• The FRS Pension Plan – The Guaranteed Check a Month Club

    The oldest retirement option within the FRS is the Pension Plan. The Pension Plan is a defined benefit plan where your benefit of a monthly retirement check is defined by law. The amount of this check is determined by your years of service, your creditable service percentage and your average final compensation. In addition, you select from among four different options for your retirement income. The two most popular options are Options 1 and 3. Option 1 generates the most amount of income but ends when you die and Option 3 generates income for you and then your spouse when you die but with a reduction in income over Option 1 of typically 15-20% depending upon the age of your spouse.


    This retirement income amount is annually supplemented in retirement by the application of a cost of living adjustment (COLA). However, the COLA has been suspended effective July 1, 2011 which results in a reduction of the prior COLA benefit of 3% per year. Despite better finances in Tallahassee, there has been no suggestion about reinstating this COLA in the future. Consequently, the COLA continues at 0% for all years of services after 2011. For retirees under the Pension Plan, your COLA in retirement is calculated by adding the number of years at 3% to the number of years at 0% and then dividing by your total number of years as a state employee. This average then becomes your COLA that will be permanently applied to your pension check in retirement.


    Effective for new employees after July 1, 2011, retirement eligibility has increased to age 65 or 33 years for regular class and age 60 or 30 years for special risk class. Previously, normal retirement was age 62 or 30 years for regular class and age 55 or 25 years of service for special risk class. The vesting period for the Pension Plan has also increased from six to eight years for new employees hired after July 1, 2011. In addition, a 3% employee contribution is required that goes into the general Florida Retirement System. This effectively serves as a 3% reduction in employee compensation.


    For a more complete description of the FRS Pension Plan, please refer to the Frequently Asked Questions about the Pension Plan and the Pension Plan Summary prepared by the State of Florida Division of Retirement. Both of these documents can be found within www.myfrs.com.


    In summary, the FRS Pension Plan is a traditional check a month retirement plan. This check is guaranteed by the state to last for your lifetime or, with a reduction in income, for a set period of time or the life of another like your spouse. There is never any ability to utilize lump sum amounts from the Pension Plan nor leave a legacy to your beneficiaries. For some, this is the appeal of the Deferred Retirement Option Program (DROP).


  • A few years ago, we wrote a booklet describing the various retirement options to the state of Florida employees. We recently updated this booklet, The State of Your Retirement Third Edition by Joel J Garris. Over the next few weeks we will be posting individual chapters as a blog post. If at any time you would like a completed copy of the booklet, you can download it from our website at https://www.nelsonfinancialplanning.com or call the office at (407)629-6477 for a printed copy.



    The purpose of this booklet is to provide a single source resource to state employees who are nearing retirement. If you are a member of the Florida Retirement System (FRS), you have seen a lot of changes to your retirement options over the past few years. The state of your retirement has changed dramatically and what made sense in the past often does not make sense today.


    We regularly meet with state employees to help them figure out these ever changing options. These meetings generally focus on reviewing the pros and cons of your retirement choices to help you make an informed decision and are done as a free service to you. To learn more about us, please review the section “What Makes Nelson Financial Planning Different?” on page 35 of this booklet.


    While you are working, we keep you informed on a continuous basis by mailing FRS Update letters every few months or so. We do not charge for this ongoing service. Simply put, keeping you informed about the latest legislative changes and market performance while you are still working is somewhat straightforward. It also gives you an opportunity to try us out before you’ll really need us in retirement.


    As a current employee, your options have changed a lot since 2008. These changes fundamentally shift your retirement options. Be sure to read the section on page 15 entitled “Shifting Sands for Current Employees – The Litany of Changes since 2008”.


    Once you retire, things get a lot more complicated. Our focus shifts to providing personalized retirement income strategies to meet your unique retirement expenses and tax liabilities. These income needs are ever changing and the tax implications in retirement are very important. There are a variety of accounts available as a state employee and each has different tax implications depending on your age and job. Your investment focus also shifts to a more growth and income oriented mix which is very different from the approach used while working. Simply put things get a lot more complicated in retirement and that’s when our customized advice applies. Be sure to read the section on page 27 entitled “Retirement Income – Your Age and the Account Matters.”


