Edward Jones Perspective January 2017 2 O 17 Better Growth and Higher Uncertainty OUTLOOK When Is the Right Time to Take Social Security? Page 5 How Am I Doing? A Look at Portfolio Performance Page 6 Resolve to Make the Most of Your Finances This Year Page 7
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Edward Jones PerspectiveJanuary 2017
2O17Better Growth and Higher Uncertainty
OUTLOOK
When Is the Right Time to Take Social Security?
Page 5
How Am I Doing? A Look at Portfolio Performance
Page 6
Resolve to Make the Most of Your Finances This Year
Page 7
Be Patient – Changes Take Time We think the economy is well-positioned to keep growing between 2% and 2.5% in 2017, faster in the second half of the year. Modest job growth should continue to support solid consumer spending, helped later in the year by efforts to reduce taxes, a boost to federal spending concentrated on infrastructure, and many deregulatory proposals that affect financial services and health care.
The impact on specific sectors of the economy and stocks depends on the details – and while hopes for favorable changes have soared, the earliest effects probably won’t begin until the second half of the year. To help weather policy uncertainty, use time-tested principles, stay diversified, and expand the types of investments you own to create a solid foundation.
Brighter Economic Outlook Favors StocksRising consumer spending has been the backbone of the long-running bull market. We expect better growth and higher company earnings to support rising stock prices over time. In late 2016, large-cap U.S. stocks lagged mid- and small-cap stocks due to their potential benefits from lower tax rates and less exposure to changes in the value of the dollar, but both have the support of better earnings and growth. We think the risks and opportunities remain balanced.
Rates Still Low but Rising SlowlyExpectations for faster economic growth have also led to forecasts of higher inflation and rising interest rates. The Federal Reserve (Fed) has already signaled it intends to raise short-term interest rates if economic growth continues at a solid pace with further improvements in the job market. Wage growth has accelerated to about 2.5% annually, but we expect inflation to rebound to around 2% as falling prices from the rest of the world partly offset rising wages here. While rising inflation could prompt faster-than-expected rate hikes, the Fed should still be patient and slow. That means long-term interest rates and the dollar move modestly higher.
We recommend that you have an appropriate mix of stocks and bonds based on your comfort with volatility and long-term financial goals. Stock and bond prices frequently move in opposite directions. When stocks drop, bonds can play an important role in your portfolio because they tend to rise, helping to stabilize portfolio values. But long-term bond prices have typically dropped more than short-term bond prices when interest rates rise, and that’s why we suggest a small allocation to long-term bonds.
High-yield bonds tend to be closely tied to economic growth, and thus still look attractive. And make sure you have enough in cash and short-term fixed income to cover current spending and take advantage of opportunities during stock market pullbacks.
As the new Trump administration and Congress take office in January, proposed changes in government policies dominate the outlook for 2017. Stock prices, interest rates and the value of the U.S. dollar have risen since the election due to optimism about likely pro-growth policies. But most changes don’t happen overnight – and the priorities aren’t clear. Don’t mix politics and investing – instead, stick to the approach customized for you, and position your investments for likely changes as well as greater uncertainty ahead.
Kate Warne, Ph.D., CFA Investment Strategist
Outlook 2017 Better Growth
2 Edward Jones Perspective
Stronger Dollar Hurt International Equities Rising interest rates have also increased the U.S. dollar, reducing the returns on international invest-ments. When the dollar reverses, international investments are helped, and that’s one reason we think international stocks are an opportunity for long-term investors. While U.S. stocks are near record highs, international stocks have lagged and are attractive in our view, balancing higher political risks and still-slow international growth.
• Today’s strong dollar and better U.S. economic growth could help boost foreign economic growth due to stronger exports, combined with higher government spending and still-expansionary monetary policies in Europe and Japan.
• Although past performance is not a guarantee of what will happen in the future, international equity investments have outperformed after past times when they’ve lagged behind U.S. stocks.* They can help diversify your portfolio and may outperform if global growth rebounds.
As the chart shows, a portfolio with 65% invested in U.S. and international stocks and 35% in fixed income has not had a negative five-year return when rebalanced annually. Don’t let recent performance lead you to neglect diversifying your portfolio internationally.
Continued on p. 4
Source: Morningstar Direct; 1/1/1976 – 12/31/2015. U.S. large-cap stocks represented by the S&P 500 Total Return Index; international stocks represented by the MSCI EAFE NR Index; bonds represented by the Barclays U.S. Aggregate Bond Index. The hypothetical portfolio is for illustrative purposes only. Results may vary for an individual portfolio with similar holdings. Indexes are unmanaged and are not available for direct investment. Past performance is not a guarantee of future results. Investing involves risk. The value of your investments will fluctuate, and you may lose principal.
