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3rd Quarter September 2014

Is the Market Biploar?

Through September 30, 2014, the market highs were somewhat deceiving. While the Dow Jones Industrial average and S&P 500 Indexes are at very high levels, it masks the underlying weakness in many stock prices. There are 160 stocks, or 32%, of the S&P 500 companies that are negative for the year. Some sectors, like technology and healthcare, have been leading this year while others, like energy, have pulled back. Small-cap stocks are down after having a long run of double digit returns since the downturn in 2008/09. Developed international countries and commodities are negative as well. Interest rates on the ten-year treasury are lower than they were at the end of last year, despite all the talk of rising interest rates.

The strength of our U.S. markets surprised some as terrorists, Ebola, internet security, and hacking major corporations are in the headlines daily. Earnings remain strong and may surprise on the upside. However, the recent increased volatility in early October and 200 plus point a day swings may be indicators of a correction or more volatility to come. While we are not in correction territory yet (a correction is defined as -10%), it is long overdue. This is when staying the course really matters! Our philosophy is to invest through a broad-based diversification to reduce risk. Because of this, your portfolio will not likely look like any of these indexes; especially when they diverge in years like this one. Investors are tempted, when one market leads all of the others, to switch horses. Studies have shown that strategy is not successful in maintaining and growing long-term wealth. It is better to stick with longer-term strategic goals and keep cash and safer assets available for emergencies.

Financial Market Update* Year-to-date change as of September 30, 2014
S&P 500 Index 8.34%
Dow Jones Industrial Average 4.60%
NASDAQ Composite 8.56%
MSCI EAFE US$ (International) -1.38%
Barclay US Aggregate Bond 4.10%
*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.
Source: Morningstar

Continuing Education – America's Retirees

One of our advisors, Nick Sheeran, and I recently attended a two-day symposium at the University of Chicago Booth School of Business. It was sponsored by a firm called Envestnet. It updated us on the status of retirement plans and retirees in the United States. The statistics are quite sobering. A few highlights: 50% of employees do not have access to a 401(k) plan and one third that are eligible for a 401(k) plan do not participate. Those that have financial advice perform better than the average investor by approximately 3.32% per year. The average savings of a 65 year-old in this country are about $100,000. (These statistics were provided by the Financial Engines study).

Members of Congress are becoming concerned about these numbers. They may propose some type of employee and employer program to address this major challenge. Guaranteed pensions no longer cover most retirees. Our goal is to educate young people about the need to save early and often (we recommend 10% per year), and invest prudently. Those nearing retirement are often making the mistake of paying out of pocket for college at the expense of their retirement. Those nearing retirement cite working longer as the solution. However, only 48% of retirees are able to do so because of health reasons or caring for a family member.

While many of us are successfully living longer, we need to work on comprehensive planning to get us through those years in case our retirement is not the vacation we planned. Our goal is to provide information, education, and resources for better decision making.

Additionally, in August, I was at the Wharton School of Business for a two day workshop conducted by two published graduate school professors, Christopher Geczy, Ph.D, and Professor Richard Marston. Both are well-known experts in the field of portfolio management and research. We covered current and historical markets, market valuation, investment theory, and the economy (the budget and the Fed). One statistic that stood out was that a 65 year-old takes three dollars out for every dollar put into Medicare. Of course that math does not work. For those who cannot afford deductibles and prescriptions, out-of-pocket payments continue to grow. Medicare is in worse shape than Social Security around future funding for obligations. We are hopeful that tough choices can be made before the situation becomes too dire to address without major cutbacks.

Tax Planning 2014

This quarter is the time of year to be thinking about setting up retirement plans, maximizing contributions, and reviewing gains and losses for the year, as well as, IRA contributions and charitable donations. If we can help you review or plan for year-end do not hesitate to let us know.

Best Regards,


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. Stephens Wealth Management Group is independent of RJFS. 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. Diversification does not ensure a profit or guarantee against a loss. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

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