Abel Financial Strategies: March 2015

Thursday, March 26, 2015

Monthly Market Review: February 2015

In order to know where we're going, we must first know where we've been. Here is a look at the market review for February from Abel Financial Strategies.

The Markets

After a disappointing January, equities rebounded in fine style in February. The S&P 500 and Russell 2000 hit new all-time highs, and the S&P had its strongest month since October 2011. The Nasdaq continued to be the strongest year-to-date performer, while a temporary bailout extension for Greece helped benefit the Global Dow.

Oil prices stabilized around $50 a barrel, which helped boost consumers' spending power. The U.S. dollar gained strength, though not as much as it did in January, while gold fell below $1,200 per ounce before rebounding to roughly $1,212. And as investors regained confidence in equities, the benchmark 10-year Treasury yield rose as prices fell.

The chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month In Review

U.S. economic growth in Q4 was less robust than initially thought. The Bureau of Economic Analysis revised its estimate of gross domestic product downward from 2.6% to 2.2%, primarily because imports were higher and private inventory investment was less than the previous estimate.
The U.S. economy added 257,000 jobs in January, and the Bureau of Labor Statistics figures for jobs created in November and December were revised upward substantially. Even more encouraging, average hourly earnings rose 12 cents to $24.75. However, because more jobs drew more workers back into the workforce, the unemployment rate was little changed at 5.7%; it has been within 0.1% of that level since October.
The eurozone's finance ministers agreed to a four-month extension of Greece's current bailout in exchange for the promises of Greece's newly elected government to reform tax laws, pensions, privatization of key assets, and trade policies. However, the International Monetary Fund and the European Central Bank expressed skepticism about whether Greece would follow through.
In her semiannual testimony before Congress, Federal Chair Janet Yellen continued to lay the groundwork for a rate increase later this year. Without specifying a time frame, she said that a rate increase would likely not occur until at least June.
Lower gas prices helped cut consumer inflation by 0.7% in January, according to the Bureau of Labor Statistics. That's the biggest monthly decline since 2008, and left the annual inflation rate for the past 12 months at -0.1%. Meanwhile, falling energy prices also cut wholesale prices 0.8% during the month. That was the single biggest monthly drop since November 2009, and it left the Producer Price Index roughly where it was 12 months ago.
Sales of existing homes in January fell 4.9% to their lowest level in nine months, but the National Association of Realtors® said they were still 3.2% higher than last January. The Commerce Department said new-home sales also slumped 0.2% during the month. Meanwhile, a 0.1% increase in home prices in December contributed to a 4.5% year-over-year gain in the S&P/Case-Shiller 20-City Composite Index. The western half of the country saw the strongest gains, while the Midwest and Northeast lagged.
Durable goods orders were up 2.8% in January; according to the Commerce Department, that was the biggest monthly increase since last July. New orders for nondefense capital equipment saw a slight 0.6% gain. And according to the Federal Reserve, industrial production frose 0.2% in January and increased at an annual rate of 4.3% in Q4. However, both the Empire State and Philly Fed manufacturing surveys showed growth slowing slightly in February.
After a measure of non-manufacturing activity in China showed that growth had virtually flat-lined in January, China's central bank eased its reserve requirements for the country's commercial banks, which should make more money available for lending. The People's Bank of China also cut its benchmark one-year lending and deposit rates by 25 basis points.
The Federal Communications Commission voted to regulate Internet service as a public utility, much as telephone service is regulated. The decision will enable the commission to enforce so-called "net neutrality" and prevent service providers from charging for priority access or interfering with traffic. However, telecom and cable companies are expected to challenge this decision in court.

Eye on the Month Ahead

The announcement and press conference following the Federal Reserve's March meeting will be a focus for investors, who will watch to see if language about "patience" disappears from the discussion of future interest rate increases. If you would like to talk about investment options for you or your company, contact Abel Financial Strategies.

