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When Will the Business Cycle Peak?

As the recovery lengthens further, this is a natural question to ask.

This decade has brought a long economic rebound to many parts of America. As 2017 ebbs into 2018, some of the statistics regarding this comeback are truly impressive:

*Payrolls have grown, month after month, for more than seven years.
*The jobless rate is lower than it has been for more than a decade.
*Business activity in the service sector has not contracted since the summer of 2009.
*The economy just grew 3% or more in back-to-back quarters, a feat unseen since 2014.1,2  

In the big picture, the American economy is booming. These statistics, and others, are so noteworthy that analysts are asking: when will the business cycle peak? Has it already peaked? Or are we experiencing a remarkably great exception to the norm? 

Any investor must recognize two indisputable facts. One, expansions eventually give way to recessions. Two, bull markets are punctuated by bear markets. The question is when we will see the next recession, the next bear market, or both.

All business cycles have four phases. The first phase – expansion – is often the longest. It is characterized by two phenomena: a bull market and annualized Gross Domestic Product (GDP) of 2% or greater. This expansion culminates at a peak, which is phase two. The peak is characterized by irrational exuberance on Wall Street, economic growth of 3% or more, a distinct acceleration of consumer prices, and the emergence of asset bubbles.3

Then – perhaps, imperceptibly – supply begins to exceed demand. Fundamental indicators begin to weaken; yet, the economy still grows – just not at the pace it previously did. Then, the growth diminishes altogether, and the business cycle enters phase three – contraction. GDP goes negative for two or more successive quarters, which defines a recession. Corporate earnings take a major hit, depressing investors. Equities enter a bear market. Finally, things come to a trough – a bottom. On Wall Street, institutional investors reach a point of capitulation – a moment when they decide there is more potential upside than downside to stocks. Investors and consumers start to become less pessimistic. Suddenly, supply has to keep up with demand again. Things brighten, and a new business cycle begins.3

How will we know precisely when the business cycle has peaked? Without seeing the future, we cannot know. We can make an educated guess based on fundamental economic indicators and earnings, but we will really only know looking back.

How can we prepare for the later phases of this current business cycle? Some healthy skepticism and some diversification may help. Investors who tend to get burned the most in an economic downturn (or bear market) are those who have fallen in love with one sector or one asset class. Their portfolios have become unbalanced, perhaps just because of the gains seen in the bull market.

Some investors opt for active portfolio management in recognition of business cycles, and their heavy influence on stock market cycles. Others choose to buy and hold, feeling that it is all too easy to mistime cycles while getting in and out of this or that investment class.

We have enjoyed a great bull run, and a new wave of prosperity has pulled many metro areas out of economic doldrums. At some point, times will get tougher. Whether you decide the appropriate response is to ride a downturn out or react quickly to it, a discussion with your trusted financial professional is a wise move.

**Active management involves risk as it attempts to outperform a benchmark index by predicting market activity, and assumes considerable risk should managers incorrectly anticipate changing conditions. 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.
   

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.
1 – inc.com/associated-press/jobs-report-october-2017.html [11/2/17]
2 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm [11/3/17]
3 – thebalance.com/where-are-we-in-the-current-business-cycle-3305593 [7/18/17]
LPL Tracking# 1-671277

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Comprehensive Financial Planning: What It Is, Why It Matters

Just what is comprehensive financial planning? As you invest and save for retirement, you may hear or read about it – but what does that phrase really mean? Just what does comprehensive financial planning entail, and why do some investors request this kind of approach?

While the phrase may seem ambiguous to some, it can be simply defined.

Comprehensive financial planning is about building wealth through a process, not a product.
Financial products are everywhere, and simply putting money into an investment is not a gateway to getting rich, nor a solution to your financial issues.

Comprehensive financial planning is holistic. It is about more than “money.” A comprehensive financial plan is not only built around your goals, but also around your core values. What matters most to you in life? How does your wealth relate to that? What should your wealth help you accomplish? What could it accomplish for others?

Comprehensive financial planning considers the entirety of your financial life. Your assets, your liabilities, your taxes, your income, your business – these aspects of your financial life are never isolated from each other. Occasionally or frequently, they interrelate. Comprehensive financial planning recognizes this interrelation and takes a systematic, integrated approach toward improving your financial situation.

Comprehensive financial planning is long range. It presents a strategy for the accumulation, maintenance, and eventual distribution of your wealth, in a written plan to be implemented and fine-tuned over time.

What makes this kind of planning so worthwhile? If you aim to build and preserve wealth, you must play “defense” as well as “offense.” Too many people see building wealth only in terms of investing – you invest, you “make money,” and that is how you become rich.

That is only a small part of the story. Careful planning can involve minimizing taxes and debts as well as adjusting wealth accumulation and wealth preservation tactics in accordance with your personal risk tolerance and changing market climates .

