Election 2016: Prediction and Perspective

Dear Clients--

The presidential election is tomorrow and I want to share my perspective and make a few big-picture predictions.

First and foremost, I recommend you remain invested if you are already in risk-appropriate, long-term portfolios.  For most clients, I am offering and/or using the following:

Investor Style*                       Portfolio Model**                   Strategic Asset Allocation   

Conservative                     20 Strategic III or 20 Schwab Index       20% stocks, 80% bonds

Moderately Conservative 40 Strategic III or 40 Schwab Index        40/60

Moderate                          60 Strategic III or 60 Schwab Index        60/40

Moderately Aggressive    80 Strategic III or 80 Schwab Index        80/20

Aggressive                        95 Strategic III or 95 Schwab Index        95/5

*     If you are not sure of your Investor Style, let's talk soon.

**   Strategic models are generally for tax-deferred accounts.  Schwab Index models are generally for taxable accounts.  There are several versions of the "Strategic" models, with "Strategic III" delivering my latest asset allocation and mutual fund advice. 

Perspective

·        In my 15 years as a financial advisor, I have guided clients through the end of a bear market (tech bubble, Enron, 9/11), a modest/slow recovery during a time of global conflict (war on terror), a terrible market crash (housing bubble/financial crisis), and (presently) a vigorous stock market recovery despite relatively weak economic growth.  My clients' best results have almost always been for those who remained invested and rode out the storms.

·        The "Index Chart" shows numerous global events and stock/bond market performance on a nearly century-long time line.  I believe it illustrates there is often something to rattle markets and that it is best to remain invested for the long-term.  https://static.vgcontent.info/crp/intl/auw/docs/resources/index_chart.pdf

·        This chart shows how difficult it is to time the market well enough to avoid harming long-term returns:  http://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2015-3

·        This article discusses some history of stock market reaction to presidential elections:  http://www.wsj.com/articles/postelection-blues-stocks-rise-before-elections-then-often-slow-1478488500?emailToken=JRr8fvl5Z3Seh9Y9acwk00Y0Y60FAPOIQVWSJnTXN1OJr2DSquG6gr80nNbyq26hQlx3ot0A4mUjRDrXmy92XMKX3rlxjVqiPmJZqY6BiFHUahiLzBPSJQ%3D%3Dhttp://www.wsj.com/articles/postelection-blues-stocks-rise-before-elections-then-often-slow-1478488500?emailToken=JRr8fvl5Z3Seh9Y9acwk00Y0Y60FAPOIQVWSJnTXN1OJr2DSquG6gr80nNbyq26hQlx3ot0A4mUjRDrXmy92XMKX3rlxjVqiPmJZqY6BiFHUahiLzBPSJQ%3D%3D

·        I am keeping my own retirement money invested as-is.

Predictions

·        Clinton likely to win, markets not likely to go down if she wins, could go up sharply.

o   We've had a pull-back recently and the markets seem to expect a Clinton win and don't like surprises.

·        Trump win probably means a short-term market sell-off and recovery within a few months, but probably not a bear market or a crash.

o   "Brexit" vote earlier this year is considered a predictor because of similar, and perhaps underestimated, anti-establishment and isolationist mindsets among voters in UK and USA.

Thank you, and please contact me with any questions or concerns.

--Gary

Garo Linck Partoyan

Potomac Wealth Strategies, LLC

(703) 746-8195 phone

(855) 347-9483 fax

Visit us online for helpful ideas and information!

