D3 Business Update:
Most important; please mark December 1, 2012 on your calendar for D3 Financial Counselors annual client appreciation event. We will send out a save the date card with more details in September.
Patty has put together our annual client survey. This is your opportunity to grade us and provide constructive criticism and/or praise for the services we provide. We have tried to make this process easy and efficient, so click here to complete the survey.
Besides our daily investment analysis, Adam and I formally review all of the funds in your portfolios on a quarterly basis. You have probably noticed that we have been replacing investments that have not met our risk/return expectations with mutual funds and exchange traded funds (ETFs) that we anticipate will have more desirable risk/return characteristics. Our goal is to better align the investments in your portfolios with your financial planning goals.
Starting September 1st, we will begin reviewing the tax situation for all of our family office clients. Our strategy is to estimate taxes to avoid penalties, harvest tax losses to reduce ordinary income and to recognize capital gains to the extent we can limit the tax impact to 15% or lower. We are doing this because capital gain tax rates are scheduled to increase from 15% to 20% (23.8% for persons earning over $200,000).
Ryan will be taking his last class qualifying him to sit for the Certified Financial Planner® exam next year. In the meantime he prepared a white paper for all of our clients regarding identity theft and online security. This paper is focused on current best practices and everyone should read it and apply it to their personal circumstances. Click here to read the article.
D3 Investment Insight:
As of today, the S&P 500 and EAFE international index have quietly rallied about 10% & 12% respectively since the markets hit a multi-month low on June 4th. This rally has been fueled by a decent earnings season in which over 65% of companies in the S&P 500 beat earnings estimates, and the European Central Bank coming out and saying that it will do everything in its power to save the Euro. Although concerns of a “fiscal cliff”, Euro breakup, and economic slowdown in China still persist, for the last two months, no news has been good news. The lack of bad news has driven VIX or “fear index” down to a 5 year low of 13.3 on August 20th.
Since July 25th yields on the 10 year treasury has increased from 1.43% to 1.68%, representing an increase of 17%. In our last newsletter we mentioned “With the 10 year U.S. treasury yielding about 1.5%, we do not see any upside potential to investing in treasury bonds unless we have a depression (and a depression is not on the U.S radar screen). We continue to move away from fixed income mutual funds investing in U.S. treasuries and continue to allocate to income oriented investments that produce higher cash flow, and have less risk to rising interest rates.” This strategy has proven effective, as all of our fixed income investments have recently outperformed their benchmark, which is primarily composed of U.S. treasuries.
D3 Investment Outlook:
We continue to monitor the risks to the U.S. and international economies. We haven’t heard or seen anything that changes our belief that the U.S. economy will continue sluggish growth through year end, and both economic and political headlines (both domestic and abroad) will contribute to market volatility (surprisingly, volatility as measured by the VIX futures contracts is at a 5 year low). Although the “fiscal cliff” has been receiving a considerable amount of press, we do not believe it is in either party’s interest to go into a self-inflicted recession, and believe that, at worst, the lame duck congress will vote to delay the decision to increase tax rates, and spending cuts to the future Congress.
We continue to believe that U.S. equities offer more attractive long term risk reward characteristics than fixed income and international equities. Cash on U.S. corporate balance sheets remain near an all-time high, which can be seen as both good and bad news. The bad news is that companies, having a hard time seeing past the “economic fog”, have continued to keep a large amount of cash, as they are currently reluctant to invest in labor and capital improvements. However, with cash earning next to nothing, companies will need to eventually put this cash to work by increasing dividends, repurchasing shares, or acquiring other companies, which all have a positive impact on equities.
D3 Investment Strategy
We continue to focus on high quality, dividend paying equities, and fixed income investments with limited interest rate sensitivity. Over the next two months, we will focus on capital loss harvesting, while closely monitoring potential changes to the tax code to help us determine whether or not to realize capital gains for our clients. Because we do not have a conviction on growth, we are dollar cost averaging into the equity markets for new clients.
Don Duncan MBA CPA CFA™ CFP® Neil LeFort, MBA J.D. CPA
Michael Meyers MBA CFP® Patty Shipinski, Office Manager
Adam Glassberg CFP® CIMA® Ryan Pace, Financial Planner
We serve our clients by providing Integrity, Trust, Wisdom and Confidence.