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YOUR FINANCIAL FUTURE Your Guide to Life Planning January 2015 In This Issue Bond Market Perspectives | Week of January 5, 2015 For just the second time in the last 30 calendar years, short-term 2-year Treasury yields increased while longer-term 10- and 30-year Treasury yields fell. Four Common Mistakes of Asset Allocation Paul Dixon Sovereign Investment Group LLC SVP - Investment ServicesBranch Office Mgr. 3120 Southwest Frwy. Ste. 500 Houston, TX 77098 713-627-2200 Fax: 713-627-2227 [email protected] www.sovereigngrp.com Allocating and managing portfolios successfully in today's marketplace is difficult. There are many pitfalls along the way to complicate matters. As a result, investors and financial professionals need to be aware of the common mistakes that can be made when employing asset allocation so that they can avoid them. Weekly Market Commentary | Week of January 5, 2015 The fourth quarter of 2014 will be a tale of two earnings seasons: the best of times and the worst of times. Despite a substantial drag from the energy sector, we expect another good earnings season overall. In Volatile Markets, Investors May Find Comfort in Dividends Dividend-paying stocks offer an attractive mix of features and can help cushion the effects of market volatility. Outlook 2015: In Transit To help you prepare for this market in transition, LPL Financial Research has boxed up timely advice into our Outlook 2015: In Transit for an on-time delivery of what could likely be another year marked with positive advances by stocks, flat returns for bonds, heightened volatility, and strong U.S. economic growth. 2 Your Guide to Life Planning Bond Market Perspectives | Week of January 5, 2015 Key Takeaways For just the second time in the last 30 calendar years, short-term 2-year Treasury yields increased while longer-term 10- and 30-year Treasury yields fell. One factor from 2014 that remains in place at the start of 2015 is the lure of Treasury yields on a global basis. Although bonds may continue to be supported by lower oil prices and European growth fears, we believe U.S. economic growth and the start of Fed rate hikes will translate to a lower-return environment than investors experienced in 2014. Curve Ball The notable decline in 10- and 30-year Treasury yields was one of the main stories of 2014, but lost in that focus was the rise in short-term Treasury yields. While it is not uncommon for the yield differential between short- and long-term bonds to change over time, the way yields changed was extremely rare and threw investors a curve ball. For just the second time in the last 30 calendar years, short-term 2-year Treasury yields increased while longer-term 10- and 30-year Treasury yields fell. The yield on the 2-year nearly doubled, moving from 0.39% to 0.67%, in contrast to 10- and 30-year rates falling sharply from 3.04% to 2.17% and 3.96% to 2.75%, respectively [Figure 1]. Prior to 2014, the only other occurrence of such a yield curve shift over the past 30 calendar years took place in 2004. In 2004, short-term rates moved in anticipation of, and later in response to, Federal Reserve (Fed) rate hikes, which began in June 2004 [Figure 1]. Note that this shift did not portend a recession in 2005 and we similarly do not expect a recession in 2015. In 2014, short-term yields rose in anticipation of short-term rate hikes expected in 2015. Although timing was slightly different, the cause of both moves was forthcoming Fed rate hikes. The extraordinarily low level of short-term rates in recent years caused the bond market in 2014 to push up short-term yields earlier than prior history. The yield curve does typically "flatten" (represented by a flatter line when plotting yields across the maturity spectrum on a chart) ahead of expected Fed interest rate increases, but this has usually translated into higher short-term and higher long-term bond yields. In this case, the yield curve flattens in response to short-term yields rising more than long-term yields, as short-term yields are more directly impacted by Fed rate hikes. This is known as a bearish flattener, as it usually translates to weaker total returns for bond investors. A bullish flattener, a situation where long-term rates fall more than short-term yields, represents expectations of slower economic growth from the bond market and is typically a positive for bond investors. Conundrum Revisited The last time the Fed embarked on a rate hike campaign was 2004, so the 2004-2005 experience may reveal what 2014 could mean for investors in 2015. The relative resilience of long-term bond prices in the face of steady interest rate hikes from mid-2004 through mid-2006 caused a puzzled former Fed Chair Alan Greenspan to label it a "conundrum." In 2005, the yield curve continued its flattening trend with long-term yields falling again, albeit modestly, 3 Your Guide to Life Planning while short and intermediate yields continued to rise [Figure 2]. Note that the decline in 30-year Treasury yields in 2004 was relatively modest compared with the sharp 1.2% decline of 2014, making a repeat of 2014 unlikely. Still, the 2004 experience shows that longer-term bond yields may remain resilient despite the potential start of Fed rate hikes later this year. We expect there may be a modest rise in longer-term rates for 2015. Muted Returns The more important takeaway for investors may be lower total returns. In 2005, the further flattening of the yield curve created a year in which returns were muted across fixed income sectors [Figure 3]. The outcome of 2005 is in-line with our expectations for flat bond returns in 2015, as noted in our Outlook 2015: In Transit publication. Additionally, the lower absolute level of yields to start 2015 also suggests bond total returns may be lower than in 2005. 