Creating wealth management solutions based upon individual needs, goals and risk tolerance.

Market Volatility and Algorithm Trading

Artificial intelligence is no longer a futuristic concept that we see unfolding only in movies. It’s real, and it’s affecting our everyday lives today — it even causes fluctuations in the stock market.

The year 2018 saw some larger swings for the broader equity indexes in the United States. In fact, 5 of the 10 biggest single-day gains and declines for the Dow Jones Industrial Average happened in 2018. While the intra-year lows were in line with historic norms, the day-to-day swings were much broader. The question is, why?

Algo Trading vs. Program Trading

One of the factors contributing to much of the volatility is the use of algorithms and computers in trading, sometimes called “algo trading.” This term refers to market transactions that use advanced mathematical models to make high-speed trading decisions. Many analysts believe that the various sell-off episodes seen throughout 2018 were caused by these machines because they act on immediate data releases without taking the time to digest them, as humans would.

This is different than program trading. The New York Stock Exchange defines program trading as any trade involving 15 or more stocks with an aggregate value in excess of $1 million. Rudimentary program trading began in the seventies, but with a person making the decisions. Today, computers use artificial intelligence and algorithms to trade independently.

“Eighty percent of daily volume in the U.S. is done by machines, so what you get is a lack of focus on earnings, a lack of focus on outlooks, and you just get short-term movements based on very specific data that is released every day, and that creates noise,” Guy De Blonay, fund manager at Jupiter Asset Management, told CNBC’s Squawk Box Europe. In fact, on some days, this program trading can account for as much as 90 percent of the volume. As the market moves up or down, programs may look at the momentum and simply sell or buy. That can exponentially increase the volatility without any basis in fundamentals.

Art Hogan, chief market strategist for B. Riley FBR, stated, “A machine is making a decision based on the fact that we reached a level to buy or sell. The problem with that is everyone’s algorithms are pretty much the same; they key on the same trigger points. That causes really fast momentum swings.”

This is not like in The Terminator, when Skynet takes over the world. (In case you’re not an Arnold Schwarzenegger fan and/or haven’t watched the Terminator movies, Skynet is a fictional artificial neural network-based conscious group mind and artificial general intelligence system that serves as the main antagonist, or character, in the movies.) With algo trading, there is some human oversight; however, the independent automated trading is a much bigger part of daily movement than people might be aware of.

What to Do when the Market Fluctuates

Now that we understand a primary reason why the market swings were so broad in 2018, then the next question is, what should we do?

The simple answer is that if your portfolio is allocated properly based on your personal needs, objectives, risk tolerance and tax situation, then you can ignore the short term. You do not need to do anything. We design portfolios with volatility in mind — regardless of the source or cause. We strongly recommend that you make changes to your portfolio based on your changing needs and vision — not on day-to-day or month-to-month market movement.

We are happy to discuss your personal vision and review your overall investment planning without cost or obligation. Feel free to contact me personally, or anyone on our team. We look forward to assisting you. Randy Carver – Randy.carver@raymondjames.com or (440) 974-0808

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Estate Planning Enters the Digital Age

Typically, when a new trend becomes mainstream, the U.S. government steps in and regulates the activity. Surprisingly, even though most Americans have a substantial amount of digital property or digital assets (such as email accounts, social media accounts and blogs), federal legislation of digital property does not exist yet.

Most states have relied on the terms of service or privacy policy of the service that manages an asset (such as Gmail, Facebook or Tumblr) to determine what should be done with the particular asset when the owner dies.

In the past couple of years, at least 28 states have created laws that will protect people’s digital assets and give their family members the right to access and manage those accounts after the owner has died. Plus, The Uniform Law Commission created the Fiduciary Access to Digital Assets Act (Revised 2015), which is aimed to allow executors, trustees, or the person appointed by court (“conservator” or “fiduciary”) complete access to deceased’s digital assets. Although it’s not yet a nationwide law, it shows that there is some forward momentum and progress regarding this issue.

New Law Governing Digital Assets Went into Effect in Ohio in 2017

A new Ohio law, “HB 432, Revised Uniform Fiduciary Access to Digital Assets Act.” took effect on April 6, 2017. This law authorizes continued access or control over a deceased or incapacitated person’s electronic communication and “any other digital asset to which the individual has an interest.”

We want you to understand how this new law affects your rights. In general, you now have greater control over what happens to your digital assets after death.

This bill, also known as the Omnibus Probate Bill, made significant changes to estate administration in Ohio, such as adoption of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). Under the original Uniform Fiduciary Access to Digital Assets Act (UFADAA), fiduciaries were authorized to manage their clients’ digital property, such as computer files, web domains and virtual currency, but it restricted a fiduciary’s access to the substantive content of electronic communications, such as email messages, text messages and social media accounts. HB432 and RUFADAA extended the reach of a fiduciary to include the power to manage a person’s substantive digital assets.

HB432 does not grant this power across the board; rather, it outlines the means through which an individual may grant such power to his or her fiduciary. These means include the following:

  1. Online tools offered by a custodian or possessor of digital assets and through which an individual can select how his or her digital assets will be treated
  2. A will, trust or power of attorney
  3. The custodian’s terms of service

These means are listed in order of descending authority. In other words, an online tool supersedes the terms of a will or trust, which supersedes the custodian’s terms of service, which supersedes the default RUFADAA rules.

Store All Your Important Documents in One Online Location

Historically, a person’s estate consisted of a will, trusts, life insurance policies and property, including financial accounts. In the days of paper documentation, these important documents, along those that named a Power of Attorney, were stored in a folder or filing cabinet in someone’s office, safety-deposit box at the bank or desk drawer, where the family would be able to easily find them after the person died. Family members also relied on paper statements that arrived in the mail, such as bank statements, bills and account updates.

Thanks to advances in technology, now we can digitize all documents related to our estates and store them online. There are many benefits to creating a digital estate plan. Even though many people manage their finances, business paperwork and personal lives online, very few have organized or centralized those accounts in one location. This can make managing and distributing these assets difficult after the person has died. It can also cause confusion for family members, denial of access and even an inability to locate the accounts.

Creating a digital estate plan, with all your important documents located in one place, will help your family members, attorney, financial advisor and others do the following:

  1. Locate and access your online accounts
  2. Determine if your digital property has any financial value that needs to be reported and perhaps submitted to probate
  3. Distribute or transfer any digital assets to the appropriate parties
  4. Avoid online identity theft

Raymond James offers the ‘Vault’ as part of the Client Access system. There is no cost to use this and it has virtually unlimited storage. As with all estate planning we recommend you work with an attorney specializing in this area.

