Markets Can't Hide From This Election · presidential elections in memory. Instead, they got a crushing defeat of the “inevitable” Republican nominee Jeb Bush and emergence of

MAY/JUNE 2016

A PUBLICATION FROM COMPREHENSIVE FINANCIAL SERVICES VOLUME XXVII • NUMBER 3

Financial markets hate surprises, andonly a year ago they were lookingforward to one of the more predictablepresidential elections in memory.Instead, they got a crushing defeat ofthe “inevitable” Republican nomineeJeb Bush and emergence of populistDonald Trump, a candidate with nopolitical experience, team or program.

On the Democratic side, meanwhile, Hillary Clinton has runinto a challenge from socialist Bernie Sanders; while she islikely to see it off, the party may be pushed further to the left.

The Republicans and the Democrats are nervous, businessleaders are apprehensive and America's trading partners arehorrified, but Wall Street has shrugged off all concern. Stocksare reacting to China and oil prices, not to developments inAmerica's own backyard. But will it last?

The U.S. government has been dysfunctional for the past eightyears but while investors initially reacted negatively to newsfrom Washington, they soon learned to shrug off assortedgovernment shutdowns, threats of debt default, sequestersand lack of legislative action.

They have actually discovered that gridlock is good forbusiness. At least no major changes can be made to policy andno new taxes or regulations imposed.

Wall Street now anticipates more of the same come January2017, i.e., continued recriminations and inaction in Washingtonfor four more years. Each candidate may be scary when takenon his or her own merits, but they will be inevitably neutralizedby sharp ideological divisions once one of them gets to theWhite House.

This may prove an overly optimistic assumption. The rise ofhighly unusual candidates in the election cycle reflects deepchanges in American society. Voters whose imagination has

been captured by anti-establishment candidates like Trumpand Sanders are not going to go away.

Their newfound passion testifies to their determination to beheard. This will have major implications for the political systemand, eventually, for financial markets.

It is conventional wisdom that the country is split down themiddle, with the conservative half supporting low taxes, pro-business policies and traditional values, and the liberal halfstressing the role of the government in the economy and thelives of ordinary citizens, and expressing preference for moreinclusive, multicultural policies. However, this election cyclehas laid bare very different divisions, which turned out to benot so much political or ideological as economic, reflectingradical changes in the U.S. economy.

Economic changes have long been gathering momentum, butthey are only now coming to the fore. Just as technologiesdeveloped in 1900–30 (notably, the internal combustion engine,electricity, radio, cars and airplanes) and the Great Depressionaltered the U.S. economic model, so the IT revolution beganreshaping the U.S. economy in the 1990s, and those changeswere solidified by the Great Recession of 2008–09. What weare seeing in Election 2016 is a search for a political systemthat could accommodate the new economic reality.

The technology that came into being a century ago was basedon several major technological breakthroughs that brought tolife large-scale enterprises — mines, steel mills, manufacturingplants, rail networks — involving massive, geographicallyconcentrated workforces. Operating machinery and equipmentdemanded a considerable level of literacy and training.Innovation was slow, such that three or four generations ofengineers and industrial workers did essentially the same work.

The post-industrial economy, on the other hand, is based onideas and requires entrepreneurial skills and flexibility.Change is lightning fast and moves in unpredictable ways.

The views expressed within are of Ken Marinace not National Planning Corporation, and should not be construed as investment advice. All information is believed to be fromreliable sources; however National Planning Corporation (NPC) makes no representation as to its completeness or accuracy. NPC is not to be held responsible for and may not beheld liable for the accuracy of information available.

Kenneth A. Marinace California Insurance License #0545122Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Advisor. Additional advisory services offeredthrough Comprehensive Financial Services (CFS), a Registered Investment Advisor. CFS, NPC and all other entities mentioned are separate and unrelated companies. NPC doesnot provide tax advice.