4 Your Guide to Life Planning Foreign Influences Still Strong One factor from 2014 that remains in place at the start of 2015 is the attractiveness of Treasuries on a global basis. The German 10-year government bond yield has fallen to 0.5% and the German 5-year to 0.0%, well below the 1.6% of the 5-year Treasury. Treasuries continue to draw global interest, especially given ongoing bond buying by the Bank of Japan and expectations that the European Central Bank may start buying government bonds in coming months. In combination with a reduced supply of high-quality government bonds, longer-term bonds have continued to garner support. At some point, continued increases in short-term yields or ebbing of dollar strength may change the attractiveness of longer-term debt to global investors. Although bonds may continue to be supported by lower oil prices and European growth fears, we believe U.S. economic growth and the start of Fed rate hikes will potentially translate to a lower-return environment than investors experienced in 2014. 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. 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. Investing in foreign fixed income securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with foreign market settlement. Investing in emerging markets may accentuate these risks. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. 5 Your Guide to Life Planning INDEX DESCRIPTIONS 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. The 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). This research material has been prepared by LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity. Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit Tracking #1-341555 (Exp. 01/16) 6 Your Guide to Life Planning Four Common Mistakes of Asset Allocation Regardless of your risk tolerance, you should want to earn a return that outpaces inflation and taxes over time. Smart people make dumb mistakes all the time. Allocating and managing portfolios successfully in today's marketplace is difficult. There are many pitfalls along the way to complicate matters. When investors and portfolio managers fail to avoid mistakes, they place portfolios at risk. At stake are not only the growth and safety of investors' portfolios but also their future financial independence, control, and security. As a result, investors and financial professionals need to be aware of the common mistakes that can be made when employing asset allocation so that they can avoid them.1 Mistake 1: Excluding Desirable Asset Classes Research studies have concluded that how you allocate a portfolio, rather than which investments you select or when you buy or sell them, is the leading determinant of investment performance over time. As a result, make every effort to allocate a portfolio among all appropriate asset classes. Each asset class and asset subclass provides return-enhancing and risk-reducing benefits. By not incorporating appropriate classes, a portfolio may not exhibit the desired risk-and-return trade-off profile. Regardless of your risk tolerance, you should want to earn a return that outpaces inflation and taxes over time. Some investors shy away from moderately risky assets, such as large-cap equities, fearing the market's ups and downs will hinder long-term performance. By doing so, investors may find it very difficult, if not impossible, to fund the style of living they desire in retirement. Even conservative investors with a long-term time horizon are highly encouraged to consider a small allocation to equities for their portfolio, thus increasing the odds that its performance will outpace that of inflation and taxes. Mistake 2: Confusing Asset Allocation With Diversification Many investors confuse asset allocation with diversification. They believe the two are the same thing. For many investors, this confusion is not their mistake. Many money management companies, financial authors, and investment professionals explain it this way because some of them do not fully understand the difference. This confusion is one of the leading misconceptions of asset allocation. Diversification impacts only the management of risk, specifically the reduction of investment-specific risk. On the other hand, asset allocation not only maximizes risk-adjusted return but also reduces risk by combining asset classes that have less than perfect correlations. Asset allocation addresses both the numerator and denominator of the risk and