    This third edition of the booklet not only updates your retirement options within the Florida Retirement System but also adds a separate chapter on two important topics not previously discussed. First, there is a chapter now on deferred compensation or 457 plans. These accounts are funded solely from your pay check and provide flexible options for usage in retirement. Second, the chapter on the Health Insurance Subsidy details this often forgotten benefit of being a state retiree. This is a valuable benefit that helps to offset the growing cost of health insurance and is available to every retiree regardless of whether they retire under the Pension or the Investment Plan.

  • Party like its 1999! Or 1955!

    Welcome to the back half of 2019! Market performance in the first half of the year was the best since 1999. The second quarter was driven largely by the market upswing last month which was the best for a June since 1955!

    The main driver of these results is the 180 degree pivot at the start of the year by the Federal Reserve from raising rates to suggesting rate cuts. Everybody (and certainly the markets) always loves cheap money – the ability to borrow at historically low rates fuels economic activity and keeps inflation low. When combined with historically low unemployment and a healthy consumer population, the current economic climate remains quite favorable.

    This month also marks a milestone for the economy – officially making it the longest recovery (120 months) in U.S. history. Many media reports suggest that this length of time is the very reason that the current economic climate is doomed for a decline. Unlike humans though, economic recoveries don’t die of old age – they die from excess growth and economic imbalances. The current expansion has certainly been nothing to brag about in historic terms with its slow growth rate. In fact, at its current pace, the current run would have to last six more years to match the aggregate growth of 1991-2001 and nine more years to match the growth of 1961-1969. Given that back drop, we believe that the current slow growth economic climate will remain favorable for some time to come. Besides a Federal Reserve well attuned to keeping the party going with low rates, let’s not forget years three (this year) and four (next year) of a Presidential cycle are historically strong as well.

    Are there any clouds forming on the horizon that we should pay attention to? Well, certainly the debt load of our government and other countries around the world is most concerning. Unfortunately, politicians don’t seem to want to address such a problem these days – that’s a real issue for future generations! In the more immediate term, the markets are almost expecting a rate cut later this month – beware if that doesn’t happen as the markets will react very strongly!

    Regardless of what happens in the immediate future, our advice is the same as it always is – especially when one owns well diversified and balanced investments. Stay consistent and don’t get too caught up in the headlines – be they positive or negative. However, if you know you need a chunk of money for something in the next few months – a trip, a car or college tuition (that bill to Auburn for my oldest son is due next month!) – now is as good a time as any to take it.

    Remember, for weekly updates and information, tune into our radio show/podcast. The radio show broadcasts live every Sunday at 9AM on 93.1 FM/540 AM and then debuts on the various social media channels like Facebook https://www.facebook.com/NelsonFinancialPlanning/ and our website https://www.nelsonfinancialplanning.com


  • 2019 Update

    Dear Friends,


    From a December to Forget to a 2019 to Remember (so far!), the markets have shown once again how difficult it is to predict their movement in the short term. January and February are in the books as the strongest start to a calendar year in over 30 years. This helped to repair much of the damage you saw on your fourth quarter statement of 2018. Be sure to open your first quarter statement of 2019 that you will get in about three weeks or so to see the improvement!


    We have the Federal Reserve to thank for this quick market turnaround. Their decision to shift from raising interest rates to holding them steady sparked this market improvement. Going forward, we believe there are enough positive economic indicators to continue this positive market movement albeit not as quickly as what we saw in the first two months of the year. Corporate profits are still at historically high levels with companies reporting profit increases of over 13% for the most recent quarter. Unemployment levels are still at historical lows while wage growth (and correspondingly consumer spending) have started to pick up.


    Despite this positive economic news, all the conversation in the media is that the next recession is just around the corner. Well, let me remove some of the mystery on that – a recession will absolutely occur in the future – they are after all a normal part of the economic cycle. If you are age 65 today, then you will most likely see 3 or 4 more recessions in your lifetime. The unknown question of course is – when will that recession occur? With the current economic data and interest rate climate, it is hard to imagine that a recession is imminent in 2019. Speculation that Brexit, trade policy with China, or increased tension with North Korea might accelerate that timing is just that – speculation. Regardless, given the lower levels of borrowing and higher levels of cash holdings in the current economic cycle, we believe the next recession will be somewhat mild – much more like a 1990 type recession than a 2008 one.


