As of 6/30/2018
Q 3 20 18
Spectr um Investor ÂŽ Quar ter ly Newsletter
Econ om ic Updat e Jam es F. M ar sh all
Jon at h an J. M ar sh all
Chief Investment Officer
IN THE NEWS
IN THIS ISSUE Economic Update Quarterly Market Charts Income Sources Education Savings
P. 1-2 P. 3-4 P. 5 P. 6
The Dow Jones Industr ial Aver age eked out a m eager gain of 1.26% in the second quar ter 2018. For the year , the S&P 500 is up 2.65% w hile the tech-heavy NASDAQ has continued to outper for m , up 9.37% as of 6/30/18 (M or ningstar ).
UPCOM ING EVENTS
Ther e is a lot of good new s to shar e on the US economy. In our hom e state of W isconsin, unem ploym ent hit an all tim e low of 2.8% in Apr il, w hile national unem ploym ent is near an 18-year low of 4%. The US economy gr ew by 4.1% (GDP) in the second quar ter , the fastest gr ow th since 2014. S&P 500 cor por ate ear nings in the second quar ter ar e up over 20% com par ed to last year.
October 23, 2018
How ever , the m om entum in stock pr ices has been cooled by r ising inter est r ates and geopolitical r isks, pr im ar ily ar ound global tr ade. Pr esi den t Don al d Tr u m p is sim ultaneously taking on NAFTA, the EU, and China to im pr ove w hat m any believe ar e outdated and unfair tr ade agr eem ents for the US. The consensus r em ains that tr ade deals w ill be str uck w ithout sever e w ide-spr ead econom ic dam age. So far , tr ade tensions have been descr ibed as som ething like pr ofessional w r estling, "A spectacle that's m or e bluster than r eal action, but still an inher ently r isky activity w her e people can get hur t" (PIM CO Secular Outlook, 5/18). In the US, the over all stock m ar ket has held up, but cer tain ar eas have not. Soybean pr ices hit a 10-year low after the US Depar tm ent of Agr icultur e pr ojected an 11% decline in US soybean expor ts due to Chinese tar iffs on US soybeans. Accor ding to M ar k Sk ou sen , author of the Forecasts and Strategies new sletter , the new steel and alum inum tar iffs w ill cr eate 30,000 new jobs in the United States, but it w ill cause a sim ultaneous loss of 400,000 jobs for US com panies that im por t steel and alum inum (Forecasts & Strategies, 6/18). M or e than half of the 30 Dow com ponents ear n 50% or m or e of their r evenue fr om outside the United States, accor ding to FactSet. Hi st or y Of Tar i f f s I n Ou r Cou n t r y Tar iffs and the thr eat of tar iff w ar s date back to Al ex an der Ham i l t on , the pr incipal advocate of im por t r estr ictions. Congr ess adopted a 15% tar iff - our nation's fir st - in 1789, w ith the goal of r aising r evenue. In 1816 Congr ess adopted a 25%-30% tar iff on m ost textiles, w hich w as later scaled back to 20%. Near ly ever y industr ial tar iff in the histor y of our countr y w as fir st im posed under the pr om ise that in a few year s it w ould be r em oved, but histor ically such m easur es r ar ely happened. The adver se effect of tar iffs in Am er ica w er e offset by the econom ic expansion cr eated by 20 m illion im m igr ants w ho m oved to the US in the 19th Centur y (fr eetr ade.or g 2/4/18). Follow ing the Civil War , tar iffs w er e liber alized but not elim inated. They w er e low er ed again by Pr esident Woodr ow W ilson in the 1913 Under w ood Act. The For dney-M cCum ber Tar iff of 1922 incr eased tar iffs again.