return trade-off equation, while diversification deals only with the numerator: risk management. Mistake 3: Overestimating the Level of Diversification Diversification is the key to reducing risk, namely investment-specific risk. There are two ways to overestimate the level of diversification. First, one may believe that the quantity of securities currently in a portfolio is sufficient to create a diversified portfolio when, in fact, it is not. Second, but much less important, although a portfolio may hold an appropriate quantity of securities, the majority of the securities may be too similar to provide significant diversification benefits. For example, the stocks of General Motors and Ford will provide some diversification benefits, but due to their inherent industry similarities, holding both in a portfolio will not provide a significant level of diversification. Diversifying across fundamentally different sectors or industries is therefore recommended. Mistake 4: Paying Excessive Portfolio Expenses If you don't keep it, did you really make it? Over time, the compounding effect of portfolio management expenses can be quite large and surprising, thus depriving a portfolio of returns. Even small annual expenses can add up to significant expenses over the long term. Obviously, it is more or less impossible not to pay some sort of portfolio-related expenses. Nevertheless, you should focus on minimizing portfolio management expenses, namely trading costs, both commissions and bid-ask spreads, and investment advisory fees. 1Asset allocation does not ensure a profit or protect against a loss. Excerpted from Understanding Asset Allocation by Scott Frush. Copyright © 2007 by The McGraw-Hill Companies. © 2015 Wealth Management Systems Inc. All rights reserved. 1-106894 7 Your Guide to Life Planning Weekly Market Commentary | Week of January 5, 2015 Key Takeaways The fourth quarter of 2014 will be a tale of two earnings seasons: the best of times and the worst of times. Despite a substantial drag from the energy sector, we expect another good earnings season overall. We expect more winners from cheap oil than losers, although the energy sector faces significant challenges. A Tale of Two Earnings Seasons The fourth quarter of 2014 will be a tale of two earnings seasons: the best of times and the worst of times. Companies that benefit from lower energy prices should generally report positive results and have mostly optimistic comments about their business outlooks. Conversely, companies within or connected to the energy sector will likely have a difficult time due to the sharp, swift decline in oil prices. Overall, we expect the winners from cheap oil to outnumber the losers, with another good performance by corporate America. Alcoa unofficially kicks off earnings season on January 12, 2015. Q4 Earnings Likely to Be Good, Despite Energy Drag Despite a substantial drag from the energy sector, we expect another good earnings season overall for the just completed fourth quarter. Consensus estimates from Thomson Reuters are calling for a 4% year-over-year increase in S&P 500 earnings per share for the quarter, even while absorbing an expected 20% decline in energy sector earnings. We see some potential upside from cheaper energy and other commodity input costs for consumer companies and manufacturers (those without close ties to the energy sector), which may help earnings achieve their average historical upside surprise of about 3%. The biggest cost component for S&P 500 companies, wages, has not yet exerted enough upward pressure on corporate cost structures to raise concerns about profit margins, which continued to expand throughout 2014 and currently remain at record highs. Our favorite earnings indicator, the Institute for Supply Management (ISM) Manufacturing Index, has continued to signal mid- to high-single-digit earnings gains for late 2014 and early 2015. Although the index pulled back in December 2014, due partly to reduced energy sector spending plans, it remains solidly in expansion territory at over 55 (50 is the breakpoint between growth and contraction). The three-month average is near the highest levels since the end of the Great Recession. The pace of economic growth in the United States also bodes well for earnings. After the weather-depressed contraction during the first quarter of 2014, gross domestic product (GDP) growth exceeded 4% annualized during the second and third quarters and is on track for near 3% growth for the fourth quarter, based on available data as of year-end 2014. This pace of growth should support the low- to mid-single-digit revenue gains necessary to drive forecasted earnings gains, even when factoring in energy sector impacts. The "Ex-Energy" Quarter Earnings and other financial statistics are often expressed excluding a particular sector due to one-off irregularities. "Ex-financials" is one example in recent years due to the fall, then rise, of the financial sector in the aftermath of the 2008 financial crisis. This earnings season, earnings "ex-energy" will likely become a commonly heard phrase because of the sector's expected divergence. Analysts and strategists