QUARTERLY MARKET REVIEW - Q2 2018

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The US Stock Market posted a positive return, outperforming both non-US Developed and Emerging Markets in the second quarter.  The Large Cap value premium was negative for the quarter but the size premium was positive because Small Caps outperformed Large Caps.  Small Cap value outperformed all sectors, except for domestic REITs, where the value premium was also at play.  Both Developed and Emerging Markets largely remained negative for the quarter.

Bonds generally saw interests rates rise and shorter term bonds persisted to rise faster than longer dated maturities, seeing some slight continued flattening of the yield curve .  However bonds remained largely positive for the quarter with currency having some impact on unhedged international bonds.

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It’s Time to Get Serious About Your Happiness

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There’s a great quote by Jean-Paul Sartre: “We are our choices.” When it comes to our happiness and our overall success in life, that’s truer than you might have realized.

Taking time to examine the choices you make in your life and work each day and over the long term to make sure they are enhancing your well-being can do more than just make you happier. Working on enhancing happiness has actually been shown to have a tangible return on investment and can make you more successful.

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2018 Oregon Production Investment Fund Tax Credit Auction - Begins July 9th

Every year in July the Oregon Production Investment Fund (OPIF), a state agency,  auctions tax credits. According to accountants you can take this credit as a charitable deduction on your federal income taxes and additionally take the tax credit on your state taxes too.  The tax credits are generally beneficial if you pay Alternative Minimum Tax and can reduce the amount of tax you owe in April by buying the prior July.

However, due to changes in the US Tax Code for the 2018 fiscal year, one might expect the OPIF auction to see less volume in bids and hence see lower winning bids this year "bucking" the run up of the past few years.  The reason one might expect less volume is that the changes in the US Tax Code should greatly reduce the number of individuals paying AMT.  The Tax Policy Center expects tax collection in AMT to be reduced by 87%.  And is expected to reduce filers from 5 million to 200k.  Additionally, many less tax filers will even be deducting there taxes this year.  So, those buying the OPIF might see better value in the credits, even though less bidders may be looking to benefit from these credits.  Although the OPIF staff is still anticipating strong demand for this autction.

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Lessons from Matrix Book 2018: (1) Impact of Inflation (2) Stock and Bond Volatility

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The Matrix book is a uniquely visual demonstration of data and is an annual survey of investment performance that draws on historical data to look beyond short-term market fluctuations and shed light on the dimensions that explain differences in returns.  The Book is a unique tool for seeing decades of returns and telling stories about investing. In these videos, Joel Hefner shows how the Matrix Book can illustrate some of the trade-offs associated with investing as well as how investors can improve their chances of having a successful investment experience.

WATCH THE VIDEO:  THE IMPACT OF INFLATION

WATCH THE VIDEO:  THE UPS AND DOWNS OF STOCK AND BONDS

SAVVY NEGOTIATING: TO GET THE MOON, ASK FOR THE STARS

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One key way to build serious wealth—whether in a business or your everyday life—is to effectively and consistently negotiate deals that are good for you and your bottom line. Ideally, everyone walks away from a negotiation feeling good about the outcome—a win-win scenario. But ultimately, to be successful you must achieve your minimum goals and preferably a whole lot more.

Trouble is, it’s common for people to end up failing to get what they want due to how they approach negotiations right from the start—from the first declarations of their terms. Here’s how you can avoid that negative outcome and get the results you truly want when hashing out a deal or arrangement with another party.

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FIVE BIG MISTAKES EXECUTORS MAKE—AND HOW TO AVOID THEM

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 Being named the executor of a family member’s (or other loved one’s) estate is, in many ways, an honor. The decision shows that the person saw you as a highly trustworthy, capable person of integrity.

But it’s also a major responsibility that can quickly become a burden if you aren’t set up to do your job properly. The fact is, administering an estate comes with plenty of potential pitfalls that can threaten your loved one’s wealth—and your peace of mind. That goes double if the death is unexpected and leaves you reeling emotionally as you try to take on the legally required duties of an executor.

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The Super Rich Stress Test Their Financial Plans—and So Should You!

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The Super Rich (those with a net worth of $500 million or more) who have family offices typically engage a sizable lineup of professional advisors to help them create and implement financial plans. To help ensure those plans are both state-of-the-art as well as in line with their needs and wants, many of them regularly “stress test” these plans.

Here’s why you should join them in that effort—even if you’re not nearly as wealthy.

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Market Turbulation: Now and Then

By Dave Goetsch

Dave Goetsch, Executive Producer of  The Big Bang Theory, reflects on his investment experience in the recent market downturn and contrasts his new perspective with memories of the 2008-2009 financial crisis.

