Business Update

Tax Season is Over (Yahoo!): As a reminder, tax planning for next year begins today. To help you plan for next year, we have created spreadsheets you can use to keep track of your deductible real estate, medical, charitable and vehicle expenses. Click on links to download the spreadsheet that best suits your needs: Charitable DonationsMedical ExpensesBusiness ExpensesHome Office ExpensesVehicle Expenses, and Rental Expenses.

Financial Plan Update Season: We are starting the process of updating our AFO (Affordable Family Office) clients’ financial plans. Updated financial plans, reflecting your current goals and current market conditions, provide you with the peace of mind that as your life changes, your financial plan reflects those changes.

All our AFO clients will be receiving a notification asking how your life has changed during the past year and if your future goals have changed. We strongly encourage you to review this information, because it is critical to make sure your net cash flow  and assets are up-to-date. This makes your financial plan update as accurate and as meaningful as possible. For this reason, we are asking all employed AFO clients to load your most recent pay stub on to the D3 client portal so we can take into account your new tax withholding. This will allow us to more accurately calculate your estimated taxes. 

Our goal in this process is to use our financial planning skills to help maximize the probability that you can achieve all your financial goals. If any other D3 client wants a financial plan update, please contact Adam or Don.

D3 Website Update: We have been working over the last quarter (in our spare time) to update our D3 website. The goal is to make it more streamlined and easier to use while maintaining the depth, breadth, and clarity of information provided. We are tentatively looking to launch the new website on Friday, May 4th if all required programming is complete. Don’t be surprised if the next time you go to our website it has a new look and feel.

Market Insight

We’re currently in the midst of earnings season.  As of last Friday, 53% of companies in the S&P 500 have reported 1st Quarter 2018 earnings.  According to FactSet, 79% of those companies have reported a positive earnings surprise, and 74% have reported a positive sales surprise. These are very encouraging numbers.

So far, the blended earnings growth rate for companies in the S&P 500 that have reported earnings has been 23.2% for the quarter.  If this is the actual earnings growth rate for the quarter, it will be the strongest earnings growth rate since the 3rd Quarter of 2010. In summary, it’s been a strong earnings season, which supports current U.S. equity valuations.

Last week, we saw the 10-year treasury hit 3% for the first time since 2014.  Over the last 22 months, rates on the 10-year treasury have more than doubled (the 10-year treasury was yielding 1.37% in July of 2016). These last 22 months have been a bad time to own bonds, as rising rates have a negative effect on the value of bonds. This is the reason we decided to modestly reduce the fixed income asset allocation exposure in our asset allocation models.

The positive perspective on this steady, slow rise in interest rates is that the Barclay’s Aggregate Bond Index was down less than 0.5% over the past two years. This is a reminder that a bad year (or two) in bonds can feel like a bad day in the stock market. In addition, as rates rise, the yield of bonds increase, and this increases the expected return for the fixed income asset class.

We have a high conviction that short-term interest rates will continue their steady, slow rise, and will continue to provide a potential headwind to bond returns. We also have a high conviction that bonds are an important asset to own because they possess significantly less risk than equities. Also, due to diversification, bonds act as a portfolio stabilizer in times of stock market distress.

Investment Strategy

We’ve completed our preferred fund and 401k investment option review, and will be making minor changes in the coming weeks. The purpose of this exercise is to make sure all of our clients have the most appropriate investments in their portfolios. We will also be moving clients to a lower fund share class (with no tax consequences) in our continued effort to minimize fund fees.

Next week we will review the liquidity in all of our client’s portfolios relative to cash flow needs and will be making any necessary adjustments. Please let us know if your liquidity needs have changed.

At this point in time, we see nothing on the horizon to compel us to change our asset allocation models or projected portfolio growth rates. Hopefully, slow and steady continues to win the race.

Final Thoughts

Your financial plan should always dictate the level of risk that you need to take with your investments. Your investments should be structured to maximize the probability of achieving 100% of your financial goals. As your life and the markets change, you should make sure that your financial plan and the resulting portfolio structure continues to reflect your current goals.