    So what should you do to prepare for the next recession? Well, your job is to stay calm and maintain perspective. Things are never quite as bad as the media makes them out to be. Our job is to make sure your accounts are well balanced and broadly diversified and that your investments are some of the best available. On that front, the annual ranking of fund companies by Barrons came out last week and American, MFS and Putnam all placed in the Top 10 for either 5 year rankings or 10 year rankings. American Funds in fact garnered the title of the best fund family for 2018 based on the overall performance of its funds.


    Tax season is in full swing at the office these days and certainly all the tax changes for this year are producing a range of results. Our capacity this year is much greater than last because we have added a full-time CPA to the team. Kristin Kalley joined us in early February. Previously, Kristin worked for a global accounting firm but more importantly, years before that, she was an intern at our office! Her addition at the office provides us with not only the capacity to do more tax returns but also to visit with folks during this time of year on non-tax related matters as well. So don’t hesitate to come in for a conversation at any time!


    Look forward to seeing you soon!

  • Top 20 Tax Changes for 2019

    There are so many tax changes for 2019 that we needed to double our normal Top 10 list!  The Tax Cut and Jobs Act (the “Tax Act”) enacted at the end of 2017 produced sweeping changes to tax rates and deductions for both businesses and individuals. These tax changes will finally have their full impact on the 2018 tax return.  Most of these changes are only in effect until 2025 when the prior rules and rates return.  If you have any questions about the effect of these tax changes on your personal situation, please contact us at 407-629-6477.


