July 22, 2021

Market Highlights

     The S&P 500 had a strong start to the second quarter thanks to numerous positive developments in April.

• The pace of vaccinations in the U.S. accelerated. The increased pace of vaccinations combined with a decline in COVID-19 cases helped numerous states fully reopen their economies. That served as a positive signal to investors that a return to pre-pandemic normal may be on the horizon.
• The Federal Reserve reiterated its support for the economy and promised not to remove any accommodation in the near term. That continued “safety net” gave investors confidence in the future economic outlook and the sustainability of the economic recovery.
• First-quarter corporate earnings were very strong, as the vast majority of U.S. companies beat earnings estimates.

     In May, concerns developed on structural issues within our capitalistic economy thanks to uncertainty regarding inflation, the labor market and when the Federal Reserve would begin to reduce, or taper, its quantitative easing (QE) program.

• A disappointing jobs number in early May implied the labor market might not be recovering as quickly as expected.
• With inflation data hitting multi-decade highs, some institutional investors became concerned that the economic recovery might not be as strong as forecasted.
• It became apparent that the lackluster job growth was more a function of a labor supply issue rather than there not being enough jobs available.

     Federal Reserve officials reiterated their long-held position that any increase in inflation would be temporary and due to pandemic-related supply chain disruptions and not the return of 1970’s style inflation problems.

     Stocks resumed the rally in early June, as measures of economic activity remained strong.  The June Fed meeting provided a small surprise to markets, as it revealed that Federal Reserve officials began discussions about when to reduce the current quantitative easing program, while Federal Reserve forecasts showed interest rates could start to rise late in 2022, sooner than previously expected. Those two surprises caused some mild market volatility late in June, although ultimately investors remained confident that the Federal Reserve will not remove economic support too quickly and the S&P 500 hit another record high during the last few days of the quarter.

    In summary, the strong gains of the second quarter and the first half of 2021 reflected continued government support for the economy combined with a material improvement in the pandemic in the United States.  As we start the second half of 2021, we are happy to say the world looks a lot more like it did pre-pandemic than it did for most of 2020, and that sentiment is supportive of risk assets going forward.

2nd Quarter Performance Review

• The Nasdaq outperformed both the S&P 500 and Dow Jones Industrial Average thanks to a June rally in technology shares, as investors began to consider that the intensity of the economic recovery had possibly peaked now that virtually all state economies had fully reopened.
• The Federal Reserve signaling that it has begun discussions to reduce its QE program made some investors nervous that economic growth could slow in the future, contributing to that rotation back towards technology stocks, which tend to be less sensitive to changes in economic growth compared to other market sectors.
• Large-cap stocks outperformed small-cap stocks, which was a reversal from the previous two quarters.
• Gold, meanwhile, posted a small gain as investors rotated back to gold following a spike in inflation metrics, combined with an increase in volatility in Bitcoin, which sent money back into more traditional non-correlated, safe-haven assets.Growth handily outperformed value as investors positioned for the possibility that the intensity of the economic recovery may wane in the coming months.
• Commodities posted strong gains for the third quarter in a row and once again outperformed the S&P 500 over the past three months.
• Despite inflation indicators surging to multi-year highs in recent months, investors viewed those increases as temporary phenomena related to the global economic reopening and short-term supply chain issues.

3rd Quarter Market Outlook

     Strong performance in the first half of 2021 should not be taken as a signal that risks no longer remain. In fact, the next three months will bring important clarity on several unknowns including inflation, labor shortage, future Federal Reserve policy, and the pandemic.

     Regarding inflation, some metrics in June implied that the spike in inflation during the second quarter is starting to reverse, but that debate is far from settled. To that point, no one knows what the trillions in pandemic stimulus combined with 0% interest rates and the Fed’s ongoing QE program will do to inflation over the longer term. If this sudden surge in inflation is indeed just temporary, we should see more conclusive evidence of that during the third quarter. However, if inflation is not temporary and becomes “sticky” inflation then higher prices will act as a significant headwind to economic growth.

     The Federal Reserve, meanwhile, has started the process of communicating how it will begin to reduce support for the economy via “tapering” or reducing, its quantitative easing program. The last time the Fed had to deliver that message, they triggered the “Taper Tantrum” of 2013, which saw stock and bond market volatility rise significantly.

     Finally, despite significant progress against COVID-19 here in the U.S., the pandemic is not over. There remains a possibility that a new COVID-19 variant appears and renders the vaccines less effective. If that happens, markets will become concerned that progress towards a return to economic “normal” will be reversed and that will cause volatility.

     While there has been progress made in the United States against the pandemic, and life as we know it has returned mostly to normal, now is not a time to become complacent as numerous economic and pandemic-related risks remain. We should remain prepared for bouts of market volatility. Yet while risks remain to the markets and the economy, as they always do, it is important to remember that a well-executed and diversified investment strategy can overcome bouts of volatility.

     At Capital Investment Services, we understand the risks facing both the markets and the economy. We are committed to helping you effectively navigate this still-challenging investment environment. Successful investing is a marathon, not a sprint.  Therefore, it’s critical for you to stay invested, remain patient, and stick to the strategy. We remain focused on risks to portfolios and the economy, and we thank you for your ongoing confidence and trust.

     Our team remains dedicated to helping you successfully navigate this market environment.  Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.