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Follow ing the passage of the infam ous Sm oot -Haw l ey Tar i f f Act i n Ju n e 1930 dur ing the Her ber t Hoover adm inistr ation, the US r aised tar iffs an aver age of 59% on m or e than 25,000 im por ts, doubling the tar iffs of the 1913 Under w ood Act. Our tr ading par tner s r etaliated. Spain incr eased tar iffs by 150% on Am er ican autos, Br itain passed the Im por t Duties Act of 1932, its fir st m ajor tar iff r egulation in 100 year s. Wor ld tr ade collapsed after the Sm oot-Haw ley Tar iff Act, and although it w as not the only cause of the Gr eat Depr ession, the tar iffs contr ibuted gr eatly to the str uggling financial situation. The stock m ar ket cr ashed on October 25, 1929 on new s that the Sm oot-Haw ley Tar iff Act w ould becom e law in the next session of Congr ess. The Dow fell fr om 381 in Septem ber 1929 to 41 in July 1932, a decr ease of 89%. US im por ts and expor ts both dr opped to the 1905 level. By 1934, global tr ade had decr eased by m or e than 60%. Econom ic pr otectionism r ose, w hich par tially led to Wor ld War II. The Sm oot-Haw ley Tar iff Act w ent into effect in June of 1930 and stayed in place for four year s befor e finally being r epealed in 1934 after Pr esi den t Fr an k l i n D. Roosevel t w as elected on a platfor m that included scaling back tar iffs (Washington Post, 7/9/18). In 1934, Pr esident Roosevelt signed the Recipr ocal Tr ade Agr eem ents Act, w hich gave a US pr esident the author ity to r aise or low er tar iffs and the pow er to negotiate bilater al tr ade agr eem ents w ithout Congr essional appr oval (Roosevelt Institute). The long-ter m m em or y of the Sm oot-Haw ley Tar iff Act kept Am er icans com m itted to a fr ee tr ade policy for m or e than 60 year s, w ith the belief that tr ade w ar s m ust be avoided at all costs. The policy w as spear headed by the Gener al Agr eem ent on Tar iffs and Tr ade that r educed global tar iffs in the decade follow ing Wor ld War II dur ing the Tr um an adm inistr ation. Seventy year s later the Geor ge W. Bu sh adm inistr ation im posed tar iffs that har m ed stocks. The post Septem ber 11, 2001 stock m ar ket peak occur r ed on M ar ch 19, 2002 w hen the Dow hit 10,635. Steel tar iffs took effect the next day, and lum ber tar iffs and cr op subsidies w er e im plem ented in M ay of that year. Dur ing the im plem entation of Pr esident Bush's tar iffs, the S&P 500 lost m or e than $2 tr illion in m ar ket capitalization. In 2003, the Bush adm inistr ation r educed tar iffs and
Spectr um Investor ÂŽ Quar ter ly Newsletter Qu ar t er ly Econ om ic Updat e Con t in u ed stocks incr eased. Ultim ately, the pr esident?s advisor s under stood the w isdom of the adage that ?my pr osper ity is dependent on the pr osper ity of my neighbor.? Accor ding to Dav i d Br eu h an , Vice Pr esident and Por tfolio M anager w ith the investm ent fir m Schw ar tz & Co., the issue isn?t the im pact of tar iffs on GDP, it is the im pact on cor por ate ear nings, w hich suppor t the pr ice of stocks. The US can?t contr ol the actions of other nations (Barrons, 7/9/18). Cu r r en t Tr ade Di spu t e. The tw o m ain com ponents of a tr ade w ar ar e tit-for -tat tar iffs or other r estr ictions on tr ade, and unw illingness to negotiate (Joh n Boyd, Fidelity M onitor & Insight, 7/18). The w hole point of the r ecent tar iff im posed by Pr esident Tr um p is to br ing about ser ious negotiations w ith our tr ading par tner s, par ticular ly w ith China. Those m easur es ar e aim ing at fighting w hat the adm inistr ation claim s is China?s theft of US intellectual pr oper ty and its insistence that com panies divulge valuable technology to enter Chinese m ar kets. An all out tr ade w ar w ould m ost likely lead to a r ecession and bear m ar ket for stocks. How ever , those concer ns m ay be pr em atur e. We ar e not in a tr ade w ar yet. M any people hope that Pr esident Donald Tr um p?s tar iffs and tr ade talk ar e sim ply a negotiating ploy consistent w ith his book, Art of the Deal. Tw