Articles for January 2015

Pension Plans & Derisking

Corporations are transferring pension liabilities to third parties.  Where does this leave retirees?

A new phrase has made its way into the contemporary financial jargon: derisking. Anyone with assets in an old-school pension plan should know what that phrase signifies.

The derisking trend began in 2012. In that year, Ford Motor Co. made a controversial offer to its retirees and ex-employees: it asked them if they wanted to take their pensions as lump sums rather than monthly payments. Basically, Ford realized it could someday owe these former workers more than its pension plan could pay out. The move was clearly motivated by the bottom line, and other corporations quickly imitated it.1

If you work for a major employer that sponsors a pension plan, you may soon face this choice if you haven’t already. By handing over longstanding pension liabilities to a third party (i.e., a major insurance company), the pension plan sponsor unloads a risky financial obligation.

In theory, retired employees tended this kind of offer gain added flexibility when it comes to their pension: a lot of money now, or monthly payments from the insurer for years to come. Does the lump sum constitute a sweet deal for the retiree? Not necessarily.

If you are offered a lump sum pension payment, should you accept it? Making this kind of pension decision is akin to deciding when to claim Social Security – you’ve got to look at many variables beforehand. Whatever choice you make will likely be irrevocable.2

What’s the case for rejecting a lump sum offer? You can express it in three words: lifetime income stream. Do you really want to forego decades of scheduled pension payments to take (potentially) less money now? You could possibly create an income stream off of the lump sum, of course – but why go through the rigmarole of that if you’re already getting monthly checks to begin with?

As American longevity is increasing, you may spend 20, 30, or even 40 years retired. If you are risk-averse and healthy, turning down decades of consistent income may have little appeal. Moreover, if you are female you have a decent chance of living into your nineties – and an income stream intended to last as long as you do sounds pretty nice, doesn’t it? If you are single or your spouse has very little in the way of assets, this too reinforces the argument for keeping the payment stream in place.

Also, maybe you just like the way things are going. If you don’t want the responsibility that goes with reinvesting a huge sum of money, you aren’t alone.

What’s the argument for taking a lump sum? Sometimes a salaried retiree is in poor health or facing a money problem. If this is your situation, then it may make sense to claim more of your pension dollars now.

On the other hand, you may elect to take the lump sum out of opportunity. You may base your choice on timing rather than time.

If you want to build more retirement savings, taking the lump sum might be instrumental. Pension payments are rarely inflation-adjusted; maybe you would like to invest your pension money so it can potentially grow and compound for more years before being withdrawn. Maybe your spouse gets significant pension income, or you are so affluent that the pension income you get is nice but not necessary; if so, perhaps you want to redirect that lump sum toward some other financial objective. Maybe you don’t want regular income payments this year or next because that money would put you into a higher tax bracket.3

The key is to avoid taking possession of the lump sum yourself. If you do that, your former employer has to withhold 20% of the lump sum (per IRS regulations) and you risk a taxable event. Instead, you may want to arrange a direct rollover, or trustee-to-trustee transfer, of the assets to avoid withholding and a huge tax bill. Through this move, the funds can be transferred to an IRA for reinvestment. In most cases, you need to leave your job (i.e., retire) before you can roll money out of a pension plan.4

Consult a financial professional about your options. If you do feel you should take the lump sum, talk to someone before you make your move. If the move makes sense, that professional may offer to help you invest the money in a way that makes sense for your near-term and long-term objectives, your risk tolerance, your estate and your income taxes. If you feel monthly payments from the usual joint-and-survivor pension might be the better choice, ask if some model scenarios might be might presented for you.

 Mike Moffitt may be reached at ph. 641-782-5577 or email:  mikem@cgfiowa.com 

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/nucxdss [11/23/14]

2 – forbes.com/sites/mikehelveston/2014/04/10/the-big-pension-decision-should-you-choose-a-lump-sum-or-monthly-annuity-payments/ [4/10/14]

3 – consumerreports.org/cro/2014/03/best-pension-payout-option/index.htm [3/14]

4 – nerdwallet.com/blog/investing/2014/rollover-ira/ [9/7/14]

 

Using CRUTs & CRATs to Sell Your Business Interest

These estate planning tools may also help in exit planning.

