Where your hard-earned tax dollars are going

As tax season is behind us, it may be time to learn, more specifically, how your hard-earned tax dollars are allocated.

The Wall Street Journal recently published a chart which breaks down spending for every $100 of tax receipts—and concludes that the U.S. government is actually a very large insurance company that also happens to have an army.

For every $100 you pay in taxes, $23.61 goes to Social Security payments and administration—basically old age insurance for retirees.  Another $15.26 goes to Medicare, the government health insurance program.  Medicaid, the health insurance program for the poor, accounts for another $9.55 of that $100 tax bill—bringing the total costs for various civilian insurance programs to 48% of the total budget.  And that army?  It costs $15.24 of every $100 the government collects in taxes, not counting veterans’ benefits.

In all, the 2016 federal budget fell $15.24 out of every $100 short of revenues equaling expenses.  Where would you cut?

Things like federal expenditures and grants for education ($2.08), food stamps ($1.89), affordable housing ($1.27) and foreign aid ($1.14) actually make up a very small part of the budget, smaller than interest payments on the national debt ($6.25).

There has been talk about helping reduce the budget by lowering expenditures on the National Endowments for the Arts and Humanities, which together represent eight tenths of one cent of that $100 tax bill.  This would be comparable to someone trying to pay off his mortgage by looking for coins under the sofa cushions!



Posted in Uncategorized | Leave a comment

Gauging happiness by country


Where to Find Happy People

The World Happiness Report is out, and a group of independent experts have now compiled surveys of people in 156 countries, asking them to evaluate their lives on a scale of 1-10.  They then looked at some of the factors that seem to contribute to happiness, and identified five: real GDP per capita (a measure of average wealth); healthy life expectancy at birth; freedom to make life choices; generosity; and whether or not they perceived their society to have elements of corruption.

Number One on the list is Norway, and you might see a certain pattern when you see the runners-up: 2) Denmark, 3) Iceland, 4) Switzerland, 5) Finland, 6) The Netherlands and 7) Canada.  Sweden comes in at number 10, rounding out the socialistic Nordic societies.  In between are 8) New Zealand and 9) Australia.

Where does the U.S. rank?  Number 14, behind Israel (11), Costa Rica (12) and Austria (13).  The U.S. ranked poorly in social support and, interestingly, mental illness.  America’s ranking was as high as third in 2007, when people were less likely to cite corruption as a part of their lives.

Where are people least happy?  Most African countries reported low levels of happiness.  And, interestingly, the people in China report being no happier today than they were 25 years ago, despite rapidly-growing per capita income.  Chinese respondents to the survey attribute their lagging happiness to rising unemployment and a poor social safety net for the less fortunate.




Posted in Uncategorized | Leave a comment

Review of a busy first Quarter, 2017

2017 First Quarter Report

Are we in the late stages of a bull market—that time when the market suddenly takes off like a rocket for no apparent reason?

Over the last eight years, the S&P 500 index has returned more than 300%  But the tail end of this run seems to have accelerated the trend.  The first quarter of 2017 provided the highest returns for U.S. large-cap stocks since the last three months of 2013.  The Nasdaq index has booked its 21st record close of the year so far, and the indices have recorded a 30% rise over the past six quarters, marking the fastest advance since 2006.

The first quarter of 2017 has seen the Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—rise 5.72%, while the comparable Russell 3000 index gained 5.91% in the first quarter.

Looking at large cap stocks, the Wilshire U.S. Large Cap index gained 6.01% in the first quarter.  The Russell 1000 large-cap index finished the first quarter with a 6.23% performance, while the widely-quoted S&P 500 index of large company stocks was up 5.53% in the first three months of 2017.

Meanwhile, the Russell Midcap Index gained 5.15% in the first quarter.

As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies posted a relatively modest 2.26% gain over the first three months of the year.  The comparable Russell 2000 Small-Cap Index finished the quarter up 2.20%, while the technology-heavy Nasdaq Composite Index rose 9.83% in the first quarter, continuing its record-breaking climb.

Even the international investments were soaring through the start of the year.  The broad-based EAFE index of companies in developed foreign economies gained 6.47% in the first three months of calendar 2017.  In aggregate, European stocks gained 6.74% for the quarter, while EAFE’s Far East Index gained 5.13%.  Emerging market stocks of less developed countries, as represented by the EAFE EM index, rose 11.14%.