will likely strip out energy and assess how earnings for the S&P 500 would look if that sector is excluded. The divergent path that the sector's earnings have taken [Figure 1] will likely be the top story during this earnings period (overtaking Europe, which was last quarter's top story, and the strength of the U.S. dollar). Over just the past three months, energy sector earnings estimates for the next four quarters have tumbled 29%, compared with the S&P 500 overall which--despite including energy--has seen estimates fall just 2% during this period. Click here for Figure 1, S&P 500 Earnings Estimates Have Held Up Well As Energy Estimates Have Plummeted S&P 500 earnings have many drivers. But the sharp drop in oil prices (more than 50% from last year's peak in June 2014) will bring energy to the forefront this earnings season. The energy sector is expected see a 20% year-over-year earnings decline in the fourth quarter, based on Thomson Reuters consensus estimates. The only other sector expected to see a decline is materials, also commodity based, and that sector's expected earnings decline is less than 2% [Figure 2]. In fact, energy is such an outlier that removing it lifts S&P 500 earnings by about two percentage points (boosting consensus from 4% to 6%). The industrials sector provides an additional energy-related drag by being the destination for substantial capital investment by energy companies, indicating that removing energy could lead to more than a two-point boost to S&P 500 earnings. 8 Your Guide to Life Planning Click here for Figure 2, Energy Earnings Expected to Contract Substantially The Upside to Oil's Decline The flip side of lower energy prices hurting energy sector earnings comes from the sectors that have benefitted from lower oil and other commodity prices. The most obvious is the consumer discretionary sector, as lower prices at the gas pump and cheaper home heating bills help boost discretionary income. Manufacturers also benefit from cheaper fuel and raw materials. Airlines and automakers are big beneficiaries as well, although commodity-hedging activities do partially dampen the positive impact. Oil Is Not the Only Challenge Europe may continue to be a drag for S&P 500 company profits, given the Eurozone is on the brink of another recession (based on latest GDP data) and has very low inflation, which gives businesses operating there less pricing power. S&P 500 companies generate roughly 15% of earnings from the Eurozone. Much less concerning, but still a risk, is exposure to the big oil-producing emerging market (EM) countries, Russia in particular. We estimate exposure to these EM countries, some of which are in or near recession, at only about 1-2% of overall S&P 500 profits. The strength in the U.S. dollar may also be a drag on overall earnings again, as foreign-sourced profits (particularly in Europe) are translated into fewer dollars. Conclusion The fourth quarter will be a tale of two earnings seasons. For the energy sector, it will no doubt be a very difficult earnings season due to the sharp drop in oil prices. Conversely, companies that benefit from lower energy prices may report solid results and have positive comments about their outlooks amid the favorable economic backdrop in the United States. Overall, we expect more winners from cheap oil than losers, with another good performance by corporate America. IMPORTANT DISCLOSURES Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets, as well as weather, geopolitical events, and regulatory developments. Because of its narrow focus, investing in a single sector, such as energy or manufacturing, will be subject to greater volatility than investing more broadly across many sectors and companies. Currency risk arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. 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. 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. 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. All investing involves risk including loss of principal. INDEX DESCRIPTIONS 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. The Institute for Supply Management (ISM) Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys. This research material has been prepared by LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity. Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not 9 Your Guide to Life Planning Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit Tracking #1-341003 (Exp. 01/16) 10 Your Guide to Life Planning In Volatile Markets, Investors May Find Comfort in Dividends As uncertainty at home and abroad roils the financial markets, income-minded investors seeking protection from the bumpy road ahead may find dividend-paying stocks offer an attractive mix of features and warrant a place in their equity portfolios. Dividend payouts are often seen as a sign of a company's financial health and management's confidence in future cash flow. The appeal is simple: Dividend-paying stocks can provide investors with tangible returns on a regular basis regardless of market conditions. The Benefits of Dividend-Paying Stocks If you own stock in a company that has announced it will