Sincerely,

Bobby Lumpkin

Managing Partner, CIS

Financial Advisor, RJFS

Founder, investingsimply

Capital Investment Services, LLC & investingsimply are not registered broker/dealers, and are independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Bobby Lumpkin and are not necessarily those of Raymond James. Some of the material referred to in this letter has been prepared by Seven’s for use by Financial Advisors. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee these statements, opinions, trends, or forecasts provided herein will prove to be correct. Investing involves risk and may occur a profit or loss regardless of strategy selected, including diversification and asset allocation. Holding stocks for the long-term does not insure a profitable outcome. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index measures the performance of the 2,000 smallest stock companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Investing in small cap stocks generally involves greater risks, therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock companies maintained and reviewed by the editors of the Wall Street Journal. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

July 20, 2021

Market Highlights

The S&P 500 had a strong start to the second quarter thanks to numerous positive developments in April.

• • The pace of vaccinations in the U.S. accelerated. The increased pace of vaccinations combined with a decline in COVID-19 cases helped numerous states fully reopen their economies. That served as a positive signal to investors that a return to pre-pandemic normal may be on the horizon.
  • The Federal Reserve reiterated its support for the economy and promised not to remove any accommodation in the near term. That continued “safety net” gave investors confidence in the future economic outlook and the sustainability of the economic recovery.
  • First-quarter corporate earnings were very strong, as the vast majority of U.S. companies beat earnings estimates.

In May, concerns developed on structural issues within our capitalistic economy thanks to uncertainty regarding inflation, the labor market and when the Federal Reserve would begin to reduce, or taper, its quantitative easing (QE) program.

• • A disappointing jobs number in early May implied the labor market might not be recovering as quickly as expected.
  • With inflation data hitting multi-decade highs, some institutional investors became concerned that the economic recovery might not be as strong as forecasted.
  • It became apparent that the lackluster job growth was more a function of a labor supply issue rather than there not being enough jobs available.

Federal Reserve officials reiterated their long-held position that any increase in inflation would be temporary and due to pandemic-related supply chain disruptions and not the return of 1970’s style inflation problems.

Stocks resumed the rally in early June, as measures of economic activity remained strong.  The June Fed meeting provided a small surprise to markets, as it revealed that Federal Reserve officials began discussions about when to reduce the current quantitative easing program, while Federal Reserve forecasts showed interest rates could start to rise late in 2022, sooner than previously expected. Those two surprises caused some mild market volatility late in June, although ultimately investors remained confident that the Federal Reserve will not remove economic support too quickly and the S&P 500 hit another record high during the last few days of the quarter.

In summary, the strong gains of the second quarter and the first half of 2021 reflected continued government support for the economy combined with a material improvement in the pandemic in the United States.  As we start the second half of 2021, we are happy to say the world looks a lot more like it did pre-pandemic than it did for most of 2020, and that sentiment is supportive of risk assets going forward.

 __________________________________________________

2nd Quarter Performance Review

• • The Nasdaq outperformed both the S&P 500 and Dow Jones Industrial Average thanks to a June rally in technology shares, as investors began to consider that the intensity of the economic recovery had possibly peaked now that virtually all state economies had fully reopened.
  • The Federal Reserve signaling that it has begun discussions to reduce its QE program made some investors nervous that economic growth could slow in the future, contributing to that rotation back towards technology stocks, which tend to be less sensitive to changes in economic growth compared to other market sectors.
  • Large-cap stocks outperformed small-cap stocks, which was a reversal from the previous two quarters.
  • Growth handily outperformed value as investors positioned for the possibility that the intensity of the economic recovery may wane in the coming months.
  • Commodities posted strong gains for the third quarter in a row and once again outperformed the S&P 500 over the past three months.
  • Gold, meanwhile, posted a small gain as investors rotated back to gold following a spike in inflation metrics, combined with an increase in volatility in Bitcoin, which sent money back into more traditional non-correlated, safe-haven assets.
  • Despite inflation indicators surging to multi-year highs in recent months, investors viewed those increases as temporary phenomena related to the global economic reopening and short-term supply chain issues.

__________________________________________________

3rd Quarter Market Outlook

Strong performance in the first half of 2021 should not be taken as a signal that risks no longer remain. In fact, the next three months will bring important clarity on several unknowns including inflation, labor shortage, future Federal Reserve policy, and the pandemic.

Regarding inflation, some metrics in June implied that the spike in inflation during the second quarter is starting to reverse, but that debate is far from settled. To that point, no one knows what the trillions in pandemic stimulus combined with 0% interest rates and the Fed’s ongoing QE program will do to inflation over the longer term. If this sudden surge in inflation is indeed just temporary, we should see more conclusive evidence of that during the third quarter. However, if inflation is not temporary and becomes “sticky” inflation then higher prices will act as a significant headwind to economic growth.

The Federal Reserve, meanwhile, has started the process of communicating how it will begin to reduce support for the economy via “tapering” or reducing, its quantitative easing program. The last time the Fed had to deliver that message, they triggered the “Taper Tantrum” of 2013, which saw stock and bond market volatility rise significantly.

Finally, despite significant progress against COVID-19 here in the U.S., the pandemic is not over. There remains a possibility that a new COVID-19 variant appears and renders the vaccines less effective. If that happens, markets will become concerned that progress towards a return to economic “normal” will be reversed and that will cause volatility.

While there has been progress made in the United States against the pandemic, and life as we know it has returned mostly to normal, now is not a time to become complacent as numerous economic and pandemic-related risks remain. We should remain prepared for bouts of market volatility. Yet while risks remain to the markets and the economy, as they always do, it is important to remember that a well-executed and diversified investment strategy can overcome bouts of volatility.

At Capital Investment Services, we understand the risks facing both the markets and the economy. We are committed to helping you effectively navigate this still-challenging investment environment. Successful investing is a marathon, not a sprint.  Therefore, it’s critical for you to stay invested, remain patient, and stick to the strategy. We remain focused on risks to portfolios and the economy, and we thank you for your ongoing confidence and trust.