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Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair. It’s striking how different I feel now. 

In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them. 

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Additionally a short Video about tuning out the noise...takes viewers on a journery through the "lost decade," featuring the media's amplified coverage of headline events and pointing to the positive outcome that a disciplined investor could have experienced in the recovery.

WATCH THE VIDEO

Quarterly Market Review - Q1 2018

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In Q1 the stock rally that lasted several quarters appears to have resided.  Emerging markets outperformed both domestic and developed markets.  And, domestic real estate performed the worst. Value stocks in emerging markets outperformed but were allusive in developed and domestic markets.  Small caps outperformed large in both developed and the US, but under performed in emerging markets.   Bonds generally experienced rising yields for the quarter across various maturities and credit risk. International bonds performed the best.

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How to Promote Entrepreneurship in Your Family

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A trend found among the ultra rich that might be helpful to you is that they are using family banks to promote values of entrepreneurship and accountability within their families.  The families organize the money as a bank and fund other family members businesses weather it be to start something new, grow an existing business or reorganizing another one.  They are finding that the family can pass on these values with the formation of a family bank.

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Q4 AND THE ANNUAL 2017 MARKET SUMMARY

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Stock prices continued to rise strongly throughout Q4 as they also did for the year.  Emerging markets led the way for a second quarter in a row followed by domestic stocks and then developed markets.  The value factor lagged growth in all three regions of the world for the quarter, but small caps outperformed large caps in both emerging markets ( up  9.23%) and developed markets, but under performed domestically.  Internationally the Asia countries led the US and developed countries in performance and South Africa had the best quarter in emerging markets (up 20.91%).  Interest rates were mixed in bonds for the quarter but generally remained positive for performance.  High credit quality and shorter term bonds saw yields rise and generally performed the worst and the yield curve appeared to continue to flatten.

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HEALTH SAVINGS ACCOUNTS (HSA) - ONE OF THE BEST VEHICLES FOR RETIREMENT SAVINGS

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Health Savings Accounts, part of high deductible health care policies, remain one of the best retirement savings vehicles.  They are not like flexible spending accounts.  The key benefit to the HSAs over these plans is that you can save what you don't use well into retirement and benefit from a triple tax benefit-- pretax deduction, tax-free growth, tax fee withdrawals.

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This is a WSJ article.  Often the WSJ does not allow direct links to their articles or limits access over time.  However, if you search (i.e.: google it) the title "How to Get Entirely Tax-Free Retirement Income" you can find and access the article instead of through our website.

We are a Nation of Procrastinators, Not a Nation of Portfolio Managers

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This year’s Nobel Prize in economics went to Professor Richard Thaler who described financial behavior as largely a problem of self-control where people don’t act rationally as assumed in economic models but act on their own best intentions.  This finding explains irrational events we see in the markets or explains the tail risk we see from overreactions and contrasts with a very important theory in economics known as efficient market hypothesis where markets absorb information and act rationally.  One can assume in today’s world of the "information age" and busy schedules that this concept is more pervasive than in the past.  It is recognition of these behaviors that led Thaler to recommend automatic enrollment in 401(k) plans.  And, is certainly a sound reason for those with wealth to utilize a good professional adviser.

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These are WSJ articles.  Often the WSJ does not allow direct links to their articles or limits access over time.  However, if you search (i.e.: google it) the title "Richard Thaler: A Nobel Prize for Human Nauter" and "Why Richard Thaler Matters to Investors" you can find and access the article instead of through our website.

Q3 2017 Market Summary

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Stock prices continued to rise strongly throughout Q3 with emerging markets leading the way followed by developed and lastly US markets.  Bond returns also remained positive for the quarter even with higher yields which had larger increases among shorter duration bonds.  The value effect was positive in non-US developed markets but negative in the US and emerging markets.  Small caps outperformed large caps in US and non-US developed markets but under-performed in emerging markets.

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Oregon Production Investment Fund Tax Credit Auction - July 10th

Every year in July the Oregon Production Investment Fund (OPIF) auctions tax credits. According to the accountants I work with you can take this credit as a charitable deduction on your federal income taxes and additionally take the tax credit as a tax credit on your state taxes .  The tax credits are generally beneficial if you pay Alternative Minimum Tax and can reduce the amount of tax you owe in April by buying in July.

One great way to use these credits could be if you needed to sell non-qualified stock options in say June or July which might create a tax liability when you file for taxes in April 2018.  If you met some of the ideal criteria for these tax credits instead of leaving the amount of this tax liability in cash until April you could instead buy tax credits potentially earning a larger gain than you could in a cash investment.  The biggest risk being tax law changes for the 2017 year.