Discover a pair of underappreciated exit planning vehicles. Charitable remainder unit trusts (CRUTs) and charitable remainder annuity trusts (CRATs) are commonly seen as estate planning tools. What frequently goes unseen is their value in exit planning for business owners.

Does it look like you will sell your company to a third party? Do your “second act” or “third act” goals include financial independence, philanthropy and leaving significant wealth for your heirs? If you find yourself answering “yes” to these questions, a CRUT or CRAT may help you address those objectives and potentially enhance your outcome.

CRUTs & CRATs are variations of charitable remainder trusts (CRTs). A CRT is an irrevocable tax-exempt trust that you can fund with highly appreciated C corporation stock (or optionally, other types of highly appreciated assets). Since CRTs are irrevocable, they are difficult to undo.

How do you sell your ownership interest through a CRUT or CRAT? As the trust creator (or grantor), you donate said C corp stock to the CRUT or CRAT. Because the trust is tax-exempt, it can sell those highly appreciated C corp shares without triggering immediate capital gains tax.1

The CRUT or CRAT sells your ownership shares to the outside buyer of your company, and it becomes your tax-exempt retirement fund. It invests the cash realized from the sale of your ownership shares in either fixed-income or growth securities; it provides you with recurring payments out of the trust principal, which occur for X number of years or for the duration of your life (or even longer). Payout is mostly fixed – once determined, the percentage of the trust which the annuity is tied cannot be changed and you cannot access the principal. The payments can even go to people other than yourself – they can optionally go to your parents, they could go to your grandkids.1,2

You are offered another tax break as well. You can take a one-time charitable income tax deduction for the value of the donation used to fund the trust (i.e., a tax deduction applicable in the current tax year). This demands an appraisal of the highly appreciated assets being donated to the CRUT or CRAT, obviously. The deduction amount also depends on calculations using IRS life expectancy tables, the term of the trust, interest rates, and payout schedules and amounts.1,3

On one level, a CRUT or CRAT is an agreement you make with the IRS. In exchange for all these tax perks, you agree to give 10% or more of the initial value of the CRUT or CRAT to a qualified charity or non-profit organization. Many CRUT or CRAT grantors intend to leave no more than that to charity.2

When the grantor passes away, a last tax break occurs. While 100% of the trust assets now become part of his or her taxable estate, the estate may take a deduction for the remainder interest that goes to the qualified charity or non-profit.3

Some CRUT and CRAT grantors strategize to offset the eventual gifting of 10% (or more) of trust assets. They have the beneficiaries of the CRUT or CRAT fund an irrevocable life insurance trust (ILIT). When the grantor passes away, they receive insurance proceeds sufficient to replace the “lost” wealth. Since the ILIT owns the life insurance policy, the life insurance payout isn’t included in the taxable estate of the deceased and it isn’t subject to transfer taxes.3

What’s the fundamental difference between a CRUT & a CRAT? The difference concerns the recurring payments out of the trust to the grantor. In a CRUT, those payments represent a percentage of the fair market value of the principal of the trust (and that principal is revalued annually). There is investment risk involved in CRUTs. Should the value of the underlying investment go down significantly, your annuity income can go down as well. In a CRAT, they represent a fixed percentage of the initial value of the principal.1

Older business owners may find the CRAT is a more appealing choice, while younger business owners may be more attracted to the CRUT. Yearly distributions from a CRUT must amount to at least 5% and no more than 50% of the trust principal revalued annually. Yearly distributions from a CRAT must come to at least 5% but no more than 50% of the initial value of the donated assets.1,3

Can an owner fund a CRUT or CRAT with S corp shares? No. A charitable remainder trust can’t serve as a shareholder in an S corp, so if you donate S corp stock to a CRT, there goes your S corp status. It should also be noted that C corp stock subject to recourse debt can’t go into a CRT.1

Are you interested in learning more? Establishing a trust can be complicated. It is important to talk to a legal, financial, or tax professional about the potential of CRUTs and CRATs. What you learn may lead you toward a better outcome for your business.

