FINANCIALFOCUSSUMMER 2018 | IN THIS ISSUE:

• EVENTS & NEW OFFERINGS• CFG INVESTMENT PROCESS

• FRANK’S COMMENTARY• FAMILY DISCUSSIONS

FROM FRANK’S DESK

J. FRANKLIN CAPE , MBA, MSFS, CFP®, ChFC®, CLU®, AEP® President, Cape Financial Group Senior Financial Advisor, RJFS

Plan Well. Live Well.

FAMILY MEETINGSHave you talked to your family to prepare them for when you are no longer here or when you can no longer handle your finances? We’ve found that many people have not prepared their families for either of these situations. Unfortunately, it’s very common that when a loved one passes away or becomes incapacitated, their family has no idea where to begin. Many clients simply tell their family to “call Frank” and while that is a good start, it’s likely not enough. Please see Amy’s article to find some very important topics to start discussing with your family.

If you’re uncomfortable having these conversations or feel you need some direction, we’re happy to host a family meeting to help you discuss all of these issues with your children, parents, etc. We personalize these meetings to best fit your situation; we can be as general or as detailed as you’d like. We’ll review your legal documents to discuss your wishes and determine who is responsible for what. Don’t hesitate to call us for more information or to set up a preliminary meeting to customize your family meeting.

TO ROTH OR NOT TO ROTHWith the new tax reform in effect, everyone’s income tax situation has changed and so far, in every case I’ve seen, has meant lower income taxes. Since the standard deduction has doubled for everyone, the answer as to whether to invest in a regular IRA/401k or a Roth IRA/401k could change for you. This is an important topic we will discuss at your annual review.

ANNUAL REVIEWSIt’s that time of year again, we want everyone to come in for your annual review if you have not already been in this year. It’s very important for us to meet with you at least annually to review your investments, beneficiaries, any changes that have happened over the last year and implement any adjustments that need to be made. Call or email Kari to schedule your appointment, 920-272-2273 or kari.dimmer@raymondjames.com.

ARE YOU LOSING YOUR CHARITABLE DEDUCTION?With the standard deduction doubling, many people lose the advantage to itemize deductions which includes charitable deductions. If this situation applies to you, consider making a charitable gift to a donor advised fund (DAF). A DAF allows you to take a charitable deduction in one year and then later you can decide who to give it to and when. For example, if you usually give your church $3000/year, you can make a $12,000 donor advised fund donation in 2018 and take the deduction for 2018. You can then donate $3000/year to your church for four years from the DAF or if you change your mind you can donate the funds to any legal charity. Ultimately, it acts as a mini charitable foundation for yourself and you decide what organization actually gets the money and when. Call me to learn more.

AMY’S NEWS

AMY LUCKEROTHClient Relations Manageramy.luckeroth@raymondjames.com

HEALTH• What medications are you currently taking? At what pharmacy do you get your prescriptions filled?

• What health insurance do you have? If you’re over 65, would Medigap insurance - a private policy that covers many costs not covered by Medicare - benefit you?

• Do you have long-term care insurance, which helps pay for extended custodial or nursing home care. If not, explore your options to see if it’s right for you.

• Do you have an advance medical directive? This document expresses wishes regarding life-support measures, if needed, and designates someone who will communicate with health-care professionals on their behalf.

LIVING SITUATION

• Do you plan to stay in your current home for the foreseeable future, or are you considering downsizing?

• Is there anything to do now to make your home more comfortable and safe? This might include smaller projects such as installing hand rails and night lights in the bathroom, to larger projects such as moving the washing machine out of the basement, installing a stair lift, or moving a bedroom to the first floor.

• Do you employ certain people or companies for home maintenance projects (e.g., heating contractor, plumber, electrician, fall cleanup)?

MEMORIAL WISHES

• Do you want to be buried or cremated? Do you have a burial plot picked out?

• Do you have any specific requests or wishes for your memorial service?

• Do you have a funeral trust or plan to fund one?

If you have any questions or want more information regarding any of these topics please don’t hesitate to call me. And as Frank mentioned, if you want any assistance with these important family conversations, contact us to set up a preliminary meeting or discuss details, 920-272-2273.

