Equifax Breach: Steps to Take

As you likely know by now, one of the big four credit reporting agencies, Equifax, announced it experienced a security breach resulting in criminals accessing personal information of approximately 143 million Americans between May and July of this year. The compromised information included names, addresses, Social Security numbers, and dates of birth. In some instances, driver’s license numbers, credit card and credit dispute information were also compromised. This information is nearly everything that is needed to open an account in your name.

Below are some steps to take regarding this unprecedented breach:

  • First, visit the Equifax breach website at equifaxsecurity2017.com to determine whether you have been impacted.  Keep in mind that the full impact of this breach may not be known yet, so consider revisiting the site periodically for the next few weeks.
  • If you are impacted, consider placing a freeze on your credit with all of the following credit reporting agencies. Freezing your credit is the only way to prevent those with your personal information from opening accounts in your name.
  • Consider obtaining credit monitoring services. Equifax is offering free credit monitoring to all Americans, whether impacted by the breach or not. Several companies also offer similar services for a fee. Please note that credit monitoring does not prevent ID theft; it simply alerts you when events occur that may impact your credit.
  • Be on high alert for impersonators or phishing attempts by fraudsters. Be on the lookout for emails that appear to be from these companies, telling you that you’ve been impacted, or otherwise creating a sense of urgency, and to “click here” for more information.  When in doubt, do not click the link. Any legitimate company will have another way for you to contact them to be sure the email is safe.

 

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

 

The Yield Curve is Normal Again

Fixed income has benefited from recent risk-off moves related to rising tensions with North Korea, the weather, and the debt ceiling, which caused the U.S. 10-year Treasury to hit its year-to-date low yield (high price) of 2.04% on Thursday, September 7, 2017.

Concerns of a political stalemate on the debt ceiling have been ongoing and showed themselves again on Tuesday, September 5 when the Treasury auctioned $20 billion in 1-month (4-week) T-Bills. The auction finished with the bills pricing to yield 1.30% (almost as much as the 2-year Treasury bill was yielding at the time, see chart below) as auction participants demanded a higher rate since the bills will mature in early October, which at the time was after the date the Treasury would run out of cash if the debt ceiling were not raised. This was the highest yield (lowest price) on T-bills since 2008, signaling that traders were concerned that a difficult path to a debt ceiling hike may have been ahead.

However, the fear of a protracted debt ceiling debate was short lived when the President and Democratic leaders reached a deal on Wednesday, September 6 to extend the government’s borrowing authority until December 8, 2017. Following this announcement, the yield on the 1-month Treasury fell, and the short end of the curve, was no longer inverted by the end of the day.

The fact that the short end of the yield curve is no longer inverted indicates that the debt ceiling is a less pressing issue for markets in the near term. However, we will continue to monitor bonds that mature after the new December deadline to gauge whether debt ceiling worries begin to resurface.

 

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC

Tracking #1-642514 (Exp. 09/18)

The Lost Year: Investor Frustration in High-Quality Fixed Income

LPL Research recently published an interesting article on the frustration investors have been experiencing with investment in high-quality fixed income. With interest rates being suppressed in the summer of 2016, investors were not rewarded for staying the course and maintaining investment in investment grade bonds. Despite the continued pressure on high-quality fixed income, the fact remains that high-quality bonds still hold a place in a diversified portfolio, as they have historically provided a way to mitigate losses in a market downturn. Below are some key takeaways from the article. You can read the entire article by clicking on the link below.

Key Takeaways

  • The broad high-quality bond universe has produced a slightly negative return over the last year due to a pickup in rates from the depressed levels of last summer.
  • Even with the headwinds, there have been pockets of success over the last year and opportunities remain.
  • Despite the potential for ongoing pressure in high-quality fixed income, it remains a critical tool in diversified, balanced portfolios.

To read the entire article: Bond_Market_Perspectives_The Lost Year

 

 

IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To
determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no
guarantee of future results. All indexes are unmanaged and cannot 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.
Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly
across many sectors and companies.”
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise, and bonds are subject to
availability and change in price.
Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed
rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate, and credit risk as well
as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
Mortgage-backed securities are subject to credit, default, prepayment risk that acts much like call risk when you get your principal back sooner than the stated
maturity, extension risk, the opposite of prepayment risk, market and interest rate risk.
High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.
Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical
and regulatory risk, and risk associated with varying settlement standards.
Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though
GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that
occur within a defined territory.
Consumer Price Inflations is the retail price increase as measured by a consumer price index (CPI).
INDEX DEFINITIONS
The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate
taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS,
and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Bond Index is an unmanaged index of corporate bonds rated below investment grade by Moody’s, S&P or Fitch Investor Service.
The index also includes bonds not rated by the ratings agencies.
The Bloomberg Barclays U.S. Mortgage Backed Securities (MBS) Index tracks agency mortgage backed pass-through securities (both fixed rate and hybrid ARM)
guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
The Bloomberg Barclays U.S. Corporate Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate, taxable
corporate bond market.
The S&P/LSTA U.S. Leveraged Loan 100 Index is designed to reflect the performance of the largest facilities in the leveraged loan market

This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and
makes no representation with respect to such entity.

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LPL’s Mid Year Outlook: 2017

An important shift has taken place in this economic cycle. The Federal Reserve (Fed) was finally able to start following through on its projected rate hike path, raising rates twice in just over a three-month period. By doing so, the Fed showed increasing trust that the economy has largely met its dual mandate of 2% inflation and full employment, that the economy is progressively able to stand on its own two feet, and that fiscal policy may now provide the backstop to the economy that monetary policy has provided throughout the expansion. The gauges say growth engines and market drivers may have changed: power down monetary policy, power up business fundamentals, and potentially take fiscal policy and economic growth off standby.

Thus far in 2017, the consistency of this new fiscal-led dynamic has been uneven, leading to shifting market leadership amidst low volatility and a narrow trading range for major market indexes. To be sure, in the post-election rally, the financial markets began to price in many of the pro-growth policies offered by the Trump administration. Yet, despite an initial flurry of activity, political momentum slowed, and investor sentiment dampened even as consumer and business confidence remained high. It is important for investors to appreciate that despite these developments, U.S. equity indexes managed to progress through the first half of 2017 either at, or very near, all-time highs. Moreover, signs of financial stress, based on interest rates, credit spreads, and market volatility, remained largely absent. Most importantly, even with fiscal policy on standby, the return to business fundamentals, such as renewed corporate earnings growth, can now act as a market catalyst. The Fed will still have its role to play, but monetary policy is powering down as the driver of financial market strength.

Despite the significant role of monetary policy as a market driver throughout this expansion, general investing principles have held true. The ability to form a good plan and stick to it, with judicious adaptation to the market environment, is the time-tested foundation of continued progress toward financial goals. If we are shifting to new market dynamics, including a greater role for corporate profits and fiscal policy, understanding the evolving opportunities will be important for diversified investors.

To read the entire LPL Mid-Year Outlook, please click on the link below:

Midyear_Outlook_2017

 

IMPORTANT DISCLOSURES The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted, and there can be no guarantee that strategies promoted will be successful. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Mortgage-backed securities are subject to credit, default, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of prepayment risk, market and interest rate risk. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than shortterm debt and involve risk. Investing in MLPs involves additional risks as compared with the risks of investing in common stock, including risks related to cash flow, dilution, and voting rights. MLPs may trade less frequently than larger companies due to their smaller capitalizations, which may result in erratic price movement or difficulty in buying or selling. MLPs are subject to significant regulation and may be adversely affected by changes in the regulatory environment, including the risk that an MLP could lose its tax status as a partnership. Additional management fees and other expenses are associated with investing in MLP funds. INDEX

DEFINITIONS The U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar. The DXY Index does this by averaging the exchange rates between the U.S. dollar and six major world currencies. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS (agency and non-agency). The Bloomberg Barclays U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes U.S. dollar-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers. The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. The MSCI Emerging Markets Index is a free float-adjusted, market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI EAFE Index is a free float-adjusted, market-capitalization index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada.

Economic Productivity Growth: It’s Not Just About More Resources

In business we often hear the adage, “Do more with less,” and we try to rise to this challenge. When workers can succeed in using their resources more effectively (in addition to just adding new resources), it helps drive economic growth. Economists call this side of productivity, “multifactor productivity,” and it’s measured by comparing economic output to the inputs required to produce it. In other words, it looks at how effectively existing machinery, equipment, and other capital inputs (in addition to labor) are being used to produce goods and services. Multifactor productivity is driven by things like technological improvement, the education and skills of the labor force, and efficiency in using resources.

Both multifactor productivity and overall productivity have increased more slowly in the current business cycle than in prior cycles, suggesting that the recent uptick in firms’ capital spending may indeed continue. But this isn’t only about just more resources. Capital spending also often includes updating equipment and technology and committing to worker training to ensure that the new technologies can be used effectively. That, in turn, should lead to increases in profitability, worker compensation, and government revenues—thus boosting economic growth.