be issuing a dividend, or if you are proactively considering adding an allocation to dividend-paying stocks, history provides compelling evidence of the long-term benefits of dividends and their reinvestment. A sign of corporate financial health. Dividend payouts are often seen as a sign of a company's financial health and management's confidence in future cash flow. Dividends also communicate a positive message to investors who perceive a long-term dividend as a sign of corporate maturity and strength. A key driver of total return. There are several factors that may contribute to the superior total return of dividend-paying stocks over the long term. One of them is dividend reinvestment. The longer the period in which dividends are reinvested, the greater the spread between price return and dividend reinvested total return. Potentially stronger returns, lower volatility. Dividends may help to mitigate portfolio losses when stock prices decline, and over long time horizons, stocks with a history of increasing their dividend each year have also produced higher returns with considerably less risk than non-dividend-paying stocks. For instance, since 1990, the S&P 500 Dividend Aristocrats -- those stocks within the S&P 500 that have increased their dividends each year for the past 25 years -- produced annualized returns of 12.10% vs. 9.45% for the S&P 500 overall, with less volatility (13.78% vs. 14.85%, respectively).1 The Growth of Dividend-Paying Stocks, 1950-20132 If you are considering adding dividend-paying stocks to your investment mix, keep the following thoughts in mind. Dividend-paying stocks may help diversify an income-generating portfolio. Income-oriented investors may want to diversify potential sources of income within their portfolios. 11 Your Guide to Life Planning Given current realities present in the bond market, stocks with above-average dividend yields may compare favorably with bonds and may act as a buffer should conditions turn negative within the bond market. Dividends benefit from continued favorable tax treatment. The extension of the Bush-era tax cuts helps to reinforce the current case for dividend stocks. The tax bill that passed in early 2013 made the 15% top tax rate on qualifying dividends and other forms of investment income permanent for most investors, though it did raise the top rate to 20% for certain high-income investors. However, this is still lower than the 39.6% top rate on ordinary income. Note that dividends can be increased, decreased, and/or eliminated at any time without prior notice. 1Volatility is measured by standard deviation. Past performance is no guarantee of future results. 2Source: Standard & Poor's. Stocks are represented by the S&P 500, an unmanaged index considered representative of the broad U.S. stock market. For the period January 1, 1950, through December 31, 2013. Past performance is not indicative of future results. Investors cannot invest directly in any index. © 2015 Wealth Management Systems Inc. All rights reserved. 1-044954 12 Your Guide to Life Planning Outlook 2015: In Transit Outlook 2015: In Transit Since the wind-down of the Great Recession in early 2009, the latest economic expansion has certainly delivered the goods and rewarded investors' mailboxes with six consecutive calendar years of positive gains for stocks. "Neither snow nor rain nor heat nor gloom of night" has kept a lid on the continuation of one of history's greatest bull market advances for stocks, and LPL Financial Research believes this trend of rising equity prices may continue in 2015. But unlike the last two years, when the global economy produced improved growth on the back of a stabilizing economic backdrop, 2015 will be a year marked by transitions. Likely changes in monetary policy around the world, the return of volatility, and the recent shift in the political balance of Congress could mean 2015 is a year that will have the global economy, markets, and central banks all on the move. To help prepare for rerouting to this more volatile road ahead, our Outlook 2015: In Transit expedites the delivery of the investment insights needed to navigate an economic backdrop shifting to the latter stages of the business cycle. Significant elements that are in transit in 2015 include: The U.S. economy continues its transition from the slow gross domestic product (GDP) growth of 2011-2013 to more sustained, broad-based growth. Ongoing progress in the labor market, an uptick in wage growth, and continued improvement in both consumer and business spending have propelled an uptrend in U.S. economic output. We believe inflation--which has historically accelerated as the economy moves into the second half of the business cycle--is poised to continue proceeding higher, but only modestly so. Central banks around the world will also be on the move in 2015. In the United States, the economy is likely to continue to travel toward a point where the Federal Reserve (Fed) will begin raising interest rates, albeit gradually, for the first time in nine years. The Eurozone and Japan--the world's second and fourth largest economies, respectively--could benefit, as central banks