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Wealth Management Monthly Newsletter

Holistic Wealth Management Offers Comprehensive Guidance for Busy Executives

Successful executives have mastered the art of surrounding themselves with trusted advisors for their business and personal needs. These trusted consultants are often their attorney, CPA, and financial advisor, skilled at providing specialized advice guiding them toward making informed financial decisions. Even with this “dream team” of advisors, there are critical areas of wealth that often aren’t addressed, leaving the executive vulnerable to unnecessary risk, higher taxes, and lost financial opportunities. Thus, enters the importance of “holistic” wealth management. What does holistic wealth management look like? It’s a wealth advisor that works with an executive and their team to provide comprehensive management of the executive’s financial goals. In short, it’s an ongoing review of all the individual pieces as they relate to the overall big picture. This process begins with an initial review to understand the individual’s current situation, need ...

The Uncertainty Paradox

Doubt is not a pleasant condition, but certainty is an absurd one. —Voltaire “The market hates uncertainty” has been a common enough saying in recent years, but how logical is it? There are many different aspects to uncertainty, some that can be measured and some that cannot. Uncertainty is an unchangeable condition of existence. As individuals, we can feel more or less uncertain, but that is a distinctly human phenomenon. Rather than ebbing and flowing with investor sentiment, uncertainty is an inherent and ever-present part of investing in markets. Any investment that has an expected return above the prevailing “risk-free rate” (think T-Bills for US investors) involves trading off certainty for a potentially increased return. Consider this concept through the lens of stock vs. bond investments. Stocks have higher expected returns than bonds largely because there is more uncertainty about the future state of the world for equity investors than bond investors. Bonds, for t ...

Capital Markets Update - June 2017

May turned out to be an interesting month for the stock market. In mid-May, we had the biggest one-day drop in 8 months following headlines of potential obstruction of justice by President Trump as the S&P 500 fell by 1.7%. Yet despite this “mini-correction, the S&P 500 was still up 1.4% for the month and is now up 8.7% through the end of May. Towards the end of May, the S&P 500 finished with three consecutive all-time highs. So far this year, the S&P 500 has set 20 new all-time closing highs, which is already above the average number of new highs per year (16) since 1954. At the same time, volatility this year has been extremely low with only 4 days of movements more than 1% up or down. The average daily moves of more than 1% in any year since the 1950’s has been 50. For instance, last year there were 48 days of moves greater than 1% and in calendar year 2015 there were 72 such days. Yet despite the good gains domestically, returns outside the U.S. have been even better. Fo ...

Family Business: Protecting Your Life’s Work

This year National Small Business week was April 30th to May 6th. The week celebrates over 28 million small businesses across the United States1 highlighting the hardworking local business owner. These individuals are passionate about their business and often pour their heart, sweat, and tears into it. Typically the business is the largest source of wealth and income for family business owners. It takes years to build a business; however, it can take only a moment to put that in jeopardy. We passionately feel everyone should have a strategy around managing risk and protection. Protect Your Earning Power In a recent study conducted of business owners2, it was discovered that many business owners are not adequately protecting their largest asset—the business—and earning power. On average, at least 60% of annual household income is generated from the business. In our experience, this percentage is much higher. Managing risk becomes even more critical for an owner who has their personal and busine ...

Donating Appreciated Securities for Charity

With the global stock markets near or at all-time highs, we thought it might be appropriate to re-visit this topic. The following is a reprint from last year’s newsletter. Tax deductions are a major benefit of charitable giving. Before cashing out of a profitable investment, consider making efficient use of its full value by donating it directly to charity. Charitable giving provides donors with tax relief every tax season in the form of deductions. In an effort to encourage positive social action, the IRS provides incentives for all kinds of charitable contributions, from monetary donations to used cars. You can even donate your appreciated securities (stocks, bonds, mutual funds, etc. that have risen in value) to the charity of your choice. Long-term appreciated securities are the most common non-cash donations, and they can be the best way for donors to give more to their chosen charities. The tax advantages to donating stocks are such that both the donor and the charity benefit. What are the b ...