Markets Can't Hide From This Election

From Ken’s Desk

continued on page 2

Markets Can't Hide From This Election continued from page 1

From Ken’s Desk

FINANCIAL INSIGHTS PAGE 2 MAY/JUNE 2016

Innovation calls for more openness and inclusiveness. Eventhough centered on Silicon Valley and the Nasdaq market, theinnovation economy is remarkably international, drawing on thework of scientists and engineers in China, India, Israel, Russiaand elsewhere.

Manufacturing also has changed. Information technology allowsmanagers to coordinate production across the globe, benefitingfrom the division of labor and creating highly efficient worldwidesupply chains. Moreover, production, which used to take the lion'sshare of profits in the 1950s and 1960s, has become a race for thebottom. The case of Apple, which gets over 90% of all profits fromiPhones, may be extreme, but it illustrates the weak bargainingposition of manufacturing.

And yet, we may soon look back at this as a golden age ofmanufacturers. On the one hand, robots are replacing humansnot only in mechanical tasks, but intellectual ones as well. Theyare even starting to design other robots. On the other hand, theeconomy is shifting to the Uber model so that even a workforcein a traditional sense may become a thing of the past.

Large-scale technological changes are bound to cause economicdislocations. Hence the Great Recession. We would have hadanother Depression on our hands had it not been for the centralbanks’ ability and willingness to print money. The nearly $4trillion that the U.S. Federal Reserve pumped into the bankingsystem — along with the money other major central banks did— has cushioned the shock, at least for now.

In the United States, all that free money sent the economy downtwo divergent paths. It spurred even faster development of theinnovation economy while at the same time turning parts of theU.S. into a commodity-producing nation.

Oil exporters are mostly a political and economic mess, startingwith Algeria, Angola and Azerbaijan and going down the list inalphabetical order. During oil price booms, international oilcompanies pump oil out of the ground and pay the governmentbillions of petrodollars. The money is distributed based onconnections, not merit.

Oil exporters don't tend to have democracy but are ruled byauthoritarian demagogues. The people receive crumbs from thetable and are angry and resentful. But they are placated by amixture of populism, socialism, nationalism and religion.

The only oil producers that remain democratic are those thatretain a solid industrial base, such as Norway, Britain andCanada. Mexico and Indonesia were ruled by authoritarians untilthey ran out of oil and started to develop an industrial economy.

The U.S. produces oil, too, but its commodity industry isintegrated into its industrial base. What makes it more likeRussia, Venezuela and other oil exporters is its ability to printdollars. This allows it to live above its means and creates a paralleleconomy in which a disproportionate share of the national wealthgoes to those who are closer to the financial trough.

A study by the Peterson Institute for International Economicsfound recently that an increasing number of U.S. billionairescome from the financial sector, not Silicon Valley; moreover,

America's proportion of financial services billionaires is muchhigher than in other industrial countries.

The emergence of Donald Trump shows that there is now demandfor the kind of political leaders and politics that predominate inoil-exporting countries.

Retro-Industrial Age

Sanders represents another response to the challenges of theinnovation economy. Even though he has captured the romanticimagination of many young people, he proposes to go back to themanufacturing age of his youth. Just like Trump, he wants torenegotiate trade deals and discourage U.S. companies fromsending jobs overseas. He would support the revival of industrialtrade unions, and his ideas on education hark back to the post-World War II GI bill.

Both Trump and Sanders are talking about bringing back high-paying American jobs. But compared to 2006, the economy haslost nearly 2 million manufacturing jobs despite the fact thatproduction has been returning to the U.S. and the auto industryhas undergone a major revival. The share of manufacturing jobsis down to 8.6% from 10.4%. Production is rising without creatingnew jobs, and, worse, the pay in new manufacturing jobs is notmuch higher than the minimum wage.

The Great Recession has not yet played out. The flooding of thebanking system with money has delayed the transition to the newsocioeconomic model, but it didn't cancel it. Eight years later, theeffect of massive liquidity infusions has worn out. We may be infor another leg of a double-dip slump.