We will be having an Estate Planning Town Hall meeting on May 14, 2019 at 7 pm at the Four Points in Eastlake. Please contact our office for reservations or details. As always, please reach out to us with questions on estate planning or whenever we can otherwise be of service to you, your family or friends.

Randy Carver, RJFS registered principal and President of CFS., Randy.carver@raymondjames.com or (440) 974-0808.

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

It’s Not as Bad as We Are Told

The news is full of gloom and doom. Some people have vowed not to read or watch news reports because it’s too overwhelmingly depressing. Every day, we are barraged with announcements about terrorist attacks, school shootings, hate crimes, social unrest, drug-fueled violence, stock-market downturns, declines in housing starts…and on and on.

This feeling of despair isn’t isolated to the United States, though. In a recent survey, researchers from Our World in Data asked 18,235 adults in nine countries, “All things considered, do you think the world is getting better or worse, or neither getting better or worse?” The responses were consolidated by country. The French were the least optimistic, with only 3 percent of the respondents there saying they think the world is getting better. The most optimistic were the Swedes, at 10 percent. Americans were in the middle, at 6 percent.

Our Quality of Life Is Improving

But if we look at the bigger picture, things are not as bad as we think. The world has made great strides in key areas:

  1. The economy — Over the past 200 years, the world’s gross domestic product (GDP) has increased 100-fold. Humankind has never been more prosperous and productive. Technology has driven much of this growth.
  2. Life span — Mortality rates have dropped significantly over the past 300 years, and in some countries, life expectancy has tripled.
  3. Teen births — In the United States, teen births dropped 67 percent from 1991 to 2015.
  4. Nutrition — Worldwide, food scarcity and hunger are decreasing. In 1991, 18.6 percent of the world’s population was undernourished. By 2015, that number dropped to 10.8 percent.
  5. Energy — As renewable energy sources have become cheaper and more accessible, more of the world now has electricity than ever before. For example, in 2000, only 0.16 of the population in Afghanistan had electricity, and by 2014, that number skyrocketed to 89.5 percent of the population.
  6. Technology — Evolution in technology is enabling us to make huge improvements in health care, automation, farming, travel, communications and other areas through phenomenal innovations like 3-D printing, drones, virtual reality and gene editing.

When you begin to feel dismayed about the daily onslaught of bad news, focus on all these reasons to be optimistic. The quality of life is improving for people worldwide.

Our Brains Are Hardwired to Focus on the Negative

We would feel better about our reality if we were to focus on the positive instead of the negative. So why do we let the negative news affect us? Some researchers say we pay 10 times more attention to bad news than we do to good news. This is because we are hard-wired to react more readily to negative news. The human brain actually has a “negativity bias” — our brains are built with a greater sensitivity to unpleasant news. This has served humanity as a form of protection against danger.

One practical indication that this is true is that in 2014, the Russian news site City Reporter reported only good news to its readers for an entire day. The site lost two-thirds of its normal readership that day. Few people were interested in reading good news.

Consider the Facts, Not the Extremes or Averages

In his best-selling book Factfulness: Ten Reasons We’re Wrong About the World — And Why Things Are Better than You Think, Hans Rosling says that most of what we think about the world today is based on emotions, and we still carry a worldview that dates back as far as 1965. Rosling says the key to changing our worldview is to embrace facts and avoid seeing issues in terms of averages and extremes. We need to see “the world through the clear lens of facts…Then we can stop living stressful, misguided lives because we think the world is getting worse, and we can channel our energies to making it an even better place.”

In chapter 10, “The Urgency Instinct,” Rosling says our natural urgency instinct makes rational thought impossible. But he offers a solution: we should worry only about what is important.

Don’t Let Fear Drive Your Financial Decisions

This entire discussion about focusing on facts and avoiding the temptation to dwell on the negative applies to financial planning.

We strongly advise you to leave emotions out of your financial decisions. Making decisions based on emotions has led to significantly reduced returns for many people. This is why the average equity mutual fund investor under performs the average fund by about 40 percent over 20-year periods, according to Nick Murray, a leading speaker and author in the financial services industry for decades.

Research from Mackenzie Investments shows that the average duration of a bear market is less than one-fifth of the average bull market. Also, the average decline of a bear market is 28 percent, but the average gain of a bull market is more than 128 percent. It’s important to recognize that a bear market is only temporary, and the next bull market will erase its declines, which then extends the gains of the previous bull market. The bigger risk for investors is not the next 28 percent decline in the market, but missing out on the next 100 percent gain in the market.

Investopedia defines a bear market as a condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining. Investors anticipate losses as pessimism and selling increases. A downturn of 20 percent or more from a peak in multiple broad market indexes, such as the Dow Jones Industrial Average or Standard & Poor’s 500 Index (S&P 500) over a two-month period is considered an entry into a bear market. A bull market, on the other hand, is a group of securities in which prices are rising or are expected to rise.

No one can time the market. Even when we see signs that there is about to be an economic downturn, that may or may not happen, and we can’t predict when it will happen. According to JP Morgan’s Guide to Retirement 2016, an investor with $10,000 in the S&P 500 index who stayed fully invested between Jan. 2, 1996, and Dec. 31, 2015, would have more than $48,000. An investor who missed 10 of the best days in the market each year would have only $24,070. A very skittish investor who missed 30 of the best days would have less than what he or she started with: $9,907, to be exact.

Here is another example of how costly it can be to let your reaction to bad news affect your financial decisions. On October 15, 2014, the stock market dipped 460 points, close to “correction” status. A late-day rally saw stocks rebound, ending the day down 173 points at 16,142. Some investors decided to weather their losses, betting that the market turbulence would eventually settle. Others panicked and dumped stocks.

SigFig, an investment planning and tracking firm, looked at how investor behavior that volatile day affected their long-term performance. They found that about 20 percent of investors decided to reduce their exposure to equities, mutual funds and ETFs, with some selling 90 percent or more. Those were the investors who experienced the worst performance. SigFig researchers wrote, “Those who appeared to panic the most — for example, those who trimmed their holdings by 90 percent or more — had the worst 12-month-trailing performance of all groups. Their portfolios delivered a trailing 12-month return of –19.3 percent as of Aug. 21, compared with  –3.7 percent for the people who did nothing during that October correction.”

Likewise, investors who pulled out of the stock market during the economic downturn of 2008 lost more money than they would have if they had kept their investments intact. University of Missouri professor Rui Yao examined the behavior of investors during the economic downturn of 2008 in detail. She found that the more vulnerable investors were, the more they tended to panic, and the more they tended ultimately to lose. “Vulnerable” investors included those who had recently been laid off from their jobs and those who had no emergency savings fund.