o f act or s i n ou r f avor : one is that w e ar e far less dependent on expor ts than other countr ies, w hich am ounts to 12% for goods and ser vices in the US, 27% in the eur o-ar ea and 21% in China. This m eans tar iffs w ill inflict m or e pain on Eur ope and China than on us. China expor ted about $500 billion of goods to the US in 2017, w hile w e expor ted only $130 billion to China. China has m or e to lose. The second factor is the str ength of the US economy r elative to the r est of the w or ld. China?s stock m ar ket is alr eady in a bear m ar ket, dow n m or e than 20% thr ough July 4 fr om its Januar y highs. The eur o-zone appear s to be slow ing, w hile the US second-quar ter GDP is expected to incr ease fr om 2% in the fir st quar ter to over 4% in the second quar ter 2018, accor ding to the Atlanta Fed for ecast. The uncer tainty sur r ounding tr ade could cause businesses to delay spending on plants and equipm ent, cr eating an even m or e volatile m ar ket. M any US m anufactur er s use for eign-m ade m ater ials to m ake their pr oducts. As m ater ial costs r ise due to tar iffs, it m akes pr oduction costs m or e expensive. This incr ease m ay be difficult to pass onto consum er s and m anufactur ing com panies m ay need to absor b a por tion of the additional costs, r esulting in a potential decline in pr ofits. Accor ding to Bloomberg, " Tr ade w ar s t en d t o cr eat e a st r on g st agf l at i on ar y i m pu l se, di sr u pt i n g gr ow t h an d i n cr easi n g cost s an d pr i ces" (7/16/18). US financial m ar kets have lar gely shr ugged off fear s of a tr ade w ar because the am ount of goods cover ed by higher tar iffs is sm all. Econom ists estim ate that the tar iffs im posed so far w ould knock m or e than a tenth of a per centage point off the gr ow th r ate. "I think the m ar ket is r ight in thinking that the m ost likely outcom e is that fr ee tr ade sur vives, but w ith tw eaks," says M oh am ed El -Er i an , Chief Econom ic Adviser at Allianz. Accor ding to Dr . Dav i d Kel l y, Chief Global Str ategist for J.P.M or gan, one tem por ar y benefit of the tar iff talks is the r eintr oduction of uncer tainty to cool investor sentim ent. Follow ing the tax cuts, investor s had few r easons not to love US stocks, pushing valuations to 16 year highs. The Feder al Reser ve is also w or king to pr event the economy fr om over heating by continuing to r aise shor t-ter m inter est r ates. In June, the Fed r aised r ates for the 7th tim e since Decem ber , 2015. W ith the latest hike, the yield on the thr ee m onth T-Bill now exceeds the dividend yield of the S&P 500 for the fir st tim e since M ay, 2008 pr ior to the financial cr isis.
* Source: M orningstar, Federal Reserve Bank of St. Louis. 3-M onth T-Bill is an annualized rate. S&P 500 Dividend Yield represents the return provided by dividends only and does not indicate the potential for total return.
W hile this is a m ajor m ilestone, the char t above show s that it is m or e of a yellow flag than a r ed flag for stocks. Fr om a histor ical per spective, r ates ar e just now r eaching w hat w ould have been consider ed the m ost accom m odative Fed policy in past dow ntur ns, such as the ear ly 2000s. The Fed is pr ojecting four m or e r ate incr eases in the next 12 m onths, gr adually r em oving accom m odation tow ar d a "neutr al" r ate policy. Dr. Kelly says the US unem ploym ent r ate could r each close to 3%, the low est since the 1950s. Dr. Kelly sees the US r unning out of w or ker s because of close to full em ploym ent and the slow dow n of new visas and im m igr ation. The shor tage of w or ker s is likely to contr ibute to a slow dow n in GDP gr ow th in late 2019, especially as the effects of the tax cuts begin to fade. Gabr i el l a San t os, Global M ar ket Str ategist fr om J.P. M or gan, stated that a cur r ent str onger dollar w ould subside as the economy slow s, m aking inter national and em er ging m ar kets m or e attr active again in the futur e. Santos suggests holding your inter national position. She stated