But even without a major new downturn, there is still a need fora political system that can accommodate the new economic realityand the search for such a system will continue. Political divisionswill persist and may become deeper and more violent. This wayfelt in the stock market — perhaps in the same way the socialturmoil of the 1960s caused the Dow Jones industrial average tostagnate through the following decade.

Information compiled by KenSource: Investment News; ThinkAdvisor.com; Research Magazine

More Americans Say Health Premiums Went up Over Past Year.

Nearly three in four American adults (74 percent) said theamount they pay for their health insurance premiums hasincreased over the past year. This includes a record-highpercentage (36 percent) who said their costs have gone up “a lot.”

This is according to a Gallup poll, which showed that Americansare feeling health care cost increases more sharply than usual.Since 2003, the large majority of adults have reported the theircosts have gone up. However, until now, many more said thecosts went up “a little” than “a lot.”

Americans with health insurance are also seeing less supportfrom employers in paying premium. More than a quarter ofinsured adults, (28 percent) said they pay the full amount of theirpremiums, the highest percentage reporting this since 2001.

Source: Insurance News Net Magazine; Gallop Poll


New Inductees to the CFS Golden Circle.Pictured are Ken Marinace with Marilyn& Jim Graves and Terry Southwood.

Golden Circle Inductees

Money held in a grandparent’s 529 plan isn’t counted as an asset onthe Free Application for Federal Student Aid (FAFSA), which isused to determine a student’s eligibility for financial aid. However,when you take a withdrawals to pay for grandchild’s collegeexpenses, those distributions are treated as the child’s income onthe following year’s FAFSA. The income will reduce financial aidon a dollar-for-dollar basis, says Deborah Fox, founder of FoxCollege Funding, San Diego.

To get around this problem, you could wait to withdraw moneyfrom the 529 plan until your grandchild is a college junior andhas filed the FAFSA for the last time. In which case it won’taffect her eligibility for financial aid in her senior year. Or, ifyour grandchild’s switching ownership to the child’s parents.Only up to 5.64% of a parent-owned 529 plan’s value is countedas an asset in the FAFSA formula, says Joseph Hurley, founderof Savingforcollege.com. Distributions from the parent-ownedaccount won’t be counted as income, Hurley says. Not everyplan allows you to transfer accounts; check your state’s rules fortransferring accounts at www.savingforcollege.com.

Another option is to make contributions to the parent’s 529 plan.The downside is that you give up control of the account, but somestates will still allow you to deduct your contributions, Hurley says.

Source: Kiplinger’s Personal FInance

Impact on Financial Aid

While many of us were preoccupied with payng off the last ofthe holiday bills, here’s a news item about spending that is sureto make us stop and take notice. U.S. health care spending in2014 grew at the fastest pace since President Barack Obamatook office, driven by expanded coverage under the AffordableCare Act and by skyrocketing prescription drug costs.

Total health spending reached $3 trillion, or $9,523 for everyman, woman and child. This was an increase of 5.3 percent over2013 health care spending.

The report by nonpartisan experts at the Department of Healthand Human Services provided a snapshot of the nation’s healthcare system. The report also found that health care spendinggrew faster than the economy as a whole, reaching 17.5 percentof gross domestic product. That’s worrisome because it meanshealth care is claiming a growing share of national resources.

Among the major findings was that prescription drug spendingincreased by 12.2 percent in 2014, led by new medications tofight hepatitis C, cancer and multiple sclerosis. In addition,Medicare saw its fastest rate of growth since 2009, increasingby 5.5 percent over the previous year. Again, the rising cost ofprescription drugs fueled this increase.

Source: Insurance New Net Magazine; Dept. of Health and Human Services

Health Care Spending Topped $3T in 2014

The Retirement Income Reference Book provides a snapshot of how retirees and pre-retirees view their golden years,

• Forty-one percent of retirees say outliving their money is their No. 1 retirementconcern.

• Nearly 75 percent of non-retirees believe that Social Security and pension will notbe enough to cover retirement expenses.

• Only 12 percent of people ages 18 to 34 have a pension, compared with 53 percentof those ages 65 to 74.