Professor Rao also found that losses usually resulted when investors made the common investment mistake of selling off stocks and placing the cash into bank accounts until the market bounces back. She found that males, Asian Americans, those who are wealthy, those who are overconfident in their investment abilities and those who have an aversion to loss were more likely to commit this common mistake.

Keep Your Eye on Your Goals

In the past, I have written about the importance of using your own personal financial goals as a benchmark instead of comparing your portfolio’s performance to an index like the S&P 500 or to how well your brother-in-law or neighbor is doing in stocks.

Here are some guidelines for keeping your focus on the positive aspects of your financial position and continuing to make wise financial decisions for your future.

  1. Define your financial goals.
  2. Be patient.
  3. Avoid making emotional decisions when you hear negative news.
  4. Have an accountability partner — such as your financial advisor — whom you can talk with when your fears about losing money are tempting you to made drastic changes in your investments.
  5. Consider the historical facts — that you are more likely to benefit by staying put during an economic downturn than by pulling your money out of the stock market.

We are committed to helping you achieve your goals, despite what is happening in the news. We take a very proactive approach to providing the highest net return to you based on your personal income needs, tax situation and overall goals. Our advisors will partner with you to take the guesswork and emotion out of the best investing approach for your unique situation.

Please contact us to discuss your Personal Vision Planning®, to get a second opinion on your current plan or if we can otherwise be of service.  Randy.carver@raymondjames.com or (440) 974-0808.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.  The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.  Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Randy Carver Recognized As Top Independent Advisor by Barron’s

September 14, 2018 Randy Carver, RJFS Registered Principal was recognized as one of the Independent Advisors in the United States in this 12th edition of their Top 100 Independent Advisor ranking.

Full Story – https://bit.ly/2pfHZ3C

Source: Barron’s “Top 100 Independent Financial Advisors,” DATE, 2018. Barron’s is a registered trademark of Dow Jones & Company, L.P. All rights reserved. The rankings are based on data provided by over 4,000 individual advisors and their firms and include qualitative and quantitative criteria. Data points that relate to quality of practice include professionals with a minimum of 7 years financial services experience, acceptable compliance records (no criminal U4 issues), client retention reports, charitable and philanthropic work, quality of practice, designations held, offering services beyond investments offered including estates and trusts, and more. Financial Advisors are quantitatively rated based on varying types of revenues produced and assets under management by the financial professional, with weightings associated for each. Investment performance is not an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment picking abilities. The ranking may not be representative of any one client’s experience, is not an endorsement, and is not indicative of advisor’s future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. Barron’s is not affiliated with Raymond James.

It’s Not What You Make but What You Keep

When looking at how your investments are doing, we believe one of the most important factors to look at is not how much you make – the gross return.  We believe one of the most important numbers to look at is how much you keep after all fees, expenses and taxes — the net return.

One portfolio can make 10 percent and another 5 percent, but if you pay taxes and expenses on the 10 percent portfolio and end up with just 4 percent, you would be better off with the 5 percent portfolio. Often people just look at the gross number and miss what is really important. Moreover, focusing on the wrong thing — such as just lower expenses — can lead to a lower net return. This is a hypothetical example for illustration purposes only and does not represent an actual investment

Taxes Matter – But Sometimes the Lower Return Gives You More – The tax bracket you are in helps dictate the types of investments you should own to optimize your net return. For example, someone in a 50 percent tax bracket may be better off with a 5 percent tax-exempt investment than a 6 percent taxable one. This is a hypothetical example for illustration purposes only and does not represent an actual investment , here’s the math:

6% – tax of 50% = 3% net – It’s important to consider the tax implications of your investments when allocating your portfolio and monitoring your returns. This is just one reason why it’s important to work with a financial advisor who understands the tax implications of every financial decision you make.

Expenses Matter – But Not Always the Lowest Ones –  Expenses do matter, but again, one of the most important numbers is your return after fees and expenses. For example, it’s better to have an investment with a 2 percent expense that gives you an 8 percent return than an investment with no expenses that gives you a 1 percent return. Fees and expense are a consideration, but we believe it’s what you keep that may be most important.

Fees Matter – But Not Always the Lowest Ones – Working with a professional advisor can add to your net return, even though you will have to pay him or her a fee. A recent Vanguard study says advisors can add “around 3 percent” to clients’ net returns.

“Rather than placing its major focus on investment capabilities, the advisor’s alpha model relies on the experience and stewardship that the advisor can provide in the relationship. Left alone, investors often make choices that impair their returns and jeopardize their ability to fund their long-term objectives.”

NUMBERS ARE NOT ALWAYS WHAT THEY SEEM!  If we invest $100,000 into a portfolio that has a track record of  30% for 1 year, 40% average annual return for 2 years and 10% average return for 3 years – we don’t really know how much it made or even if it made anything.  For example if we invested $100,000 and in the first year it lost 50% it would now be worth $50,000; in the second yer it makes 50% it’s now worth $75,000 and in the third year it makes 30% it is now worth $97,500.  We have less than we started with and yet this portfolio has a 1 year return of 30% , a 2 year average return of 40% and a 3 year average of 10%!  This is a hypothetical example for illustration purposes only and does not represent an actual investment

WHAT IS THE GOAL?  Benchmark According to Your Own Goals –If a portfolio is meant to generate reliable income that you count on and does so successfully the overall average return may be less than a stock portfolio that doesn’t generate income.  However, the portfolio that with the higher return not meeting your needs.   We need to understand what the goal of a portfolio is.   Meeting your goals is more important than meeting a specific number or beating an index.

Benchmarks can be helpful for comparing your portfolio’s performance to an industry figure. But comparing a portfolio to the wrong benchmark can lead to a mis-perception of how well you are doing. Often, investors compare their portfolios to the S&P 500 stock benchmark, even though they own investments other than large-cap stocks. That is not a relevant comparison. Plus, if you are invested to generate reliable current income, that is a different objective than beating the S&P.  We believe one of  the most important benchmarks is whether or not you can meet your current income needs and future goals.

The “Standard & Poor’s 500” index is a grouping of 500 of the largest U.S. stocks, weighted by market capitalization, which simply means the stock price multiplied by the number of shares outstanding. Market analysts commonly use this figure to designate a company’s size. This year, Amazon, Netflix and Microsoft together this year are responsible for 71 percent of S&P 500 returns and for 78 percent of Nasdaq 100 returns. Apple also makes up a large portion of the index return — 12 percent of both S&P 500 and Nasdaq 100 returns. Movements in these four companies will move the index but might not be representative of the broader market — and may not be representative of a well-diversified portfolio.

We Can Demystify the Process – Our process takes a very proactive approach based on your personal income needs, tax situation and overall goals.   Rather than using models we custom allocate each portfolio based on your personal needs, objectives, tax situation and risk tolerance.  Equally important is that we can help you understand what your portfolio is doing and why.   We can help you define your needs and then design a plan that will help achieve eve your individual goals.    At the end of the day, it’s not about what you make, but what you keep, that we believe is important. Our advisors will partner with you to take the guesswork out of the best investing approach for your distinct situation.

Please contact us to discuss your Personal Vision Planning®, to get a second opinion on your current plan or if we can otherwise be of service.  Randy.carver@raymondjames.com or (440) 974-0808 .

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.  The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Forbes recognizes Randy Carver as one of the Top 250 Wealth Advisors In The United States

September 14, 2018 – FORBES published the 2018 Top Wealth Advisors list of 250 advisors.  For the third year in a row Randy Carver the President of Carver Financial Services Inc. and a registered Principal with Raymond James Financial Services Inc. was included in this prestigious list.  This year Shook Research set thresholds to minimize the number of nominations from the more than 400,000 advisors in the United States.   They received 25,732 nominations,  invited 9,596 to complete a survey did 7,174 telephone interviews and 1,503 in-person interviews before selecting the 250 on the list.

Full Story – https://www.forbes.com/profile/randy-carver/?list=top-wealth-advisors#6fd8c718739a

The Forbes ranking of America’s Top Wealth Advisors, developed by SHOOK research, is based on an algorithm of qualitative and quantitative data, rating thousands of wealth advisors with a minimum of seven years of experience. Ranking algorithm is based on quality of practice, including: telephone and in-person interviews, client retention, industry experience, review of  compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Investment performance is not a criteria because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC which does not receive compensation from the advisors or their firms in exchange for placement on the ranking. Research Summary (as of August 2018): 25,732 Advisor nominations were received, based on thresholds. 9,596 Advisors were invited to complete the online survey. 7,174 Advisors were interviewed by telephone. 1,503 Advisors were interviewed in-person at the Advisors’ location. Final list of the top 250 Advisors was then compiled based upon the quantitative criteria. Raymond James is not affiliated with Forbes or Shook Research, LLC. This ranking is not indicative of advisor’s future performance, is not an endorsement, and may not be representative of individual clients’ experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. 

Real Risks: Hurting Those We Are Trying to Help

We’ve all heard that when something sounds too good to be true, it usually is. Yet the promise of getting something for nothing can be compelling enough that we often act in ways that are detrimental in the long run. Moreover, we may make decisions based on perception rather than facts.  This can lead to actions that fail to meet our needs and objectives or are harmful to our future.  Plus, many seek instant gratification, often at the expense of their long-term well-being.

The promise of universal basic income (UBI), a social policy that guarantees a fixed, unconditional income from the government for everyone, free college tuition and free health care are all very appealing, especially to many younger Americans.

The problem is that “free” isn’t really free. Policies that provide so-called free college, free wages and free health care can negatively impact all us in the long run — most of all these youths. As with many things, the people these benefits are supposed to help are the ones who will be most hurt. Aside from the psychological impact of never really accomplishing anything, these policies can make our economy suffer and even fail.

We must get away from semantics, politics and labels and focus on the real problems that these “free programs” address.

A Fuzzy Understanding of Capitalism and Socialism

Many younger Americans find the socialist policy appealing without understanding what socialism really is.

Kate S. Rourke, in her article “You Owe Me: Examining a Generation of Entitlement,” says, “Children in the most recent generation of adults born between 1982 and 1995, known as ‘Generation Y,’ were raised to believe that it is their right to have everything given to them more than any other previous generation.” Socialism plays right into this mindset, especially the fuzzy, idealized, quite-unrealistic socialism being put forward today: “We all get our free lunch!” There is a sense that the government will provide these “free lunches” without any true sense of how they will get paid, other than “The rich must pay.”

Millennials are simply not that alarmed by the idea of socialism. For instance, a national Reason-Rupe survey found that 53 percent of 18- to 29-year-olds view socialism favorably, compared to only a quarter of Americans over 55.  At the same time, however, Millennials don’t like the idea of the government running things.

So what do millennials think socialism is? In that survey, respondents were asked to use their own words to describe socialism. Millennials who viewed socialism favorably were more likely to think of it as just people being kind or “being together,” as one millennial put it. Others thought of socialism as just a more generous social safety net where “the government pays for our own needs,” as another explained it. Some thought it referred to social media like Twitter and Facebook.

One definition of socialism is “a political and economic theory of social organization that advocates that the means of production, distribution and exchange should be owned or regulated by the community as a whole.”

Americans’ often fuzzy understanding of socialism can skew research results. A Harvard study revealed millennials’ apparent disregard for capitalism and favorable attitude toward capitalism but acknowledged, “It is more likely that the results are less a repudiation of capitalism and more a rejection of the ‘status quo,’ which is a strange mix of cronyism, capitalism and socialism.”

In the study, millennials did not indicate support for capitalism but do not view the government as a solution, either. Only 27 percent answered that they believed the government should do more to regulate the economy, and only 26 percent responded that government spending can increase economic growth.

Bernie Sanders Has Led the Way

That sentiment aligns with the way Bernie Sanders, independent U.S. senator from Vermont, presents socialism — as just a generous social safety net. This narrative says government is a benevolent caretaker and pays for everybody’s needs (from everybody’s pockets).

In a speech he delivered at Georgetown University, Sanders said democratic socialism “means that we create a government that works for all of us, not just powerful special interests. It means that economic rights must be an essential part of what America stands for.”

Ironically, when you start to dig a little deeper, many who claim to support socialism do not actually like the true definition of it — the idea of government running businesses. If socialism is framed as government running Uber, Amazon, Facebook, Google, Apple, etc., it does not go over well. The Reason-Rupe study mentioned earlier notes that millennial preferences may not be so different from older generations once terms are defined.

Socialism Has a Poor Track Record

In my opinion, we must move away from labels and perceptions and look at the facts. We have seen over and over that excessive government spending and an expectation of “free” services can  lead to economic ruin. Moreover, as counter intuitive as it is, lower tax rates can lead to higher tax revenues as people are incentivized to grow their businesses . Clearly, at some point, taxes will decrease if rates are too low; however, history has proven that that lower tax rates and less government regulation will lead to more economic prosperity and lower unemployment. Paying a guaranteed income to everyone will disincentivize many from working and will require higher tax revenue.

History has repeated itself many times in this regard. Whether it’s the USSR, China, Cuba, Vietnam, the former East Germany, North Korea, Laos, Nicaragua, Zimbabwe, Cambodia, Venezuela or any of the other failed experiments in socialism, it has never worked anywhere. About socialism, an article in Investor’s Business Daily says, “It’s led only to misery, deprivation, government control and a loss of basic human rights.”

Let’s look at just a few examples of countries in which socialist policies have been enacted.

  1. Cuba-  According to Investopedia, Cuba is one of the most prominent socialist nations, having a mostly state-run economy, a national health-care program, government-paid (free) education at all levels, subsidized housing, utilities, entertainment and even subsidized food programs. These subsidies compensate for the low salaries of Cuban workers.   According to Cuba’s National Office of Statistics Wages in Cuba averaged just $223.92 per year from 2008 to 2015 versus $60,200 in the United States (Wikipedia 8/12/18)

But state-run subsidies became insufficient to support the numerous social programs. Despite the enormous aid received from the unified Soviet Union (before it split), there were high poverty levels, a widening gap of rich and poor, and a massive burden on social programs. So today, Cuba is moving toward a parallel financial system — one that operates on the usual social programs in common sectors while operating as a free-market economy in the tourism, export and international business sectors.

 

  1. Greece – Stephen Moore is the Distinguished Visiting Fellow for Project for Economic Growth at The Heritage Foundation. He noted in 2015, when Greece was formally in default on its loans and facing more IMF and EU loans coming due, that “Greece was about to slide into fiscal oblivion.” He stated, “This is the natural and unavoidable consequence of socialism everywhere it has been tried. Financial collapse.” Unemployment— youth unemployment in particular — remains one of the biggest struggles in Greece. In 2016, 47.3 percent of the Greek population under age 25 was out of work. That’s nearly half the population and more than two times the average rate across the euro zone.  This situation is largely the result of large government pensions and benefits and declining tax revenue. Ironically, lower taxes on the wealthy generally increase tax revenue.

 

  1. Sweden – Prior to the first socialist democratic government, Sweden had the highest growth rate of all countries in Europe. From the late 19th century until about 1970, they were very much pro markets, economic freedom and minimal government involvement. Then Sweden’s socialist government from 1970 to 1991 attempted socialism, and it failed dismally. In fact, Sweden recorded the lowest growth rate in Western Europe.

Then, after 1991, the government introduced market reform, tax cuts and welfare cuts, which resulted in massive growth, allowing the country to have the second-highest growth rate in Europe, with only the UK being higher during this period. A Rational Standard article states, “Prosperity grows during economic freedom, and is hurt when moving away from this freedom.”

  1. Venezuela – The International Monetary Fund predicts that by the end of 2018, the annual inflation rate in Venezuela will reach 1 million percent. That means that a candy bar that cost $1 today would cost $10,000 at the end of the year. An article in The Washington Post explains why hyperinflations like those in Venezuela occur:

The government wants to spend much more money than it is collecting in taxes — so much more that no one is willing to lend it the money to cover the deficit. Instead, the government uses the central bank to finance the deficit. That puts more money in the economy, but since it’s chasing the same number of goods and services, prices rise to soak up all the extra cash. Unless the government manages to close its budget deficit, it must print even more money to buy the same amount of stuff.

The article goes on to say that Venezuelan president Nicolás Maduro stays on this destructive path while the country’s citizens starve because of socialism.

This is not an issue of left vs. right or of Democrat vs. Republican. This is an American issue. The rise in popularity of socialism in the United States should be a concern to all of us. Just how far have Americans leaned toward socialism? A 2017 survey of adults by The American Culture and Faith Institute (ACFI), 40 percent of adults said they preferred socialism to capitalism. That is alarming! I believe the people in this camp need to review what history has told us about socialism’s repeated failure and to understand what socialism really is.

Why Socialism Doesn’t Work

So why does socialism fail again and again? Mark J. Perry, Ph.D., a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus, gives this reason:

Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail.

In August 2018, we are seeing one of the strongest economies in history for the United States, with record employment, rising wages, strong corporate profits and rising markets. This is the result of less tax, less government regulation and more free markets. This benefits everyone, especially lower- and middle-income Americans. This economic prosperity is good news, especially for today’s younger generations to succeed.

We have an amazing opportunity to benefit all Americans with good jobs and a strong economy. Some of the people who are in favor of  socialist  policies have the best intentions. But it simply doesn’t matter if those espousing free wage and free college are doing so for their own political gains or because they believe it will benefit someone. What matters is that these policies can cripple our economy and country. This is not a political opinion but an economic fact. As we approach the midterm elections, it is important to consider and support candidates whose economic and social policies will benefit the country — regardless of party affiliation.

“Free” Higher Education Isn’t Free

In the 2016 election, Bernie Sanders made free higher education a cornerstone of his presidential campaign, helping him get to a 54 percent favorability rating among 18- to 29-year-olds, according to a Harvard poll. Introducing the bill in a press conference, Sanders said the United States is falling behind as a world leader in educating young people. He might not be wrong about that. Moreover, the sentiment that “Our job — if we are smart — is to make it easier for people to get the education they need, not harder,” is a good one, in our opinion.

How we accomplish this, however, is a matter for discussion. Creating incentives for people to develop a skill and for private business to support this goal makes a lot of sense. Sanders admitted that the plan is costly — and he wants Wall Street to pay for it. In July 2017, he introduced a bill that would abolish tuition and fees at public four-year colleges and universities for students from households making $125,000 or less per year and would make community college tuition-free for students from all income levels.

“Now, some people say that this legislation is expensive, and they’re right. It is,” he said. “Well, I’ll tell you how we’re going to pay for it. We are going to ask Wall Street to end their speculation. We’re going to put a speculation tax on Wall Street.”

This so called “speculation tax” or “speculation fee” will impact every working person who has a 401(k), IRA or any other type of investment. According to USA Today, the estimated cost of the program is $47 billion per year. That would cover, Sanders estimates, 67 percent of the $70 billion it costs for tuition at public colleges and universities. States, he proposes, would cover the remaining 33 percent. This could lead to additional state income tax that would impact everyone.

“Free” Health Care Isn’t Free, Either

The single-payer health-care system that Bernie Sanders and others advocate would shift payment for all health care services to the federal government, eliminate private health insurance plans and dump all Americans onto public health care coverage. One estimate predicts that the scheme will most certainly include a massive payroll tax hike, an additional 4 percent personal income tax on all Americans and at least an 8 percent tax hike on businesses (even the small ones). The plan would cost, by a conservative estimate, at minimum, $16 trillion to sustain, just for the next decade. This could mean giving everyone Medicare or a new health-care system.

And Neither is “Free” Income

Universal basic income (UBI) is a policy that guarantees a fixed, unconditional income to all members of a designated group or entire country.  For centuries, thinkers from Thomas Paine to Milton Friedman have kicked this concept around. Proponents claim UBI would be an efficient replacement for the United States expensive entitlement programs and, as a result, would actually reduce overall costs.

The reality is that UBI would just replace one pricey system for another. And unlike the current entitlement/welfare program, which has standards for determining who qualifies for certain aid, UBI would be given to everyone. This would dramatically increase the pool of citizens receiving benefits from the state and inflict massive expenses across the board. This would also create a disincentive for working, as we have seen in places like Greece, as mentioned. There are always claims that UBI could decrease, reform or even abolish our welfare system. But no one seems to have any idea about how this transition would actually look.”

The likely scenario is that UBI would be in addition to, not instead of, the current welfare program. The idea of changing Social Security is known as the third rail of politics” because the mere mention of it can mean political death. Anyone in the policy realm knows that there is no better way to alienate older constituents than by threatening to take away their Social Security benefits. In fact, the mere mention of decreases usually causes rooms full of senior citizens to fear for their well-being. Even if an alternative plan is presented to them, it does not calm their fears of what might happen during the transitionary period. It is for this reason that Social Security is often called the “third rail” of politics.

Also, trying to get individuals transitioned off of one welfare plan and into the next requires, at least temporarily, the funding of both programs. A decision to enact UBI would not magically abolish the American welfare system. America’s welfare program has been around for so long, it would take time to unroot it. Too many people have become reliant on our welfare state to have it simply wiped out overnight.

And who is going to pay for the process in the meantime? Well, the American taxpayer, of course.

If anything, incorporating UBI in America would most likely result in an additional layer of welfare being added on top of our existing programs. This would, in effect, increase the state’s power rather than decrease it. Governments are rarely keen on relinquishing their power, and there is great power in controlling the welfare of the citizenry. It is therefore highly unlikely that the welfare state as we know it today would simply cease to exist.

UBI creates the illusion of decreasing the welfare state, when the facts of the matter all point to the contrary. Everyone would like to live in a society where no one wants for anything and everyone is provided for. But we live in a society of individuals with individual aspirations and goals. Pretending that we can centrally plan a welfare system with so many distinct wants and needs is unrealistic and unobtainable.

Our current system cannot be maintained because it’s too expensive. Period. Already, programs like Social Security are projected to run out of money within the next decade, and there is no plan for how to approach this coming storm. Why would anyone think a broader welfare state situation would be any different?

We Are Here For You!

˜Nobody knows what the future holds. Regardless of the new political and economic policy, world events or changes that come, we are here for you. Rather than plan based on speculation, we believe in planning based on your needs and current facts. Our customized and proactive approach allows you to adapt to any changes in our tax laws, social net, markets or economy.

We look forward to being your partner. Please contact us whenever we may be of service to you, your family and friends. Right now, we are taking clients only by referral. We are happy to meet, without cost or obligation, with anyone you feel would benefit from our personal Vision Planning™ process.   randy.carver@raymondjames.com  or (440) 974-0808.

 

 

 

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Carver Financial Services, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

 

Where Are We, and Where Are We Going? A Mid Year Update on Markets & The Economy

As the volume and pace of news continue to increase, it’s easy to get distracted from the opportunities and also the pitfalls that are before us. To help you keep your focus on your long-term financial plan, our team has developed and refined an investment process that is not dependent on forecasts, predictions or market timing.

Our process is focused on a customized asset allocation based on your current needs and long-term vision. Still, it is interesting, if not psychologically important, to get a sense of where we are and where we are going with regard to financial markets, the political landscape and the economy.

The Markets: We Predict a Correction

We believe a near-term correction is likely in the broader equity markets as people (ironically) become concerned about how well the economy is doing. Fear of higher inflation due to better corporate earnings, low unemployment and higher FED funds rates could be the trigger for this correction. We view this as healthy and not a reason for concern if you are invested properly.

We believe the coming drop could be 5 to 10 percent of the broader equity markets, followed by a strong rebound in the fourth quarter. Overall, we believe 2018 will be a good year for broader equity markets when all is said and done.

Over the years, one common mantra has been “Sell in May, and go away.” The idea is that the stock market goes into a slump in the summer, and activity picks up again after Labor Day. We do not believe in market timing or that you should adjust your portfolio in anticipation of a correction.

We also believe that interest rates will continue to rise and that we will see long-term taxable bond prices drop. Tax-exempts might be less impacted as the supply of quality tax-exempt bonds continues to be reduced.

Politics: November Will Be Key

It will be interesting to see what the outcome of the mid-term elections is. As we get closer to the mid-terms on November 6th, we will no doubt hear more from both sides about all the problems we have — the candidates and political parties all want to justify their bid for election.

Elections will be held for all 435 seats in the House of Representatives, the lower chamber of Congress. These are contested every two years, both alongside the presidential race and in mid-term elections. Also, 35 seats are up for grabs in the Senate, the upper chamber, which holds elections every two years for about one-third of its six-year positions.

In early May, six months ahead of midterm elections, data from registered voters across the country suggested that Republicans held a slight edge on the generic ballot in key Democratic states, including Florida, Indiana and Missouri. That indicates that voters in those states are ready to replace incumbent Democrat Senators. Slightly more voters said they would vote for a Democratic candidate (40 percent), compared to 35 percent for a Republican candidate, according to a report by Morning Consult, a company that specializes in online survey and market research.[1]

However, pundits who are prognosticating about the midterm results seem to make predictions based on their political leanings. So you can find just as many articles predicting that the Democrats will come out ahead in November as you can find predicting that the Republicans will prevail.

 “Politics is not worrying this country one-tenth
as much as where to find a parking space.”   —Will Rogers

The Economy: It’s All Good!

The indicators are some of the best we have seen in years. The one area that concerns some is the level of the federal deficit and debt. In our opinion, this is not a threat to the growth of the broader equity markets over the next few years because we have already seen massive tax cuts and regulatory reduction, which should help offset the debt as they begin to have an impact later this year.

The unemployment rate is the lowest since 1969, while inflation, as measured by the consumer price index, or CPI, remains low. The gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. GDP growth appears to be accelerating, and in our opinion, will move up as the tax and regulatory cuts have an impact. S&P 500 earnings per share jumped by more than 9 percent in 2017, according to FactSet, and are expected to grow even more in 2018. We are seeing record foreign investment in the United States. We expect U.S. companies to continue to repatriate funds that have been held overseas.

Global companies cashed in on newfound economic strength in Europe and Latin America as well as relative stability in China. For the first time in years, virtually all major global economies are growing at the same time. “During 2017, the global synchronized recovery turned into a global synchronized boom that is likely to continue in 2018,” Ed Yardeni, president of investment advisory Yardeni Research, wrote.[2]

Companies continue to accumulate record levels of cash, which can be deployed as higher dividends, bonuses and capital investments or stock buybacks. Any and all of those can help the broader markets and economy grow. Non-financial U.S. companies are sitting on an estimated $1.9 trillion in cash, more than double their 2008 totals, according to Moody’s. Corporate earnings were up 25 percent in the first quarter of 2018 versus the first quarter of 2017.

In May, jobless claims fell to the lowest rate since 1969. At the same time, continuing claims have averaged the lowest since 1973. In the past year, non-farm payrolls are up an average of 190,000 per month, matching the pace of the year ending in April 2017. Assuming a real GDP growth rate of 3.0 percent this year and next, we think the jobless rate could finish 2018 at 3.7 percent and then drop to 3.2 percent in 2019,  the lowest since 1953.

Two Areas of Concern: Debt and Trade Wars

Two areas of concern that continue to be highlighted by the media and doomsday soothsayers are the federal debt and the possibility of a trade war due to tariffs.

We have heard that the federal debt is growing to growing to unsustainable levels and destroying the U.S. economy for more than 30 years. While the absolute dollar amount of the debt continues to rise, the impact remains benign. Back in 1981, the public debt of the federal government was $1 trillion; today it’s more than $21 trillion. At some point, the theory goes, additional debt is going to be the fiscal straw that breaks the camel’s back. The problem with this theory is that, in spite of the record-high debt, the net interest on the debt — the cost to our government to satisfy interest payment obligations — was only 1.4 percent of GDP last year, hovering near the lowest levels in the past 50 years.

We believe that GDP will grow 3 to 4 percent, given the tax and regulatory cuts. Even if this is not the case and interest rates double on the debt, we would be well within historic norms. Doubling the interest rate to 4 percent would mean net interest relative to GDP would double as well, going from 1.4 percent to 2.8 percent. That certainly wouldn’t be pleasant, but it would be no different than the average net interest on the national debt from 1981 through 1999.

We also are hearing more concerns about a trade war due to the threat of tariffs by the United States. No doubt as we approach the midterm elections, this refrain will continue. We believe this is simply a negotiating tactic that might cause short-term volatility but will not have any longer-term impact. Other countries need the United States, and we do not foresee a trade war.

“No nation was ever ruined by trade.”—Benjamin Franklin

Protect Yourself from Inflation with Increased Income

We are not saying everything will be perfect. There is often a difference between good economics and social impact. We believe that higher inflation and a drop in fixed income values will impact many who are not invested properly. Those who react to any short-term market corrections and/or have too much fixed income will not benefit, and might even lose, despite the strong markets we expect. We will continue to hear more about technology replacing jobs and all the problems due to either a stronger or weaker U.S. dollar.

We have seen a decades-long trend of relatively low inflation, and now we might be at a point where this reverses. The 40-year trend of falling inflation was primarily generated by healthy global demographics, globalization, automation and central bank policy. Falling inflation translated directly to lower bond yields and provided fuel to rising equity and credit markets.

As inflation rises, the cost of everything, from food to utilities, goes up. To help protect your standard of living, your income must rise commensurately. It is important that your portfolio is positioned to generate growing income rather than fixed income. In this regard, we believe that fixed-income investments such as CDs and bonds might pose significant risk to people’s ability to maintain their lifestyles as the cost of goods and services increases and, in some cases, bonds lose value.

This is why we monitor and update your portfolio —we must recommend adjustments to help  meet your changing personal needs that are not based on past assumptions or rules of thumb.

We believe demographics will play a role in pushing inflation higher. Census data mark 2018 as the year that inflation demographics turn in favor of higher inflation as dependency ratios finally begin to rise after falling for several decades. The “age dependency ratio” is the ratio of dependents (people younger than 15 or older than 64) to the working-age population (ages 15 to 64). A growing body of research suggests a strong causal link between demographics and inflation. For instance, a recent Bank of International Settlements (BIS) study found a direct relationship among the working-age population, the number of dependents (both young and old) and the underlying trend of inflation.

The study strongly suggests that inflation retreats as the number of dependents decreases, relative to the working age population. This demographic condition is known as a “falling dependency ratio,” and it characterizes the U.S. experience since the 1970s, as the baby boomer generation moved through their work/life cycle.

Conversely, as the dependency ratio increases — as it did through the 1950s, ’60s and ’70s — there is a strong likelihood that the underlying inflation rate will increase.

As Always, We Are Focused on Your Current Needs and Future Vision

Our entire team continues to focus on helping to provide you with the income you need to do what you want today while working to  grow your portfolio to help you maintain and enhance your lifestyle in the future. We monitor and update your personal and customized portfolio allocation based on your needs and on changing tax laws. We are focused on net returns after fees, expenses and taxes, and we take a very proactive approach. It is important to have realistic expectations with regard to both income and return. We are here to help you craft a long-term plan to assist in meeting both your current goals and your long-term needs and vision.

Never has the pace of change, or volume of news, been this great, nor will it ever be this slow again. Our experienced team is here for you, whatever the future brings. Although we might not contact you, we are monitoring both your portfolio and events that might impact you. Our team is committed to continuing education so we can provide you with cutting-edge salutations. We use a team-based approach with highly qualified people who have both the training and experience to help you develop your vision plan.

We meet with thought leaders personally so we can understand what might impact you, without going through the filter of the media or other third parties. Other companies use cookie-cutter solutions for portfolios and rely on third-party information and research. Some companies are even using technology to replace staff and reduce personal contact with their clients. We believe that you should have a fully customized experience, so we continue to grow our team and use technology to provide a more personal experience, not less.

We appreciate being your partner and look forward to continuing to serve you. Please contact us whenever we can be of service to you, your family and friends. We are taking clients only by referral but are happy to meet, without cost or obligation, with someone you feel would benefit from our personal vision planning™ process. We are here for you.   Please contact us without cost or obligation to discuss your personal goals, to provide a second opinion on current financial and wealth planning or if we can otherwise be of service.

Randy Carver – randy.carver@raymondjames.com

www.carverfinancialservices.com   7473 Center St.  Mentor OH  44060

440) 974-0808

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you might incur a profit or loss, regardless of strategy selected.  These calculators are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Please note that Raymond James does not provide tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

[1]. Caroline Tanner, “Survey: On the Generic Ballot, Republicans Hold Slight Edge in Key Senate Races,” USA Today, May 4, 2018, https://www.usatoday.com/story/news/politics/onpolitics/2018/05/04/ahead-midterms-voters-indicate-they-vote-republican-key-states/581373002/.

[2]. Thomas Heath, “It Was a Year of Wins for Investors. Will Stocks Keep Climbing in 2018?” The Washington Post, December 29, 2017, https://www.washingtonpost.com/news/get-there/wp/2017/12/29/it-was-a-year-of-wins-for-investors-will-stocks-keep-climbing-in-2018/?noredirect=on&utm_term=.00c023a627d7.

2-Factor Authentication

Every day, innovations and advancement in technology alter our human experiences and how we relate to the outer world. From the way, we create our daily schedules, to the manner in which we communicate with loved ones, send and receive money, preserve memories and access healthcare. Groundbreaking technologies have brought us ease of life, faster and better ways of getting things done. They have also brought us new challenges with regard to privacy and secuirty.

The incessant security breaches, including most recently Equifax and Capital One, has become the gravest of threats online users face daily. Many people only use a username and passwords, which can be easily unraveled by cybercriminals. We recommend an extra layer of security that further confirms a user’s claimed identity to help protect oneself. 2-factor Authentication (also known as 2FA) offers users a higher level of security that helps prevent access to their accounts, even when their usernames and passwords have been compromised.

What’s the buzzword?

You’re familiar with the need for passwords and usernames when seeking entry into your online platforms like Facebook and Instagram. If you’ve ever had to provide additional information, such as a code sent to your mobile phone or an answer to your security question, then you’ve actually gone through a 2-factor authentication. A 2-factor authentication is a security layer that grants you access to your online account only after you must have proven your identity, by providing answers to 2 or 3 modeled questions or inputting a code.

Why does it make sense?

Think of it this way: some intruders got the details to your bank account, but before they can access it, they need to provide a code sent to your phone or the name of the place where you first had your first date? To access your information someone would need your mobile device or be able to read your mind! 2FA makes illegal access difficult, and that is why it makes more sense than just having a username and a password. Raymond James now requires 2FA for their Client Access system, but we also recommend turning this on for any and all online services you utilize.

How Do I Use 2FA

Turning 2FA on doesn’t have to be a difficult task depending on your device and the application you’re working on. Devices with the iOS operating system can have the 2FA feature turned on from the Security Setting. Social media accounts can also have their 2FA turned on from the account/security settings. You’ll usually be required to fill in the phone number or email you would want an access code to be sent in case of a security breach or any suspicious activities. 2-factor authentication avails you a greater security and higher level of control on your internet activities. Turning it on can be your gateway to a safer online experience. You can see if a website has 2FA, and get information on how to turn it on at:  https://twofactorauth.org/

Carver Financial Services, Inc. and Raymond James view the security of your personal information as critical and take steps every date to protect it.  2FA is something you can do to help yourself.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Carver Financial Services, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

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How Much Am I Really Earning? What’s The Best Way to Calculate My Return?

“It’s not how much money you make, but how much money you keep,
how hard it works for you, and how many
generations you keep it for.”
—Robert Kiyosaki – Founder of the Rich Dad Company

We all want to know how we are doing with our investment portfolios. The question is, how do we judge that, and are we looking at the wrong information?

Calculating your return on investment (ROI) seems simple. You simply take the gain of your investment, subtract the cost or expense of the investment and divide the total by the cost of the investment: ROI = (Gains – Cost)/Cost.

For example, if you buy 20 shares of stock for $10 a share, your investment cost is $200. If you sell those shares for $250, then your ROI is ($250–200)/$200, for 25 percent..

But financial advisors, and some sales organizations,  use other methods to calculate ROI, depending on a client’s situation and what they are trying to sell!  They can be confusing!  Here is an overview of just these three methods and some other things to consider.

Ways to Calculate Your Return

When judging the return on an investment, or an entire portfolio, we need to understand how the return is calculated. There are many ways to calculate return, including time weighted, dollar weighted and simple average. Just looking at the percentage might not tell the entire story.

  1. Time-weighted return  – This methodology is sometimes called “reported return,” “portfolio return,” “investment return” and “geometric mean return.” It does not account for any cash inflows or outflows. Calculating your return using this method assumes that you don’t make any transactions at all. It’s like asking how much $100 invested on January 1st is worth today.  This method tracks the performance of your investments only. This makes it easy to compare your return to a benchmark, such as the S&P 500 Index, but may not reflect how you did if you added to withdrew funds.
  1. Dollar-weighted return  – This methodology is sometimes called “money-weighted return,” “personal rate of return” and “internal rate of return,” or IRR. It does account the timing and size of any cash inflows or outflows into or out of your portfolio. This calculation might seem more accurate because it takes your personal investment activities into consideration, but it’s harder to compare against a benchmark.
  1. Simple-average return –This methodology uses an average of two or more annual returns to calculate your overall return. For example, if you had a 20 percent return one year and then the investment went down 20 percent the next year, your average return is zero percent (20% – 20% = 0). However, the dollar value of your portfolio has actually gone down. Had you invested $100,000 and made 20 percent, the value of your investment would be $120,000. And then if the value dropped 20 percent, you would lose $24,000, and the value is now $96,000. So you are down 4 percent, despite the average return of zero percent.

Expense Can Be Misleading

One metric that can be misleading when calculating your return is expense. It’s certainly a consideration, but the most important factor is the net return. If one investment has an expense of 1 percent and a return of 4 percent, and another investment has an expense of 3 percent and a return of 10 percent, then the latter is better. Wouldn’t you rather earn 10 percent than 4 percent?

It is also important to understand all components of expense — both internal and external. This is something an experienced and trusted financial advisor can assist you with.

Don’t Forget Income Tax

Yet another consideration is the impact of income tax. A tax-exempt return of 4 percent could provide a better net return to you than a taxable investment that earns 7 percent, depending on which tax bracket you’re in. At the end of the day, it’s not how much you make; it’s what you keep that’s important. Understanding the potential tax implications of an investment and selecting investments that make sense for your personal situation are critical to making decisions that can maximize your net return.

When comparing one portfolio or investment to another, we believe you need to understand the return you are looking at and understand what you will net after fees, expenses and taxes. There are myriad factors to consider when evaluating investments and your portfolio.

The most important thing to consider, in our opinion, is whether or not the portfolio meets your needs, objectives and risk tolerance. We believe that the true value of a trusted and experienced advisor is not in selecting investments but in helping you achieve the highest potential net return that meets your needs and objectives in a manner consistent with your risk tolerance. In this way, a good advisor may more than makes up for the cost of his or her services.

Please feel free to contact us, without cost or obligation, to discuss your personal vision and how we can help you achieve it.  We are happy to provide a second opinion on any investments or portfolios.   Randy.carver@raymondjames.com or (440) 974-0808.

The information contained in this blog does not purport to be a complete description of the securities, markets, tax rules or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you might incur a profit or loss, regardless of strategy selected.  These calculators are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.