    1. Lower Income Tax Rates. While the Tax Act did not reduce the number of different income tax rates, it did lower nearly all of these rates typically by 3 full percentage points. For example, the top rate of 39.6% reduces to 37% while the 25% rate mostly shifts to 22%. The new rates are now 10%, 12%, 22%, 24%, 32%, 35% and 37%.  These across the board cuts translate to an average estimated tax savings of $1,600 per household in 2018. Retirees may want to adjust their tax withholding to reflect this drop in taxes and workers may want to use these savings to more fully fund their retirement plans. Going forward, the brackets will be adjusted on a different inflation measure that is expected to grow more slowly than the previous inflation measure.
    2. Higher Standard Deduction (But No Personal Exemptions). The Tax Act increased the standard deduction from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for couples. For 2019, these amounts increase to $12,200 for single and $24,400 for joint filers. An additional standard deduction of $1,600 for singles and $1,300 per person for couples is allowed for those that are blind or over age 65. The new standard deduction for Head of Household filers is $18,000. This change effectively reduces the need to itemize deductions and simplifies tax preparation for millions of Americans. Nearly 70% of taxpayers who currently itemize will no longer need to take those extra steps on their tax returns. However, the trade off to this higher deduction was the elimination of the personal exemption which amounts to a deduction of $4,150 for each person or dependent on a tax return.
    3. Higher Contribution Limits for 401(k)s, 403(b)s, 457s, Simple IRAs, IRAs & HSAs. The contribution limits to retirement accounts increases for 2019. For 401(k)s, 403(b)s and 457s the limit increases from $18,500 to $19,000. For those over age 50, the catch-up contribution limit remained at $6,000 allowing for a maximum possible contribution of $25,000 for 2019.  The limit for SIMPLE IRAs increases from $12,500 to $13,000 with the over age 50 catch up contribution staying at $3,000.  The annual limit on Traditional IRAs and Roths increases to $6,000 for 2019 from $5,500 for 2018.  The age 50 catch-up contribution remains at $1,000 for these accounts.  The Health Savings Account limits also increases from $3,450 in 2018 to $3,500 in 2019 for individual plans while family plan contribution limits increase from $6,900 to $7,000.  In addition, HSA account holders age 55 and older may contribute an extra $1,000 annually.  These increases reflect inflation adjustments on the contribution limits and allow tax payers to save more.
    4. Limits on Deductions for State and Local Income, Sales and Real Estate Taxes. Previously, taxpayers could fully deduct their real estate taxes plus either state and local income taxes or general sales taxes. Starting in 2018, the total amount of these deductions is capped at $10,000. This provision most negatively effects those individuals who live in states with high income taxes and high real estate taxes. Like many other provisions, this cap expires in 2025 so the old rules could return in 2026.
    5. Limits on Mortgage Interest Deductions. Starting in 2018, the maximum amount of mortgage debt that one can deduct the interest on reduces from $1 million to $750,000. This aggregate limit applies to the combined mortgage amounts for first and second homes. This change does not affect existing loans or future refinances of existing loans that don’t increase the amount owed. The impact of this change is somewhat minimal though as less than 4% of outstanding mortgages had balances greater than $750,000. However, this change also eliminates the ability to deduct interest on home equity loan balances unless these proceeds were used to buy, build or substantially improve a primary residence or a second home. On a positive note, the new law preserves the valuable break that allows taxpayers to avoid capital gains on the sale of a primary residence up to $250,000 for individuals and $500,000 for couples.
    6. Medical Expense Deduction Changes. For 2018, taxpayers can deduct unreimbursed medical expenses that exceed 7.5% of adjusted gross income. Unfortunately for 2019, this threshold increases up to 10%, effectively making the write off for medical expenses even harder. In a blow to Obamacare, starting in 2019 (not 2018), the Tax Act also permanently eliminates the penalty for not having health insurance.
    7. Limits on Itemized Deductions Suspended. For taxpayers who do itemize, they may wind up with more deductions then before. Previously, at certain income levels, the amount of itemized deductions was limited.  Currently, this income limitation has been removed so taxpayers can deduct all of their itemized deductions.
    8. Other Itemized Deduction Changes. Casualty and theft losses are now deductible only to the extent they are attributable to a federally declared disaster. The limit on charitable contributions of cash increased from 50% to 60% of adjusted gross income.  Most importantly the deduction for unreimbursed job-related expenses such as uniforms, union dues, and business-related meals, entertainment and travel plus similar deductions for tax preparation fees and investment expenses have all been suspended.  Previously, these expenses were deductible to the extent they exceeded 2% of your adjusted gross income.  Traveling sales people, airline employees and similar occupations will bear the brunt of this lost deduction.
    9. Expanded Child Tax Credit. The Child Tax Credit allows for a reduction in federal income taxes for each child under the age of 17 that is claimed as a dependent. The Tax Act doubles this credit from $1,000 per child to $2,000. In addition, up to $1,400 of this expanded credit can be refunded even if one doesn’t owe any income taxes. The number of taxpayers eligible for this credit also expands as the income eligibility thresholds increased from $75,000 to $200,000 for singles and from $110,000 to $400,000 for couples. There is also a new $500 non-refundable credit for qualified non-child dependents, such as elderly parents or older children, who are claimed on one’s tax return.