25%
20%
15%
10%
5%
0%’80 ’85 ’90 ’95 ’00 ’05 ’10 ’15
International Stock Investments Have Helped Improve the Chances of Positive Returns
65% U.S. & International Stocks - 35% Bonds (5-year Annualized Return)
*Source: Morningstar Direct, 9/30/2016. U.S. stocks represented by the S&P 500 Index. International stocks represented by the MSCI EAFE Index. Indexes are unmanaged and are not available for direct investment.
and Higher Uncertainty
3January 2017
Investors are rightly optimistic about the possibility of more pro-growth policies worldwide in 2017. And many powerful trends continue to be positive for investors. But risks abound, increasing uncertainty, so we also expect a return to normal volatility in 2017, with at least one 10% stock market correction as well as several smaller pullbacks.
You can help position your portfolio for growth with these five strategies:
Rebalancing to an appropriate mix of stocks, bonds and international investments based on your comfort with market volatility and long-term financial goals. That mix can help reduce the swings in your portfolio and help you stay invested during stock market pullbacks.
Adding mid-cap and small-cap stocks that appear well-positioned to benefit from the possibility of lower tax rates and rising international tensions.
Sticking with international stocks, which have lagged repeatedly. A rising dollar could hurt their perfor-mance short-term, but better-growth policies could finally produce better international performance.
Adjusting your fixed-income portfolio to increase short-term and cash investments and reduce long-term fixed income if appropriate.
Staying patient and disciplined. Your investment portfolio is designed for your situation, and the expected changes aren’t certain and will take time. Patience and discipline can help you adjust appropriately when needed, without overreacting.
Don’t let short-term predictions or political uncertainty determine your long-term investment success. Instead, stay flexible and keep a long-term perspective by working with your financial advisor to stick to an investment strategy designed for your circumstances.
Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal. Small- and mid-cap stocks tend to be more volatile than large company stocks. Special risks are inherent to international in-vesting, including those related to currency fluctuations and foreign political and economic events. Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity. High-yield bonds are subject to a greater risk of loss of principal and interest than higher-rated bonds.
4 Edward Jones Perspective
Continued from p. 3
5Strategies to Help Address Policy Uncertainty
1
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■■ Above Average (85+) ■■ Average (early 80s) ■■ Below Average (< early 80s) ■■ Above Average (85+) ■■ Average (early 80s) ■■ Below Average (< early 80s)
5January 2017
When Is the Right Time to Take
Social Security?
Securing Your RetirementBefore you apply for Social Security benefits, be sure to discuss your situation with your financial advisor. Together, you can review your retirement income options, incorporating Social Security and helping you position your investments to provide for your needs throughout retirement.
• What role will Social Security play in your retirement vision? • How much do you estimate spending in retirement? • Will you have enough money to cover your expenses if you delay benefits?
■■ Single ■■ Married ■■ Divorced ■■ Widowed
When do you plan to take Social Security? Many people simply take it as early as possible without thinking about how this decision may affect their retirement. Before you decide, be sure to get your Social Security benefit statement online at www.ssa.gov. Then you can use our Social Security “LENS” framework to answer the following:
Did you know? For a 65-year old couple, there’s a 50% chance one spouse could reach his or her 90s.* The better your health and the longer you and your spouse expect to live, the more it may make sense to delay claiming Social Security.
■■ Above Average (85+) ■■ Average (early 80s) ■■ Below Average (< early 80s) ■■ Above Average (85+) ■■ Average (early 80s) ■■ Below Average (< early 80s) You:
Spouse:
Did you know? If you expect to earn a substantial income in retirement, you may want to delay claiming Social Security at least until you reach your Full Retirement Age. For more information, visit www.ssa.gov/planners/retire/retirechart.html.
Did you know? If you don’t need Social Security to support your current lifestyle, it may make sense to delay claiming it.
Did you know? When you decide to take Social Security can affect the benefit for the surviving spouse. You or your spouse (particularly the person with the larger benefit) may want to consider delaying benefits to maximize lifetime benefits and better provide for the surviving spouse.
Do you plan to work in retirement? ■■ No ■■ Part-time ■■ Volunteer
Expected earnings:
Life Expectancy
Employment
Need
Spouse
L
E
N
S
*Source: Milevsky, IFID; Society of Actuaries RP-2000 Table.
Reviewing your investment performance is an important step in determining if you’re on track to achieve your financial goals. But how do you know what return you should be achieving? You can help put your performance into perspective by making your expectations relevant, realistic and reviewed.
Scott Thoma, CFA, CFP® Investment Strategist
How Am I Doing? A Look at Portfolio Performance
Relevant Some investors look at the S&P 500’s returns and ask why theirs are different. Though indexes can provide insight into general market performance, they’re not based on your specific allocation or designed to help you reach your individual goals.
The most important return is the one you need to reach your goal. So once you’ve set your financial goals, work with your financial advisor to determine the return you’ll need to achieve them. It’s this return, rather than the market return, that should become your “benchmark” to determine if you’re on track.