that Em er ging M ar kets r efer s not to em er ging businesses, but to em er ging consum er s and the incentives young consum er s have to join the m iddle class thr oughout the w or ld. Gabr iella for ecasts, w ith the pr ojected slow dow n in our economy by the end of this decade, that w e ar e likely headed for a m ulti-year declining dollar , w hich should be good for inter national investing. Br u ce Joh n st on e, a longtim e m ar ket str ategist w ho has w or ked for Fidelity Investm ents for 52 year s, spoke for the fifth tim e at our June 20, 2018 Spectr um /W ICPA Retir em ent Plan Investm ent Sem inar. Br uce w as far m or e cautious about the futur e of the global m ar kets this year than he w as tw o year s ago w hen he said to buy as m uch r eal estate as you can w ith cheap m oney. Over all, Br uce's cautious m essage this year w as sim ilar to Dr. Kelly's m essage. For the r est of 2018, the outlook for the economy looks str ong and valuations r em ain r easonable. How ever , w ith bonds and cash now pr oviding a low -r isk r eal r etur n alter native, w e suggest r eevaluating your over all allocation, especially if you ar e w ithin 15 year s of r etir em ent and your asset allocation is gr eater than 60% in stocks. The good new s at Spectr um is that w e have begun constr uction of a second floor addition for futur e gr ow th, and that Jon M ar shall had the good for tune of m ar r ying Laur a Needler , a nur se pr actitioner at Fr oedter t-M ilw aukee, on June 16.
Spectr um Investor ÂŽ Quar ter ly Newsletter Spect r u m I n vest or ÂŽ Hi st or i cal An al ysi s: The char t below indicates that for the past four year s, sm all cap gr ow th (yellow ) and lar ge cap gr ow th (r ed) ar e leading investm ent styles. How ever , as the left side of the char t show s, lar ge cap gr ow th led for six year s, and the follow ing seven year s, it dr opped to the bottom . The m ar ket is getting late in the cycle, especially for gr ow th stocks, as the valuations clim b higher.
S& P 500 I n dex at i n f l ect i on poi n t s: The S&P 500 is up 302% since ear ly 2009. Pay par ticular attention to the com par ison of the dividend yield in the S&P 500 ver sus the inter est r ate on the 10-year tr easur y. In 2000 and 2007, as inter est r ates w ent over 4.5%, the m ar ket flow ed to bonds ver sus stocks. We ar e not ther e yet, but w e ar e getting close, as the dividend yield on the S&P 500 is 2.1 ver sus the inter est r ate on 10-year tr easur ies at 2.9%. W ith four m or e r ate hikes by the Fed in the next year , you could see a gr eater spr ead in favor of bonds.
Spectr um Investor ÂŽ Quar ter ly Newsletter Un em pl oym en t an d Wages: As the below char t indicates, w hen unem ploym ent and w age gr ow th com e close to inter secting, the Fed has to put the pedal to the m edal and r aise inter est r ates m ultiple tim es. We ar e getting closer to that point, w ith unem ploym ent at 3.8% and w age gr ow th at 2.8%. Dr. David Kelly, Chief Global Str ategist at JPM or gan, said that by late next year , the unem ploym ent r ate could fall close to 3%, w hich m eans com panies w ill need to r aise w ages to attr act new em ployees, having an inflationar y effect long-ter m , im pacting the m ar ket.
US Dol l ar i n Hi st or i cal Per spect i ve: Accor ding to Gabr iela Santos, Global M ar ket Str ategist at JPM or gan, as the US economy slow s next year , w e ar e likely headed for a w eakening dollar , w hich should give a boost to inter national investing. Be sur e to include inter national selections in your investm ent allocation. A w eakening and str engthening dollar tends to r un in cycles, as is r eflected in the char t on the low er left. Cycl i cal Sect or s (l i gh t veh i cl e sal es, h ou si n g st ar t s): Light vehicle sales ar e above aver age, at 16.8 m illion per year , ver sus an aver age of 15.7. Housing Star ts at $1.3 m illion ar e just above the aver age of $1.29 m illion per year. Accor ding to Dr. Kelly, should 30-year m or tgage r ates exceed 5%, it could be the tipping point for housing star ts.
