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Silicon Hills Client Newsletter // Third Quarter 2014 Advisor Insight What We’re Thinking Strategic Financial Planning For Your Marriage One of our partners, Pam Friedman, said “I do” to Mitch Sundet in a beautiful backyard setting amongst a small group of family and friends in April. Pam beamed with excitement and happiness and was the epitome of a blushing, blissful bride. During the groom’s speech, a dashing Mitch couldn’t resist taking a light hearted jab at Pam’s pre-marriage financial due diligence. While getting married is exciting and being married is blissful, it is important to understand that marriage is a financial planning issue. It is difficult to enter into an institution as joyous and sacred as marriage with an eye toward planning for its dissolution. While marriage is the most special of all partnerships, the financial aspects of marriage are similar to any other partnership. As a Certified Divorce Financial Analyst™ (CDFA™), Pam sees couples who didn’t plan for what their life would look like if their marriage dissolved. It is important to know the rules and regulations and to educate yourself as to the impacts of marriage on your business, financial, and estate plans. The act of planning for something does not make it more likely. We plan every day for things that we don’t expect to happen. We buy insurance on our property and lives, store flashlights around our home, and carry jumper cables in our car. The fact that we are prepared for these things only makes life a little easier when they occur. Our approach to marital planning is the same. Even successful marriages have financial ups and downs. Sadly, unsuccessful marriages can have catastrophic financial consequences, particularly for baby boomers. In a phenomenon termed the Gray Divorce, the baby boomer divorce rate is actually booming. According to a study by Susan L. Brown at Bowling Green State University, since 1990 the divorce rate has doubled among persons ages 50 and older and remarriages have a 2.5 times greater likelihood of divorce. However, boomers have much less time to recover financially from divorce. Untangling financial assets at the time of divorce can be time consuming, frustrating, and expensive. Involving a CDFA™ in the process early on can help ease the emotional and financial burdens on you. Marital planning is not synonymous with divorce planning. It is important to understand what property is owned separately versus property that is owned jointly. This is especially important for those of you with considerable assets at the time of marriage, valuable business interests, accumulated pension benefits, potential inheritances, and blended families. Maintaining separate property requires careful planning and has benefits for all concerned. We are here to help. At Silicon Hills we are committed to helping with all aspects of marital planning during all stages of marriage. Pam has the credentials, resources, and hands on experience… just ask Mitch. Investment advisory services offered through Silicon Hills Wealth Management, LLC, a registered investment advisor. Silicon Hills Wealth Management, LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Inside this Issue Advisor Insight • Strategic Financial Planning for Your Marriage Planning Ideas • Tax Tips for Summertime Community Spotlight • Emancipet The Quarter in Review Reach Your Peak Silicon Hills Wealth Management is an Austin, Texas based investment and financial advisory firm focused on providing a complete portfolio of services to help clients manage their financial lives. Our teambased approach is led by three seasoned professionals with a range of backgrounds including business ownership, Wall Street, and tax accounting. With an in-depth understanding of Austin’s high-tech and entrepreneurial economy, our management team brings relevant experience and a client-side perspective to financial planning. As Austin locals, we feel our professional relationships in our communities give us an unequalled view of our history and potential behind our growing economy. Planning Ideas Tax Tips for Summertime Are your kids in summer day camp? Summer day camp expenses may help you qualify for the child and dependent care credit. Qualifying expenses include summer camp as long as there is no overnight stays, summer school or tutoring programs. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Child-care must be necessary to allow the parents to work. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return. More information can be found on the IRS website. For details and guidance in applying the tax rules to your individual circumstances, please contact your CPA. Community Spotlight Child care credit is calculated in the following manner: Example Maximum qualifying expenses for 1st child $3,000 Maximum qualifying expenses for 2nd child $3,000 Maximum qualifying expenses $6,000 Applicable percentage 20% Maximum credit $1,200 Client Operations Bulletin New Electronic Approval Tools The firm can begin sending forms and wires for clients to approve electronically via the eAuthorization and eSignature tools. These tools allow clients to quickly and securely approve forms and wires on the go by leveraging platforms we already use: Schwab Alliance and Schwab Mobile Apps. We invite clients who don’t have a Schwab Alliance login to enroll and to install the Emancipet is on a mission to make spay/neuter services and preventive veterinary care affordable and accessible to all pet owners. Emancipet works toward this mission by operating a network of high-quality, low-cost clinics, training and supporting other organizations, and advocating for prevention-based