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First Quarter 2016

Market Update

The U.S. stock market began the year in historical fashion by dropping in January and February by more than 10% before recovering in March. This is unusual for the start of a year. Year-to-date returns are referenced . Also included are the 12 month trailing returns, so you can see how difficult 2015 was for most markets. This is not surprising after the significant run we have had since the bottom in 2009. Despite the rocky start, the markets have been resilient and the S&P is slightly above 12/31/15 close. We are most likely in the later phases of this current bull market.

Some analysts are predicting lower growth rates for U.S. companies going forward and have reduced expectations. However, not many are predicting a recession.

While we never know what causes market volatility, being prepared is very important as changes can happen very quickly. Your level of "preparedness" depends on your goals. Managing risk is directly associated with the amount of stocks versus bonds and other investments that do not move in lockstep. We believe stocks may be fairly valued, growth rates may be muted going forward for some time and interest rates continue to be low. Lower expectations are reasonable.

We have fewer conversations these days about "beating the market" because one way to potentially accomplish that would be to have a 100% allocation to stocks. You will recall in 2001 and 2002 those same stocks fell 50% and again in 2008 and 2009. Most cannot tolerate that amount of downside risk. The volatility this year brings into focus how important managing risk can be - especially if you are nearing or in retirement and taking distributions from your portfolio. Because we know the different types of investments change leadership often, we stay broadly diversified and have historically benefitted from having broad exposure across many markets. In particular, last year saw significant drops in currencies overseas, oil and emerging markets. After underperforming for the last few years, dividend focused companies are doing well so far this year. Opportunities are created when dislocations happen. While it is tempting to reach for yield, (i.e. income from dividends and interest), it is important to understand the higher the yield, the higher the risk when guaranteed rates are so low.

Risk can be more than market fluctuations. It is important to consider the possibilities of outliving your money, inflation - especially in terms of healthcare costs, and future tax rates. Decisions on saving rates, how long to work, spending rates, gifting, insuring for the right risk and managing debt, can all have significant impact on your financial future in addition to the returns that you earn in your portfolio and/or how much income it earns.

Speaking of healthcare costs, new studies reflect that as we live longer, the cost of long-term care goes up and the odds of needing it go up as well. Attached is a JP Morgan slide showing these statistics.

Tax Season

A few of the temporary provisions in the tax code were made permanent.

  • An IRA owner, age 70½ or over, can directly transfer, tax-free, up to $100,000 per year to an eligible charity. (source: This used to be a "tax extender" that had to be voted on by Congress every year to extend for one more year, but now has been made a permanent item. For more information, consult IRS Publication 590-B, which can be accessed here:

There have also been some changes in the social security rules.

  • Prior to the rule changes, it was possible for one spouse who had reached full retirement age (FRA) to file for Social Security benefits and then immediately suspend the payment of those benefits. Because Social Security rules state spousal (or minor dependent) benefits can only be paid off of a worker's record who has filed for benefits, this technique allowed the suspending spouse to file without having to receive their benefits - allowing the benefits to continue to grow via delayed retirement credits until age 70.

    As of April 29, 2016, "filing and suspending" will no longer allow a spouse (or minor dependent) to claim benefits off the suspending spouse's earnings record. The person who is filing will actually have to begin taking benefits in order for his or her spouse or dependent children to be eligible for spousal or dependent benefits. Source:

We encourage "tax" diversification with investments, which means funding for different tax "buckets" at retirement. Before tax dollars, like 401(k)'s, IRA's and annuities are taxable when you start drawing. Roth IRA's are not taxable.* After tax, personal accounts generate capital gains, interest and sometimes qualified dividends. If you have pensions and social security, planning your income sources can save significant taxes overtime and help provide longevity to portfolios.

Happy Spring!

Long-Term Care Planning


*Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Dividends are not guaranteed and must be authorized by the company's board of directors. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.

Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James.

The information contained in this report does not purport to be a complete description of the securities, markets, 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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

Diversification and asset allocation do not ensure a profit or guarantee against a loss. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility

Financial Market Update* Year-to-date change as of March 31, 2016
S&P 500 Index 1.35%
Morningstar Commodities
Broad Basket Category 0.84%
MSCI EAFE US$ (International) -3.01%
Barclay US Aggregate Bond 3.03%
12 month trailing returns: March 31, 2015 to March 31, 2016
Barclay US Aggregate Bond 1.96%
Dow Jones Industrial Average 2.08%
MSCI EAFE -8.27%
MSCI Emerging Markets -12.03%
NASDAQ -0.63%
Russell 2000 -9.76%
Russell 3000 -0.34%
S&P 500 1.78%

*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.

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