Spectr um Investor ÂŽ Quar ter ly Newsletter In Ot h er Wor ds Income Sources In Retirement An gie Fr an zon e | Newsletter Editor As I w as dr iving my seven-year old tw in daughter s to daycar e the other day, the younger one (by 38 w hole m inutes) asked, "M om , after you pay to get out of w or k, how do you have m oney to buy things?" At fir st I laughed at the idea of paying to get out of w or k, but then I r eally thought about it and contr ibuting to a r etir em ent plan ever y paycheck is like paying to get out of w or k! Essentially, the question she w as asking w as, "Once I've r etir ed, w hat w ill my incom e sour ces be m om ?" Clear ly I'm r aising a genius. The m ain sour ces of incom e in r etir em ent ar e Social Secur ity and em ployer -sponsor ed r etir em ent plans and/or individual r etir em ent accounts (IRAs). Accor ding to the Social Secur ity Adm inistr ation (SSA), near ly nine out of 10 individuals age 65 and older r eceive Social Secur ity benefits and those benefits r epr esent about 33% of the incom e of r etir ees. W hen it com es to Social Secur ity as a sour ce of incom e, w or ker s expectations differ consider ably fr om w hat r etir ees actually exper ience. In a sur vey conducted by the Em ployee Benefits Resear ch Institute (EBRI), just 36% of w or ker s said Social Secur ity w ill be a m ajor sour ce of incom e in r etir em ent, w hile 67% of r etir ees said it is a m ajor sour ce of incom e in r etir em ent (2018 Retir em ent Confidence Sur vey). Although you can take r educed benefits at age 62, ideally you'll w ant to w ait until you'r e eligible to r eceive your full benefits, w hich is dependent on the year you w er e bor n (66 for m ost baby boom er s). Incr eased life expectancy m akes w aiting to r eceive your full Social Secur ity benefits even m or e im por tant. In 1940, the life expectancy of a 65-year w as alm ost 14 year s; today it is just over 20 year s (SSA). Longer life expectancy m eans living longer in r etir em ent, w hich of cour se, r equir es m or e incom e. A key sour ce for that incom e is contr ibuting to an em ployer -sponsor ed r etir em ent plan and/or an IRA. The question is, how do you know w hen you've put enough m oney aw ay in a r etir em ent plan to last thr ough your golden year s? The answ er is differ ent for ever yone and depends on w hat type of lifestyle you w ant to lead and w hat your spending habits ar e, but as a gener al r ule of thum b, Fidelity Investm ents suggest having 10 tim es your salar y saved if you w ant to r etir e by the age of 67. Fidelity's tim e line is as follow s: -
Age 30: Age 40: Age 50: Age 60:
one tim e your salar y thr ee tim es your salar y six tim es your salar y eight tim es your salar y