As the chart below illustrates, multifactor productivity has been anemic since the Great Recession, consequently stifling labor productivity, as firms have opted to spend more cash on stock buybacks and dividend payments versus reinvesting in their businesses via capital expenditures. The Great Recession also contributed to a potential decline in skills following the largest disruption to labor markets since the Great Depression. The productivity slowdown indicates that stimulating productivity gains is challenging in the absence of workers’ access to resources that enable them to produce goods and services more efficiently.

From an investment perspective, analyzing the underlying factors of productivity may be another way to help better forecast which market sectors and industries are better positioned to benefit from a pickup in business spending.

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group, and Carr Financial Group are separate entities from LPL Financial.

Member FINRA/SIPC

The Growth and Impact of Sustainable Investing

The idea of sustainable investing is not new, and many investors relate the term to socially responsible investing (SRI), which is an investment strategy that excludes companies and industries on a basis of moral values (e.g. alcohol consumption, gambling). This type of strategy still exists, but it is important to note that sustainable investing has evolved beyond emphasizing exclusionary screening based on a narrow range of criteria. Today, greater emphasis is placed on which companies to include, rather than exclude, from a portfolio, giving rise to a range of complementary approaches that can be used to implement sustainable investment strategies.

Sustainable investing continues to gain steam globally, with assets under professional management totaling $22.9 trillion, as of the end of 2015. Although more than half of these assets are in Europe, sustainable investing has also grown tremendously in the United States in recent years, with assets under professional management more than doubling from 2012 to 2016. Many forces are driving this growth, including increased awareness that ESG factors have a positive impact on performance and changing demographics, as millennials consistently express greater desire for some sort of sustainable investing solution. Also at work are changing social norms and the political polarization in the United States, leading some investors to want to see their social views represented in their portfolios.

Despite the tremendous growth, some investors and financial professionals are skeptical of sustainable investing because, intuitively, shrinking one’s investable universe could make outperforming the market more difficult. However, researchers from the University of Oxford and Arabesque Partners aggregated over 200 studies globally analyzing this claim and found the following:

Given these results, we believe investors should not think of sustainable investing as shrinking the investment universe, but rather focusing on companies within that universe that may provide the best prospects. As investors continue to seek out sustainable investments, they are actively encouraging companies to improve their ESG scores. Thus, investing in these types of companies may result in better corporate governance, greater regulatory compliance and other positives.

In our view, analyzing a company’s ESG factors as an integral part of traditional financial analysis can add value to investors’ portfolios. As more information and products become available, we anticipate that these ideas may become even more widely accepted, perhaps to the point where they are standard considerations for most investment managers, making it much easier for investors to implement a portfolio that reflects their values.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

 Investing in specialty market and sectors carries additional risks such as economic, political, or regulatory developments that may affect many or all issuers in that sector.

 This research material has been prepared by LPL Financial LLC.

 Securities offered through LPL Financial LLC. Member FINRA/SIPC.

Q1 Market Update

The world’s oldest annual marathon was run on April 17 as amateur athletes from around the world descended on Boston, Massachusetts for the 121st running of the Boston Marathon. While elite athletes grab the headlines, over 25,000 entrants finished the marathon. Training for and running a marathon takes fortitude and patience, and many casual marathon runners aim simply to reassure themselves that they possess those qualities. No less of a test, investing to meet long-term goals can certainly try one’s fortitude and patience, but like a marathon, is achievable with the help of a good plan.

After an extended period of low volatility, markets have been in a bit more challenging environment over the last several weeks. The S&P 500 has retreated modestly since its last high on March 1, and long-term interest rates have declined over the same period, pushing bond prices higher. These kinds of consolidations can be reassuring and health for markets from a longer-term perspective, as what may have initially been overly optimistic expectations of the timing and impact of pro-growth policies in Washington, D.C. adjust to a still likely positive outlook but with a more realistic timeline.

Policy will continue to dominate the headlines, but prospects of better economic and earnings growth will be the foundation of any potential market advances. With improving business and consumer confidence, a more stable U.S. dollar, and a rebounding manufacturing sector, real economic growth in 2017 has the potential to come in near 2.5%, after averaging 2.1% during the current expansion. Earnings for S&P 500 companies could grow in the high-single digits in 2017, helped by steady economic growth, stable profit margins, and rebounding energy sector profits. Policy hopes could be dashed, but we continue to believe corporate American will get a tax cut within the next 9 to 12 months.

