D3 Business Update:
January was a busy month.
- We reviewed our asset allocation models in light of 2014’s stock and bond market performance. We decided not to make any material changes other than for our aggressive growth model which only two clients utilize. We used a combination of Goldman Sachs’, JP Morgan’s, and our own internal 10 year expected return for the asset classes in our models. The result was a reduction in our 10 year expected portfolio return across all of our asset allocation models by on average 0.8% per year. This continues a logical trend of reversion to the long term average returns. We will evaluate the impact of these lower return expectations when we update your financial plans.
- We rebalanced all of our client’s portfolios investing the excess cash generated by the record 2014 mutual fund distributions (we alerted you to this in mid-January). Generally, cash was invested in fixed income and international equities.
- We generated CFA compliant, time weighted rates of return, for all of our clients for whom we manage assets. Generally, client portfolio since inception date returns exceeded both the required rate of return (in your most recent financial plan update) and D3’s asset allocation model 10 year expected average returns. On the negative side, the one year, 2014 portfolio returns were generally below our 10 year expected average return. This was primarily due to the negative performance of the international equity markets, the non-treasury bond markets and energy focused MLPs (due to the crash of oil prices).
From a staffing standpoint:
- Adam graduated from D3 Financial Counselors’ Financial Planning Management Development Program and has been promoted to a Financial Counselor. Adam will become a part owner of D3 Financial Counselors. Please congratulate Adam the next time you talk to him.
- We hired Kirsten Price, MBA from Murray State, into the D3 Financial Counselors Financial Planning Management Development Program. Kirsten has taken all of the required courses to sit for the CFP exam. She will be calling you to introduce herself this month.
From a promotion standpoint:
- As a reminder, in 2014 D3 Financial Counselors won two awards; for the third year in a row we were named a 5 Star Wealth Manager in the November issue of Chicago Magazine and for the second year in a row we were named a top advisor to medical professionals in the November issue of Medical Economics. Please feel free to brag about us to your friends and neighbors.
- We are working pro bono with a veteran in the Homes for Heroes project and are helping him, his wife, and three young children qualify for a home. By identifying some tax opportunities, we helped them save over $13,000. If any you know any veterans that need financial planning help, please call Don.
From a process standpoint:
- We are looking at software to improve our client portal to provide a better client experience, both from a content and ease of use perspective. We will keep you posted on our progress.
- We are also planning to roll out some more sophisticated, behavioral risk evaluation software. Our goal is to better match the risk of your portfolio with the amount of risk you need to take as determined by your financial plan. The purpose of this software is to measure, from a behavioral standpoint, the level of risk you can emotionally tolerate. You will notice a new button on the home page of our website. This is the link to the Riskalyzer. Feel free to try it out.
- Due to the Securities and Exchange Commission implementing new rules for money market funds, Fidelity will be merging money market funds. The impact is to lower the market and credit risk of the funds. You will be receiving information directly from Fidelity.
Month in Review:
With about half of S&P 500 reporting earnings, over 80% of companies have beaten earnings estimates, and 58% have beaten revenue estimates. Although it has been another strong earnings season, negative earnings guidance on the back of a strong dollar (which hurts overseas profits), and low oil prices (which hurts energy companies earnings & job growth) have put negative pressure on U.S. stocks, as the S&P 500 is down 0.7% year to date. Conversely, international stocks have rallied due to the expectation of weakening currencies increasing exports. The EAFE index is up about 2.5% YTD. The bond market is up 1.5% year-to-date due to disappointing growth and more policy easing in other major economies. So far our January portfolio rebalancing has positively contributed to performance.
Because of the growth and political uncertainty in many countries, equity valuations are much more attractive overseas than in the U.S. Although growth concerns are present overseas, the prospect of consistent dividends and attractive valuations are reason to maintain our international weightings.
We are still operating with a steady growth thesis. Inflation is currently not an issue. Our product research continues to be focused on risk management.
We are currently reviewing our asset allocation models, and will make any necessary changes in January. At this point in time, we will also reinvest any excess cash in client accounts due to the large capital gain distributions in December. We will likely wait to see if there is any selling pressure on the markets due to traders recognizing capital gains in early January.
Thank you for your confidence in D3 Financial Counselors and share with your family and friends that “We help smart people make smarter financial decisions”.
Don Duncan MBA CPA CFA™ CFP® Patty Shipinski, Office Manager RP®
Adam Glassberg CFP® CIMA® Sharon Wallyn, Business Development
Ryan Pace CFP® Michael Meyers MBA CFP®
Kirsten Price, MBA