In a sur vey conducted by the EBRI, tw o in thr ee w or ker s ar e confident they w ill have enough m oney for r etir em ent, although only 17% feel very confident. This lack of confidence is r eflected in the fact that 68% of w or ker s stated that they planned to keep w or king in r etir em ent, how ever , just 26% of r etir ees sur veyed actually r eceive incom e fr om w or k (2018 Retir em ent Confidence Sur vey). All the m or e r eason to contr ibute to an em ployer -sponsor ed r etir em ent plan; you never know w hat the futur e holds, or if continuing to w or k in r etir em ent w ill even be an option for you. W hat it all com es dow n to is that in or der to m anage your r etir em ent incom e, you need to know w hat your sour ces w ill be. If you ar e over w helm ed at the thought of deter m ining how m uch m oney you'll
need to live com for tably in r etir em ent and need help deter m ining w hat your incom e sour ces w ill be and the am ount you'll r eceive fr om each sour ce, please call our office and speak w ith an advisor w ho can help you w ith your investm ent str ategy. I, of cour se, did not explain all of this to my daughter s, instead I sim ply r einfor ced the im por tance of saving all those quar ter s gr andpa gives them (their cur r ent r etir em ent incom e sour ce), to w hich the older daughter r eplied, "We pr obably have at least $200 in change. That has to be enough to go to Disney Wor ld!" One child genius out of tw o ain't bad I guess... 60% St ock s/ 40% Bon ds Allocat ion vs. In dices En din g 6/ 30/ 18 15 Yr M id Cap 11.39% Sm . Gr t h 10.95% Sm . Blen d 10.50%
10 Yr 5 Yr 3 Yr Lg. Gr t h Lg. Gr t h Lg. Gr t h 11.70% 15.99% 14.48% Sm . Gr t h Sm . Gr t h Lg. Blen d 11.24% 13.65% 11.93% M id Cap Lg. Blen d Sm . Valu e 10.78% 13.42% 11.22%
In dex Def in it ion Lar ge Gr ow t h : S&P 500 Gr ow t h TR Sm all Gr ow t h : Ru ssell 2000 Gr ow t h TR Nat u r al Res: S&P Nor t h Am . Nat . Resou r ces TR Lg. Gr t h Sm . Blen d M id Cap Sm . Blen d Sm . Blen d Sm all Blen d: Ru ssell 10.04% 10.60% 12.69% 10.96% 2000 TR 17.57%
Sm . Valu e Lg. Blen d Sm . Blen d 9.93% 10.17% 12.46% Real Est . Sm . Valu e Sm . Valu e 9.88% 9.88% 11.18% Lg. Blen d Lg. Valu e Lg. Valu e 9.30% 8.44% 10.45% Nat . Res. Real Est . Real Est . 8.38% 7.63% 8.29% Lg. Valu e 60/ 40 60/ 40 8.38% 7.34% 7.47% 60/ 40 Bon ds In t l. 8.13% 3.72% 6.44% In t 'l 7.26% Bon ds 3.77%
In t 'l 2.84%
Bon ds 2.27%
M id Cap 10.89% Sm . Gr t h 10.60% Lg. Valu e 8.82% Real Est . 7.71% 60/ 40 6.61% In t l. 4.90%
1 Yr Lg. Gr t h 21.86% Sm . Gr t h 20.63% Nat . Res. 19.80%
Lg. Blen d Lar ge Blen d: 14.37% S&P 500 TR M id Cap M id Cap Blen d: S&P 400 13.50% M idCap 400 TR Sm . Valu e Sm all Valu e: Ru ssell 13.10% 2000 Valu e TR 60/ 40 60/ 40: 60% Diver sif ied 7.68% St ock s/ 40% Bon d Lg. Valu e 7.58% In t l. 6.84%
Nat . Res. Real Est . 3.29% 4.23% Nat . Res. Nat . Res. Bon ds Bon ds -1.08% 1.74% 1.72% -0.40%
Lar ge Valu e: S&P 500 Valu e TR In t er n at ion al: M SCI EAFE NR Real Est at e: DJ US Select REIT In dex TR In t -Ter m Bon ds: Bar Cap Aggr egat e
Annualized returns. The above indices are unmanaged and cannot be invested into directly. Past performance is not an indication of future results. Diversification cannot protect from market risk. Source: Morningstar. * 60/40 Allocation: 40% Bonds, 6% Lg. Value, Blend, & Growth, 12% Mid Cap, 6% Sm. Value & Blend, 6% Intl., Nat. Res., and Real Est. Allocation, excludes Small Growth. Rebalanced annually on Apr 1. ÂŠ2018 Spectrum Investment Advisors, Inc. Please see benchmark disclosures below.