Mike Moffitt may be reached at ph. 641-782-5577 or email: mikem@cfgiowa.com.

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – arne-co.com/selling-business-using-crt/ [11/18/14]

2 – forbes.com/sites/ashleaebeling/2013/08/14/charitable-shelter-how-cruts-cut-capital-gains-tax/ [8/14/13]

3 – bbt.com/bbtdotcom/wealth/retirement-and-planning/trusts-and-estates/charitable-remainder-trusts.page [11/18/14]

 

 

 

An Alert for People Who Use CDs for Their IRAs

A recent tax court ruling now limits the frequency of IRA rollovers.

Do you like to shop around online for the best CD rates? Do you have a habit of moving certificates of deposit from bank to bank in pursuit of better yields? If you do, you should be aware of an obscure but important IRS decision, one that could directly impact any IRA CDs you own.

Pay attention to the new, tighter restrictions on 60-day IRA rollovers. This is when you take possession of some or all of the assets from a traditional IRA you own and deposit them into another traditional IRA (or for that matter, the same traditional IRA) within 60 days. By making this tax-savvy move, you exclude the amount of the IRA distribution from your gross income.1

For decades, the IRS had a rule prohibiting multiple tax-free rollovers from the same traditional IRA within a 12-month period. For example, an individual couldn’t make an IRA-to-IRA rollover in November and then do another one in March of the following year using the same IRA.1

This didn’t present much of a dilemma for people who owned more than one IRA, of course. If they owned five traditional IRAs, they could potentially make five such tax-free rollovers in a 12-month period, one per each IRA. Internal Revenue Code Section 408(d)(3) allowed that.1,2

Those days are over. Thanks to a 2014 U.S. Tax Court ruling (Bobrow v. Commissioner, T.C. Memo. 2014-21), the once-a-year rollover restriction will apply to all IRAs owned by an individual starting January 1, 2015. This year, you’ll be able to make a maximum of one tax-free IRA-to-IRA rollover, regardless of how many IRAs you own.1

If you have multiple IRA CDs maturing, you could risk breaking the new IRS rule. When a CD matures, what happens? Your bank cuts you a check, and you reinvest or redeposit the money.

When this happens with an IRA CD, your goal is to make that tax-free IRA-to-IRA rollover within 60 days. In accepting the check from the bank, you touch those IRA assets. If you fail to roll them over by the 60-day deadline, those IRA assets in your possession constitute taxable income.3

So if the new rules say you can only make one tax-free IRA-to-IRA rollover every 12 months, what happens if you have three IRA CDs maturing in 2015? What happens with the two IRA CDs where you can’t make a tax-exempt rollover?

Here is how things could play out for you. You could end up with much more taxable income than you anticipate: the money leaving the two other IRA CDs would constitute IRA distributions and be included in your gross income. If you are not yet age 59½, you could also be hit with the 10% penalty on early IRA withdrawals.3,4

Is there a way out of this dilemma? Yes. This new IRS rule doesn’t apply to trustee-to-trustee transfers of IRA assets. A trustee-to-trustee transfer is when the financial company hosting your IRA arranges a payment directly from your IRA to either another IRA or another type of retirement plan. So as long as the bank (or brokerage) serving as the custodian of your IRA CD arranges such a transfer, no taxable event will occur.3

Speaking of things that won’t change in 2015, two very nice allowances will remain in place for IRA owners. You will still be able to make an unlimited amount of trustee-to-trustee transfers between IRAs in a year, as well as an unlimited number of Roth IRA conversions per year.1

Mike Moffitt may be reached at ph. 641-782-5577 or mikem@cfgiowa.com.