Are you the ideal taxpayer to bid on the OPIF Tax Credits?

  • You have a 2017 Oregon Tax Liability. Unused credits will carryover for 3 years.  But, because of legal risk we recommend using them in the same year.
  • Your income is from Oregon exclusively (Multi-state income may impact ability to receive credit for double taxed income)
  • You are subject to the Alternative Minimum Tax (Turns a non-deductible state tax into a deductible charitable contribution)
  • You are making Estimated Tax Payments

Facts about the OPIF Auctions:

  • A blind Auction - credits are sold in $500 increments
  • Minimum bid is $475 for $500 in credit – multiple bids are allowed
  •  Credits issued to highest bidders first (ties will go to bidder who submitted bid first)
  • Payment must be made in the form of a cashier’s check, certified check or money order
  • Form TCA needs to be completed and received with Payment by July 21, 2017
  • 2015 Auctioned $10 million, 2016 Auctioned $12 million and 2017 looks to be $14 million

Process for the OPIF Tax Credits:

  • Determine the appropriate amount of credits that would benefit you by reviewing your tax situation with your accountant (the price you pay for the credits and your specific tax situation will dictate your return).
  •   Figure out your bidding plan and access the OPIF auction website as early as possible in the auction process to purchase credits.  Earlier tied bids are prioritized over later bids in an oversubscribed scenario.  The auction was oversubscribed last year.
  • Mail your payment and Tax Credit Auction form (OR-TCA) by deadline (July 21nd) to the Department of Revenue

Sample Estimates based on bidding information and a 35% tax bracket and subject to Alternative Minimum Tax (AMT).  This analysis was provided by a 3rd party and CPA:

Historical Bidding Data:

Summary for 2016:

  • $12 million in tax credits were available (bids per $500 increment)

Summary for 2015

  •  $10 million in tax credits were available (bids per $500 increment)
  • Average bid: $521
  •  Highest bid: $525
  • Lowest successful bid: $500
  •  274 bids were accepted: 200-300 were described as not successful

You can find more information about these credits through the OPIF site.

The Story on Non-Compete Agreements and How to Prevent it from Destroying Your Wealth

Non-compete agreements are becoming more prevalent in states that allow them.  This article describes some of the environmental and economic factors, particularly in the athletic industry, that are increasing their scope and prevalence.  And, goes on later to describe some of the forces to consider to avoid calamity to ones wealth.

Q1 2017 Market Summary

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Equities continued their run in Q1.  International markets led with Emerging Markets up 11.44% and Developed Markets up 6.81% followed closely by domestic stocks.  On the other hand, bonds continued their paltry returns for the quarter where domestic bonds remained in positive territory while global bonds dipped slightly into negative territory.

To see a full review of the quarter please access our Market Summary

Asset Managers Finally Recognize that Fees are the Biggest Reason for Under Performance

The biggest reason for investment management under performance are fees charged to investors in the portfolio.  The fees over ones life time can add up to millions of dollars of unnecessary expenses .  In general, about half the fees can come in the form of expense ratios, 12-b(1) and loads.  And, the other half are hidden from view, but can come from turn over, liquidity and spreads.  Although these costs vary greatly depending on the investment.  Active managements likely biggest culprit of under performance has been these fees.  So, it is no wonder that BlackRock, one of the world's largest asset managers, is looking to replace money managers with computers.

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This is a WSJ article.  Often the WSJ does not allow direct links to their articles or limits access over time.  However, if you search (i.e.: google) the title "BlackRock Bets on Robots to Improve Its Stock Picking" you can find and access the article instead of through our website.

TODD BRUNDAGE, PRESIDENT AT PACIFIC CAPITAL WORKS, AIRS ON BUSINESS RADIO POWERED BY WHARTON SCHOOL ON "YOUR MONEY"

Todd Brundage, the President of Pacific Capital Works, joins Professor Kent Smetters of the Wharton School of Business as a contributor on the program “Your Money.” Your Money airs on Business Radio on Sirius XM on Tuesday, February 21 at 6:20PM ET / 3:20PM PT. Todd will air from 6:20 to 7pm EST.

Business Radio Powered by the Wharton School features easily accessible information on a wide range of business topics. Your money airs via satellite on Sirius XM channel 111, and through the SiriusXM Internet Radio App on smartphones, as well as online at Sirius XM Radio.  Business Radio features world-renowned and distinguished professors and alumni as regular weekly hosts, plus executives, entrepreneurs, innovators and other experts as special hosts and guests.

Learn more about "Your Money" or listen to on demand