Back to School: College Fund 101

529 College Savings Plan Basics

College for many people is one of the greatest times of their lives.  It is a time where one begins to mature into an adult and find out who they truly are.  Not to mention a greater earning potential (generally speaking.)  However, it is no secret that college is EXPENSIVE and unfortunately it doesn’t seem it will become any cheaper.  Not everyone will be able to pay for their kids complete higher education and THAT’S OKAY!  A little something can go a long way, especially if you start early.

This article today will be discussing one of the most common ways to save for college, a 529 plan.

WHAT IS A 529 PLAN?:  A 529 plan is a college savings account named after the section of the IRS code that created them.

WHAT  ARE THE BENEFITS?:  Although I believe the biggest benefit of a 529 plan is the fact that it identifies a specific account that keeps people accountable to saving…..there are many other great benefits.

A 529 plan allows for tax deferred investment.  This means that as the investments in the account are growing, you don’t have to pay taxes on the growth along the way.  This means more money that can compound over the years.

Here is the kicker, as long as you use the money for QUALIFIED EDUCATIONAL EXPENSES, you do not have to pay taxes when you take the money out. Awesome!

Another great benefit is flexibility.  ANYONE can contribute to the account on behalf of the beneficiary.


WHAT If THE BENEFICIARY DOESN’T GO TO COLLEGE?:  If the beneficiary doesn’t attend a qualified higher education establishment,  you can switch the beneficiary.  You are able to transfer the benefit to a qualified family member (i.e. brother, sister, Mother, Father, First Cousin.)  The worst case is if the beneficiary does not go to college and there is no eligible beneficiary to transfer to, you can take the money out of the account.  You will have to pay taxes on the growth and a 10% penalty.  Hey, at least you had several years of tax deferred growth, not the end of the world.

WHAT  CAN I SPEND IT ON?:  Anything related to qualified educational expenses.  Common expenses are room and board and tuition.  However, you can also use it to purchase a computer, software, textbooks, supplies…. basically anything related to school.

HOW DO I ESTABLISH ONE?:  My advice would be to work with an advisor.  They can help you budget, estimate costs, set expectations, and help you choose your investments.

SUMMARY:  A 529 plan is one of the best ways to save for college.  The flexibility and tax benefits make it one of the most popular options.

If you would like more information on how you can get started with a 529 plan, please do not hesitate to call Granite Wealth Management at 1-888-612-5391 or email at info@granitewealthllc.com and we would be glad to help you.

Seasonal Analysis: The Dog Days of Summer

Dog Days of summer

One way to reduce the negative effects of potential equity headwinds is to incorporate seasonal analysis into your portfolio management process. This allows you to identify sectors and industries that may outperform the broad market during this historically volatile month.

We are encouraged by three sectors’ seasonal tendency to outperform the S&P 500 Index during August over the last 20 years—a month when the index has on average been lower by 1.2% for equity investors, generating positive returns 50% of the time. As we review the data, note that nonseasonal factors still influence performance and should not be ignored.

The table below highlights sectors’ average over- and under-performance versus the S&P 500 during August since 1997, as well as the top-performing industry groups over the same period:

Looking at the table above, the utilities, information technology, and consumer staples sectors on average tended to exhibit relative strength versus the index in August over the past 20 years. But, if you’re looking for a more targeted strategy, the table also shows the industries underlying the relative strength at the sector level (i.e. “What to Watch in August”).

Drilling down, the information technology and consumer staples sectors experienced broader participation in August among their underlying industries versus utilities, comprising 5 of the top 10 industry categories (50%) listed within the chart. This was due in part to their market cap and overall weighting within the S&P 500.  On the other hand, though a laggard at the sector level, consumer discretionary has shown pockets of seasonal strength in select industries.

Although the index has tended to post negative returns in August, seasonal analysis can help to identify which sectors and industries may fare relatively well, particularly if volatility increases due to potential seasonal headwinds that historically have been more prone to occur toward the end of the summer. Stay tuned to the LPL Research blog for continued analysis of S&P 500 seasonal patterns.

 

Source:LPL Research

 

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Stock investing involves risk including loss of principal.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC

Tracking # 1-630655  (Exp. 8/18)

Emerging Markets: Early Innings or Late in the Game?

It has been a great year so far for Emerging Markets (EM), with the MSCI Emerging Markets Index up nearly 19%, approximately doubling the returns of the S&P 500 Index. Here’s the catch: For years now we’ve seen some big bounces in EM, but in the end the rallies disintegrate and those expecting a major change in trend are left battered and disappointed. The good news is this rally looks like it could just be getting started.

Per Ryan Detrick, Senior Market Strategist, “Emerging markets have benefitted year to date from the surprise U.S. Dollar weakness, very strong earnings, and modest valuations. But investors want to know if this rally is still in the early innings or closer to the ninth. One major positive suggesting it’s early in the game is that the MSCI Emerging Markets Index is in the process of breaking out of a bearish trendline going back nearly 10 years, suggesting a major change in trend is taking place and EM could score more runs.”