Looking over the other investment categories, real estate investments, as measured by the Wilshire U.S. REIT index, eked out a 0.03% gain during the year’s first quarter.  The S&P GSCI index, which measures commodities returns, lost 2.51%, in part due to a 5.81% drop in the S&P crude oil index.  Gold prices shot up 8.64% for the quarter and silver gained 14.18%.

In the bond markets, rates are incrementally rising from practically zero to not much more than zero. Coupon rates on 10-year Treasury bonds now stand at 2.39% a year, while 30-year government bond yields have risen to 3.01%.

The pundits on Wall Street have been telling us that the market’s sudden meteoric rise—which really accelerated starting in December of last year—is the result of the so-called “Trump Trade,” shorthand for an expectation that companies and individuals will soon be paying fewer taxes and be burdened by fewer regulations, leading to higher profits and greater overall prosperity.  Add in a trillion dollars of promised infrastructure spending, and the expectation was an economic boom across virtually all sectors.

However, there is, as yet, no sign of that boom; just a continuation of the slow, steady recovery that the U.S. has experienced since 2009.  The latest reports show that the U.S. gross domestic product—a broad measure of economic activity—grew just 1.6% last year, the most sluggish performance since 2011.  The U.S. trade deficit widened in January, and both consumer spending and construction activities are weakening from slower-than-average growth rates.

The good news is that corporate profits increased at an annual rate of 2.3% in the fourth quarter, which shows at least incremental improvement.  However, the previous three months saw a 6.7% rise in profits, suggesting that the trend may be downward going forward.

It’s possible to read too much into the recent failure of health care legislation, and imagine that we’re in for four years of ineffective leadership.  There will almost certainly be a tax reform debate in Congress in the coming months, but the surprising aspect—as with the healthcare legislation—is that there seems to have been no pre-prepared plan for Congress to vote on.  We know that the Republican President and Congress want to lower corporate tax rates and simplify the tax code—which, in the past, has meant adding thousands of new pages to it.  We know that there is general opposition to any form of estate taxes, but nobody is proposing which deductions would be eliminated in order to make this package revenue-neutral.

Similarly, there have been no details about the infrastructure package, which means we don’t know yet whether it would be a budget-busting package of pork barrel projects or a real contribution to America’s global competitiveness.

We can, however, be certain of one thing: as the bull market ages, we are moving ever closer to a period when stock prices will go down, perhaps as dramatically as 20%, which would qualify as a bear market, perhaps more or less.  This is a good time to ask yourself: how much of a downturn would I be able to stomach either before panic sets in or my lifestyle is endangered?  If your answer is less than 20%, or close to that figure, this might be a good time to revisit your stock and bond allocations.

On the other hand, if you’re not fearful of a downturn, then you should look at the next bear market the way the most successful investors do, and envision a terrific buying opportunity, a time when stocks go on sale for the first time in the better part of a decade.  For some reason, people go to the shopping mall to buy when items go on sale, and do the opposite when the investment markets go down.  Knowing this can be an unfair advantage to your future wealth, and even make you look forward to the end of this long, unusually steady, increasingly frantic bull run in stocks.  After all, if history is any indication, the next downturn will be followed by another bull run.


Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–



International indices: https://www.msci.com/end-of-day-data-search

Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/






Posted in Uncategorized | Leave a comment

Celebrating 25 years

Please join us in congratulating Kathy Kern, operations manager for Financial Fiduciaries, LLC for her 25 years of service to our clients as well as our team of professionals.    Undoubtedly, she has witnessed many changes over the last two and a half decades, the greatest of which can be found on the production side of the business.   Kathy notes, “We printed to a dot matrix.”  Despite advances in technology, she admits to being “old school and believes in the value of face-to-face communication.

In today’s job market, rarely does one find an individual celebrating 25 years with one company.  We are thankful for Kathy’s dedication to Financial Fiduciaries, LLC.  She appreciates the hometown commitment that Financial Fiduciaries, LLC has made to the area while providing that local contact along with a full service, one stop approach for clients.

Kathy’s critical, behind-the-scenes role includes record keeping and reporting functions, trading, settlement along with deposits and withdrawals.  She worked in the banking and brokerage industries before joining Vigil Trust/Financial Fiduciaries in 1992 and holds a Bachelor of Science degree from the University of Wisconsin-Stout.

Posted in Uncategorized | Leave a comment

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.





Posted in Uncategorized | Leave a comment

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, consider this:  It’s true that borrowing will be incrementally more expensive for American corporations than it was 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 economists in Washington are finally admitting that the economy is on solid ground.






Posted in Uncategorized | Leave a comment

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

Posted in Uncategorized | Leave a comment