    10. Expansion of Alternative Minimum Tax Threshold. The Alternative Minimum Tax is a parallel tax system designed to ensure that high income earners pay a larger amount of taxes. However, in recent years, the AMT has begun to apply to many middle-class households because its threshold has not increased much. The Tax Act effectively expands the AMT threshold to the point that it is unlikely to affect families with incomes less than $1 million.
    11. Moving Expenses Write Off Changed. The deduction for moving expenses is also suspended. Consequently, those moving for work will not be able to deduct their moving costs unless they are members of the U.S. military on active duty.  In addition, any moving amount reimbursed by an employer must now be counted as taxable income to the employee.
    12. Recharacterization Option Eliminated. Recharacterization of a previous Roth conversion is no longer allowed. Previously, one was able to undo a Roth conversion and avoid the tax bill if the recharacterization was done by October 15 of the subsequent year.  Taxpayers should be absolutely certain of the tax impact of a Roth conversion before implementing one because now there is no opportunity to correct any miscalculations to avoid the corresponding tax bill of a Roth conversion.
    13. Corporate Tax Rates. The biggest change under the Tax Act is the permanent reduction of the corporate tax rate from 35% to 21%. This change puts the U.S. on equal footing with most other major economies that have reduced corporate tax rates over the past decade. This cut increased corporate earnings by nearly 10% in 2018 and will continue to be a further boon to equity investors. In an effort to encourage multi-national corporations to repatriate some of their overseas profits back to the U.S., a special one-time 15.5% tax rate now applies to those re-patriated dollars. Smaller companies that are typically pass-through businesses such as partnerships and S-corporations would also benefit from lower taxes by virtue of a deduction of up to 20% of their income. This deduction (referred to as a section 199A deduction) phases out at income levels above $157,500 for singles and $315,000 for couples for 2018. The deduction amount is calculated as a function of the amount of wages paid to the business owner.
    14. Energy Tax Credits. The tax credit for qualifying solar systems has been extended through 2021. This tax credit was originally scheduled to decrease from 30% of the value of a panel to 10% in 2017.  The tax credit will now stay at 30% of value until 2019 before falling to 26% in 2020, 22% in 2021 and then 10% in 2022.  Purchasers of such systems need to be mindful that such tax credits are not refundable, so one should not assume receipt of the full tax credit. A tax credit also remains for qualified energy efficient home insulation and exterior doors and windows. This credit is worth a maximum of either 10% of the cost or $500 and must be combined with any prior usage of this tax credit going back to 2006.
    15. Estate Tax Exemption. While not eliminating estate taxes, the Tax Act substantially increases the threshold where Americans would owe estate taxes at their passing. The estate tax exemption doubled from $5.49 million per person to $10.98 million in 2018. This change means that only truly ultra-rich estates would ever pay any estate taxes since a married couple could combine their exemptions to pass a total of nearly $22 million with no estate taxes. After doubling for 2018, the estate tax exemption increases even further in 2019 to $11.4 million per person.  The annual gift exclusion (the amount you can give to somebody with no reporting requirements) remains at $15,000.
    16. Alimony Payments. Starting in 2019, the deduction of alimony payments will not be allowed, and recipients would not need to report alimony received as income. This is a significant change that will affect the outcome of most divorce proceedings. In effect, this should reduce the actual amount of alimony payments since there is no tax benefit for the payor.
    17. Education Related Deduction. The education expense deduction of $250 per year for unreimbursed classroom supplies also remains along with the ability to deduct student loan interest up to $2,500. 529 plans can now be used for K-12 expenses up to $10,000 per year of tuition. Previously, such plans could only be used for post-secondary educational expenses.
    18. 401(k) Loan Payment. Under the new law, people who leave a company with a 401(k) loan outstanding would be able to repay the loan by the day they file their federal tax returns and avoid any and all taxes and penalties on the loan amount. This is a provision that adds flexibility for taxpayers and gives them an opportunity to avoid any applicable taxes and penalties.
    19. RMD to Charitable Organizations. Individuals over age 70½ who must take Required Minimum Distributions from their retirement accounts can make those distributions tax-free directly to charitable organizations. This allows taxpayers to get the tax savings benefit of a charitable contribution without having to itemize. Taxpayers who still want to make charitable contributions and get a direct tax deduction for them should take advantage of this provision.
    20. Capital Gains & Dividend Tax Rates. The Medicare/Obamacare Tax of 3.8% on dividends and capital gains remains. This additional tax applies to investment (unearned) income for single filers with income above $200,000 and married filers with income above $250,000. Investment income includes dividends, interest, rents, royalties and capital gains. For individuals earning more than $425,801 or couples earning more than $479,901, the long-term capital gain and dividend rates are at 20%. However, most taxpayers will be subject to rates that are either at 0% for those in the 10% or 15% ordinary income tax brackets or 15% for those in higher income tax brackets.  These tax provisions still demonstrate a tax policy preference for dividends from stocks over interest from bonds, CDs or savings accounts.