Portfolio Model Returns through September 2016

US and Foreign Indexes		3 mo	1 yr	2 yr	3 yr	5 yr	10 yr	2008
Stock Markets (72-21-7)		4.2%	11.0%	2.3%	5.7%	11.0%	3.6%	-41.0%
S&P 500		3.3%	12.9%	4.9%	8.8%	13.9%	5.0%	-38.5%
Dow Jones Industrial Avg		2.1%	12.4%	3.7%	6.6%	10.9%	7.2%	-33.8%
MSCI EAFE		5.8%	3.5%	-4.0%	-2.2%	4.4%	-1.0%	-45.1%
MSCI EM		8.3%	14.1%	-5.2%	-2.9%	0.5%	1.5%	-54.5%
Barclays Agg Bond--US		0.5%	5.2%	4.1%	4.0%	3.1%	4.8%	5.2%
Citi WGBI nonUSD (foreign bonds)		0.6%	12.6%	2.3%	1.2%	0.2%	3.9%	10.1%
Aggressive (90% stocks-10% bonds)		3.2%	9.8%	2.1%	4.2%	9.2%	3.9%	-36.0%
95 Strategic III		3.2%	13.4%	5.8%	7.3%	12.4%	8.1%	-30.9%
95 Schwab index		4.9%	12.0%	4.9%	7.0%	12.9%	6.0%	-34.6%
95 Strategic USA II		3.4%	13.0%	6.3%	8.7%	14.7%	9.6%	-25.8%
Confluence Value Opportunities		6.5%	14.1%		17.1%	23.3%	11.7%	-22.3%
Confluence Equity Income		1.9%	21.4%		11.1%	16.5%	9.3%	-18.9%
WealthFront 9		4.5%	12.3%	2.0%	4.6%	9.7%	5.0%	-38.0%
American Funds Port Ser Growth		6.0%	12.8%	5.2%	7.7%	13.8%	6.7%	-40.8%
Moderately Aggressive (75-25)		2.8%	8.9%	2.2%	3.9%	8.1%	4.0%	-31.0%
80 Flex IV		1.8%	9.9%	1.1%	2.8%	7.0%
80 Flex V		0.9%	8.2%	1.0%	3.2%	7.7%		-16.9%
80 Strategic II		5.0%	10.1%	3.1%	4.7%	11.0%	7.1%	-30.2%
80 Strategic III		3.1%	12.6%	5.6%	7.0%	11.6%	8.0%	-27.7%
80 USA tilt		4.3%	9.6%	3.4%	5.1%	11.0%	6.8%	-28.5%
80 Schwab index		3.9%	10.9%	4.8%	6.9%	11.7%	5.9%	-30.6%
Money 75		5.1%	12.1%	4.3%	6.3%	11.1%	6.3%	-32.7%
American Funds Port Ser Gr+Inc		3.2%	12.0%	3.9%	6.3%	10.3%	5.7%	-29.6%
Moderate (60-40)		2.4%	8.1%	2.4%	3.7%	7.0%	4.1%	-25.6%
60 Flex V		0.9%	7.2%	0.9%	3.1%	7.2%		-13.1%
60 Strategic III		2.8%	11.2%	5.0%	6.3%	10.0%	7.5%	-23.3%
60 Schwab index		3.6%	9.2%	4.2%	5.4%	9.1%	5.1%	-25.6%
American Funds Port Ser Balanced		2.7%	10.3%	4.2%	6.3%	10.0%	5.8%	-28.3%
Moderately Conservative (40-60)		1.9%	6.6%	1.9%	3.0%	5.2%	4.0%	-17.4%
40 Strategic III		2.4%	9.4%	4.0%	5.1%	7.9%	7.0%	-16.4%
40 Schwab Index		2.1%	8.0%	4.3%	5.9%	8.1%	5.2%	-19.7%
Goldman Sachs Income Builder		3.2%	7.8%	1.5%	4.2%	8.8%	5.6%	-23.3%
Conservative (20-80)		1.2%	5.3%	1.8%	2.3%	3.3%	3.8%	-8.4%
20 Strategic III		1.4%	8.0%	3.2%	3.9%	5.1%	5.2%	-8.8%
20 Schwab index		0.9%	6.6%	4.0%	5.6%	6.5%	4.6%	-13.9%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies.  They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Tax Tips: 529 Contribution Deductions x 2!!

You may be able to double the amount of 529 contributions you can take as income tax deductions!

In Virginia, for example, most 529 account owners can deduct from their state income the first $4k they contribute to a Virginia 529 plan.  Great, but no deduction on any amount over $4k.  So if a family is contributing $8k/year, they only deduct $4k.  But what if...

...each parent owned their own 529?  Sure, two accounts instead of one, and maybe that's a bit of extra record-keeping.  But if Mom puts $4k into hers and Dad puts $4k into one he owns, they each can deduct $4k.

Not sure why the extra step must be taken, but this is how my tax advisor explains it.  Let me know if I can help you optimize on college savings!