• A quarter of all households with an annuity are “very confident” they will achievetheir retirement lifestyle, 7 percent higher than those without.

• Fifty-one percent of Americans retire between 61 and 65.

• Three out of four retirees move their money out of their retirement plan within sixmonths of retiring.

Source: Insurance News Net Magazine

The Data


CFS Golden Circle - Clients for 20 years or longer

MAY1 - Nick Braun2 - Ken Marinace4 - Stephanie Hope4 - Wayne Orr7 - Galen Petoyan8 - Karen Griffin8 - Jeff Brown8 - Jane Lloyd8 - Peggy Brewer

10 - Doug Bremner10 - Roland Neundorf12 - Bob Siecke12 - Joanne Petoyan14 - Daniel Gollnick16 - Judy Van Horn16 - Clovis Lofton17 - Kathy Forman

HAPPY BIRTHDAY

Annette AlenderKathy AllieConnie AlveroIrv & Zel BagleyDr. Martin Barmatz &

Carolyn SmallBill BeckleyDave BochardSteve & Lynne BrenerKelley BrockHarlene ButtonBarbara ChassePhilip Clements & Claudia

SquibbLouis DarinOleta DiamondJoe & Liz DilibertMarshall & Mimi DruckerJim DyrnessReg & Jan FearHorace & Betty Jean

FernandezJim & Kathy FormanImre & Patricia FotiSusan GardnerRalph Gerrard & Susan

LeeperVorda GordonDr. Stuart Grant

Helena Gratland & BobMazzocco

Jim & Marilyn GravesConnie GreenbergHarry & Karen GriffinDennis Hall & Evelyn RollinsBill & Elinore HedgcockHarley & Alice HigginbothamDr. Craig & Jeannette HoeftPamela HoeyLilo HolzerMike HoulemardDaina JohnsonRich & Donna JohnsonMitch & Lorraine KayeJames & Julia KinmartinEmil & Chiching KlimachLoraine LeachJack LeahyDave & Carolyn LessleyJane LloydDr. Ken & Carmen LukHarry & Carol MackinJay & Nancy MalinowskiAl MaskellRandy & Pat MaskellDr. Peter & Juliane McAdamDr. Jeanine McMahonBarbara Moering

Bob MoeringJohn & Mary MorrowPeter & Susan MoyerRoland & Vonda NeundorfDave & Pat NewshamBruce & Vicki OldhamDr. Eugene OrlowskyLeora OstrowAl RoetersDebbie RuggieroJoe & Pearl RuggieroLouise SanchezEarle SandersEvelyn SchirmerBob & Cindy SiekeDianne SimesLouise SirianniTheresa SouthwoodCarole SteenMitch & Ilona SteinGiselle TemmelPeter & Susan VanlawSteve & Elizabeth VeresDavid & Kellye WallettJeff & Pam WheatDon & Lorraine WhiteTeena WolcottToby & Carole Zwikel

17 - Tony Wade18 - Mimi Drucker23 - Joseph Volkmar24 - Pearl Ruggiero25 - Marty Barmatz25 - Jenny Hoeft25 - Loren Jonkey27 - Egil Quist27 - Kelly Bennett30 - Susan Leeper31 - Raul Molina31 - Vinnie Campisi31 - Linda Vanlaw

JUNE1 - Craig Braun2 - Vorda Gordon3 - Antonio Luisoni

4 - Doug Froeberg5 - Jane Jones5 - Wayne Wilks

11 - Lorraine Leach11 - Carolyn Small12 - Zel Bagley12 - Thomas Darin13 - Linda Stempel14 - Peter W Moyer14 - Marilyn Graves14 - Diane Schoolsky14 - Sylvia Keller14 - Sam Sedhom15 - Susan Siess15 - Elizabeth Lucas15 - Nat Rubinfeld17 - Stanley Adelman17 - Lou Darin

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Pursuant to the SEC BrochureRule 204-3, of the InvestmentAdvisors Act of 1940, advisers arerequired to deliver a copy of theADV, Part II to every adviserclient on an annual basis (within120 days after the end of fiscalyear and without charge, if thereare material changes in thebrochure since the last annualupdating amendment.)

