Market Update: Being diversified has always been easier said than done. 2017 was a year in which almost every asset class from stocks to soybeans rallied in price, and we watched most global economies move forward in sync. For investors, that most likely meant there was no such thing as a bad allocation. This year, and especially this quarter was basically the opposite of that. International markets, as you may have heard are down 8% year to date as of this writing. International Developed and Emerging markets alike both experienced large volatility this quarter due to recent trade tensions and the uncertainty about the future look of trade in our global economy. The same difficulties have affected another asset class, bonds. As interest rates rise, bond prices go down. The Federal Reserve has raised interest rates three times this year and plans to do so potentially once more as the economy gains strength. While we know multiple asset classes are necessary to own for diversification and risk management purposes, holding onto investments that aren’t doing well is always easier said than done. While this is the expected result of a diversified portfolio, it can feel unusual on the heels of such a bullish year globally in 2017. On the other hand, stock prices of companies here in the United States are doing quite well this year and had a nice run in the third quarter. Smaller companies that have very limited sales or exposure to international markets are doing extremely well and are leading the pack amongst various asset classes. That makes sense with the turmoil we are seeing surrounding global trade and the uncertainty ahead. On the economic front, we are full speed ahead here in the United States. Unemployment is still at an all-time low, corporate profits are near all-time highs and consumer and business sentiment continues to be high. People are feeling good. The new tax-cuts are finally working their way through the economy and acting as a giant economic tailwind. We are even starting to see people’s wages increase, something that has been absent much of the expansion so far. How long will that last? It’s impossible to say with any precision, but for now, things seem serene when you look at the data. A recent survey in the Wall Street Journal polled economists about when they thought the next recession may occur, and the answer: 2020. That probably means one won’t occur in 2020, as predicting the future is hard and could occur at any moment. As we know and learned in 2007, consumers, investors, and corporations can take excess risk and over-extend when things are so calm, people feel exuberant and risk isn’t readily apparent. The market, and most people seem to be brushing off the recent and repeated rhetoric of the trade tensions. You could say times like these are when risks and risk-taking builds in the economy and markets. It is in these times of calm it pays to examine our own strategies risk profile and positioning, which we will talk a little bit more about later.

Legislative Update: While we don’t usually comment in-depth on what is going on in Washington D.C. (you get plenty of that on TV) there are some updates that our clients should be paying attention to. Recently, the Family Savings Act or what’s being referred to as “Tax Reform 2.0” has been passed through the House Ways and Mean’s committee. So, it still must go through a full two chambers of Congress before becoming law. What is important is that on top of the original tax cuts becoming permanent (currently expire in 2026), there are several other new pieces to pay attention to. First, there are provisions to address RMD’s. For those who don’t know, RMD’s are the pesky amount of funds you are required to distribute from pre-tax accounts when you turn 70.5 They are proposing to eliminate them completely for accounts under $50,000. So, if you have smaller traditional IRA’s, you may not have to take RMD’s from them in the future. Second, they are establishing a universal savings account (acronym U.S.A, naturally) for additional tax-free savings. This would have a $2,500 contribution limit and would grow tax free much like a Roth IRA except with no age limits for withdrawals. Third, included in the proposal is to repeal the age contribution limits for IRA’s. Currently, if you are over 70.5 you cannot contribute to an IRA. And last but not least, and maybe the most important is the proposal to remove “stretch” options for inherited IRA’s. This would mean if a non-spouse beneficiary inherited an IRA, they would be forced to distribute the IRA over 5 years instead of being able to “stretch” distributions over the recipient’s lifetime. These changes to the tax code will have a potential significant effect on our clients and will likely require additional planning an analysis if passed. We’re on top of it.

Those who don’t learn from history… This September was the 10-year anniversary of the “financial crisis” and the largest bankruptcy in the history of the United States, that of investment bank Lehman Brothers. As it has now been 10 years there has been plenty of coverage and reminiscing those dark days. I think it is important to look back at those times and ask ourselves how our strategy and we personally would have fared if it happened today. While the financial system looks quite different today than it did back then, investing involves risk. Risk of course including share price fluctuation, principal loss, interest rate risk, etc. (no you didn’t get to the disclosures yet). Sometimes risk is just not so apparent. The reason we bring this up is we frequently ask ourselves how would our client’s portfolio’s and situations fare if that happened again today? Or a 2001 type crash? Or a 1987 crash? Or an interest rate spike, oil spike, the list goes on. While investors cannot be fearful of risk, we must remember putting our funds to work in the market requires us to take it, and more importantly to employ a strategy to manage the appropriate amount of risk to help you meet your goals. We continue to work on improving your strategy and risk management day in and day out.

This economic update was written and edited by Robert Jeter, CFP ®, CRPC®, and Eric Johnston, CFP®, AIF® of InFocus Financial Advisors, Inc.
The views are those of Robert Jeter CFP ®, CRPC, and Eric Johnston CFP®, AIF® and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Investors cannot directly invest in indices. Past performance is not a guarantee of future results.

Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results.

Securities and advisory serviced offered through Cetera Advisors LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity.