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A Historic View of Volatility

When markets react, consider a broader historical perspective before changing your financial course.

February 6, 2018
 
Periods of market volatility – especially pullbacks – can trigger emotional responses in investors. You may feel upset or worried about the results of the election. It happens. And it’s normal. Volatility can also appear as rapid upswings causing sometimes-unbridled euphoria that can also impact judgment. That’s why the best response to market volatility is to contact your advisor for a heartfelt conversation about what the numbers really mean.

Pullbacks Throughout History

Pullbacks can make investors want to pull up stakes and pull out – a common reaction and a common mistake, especially for long-term investors. The right knowledge can help us avoid this mistake, and when we are willing to learn, there’s no better teacher than history.

By looking at the market over a long period of time, we’re provided with a true testament of resiliency. Each decline along the way felt terrible. And declines today feel just as bad. But when we track the overall growth the market has achieved, we learn a lesson in persistence, patience and commitment.

Remember:

  • The stock market is cyclical.
  • You will likely encounter numerous pullbacks and/or corrections as a long-term investor.
  • A study of the stock market shows its resilience.
  • The upturns have always been stronger than the downturns in the long run.


Source: Morningstar.

Over Time, Returns Have Been Positive

For every action, there’s a reaction. While Newton applied this law in the physical world, it also holds true in the realm of human emotion. When we perceive that things aren’t going our way, we react. And when coping with seemingly unpredictable returns, knowledge and time can once again be our allies. As shown in the chart below, returns over short periods of time have been typically unpredictable. But things tend to become less volatile when you expand the time horizon to five years or more using rolling returns.

Rolling returns show the behavior of returns for holding periods like those experienced by long-term investors. In the chart below, we see positive returns over every 20-year period in the S&P 500. Remembering your long-term time horizon can help when facing short-term disappointments.

Remember:

  • Returns have been less volatile over longer holding periods.
  • Returns over time have been positive.
  • Dollar-cost averaging can help take advantage of volatility.


Source: Morningstar.

Especially during declines, your advisor can act as a sounding board for your concerns. By talking about current events in light of your overall financial plan, your advisor can help provide reassuring perspective to help you stay the course, even when the market seems relatively tumultuous. 

Read the full
Weathering Market Volatility brochure.
 

Past performance may not be indicative of future results. There is no assurance these trends will continue. The market value of securities fluctuates and you may incur a profit or a loss. Investing involves risk including the possible loss of capital.  This analysis does not include transaction costs which would reduce an investor’s return. The S&P 500 is an unmanaged index of 500 widely held stocks. An investment cannot be made directly in this index. Real estate securities are susceptible to the many risks associated with the direct ownership of real estate. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. Commodities are generally considered speculative because of the significant potential for investment loss. Fixed income investments may involve market risk if sold prior to maturity, credit risk and interest rate risk. Dollar cost averaging does not assure a profit and does not protect against loss. It involves continuous investment regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels.


Studying Abroad with 529 Plans

Consider whether this savings account can help cover your international education costs.

March 19, 2018
 
While in school, many students take the opportunity to study abroad in a foreign country. 529 accounts can be used to fund some expenses when studying abroad, but there are two main considerations to keep in mind:

          1. Is the institution eligible?

          2. What expenses are being paid?

Eligible Institutions

In order to use the assets in a 529 account for qualified study abroad expenses, the expenses must be associated with the attendance of an eligible institution. Often, study abroad costs are paid to U.S.-based schools that run the programs, but there are also over 400 schools outside of the U.S. that are considered eligible. You can look up eligible institutions by using the “School Code Search” on the Department of Education’s Federal Student Aid website. Note that you may need to choose “Foreign Country” as the state.

Qualified Expenses

When outside of the United States, 529 dollars are still limited to the same qualified higher education expenses as assets being used at a domestic school. Many schools charge an overall fee for the study abroad program but can provide an itemized breakdown of the total cost. Qualified expenses include tuition, fees, books, supplies, computers and equipment required for the enrollment or attendance of the beneficiary. Room and board is also often included if the student is enrolled at least half time – an allowance determined by the school in question. Notably missing from this list are travel expenses, meaning you can’t use 529 funds to pay for plane or train tickets travelling to and from your destination. For full details on qualified expenses, refer to the IRS’s Tax Benefits for Education publication.

Certain conditions may apply. Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible education expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. Investors should consider before investing whether the investor’s or the designated beneficiary’s home state offers state tax or other benefits only available for investments in such state’s 529 savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. 529 plans offered outside their resident state may not provide the same tax benefits as those offered within their state.


Double-Check Before Filing Your IRS Return

It may seem like common sense, but going back over the information you enter may be the most important part of your tax filing duties.

March 6, 2018
 
It’s tax time. And as you work with your advisor or tax preparer to maximize your refund, or at least minimize what you owe, keep in mind that one of the most important things taxpayers can do to limit errors is to double-check the information they input into software or a printed form.

It may seem like common sense, but going back over the information you enter may be the most important part of your tax filing duties. As you know, it’s very easy to put a figure on the wrong line – in fact, one of the most common errors is not putting in the right Social Security numbers for you, your spouse and your dependents. An error like that can cause a significant delay in the processing of your return or, even worse, could trigger an audit.

So do make an effort to recheck what you’ve entered before moving to the next line or screen. While you’re going back over your return for wrong entries and typos, take the time to look up numbers such as cost basis for investments sold and real estate tax paid, rather than estimating. And double-check your math, too, because simple miscalculations can commonly lead to errors as well.

Here are a few other tax filing tips:

1.  If you looked for a new job last year, add up the cost of creating resumes, employment agency fees and travel expenses for interviews for jobs in your current line of work. These expenses may be tax deductible if you itemize.

2.  Reduce your taxable income by making contributions (right up until the April filing deadline) to tax-advantaged accounts like a health savings account, traditional IRA or SEP IRA if you have self-employment income.

3.  While you’re at it, review the income limitations for breaks such as deductible IRA contributions, which rise annually. Depending on how your tax situation has changed, you might be eligible now even if you weren’t before.

4.  If you work out of your home, rather than laboriously itemizing for your home office deduction, use the simplified option of calculating $5 for every square foot of your home you use as your office, up to 300 square feet for a maximum deduction of $1,500.

5.  File your taxes electronically. It’s the safest, easiest and fastest way to file your taxes, and you will get your refund quicker if you request direct deposit.

Be aware that the IRS never contacts taxpayers by email. If you receive an email appearing to come from the IRS about your returns, beware. It is likely a phishing attempt to get you to share sensitive information about yourself. If you receive an email like this, forward it to phishing@irs.gov.

It’s always best to seek the help of a professional. If you don’t already have a tax advisor, consider working with one this year to see if together you can uncover new ways to turn your tax return in your favor. 

Raymond James does not offer tax advice. Please consult your tax advisor for questions regarding your tax situation.


The Unofficial Field Guide to the American Snowbird

 

Yearning for warmer winters? Think about what it'd mean to leave your nest – temporarily – and establish a new one.

February 20, 2018
 
A different breed than the common American Retiree, Snowbirds head south for months at a time, often in pairs, chasing an endless summer in places like California, Texas, Arizona and Florida or further afield in Mexico, the Caribbean islands and South America.

About 17% of American Retirees wait until they turn 65 to relocate to a different state or region. Many seek warmth and adventure, while still maintaining ties with all that’s familiar in their hometowns. These seasonal visitors, known as Snowbirds, come in droves, boosting populations in warmer states by 10% to 12% in January and February. Most start off as migratory, but almost a quarter eventually became permanent residents of their winter homes.

If you’re hoping to join these travelers on their southern journey, you’ll want to put a lot of thought into what it really means to leave your nest – temporarily – and establish a new one.

 

Seasonal Migration

One study showed that by age 61, most people feel free enough to live wherever they want, without constraints from work, school or family responsibilities. It’s not surprising that many empty nesters take the opportunity to move to a new habitat, at least part time. But how do you narrow down the choices to find your dream locale?

We can start with the weather. Retirees report they’re happiest with the climates in the Mountain, South Atlantic and Pacific regions of the country. Not surprisingly, those not-yet-retired also want to move to those areas. Why not test a few places out before deciding? Take extended vacations to cities in regions that seem to match your preferred lifestyle. These trial visits can give you a true feel for the place.

Learn, too, about the tax rules in your prospective new home. Many of the states eyed by soon-to-be retirees offer no state income or estate taxes and favorable tax treatment on retirement income. Florida, Arizona, Nevada and Texas often top lists of tax-friendly places to retire, but each has its own rules and requirements for establishing residency or domiciles, in order to benefit.

Of course, as with all things tax-related, it can get complicated, particularly if you own property in multiple states. Visit taxfoundation.org, then talk to a knowledgeable accountant and estate attorney to get an idea of what you’re in for.

 

A Place to Perch

Once you find a location, it’s time to find a home. Start the search before you retire to give yourself enough time to ensure your chosen habitat is a good fit both personally and financially. There’s no need to rush into a commitment to a place that will sit empty for months at a time, so take your time and consider renting for one or two years before making a decision. You’ll be able to explore the area and closely examine for-sale opportunities, while relegating many of the maintenance responsibilities to someone else.

Consider, too, whether you want to upsize or downsize. There are benefits and drawbacks to both. If you do want to buy, try to do so a few years before you stop working. Getting a mortgage is much easier when you still have employment income coming in. Plus, you’ll need to decide if you really want to commit yourself to a mortgage at a time when you may not have steady income beyond your Social Security and required minimum distributions.

 

Feathering Your Nest

If Snowbirds have plumage, it comes from your choice of warm-weather clothing, accessories and home décor. But those aren’t the only costs.

There’s maintenance and homeowners or condo fees, utilities, travel costs, property taxes, insurance, out-of-network healthcare; you may even need to buy another car or rent one. And you’ll have to factor in travel expenses like gas and hotels on your route south, as well as flights to and from home.

Crunch the numbers with your accountant and financial advisor before you even think about flying south for the winter. If you need to, think about seasonal employment opportunities, too. Just be sure to maintain the appropriate requirements to work in your chosen state.

 

Before Taking Flight

At minimum, you’ll want to ask someone to watch your home, maintain the grounds and set appropriate temperature controls while you’re away. Here are a few other things to check off before heading south.

  • Winterize your home (e.g., store outside equipment; remove food and trash)
  • Consult your professional advisors to ensure your powers of attorney and estate planning documents, including your will, are valid in your new state
  • Consider a home protection service
  • Forward your mail
  • Create a secure digital or physical file with important tax, health, estate planning and insurance documents
  • Order necessary medicines
  • Make arrangements for your snowdogs and snowcats (i.e., your pets)
  • Turn off any unnecessary services (e.g., cable, subscriptions)
  • Take a video of all belongings in case of damage or theft
  • Ensure continuing healthcare coverage
  • Set up automatic bill pay
  • Register your vehicle in the other state

 

Birds of a Feather

Establishing a new life elsewhere doesn’t mean losing sight of your old one. With Skype, FaceTime and Facebook video, you can hear and see your loved ones anytime. Of course, you can always call or write to them, too. The same can be said of your professional advisors. They’re just a phone call away should you need to touch base on something.

While it’s important to keep in touch with your family and friends, it’s also crucial to make new connections wherever you may roam. To widen your circle in your new “home away from home,” take advantage of community events like cookouts, socials, dances and book clubs. Check out rec centers, libraries, places of worship and community associations. You’ll feel like a local soon enough. 

Sources: isnowbird.com; U.S.News & World Report; moneysense.ca; AARP.com; Foxbusiness.com; Tesar Law Group; CNBC; retireinstyleblog.com; National Association of Realtors, homeaway.com; Merrill Lynch; “Snowbirds, Sunbirds, and Stayers: Seasonal Migration of Elderly Adults in Florida,” Florida Weekly


Eight Estate Planning Essentials

Review eight of the different documents you may need to prepare for yourself and your family.

January 20, 2018

Estate planning is more than just creating a will. Here is a look at eight different documents you may need to prepare for yourself and your family. Talk to your advisor about navigating this process.

1. Last Will and Testament

A legal document used to distribute property to heirs, specify last wishes, name guardians for minors and identify who is responsible for managing the estate and implementing your wishes. Every adult needs one. If you don’t specify who will  take care of your children and who gets your possessions, the state will specify.

2. Durable Financial Powers of Attorney

A durable power of attorney gives someone you trust authority to handle your financial and legal decisions if you’re unable to do so yourself. Of course, the person selected needs to be someone who will represent your best interests.

3. Durable Medical Power of Attorney

You assign a healthcare proxy or durable power of attorney to make medical decisions for you when you are incapable to do so for some reason. This person will need relevant health information so be sure to include a HIPAA provision that gives your physicians permission to disclose your medical information.

4. Living Will and Medical Directives

A living will lets you specify what types of medical treatment you want to sustain your life, if you’re terminally ill or are in a vegetative state. Medical directives apply if you become incapacitated and are unable to communicate your wishes for treatment.

5. Revocable or Living Trust

In many states, a living trust can be used to distribute property a little more privately than a will. It also can help avoid a costly and stressful probate court process and may offer substantial tax benefits. Living trusts can also be used to transfer assets in an orderly, and private, manner. You can even stipulate provisions for the bequests, if you wish.

6. Beneficiary Forms

For insurance policies, retirement accounts and some other assets, the beneficiary form prevails over the will. So whomever you’ve named will receive those assets unless you update the form. It’s a good idea to keep current copies, as well.

7. Letters of Instruction

A way to share any wishes not covered by a will, such as preferences on your funeral, how to care for your pets or whether you want to donate your organs.

8. List of Contacts

A detailed list of people to contact in certain circumstances, including family, friends and the professionals who oversee your legal, financial, insurance and health matters. 

Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.


Material prepared by Raymond James for use by its advisors.