Realistic In general, your portfolio’s return will depend on several factors, including:
• The market environment – Our long-term return expectations are 6% to 8% for U.S. stocks and 3% to 4.5% for fixed-income returns. However, as market conditions change, these outlooks also can change.
• Your asset allocation – Your mix of investments can be the most important factor in how your portfolio performs over time. Risk and return go hand in hand – the more you invest in stocks, the greater your chances for positive returns, but the higher the risk (or chance for higher volatility) you’ll take on.
• Your investment holding period – The longer you own your investments, the higher the likelihood your returns will be positive. Make sure you compare your return goals to your long-term performance, not just one particular quarter or year.
Reviewed At least once a year, you should meet with your financial advisor to conduct a thorough review of your portfolio and financial position, including your personal rate of return. Regular reviews can help determine if you’re making progress toward achieving your financial goals. Ultimately, this is the best way to measure your portfolio’s performance.
6 Edward Jones Perspective
Resolve to Make the Most of Your Finances This Year
7January 2017
?Q.A.
What should I do next?
Contact your financial advisor. He or she knows what’s important to you and can recommend investments and strategies that support and align with your goals.
Q.A.
I’m determined to be more organized this year. How can I apply this to my finances?
We suggest:• Systematically investing – Why give yourself
one more thing to remember? With systematic investing, you automatically invest a fixed amount at regular intervals.
• Meeting regularly – Before your calendar fills up, schedule your next appointment with your financial advisor. Meeting regularly can help you stay on track toward your financial goals.
• Downloading the Edward Jones app to your mobile device – You can stay close to your accounts and get market news while you’re on the go. You can download the mobile app at the App Store or Google Play.
• Consolidating your accounts under one roof – Doing this would allow your financial advisor to see your complete financial picture, not just one piece of the puzzle.
Q.A.
Is one of your New Year’s resolutions to get your financial house in order? If so, make this the year you stop planning and start taking action.
What should I do first?
Before you can achieve your financial goals, you’ll need to define them. They might be short-term (affording a new car or building an emergency fund) or long-term (sending your child to college or retiring someday). Whatever your goals, your financial advisor can help you develop strategies to work toward achieving them.
Due to increasing coverage and limited space, we include the top 180 stocks based on market capitalization in Edward Jones Perspective. For a complete list of stocks that Edward Jones covers, please see your financial advisor.
Important Disclosures: *Bank of America 2,4,5,6,10,14; **Citigroup 2,4,5,13,14; ***JPMorgan Chase 2,4,5,10,14,15; ****U.S. Bancorp 5,7,8,10,11,13; *****Wells Fargo 2,4,5,10,13,14. Due to increasing coverage and limited space, we include the top 180 stocks based on market capitalization in Edward Jones Perspective. For a complete list of stocks that Edward Jones covers, please see your financial advisor.
Due to increasing coverage and limited space, we include the top 180 stocks based on market capitalization in Edward Jones Perspective. For a complete list of stocks that Edward Jones covers, please see your financial advisor.
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S TO C K TA B L EAs of 12/01/2016
Communication Services 3%
Comcast, Verizon Communications
Consumer Discretionary 11%
Coach, Disney (Walt), Dollar General, Lowe’s, The Priceline Group, TJX Companies, Tractor Supply
Consumer Staples 10%
Kraft Heinz, Mondelez International, PepsiCo, Philip Morris, Procter & Gamble
Energy 9%
Chevron, EOG Resources, Pioneer Natural Resources, Schlumberger, Total SA
Financial Services 17%
Alliance Data Systems, American Tower, Berkshire Hathaway Cl. B, BlackRock, Citigroup, U.S. Bancorp
AMETEK, Deere, Emerson, Union Pacific, United Technologies, Wabtec
Materials 3%
FMC Corp., Praxair
Technology 19%
Alphabet, Apple, Check Point Software, Facebook, IBM, Microsoft, Oracle, Visa
Utilities 3%
Duke Energy, Fortis
The sector percentage figures indicated on the left are our recommended weightings for that particular sector. Stock Focus List average annu-alized total returns: 1-year: 9.5%; 3-year: 7.8%; 5-year: 14.1%; 10-year: 7.2%; since inception (Dec. 31, 1992): 9.0%. S&P 500 returns: 1-year: 8.0%; 3-year: 9.0%; 5-year: 14.4%; 10-year: 6.9%; since Dec. 31, 1992: 9.1%. Returns calculated as of 11/30/2016. Total returns assume reinvestment of dividends, capital appreciation and a transac-tion fee of 1%. Past performance is not a guaran-tee of future results. The investment return and principal value of an investment will fluctuate. An investor’s equity, when liquidated, may be worth more or less than the original cost. The Edward Jones Research department typically recommends industry-leading companies that appear reasonably valued. A well-diversified approach is typically used without significant over- or under-weighting (in comparison to the S&P 500) in any one sector. An index is unman-aged and is not meant to depict an actual invest-ment. Performance results do not represent actual trading and may not reflect the impact that material economic and market factors might have on our decision making if we were actually managing clients’ money.