18 - Bill Southern18 - Dorothy Fulgoni19 - Alma Rubinfeld19 - Diane Beekman19 - Liz Dilibert19 - Dennis Hall21 - Patricia Banuilos22 - Jeff Rosell24 - Pete Vanlaw24 - Alice Higginbotham25 - Jim Dyrness26 - Jack Ryan, Jr.27 - Jan Malone29 - Laraine Kaye29 - Rich French29 - Richard Plank30 - Robert Ackerman


Anna’s Recent Read: When to pick Roth 401(k) contributions

Should an investor make Roth deferralsor traditional, pretax contributions into a401(k) plan? It's a question that couldhave large tax implications for clients.The answer, at its most macro level, boilsdown to a client's current tax bracket

versus what that investor's tax bracket may be in retirement.

According to the Plan Sponsor Council of America, nearly 58% of401(k) plans allowed for Roth deferrals in 2014, up from 51.6% theyear prior. Despite the broader availability, participants didn'tseem to take advantage — only 19% of them made Roth deferralsin 2014, essentially no change from 2013.

Roth is particularly valuable for young, lower-salaried individualsor couples in a low tax bracket who think they'll probably havehigher earnings down the road. In that scenario, paying taxesupfront while in a lower bracket would yield less tax payout thandeferring a tax hit to retirement when in a higher bracket.

Most people expect to be in a lower tax bracket in retirement,though, which would make pretax 401(k) deferrals morepreferable. After all, there's a reason for a 70% to 80% income-replacement ratio being widely touted as a sound retirementsavings goal. However, there are several variables that should gointo weighing the best decision for individual age, current andfuture tax status, and overall tax diversification betweentraditional, Roth and taxable accounts.

For example, Roth 401(k) contributions could prove a usefulestate-planning tool. A wealthy business owner making a $500,000annual income, which would, on the surface, indicate pretaxdeferrals make more sense — he'd get a tax break now on whatwould be a hefty tax bill due to his being in the highest bracket.But the business owner wants to leave this pot of retirementmoney for his children, and so invests using Roth to maximize themoney they'll inherit.

On the flip side, for a wealthy individual who doesn't have thesesorts of long-term goals and wants to free up cash flow in the nearterm, the traditional route probably makes most sense.

The majority of people are better off investing in a traditional401(k) if they expect to be in a lower tax bracket in retirement orif they expect to be in the same bracket. That's because retireesend up paying a lower effective tax rate if they remain in the samebracket. That's due to the incremental way income tax is assessed.

Let's take the example of a client with a taxable income of $40,000:Roughly the first $10,000 is taxed at a 10% rate; then, the rest upto $37,650 is taxed at 15%; income over that is taxed at 25%,meaning around $3,000 in this scenario would be taxed at 25%.Roth dollars would be taxed at 25% in this example, because itwould have come off the top of income. But the bulk of traditional401(k) money would be assessed at 15% when in retirement andthose distributions are taken as income. (Remember, money up to$37,650 is taxed at 10% to 15%.) So, in short, it boils down to anapproximately 10-percentage-point savings on the tax rate.

Traditional could also be better for an individual looking to hit acompany match level while freeing up as much cash as possible.

Roth could represent a better deal, though, for an individualmaxing out a 401(k), because $18,000 in an after-tax Roth accountis more valuable than $18,000 in a pretax traditional account.Eighteen thousand dollars is the contribution limit for 2016, withthe possibility of a $6,000 catch-up contribution.

Of course, aside from investing in a 401(k), individuals can alsoinvest in a Roth IRA. But there are some nuances.

There aren't any income limits to invest in a Roth 401(k),whereas there are for Roth IRAs. For example, the limit formarried couples is an adjusted gross income of $184,000, with aphase-out range between $184,000 and $194,000. The limit forsingles is $117,000, with a phase-out range between $117,000and $132,000. Contribution limits for Roth IRAs are $5,500, withan additional $1,000 catch-up available, which is much lowerthan for 401(k) plans.