    The legal and tax information contained herein is merely a summary of our understanding and interpretation of current tax laws as of January 1, 2019 and is not exhaustive.  Where indicated, past performance is not a guarantee or indication of future performance.  Nelson Financial Planning, Inc. offers securities through Nelson Ivest Brokerage Services, Inc., a member of FINRA, MSRB and SIPC.

  • Bull markets versus Bear markets

    Bull markets versus Bear markets 

  • looking forward to 2019!

    Dear Friends,


    Well this has certainly been a tough month! The markets are on pace for their worst December in many decades. This volatility is particularly exacerbated by low trading volume during the holidays, as we discussed in detail on this past Sunday’s radio program (Sundays at 9:00 AM on News Radio 93.1 FM / 540 AM or on any of our podcast channels that you can connect to through the icons on the top right corner of www.NelsonFinancialPlanning.com).


    The market decline appears to be highly emotionally driven in response to the headlines and untethered to the economic picture. In fact, I met with the local American Funds executive on Monday for breakfast and discussed the markets recent behavior. Their view is that the economic fundamentals are quite sound. Certainly, the holiday spending numbers (the highest level in several years with a 5% increase over last year) suggest that consumer spending, which accounts for over 70% of our economy, is in pretty decent shape.


    Much of the emotion is driven by a confluence of headlines involving trade tensions with China, a Government shutdown and the lack of clear direction from the Federal Reserve on the future of interest rates. One or all of these headlines will get resolved in the weeks ahead and the markets will recover accordingly.


    In the meantime, unfortunately, the media will be screaming about being in a bear market. Technically a bear market occurs when there has been a 20% or more decline in the markets. Bear markets are a normal part of the markets over time and frankly signal better days ahead. The attached chart (courtesy of Putnam investments) highlights the simple fact that after a significant decline, markets go on to produce a more significant rise over a much longer period of time. It is hard to argue with that kind of history and why investors should not be selling when these declines occur. The stock market rises a lot more than it falls. The notion of being able to predict these movements is an exercise in futility, particularly given the speed at which the market moves.


    If you have any questions or concerns about your personal situation, please feel free to contact us. The office is open this week and next week (with the exception of the holiday on Tuesday, January 1). We are also in the process of organizing our client meetings for the first part of 2019 so look for our usual January letter in your mail in a couple of weeks.


    Enjoy the rest of 2018 and we look forward to a better 2019!

  • My latest hobby and its investing parallels.

    Dear Friends,


    With my half century mark on the horizon, I decided to try to get in better shape this year to fight the hands of time. I have always enjoyed running over the years and so I set my sights on training to run a marathon. My marathon race date is January 13 at Disney – I wanted to complete the race before tax season begins!


    As I train, it strikes me that there are a lot of parallels between running a marathon and investing. To cover the distance of a marathon requires a steady and consistent pace. Investing requires that same consistency. There are certainly plenty of miles where you feel great and other miles where you feel terrible and want to give up. Investing is no different – there are times (like the 800-point drop on Tuesday) where you become frustrated and ready to throw in the towel. Other times, like the first half of 2017, everything is going smoothly, and you feel great.


    Stopping and starting while running a distance only makes it harder to complete the race. With investing, getting in and out of the market is a sure way to undermine your investment performance. Running too fast or running too slow will also hurt your chances of completing a marathon. Similarly, if your investment allocation is too aggressive or too conservative, you will not achieve the investment results you desire.


    With running, you really never know how that next mile will feel. Is something going to start to hurt? Are you going to be able to maintain your pace? Same with investing – we can’t predict the future. We can run the race, we can make sure our allocation is what it needs to be, and we can maintain consistency in our approach. Those are the things we can control. Beyond that is everything we can’t control. Of course, this is where the media comes in to highlight all those things that are simply beyond our control – effectively making things seem much worse than they ever actually are.


    There have certainly been some tough miles in the market of late. The two main issues impacting the market are trade and interest rates. While I wish there was some magic and immediate resolution to these issues, it appears they will create much volatility in the weeks and months ahead. So, if you check your balances regularly, be sure to have a solid supply of antacid!


    A new trade deal with China or a Federal Reserve simply slowing down its increases in interest rates would have a significant positive affect on the market. Last week, with mere comments by the Federal Reserve Chairman and a dinner meeting between the U.S. and China, the markets gained 1,250 points. This is the unpredictable nature of the markets and headlines in the short-term.  These headlines will pass just as they always do – we just don’t know when. Once resolved, the markets will continue on the same upward trend they have been on for the past 80 years.


    In 2019, consumer and corporate spending and sentiment may very well carry the day over these trade and interest rate concerns. Regardless of how these issues play out, we believe our primary focus on large companies with a good balance between growth and value will produce the best possible results for your investment marathon.


    We hope you have a Merry Christmas and a blessed New Year!

  • Third Quarter Update!