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A Certified Financial Planner ® in good standing that believes whole-heartedly in the Standards of the CFP ® program.

Securities offered through First Heartland Capital®, Inc. Member FINRA/SIPC Advisory Services offered through First Heartland Consultants®, Inc. (Abel Financial Strategies is not affiliated with First Heartland Capital®, Inc.)

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes) and Barron's (S&P 2014 total return); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment. Securities offered through First Heartland Capital® , Inc. Member FINRA/SIP

Thursday, March 19, 2015

4 Questions To Ask Before You Open Your Wallet

Even if you have the best intentions, it's easy to overspend. According to a Gallup poll conducted June 9-15, 2014 (from American Consumers Careful With Spending in Summer 2014, www.gallup.com), 58% of people who had shopped during the previous four weeks said they spent more at the store than they originally intended to. Even if you're generally comfortable with how much you spend, you may occasionally suffer from a case of buyer's remorse or have trouble postponing a purchase in favor of a short- or long-term goal. Here are a few key questions to consider that might help you fine-tune your spending.

How Will Spending Money Now Affect Me Later?

When you're deciding whether to buy something, you usually focus on the features and benefits of what you're getting, but do you think about what you're potentially forgoing? When you factor this into your decision, what you're weighing is known as the opportunity cost. For example, let's say you're trying to decide whether to buy a new car. If you buy the car, will you have to give up this year's family vacation to Disney World? Considering the opportunity cost may help you evaluate both the direct and indirect consequences of a purchase.

Some other questions to ask:

How will you feel about your purchase later? Tomorrow? Next month? Next year?
Will this purchase cause stress or strive at home? Couples often fight about money because they have conflicting money values. Will your spouse or partner object to your purchasing decision?
Are you setting a good financial example? Children learn from what they observe. What messages are you sending through your spending habits?

Why Do I Want It?

Maybe you've worked hard and think you deserve to buy something you've always wanted. But are you certain that you're not being unduly influenced by other factors such as stress or boredom? Take a moment to think about what's important to you. Comfort? Security? Safety? Status? Quality? Thriftiness? Does your purchase align with your values, or are you unconsciously allowing other people (advertisers, friends, family, neighbors, for example) to influence your spending?

Do I Really Need It Today?

Buying something can be instantly and tangibly gratifying. After all, which sounds more exciting: spending $1,500 on the ultra-light laptop you've had your eye on, or putting that money into a retirement account? Consistently prioritizing an immediate reward over a longer-term goal is one of the biggest obstacles to saving and investing for the future. The smaller purchases you make today could be getting in the way of accumulating what you'll need 10, 20, or 30 years down the road.

Be especially wary if you're buying something now because "it's such a good deal." Take time to find out whether that's really true. Shop around to see that you're getting the best price, and weigh alternatives - you may discover a lower-cost product that will meet your needs just as well. If you think before you spend money, you may be less likely to make impulse purchases, and more certain that you're making appropriate financial choices.

Can I Really Afford It?

Whether you can afford something depends on both your income and your expenses. You should know how these two things measure up before making a purchase. Are you consistently charging purchases to your credit card and carrying that debt from month to month? If so, this may be a warning sign that you're overspending. Reexamining your budget and financial priorities may help you get your spending back on track.

Would you like help setting your financial priorities? Contact Abel Financial Strategies for assistance.

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A Certified Financial Planner ® in good standing that believes whole-heartedly in the Standards of the CFP ® program.

Thursday, March 12, 2015

Spring Cleaning Your Debt

It's springtime--time for you to take stock of your surroundings and get rid of the dirt and clutter that you've accumulated during this past year.

In addition to typical spring cleaning tasks, you may want to take this time to focus on your finances. In particular, now may be as good a time as ever to evaluate your debt situation and try to reduce and/or eliminate any debt obligations you may have. The following are some tips to get you started.