I mpor ta nt Disclosur es: To be selected for Fastest Growing Firms a company must be located in the M ilwaukee area and have annual revenue between $3 million and $500 million and have a record profit for the past three years. The 21 firms with the highest percentages of growth from 2015-2017 were selected as winners. Benchma r k Disclosur es: M or ningsta r Categor y Aver a ges: M orningstar classifies mutual funds into peer groups based on their holdings. The Category Average calculates the average return of mutual funds that fall within the category during the given time period. The following indexes and their definitions provide an approximate description of the type of investments help by mutual funds in each respective M orningstar Category. One cannot invest directly in an index or category average. La r ge Ca p Gr owth: S&P 500 Gr owth I ndex? M easures the performance of growth stocks drawn from the S&P 500 index by dividing it into growth and value segments by using three factors: sales growth, the ratio of earnings change to price and momentum. I nter mediate-Ter m Bonds: Ba r clays US Agg Bond I ndex? M easures the performance of investment grade, US dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, M BS, ABS and CM BS. La r ge Ca p Blend: S&P 500 I ndex? A market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenue are based in the US. La r ge Ca p Va lue: S&P 500 Va lue I ndex? M easures the performance of value stocks of the S&P 500 index by dividing into growth and value segments by using three factors: sales growth, the ratio of earnings change to price and momentum. M id Ca p Blend: S&P M idCa p 400 I ndex? M easures the performance of mid-sized US companies, reflecting the distinctive risk and return characteristics of this market segment. Sma ll Ca p Blend: Russell 2000 I ndex? M easures the performance of the small-cap segment of the US equity universe. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. Sma ll Ca p Va lue: Russell 2000 Va lue I ndex? M easures the performance of small-cap value segment of Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Sma ll Ca p Gr owth: Russell 2000 Gr owth I ndex? M easures the performance of small-cap growth segment of Russell 2000 companies with higher price-to-value ratios and higher forecasted growth values. For eign La r ge Ca p Blend: M SCI EAFE NR I ndex?This Europe, Australasia, and Far East index is a market-capitalization-weighted index of 21 non-US, developed country indexes. Rea l Estate: DJ US Select REI T I ndex? M easures the performance of publicly traded real estate trusts (REITs) and REIT-like securities to serve as proxy for direct real estate investment. Natur a l Resour ces: S&P Nor th Amer ica n Natur a l Resour ces I ndex? M easures the performance of US traded securities classified by the Global Industry Classification Standard (GICS) as energy and materials excluding the chemicals industry and steel but including energy companies, forestry services, producers of pulp and paper and plantations. M SCI ACW I Ex-US is a market-capitalization weighted index maintained by M organ Stanley Capital International and designed to provide a broad measure of stock performance throughout the world, with the exception of US-based companies. The Dow Jones I ndustr ia l Aver a ge (DJI A) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The Sta nda r d & Poor ?s 500 I ndex is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite I ndex measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock M arket.
Spectr um Investor ® Quar ter ly Newsletter Spect r u m Wealt h M an agem en t Education Savings ®
Br ian Wh it e, CFP | Wealth Manager W hile w e?r e in the m iddle of sum m er , m illions of students ar e looking for w ar d to their fall sem ester of college. The National Center for Education Statistics stated that 20.4 m illion students w er e enr olled in college classes for the fall of 2017. That num ber is alm ost cer tain to incr ease this fall. W ith the r ar e exception of those w ith full-r ide scholar ships, m ost students and their par ents w ill need to pay for their college exper ience. If you have young childr en (or gr andchildr en, nieces, nephew s, etc.), take a look at the pr ice of college. Since w e?r e in W isconsin, how about the lar gest public univer sity? The Univer sity of W isconsin-M adison has a pr ice tag of about $25,000 per year for tuition, fees, r oom and boar d, books, etc. How can a fam ily save for this sizable pr ice tag? Let?s explor e the options: 529 Pla ns. Ther e ar e actually tw o differ ent types of Section 529 plans: Pr epaid Tuition Plans and Education Savings Plans. Pr epaid tuition plans ar e sponsor ed by state gover nm ents and can allow individuals to pr epay som e cr edits for par ticipating colleges. This is not available in the state of W isconsin, but it is available in other states, like Illinois. The 529 Education Savings Plan is w hat m ost people ar e fam iliar w ith. W isconsin has Edvest, and Illinois has Br ightStar t, am ong other