Portfolio Model Returns through May 2016

Benchmark-beating results for the Strategic III, Strategic II, and Schwab Index models for most time periods out to 10 years.  These are the right strategic allocations for long-term portfolios, and I work hard to ensure the models are using best-of-breed mutual funds to implement the strategy.

Contact me to schedule review of your accounts and/or financial situation, or to arrange a consultation if you may want to hire a professional to help you.  Thank you!

US and Foreign Indexes		3 mo	1 yr	2 yr	3 yr	5 yr	10 yr	2008
Stock Markets (72-21-7)		8.3%	-4.4%	0.7%	5.6%	6.0%	3.7%	-41.0%
S&P 500		8.5%	-0.5%	4.4%	8.7%	9.3%	5.1%	-38.5%
Dow Jones Industrial Avg		7.7%	-1.2%	3.2%	5.6%	7.2%	4.8%	-33.8%
MSCI EAFE		7.0%	-12.2%	-7.7%	-0.7%	-0.8%	-0.9%	-45.1%
MSCI EM		9.1%	-19.6%	-11.4%	-7.2%	-7.1%	-0.7%	-54.5%
Barclays Agg Bond--US		1.3%	3.0%	3.0%	2.9%	3.3%	5.0%	5.2%
Citi WGBI nonUSD (foreign bonds)		3.5%	9.1%	-2.3%	0.8%	-0.5%	3.4%	10.1%
Aggressive (90% stocks-10% bonds)		8.7%	-4.0%	-0.3%	4.1%	4.6%	3.8%	-36.0%
95 Flex V		4.9%	-4.2%	-0.7%	3.8%	4.6%		-19.1%
95 Strategic III		8.2%	1.3%	3.4%	7.2%	8.2%	8.1%	-30.9%
95 Schwab index		8.8%	-2.6%	2.6%	7.4%	7.9%	6.0%	-34.6%
95 Strategic USA II		7.9%	2.1%	4.9%	9.2%	10.6%	9.8%	-25.8%
Confluence Value Opportunities								-22.3%
Confluence Equity Income								-18.9%
WealthFront 9		9.2%	-5.9%	-1.1%	3.9%	4.1%	4.8%	-38.0%
American Funds Port Ser Growth		9.8%	-3.5%	2.8%	8.1%	8.0%	6.5%	-40.8%
Moderately Aggressive (75-25)		7.5%	-3.1%	-0.1%	3.7%	4.2%	4.0%	-31.0%
80 Flex V		4.7%	-4.0%	-0.6%	3.5%	4.4%	6.5%	-16.9%
80 Strategic II		8.2%	-3.6%	0.2%	4.7%	6.7%	7.0%	-30.2%
80 Strategic III		7.5%	1.5%	3.3%	6.7%	7.8%	8.0%	-27.7%
80 USA tilt		8.1%	-2.5%	1.3%	5.3%	7.0%	6.7%	-28.5%
80 Schwab index		7.6%	-1.0%	3.0%	6.9%	7.7%	5.9%	-30.6%
Money 75		8.9%	-2.3%	1.7%	6.1%	6.5%	6.1%	-32.7%
American Funds Port Ser Gr+Inc		7.3%	-0.8%	1.7%	6.1%	6.6%	5.8%	-29.6%
Moderate (60-40)		6.3%	-2.1%	0.3%	3.3%	3.9%	4.1%	-25.6%
60 Flex V		4.3%	-3.4%	-0.4%	3.1%	4.5%	6.8%	-13.1%
60 Strategic III		6.5%	1.4%	2.8%	5.7%	6.9%	7.5%	-23.3%
60 Schwab index		6.3%	-1.4%	2.1%	5.4%	5.9%	5.1%	-25.6%
American Funds Port Ser Balanced		6.4%	-0.1%	2.5%	6.1%	6.8%	5.9%	-28.3%
Moderately Conservative (40-60)		4.7%	-0.9%	0.2%	2.6%	3.3%	4.0%	-17.4%
40 Flex V		4.2%	-2.6%	0.0%	2.9%	4.7%		-10.4%
40 Strategic III		5.2%	1.1%	2.1%	4.3%	5.8%	6.9%	-16.4%
40 Schwab Index		4.7%	1.5%	3.2%	5.1%	6.3%	5.2%	-19.7%
Goldman Sachs Income Builder		7.0%	-3.4%	-0.3%	3.4%	6.1%	5.8%	-23.3%
Conservative (20-80)		3.1%	0.3%	0.2%	1.7%	2.4%	3.8%	-8.4%
20 Flex V		3.6%	-2.2%	0.0%	2.3%	4.4%		-5.2%
20 Strategic III		3.9%	1.5%	1.5%	2.6%	3.8%	5.2%	-8.6%
20 Schwab index		3.2%	3.1%	3.7%	4.5%	5.7%	4.7%	-13.9%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies.  They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Strategic and Flex Portfolio Returns through March 2016