Our team remains dedicated to helping you successfully navigate this market environment.  Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.

Bobby Lumpkin

Managing Partner, Capital Investment Services

Founder, investingsimply

Financial Advisor, Raymond James Financial Services

Capital Investment Services, LLC & investingsimply are not registered broker/dealers, and are independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Bobby Lumpkin and are not necessarily those of Raymond James. Some of the material referred to in this letter has been prepared by Seven’s for use by Financial Advisors. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee these statements, opinions, trends, or forecasts provided herein will prove to be correct. Investing involves risk and may occur a profit or loss regardless of strategy selected, including diversification and asset allocation. Holding stocks for the long-term does not insure a profitable outcome. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index measures the performance of the 2,000 smallest stock companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Investing in small cap stocks generally involves greater risks, therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock companies maintained and reviewed by the editors of the Wall Street Journal. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

June 4, 2021

       As vaccination rates increase, more states are opening and reducing mandatory restrictions. But what exactly does our new normal look like? Post-pandemic culture across the United States certainly has a different look and feel from what we experienced prior to the year 2020. Increased interest in investing by younger generations, inflation concerns, as well as the anticipation of the money supply tightening are all factors leading into market volatility. What has yet to be determined is whether the volatility will continue intermittently or expand over longer periods of time.

       Concerns about inflation and interest rates are circling about as the Federal Reserve and US Treasury consider the best path forward. While the Fed is designed to operate completely independent from any government influence, there is speculation as to how separate the two are functioning at this point. Markets are preparing for a rising interest rate environment in the near future. If the Federal Reserve waits to long to act, then a hyperinflation cycle could accelerate.

       With the amount of stimulus released into the economy, consumers have increased spending. Prices for goods and services have risen well above pre-pandemic levels, which is a direct impact of the labor shortage and issues in the supply chain. Increased eCommerce traffic is pushing more and more companies to explore alternate methods of reaching buyers. Businesses are, therefore, passing those increased costs on to their consumers. A large portion of this change in consumerism is directly related to the COVID-19 pandemic, but another factor to consider is the change in who is actually out there buying the products and services. Even though Baby Boomers still hold the largest buying power, according to recent data, Millennials and GenX now make up the largest number of consumers. As we navigate through this transfer of consumer influence and buying power, we are beginning to see changes in what is being bought, where consumers shop, and even how transactions are processed.

       The culture of investing is shifting as a new generation enters the market. The recent market interest in the so called “meme stocks” exemplifies the toxic mindset of upcoming investors who see the stock market as more of a game than a financial strategy. The involvement of social influencers and online communication forums have sparked additional interest in various risky investments, which has proven to result in a wide variety of outcomes for those who have participated in such gaming activity. With this cultural shift, we have seen increased market activity accompanied with increased volatility in an already unstable economic time.

       All of these factors combined have led to a false value generation, which is better known as a “market bubble”. The equity market is trading at a premium level, so traditional, defensive tools are not going to be effective during a season of interest rate hikes and Fed tapering. Because of these factors, we are broadening our defensive approach and preparing alternative defensive risk strategies as we approach Q3 2021.

       We continue to stand by our data driven risk objectives while continuing to make adjustments within portfolios based on the political and economic environment that we are currently in. Looking forward, our team is developing future strategies based on the changes we see coming in consumer trends as a means of identifying market opportunities. As always, please feel free to give us a call to discuss any questions that you may have.

Anna Vajda

Portfolio Strategist, Capital Investment Services

Financial Advisor, Raymond James Financial Services

Bobby Lumpkin

Managing Partner, Capital Investment Services

Founder, investingsimply

Financial Advisor, Raymond James Financial Services

Capital Investment Services, LLC & investingsimply are not registered broker/dealers, and are independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Bobby Lumpkin and Anna Vajda and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee these statements, opinions, trends, or forecasts provided herein will prove to be correct. Investing involves risk and may occur a profit or loss regardless of strategy selected, including diversification and asset allocation. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

June 12, 2020

     Chances are you have taken a “shortcut” or two during your life. Seeking out a shortcut is a basic human response. It is an emotional response and our emotions can lead us to take actions that negatively impact our journey instead of making it better. Over the past month, we have seen the stock market and its investors take the shortcut amid the current economic storm. With markets touching neutral levels on a year to date basis this week and the Nasdaq breaking 10,000 for the first time ever, we must remember that markets are emotional on the way up, and they are emotional on the way down.

     Many would say that 2020 is not off to a good start. The storms are plentiful with COVID-19, the economic halt, depression level unemployment, racial injustice issues, protesting, rioting and the like. With storms like this brewing it leads to polarizing opinions that are driven by emotion. Amid the turmoil, we seek out the shortcut to break up the storm.

     The “shortcut” is that there is no shortcut.  There is no easy way out. Life is a journey and life is hard. A journey is taking one step at a time with careful planning along the way. Economies, like people, are moved incrementally. The journey starts with commitment, but commitment is only the first step. A successful path forward is the compounding of many conscious and intentional actions set to work in tandem with each other as momentum builds. We must become comfortable taking small steps in order to create the potential for big wins. This economic recovery will be a marathon, not a sprint. We must be patient in our approach and stick to a carefully coordinated strategy. In portfolio management, risk matters, which is why we chose to manage risk and allow the portfolio the opportunity to generate return.