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion form a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.

1 – irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule [5/14/14]

2 – bna.com/announcement-clarifies-inconsistency-b17179889881/ [4/24/14]

3 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Rollovers-of-Retirement-Plan-and-IRA-Distributions [4/21/14]

4 – bankrate.com/financing/cd-rates/cd-ira-owners-beware-of-new-rule/ [9/2/14]

 

 

 

 

What Affects Oil Prices

While doing your holiday shopping this year, you may have noticed something strange going on. Suddenly, you had more money to spend than you did this time last year. A Christmas miracle? Perhaps, but more likely it’s due to the massive drop in oil prices.

Even if you didn’t do any shopping, you’ve probably noticed that prices at the pump are lower than they’ve been in years. Consumers all over the country are rejoicing in fact that filling up their care isn’t quite as emptying on their wallet. My clients have been no exception, but they’re also wondering, “Why?”

It’s a great question. Why exactly are oil prices falling? And what does it mean for the markets?

Read on to find out.

Oil prices 101

Contrary to popular belief, the price of oil isn’t set by any one man or entity. Oil prices are dictated by two things: the law of supply and demand, and by the expectation of future supply and demand. The former is fairly easy to understand. When the demand for oil is greater than the supply, the price rises. Conversely, when the supply of oil is greater than the demand for it, prices drop. This is partially what’s happening now. Partially.

You see, current supply and demand is not the only thing driving oil prices. As I mentioned, expected supply and demand plays a large role, too. In this case, when the expectation is that future demand will decrease, oil prices fall as a result.

Who sets these expectations? Speculators. A speculator is defined as:

“A person who trades derivatives, commodities, bonds, equities or currencies with a higher-than-average risk in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, in the hope of making quick, large gains.”1

Basically, speculators are a special breed of investors who try to project whether the value of a commodity will rise or fall in the future, then either buy or sell that commodity accordingly.

In this case, speculators felt earlier in the year that the demand for oil would drop for several reasons:

  • The continued economic weakness around the world means less people are traveling or commuting, meaning they are spending less on gasoline.
  • While oil is still the world’s primary fuel source, more people and businesses are turning to other forms of energy.
  • The supply of oil would remain stable or even increase.

This last point is important. Several of the various oil-exporting nations around the world could still take steps to raise prices if they wanted to.   How? By cutting back on their own production. (Remember, when supply goes down, demand goes up, thus raising prices.) But none of these nations are taking the bait. The two main players are Saudi Arabia and Russia. Saudi Arabia is the most influential member of OPEC, the Organization of Petroleum Exporting Countries. Saudi Arabia has refused to cut oil production despite the fact that the world’s supply far outpaces the demand for it. Why? Because if oil prices were to rise, it would benefit several of Saudi Arabia’s main competitors, especially the United States, Russia, and Iran, who all need higher prices to turn a profit. Saudi Arabia, on the other hand, can survive on lower oil prices because of their massive cash reserves, and because extracting oil is far less costly for them. This means that lower oil prices harm their competitors while leaving them unscathed, allowing them to dominate more of the market.

Russia has also refused to cut production, despite the fact that falling prices is severely hurting their economy. (More on this in a moment.) Russia reasons that if they cut production, the countries they normally export to would increase their own production and have no need for Russian oil in the future.

So there you have it: a few reasons why oil prices have fallen so dramatically. But what does the future hold? And what does this all mean for the markets?

How Falling Oil Prices Affect the Markets

As you already know, falling oil prices means lower prices at the gas station. But oil prices aren’t the only thing dropping.

When the price of oil falls, it takes everything dependent on oil prices with it. Take Russia, for instance. Some economists estimate that Russia loses about $2 billon in revenue every time the price of oil drops by a dollar. That’s because the sale of oil and gas makes up 70% of its export income.2 This in turn affects the value of the ruble, Russia’s currency, which is veering on the edge of collapse. A falling ruble, meanwhile, hurts bonds and other positions investing in emerging markets, of which Russia is one.

