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3 Reasons Municipal Bonds are Darlings of the Year

 While bond returns have astounded investors so far this year, many are left scratching their heads wondering if interest rates are ever going to rise creating the “Bond Armageddon” that has been so highly anticipated.  On November 17th the Barclays US Aggregate Bond index total return has returned 5.13% year-to-date1.  While that is certainly an attractive return on something that was destined to be down this year, municipal bonds have astounded even more.  As of November 17th the Barclays Municipal total return index1 has experienced a cool 8.06% return.  Is it time then to give up on municipal bonds after this return that seems like it should be unreal?  The short answer is no.

Why not to give up on municipal bonds

The municipal bond market offers three unique traits that continue to make it attractive. 

1. Taxes:  Paying taxes are always a concern for investors, so the tax advantaged nature of municipal bonds continue to make them attractive, especially as tax rates increase for the wealthy.

2. Supply is limited:  The chart below demonstrates how the number of municipal bonds available to purchase is getting smaller.  The light teal bar below zero shows the amount of bonds each month that have been redeemed (called away or matured giving the investor their principal back).  The purple bar above shows the number of new bonds being issued each month.  The blue line shows the net number of issues or redemptions (number of new issues subtracting the number of redemptions).  In most months over 2012 and 2013, the number is negative meaning the number of bonds out there for investors to purchase is getting smaller.  A limited supply with demand that stays steady or increases can create positive returns for bondholders.

Source: Columbia Management

3. Yields: When comparing two bonds of similar quality (bond rating) and the municipal bond is yielding about the same or more and the interest is tax free2, which bond would you choose?  Many investors have made that very same decision.

Three main things to consider before investing in municipal bonds:

  • May provide a lower yield than comparable investments
  • Are likely not suitable for investors who do not stand to benefit from the tax advantages
  • Are subject to certain risks, including interest rate, credit, legislative, reinvestment and valuation risks

As with any investment, the decision to own municipal bonds is not one to be taken lightly.  As always don’t hesitate to ask us to see if they make sense for your portfolio. 

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

1: Source: Morningstar Direct. Barclays US Aggregate Bond Index represents investment grade bonds being traded in United States. Barclays Municipal total return index represents the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. Individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

2: Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes. Income from taxable municipal bonds is subject to federal income taxation; and it may be subject to state and local taxes. Please consult an income tax professional to assess the impact of holding such securities on your tax liability.

The market value of municipal bonds may fluctuate and, if sold prior to maturity, the price you receive may be more or less than the original purchase price or maturity value. There is an inverse relationship between interest rate movements and fixed income prices. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. C14-036843


The 3 Biggest Risks to Caregivers

 November is National Caregiver’s Month.  According to the Caregiver Action Network (CAN), there are over 90 million family caregivers in the United States; that is about 39% of all adult Americans that are caring for a loved one who is sick or disabled.  Being a caregiver is a difficult job – one that carries many risks.

Caregivers sacrifice of themselves on every level in an effort to care for those they love, but often at a great cost to their health, well-being and financial situation. 

Biggest Risks to Caregivers:

(1)   Risk to Health:  According to a 1999 study in the Journal of the American Medical Association, highly strained family caregivers are at risk for premature mortality (Schulz & Beach, 1999). Other studies indicate that caregivers are at risk for increased mortality, coronary heart disease and stroke, particularly under conditions of high strain.  Take Action:  Make sure you are eating right, exercising and addressing your own medical conditions.  This may mean asking other friends, family or professional caregivers for assistance.

(2)   Risk to Well-Being:  Mental health and balanced life are at risk when caregivers focus more upon their loved ones than themselves.  Unfortunately, not taking the time to rest and rejuvenate – to take a mental break and enjoy one’s own interests – can cause major mental, emotional and medical stress to the caregiver, making them unavailable to care for their loved ones.  Take Action:  Seek out caregiver support groups in your local community and/or with condition-specific organizations, talk to friends and family to seek support, and make sure you take time to do things to care for you (seek spiritual support, write/blog about your journey, etc.).

(3)   Risk to Finances:  According to the National Alliance for Caregiving and Evercare, nearly half of working caregivers report that caregiving expenses have depleted most – or even all – of their savings.  Individuals are sacrificing their own financial security and future retirement in their caregiving role.  Take Action:  Seek the services of professionals to form a strategy for paying for your loved one’s care, as well as planning your own current and future financial needs.  Your professional team should include a CERTIFIED FINANCIAL PLANNER™, a CPA and an Estate Planning Attorney (possibly one who specializes in Elder Law). 

If you or someone you know is a caregiver, taking action to address these 3 risks is necessary to maintain health, sanity and well-being.  If you have questions regarding resources for caregivers or professional resources for elder care planning, please contact me.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Consult a legal professional for any legal matters. C14-038184


An Easy Guide to Year-End Tax Planning

 With the end of the year fast approaching, tax planning is top of mind for many clients.  At The Center, we are proactive throughout the entire year when it comes to evaluating a client’s current and projected tax situation, but now is typically the time most people really start thinking about it.  We like to share this simple checklist that we feel is very user friendly and a good guide to evaluating your tax situation for the year.  Let’s be honest, does anyone feel like they don’t pay ENOUGH tax?  Most clients want to lower their tax bill and be as efficient with their dollars as possible. 

Questions to Consider

Here are some questions we ask clients that could ultimately help save money at tax time:

  • Are you currently maximizing your company retirement account (401k, 403b, Simple IRA, SEP-IRA, etc.)?
    • These plans allow for the largest contributions and are deductible against income
      • In our eyes, this is often the most favorable way to reduce taxes because it also goes towards funding your retirement goals! 
  • How are you making charitable donations?  Are you writing checks or gifting appreciated securities?
    • Gifting appreciated securities to charity allows you to avoid paying capital gains but still receive a charitable deduction – a pretty good deal if you ask me!
      • Donor Advised Funds are a great way to facilitate this transfer and are becoming increasingly popular lately because of the ease of use and flexibility they provide for those who are charitably inclined – take a look at Matt Trujillo’s recent blog on this great tool.