Analog Devices
Dominion Resources
Emerson
Enbridge
IBM
Johnson & Johnson
McDonald’s
Merck
Microsoft
Omnicom Group
PepsiCo
Pfizer
Praxair
Procter & Gamble
Union Pacific
United Technologies
U.S. Bancorp
Ventas
Verizon Communications
VF Corp.
Equity Income Buy List
Stock Focus List
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16 EPS, P/E and EPS Growth Rates are based on Fundsfrom Operations.
Analyst Certification: I certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is or will be directly or indirectly related to the specific recommenda-tions or views contained in this research report. Kate Warne, Ph.D., CFA; Scott Thoma, CFA, CFP®.
Analysts receive compensation derived from revenues of the firm as a whole that include, but are not limited to, investment banking revenue.
Opinion Definitions: Our recommendations are based on an evalua-tion of fundamentals of the business and industry the company oper-ates in, as well as an analysis of the valuation of the stock and total return potential.
BUY – Our opinion is to buy this stock. We believe the valuation is attractive and total return potential is above average over the next 3-5 years compared with industry peers.
HOLD – Our opinion is to keep this stock. We believe the stock is fair-ly valued and total return potential is about average over the next 3-5 years compared with industry peers. Or a special situation exists, such as a merger, that warrants no action.
SELL – Our opinion is to sell this stock. We believe the stock is over-valued and total return potential is below average over the next 3-5 years compared with industry peers. In some cases, we expect funda-mentals to deteriorate considerably and/or a recovery is highly uncertain.
UNDER REVIEW (UR) – Our rating, estimates and opinion for this company are under review and should not be relied upon for making investment decisions until updated.
FYI – For informational purposes only; factual, no opinion.
The table below lists the percentage of stocks we follow globally in each of our rating categories. Investment banking services indicate the percentage of those companies that have been investment bank-ing clients within the past 12 months. As of 12/1/2016:
Other DisclosuresStock prices and 52-week price range are as of Dec. 1, 2016. For more up-to-date prices, contact your financial advisor. The Dow Jones Industrial Average and S&P 500 Index are not managed and are unavailable for direct investment.
The issues mentioned herein are subject to price change without notice. Additional information is available upon request.
P/E is based on fiscal year.
L-T EPS Growth Est.– Our long-term earnings growth estimate is our expectation for growth over the course of a full economic cycle. This “normalized” figure avoids distortions that can occur if beginning- or ending-year results are impacted by one-time items or extreme peaks or troughs within the cycle.
PEGY Ratio – Indicates whether a stock is undervalued. Calculated by dividing the current P/E (shown in this stock table) by the sum of the company’s estimated EPS growth rate and dividend yield.
$10,000 Invested – Hypothetical $10,000 investment in each com-pany 10 years ago with dividends reinvested for the period ended Nov. 30, 2016. Does reflect spinoff activity. Does not imply a recom-mendation during this period of time. Past performance does not guarantee future results.
Investment Category: Growth & Income (G/I) – Large-cap companies that pay a dividend, as well as REITs and utility companies; Growth (G) – Small- and mid-cap companies, excluding REITs and utilities, as well as any large companies that do not pay a dividend; Aggressive (A) – Micro-cap companies, companies with share prices below $4, stocks restricted by Research, and emerging-market stocks.
Dividends in bold indicate that a company has increased its dividend since Dec. 31, 2015. Dividends may be increased, decreased or eliminated at any point without notice.
Companies in bold are on the Edward Jones Stock Focus List.
The Edward Jones Research Rating referenced does not take into account your particular investment profile and is not intended as an express recommendation to purchase, hold or sell particular securi- ties, financial instruments or strategies. You should contact your Edward Jones financial advisor before acting upon the Edward Jones Research Rating referenced.
This publication is for information only. While the statements con-tained in this report are taken from sources that we believe to be reliable, we do not guarantee their accuracy. Some of this infor-mation is provided by an independent research service. This state-ment does not apply to disclosures concerning Edward Jones or analyst certification.
Edward Jones Perspective is published monthly by Edward Jones, 12555 Manchester Road, St. Louis, MO 63131-3729.
Buy Hold Sell
Stocks 44% 53% 3%
Investment Banking Services 1% 3% 0%
STOCK FOCUS LIST
Inside Your Issue of Edward Jones Perspective• Outlook 2017: Better Growth and Higher Uncertainty• When Is the Right Time to Take Social Security?• Resolve to Make the Most of Your Finances This Year
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