Closer to home, falling oil prices makes life harder for energy companies and companies closely aligned with the energy industry. The result: falling stock prices, which leads to market volatility as a whole. The United States markets got a taste of this in early December. Oil shock hit Canada even harder, thanks to the sheer number of Canadian energy companies trading on the markets. In this global economy, economic stress in one region usually leads to a tremor in another. And one person’s good fortune can be another’s bad luck.

But Here’s the Good News

With that said, I believe the overall impact of falling oil prices is a positive one. Whether you’re at the pump or paying your monthly heating bill, the numbers have to make you smile.

For the most part, spending less money on energy consumption is a good thing! It’s good for consumers and it’s good for the overall economy. After all, less money spent on gas means more spent on other goods and services, thereby pumping additional money into other sectors of the economy. This creates a kind of “rising tide that lifts all boats” effect.

The volatility I mentioned earlier has largely subsided as investors get used to the idea of cheaper oil. Since then, the markets have been surging. As of this writing, the Dow has topped 18,000 for the first time in history, and the S&P 500 is trading at an all-time high as well.3 Investors are realizing that the money they aren’t spending on gas can be put to good use. Furthermore, the United States’ overall economy is looking healthier, having grown 5% in the third quarter.4 And the holiday season—the “Santa Claus” rally, as some call it—is almost always a wonderful time for the markets. The end of the year looks to be a good one.

Where Does Oil Go from Here?

It’s almost impossible to know for sure what oil prices will do in 2015. There are just too many factors in play—economic, environmental, and geopolitical. (Friendly tip: if you are ever looking for an effective sedative, just start reading crude oil forecast reports. Works like a charm.) That said, most of the estimates I’ve seen suggest prices will likely rise somewhat in 2015, but remain far below what they were in early 2014 when oil was selling for over $100 a barrel.5 That means cheaper oil for the immediate future. To celebrate, I want you to do two things for me:

  1. Enjoy cheap(er) gas for as long as it lasts! Maybe go on that road trip you’ve always wanted to take … just don’t forget to send me pictures!
  2. Remember that my team and I are always watching the markets—and your portfolio—carefully. If we see any major developments, we’ll certainly let you know.

Understanding the ins and outs of oil prices can be difficult even for those who do it for a living. I hope this made the situation a little clearer! But if you have any questions about this or any other topic, please don’t hesitate to let me know. I always enjoy hearing from you.

On behalf of all of us here at Cornerstone Financial Group, have a Happy New Year!

Mike Moffitt may be reached at 641-782-5577 or email: mikem@cfgiowa.com.

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The fast price swings in commodities will result in significant volatility in an investor’s holdings.

Resources:

1 “Definition of Speculator”, Investopedia.com, accessed December 19, 2014.http://www.investopedia.com/terms/s/speculator.asp#axzz1qtKjMwIt

2 Tim Bowler, “Falling oil prices: Who are the winners and losers?” BBC, December 16, 2014. http://www.bbc.com/news/business-29643612

3 Jesse Solomon, “Dow hits 18,000 for first time ever,” CNN Money, December 23, 2014. http://money.cnn.com/2014/12/23/investing/stocks-markets-dow-18000/

4 Matt Egan, “US economy grows incredible 5%,” CNN Money, December 23, 2014. http://money.cnn.com/2014/12/23/news/economy/us-gdp-economy-5-percent-growth/

5 “Short-Term Energy Outlook,” U.S. Energy Information Administration, December 9, 2014. http://www.eia.gov/forecasts/steo/report/prices.cfm

 

 

 

 

More Irrational Exuberance?

Has unchecked optimism inflated asset values?

