Drone Transport


Drone Transport


The advent of driverless cars has made the future look awfully confusing.  Will you even OWN a car ten years in the future, when all you’ll have to do is pull out your phone and request an automated ride to wherever you want to go?  Will there be automated drones that fly above the streets?


Perhaps the clearest picture of the next transportation era has been unveiled by the Airbus organization—the European consortium that makes commercial airplanes.  Airbus has recently demonstrated how you will be picked up at your home in a vehicle that looks like a futuristic car.  Then, at a transit site, a three-fanned drone will latch onto the car, lifting it from its wheels to take you dozens or even hundreds of miles away.  The drone will deposit the cab you’re riding in onto another set of wheels, which will take you on the streets to your final destination.


The technology will go on trial sometime within the next ten years, with battery technology cited as the biggest hurdle to full implementation.





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Impact of interest rate hikes


The U.S. Federal Reserve Board’s Open Market Committee just raised the Fed Funds rate from 0.75% to 1.00%—the second rate hike in three months.  So what should you do with your investment portfolio in light of this change?




Why?  First of all, the rate change was laughably minor, considering all the press coverage it received.  In the mid-2000s, Fed Chairman Alan Greenspan raised interest rates 17 times in quarter-point jumps, finally taking Fed Funds to a 5% rate.  This time around, the economists at America’s central bank are behaving extremely cautiously.


Second, although you may read that any raise in interest rates is depressing for stocks.  It’s true that borrowing will be incrementally more expensive for American corporations than they were last week.  But bigger picture, this move was actually a validation of the country’s economic progress in our long slow climb out of The Great Recession.


By raising rates, the Fed was indicating that it believes the companies that make up our economy are healthy enough to survive and prosper under slightly higher interest rates.  The markets apparently felt like this was a positive sign, that the economy no longer needs to be nursed back to health.  The widely-followed S&P 500 stock index rose a full percentage point on the news.


Third, and more good news, the Fed has now moved into a mode where it is fighting inflation, rather than trying desperately to stimulate it.  The worst thing that could happen to the economy is a bout of deflation, where prices fall and there are no policy remedies to fix the problem.  In the discussion accompanying the rate rise (the infamous Fed “minutes”) the Board of Governors expressed concern that inflation might rise above their “target” of 2%, hence the tightening.  If you read the message between the lines, they seem to feel that the threat of deflation is over.


Finally, the rate hike was expected, and already built into the price of stocks.  And more still are expected: at least two and possibly three 0.25% rises before the end of the year.  But the Fed also signaled that if there is any sign of backtracking, those plans will be scrapped.  The rate rises are anything but reckless.


So what WILL be the effect of the rate hike?  Borrowing to buy a car or a house will be slightly more expensive going forward than it was last week.  The average thirty year fixed mortgage rate this time last year was 3.68%; it’s now up to 4.21%.


Most credit cards charge variable rates of interest, which likely means a 0.25 percent rise in the rates you pay on any balances you carry from month to month.


And private student loans with variable interest rates will likely increase each time the Fed raises rates.  Balances on Stafford, Graduate Plus or Parent Plus loans will remain at their current interest rates, but the rates on new loans will probably rise.


If your portfolio is well-diversified, there’s not much more you can do to ride out a (slowly) rising-rate environment.  Ignore the headlines and celebrate the fact that even the most cautious economist in Washington are finally admitting that the economy is on solid ground.












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T Shares

So, what exactly is a T Share?

“T” shares are a newer form of hybrid share class that fund companies designed for short-term investors. The “T” in the “T” share stands for “tax,” due to what has been referred to as a perceived tax advantage. (Globe Advisor)

About 3,800 mutual fund share classes are about to emerge into the market.  Experts anticipate that each mutual fund that now has an A share will soon have a companion T share. Note that Fidelity and Janus currently sell shares that are labeled as T shares. They are different than this new breed, and will be renamed.