in those regions embark on more aggressive policy actions aimed at restarting and reaccelerating their long-dormant economies. Washington shifts from a relatively quiet 2014 to take a bigger role in 2015. The Republican takeover in the Senate and approaching debt ceiling limit might provide the opportunity for some movement out of the gridlock that has plagued Washington in recent years. Against this backdrop, we forecast the following: We expect the U.S. economy will expand at a rate of 3% or slightly higher in 2015. This forecast matches the average growth rate over the past 50 years, and is based on contributions from consumer spending, business capital spending, and housing, which are poised to advance at historically average or better growth rates in 2015. Net exports and the government sector should trail behind. Tempered by increasing levels of volatility, stocks may be poised to advance 5-9%. We believe stocks will navigate the various cycles in transit and deliver mid- to high-single-digit returns in 2015, with a focus on earnings over valuations. This forecast would be in-line with the average stock market growth of 7-9%, since WWII. Supported by improved global economic growth and stable profit margins in 2015, we expect earnings per share growth for S&P 500 companies of 5-10%. We believe continued economic growth, benign global monetary policy, and a more favorable policy climate from Washington indicate that the powerful, nearly six-year-old bull market should continue. We expect flat returns in the bond market. With sustained improvement in economic growth, slowly rising inflation, and the approach of the Fed's first interest-rate hike, bond prices are likely to decline in 2015. High-yield bonds and bank loans can help investors manage this challenging bond market. Despite significant improvement on almost all economic and market fronts, the route we have been on over the last six years has been undoubtedly long and winding. The package of strong economic growth ordered up following the Great Recession of 2008-2009 has resulted in a delivery that has been at times disjointed and behind schedule. Journeys like the one we have been on since 2009 rarely unfold in a straight line. The reality is that point-to-point navigation often masks the many twists and turns--and ups and downs--that a voyage undertakes, just as the 236% cumulative increase in stock returns since the current bull market began* hides the true nature of the market's successful but volatile path. Transition, like we forecast on the road ahead in 2015, is just another word for change. And while the backdrop looks favorable for continued economic and market advances, we know that not all change is good, just as not all movement is forward. The shifting economic and market landscape in 2015 offers great opportunities alongside major challenges, and investors will need more than just a GPS to navigate them all. As we shift toward the latter stages of the economic cycle in the years ahead, bumps and potholes in the form of rising volatility will be more frequent. Yet it will likely not be the road conditions that throw most investment 13 Your Guide to Life Planning portfolios off track, as we forecast relatively strong economic growth unfolding over the horizon. Rather, it will be the pull of our emotions that could derail a potentially rewarding journey. As investors, keeping our emotions in check when confronted with a bumpy road will ultimately be the key to success in 2015. It is human nature to weigh the market potholes substantially more than the long, smooth roads of strong market returns between them. However, with an investment strategy in hand and a destination in mind, 2015 is poised to be a volatile but potentially favorable year. To help you prepare for this market in transition, LPL Financial Research has boxed up timely advice into our Outlook 2015: In Transit for an on-time delivery of what could likely be another year marked with positive advances by stocks, flat returns for bonds, heightened volatility, and strong U.S. economic growth. Please see our Outlook 2015: In Transit publication for insights on the economy, stock and bond markets, and investments for the year ahead. *Measured by the S&P 500 Index from the market's closing low on March 9, 2009 to October 31, 2014. Past performance is not indicative of future results. One cannot invest directly into an index. Important Risks Economic forecasts set forth may not develop as predicted. High-yield bonds are subject to higher interest rates, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors. 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. All investing involves risk including loss of principal. This research material has been prepared by LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial 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 Member FINRA/SIPC Tracking #1-337508 (Exp. 12/15) 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 referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. LPL Financial, Member FINRA/SIPC This newsletter was created using Newsletter OnDemand, powered by Wealth Management Systems Inc.