“Irrational exuberance.” That phrase – uttered by Federal Reserve Chairman Alan Greenspan in 1996 and reputedly coined by economist Robert Shiller – has become part of the investment lexicon. Now and then, bears reference it – especially when the market turns red-hot.

Late last year, many Wall Street investment strategists thought the S&P 500 would advance about 5.8% in 2014. They were wrong. As 2014 ends, the broad benchmark is poised for another double-digit annual gain. Asked to explain the difference, bearish market analysts might point to irrational exuberance.1

Irrational exuberance – the run-up of asset values due to runaway enthusiasm about an asset class – reared its head catastrophically in 2000 (the tech bubble) and in 2007 (the housing bubble). In the first edition of his book of the very same title (2000), Shiller warned investors that stocks were overvalued. In the second edition of Irrational Exuberance (2005), he cautioned that real estate was overvalued. The fact that he’s trotting out a third edition of the book in 2015 was some people a little spooked. 2,3

Has quantitative easing (QE) bred irrational exuberance once again? As a 2011 Forbes.com headline put it, “Trees Don’t Grow to the Sky – Even with the Fed Behind Them.” You could argue – quite convincingly – that the Fed has propped up the stock market since 2008, and that the great gains of this bull market were primarily a result of QE1, QE2 and QE3.4

No further easing, no further gains, the logic goes (or least not gains resembling those seen in recent years).

As 2014 ends, bears insist that stocks are greatly overvalued. To back up their argument, they point to recent movements in the CAPE (Cyclically Adjusted Price-to-Earnings) or P/E 10 ratio. This closely-watched stock market barometer (created by Shiller and his fellow economist John Campbell) tracks a 10-year average of the S&P Composite’s real (inflation-adjusted) earnings.5,7

(If you’re wondering what the S&P Composite is, it is a historically wide, big-picture window on the U.S. equities market that unites data from the S&P 500 – which has only existed since 1957 – with prior S&P indices.)6

Since 1881, the P/E 10 ratio of the S&P Composite has averaged about 16.5. At the peak of the dot-com bubble in 2000, it hit 44.2. It stumbled to a low of 13.3 when the market bottomed out in March 2009, but it was up at 26.5 as December began, about 60% above its historic mean.5

Why should this concern you? This P/E 10 ratio has only topped the 25 level three times – in 1929, 1999 and 2007.7

But isn’t the market healthy & ready to stand on its own? That’s what the bulls insist, and given the S&P 500’s 2.45% rise for November following the end of QE3, they may be right. Ardent bulls contend that another secular bull market began in March 2009 – history just hasn’t confirmed its secularity yet.8

In fact, Shiller himself recently noted that even though the high P/E 10 ratio is troubling, it has been mostly above 20 since 1994. (Low bond yields may explain some of that.) A numeric gap from 26 to 20 is decidedly less alarming than one from 26 to 16.7

Whatever occurs, remember that stocks don’t always go up. (Home prices don’t always ascend either.) The longer a bull market progresses, the more challenges it overcomes, the greater the chance that this particular reality of equity investing may be lost.* While diversification does not protect against marketing risk or guarantee enhanced overall returns, it may pay to diversify your portfolio across asset classes for this very reason, now and in the future.

Mike Moffitt may be reached at ph# 641-464-2248 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

 *Stock investing involves risk including loss of principal.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   Citations.

1 – blogs.wsj.com/moneybeat/2014/11/23/a-sign-of-health-for-stocks-cautious-2015-forecasts/ [11/23/14]

2 – money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/ [1/13/05]

3 – irrationalexuberance.com/main.html?src=%2F [12/8/14]

4 – forbes.com/sites/etfchannel/2011/01/20/trees-dont-grow-to-the-sky-even-with-fed-behind-them/print/ [1/20/11]

5 – advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php [12/1/14]

6 – advisorperspectives.com/dshort/updates/Validating-the-SP-Composite.php [12/8/14]

7 – tinyurl.com/pwungau [8/18/14]

8 – online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [11/30/14]