of the 100% taxable portfolio, while the dotted line shows portfolio growth in a 100% tax-deferred portfolio. Of course, the taxman arrives eventually, so we show the hit (a worst-case all-at-once tax consequence) to the tax-deferred line when withdrawing at ordinary income tax rates.

Asset Allocation

No single input is more important to a portfolio’s success than asset allocation, or determining how much to allocate to various asset classes.

In 1986, authors Gary Brinson, Gilbert Beebower, and Randolph Hood conducted an in-depth study of the various sources of investment returns. Specifically, they analyzed quarterly returns from 1974-1983 for the 91 largest pension funds, and determined that 93.6% of the returns generated were a result of asset allocation.

In a follow-on study in 1991, the authors concluded that 91% of portfolio returns are determined by asset allocation.

Financial advisors can provide peace of mind. But do they deliver a demonstrable, dollars-and-cents advantage to their clients?

a-leaders-disciplineTwo studies show that the answer is yes—if the advisor is diligent in providing several key services. Let’s start with research from Morningstar, the big Chicago-based investment research firm. A 2012 Morningstar study found that advisors who use an “efficient financial planning strategy” can help clients increase their retirement assets significantly.

By making better decisions in five areas, the study found, advisors can help their clients earn an extra 1.82% a year—or about 30% more for their retirement.

When it comes to financial planning, I have found that a systematic approach is needed to make important decisions, focus on what matters most, and evaluate options. In previous posts I introduced the guiding principles of wealth management:

  1.  Make your balance sheet, cash flow, and portfolio your friend
  2. Compare your finances to standards of excellence
  3. Stress-test your financial plan
  4. Know what is holding you back and spurring you forward
  5. Be specific and proactive to make permanent changes

To achieve the desired consistency, I find that people need a well-designed structure. I strive to provide this structure in my role as a financial advisor.

In my previous four posts I introduced my guiding principles of wealth management, along with the first four principles (links to one, twothree and four). Today I will discuss the fifth and last guiding principle:

Be specific and proactive by identifying and implementing the actions that will result in the best permanent changes

PrintOver the years, I have had the privilege of observing how clients meet challenges and tackle opportunities. Some have a knack for succeeding in any task they take on, while others seem to struggle more than they need to. Eventually, I saw a key distinction between these two groups: Successful people are usually very specific and proactive, while those who struggle tend to be vague and reactive. They set goals, but they do not follow through with a plan of specific actions aimed at meeting those goals. Consequently, instead of controlling events, they wind up responding to events. Getting stuck in reactive mode is another example of the 85% Trap.

By contrast, when successful people see a need or set a goal for themselves, they develop a specific plan of action. In keeping with the concept of the Essential 15%, they strive to find a permanent solution to every challenge, as opposed to a solution that requires ongoing effort.


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*Ranked/Named among Top, Best and Most Exclusive Advisors sources: Barron's March 2016, 2015, 2014; Advisory HQ March 2016; Financial Times June 2015; Five Star Professional November 2015, 2013, 2012,2011, 2010, 2009; Mutual Funds Magazine January 2001; NABCAP September 2010, 2011, 2013; Worth Magazine July 2002, January 2004, October 2004, October 2008; Wealth & Finance International, October 2014. Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Janiczek Wealth Management is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of Janiczek Wealth Management by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Janiczek Wealth Management), or any non-investment related content, made reference to directly or indirectly on this website will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this website serves as the receipt of, or as a substitute for, personalized investment advice from Janiczek Wealth Management To the extent that a viewer has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Janiczek Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the website content should be construed as legal or accounting advice. If you are a Janiczek Wealth Management client, please remember to contact Janiczek Wealth Management, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Janiczek Wealth Management current written disclosure statement discussing our advisory services and fees is available upon request.

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