US and Foreign Indexes		3 mo	1 yr	2 yr	3 yr	5 yr	10 yr	2008
Stock Markets (72-21-7)		0.1%	-3.6%	1.4%	6.2%	6.0%	3.4%	-41.0%
S&P 500		0.8%	-0.4%	4.9%	9.5%	9.2%	4.8%	-38.5%
Dow Jones Industrial Avg		1.5%	-0.5%	3.7%	6.7%	7.5%	4.8%	-33.8%
MSCI EAFE		-3.7%	-10.7%	-7.1%	-0.5%	-0.6%	-1.0%	-45.1%
MSCI EM		5.4%	-14.1%	-8.3%	-6.8%	-6.5%	0.6%	-54.5%
Barclays Agg Bond--US		3.0%	2.0%	3.8%	2.5%	3.8%	4.9%	5.2%
Citi WGBI nonUSD (foreign bonds)		9.1%	7.7%	-1.4%	-0.2%	0.2%	4.0%	10.1%
Aggressive (90% stocks-10% bonds)		0.9%	-4.7%	-0.4%	4.1%	4.5%	3.4%	-36.0%
95 Flex V		1.1%	-3.9%	-0.5%	4.4%	5.0%		-19.1%
95 Strategic III		3.1%	0.3%	4.1%	7.6%	8.4%	7.9%	-30.9%
95 Schwab index		0.0%	-3.1%	2.3%	7.7%	7.9%	5.6%	-34.6%
95 Strategic USA II		3.3%	1.3%	5.8%	9.9%	10.8%	9.5%	-25.8%
Confluence Value Opportunities		3.5%	0.7%		17.6%	17.7%	12.1%	-22.3%
Confluence Equity Income		7.7%	5.1%		11.2%	12.3%	9.1%	-18.9%
WealthFront 9		1.6%	-5.0%	-0.5%	3.9%	4.2%	4.4%	-38.0%
American Funds Port Ser Growth		-0.7%	-2.7%	2.5%	8.7%	7.9%	6.1%	-40.8%
Moderately Aggressive (75-25)		1.2%	-3.7%	0.0%	3.6%	4.2%	3.7%	-31.0%
80 Flex V		1.0%	-3.7%	-0.4%	4.1%	4.8%		-16.9%
80 Strategic II		0.9%	-4.2%	0.4%	5.2%	7.0%	6.9%	-30.2%
80 Strategic III		3.0%	0.5%	4.0%	7.0%	8.1%	7.8%	-27.7%
80 USA tilt		1.0%	-3.5%	1.1%	5.8%	7.2%	6.5%	-28.5%
80 Schwab index		0.2%	-1.7%	3.0%	7.1%	7.8%	5.6%	-30.6%
Money 75		0.8%	-3.2%	1.5%	6.0%	6.4%	5.7%	-32.7%
American Funds Port Ser Gr+Inc		1.9%	-0.6%	2.5%	6.3%	6.9%	5.6%	-29.6%
Moderate (60-40)		1.5%	-2.7%	0.5%	3.1%	4.0%	3.9%	-25.6%
60 Flex V		1.0%	-2.9%	0.0%	3.6%	4.9%		-13.1%
60 Strategic III		3.0%	0.5%	3.6%	5.8%	7.2%	7.3%	-23.3%
60 Schwab index		0.8%	-2.0%	2.1%	5.4%	6.0%	4.8%	-25.6%
American Funds Port Ser Balanced		1.3%	0.1%	3.0%	6.6%	7.0%	5.7%	-28.3%
Moderately Conservative (40-60)		1.6%	-1.3%	-0.5%	2.3%	3.4%	3.9%	-17.4%
40 Flex V		1.2%	-2.1%	0.6%	3.3%	5.1%	7.4%	-10.4%
40 Strategic III		2.9%	0.4%	2.8%	4.2%	6.0%	6.8%	-16.4%
40 Schwab Index		0.7%	0.3%	3.5%	5.0%	6.5%	5.0%	-19.7%
Goldman Sachs Income Builder		0.9%	-4.5%	-0.8%	3.2%	6.0%	5.4%	-23.3%
Conservative (20-80)		2.1%	0.0%	0.6%	1.2%	2.5%	3.8%	-8.4%
20 Flex V		1.0%	-1.5%	0.8%	2.5%	4.9%		-5.2%
20 Strategic III		2.8%	0.5%	1.8%	2.1%	4.0%	5.1%	-8.6%
20 Schwab index		1.1%	1.9%	4.3%	4.4%	6.1%	4.6%	-13.9%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies.  They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Active vs. Passive Investment Management--Hartford's Take On It