solutions to animal homelessness. Emancipet currently has locations in Austin, Pflugerville, and Killeen as well as mobile clinics that travel across Central Texas. latest version of the mobile app. KYC – Verify your Identity. Why SHWM requests a copy of your Driver’s License The Securities and Exchange Commission (SEC) requires Since 1999, Emancipet veterinarians have safely spayed or neutered more than 200,000 pets at little or no cost! firms to obtain a client’s name, tax identification number, address, telephone number, date of birth, employment status, annual income, net worth (excluding primary To learn more about Emancipet and support their work, visit: http://emancipet.org/get-involved/. Join the mailing list and sign up to tour one of their clinics! residence), and investment objectives regarding certain accounts. Firms also are required to put procedures in place to verify the identity of any person seeking to open an account and will require a Government Issued Photo Identification to have on file such as a Driver’s License or Passport. Please plan on having your photo ID ready for your next meeting. Katia, our Client Services Assistant, will be asking for this identification if it is not Silicon Hills Wealth Management, LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Silicon Hills already on file. Client Newsletter // Third Quarter 2014 // PAGE 2 Investment advisory services offered through Silicon Hills Wealth Management, LLC, a registered investment advisor. The Quarter in Review As we proceed into the second half of the year, our eyes remain primarily on domestic earnings reports and European policymakers. As always, we stay the course and affirm our commitment to diversified1 portfolios and low-cost strategies. Asset Returns Our International Focus Global equities realized modest gains over the quarter with the S&P 500 rising 5.23%2 and international equities3 lagging just behind at 4.6%4. Domestically, the energy sector had a particularly strong quarter along with utilities which benefitted from a dip in interest rates and a shift in investor sentiment as traders grapple with the unease of three years without a true market correction. As this year’s gains are the result of continued price multiple expansion alongside tepid earnings growth, our impression is that investors are expressing a preference for earnings quality in the near-term, especially in the wake of 2013’s strong price performance. Greater Asia As was the case toward the end of 2013, we are seeing a large amount of market commentary that points towards attractive international equity opportunities relative to U.S. companies with analysts particularly emboldened by the latest commitments by the ECB to support more widespread economic recovery. Broadly speaking, we tend to mirror these sentiments in our portfolios. We remain balanced with a slight preference for yield, low-volatility equities, and actively-managed international exposure. We continue to see active management as a value-add in the international equity market, especially as countries surprise investors with outsized gains such as those posted by Japan during the last quarter (+6.66%)5,6, or the frontier markets as a whole (+11.92%)7,8. In spite of expectations that the Fed may contribute to rising interest rates as they end asset purchases around late Q3, global bonds managed a return of 2.5%9,10 over the quarter with the U.S. market slightly trailing at 2.0%11,12. The Eurozone and the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) experienced renewed interest in sovereign bond issuances even in spite of being seen as somewhat distressed as recently as 2012. As investor interest accelerated over the past 3 months, tightening spreads between European debt and U.S. treasuries reignited some interest in domestic bonds in spite of a likely increase in the Fed Funds rate in 2015. Over the quarter the 10-year treasury slipped from 2.73% to 2.53%13 in apparent defiance of the Fed’s ongoing taper, though we keep in mind that in a scenario of renewed skepticism towards European-issued debt (as is currently the case for Portugal), the resultant flight to quality may contribute to sustained low interest rates even after the Fed returns to traditional monetary policy. Silicon Hills N/C 0-10 Americas 10-20 20-50 Greater Europe 50-90 >90% Source: Morningstar Office 1 Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk. 2 Source: Morningstar Office 3 MSCI World ex US 4 Source: Morningstar Office 5 MSCI Japan NR USD 6 Source: Morningstar Office 7 MSCI Frontier Markets NR USD 8 Source: Morningstar Office 9 Barclays Global Aggregate TR USD 10 Source: Morningstar Office 11 Barclays US Aggregate Bond TR USD 12 Source: Morningstar Office 13 U.S. Department of the Treasury Client Newsletter // Third Quarter 2014 // PAGE 3 Investment advisory services offered through Silicon Hills Wealth Management, LLC, a registered investment advisor. The Quarter in Review // C O N T I N U E D Growth Continues at a Modest Pace Source: Economic Projections of Federal Reserve Bank Presidents, June 2014 & FRED® Economic Data, Federal Reserve Bank of St. Louis Inflation reported as-of May 2014, Unemployment reported as of June 2014 Forward projections based on Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2014 central tendency projections and equivalent change in indicator value each month until end-of-year 2014 In the United States, we close the first half of the year with little fanfare. The unemployment rate has continued to slip lower and was last reported at 6.1%14; however, the Fed has also revised 2014 GDP growth estimates from 2.8 – 3.0% (as of the March 2014 meeting) to an expected 2.1 – 2.3%15 overall so indicators