Capital Markets Update - May 2017

Much like the weather patterns in the Midwest, March came in like lion with the S&P 500 hitting an all-time high in early March, but returns were then flattish through most of the rest of March and  through early April, before a late month rally again pushed stocks to new highs. For the month of April, the S&P 500 was up 1.03% with most of that gain coming in the last week of the month. For  the year, the S&P 500 is now up 7.2%. Internationally, the news is even better. For the year, the MSCI EAFE Developed Market Index up 10.2%, the MSCI Emerging Market Index up 13.9% and the MSCI EAFE Developed Small Cap Index up 12.8%. International returns have trailed the U.S. stock market for the past four years leading to lower valuations, so part of the international stock market rally is the rest of the world playing “catch-up” this year vs. the U.S. stock market. Investors are reaping the benefits this year of higher internation ...

Retirement Plans Business Owners

A surprising number of successful small to mid-size business owners have minimal retirement savings or do not offer a plan to their employees. When it comes to saving for retirement business owners face two main challenges, getting a late start and the responsibility of establishing a plan. The Impact of Starting Later Traditional advice suggests start saving for retirement early and let compounding magic happen. However, in the early stages of building a business most owners focus on growth and operations. Any extra capital is poured back into the business rather than saved in account with limited access until 59 1⁄2. Those who are starting to save for retirement later in life will need to aggressively put away money to catch up. For example, a 55 year old couple has $300,000 invested in a taxable account, no debt but nothing saved in retirement accounts. They want $9,000 a month for living expenses during retirement. How much would they need to save over the next 12 years to have at least an 80 ...

Economic Growth and Stock Market Returns

Should our view of near term economic growth impact how we invest? Opinions about future economic growth often differ across market participants. For example, in a survey of more than 60 economists conducted by the Wall Street Journal in June 2016, estimates of US GDP growth for 2017 ranged from 0.2% to 3.7%.1 So how should we use this data to invest in the stock market? In this regard, investors may be surprised to find that the historical link between annual GDP growth and equity returns has been quite weak. Exhibit 1 shows annual GDP growth vs. annual returns for developed and emerging markets. These plots indicate that there has not been a strong relation between GDP growth and equity returns in the same year. For example, in developed markets country/year combinations2 when GDP growth was positive, the spread in returns was substantial: 323 country/year combinations had returns above 10% while 192 country/year combinations had returns below −10%. We see a similar pattern in realized returns for ...

Capital Markets Update - April 2017

The S&P 500 closed the first quarter with a gain of 6.1%, the best quarterly performance since the fourth quarter of 2015, though the last month of the quarter was basically flat. This marked the sixth straight quarter of positive returns for the U.S. stock market and 16 out of the past 17 quarters have been positive. Also in the first quarter the stock market saw very little volatility. At one point near the end of the quarter, the S&P 500 had gone over 100 trading days without a daily drop of more than 1%. The VIX, which is a measure of volatility recorded its lowest level of volatility since 2006. Internationally, stock prices did even better with the MSCI EAFE Developed Market Index up 7.4% for the quarter, the MSCI Emerging Market Index up 11.5% and the MSCI EAFE Developed Small Cap Index up 8.1%. International returns have trailed the U.S. stock market for the past four years and valuations outside the U.S. are lower. Thus international stock markets could be playing “catch-up&rdquo ...

Strategies for Trump’s Potential Tax Plan in 2017

Just as the characters in Game of Thrones unequivocally know Winter is coming, we also know Change is coming with President Trump. During his speech to Congress on February 28th very little details were revealed of his new tax plan. According to Mick Mulvaney he expects a full budget proposal will not come until May. Summarized below is a review of President Trump’s proposals in the past as we speculate what changes might come for our tax system. Note we do not discuss the House GOP’s blueprint which differs from Trump. Personal Income Tax Trump wants to consolidate and simplify the current tax brackets. Whether the impact of the proposed changes will be good, bad or ugly will depend on your present tax situation. Notice in the table below the capital gains rate may actually increase for many taxpayers from 15% to 20%. Those in the higher end of the 28% bracket will see increased tax rates for both income and capital gains. Other notable proposals would be to repeal the Alternative Minimum ...

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Disclosure

All First Bank blog information and content is strictly informational. It is not intended to be specific investment, tax, or legal advice. If you need detailed financial, investment, or tax advice, please contact a First Bank qualified professional. Please note, First Bank occasionally shares third-party content we find to be relevant and helpful to our audiences.