Startling Statistic

     Retirement contributions and new enrollments in employer sponsored plans have tumbled to record lows amid the coronavirus pandemic. One of the first things to go during layoffs and furloughs is retirement plan contributions. People quickly narrow their focus to the short term and forgo the long term. It is a natural human response. The question then becomes, “What should you do during difficult times?”

     Recently one of my peers in the industry said, “It is clear that the pandemic and its economic effect is taking a major toll on employers and those participating in retirement plans. Many have been laid off or furloughed which immediately stops their contributions.” According to the Retirement Plan Advisor Index in partnership with ADP, new participants in retirement plans have dropped 34.4% in the past two months. Those contributing to their employee sponsored plans are down 20.9% during the same time period. Overall dollar contributions are down 34.6% in the past year. Many are in a wait-and-see mode as the economy restarts. This trend will have a lasting effect on the retirement asset base in the future. The lower the asset base; the lower the available income stream during retirement.

     With the increased volatility in the stock market, many retirement plan participants did the exact opposite of what one should do. During times of volatility, one should be looking to take advantage of lower share prices. If they maintain their contribution during the volatility, they buy more shares with each contribution which facilitates a faster recovery.

Are we living in an alternate dimension?

     Markets are operating in an alternate dimension to the real-world banking on future earnings for multiple years that appear more certain than earnings this year. In this alternative dimension, there are at least two main reasons for the rebound that we see.

     First, the expectations for earnings this year have fallen significantly while the earnings expectations for 2021 and 2022 are not showing a significant reduction. This effect is very different than the Great Financial Crisis. In 2008, at the height of the crisis, earnings expectations for that year fell 28%. In 2020, we have seen a similar position at 27%. However, when we look at future earnings, a difference reveals itself. In 2008, future earnings expectations for 2010 fell by 26%. So far in 2020, future earnings expectations for 2022 have only fallen 13%. There is an argument that this crisis unfolded so rapidly that the expectations have not had time to catch up; however, optimism around reopening is likely a contributing factor, along with massive fiscal and monetary stimulus.

     Second, there are valuation perception changes at play. Investors appear to be willing to pay more for future earnings than they were 10 years ago during the Great Financial Crisis. Low interest rates are contributing to this dynamic in a major way. The 10-year treasury note is currently less than 1%, which, comparatively, was at 4% at the beginning of 2008. This has caused a decline in the cost of capital which is used to discount future earnings. A lower cost of capital changes the flexibility of companies in their response during the recovery in this crisis. Low interest rates have also caused equity risk to appear more attractive on a relative basis when looking at the balance of risk and return. The dividend of the S&P500 is currently 32% greater than the yield of the U.S. Corporate Bond Index.

     One of the most significant factors is the confidence investors have in the mega-cap tech companies, better known as FANG+. These mega-cap stocks now make up 24% of the S&P500. Many institutional investors are positioning in these companies due to the large amounts of cash they have on their balance sheets. The general theory is that these large, financially healthy companies will continue to deliver impressive earnings growth when the crisis is over, and that is what continues to drive the market movements. The weight of these companies and their performance is significant in driving index performance.

     From an economic and a market perspective, there are signs of recovery and cause for optimism. There is ample liquidity in the markets, and many businesses have devised innovative solutions to adapt in this unprecedented period. The global output cycle is likely to be well on its way to returning to pre-COVID level. There is a huge pent-up demand, poised for release, as states re-open for business. This is most notable in developed economies primarily due to savings and stimulus.

Biggest question

     What is driving the disconnect between the stock market and the economy?

     The market hates uncertainty more than it does bad news. In the month of March, everything was uncertain. In April and May, the corporate and economic data began to roll in which revealed bad news, but at least a bit of the uncertainty was gone. Uncertainty is one of the markets biggest issues and drives the most fear with investors- particularly institutional investors.

     It is also important to remember that economic data looks backward, and the market looks forward- neither of them are real time. This is a common misconception. A great example of this was this week when it was declared that the US was in a recession, and it began back in February. Well, anyone with an understanding of the economy probably knew in early March that we were in a recession.

     Another major disconnect is that low bond yields make it harder for investors to turn away from stocks. Going into the pandemic, bond yields were already low. We have never gone into a recession, or a bear market, with yields this low. During the pandemic, investors didn’t see an alternative to stocks, which led them to companies with dividends and cash heavy balance sheets.

     To me, the largest impact came from the monetary and fiscal policy measures that were rapidly put in place. The quick reaction from the Federal Reserve to sure up liquidity and the government to passing the CARES act, made all the difference. These features of “easy monetary policy” provided sunshine in a stormy environment.

     For the time being, do not be surprised if the market continues to move independently of bad economic news. The market overshot itself on the way down, and it has certainly overshot itself on the way back up as well. The right answer is somewhere in the middle, and it will take more corporate reporting data to help find the midpoint. At the current levels, the S&P500 is trading at a 21x forward looking P/E. Historically the average is near 17x. At 17x, it would be trading around 2700.

     Our ongoing strategy has been focused on the investments themselves and not getting caught up in the short term market fluctuations. After all, the stock market is not the appropriate place for short-term dollars. It is important to stay focused on the things we can control which is an assessment of risk first when building a portfolio and allowing the return to be created from the risk-adjusted approach.

     Simply put, the stock market is being supported by investor optimism about the economy 12-24 months from now and not today’s reality. However, if the economic turnaround that is expected doesn’t materialize, or we have a second wave of COVID-19, then the stock market will reset. My view of the recovery still remains a W. The emotions of re-opening have driven the market to levels that are unsupported- particularly in the technology sector. The third quarter in 2020 is the most likely time for a market pullback.