are not all pointing toward a strong finish to the year. Inflation projections remain muffled at an estimated 1.5 – 1.716 this year vs. the 2.0 long-term target, but otherwise the aggregate economic situation isn’t deviating wildly from Fed targets. The oft-mentioned end of QE3 seems imminent and our view based on the committee notes is that in October of this year (barring any cataclysmic economic events) the Fed is likely to finally cease asset purchases related to this third round of quantitative easing. In stark contrast, our European neighbors are receiving arguably overdue relief in the form of renewed easing as the European Central Bank begins to mirror the same near-zero rate environment that U.S. policymakers are expected to begin stepping away from over the next year. Uniquely, ECB policy has extended accommodative interest rate policies far enough that, by one measure, there is a negative nominal overnight rate. The ECB has committed to a sustained near-zero (or more aptly, sub-zero) policy regardless of rate increases in the United States or elsewhere, but thus far it is unclear whether there is potential quantitative easing on the horizon especially as Germany tends to be apprehensive about nontraditional and potentially inflationary policy. Although many nations have taken strides since to reduce their dependence upon Russian natural gas for that very same reason, there is still potential for disruption. Farther east, higher output from the Chinese manufacturing sector may be signaling a recovery alongside slowed reductions in the Producer Price Index. Increased stability in the Chinese economy would be welcome news for investors hesitantly eyeing global growth. The Chinese government has reported slightly stronger growth in the second quarter than in the first, and reiterated that targeted economic support is likely to continue into the near future. We continue to watch for signs of more dramatic success as they attempt a migration towards a more consumption-oriented economy. We encourage you to reach out to us for further discussion of these topics. 14 FRED® Economic Data, Federal Reserve Bank of St. Louis 15 Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2014 16 Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2014 Apart from broad monetary policy, geopolitical tensions have risen substantially following the downing of Malaysia Airlines Flight 17 over contested Ukrainian territory. The aftermath of the incident was marked by investor unease as the 10-year treasury rate inched lower and the VIX volatility index experienced a boost. As the Ukrainian government has now inked a deal with the ECB, Russia appears prepared to more aggressively pursue delinquent payments for natural gas and rhetoric suggests that they may halt Ukrainian pipeline flows altogether as they did during 2009. Silicon Hills Client Newsletter // Third Quarter 2014 // PAGE 4 Investment advisory services offered through Silicon Hills Wealth Management, LLC, a registered investment advisor. The Quarter in Review // C O N T I N U E D This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Indices are unmanaged and investors cannot invest directly in an index. The performance of indices do not account for any fees, commissions or other expenses that would be incurred. The S&P 500 TR Index is a market-capitalization-weighted index of 500 large U.S. companies listed on either the New York Stock Exchange (NYSE) or NASDAQ Stock Market. TR, or Total Return, denotes that return calculation includes capital appreciation and income (dividends, interest, etc) The MSCI World Ex US NR USD Index consists of large and mid-cap equities in developed markets excluding the U.S. The index is balanced on the basis of the MSCI Global Investable Market Indices (GIMI) Methodology that incorporates market capitalization, sector, style, and other factors. NR (net return) denotes that dividends are implied to be reinvested after the deduction. The MSCI Japan NR USD Index is designed to track the large and mid-cap segments of the Japanese markets. NR (net return) denotes that dividends are implied to be reinvested after the deduction. The MSCI Frontier Markets NR USD Index is designed to provide broad exposure to 24 of the 33 countries classified as “frontier markets”. It contains approximately 99% of the investable equity markets across all 33 of these countries. NR (net return) denotes that dividends are implied to be reinvested after the deduction. The Barclays Global Aggregate TR USD Index is designed to represent the investable universe of investment-grade global bonds. TR, or Total Return, denotes that return calculation includes capital appreciation and income (dividends, interest, etc). The Barclays US Aggregate Bond TR USD Index is an unmanaged broad-based index that consists of investment grade U.S. dollar-denominated, fixed-rate taxable bonds with remaining maturities of one to three years. TR, or Total Return, denotes that return calculation includes capital appreciation and income (dividends, interest, etc.) The Producer Price Index (PPI) is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller. The VIX is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30 day period. Silicon Hills Client Newsletter // Third Quarter 2014 // PAGE 5 Investment advisory services offered through Silicon Hills Wealth Management, LLC, a registered investment advisor. ph. 512.774.5340 // fx. 512.201.6727 // 8834 N. Capital of Texas Highway // Ste. 200 Austin, Texas 78759 www.siliconhillswealth.com ADV Notice: Please contact us for more information and a copy of our ADV Investment advisory services offered through Silicon Hills Wealth Management, LLC, a registered investment advisor.