In some respects, some policy risks have declined as President Trump has become more focused on his primary legislative agenda. While the president retains his emphasis on fair trade, trade tensions with China have abated some after the president shifted his emphasis from currency manipulation to enlisting China’s cooperation on the North Korean threat. The president’s tone on renegotiating NAFTA has also moderated. A more balanced approach to trade policy may have reduced one potential market concern.

Despite a steady economic and earnings backdrop supporting markets, there are still several risks that need to be carefully monitored. A policy mistake by a major government or central bank, geopolitical threats in the Korean Peninsula and Middle East, and elevated stock valuations are among the challenges markets face that may contribute to bouts of increased volatility. Don’t forget that opportunities can come from volatility. I encourage you to stick to your long-term plan and stay invested. Investing is a marathon, not a sprint.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

 Economic forecasts set forth may not develop as predicted.

 Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

 Investing in specialty market and sectors carries additional risks such as economic, political, or regulatory developments that may affect many or all issuers in that sector.

 The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

 This research material has been prepared by LPL Financial LLC.

 Securities offered through LPL Financial LLC. Member FINRA/SIPC.

Home Country Bias is Hurting Your Asset Allocation

According to American Funds, by the end of 2016, United States equities had outperformed international equities for 85 months based on rolling 3-year returns. This remarkable stretch for U.S. stocks has further cemented the widely-held belief that most U.S. investors have, which is that investing internationally is far too risky, and the returns stink anyways! Many do not see the purpose in investing in international companies, and rather invest in the familiar companies that allow the U.S. economy to thrive.

The inclination to invest primarily, or exclusively, in the country you live in is known as home country bias, and it’s likely hurting your ability to construct a truly diversified portfolio. In our view, investing in one single country is the equivalent to investing in one industry or sector, or one form of fixed income. At first, most would disagree with this view, and use the 85 months of U.S. outperformance as evidence to support their claim. This form of “Recency bias” can easily be refuted by stretching out the period in which we view U.S. equity vs. International equity performance, shown below.

*This simple yet telling chart shows that regional market outperformance can be cyclical when examined through multiple market cycles. Data based on Factset Research (12/31/2014)

Amazingly enough, home country bias exists across the world regardless of how small the country’s contribution to the global economy. Let’s use Australia, a much smaller developed nation, as an example. Per a recent International Monetary Fund survey, the average Australian’s investment portfolio consisted of 74% Australian equities in 2010, despite Australia only representing 3% of the world market. This outrageous disconnect represents a 70% overweight to domestic equities. In the United States, you could likely count on one hand the number of people that would have this allocation.

For U.S. investors, the notion of international investing is considered risky. It’s true that many economies, especially emerging markets, have historically shown higher levels of volatility. However, this fact holds true only when viewed on a standalone basis. In fact, the investment across all economies in a more direct relation to their contribution to the global economy actually reduces annualized change in portfolio volatility, per a recent Vanguard study.

Hopefully you can use this information as a way to recognize potential biases in your portfolio. Given the run for U.S. equities against international equities, it’s our view that now is the time to consider increased investment across global economies.  More importantly, long-term investors should not neglect international investments for fear of adding risk to your portfolio, as your actions may be adding to the very problem you’re trying to minimize!

 

 

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Asset allocation does not ensure a profit or protect against a loss.

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

International Monetary Fund (IMF) is an international organization created for the purpose of promoting global monetary and exchange stability, facilitating the expansion and balanced growth of international trade, and assisting in the establishment of a multilateral system of payments for current transactions.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

**Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and Carr Financial Group are separate entities from LPL Financial.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AK, CT, FL, IL, ME, MD, MA, NH, NY, NC, PA, RI, SD, VT, VA

 

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What a Fed Rate Hike Means for You

Earlier this month, The Federal Reserve raised its target short term interest rate benchmark by .25%, from .75% to 1.00%. As can be seen from the chart below, the hike can be viewed as a minuscule adjustment in comparison to past rate hiking cycles. But for a country that has been permanently in a low growth, low interest rate environment since The Great Recession, the psychological importance of a gradual rate hike is noteworthy. Per Fed Chair Janet Yellen “The simple message is – the economy is doing well. We have confidence in the robustness of the economy and its resilience to shocks.”

By historical standards, the new rate is still very low, and the projected increases are gradual. Wage growth, a dwindling supply of workers, and expectations of inflation growth are all factors with the gradual hike in rates. While many participants in this economy would dispute the improvement in wage growth and quality job opportunities, economists generally agree that a gradual increase in rates will help prevent an economy from “overheating” due to excessive business and consumer consumption.