Some brokers who are strictly transactional based may use this as a selling tool and brag that cheaper is better. Right? Not necessarily.  The argument could be made that the T-share will cost less than the institutional class share over 5 years, meaning that transaction-based advice is more cost-effective than fee advice.  That, of course, assumes the other costs within the fund are identical.  It also ignores the fact that people who work in the true fiduciary realm do not limit their advice to investing in mutual funds but rather evaluate a clients’ financial situation holistically.  It’s simply what we do in the fee-only fiduciary world.

It’s also important to note that some individuals in the industry will talk about a “2.5% upfront (declining for larger purchases) and an ongoing 0.25% 12b-1 fee” – The problem here is that we have seen clients come to us indicating that their previous advisor did not utilize the discounts available by using the same fund family.  This declining fee sounds great on paper but the question is whether a broker will utilize it as a selling point as a less expensive alternative.

T shares that are held for four years will cost the investor 3.5 percentage points of sales charges: the upfront 2.5 points, plus another point for the four years’ worth of 12b-1 expenses. The same fund held for the same time period in an institutional share class, through a financial advisor levying a 1% asset-based charge, would generate 4 percentage points in advisory fees.

We’re concerned and wonder how often investments at brokerage firms are purchased and then not touched for four to five years.  We speculate that very few fall into this category.

“Some of them (referring to the brokers) would prefer a higher amount. There is nothing to prevent them from doing that–as long as every fund in their platform has the same fee or structure, so as to avoid the possible conflict” – If there is nothing preventing them from raising the fee structure some believe that they will in fact be raising it.   The Department of Labor (DOL) ruling will have its impact on the brokerage community and the T shares discussion will certainly be added to it.

As always, we welcome your questions regarding T shares along with all other investment inquiries.



Budget the Nest. Julie D. Andrews  http://budgeting.thenest.com/t-shares-mutual-funds-28181.html



Globe Advisor. T shares

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Tax Tips

Tax Tips

“Nothing is certain but death and taxes,” says our friend, Ben Franklin, and this year the deadline is April 18, 2017.  Why the 18th?  April 15 falls on a Saturday and the Washington D.C. Emancipation Day holiday being observed on April 17 instead of April 16, 2017 therefore Tax Day is on the following Tuesday, April 18.


There is still time to accomplish some last-minute details before the deadline.

~ Fund your Individual Retirement Account or Roth (IRA).   If you are under 50 years of age you may stow away up to $5,500 annually to a traditional IRA or Roth IRA.    If you are older than 50, there is a catch-up incentive maxing out at $6500 for your annual contribution. There are income limitations that apply to a Roth IRA just as there are limitations to a traditional IRA depending on how much you are already contributing to your employer-sponsored plan.

~If you are contributing to your child’s college education in a 529 plan or Edvest plan, not only are you saving in a tax-deferred account but an added bonus is the state tax deduction, which varies by state.  Of course, you may contribute more than the deducted amount to the account itself.  There are many other tax benefits to 529 plans and details are state specific.

~Charitable contributions are required to follow specific stipulations outlined by the Internal Revenue Service (IRS) one of which requires the taxpayer to be donating to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates Visit the IRS website for more details.. https://www.irs.gov/uac/eight-tips-for-deducting-charitable-contribution.


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Not if but when…bear market

Bear market, not if but when, during the Trump administration

You’re starting to hear people talk about “if” there’s a bear market during the Trump Administration, when the real truth is they should be talking about “when.”  And it won’t necessarily be triggered by a poorly-worded tweet, a global-trade-stopping new tariff regime or tax and entitlement reform.  Every presidential cycle has its share of market drawdowns, seemingly regardless of presidential policies.

You don’t believe it?  The accompanying chart shows the worst stock market drawdowns for every president since Herbert Hoover in the 1930s, and you can see that good president or bad, Republican or Democrat, they all eventually experienced significant down markets.  Some might be surprised to see Ronald Reagan’s 25% and 33% drop from high to low, or the nearly 52% drawdown experienced during George W. Bush’s presidency.  Weren’t these pro-business Presidents?