s. Each state is differ ent and has their ow n r ules, r egulations and investm ent pr oducts. This is a tool for an individual to save for a beneficiar y?s futur e college expenses. These expenses can be tuition, r oom & boar d, books, supplies, etc. The funds ar e typically invested in som e type of an age-based por tfolio of m utual funds and Exchange Tr aded Funds (ETFs). Por tfolios get m or e conser vative as the beneficiar y gets closer to age 18. One of the biggest benefits to a 529 plan is that ther e ar e no incom e lim itations. Ther e ar e cer tain lim its, such as an annual gift tax exclusion am ount ($15,000 for 2018) and a lifetim e contr ibution am ount (depends on the state). These contr ibutions can gr ow tax-fr ee and the w ithdr aw als ar e also tax-fr ee as long as they ar e used to pay for a qualified higher education expense. 529 Education Savings Plans can also be used for pr ivate elem entar y or secondar y tuition (up to $10,000/year ). Cover dell Education Savings Accounts (ESA). For m er ly know n as an Education IRA, the ESA allow s for contr ibutions of up to $2,000 annually into a br oker age account for futur e education savings. W hile the types of investm ent vehicles you can invest in ar e lim itless, the flexibility of these accounts ar e not. Should the designated m inor child not use the funds for education expenses, the account can n ot be r eassigned to a sibling or other beneficiar y like a 529 account can. Qualified w ithdr aw als ar e tax-fr ee, but ther e ar e incom e lim its for the $2,000 contr ibution. If your adjusted gr oss incom e is over $110,000 ($220,000 for joint filer s), you ar e n ot eligible to contr ibute. Ta xa ble Accounts. You can alw ays save for college in a taxable account and can even put it in the nam e of a m inor child thr ough the Unifor m Tr ansfer s to M inor s Act (UTM A). Contr ibutions to these accounts ar e consider ed gifts and ar e the pr oper ty of the m inor. They can be accessed at any tim e and ar e r e-titled in the nam e of the m inor after they r each the age of m ajor ity (21 for W isconsin). They ar e the least favor able fr om both the taxation standpoint and the affect on financial aid eligibility.
IRS Indexed Limits for 2018: 401(k), 403(b), 457 Plan Deferral Limit is $18,500. Catch-up Contribution limit is $6,000. Source: www.irs.gov
Roth I RAs. Roth IRAs ar e tr em endous r et i r em en t savings vehicles. The pr incipal am ount you contr ibute can be w ithdr aw n at any tim e for any r eason w ith no taxes or penalties. W hile this m ay sound like another good tool for education savings, w e believe that r etir em ent vehicles such as IRAs and 401(k) accounts should be utilized solely for that pur pose. A w ithdr aw al of $40,000 fr om your Roth IRA is the sam e w hether you use it for tuition paym ents or boat paym ents. Either w ay, you?r e taking m oney fr om your futur e r etir ed self. Ther e ar e m any differ ent options for education savings so that you ar e able to effectively separ ate education savings fr om r etir em ent savings. Resear ching education savings plans can be over w helm ing. Please contact Spectr um w ith any questions and w e?ll help you w ade thr ough the differ ent options available. The follow ing w ebsites in par ticular ar e extr em ely useful for r esear ch into college savings plans: w w w.finr a.or g/investor s/saving-college. FINRA, The Financial Industr y Regulator y Author ity, has a page dedicated to the differ ent options on saving for college. You can also look up the fees associated w ith each state?s 529 plan. w w w.savingfor college.com . This site is sponsor ed by 529 plans, but has som e ver y good calculator s and ar ticles on college savings. w w w.collegesavings.or g. The National Association of State Tr easur er s established this site w hich contains in-depth infor m ation on each state?s 529 plan.
Sp ect r u m I n v est o r ® U p d at e M or n in gst ar Cat egor y Aver ages Intermediate-Term Bond
2n d Qt r -0.24%
1 Year -0.36%
3 Year 1.69%
Allocation 50%-70% Equity
Large Cap Value
Large Cap Blend
Large Cap Growth
Mid Cap Value
Mid Cap Blend
Mid Cap Growth
Small Cap Value
Small Cap Blend
Small Cap Growth
Foreign Large Blend
Source: Morningstar, 3 yr return is annualized. Morningstar classifies categories by underlying holdings and then calculates the average performance of the category. Past performance is not an indication of future results. Returns in Blu e = Best, Returns in Red = Worst. Please see Benchmark Disclosures on page 5.
10 Yr T-Not e: 2.85%
In f lat ion Rat e: 2.2% (5/2018)
S&P 500: 2,718
Un em ploym en t Rat e: 3.8% (5/2018)
Bar r el of Oil: $70.53
Source: Yahoo Finance, bls.gov, eia.gov
Data as of 3/31/18 unless otherwise noted. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. The Standard & Poor ?s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. Barrel of Oil: West Texas Intermediate. Inflation Rate: CPI. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day,
To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.