Determine Whether It Makes Sense To Refinance

If you currently have consumer loans, such as a mortgage or an auto loan, take a look at your interest rates. If you find that you are paying higher-than-average interest rates, you may want to consider refinancing. Refinancing to a lower interest rate can result in lower monthly payments on a loan and potentially less interest paid over the loan's term.

Keep in mind that refinancing often involves its own costs (e.g., points and closing costs for mortgage loans), and you should factor them into your calculations of how much refinancing might save you.

Consider Loan Consolidation

Loan consolidation involves rolling small individual loans into one larger loan, allowing you to make only one monthly payment instead of many.

Consolidating your loans into one single loan has several advantages, including making it easier to focus on paying down your debt. In addition, you may be able to get a lower interest rate or extend the loan term on a consolidated loan. Keep in mind, however, that if you do extend the repayment term on a consolidated loan, it could take you longer to get out of debt and ultimately you may end up paying more in interest charges over the life of the loan.

Look Into Taking Out A Home Equity Loan

If you own a home and have enough equity, you may be able to use a home equity loan to pay off your debt. The interest on home equity loans is often lower compared to other types of loans (e.g., credit cards) and is usually tax
deductible.

Home equity loans can be an effective way to pay off debt. However, there are some disadvantages to consider. If you end up having an available line of credit with a home equity loan, you'll need to be careful not to incur any new debt. In addition, when you take out a home equity loan, your home is potentially at risk since it serves as collateral for the loan.

Evaluate Whether You Should Invest Your Money Or Pay Off Your Debt

Another effective way to reduce your debt load is to take cash that you normally would put toward certain investment vehicles and use it to pay down your debt. In order to determine whether this is a good option, you'll have to compare the current and anticipated rate of return on your investments with interest you would pay on your debt. In general, if you would earn less on your investments than you would pay in interest on your debts, using your extra cash to pay off your debt may be the smarter choice.

For example, assume that you have $1,000 in a savings account that earns an annual rate of return of 3%. Meanwhile, you have a credit card balance of $1,000 that incurs annual interest at a rate of 19%. Over the course of a year, your savings account earns $30 interest while your credit card costs you $190 in interest. In this case, it might be best to use your extra cash to pay down your high-interest credit card debt.

Come Up With A Payment Strategy To Eliminate Credit Card Debt

If you have a significant amount of credit card debt, you'll need to come up with a payment strategy in order to help eliminate it. Some options include:

Making lump-sum payments using available funds such as an inheritance or employment bonus
Prioritizing repayments toward cards with the highest interest rates
Utilizing balance transfers

Whenever Possible, Make Additional Payments

Making payments in addition to your regular loan payments or the minimum payment due can reduce the length of the loan and the total interest paid over the life of a loan. Additional payments can be made periodically and at a time of your choosing (e.g., monthly, quarterly, or annually).

Making more than the required minimum payment is especially important when it comes to credit card debt. If you only make the minimum payment on a credit card, you'll continue to carry the bulk of your balance forward for many years without actually reducing your overall balance.

Questions? Contact Abel Financial Strategies.

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Thursday, March 5, 2015

Initial Public Offerings (IPOs) - the basics

All About IPOs

Maybe you've heard someone talking about investing in "a hot new IPO" and wondered what all the fuss was about. Or maybe you've heard about a company "going public" and thought about whether you should invest in it. If you're unfamiliar with initial public offerings (IPOs), here's a review of some basics.

What is an IPO?

As the name implies, an initial public offering represents the first time a company issues shares of stock that are available for purchase by the public (in other words, when it "goes public"). The sale of the company's stock is typically intended to attract new capital that the company can use to expand. IPOs might be considered the rock stars of the investing world; when the company has generated a lot of interest leading up to its IPO, the initial response from investors can make headlines.

How does an IPO work?