    Dear Friends,


    As the kids go back to school, the world finds itself on a bit of a playground see-saw between economic growth and interest rates. Global economic growth is at the highest level since 2011. Across the world, manufacturing, consumer sentiment and business capital spending are largely on the upswing. Overall global growth is expected to hit 3.9%. This economic tailwind has produced stellar corporate earnings growth of over 20% for 2018.


    However, this heightened economic growth is pushing central banks around the world to tighten interest rates. Since the financial crisis of 2008, world banks have engaged in an ultra-low interest rate policy that has helped spur economic growth. The policy pivot to tightening interest rates (along with any trade skirmishes) could produce a headwind to the current favorable conditions.


    We believe that ultimately economic growth and corporate earnings will prevail in 2018 as central banks appear to be operating quite conservatively in their tightening efforts. However, any accelerated move in interest rates or a full-blown trade war could disrupt the current cycle. The market results so far in 2018 seem to reflect this ongoing back and forth with some months being good and others not. Despite this, the overall market performance is positive with returns of about 3-5% so far this year. We expect this pattern to continue for the rest of the year which will likely keep returns for the year in the more moderate range of 6-8%.

  • Halfway Through – Taking Stock!

    Dear Friends,

    As we start the second half of 2018, the U.S economy appears poised for continued growth. The tax cuts enacted at the end of 2017 and an increase in federal spending approved in February appear to be adding economic momentum. In fact, these policies are expected to add about $285 billion in fiscal stimulus to the U.S. economy this year.

    Meanwhile, corporate earnings are at new highs – up over 25% from a year ago for the average large blue-chip company. This represents the seventh straight quarter of profit growth and the strongest gains in many years. These same companies are now starting to spend money on factories, equipment and other capital goods. In the first quarter of this year, these capital expenditures totaled over $167 billion – the fastest pace in seven years.

    However, this continued growth does spark one area of potential economic concern. When increased spending occurs with very low unemployment, inflation starts to appear. In fact, one key inflation measure watched by the Federal Reserve hit the central bank’s target in May after running below it every month for six years. If inflation starts rising too fast, the Federal Reserve will be forced to raise rates at a much faster pace as well and this could lead to economic difficulties as borrowing money becomes more expensive.

    Headlines, of course, can also throw the markets and economies off. Chief among these is the current discussion about tariffs which could have a negative effect on the earnings of large multi-national companies. We suspect that this political discussion is just a very boisterous negotiating tactic given the current administration’s pattern of behavior but a protracted trade battle would certainly have negative economic consequences.

    These trade headline concerns have kept market returns somewhat muted so far this year. Your second quarter statements that you will get in the next week or two will show just slightly positive returns for the second quarter. For the year so far, overall returns are on the order of about 2-3%.

    Interestingly, these returns so far appear to be following the typical pattern of Presidential mid-term election years. In the months ahead, politics will certainly dominate the headlines. In the previous 14 mid-term election years (going back to 1962), the markets have experienced a sell-off early in the year and on average end the first three quarters essentially flat. However, as the election results become clearer, the markets rally in the fourth quarter – averaging an increase of 7.5% in the last quarter.

    Given the strength of current earnings and capital spending, we are optimistic that this pattern will repeat itself for 2018 and the year will end quite positive for investment results. Stay tuned! That is easier to do these days than ever before as we have dramatically expanded the platforms you can use to listen to our latest weekly broadcast. Our radio show “Dollars and Sense” provides an opportunity to hear our up-to-date thoughts and perspectives. The show is broadcast live on 102.5 FM/540 AM every Sunday at 9AM and then distributed out to various on-line platforms on Monday morning. Links to the most popular channels are below so be sure to subscribe to our channel on your favorite social media platform and you will be automatically notified of our new shows.


    iTunes  https://itunes.apple.com/us/podcast/dollars-sense-with-joel-garris-j-d-cfp/id1388059834?mt=2

    Google Play https://plus.google.com/+Nelsonfinancialplanning

    YouTube https://www.youtube.com/channel/UCMkUy7pgh5x0jzAYwdUx9og

    Facebook https://www.facebook.com/NelsonFinancialPlanning/


    If we have not yet visited with you in 2018, the summer time is a great opportunity so don’t hesitate to contact the office to schedule a conversation.