  • Should I be contributing to an IRA?  If so, should I put money in a Traditional or Roth?
    • These are fantastic tools to help fund medical and dependent care costs in a tax-efficient manner
      • HSAs can only be used, however, if you are covered under a high-deductible health plan and FSAs are “use it or lose it” plans, meaning money contributed into the account is lost if it’s not used throughout the year – take a look at the blog I wrote earlier this year that goes into greater detail on the advantages and disadvantages of HSAs and FSAs

This is a busy time of year for everyone.  Between holiday shopping, traveling, spending time with family, and completing year-end tasks at work, taxes can get lost in the shuffle.  We encourage you to check out the link we’ve provided that will hopefully give you some guidance with your personal tax situation.  Although we are not CPAs, tax planning is something we feel is extremely important.  We would love to hear from you if you have any questions or ideas you’d like to discuss with us!

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. C14-037860


Our Gold Medal Standard: The Center’s Investment Scorecard Review

 I’m always amazed by the almost superhuman springs, twists, turns, and flips gymnasts are able to perform with grace and precision.  Who could forget Kerri Strug’s seemingly impossible vault of handsprings, twisting dismount, and a perfect landing just seconds after tearing two ligaments on her ankle?  Watching from home, I remember anxiously waiting as the judges reviewed her vault with a fine-tooth comb; evaluating the form, height, length, and landing of her performance.  To my excitement, Kerri received winning scores and managed to catapult the 1996 US Olympic women’s gymnastics team to gold medal victory.

Giving Investments the Fine-Tooth Comb Treatment

Similarly, we aim to build model portfolios with “gold medal” worthy investments that are equipped to meet your goals even through adverse circumstances.  We too, like Olympic judges, evaluate each investment with a fine-tooth comb making sure it meets its purpose in your portfolios.  In fact, we routinely complete a seventeen-point criteria review of our model investments.  Our investment department team fondly refers to this process as the Morningstar Direct Fiduciary Scorecard Review.  For the review, we assess the following:

Performance and Volatility
We look at performance, risk-adjusted performance (alpha), and the volatility of the investment compared to the market (beta) for 1, 3, 5, and 10-year periods.  In order for investments to receive points for these metrics, they must place above 50% of comparable peers.  For these categories, score points are more heavily weighted towards the longer periods of time with the intent of crediting investments that consistently produce over long stretches of time.

Tenure and Inception
We want your investments to be managed with the wisdom of experience and we want investments that have shown they’re able to adapt through different parts of a market cycle, therefore, we review manager tenure and product inception.

Size and Style
We evaluate the investment’s size and style to identify whether the investment has grown too large to maintain its investment strategy and integrity or whether an investment is too small to keep resources robust (i.e. research, analysts, etc.).

We evaluate investment expenses so performance is not watered down by excessive fees.

Once scores have been tallied by the investment department team, our investment committee talks through each investment to determine whether it meets the gold medal standard.

We want to ensure your portfolio investments can perform through the springs, twist, turns, and flips of any market cycle with grace and precision.  The Morningstar Direct Fiduciary Scorecard Review is just one of the many ways we stress test your portfolios.  After all, due diligence is one of the key ingredients to maintaining our investment process and ensuring that we are investing your portfolios in the best products. So, the next time you review your portfolio, imagine each investment being able to do this gold winning move through even the toughest circumstances.

Investing involves risk and investors may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-035970


The Strategy Behind Investment Allocation for 529 Savings Plans

 529 plans can be a great way for families to create college tuition savings for their students.  Not only do the plans benefit students, they also carry advantages for donors. Benefactors can enjoy tax-deferred growth with federally tax-free distributions (when distributions are paid directly to the beneficiary’s college).  Donors have complete control of the account, they are allowed to make substantial deposits, and there aren’t age restrictions or income limitations to inhibit investing.  It’s no surprise 529 savings plans have become popular over the years.

Age-Based 529 plans

Ever wonder how 529 college savings plans are invested to meet timely tuition needs?  Age-based 529 savings plans are a helpful place to gain insight.  The graph below shows an example of the glide path of equity allocation for age-based 529 savings plans from 2010 to 2013.


According to this chart, we see the following:

  • Generally, 80% of the portfolio is invested in equities at age 0 and reduces to 10% by the time the beneficiary is enrolled in college. 
  • Since 2010, plan investment managers have become more conservative in the beginning (age 0) and end (age 19) stages of plans.
  • Investment managers have become 6-7% more equity aggressive during ages 5-15 to meet tuition goals. 

529 Managers Make More Aggressive Move

To meet the tuition needs of students in adequate time frames, the graph trend reveals that investment managers are becoming more aggressive during the middle of a student’s investment time horizon, but they are also growing more cautious about preserving money closer to the end of the student’s investment time frame.  Interestingly, the graph also reveals that investment managers still rely on bonds as one of the safest places to preserve money (90% of the portfolio by age 19) despite the negative reputation bonds have received in our current rising rate environment.

As always, we are more than willing to support your investment needs.  If you have questions about 529 plans or are considering adding one to your investment strategy, don’t hesitate to reach out; we’d love to help.

Rules and laws governing 529 plans are varied and subject to change. There is a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Before investing, it is important to consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Investors should consult a tax advisor about any state tax considerations of an investment in a 529 plan before investing. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. C14-035968