Basing decisions on a plan may help prevent destructive behaviors when markets turn unstable. Quick decision-making may lead investors to buy high and sell low – and overall, investors may lose ground by buying and selling too actively. Openfolio, a website which lets tens of thousands of investors compare the performance of their portfolios against portfolios of other investors, found that its average investor earned 5% in 2016. In contrast, the total return of the S&P 500 was nearly 12%. Why the difference? As CNBC noted, most of it could be chalked up to poor market timing and faulty stock picking. A comprehensive financial plan – and its long-range vision – helps to discourage this sort of behavior. At the same time, the plan – and the financial professional(s) who helped create it – can encourage the investor to stay the course. 1

A comprehensive financial plan is a collaboration & can result in an ongoing relationship. Since the plan is goal-based and values-rooted, both the investor and the financial professional involved have spent considerable time on its articulation. There are shared responsibilities between them. Trust may strengthens as they live up to and follow through on those responsibilities. That continuing engagement can promote commitment and a view of success.

Think of a comprehensive financial plan as your compass. Accordingly, the financial professional who works with you to craft and refine the plan can serve as your navigator on the journey toward your goals.

The plan provides not only direction, but also an integrated strategy to try and better your overall financial life over time. As the years go by, this approach may do more than “make money” for you – it may help you to build and retain lifelong wealth.

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Now 64? Prepare to Sign Up for Medicare

This is the time to arrange lifelong health coverage.

Age 64 is the age when you are reminded that you are a baby boomer growing older. Regardless of how young or old you feel at 64, you should make sure to sign up for Medicare.

The sign-up period will be here before you know it. In fact, you might already be within it, so act quickly if you are. Medicare gives you a 7-month window in which to enroll. That initial enrollment window opens three months prior to the month in which you turn 65 and closes three months after the month in which you turn 65. 

If you fail to enroll within that 7-month period, the chances are good that you will end up paying a late-enrollment penalty for not signing up for Part B coverage on time. That penalty is permanent. You will also have to wait until the next general enrollment period (January 1-March 31) to sign up.1,2
   
Are you already receiving Social Security retirement benefits? Have you received them for 24 straight months at any point? If your answer to either of those two questions is “yes,” then you will be enrolled in Medicare Part A and B, automatically. You will get your Medicare card in the mail about three months prior to turning 65.2
 
Are you currently covered under an employer or former employer’s health plan? If so, you may qualify for a special enrollment period. On the other hand, you may not.

The rules are complex here. If you are approaching your 65th birthday, your employer (or your health plan administrator) may require you to enroll in Medicare at the first opportunity.  Not all companies demand this. If yours does not, then you can sign up for Medicare coverage later, without being hit with late-enrollment penalties.2

If you are still working at 65 and have employer-sponsored health coverage, you face no requirement to sign up for Medicare until you retire or that coverage disappears. (This also applies if you are retired, but your spouse has employer-sponsored health coverage.)2
 
The month after your employment ends or your employee health benefits linked to that employment end (whichever comes first), an 8-month enrollment period will open for you to enroll in Medicare.2
 
By the way, COBRA does not meet Medicare’s definition of employer-sponsored health insurance. Neither does a health plan sponsored by one of your past employers. You will be allowed no special enrollment period under these coverage circumstances.2
  
You will need to decide what types of coverage you prefer. Parts A and B are the basic parts of Medicare. (Sometimes they are simply referred to as “Original Medicare.”) Part A is hospital insurance, and Part B is medical insurance.

Most people pay nothing for Part A; effectively, they have prepaid for the coverage by paying Medicare taxes during years on the job. Every Medicare recipient pays a monthly Part B premium. At this writing, the Part B premium for most Medicare recipients is $134. Should you still be working, this may be all the coverage you need if your employer offers health benefits.1

You may want more coverage than Parts A and B provide. You might be interested in a Medicare Supplement Insurance (Medigap) policy or a Part D plan to help you pay for medicines. Or, you could sign up for a Part C (Medicare Advantage) plan, offering all basic Medicare benefits, plus prescription drug and medical coverage.3

Contact a Medicare specialist before you enroll. Even with its user-friendly website and plenty of online third-party guides to help those new to it, Medicare remains intricate; its nuances, hard to grasp. A financial or insurance professional well versed in Medicare enrollment, benefits, and regulations may make the process simpler for you.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – medicare.gov/people-like-me/new-to-medicare/getting-started-with-medicare.html [11/20/17]
2 – fool.com/retirement/general/2016/05/14/do-i-get-medicare-when-i-turn-65.aspx [5/14/17]
3 – kiplinger.com/slideshow/retirement/T039-S001-10-things-you-must-know-about-medicare/index.html [5/17]
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