Once the decision is made to go public, a company hires an investment bank to coordinate underwriting issuance of the IPO shares. The underwriter (or team of underwriters) guarantees it will purchase all of the company's shares on the day the stock is issued. However, underwriters typically do not intend to keep all of those shares, so they market them to other firms and financial institutions in advance of the actual IPO date. Firms that want to subscribe to the IPO indicate their interest in buying a certain number of shares (though they're not bound to follow through on that purchase). This process gives the underwriting firm(s) an idea of how much interest the IPO will generate. If there's a lot of interest and a large number of subscribers, the offering price can rise before the IPO date; if interest is low, the offering price will likely reflect that as well. However, the offering price may be very different from the price at which the stock trades on its first day. That's because once the subscribing firms have begun trading shares they've bought, the price can change dramatically, depending on the overall level of market interest. At that point, as with any stock, shares are sold to the highest bidder. The more limited the supply of shares available, the higher those bids are likely to be. That's why you may sometimes read headlines about the price of an IPO jumping on its first day.

What happens after the IPO?

Even if an IPO is eagerly awaited, there's no way to know exactly what will happen once the stock starts trading. Yes, an IPO's price can skyrocket, but it can also go nowhere or disappoint--or skyrocket and then disappoint. Facebook's May 18, 2012, IPO was one of the most highly anticipated IPOs in recent years. And yet on its first day of trading, after an initial pop it closed up only 23 cents--roughly .006%--from its offer price; at the close of trading three weeks later, it was down roughly 30% from its offer price (though it subsequently rebounded and as of October 2014 had roughly doubled from the first-day close).* What's behind such volatility? One reason is that after any initial jump in price, the institutional firms that have subscribed to the IPO may want to take any profits quickly. Also, executives at companies that go public often have signed what's called a "lock-up" agreement; for a certain time after the IPO, they're prohibited from selling shares that may have been granted as part of their compensation package. Such agreements are designed to help support the stock's price during the lock-up period, which lasts at least 90 days but can be longer. However, once the lock-up expires, executives are free to trade their stock. If many of them sell simultaneously, the sudden increase in the supply of shares on the market may cause the stock's price to fall.

What if I want to invest in an IPO?

One challenge with trying to invest in an IPO is simply gaining access to the shares. In the case of a stock that's in high demand, firms typically reserve IPO shares for their largest or most valued clients. For example, a firm might offer its IPO shares only to investors who have a certain level of assets with the firm or a minimum trading volume. If you're a small investor and are being offered IPO shares, it could be because the demand for them is less than expected, which could have implications for your investment in them. Even though past performance is no guarantee of future results, an IPO can be especially difficult to analyze for its long-term potential because it doesn't even have a track record to review. One tool is what's known as a "red herring." This is an initial prospectus that contains pertinent information about the company; it's issued after the Securities and Exchange Commission declares the registration statement effective. However, be aware that though the red herring is subject to SEC reporting regulations, it's part of a sales campaign by the underwriters to try to drum up interest in the IPO. Don't be tempted to invest in an IPO just because it's an IPO; think about whether it fits into your overall investment strategy and tolerance for risk.

*All investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful.

*Data source: Yahoo! Finance historical prices for Facebook, Inc. (FB) on May 18, 2012; June 8, 2012; and October 7, 2014.

At Abel Financial Strategies, we take a holistic approach in our client relationships and financial plans. As such, we offer comprehensive financial, retirement and estate planning, and professional fee-based investment advisory services.

Be Sure to Follow all of our social media channels and subscribe to our blog!

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Your complete source for personal financial planning.

A Certified Financial Planner ® in good standing that believes whole-heartedly in the Standards of the CFP ® program.

Augustus Abel does not provide legal or tax advice. These topics are discussed in conjunction with your CPA, Tax Advisor and Attorney.

Securities offered through First Heartland Capital®, Inc. Member FINRA/SIPC Advisory Services offered through First Heartland Consultants®, Inc. (Abel Financial Strategies is not affiliated with First Heartland Capital®, Inc.)