Steps to Simplicity – an often overlooked state

     It is challenging to live simply in a very complex world, but in order to live a healthy and balanced life, we must be able to find the simplicity. How? Learn to say no, take a social media detox, watch the sunset, listen to the ocean, spend time in nature, connect spiritually. Without an effective balance, burnout sets in, and with burnout everything in life gets complex.

     To avoid an emotional burnout, work to live a life of intention, passion and purpose. Start with defining what’s important to you. Without understanding who you are, then you are always open to significant influence. Plan your day. Without a plan, you will lose valuable time. Set long-term goals that coincide with your short-term plans. Don’t be afraid to take action; the first step is always the hardest. Be challenged in your faith. Focus on the people that mean the most to you. Seek a change of pace if you are overwhelmed.

     During a time of devotion last Friday at my office, I challenged my staff to “flip the script.” Amid the negative, do the positive. Be the light in a very dark world. By being the light, we begin to understand the truth about ourselves; it enables us to interpret our world, and it makes us stronger. My challenge to you as well is to “flip the script.” Don’t allow the polarizing negative influencers to bait you into their narrative. Write your own story and be the light.

Bobby Lumpkin
Managing Partner, Capital Investment Services

Founder, investingsimply
Financial Advisor, RJFS

Capital Investment Services, LLC is not a registered broker/dealer, and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC.

This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Bobby Lumpkin and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee these statements, opinions, trends, or forecasts provided herein will prove to be correct. Investing involves risk and may occur a profit or loss regardless of strategy selected, including diversification and asset allocation. Holding stocks for the long-term does not insure a profitable outcome. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low-price levels. Dividends are not guaranteed and must be authorized by the company’s board of directors.

June 1, 2020

     The stock market is pricing in anticipation of where the economy will be 12-24 months from now.  The current optimism trend is driving the momentum in the markets without regard for the current economic reality.  It is important to note that the international markets, small caps and fixed income strategies have not rebounded as sharply as Large Cap U.S. equities.

     A path forward is to seek return opportunities while remaining cautious related to the potential for market pullbacks based on economic realities.  Market pricing at the present time is considering a best case scenario for recovery.   Normalizing the risk profile range is for a time when more unknowns become known.  Unknowns are actual corporate earnings, actual GDP specifically Q2, actual unemployment specifically Q2 and how effectively the consumer re-engages spending.

Ripple Effects

     While you may assume that the economy is on the road to recovery with these recent upswings, the stock market may not be the best gauge for the overall economic well-being of the U.S. Investors need to be looking at the whole economy, not just the market, and paying more attention to the potential cascading impacts of the coronavirus pandemic.  Liz Ann Sonders, Schwab’s chief investment strategist, warns that “we haven’t done enough thinking about the ripple effects”.

     It seems the market reflects the optimism around a potential COVID-19 vaccine and states reopening. While both are important aspects to follow, they do not tell the whole story of what the country is facing. The stock market is not a direct representation of the economy. The two are actually very different.  Stocks tend to be forward-looking and their ups and downs don’t always take into account all of the aspects that make up the economy.

     The economy encompasses the total goods and services a country produces across all industries, professions and income levels. But indices like the S&P 500 only track the business prospects of large companies. Small businesses will certainly see the immediate impact of the crisis and possibly the largest impact.

Ripple Effects to Watch:

1. Bankruptcies – In the event of an actual bankruptcy, many of those perceived temporary job losses become permanent layoffs. In fact, several major retailers, such as J. Crew, J.C. Penney and Neiman Marcus, have already filed for bankruptcy.
2. The impact of distance learning on college towns. Some universities have already announced they will not reopen for in-person classes in the fall. That’s likely to have a big impact not only on schools, but also the surrounding communities. Many schools employ thousands and inject massive amounts of income into the local economy.
3. Mass unemployment that has accompanied the coronavirus pandemic has been compounded by people who don’t want to come back to work. Nearly 40 million people have submitted unemployment claims since the coronavirus was declared a pandemic in mid-March, and more than 25 million have been receiving benefits for at least two weeks, according to the Labor Department. With the unemployment rate through April at a post-World War II record 14.7% and 20.5 million layoffs during the month, workers are reluctant to head back to their jobs for a number of reasons including workers’ health concerns, limited access to childcare and generous unemployment benefits.

Major technical accomplishment for the market -Reclaiming the 200-day moving average.

     The 200-day is simply the average of the closing prices for the last 200 days for an index or individual stock. In the case of the S&P 500, some investors view the 200-day as a line in the sand, where they will go long above that level but not below it. Achieving this technical level can generate interest in the market and help pull it higher.

     In order to have a sustained rally, you need broader participation. The rotation we’re seeing is a rotation to small caps which is a critical component to define a sustainable rally.  This rally gained strength late last week and has continued to build.  For an investment manager, it was critical to see money flowing into the small caps, mid-caps, and beat up sectors like the banks.  You cannot have a sustainable rally based solely on a few mega cap tech companies.

Common questions

Should I go to the beach? What about the hair salon? A sit-down restaurant meal? Visit Dad on Father’s Day?  Should I go to church?

Reopening is not back to normal.

     It is trying to find ways to allow people to get back out to do things they want to do and business to do business.Bottom of Form  So far, state rules vary, but they involve a basic theme.  They are making assumptions that people will use common sense and good public health practice when they go out. This should go without saying.  Please use common sense and good health practices.

     People with underlying health conditions or compromised immune systems should continue staying home. Folks who are at higher risk of having a more severe reaction have to continue to be very careful and limit contact with other people.

     We need a little more time to fully understand COVID-19 and more time to ramp up our testing, find treatments and hopefully a vaccine.