What the chart doesn’t show, but you know already, is that after every single one of these scary drops, the markets recovered to post new highs, which we’re experiencing today.  So don’t listen to anybody who talks about “if” the markets are eventually going to go down sometime in the next four years.  We’re going to experience a bear market—time, date, duration and extent unknown.  And then, if history is any indication, we’ll see new highs again eventually.

Presidential Drawdowns (4)




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No Leverage = Higher Costs

ca-2017-1-11-no-leveragetotal-costsWe hear all the time that medical costs are too high in the U.S., and that Medicare is going to go bankrupt in the future.  The President-Elect recently told us in a press conference that drug companies are “getting away with murder.”  So how high are drug prices, and are those prices contributing at all to the high medical costs in the U.S.?

A Public Citizen research report looked at the prices that older citizens pay for their medications under the Medicare Part D plan, the largest federal drug program, which now covers more than 39 million people.  You might be surca-2017-1-11-no-leverageprised to know that when the plan was passed by Congress under the Bush Administration, Medicare was specifically not allowed to “interfere” with the negotiations between drug manufacturers and pharmacies.  The program was prohibited from leveraging its purchasing power to create economies of scale.  And that would have been plenty of scale; currently, Medicare recipients account for 28% of all medical drug purchases in the U.S. marketplace.

But surely the marketplace itself would have resulted in reasonable drug costs.  Right?  The researchers compared the total expenditure per capita on pharmaceuticals across 33 large nations around the world, and found that not only did the U.S. spend the most—just over $1,000 a year per U.S. consumer, but the U.S. was a huge outlier over the rest of the world.  Canada, whose socialized medical system is widely derided in political debates, came in second, at $750 per capita, and Belgium, Japan, Germany, Ireland, France and Greece are all near or above $600.  At the other end of the scale, countries like Chile ($200), Israel ($300) and Denmark ($300) have managed to control drug costs without sabotaging the quality of their citizens’ health care.

A separate analysis in the same paper found that Americans pay much higher prices for patented drugs than any country in the world—by a nearly 2:1 ratio.  In fact, Medicare Part D pays nearly twice as much for the same medications as the Veterans Health Administration (VHA), due to the VHA’s ability to negotiate prices with its own purchasing power.



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The Uptrends We Never See

Most of us suspect that the world is going to hell in a hand basket—or at least getting worse over the long term.  In the U.S., only 4% of respondents will tell you that our world living conditions are improving. If you’re in the majority, the website “Our World in Data” has posted some charts that might change your mind.  Looking back over the long-term, it finds that we’re living at the very peak of world living conditions.  And the trend still seems to be upward.

screen-shot-2017-01-18-at-11-19-31-pm Consider global poverty.  The accompanying chart shows the share of the world population living in extreme poverty—and you can see that this was a very high percentage in 1820, when the dataset begins.  Since then, the share of extremely poor people has fallen dramatically and steadily, as more world regions have embraced industrialization, created social safety nets and slowly built a middle class.  Today only about 10% of the world’s citizens live in extreme poverty.

Take another example: literacy.  In 1800, only around 10% of the human population could read.  Today, as you can sscreen-shot-2017-01-18-at-11-19-46-pmee from the chart, the number hovers around 80%.  If you believe that science, technology and political freedom are important to solving the world’s problems, then it helps if more people can read and write and therefore participate.

Finally, there have been dramatic changes in the percentage of people around the world who live in a democratically free vs. closed totalitarian society.  The accoscreen-shot-2017-01-18-at-11-20-01-pmmpanying chart shows that virtually no people live in colonies any more, and closed autocracies are becoming scarce.  Meanwhile, the green-shaded area shows the percentage growth of individuals who now live in a democratic society—more than half currently, up from nearly zero in 1816.

What does all this mean?  If we take a longer-term perspective than, say, the recent presidential election cycle or last quarter’s earnings reports, we begin to see that all the time and energy and labor that all of us are putting in every day to improve the world, are actually paying off with substantial—if sometimes incremental–results.  Other charts show that we’re healthier, better-educated and better off than our ancestors.


Let’s hope we can keep it up.  The trends say we will.

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