We want to thank all of our wonderful clients and friends for attending our Open House this month.  We were delighted by the great turnout.  It was great to share a few drinks, snacks and stories.  

Many of you asked for access to the slideshow we were playing throughout the night.  Here is a link to the slides located on our website...

roswellaa.com/open-house

Merry Christmas and Happy New Year !

Financial Planning Tip of the Month

Last minute tax tactics...

• It is not too late to harvest capital losses!  At RAA we have been busy at work looking for opportunities.  If you own mutual funds outside of your retirement accounts, you may be surprised to see some large capital gain distributions this year (a major reason that we favor ETFs).  Be sure to take a look before the end of the year and take some losses if you can to offset those gains.  
• If you file your taxes using itemized deductions (as opposed to a standard deduction) and have some excess savings in the bank, go ahead and prepay your January mortgage payment.  That will give you an additional month of interest to deduct.  
• If you are still looking for ways to fulfill your philanthropic goals, it's not too late to donate highly appreciated stock.  Fidelity has a great solution called the Charitable Gift Fund that you may want to take a look at.

Let's talk Fedspeak for a moment...

On Wednesday, December 14th, at 2:15 EST the Federal Open Market Committee concluded their 2-day meeting with a much anticipated announcement.  The Federal Funds rate was increased from 0.25-0.50% to 0.50-0.75%.  The first increase since December of last year and only the second increase in the past decade!  The last increase was from 5.00% to 5.25%.  Yes, I said 5%, a very long way from where we are today.  The increase last week was not much of a surprise.  What was much more of interest was the change of tone and apparent "hawkishness" of the Fed.  Chairwoman Janet Yellen indicated that the Fed stands ready to raise rates 3 more times in 2017.  So? What does that mean?

The optimist is happy to hear that the economy must be doing better.  The stock market has had a great run.  Once again reaching record highs.  At RAA, we are a bit skeptical of the rally and remain somewhat cautious.  Until the past few trading days the move has been pretty narrow.  At one point 4 of the 30 Dow stocks accounted for almost 40% of the gains.  Goldman Sachs providing the most.  

The pessimist is focused on the possible negative side effects of higher inflation and a fall in both stock and bond prices.  Many bonds have already started to fall.  The views on stocks are mixed.  There is convincing technical and fundamental data that support both a continuation of the Trump rally and a major pullback in early 2017.  Time will tell.

At RAA, we are focused on both views.  We plan to maintain our approach for stock allocations...a diversified lower volatility core of investments complimented with tactical sector and alternative investments.  We currently favor Banks, Technology and Health Care.

See below for our special report on Bonds.

Special Report: Not all BONDs are created equal

So you've heard that the Fed raised rates and will likely do so a few more times next year.  You should take that as a signal to sell all your bonds...right?  WRONG!

As our headline states, "not all bonds are created equal".  True, there are some bonds that we do not want our clients to own in a rising rate environment.  Long term government bonds have nowhere to hide if rates rise.  The last few months and weeks were a testament to that.  TLT (an EFT that tracks 10-20 year treasury bonds) is down 17% since its peak in the summer.  The most commonly held bond index funds are down approximately 4-5% during the same period.  At RAA, we have never been a fan of bond index funds.  We have maintained a philosophy to invest in shorter term bonds and floating rate notes.  I learned many years ago during my days on the bond desk that "you are always better off being wrong than long in the bond market".  Meaning that it is much safer to own short term bonds and miss a run up longer term bonds than to own long term bonds when they go through a correction like we are currently witnessing.  

We also own both domestic and international bonds.  Convertible bonds and senior secured bank loans are also included in our strategy.  This approach has paid off.  Our core bond and income holdings are up during this time where most bond portfolios are down.  We exited High Yield bonds as part of a flight to quality earlier this year.  At the same time, we moved away small cap stocks to reduce risk in portfolios prior to the election.  We felt the move was a prudent one as a protective measure because both segments are among the highest volatility and risk measures.  We are currently in the process of looking for a re-entry into High Yield bonds.  We favor shorter term and higher credit ratings in this space.   

Moreover, we have been and continue to be a fan of floating rate notes and loans.  If interest rates stay the same of continue to rise, this positioning should perform well.  We believe that credit risk is a much more prudent bet than interest rate risk.  Therefore, we will continue to own allocations to a variety of bond and hybrid investments (preferred stocks and convertible bonds) with a focus on shorter term maturities.

Stay tuned for more information on this topic in 2017.