While I favor "active management", the use of mutual funds that are actively-managed per research and/or rules-based methodologies, there are sensible uses for "passive management" also.  So Potomac Wealth Strategies offers both.  The Strategic and Flex portfolio models use actively-managed mutual funds, and the Schwab Index funds use passively-managed "index funds" for the stock portion and an actively-managed tax-free (federal) bond mutual fund.

The Strategic models are best for long-term investors who don't mind occasional capital gains taxes being part of their overall financial picture, and they are ideal for use in tax-deferred accounts (IRAs, 401k-type accounts, and variable annuities).

The Schwab Index models are suitable for taxable accounts (individual and joint brokerage accounts), and for folks who just are not sold on "active management".

For more on the pros and cons of active vs. passive, here is an article from Hartford.  Best-known as an insurance company, Hartford also has a family of mutual funds, some of which are excellent.

Please contact me with any questions about the portfolios I manage for you, or if you want to know more about how I may be able to help you organize, save, and invest in pursuit of your long-term financial goals.

Thank you.

--Gary Partoyan
Financial Advisor
Potomac Wealth Strategies, LLC

529--How Do Grandparents Give to Grandchildren?

(This comes right from the www.SavingForCollege.com site)

For grandparents

Instead of opening my own 529 accounts, can I just make contributions to the 529 accounts my children have already established for my grandchildren?

If the 529 plan used by your children accepts “third-party” contributions, then you may simply make your contributions to their accounts and not have to worry about opening and maintaining your own accounts. Of course, you will no longer have access to these funds since you will not be the account owner, but for many grandparents that is an entirely acceptable consequence.

To make contributions to an account owned by someone else you will need to know the account number and indicate that number on your check. For most 529 plans you should also use the contribution form that is either pre-printed than sent to the account owner or perhaps can be downloaded from the 529 plan’s web site. It would be a good idea to call the plan’s toll-free number and make sure you are following the appropriate procedures in making your contribution.

A very small number of 529 plans may not accept third-party contributions. If the parents have their own accounts in these particular 529 plans, your options are to open your own accounts or give the parents cash with the request that they place your gifts into the 529 accounts for your grandchildren.

You should be sure to understand the gift-tax consequences of your contributions to the 529 plan. Whether you contribute to accounts owned by you, or to accounts owned by the parents or someone else, your contributions are a gift from you to the account beneficiary (and a generation-skipping transfer if the beneficiary is your grandchild). For large contributions (over $14,000) you may elect on a gift-tax form to treat up to $65,000 of the contribution as made over a five-year period. This election allows you to frontload more contributions into a 529 plan without exceeding the $14,000 annual gift exclusion.

Caution: The IRS has not yet indicated whether a contribution you make to a 529 account owned by someone else will be treated as two gifts, the first from you to the account owner, and the second from the account owner to the beneficiary. Most tax practitioners believe there is only a single gift—from you to the account beneficiary—but the answer remains a bit uncertain.

State tax deductibility of your contributions is another issue you should understand. Many states provide their residents with a deduction for at least some of their contributions to the in-state 529 plan, but in several of these states you must also be the account owner in order to claim the deduction. And just because you cannot claim the deduction, as a “third-party” contributor, it does not mean that the account owner can claim the deduction.