Economic jargon aside, here’s how the rate increase can impact your everyday life, as well as some steps to take advantage:

Increases to Variable Rate Loans

Variable rate loans, mainly credit cards and HELOCs, will likely rise shortly following any hike in interest rates. Usually, within 3 months, you should see a corresponding bump in your rates on these types of loans.

What to do: Make sure you are aware of your interest rate % on your variable loans. Also, consider balance transfers and 0% introductory periods for your credit cards.

Mortgage Rates

For fixed rate mortgages, the lag for the interest rate hikes is not as clear cut. The Federal Reserve can only control the short end of the yield curve, meaning it cannot use its “toolbox” to materially impact longer term interest rates. Mortgage rates are usually more correlated to inflation expectations and demand for long term U.S. treasuries, and will not necessarily rise in tandem with a Federal Reserve rate hike.

With that said, mortgage rates do tend to rise if there is a sense of optimism about the economy. We have seen rates tick up modestly within the past year, based on the long-term outlook of the economy per the Fed.

What to do: Mortgage rates are still near historic lows. Explore refinancing or locking in a rate on a new home sooner rather than later.

*Average 30 yr Mortgage rate since 1972, per the St. Louis Federal Reserve. Gray bars indicate recessions.           

Savings Accounts

For the conservative investor, the idea of earning any interest in a savings account over the past few years has been wishful thinking. Unfortunately, a rise in rates does not automatically mean a rise in your savings rate. Banks typically use the hike in interest rates as an opportunity to raise their profit margins, and not necessarily pass on any benefit to the consumer. As a result, increases in savings rates tend to lag increases in rates to consumer financing.

What to do: Diligently shop for the best savings rate possible. Tying yourself to one bank will generally not result in the best possible rate. Some institutions utilize the rate hike as an opportunity to win business by sacrificing their margins for deposits. Make sure to check out online banks as well, as they can typically offer higher yields due to less overhead expenses.

 

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 

Three Reasons to Not Buy a Company’s Stock During an Initial Public Offering (IPO)

Every now and then, a company’s Initial Public Offering, or “IPO”, will cause mass hysteria amongst many investors. Oftentimes, it is an IPO of a company with a popular product that caters to the masses.

Unfortunately, investing in IPOs with the assumption that one will make a quick profit is misguided. While investing in a company that’s recently gone public can of course be warranted, rational thought and ample research should be exercised prior to making any investment.

With that in mind, here are three reasons to not buy shares during an IPO.

 

#1. “If I’m buying shares during an IPO, I’m an “early investor.” Surely I’ll be profitable when everyone else wants to buy later.”

               While you may be considered an early investor for purchasing shares on a public exchange, you are certainly not an “early investor.” Generally, a private company that is in growth mode will likely have had multiple rounds of private equity cycles, where investment firms and private investors will buy ownership of companies to provide capital to the growing company. These are the parties who “got in early,” so to speak.

#2. “Everyone is talking about this IPO – demand will be so high and stay that way.”

It’s true that demand for most IPOs is higher than the supply of shares, which generally leads to higher prices when the stock hits the exchange. Usually, however, the demand for shares can fizzle as the IPO hysteria fades, and the supply will likely increase along with it. With IPOs, owners and employees are required to hold their shares for a period after the IPO – generally around six months to a year. This is known as a “lock up period” – a requirement that allows the stock price to stabilize during the initial phases of the publicly traded stock.

The conclusion of a lock-up period can often bring a glut of share supply. Owners and employees who wish to sell the shares at the inflated prices driven up by initial public demand can suddenly turn a seemingly hot stock into one that has a lot of downward pressure on its share price.

#3. “If a company is going public, it must mean that it is in great shape financially.”

There are a few problems with this rationale. For one, it’s unlikely that there is ample information on a private company’s fundamentals, especially compared to an established publicly traded company. In addition, a company’s immediate run up in price after its IPO can lead to lofty valuations. When investing in an IPO, never assume a company has a healthy balance sheet, is growing exponentially, or is even profitable – because oftentimes they are not.

 

Investing in IPOs can be a wise investment decision. However, like all other investment decisions, it’s vital to perform research and due diligence before investing. Be sure to avoid the temptation of emotional investing; getting caught up in the media hype of a highly-anticipated IPO can lead to baseless investment purchases that can wreak havoc on your portfolio.

 

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.