DISCUSSING THE INEVITABLEIt's human nature to put off complicated or emotionally heavy tasks. Having conversations about finances, health, and overall well-being with your parents or children might fall in this category. Many families would rather avoid this task, as it can create feelings of fear and loss on both sides. But these conversations are too important to put off for long. To reduce the chance of having to make uninformed critical decisions in the midst of a crisis, start these conversations now.

Here are some great starting points.

FINANCES• What institutions hold your financial assets? Create a list of bank, brokerage, and retirement accounts, including account numbers, name(s) on accounts, and online user names and passwords. You should also know where to find insurance policies (life, home, auto, disability, long-term care), Social Security cards, house and vehicle titles, outstanding loan documents, and past tax returns.

• If there’s a safe-deposit box or home safe, make sure someone can access the key or combination.

• Share the contact information of any financial, legal or tax professionals that you currently work with. If it would be helpful, invite your parents or children to attend any meetings with you.

• Do you have a durable power of attorney? A durable power of attorney allows a named individual to manage all aspects of your financial life should you become disabled or incompetent.

• Do you have a will? If so, find out who is named as executor and inform them. If the will is more than five years old, you may want to review it to make sure your current wishes are represented.

• Are your beneficiary designations up-to-date? Beneficiary designations on insurance policies, pensions, IRAs, and investment accounts will trump any instructions specified in your will.

• Do you have an overall estate plan? A trust? If you'd like to learn more, we’re happy to recommend an estate planning attorney.

KARI DIMMER Office Communications Manager kari.dimmer@raymondjames.com

KARI’S NEWS

Along with our new website that I introduced in the last newsletter, we recently launched our very own CFG blog! You can access the blog by going to the ‘Resources’ tab on www.capefinancialgroupgb.com.

The CFG blog was created to be an excellent go-to resource for you to access anytime, anywhere. The blog gives us a chance to offer you a wide variety of relevant articles as well as serving as another form of communication between us. We will be adding content to the blog frequently so be sure to visit often to stay up to date.

Please direct any of the blog posts to friends or family that you feel may find them interesting or beneficial.

IMPORTANT DATES

Do you have documents or personal information that should be shred versus placed in the garbage? Protecting personal information and your identity are very important in today’s world.

Did you know, we offer a free shredding bin available for your use, year round?! The bin is locked in our office and the contents are picked up and shredded on-site by our shredding service.

Bring a bag of documents to your next appointment or drop off a bag of shredding the next time you’re in the area during business hours.

Here are some guidelines to follow when it comes to managing documents. Contact us if you’re hesitant to destroy specific records after these suggested time periods.

1 YEAR• Pay stubs• Bank records• Credit card bills• Yearly insurance policies• Investment statements

1-6 YEARS• Household furnishing paperwork• Loan documents• Savings bonds• Vehicle records

7 YEARS• All personal federal and state tax returns, as well as their supporting documents

LIFETIME• Defined benefit plan documents• Estate planning documents • Life insurance policies• Safe deposit box inventory

STAY INFORMED WITH THE CFG BLOG!REDUCE THE CLUTTER!

MAY28 Memorial Day (Markets & Office closed)

JUNE17 Father’s Day

UPCOMING EVENTS

CFG ANNUAL CLIENT APPRECIATIONTuesday, July 17, 20184:00 PM - 7:00 PMGreen Bay Botanical GardenFeaturing a pig roast dinner buffet & Nature Connects®: Art with LEGO® Bricks. Discover 16 larger than life LEGO® sculptures positioned throughout the gardens.

JULY4 Independence Day (Markets & Office closed)17 CFG Client Appreciation

SEPTEMBER3 Labor Day (Markets & Office closed)

Schedule your 2018 annual review today!

920.272.2273.

DANIEL’S NEWS

WEEKLY COMMENTARY

Brian S. Wesbury - Chief Economist Robert Stein, CFA – Deputy Chief Economist 

The opinions of Brian S. Wesbury, Robert Stein and Strider Elass are independent from and not necessarily those of RJFS or Raymond James.  This report was prepared by First Trust Advisors, L.P., and reflects the current opinion of the authors. It Is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the team at Cape Financial Group and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.Cape Financial Group is not a registered broker/dealer, and is independent of Raymond James Financial Services. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.