     We all have social distancing fatigue. Find ways to minister and serve others during this time.  Be respectful of others and their views.  Encourage one another.  In this time of distancing, a true sense of loneliness can set in.  Make the extra effort to check on those in your circle. Connect with others stands on the foundation of respect.  Let’s all stay focused and be a positive light in a very complicated world.

Bobby Lumpkin
Managing Partner, Capital Investment Services

Founder, investingsimply
Financial Advisor, RJFS

Capital Investment Services, LLC & investinsimply are not registered broker/dealers, and are independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC.

This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Bobby Lumpkin and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee these statements, opinions, trends, or forecasts provided herein will prove to be correct. Investing involves risk and may occur a profit or loss regardless of strategy selected, including diversification and asset allocation. Holding stocks for the long-term does not insure a profitable outcome. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest stock companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Investing in small cap stocks generally involves greater risks, therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

May 10, 2020

     Due to medical technology and better health care, people are living longer after retiring. Many people see Nursing Home care as Long-Term Care. However, Long-Term Care generally refers to the broad range of medical and personal services provided to the chronically ill, aged, or disabled.  A person would receive this care in an institutional setting, or it can be in their place of residence.

You will hear Activities of Daily Living (ADLs) as the standard of determining a person’s independence. Those activities include eating, dressing, toileting, bathing, continence, and transferring from a bed or chair. Instrumental activities of daily living (IADLs) are housework, using a telephone, preparing and taking medications correctly, preparing meals, and especially managing money.  Cognitive impairment inhibits one’s ability to reason and remember. This type of impairment may become serious as time goes on.

The cost associated with the care to individuals who are not able to perform the ADLs or IADLs is growing each year. There are three types of care that need to come together to assist these individuals. Medical, environmental, and personal. All three levels of care may be needed, but in different percentages. Thus, individual specific protocol will determine their care going forward. The realization may come when the individual may no longer be able to stay at home to receive the proper care. People will need long-term care insurance to cover the costs of services they may need. Otherwise, the individual will pay the long-term care costs directly, or they must rely on government programs to help with these costs.

Many people reach the age of 65 and believe Medicare and their Medigap Policies covers long-term care facilities. This is not correct. Medicare pays only limited benefits when certain medical criteria are met. After 100 days, the patient and family are on their own to pay for this care.

Medicare is not the answer to long-term care costs!

     Studies show that, as the American population lives longer, it will place unprecedented pressure on the health care system. Medical costs are rising and the need for medical services increases with age. Although government programs provide some coverage, many impaired people will have to pay for much of their own long-term care costs.

The answer to the struggles of addressing long-term care is long-term care insurance. This can be through an annuity or through a long-term care insurance policy. Long-term care insurance agents have guidelines that require them and the insurers to have suitability standards in place before discussing any long-term care insurance policy with a client.

Informal Caregivers, family and friends, may not be willing or able to provide the proper care that is necessary for the patient. The cost of Formal Caregivers depends on the area of the country.

As part of your annual review, mention your long-term care wishes to your Financial Advisor. They will help develop a plan to address the costs that are associated with your continuum of care.

Allina Bell

Financial Advisor

Capital Investment Services & RJFS

Capital Investment Services, LLC is not a registered broker/dealer, and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Allina Bell and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.

February 20, 2020

     One of the most dangerous conditions in investing happens to be a very natural human action. People like to buy when the market is at the peak due to the drive of positive emotions like excitement, optimism, and euphoria. Buying is viewed as a positive action linked to positive emotion. “I want to be a part of the run” and “I don’t want to miss this opportunity” are very common phrases used by investors during peaking market conditions. Another interesting point is that investors have been known to add to investment accounts and contribute more to retirement plans more during peaking markets driven by the same positive emotions. A peaking market is the point of maximum financial risk to long-term financial goals. 

     Likewise, the opposite effect happens and is equally as dangerous. People like to sell when the market is at the bottom due to the drive of negative emotions like anxiety, fear, and panic. Selling is viewed as a negative action linked to negative emotions.  “I want out of this free-fall” and “I am scared to stay in any longer” are very common phrases used by investors during bottoming market conditions. Another interesting point is that investors are known to remove money from investment accounts and stop contributing to retirement plans during bottoming markets driven by the same negative emotions. Identical to a peaking market, a bottoming market is the point of maximum financial risk to long-term financial goals.

     Research conducted by Dr. Daniel Kahneman, one of the founding fathers of behavioral economics and the only psychologist to ever win the Nobel Prize for Economics, suggests that when faced with uncertainty, investors tend to make decisions based on their emotions and subjective experiences not on logic or objective reality. He is noted for saying, “the more emotional the event is, the less sensible people are”.1

How do you avoid emotional investing?

1. Don’t fall prey to the media. The media, often times, over hypes markets conditions in both peaking and bottoming markets. Successful investors use the news for information not for decision making.
2. Be careful not to “follow the herd”. Wanting to be a part of the herd is a natural feeling, but the herd could be running straight off a cliff.
3. Remove personal feelings from choosing your investments. After all, they do not have feelings for you! 

The key is to remain objective and not to overreact.

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     With the goal of growing net worth, an investor has to remove emotion from the decision-making process when investing.  The old investing principle of “buy low and sell high” still prevails to achieve long term financial goals. There are objective principles like asset allocation, systematic investing and diversification that can help minimize that volatility in a portfolio.  Discipline to remain objective during volatile markets is critical because acting emotional will be counterproductive. Knowing your portfolio and how it interacts with different markets is also essential to weathering turbulent times.