However, Roth 401(k) investors must take required minimumdistributions at age 70 1/2, unless they're still working for theemployer offering the 401(k). Roth IRA investors don't need totake RMDs.

Information compiled by AnnaSource: Investment News, Plan Sponsor Council of America

WELL PAID - 126 major league baseball players will make atleast $10 million during the 2016 season, including the Dodgers’Clayton Kershaw who will make $32 million.

(source: Major League Baseball)

TEAM VALUE - The New York Yankees are worth $3.2 billion,the highest in major league baseball. That value ties the Yankeeswith the NFL's Dallas Cowboys as the most valuable US prosports team. (source: Forbes)

IT TIME FOR (WELL PAID) BASEBALL!

Once upon a time, 1955, to be exact, average life expectancy in theU.S. was close to age 70. Average life expectancy has inchedupward over the past 60 years and now stands at 78.8 years.

But that doesn’t tell the whole story. For example, for a 65-year-old couple of average health, there is a 50 percent chance one ofthem will live to age 93 and a one in four chance that one of themwill see age 97, according to LIMRA Secured Retirement Institute.

As a result, a retirement that once extended to age 70 now mustbe stretched out to age 90 or beyond.

LIMRA found that in 2014, nearly three-fourths of Americansclaimed Social Security before they reached full retirement age.With longevity data suggesting that a person with average healthcould live into their 90’s, claiming Social Security early (instead ofat age 66 or later) potentially would lock them into smaller payoutsfor 30 years or more.

Source: Insurance News Net Magazine

90 is the new 70

Kenneth A. MarinaceComprehensive Financial Services3811 W. Burbank Blvd.Burbank, CA 91505-2116

In This Issue� From Ken’s Desk: Markets Can't Hide

From This Election� Health Care Spending Topped $3T in 2014� Impact on Financial Aid� Anna’s Recent Read:

When to pick Roth 401(k) contributions� Teaser #87, Answers to Teaser #86

PRSRT STDU.S. POSTAGE

PAIDPACIFIC RIM

MAILERS

Brain Teaser #87 – “Total Concentration”

Use your smartphoneto visit our website!

Brain Teaser #86 – “Fill in the Blanks” (Answer)

There once was a musical, _ _ _ _.It was performed in three _ _ _ _.When it was through, the audience flewAnd all of the _ _ _ _ went _ _ _ _.The first person with the correct answers camefrom Angie Green. Congratulations Angie!


A bimonthly newsletter published by

Comprehensive Financial Services3811 W. Burbank Blvd. • Burbank, CA 91505

Tel: 818.846.8092 • Fax: 818.845.2010

Comprehensive Financial Services is a diversified financial services and planningcompany. The firm offers investment counseling, financial planning, moneymanagement services, investments, life and health insurance and annuities.

Material discussed is meant for general illustration and/or informational purposesonly and is not to be construed as tax, legal, or investment advice. Although theinformation has been gathered from sources deemed reliable, no representation ismade to its accuracy or completeness. Please note that individual situations can vary,therefore, you should consult your qualified financial professional before taking action.This material is not an offer to sell, nor is it a solicitation of an offer to buy any security.The publisher is not engaged in rendering legal, tax or accounting advice.

Can you fill in the missing numbers so that each row, each column and thetwo long diagonal lines meet the totals given?

The first person with the correct answers will receive an American Expressgift card. Please email your answers to Martha at [email protected] call her at 818-846-8092 ext.4.

CA T SA CT S

CAST SCA T

Brain Teaser #85 – “Dicey Arithmetric”(Correction)

Correction: The first person with the correctanswers for brain teaser #85 came from EmilKlimach, not Lynne Dibble as publish in the“March-April 2016” Financial Insights.

Markets Can't Hide From This Election · presidential elections in memory. Instead, they got a crushing defeat of the “inevitable” Republican nominee Jeb Bush and emergence of

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