EM is a group we have liked for over a year now, and we continue to think it may be a good place for potential alpha in a well-diversified portfolio. It won’t be a smooth ride (EM rarely is), but as we discussed in our Midyear Outlook 2017, this is an area that should continue to outscore the other teams (i.e. asset classes) over the balance of this year and maybe even longer than that.

Source: LPL Research

 

IMPORTANT DISCLOSURES
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Stock investing involves risk including loss of principal.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Alpha: Measures the difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by Beta. A positive (negative) Alpha indicates the portfolio has performed better (worse) than its Beta would predict.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
Member FINRA/SIPC
Tracking # 1-625584 (Exp. 07/18)

Is It Time For A 5% Pullback?

Some Normal Volatility May Be Welcome

A year ago yesterday marked the first new all-time closing high for the S&P 500 Index in nearly 14 months. As we noted at the time, that first new high after at least a year can kick off a strong period of outperformance for equities. Sure enough, the S&P 500 has made 42 new highs and is up 14% over the past year.

But, the amazing performance over the past twelve months doesn’t stop there as the index incredibly hasn’t pulled back at least 5% (on a closing basis) over that period. Per Ryan Detrick, Senior Market Strategist, “This is only the sixth time since 1950 that the S&P 500 has made it at least a year without so much as a 5% correction, and marks the longest streak since 1995. The reality is that earnings are strong, inflation is low, the Fed is accommodative, and valuations aren’t excessive when you factor in the historically low rates ―which all suggest the bull market has legs. But all of that doesn’t mean gravity won’t eventually take over. A well-deserved 5% correction could take place at any time, if for no other reason than it has been a year since the last 5% correction.”

As the graph below shows, the current streak started right after the Brexit vote ―the S&P 500 gained 19.1% during this period of tranquility. The longest streak, however, was nearly 20 months (December 1994 to July 1996) when the index ran up more than 40%!

Last, as we noted in 2017 So Far, besides being a historically calm bull market, the maximum drawdown in the S&P 500 year to date has only been 2.8%. Should the year end right now, this would be the second smallest pullback during a year ever―with 1995 experiencing the smallest intra-year correction at 2.5%.

Of course, there is still plenty of time left in 2017, and the odds do favor a potentially larger pullback sometime later this year. Per Ryan Detrick, “To put things in perspective, going back to 1950, the average intra-year correction for the S&P 500 has been 13.6%, and 91% of all years have had at least a 5% correction, while nearly 54% of all years pulled back at least 10%. In other words, history suggests we’ll likely see that 5% correction before the year is over.”

The good news though, as we discussed in our Midyear Outlook 2017, is that any equity weakness should be used as a buying opportunity, as the odds of a major bear market or recession starting soon are extremely low.

Source: LPL Research

 

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
The economic forecasts set forth in the presentation may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Stock investing involves risk including loss of principal.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC
Tracking # 1-624879 (Exp. 6/18)

Banks Pass Second Stress Test

Positive Test Allows Banks to Pay Dividends and Purchase Stock

Yellen

You may have noticed your news alerts flood your feed with notifications of big banks announcing dividend hikes and share buybacks.  This is a result of all 34 banks passing the second round of the Fed stress test.  The Fed tests a bank’s capital plans to determine if it could withstand a severe economic downturn.  Once the announcement was made that all 34 banks had passed their tests, many banks released their plans to increase their dividends and/or engage in share buybacks.

Generally speaking, companies increase dividends and purchase their own shares when they are feeling confident about their company.  Once Fed stress test revealed that most banks had more than enough capital on hands to withstand the level of economic downturn modeled in the test, the all clear was given for banks to return capital to their shareholders.  Now it will be up to the buyers and sellers of the market to analyze this news

Now it will be up to the buyers and sellers of the market to analyze this news and determine where the price of bank stocks will go.

This is not a recommendation to buy or sell securities. 

Banks Pass 1st Round of Stress Test

big bank

The Fed Releases Results for First Round of Stress Test

As a result of the financial crisis, regulators placed greater restrictions on banks.  Each year the Fed initiates a “Stress Test” to determine the financial health of United States banks.  The Banks are assessed on how they handle a severe economic downturn.  This year the Fed modeled a grim economic situation – a 10% unemployment rate, a steep decline in housing prices, and a severe recession in the Eurozone.

On Thursday, June 22, 2017, the Fed announced all 34 banks measured passed the economic stress test.  Each year, the Fed changes the test in order to prevent banks from being able to trick the system.  If a bank does not pass the test, it is disallowed to pay out dividends until approved by regulators – a hefty punishment for stockholders.

In summary, the results showed that capital plans for banks are sufficient to continue lending, even during a severe economic downturn.  Stay tuned for more news.

Midyear 2017 Outlook

MidyearLPL researchers have released their Midyear 2017 Outlook.  Highlights include an overview of where four market drivers stand:

  1. Monetary policy
  2. Business fundamentals
  3. Economic growth
  4. Fiscal policy

The report also includes the themes that the LPL research team will be watching in the second half of 2017.

Take a look at the report and reach out to the Granite Wealth team if you’d like to discuss.

LPL Midyear Outlook 2017