     One of the greatest values that an investment manager can offer a client is remaining objective during turbulent markets and being willing to buy in bottoming markets seeking opportunity.  Building a trusted relationship with a financial professional might prove beneficial along the journey to achieving your financial goals and growing your net worth.

Bobby Lumpkin
Managing Partner, Capital Investment Services
Financial Advisor, RJFS

¹Gathered from Emotions and your money: 5 potentially costly mistakes that your financial professional can help you avoid by AIG. https://www-1012.aig.com/research-planning/investor-education/investing-emotions/break-the-cycle-of-emotional-investing.aspx

Any opinions are those of Bobby Lumpkin and not necessarily those of Raymond James. This material is being provided for information purposes only. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

February 15, 2020

The A, B, D’s of Medicare Health Care Coverage

     There are several steps in preparing to receive Medicare benefits. I have included a step-by-step guide for you to follow. Please know that if you are still covered under an employer’s Health Insurance Policy, you still must sign up for Part A three months before turning 65, and receive your Medicare Card. You will not need to enroll for Part B until you are leaving an employer’s health insurance plan. This also includes Part D, and either a Medicare Advantage or a Medicare Supplement policy.

     As you come off an employer’s health plan, it is hard to understand all of the health care coverage that is necessary to enroll in as you turn 65. All of the “Parts” start to roll together. By listing them below, I hope to clarify and simply this process.

Part A: Hospital coverage – available for people 65 or older.

• You must sign up for this coverage 3 months before you turn 65- even if you are staying on your current employer’s insurance plan
• You will receive your Medicare card and number
• There is no cost for this coverage
• Part A coverage goes into effect the first day of the month you turn 65.
• Please start this process three months before you turn 65.

Part B: Physician and Healthcare Provider Coverage

• You will pay a monthly premium for this coverage.
• You must sign up for Part B during the designated enrollment period, or when you can receive Guaranteed issue – i.e. when you come off your employer’s health insurance plan
• You will need to start this either at the same time as Part A, or start the process several months before you are to leave your employer’s health plan coverage.
• You may have to pay a late penalty if you don’t enroll when first eligible

Part D: Prescription Drug Coverage

• There is a monthly premium for this coverage.
• You sign up through the Medicare website- www.medicare.gov
• You will need a list of the medications and the dosage that you take before starting this process.
• Please have your Medicare Card number available at this time. Your Medicare number is needed to enroll in Part D coverage.

Now that you have the A, B and D’s of Medicare, let us discuss the steps you will take to enroll in the different coverages of Medicare:

Step 1: Enroll in Original Medicare

**You need to start this process 3 months before you turn 65!**

     Log in to the Social Security website and select “Apply for Medicare Only” if only starting Medicare, not Social Security. Select only Part A if you will continue to be covered under your employer’s health plan. If you will not continue with health coverage from an employer, then enroll in Part A and Part B at this time. Part B has a monthly premium that is based on your current income. When enrolling for all Parts of Medicare, those coverages will begin on the first day of the month you chose. Part A must begin on the first day of the month you turn 65. Check with your physicians to let them know you will be Medicare eligible, and confirm that you can still be their patient. Enroll in a My Social Security account. This account login link contains your Social Security and Medicare account information. All information is there for your review.

Step 2: Enroll in a Medicare Supplement Policy after you receive your Medicare Card

     The Federal Government has many plans that are reviewed and chosen by each State’s Department of Insurance. As an example, three plans are offered in the State of Georgia. The Medicare Supplement policy (also known as a Medigap Policy) will help to cover most of your out of pocket expenses that are not covered by Original Medicare. This coverage helps to supplement your Original Medicare benefits. Remember, if you wish to change Medigap Plans during open enrollment, you will be required to go through medical underwriting. If you have had a health event, then you may not qualify for an upgraded or change in coverage. There will be a monthly premium for this coverage.

Step 3: Part D: Prescription Plan Coverage

     Go to medicare.gov for Part D Drug coverage to see options available to you. Have all medications and the dosages available when you set up this coverage. Many different options are available to you through many different carriers. Chose a premium and deductible that fits your needs. 

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Explaining Social Security Benefits!

     The United States Social Security Administration is an independent agency of the U.S. Federal Government that administers Social Security, a social insurance program consisting of retirement, disability, and survivors’ benefits.

     Social Security is a federal government program that provides a source of income for you or your legal dependents (spouse, children, or parents) if you qualify for benefits.

     You need a Social Security number to get a job.  The easiest way to get a Social Security number for your child is at the hospital after they are born, and when you give information for your child’s birth certificate.

     While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to those who are currently retired, to people with disabilities, and to the surviving spouses and children of workers who have died. Each year you work, you will get credits to help you become eligible for benefits when it is time for you to retire. 

     When you wish to apply for Social Security benefits, you need to determine your Full Retirement Age (FRA). As an example, if you were born between January 2, 1943 and January 1, 1955, your full retirement age is 66 years and 2 months.

     If you are younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits.

     If you work and are full retirement age or older, you may keep all of your benefits, no matter how much you earn.

     If you work for someone else, only your wages count toward Social Security’s earnings limits. If you are self-employed, you count only your net earnings from self-employment.

     You need to discuss when to begin Social Security benefits with your Financial Advisor. This will have an impact on any draw down of Retirement assets that may be available.