The majority of our clients’ accounts are managed by Cape Financial Group, Raymond James or both! Here’s a quick look at the investment process we use when building and reviewing our CFG managed portfolios.

STEP 1: UNDERSTANDING YOU. Our investment process begins with each individual. We have everyone complete a risk tolerance questionnaire because it is crucial to understand what type of investments you’re comfortable working with and which are best suitable for you.

STEP 2: SCREEN FUNDS. We constantly monitor the funds in our portfolios and consistently perform an in-depth analysis that consists of the following steps: • We use various screening tools (fi360, Morningstar, Raymond James Recommended List, etc.) to weed out funds that aren’t performing as expected and to find funds that are being well managed. • We meet semi-annually with every mutual fund company in order to gain insight on how funds are performing and how funds are being positioned in an ever-changing economy.• Frank or myself also hear from many portfolio managers and economic advisors to help understand the best way to position our portfolios in the current economic landscape.

STEP 3: BUILD THE PORTFOLIOS. Once we have screened our funds, we look at how these funds fit together in an asset allocation model.

Sometimes funds look great by themselves, but when mixed with other funds, their holdings can overlap and result in unwanted concentrated positions.This is when we also look at correlations, sector allocation, cap weighting, cash holdings, equity to debt, and U.S. and foreign allocation.

STEP 4: LARGER ECONOMIC OUTLOOK. After the funds are in our portfolios, we have some wiggle room within each sector that we can change based on our overall economic outlook. For instance, in the beginning of 2018, we shifted our allocation to be overweight in non-U.S. equities. Through our research, we found U.S. equities still attractive, but the growth potential oversees was greater.We set parameters regarding which equities and international exposure to have in each of our 10 different portfolios.

STEP 5: REVIEW PORTFOLIOS. Every month we take a snapshot of the portfolios (the funds inside, the overall allocation, etc.) and review how they’re positioned. If something looks awry, then we discuss any changes we believe are necessary.

If you are interested in learning more about our process, please reach out to Frank or myself. We love hearing from you!

Just a few weeks ago, the Pouting Pundits of Pessimism were freaked out over the potential for the yield curve to invert. They’ve now completely reversed course and are freaked out over a 3% 10-year Treasury note yield.

All this gnashing of teeth is driven by a belief that low interest rates and QE have “distorted” markets, created a “mirage,” a “sugar high” – a “bubble.”

These fears are overblown. Faster growth and inflation are pushing long-term yields up – a good sign.  And, yes, the Fed is normalizing its extraordinarily easy monetary policy, but that policy never distorted markets as much as many people suspect. Quantitative Easing created excess reserves in the banking system but never caused a true acceleration in the money supply. That’s why hyper-inflation never happened and both real GDP and inflation remained subdued. Profits, not QE, lifted stocks.

And our models show that low interest rates were never priced into equity values, either. We measure the fair value of equities by using a capitalized profits model. Simply put, we divide economy-wide corporate profits by the 10-year Treasury yield and compare these “capitalized profits” to stock prices over time. In other words, we compare profits, interest rates, and equity values and determine fair value given historical relationships. The lower the 10-year yield, the higher the model pushes the fair value of stocks.

Because the Fed held short-term rates so low, and gave forward guidance that they would stay low, they pulled long-term rates down, too. As a result, over the past nine years, artificially low 10-year yields have caused our model to show that stocks were, on average, 55% undervalued.

In other words, stocks never priced in artificially low interest rates. If they had, stock prices would have been significantly higher, and in danger of falling when interest rates went up.

But we have consistently adjusted our model by using a 3.5% 10-year yield. Using that yield today, along with profits from the fourth quarter, we show the stock market 15% undervalued. In other words, we’ve anticipated yields rising and still believe stocks are undervalued.  3% 10-year yield does not change our belief that stocks can rise further this year, especially with our expectation that profits will rise by 15-20% in 2018.

The yield curve will not invert until the Fed becomes too tight and that won’t happen until the funds rate is above the growth rate of nominal GDP growth. Stay bullish.

CFG INVESTMENT PROCESS

3% - WHY IT DOESN’T MATTER

DANIEL CAPE, AAMS® Financial Advisor daniel.cape@raymondjames.com