Allina Bell
Financial Advisor, Capital Investment Services
Financial Advisor, RJFS 

 Any opinions are those of Allina Bell and not necessarily those of Raymond James. This material is being provided for information purposes only. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

December 20, 2019

       Make no mistake about it, building wealth is the primary goal. Clients tend to focus on accumulating pools of money each for a specific purpose when in reality it is all about building wealth by growing overall net worth. It is important for investors to use a variety of account types in an effort to better prepare for life events whether it be a blessing or a storm. An efficient financial structure includes an emergency fund which normally is a savings account, an operating fund which is normally in a checking account, and a retirement account which is normally a workplace retirement account like a 401(k). To optimize savings for retirement, many often include either a traditional IRA or a ROTH IRA. I find that many people stop at this point of optimization; however, there is one very important piece missing. In an effort to truly optimize, one should consider having a separate non-qualified investment account that uses the principles of systematic investing. The major advantage of this type of account is liquidity of funds should one of life’s storms blow your way. Another advantage is if you have been blessed with discretionary income it allows you to accumulate wealth in a systematic way. At the end of the day though, it simply provides flexibility.

       Practicing financial discipline is not easy. We are in a society that is consumption driven; however, to create greater wealth, investors need to save regularly and invest those savings in growth-based strategies. The first point to consider in beginning a process of building wealth is “living within your means”. Simply put– your income must be more that your outflow! The positive difference between your income and your outflow is the funds that can be allocated to a systematic investing strategy. Remember, the primary goal is to build wealth which first starts with financial discipline.

       Why systematic investing? Individual investors are typically concerned with two primary risks:

(1) The risk of market volatility.

(2) The risk of market timing.

These two risks can be minimized through a strategy of systematically investing. A strategy of this nature is centered on two key principles and both are critical to achieve the goal. The first principle, being disciplined to regular deposits monthly, is important. This sets up a structure to get the funds into an investment account. This also allows for compounding interest to work more efficiently for you over time. The second principle is having a cost-efficient fund strategy for diversification that is designed around a specific risk profile. It is essential to have the deposits invested immediately in the strategy through different market cycles and to keep these funds in high volume securities that are traded daily to provide liquidity when needed. It is also important to have the dividends, or interest income, reinvest into the strategy as they are paid out.

       A dollar cost averaging approach aids in helping to counter large swings in market volatility. It eliminates the need for you to time your investments in the market. There is a smoothing effect that minimizes the impact of market fluctuations, therefore reducing one of the primary risks of investing in volatile markets. With this approach, an investor does not have to worry about when to invest nor how much to invest which minimizes the effects of emotional investing as well.

“While there is no one best system, there is one that works best for you. Once you choose a system, you need to stick with it.” –Warren Buffett

Bobby Lumpkin

Managing Partner, Capital Investment Services

Founder, investingsimply

Financial Advisor, RJFS

Any opinions are those of Bobby Lumpkin and not necessarily those of Raymond James. This material is being provided for information purposes only. Dollar-cost averaging and systematic investing cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low-price levels. Diversification and asset allocation do not ensure a profit or protect against a loss. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Dividends are not guaranteed and must be authorized by the company’s board of directors.

December 10, 2019

The old saying, “Don’t put off until tomorrow what you can do today,” is very true for participating in a company sponsored 401k.

The most important thing that millennials have is time. Investing over time allows you to take advantage of what Albert Einstein called “the 8th wonder of the world”- compound interest. If you were given the choice between $1 million dollars today, verses one cent that compounded every day for 30 days, which would you choose? If you chose the 0.01 you would have chosen well and earned a whopping $5,368,709.12! Now you are most likely not going to find an investment that will compound itself daily, but the concept still applies.

Participating in a retirement account provides you with so many benefits which include tax deferral (“free money”), retirement savings, and financial discipline. For starters, it allows you to defer paying taxes now, allowing those funds to grow and earn interest and then be taxed upon distribution at a later time in retirement. When I have met with individuals fresh in their job, they feel like they couldn’t afford to put $50 a paycheck away. But know this, your $50 contribution is not taxed, so your take-home amount would not be less $50, it would feel more like $35 less. I recommend two things when it comes to knowing how much money to defer. First, if your company offers a match, you should take advantage of that. For instance, if they matched your contribution of 4% up to 4%, the total monies actually being invested on your behalf would be 8%! Don’t leave money on the table! A company match is a benefit assessed as part of your total compensation package that your employer has obligated to you. All you have to do is commit to saving for your retirement and defer.  

Second, when it comes to knowing how much to defer, a good rule is to start smaller and then gradually increase your percentage. I have seen people over commit in their saving initially, and then completely stop contributing all together, rather than reducing. The human psychology of money is a very intriguing character. If you have the motivation to fire-and-forget, the deferral becomes out-of-sight, out-of-mind monies. I like to tell our clients to not even think about this account as an access of funds for everyday use. Of course, you need to review on some sort of schedule, but you should treat qualified funds as untouchable. There are penalties and restrictions on early withdrawal of funds held in a 401(k).

Between qualified and non-qualified savings, it is strongly suggested that you save around 15% of your annual income for retirement. At this point, it is undetermined what benefits will be available to younger generations regarding social security, so it is important that you are financially disciplined to save for your own future. Participating in a 401(k) is a perfect opportunity to begin to become financially disciplined by establishing a plan to save for retirement by systematizing your contributions on a regular, payroll basis.
There are other means to save for retirement, such as IRA’s, Roth IRA’s, and non-qualified savings; however, tax deferral through a 401(k) would be the most advantageous in reducing your taxable income, the availability of contributing more to a qualified account and the potential to receive a match from a participating employer. 

Just remember, the most important part of building retirement savings is to actually start saving!

Cindy Little
Financial Advisor
Capital Investment Services

Any opinions are those of Cindy Little and not necessarily those of Raymond James.
This material is being provided for information purposes only.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 ½, may be subject to a 10% federal tax penalty. Matching contributions from your employer may be subject to a vesting schedule.