Increasing Your Return on Life.®

Frank Talk - 4th Quarter Newsletter (2017)

Published: 11/09/2017

Table of Contents


Written by: Frank Fantozzi

Happy Autumn, Clients and Friends! 

As another year draws to a close, we’re reminded of how quickly the seasons change from one to the next. Yet change is the lifeblood of progress for our careers, our businesses, our families and our journeys as individuals. That’s why it’s so important to not only embrace change, but keep abreast of it to remain on track toward our goals in life.

At Planned Financial Services, our experienced team is here to help you anticipate and plan for the changes in your life, from milestones such as retirement, the birth of a child, or the purchase or sale of a business, to your day-to-day financial decisions. And we’re happy to announce that the experience you rely on from our team just got deeper with the recent addition of wealth advisor, Dan Goldfarb.

Planned Financial Services Welcomes Wealth Advisor Dan Goldfarb to the Team

Please join us in welcoming Daniel (Dan) M. Goldfarb, ChFC® and CRPC® to your award-winning Planned Financial Services team. For more than a decade, Dan has helped accomplished individuals and families align their values and goals with their financial assets through insightful financial and investment planning. His extensive experience working with business owners, executives, professionals and families will further assist us in helping clients pursue their Return on Life® in the most tax-efficient manner in the key areas of wealth accumulation, investment allocation, business succession, executive compensation, estate conservation, charitable giving strategies, retirement and employee benefits.

A Chartered Financial Consultant® and Chartered Retirement Planning CounselorSM, Dan earned an MBA with a dual concentration in finance and operations management from the Weatherhead School of Management at the Case Western Reserve University, a Master of Policy Sciences with a concentration in Political Science from the University of Maryland- Baltimore County, a Master of Arts from Towson University, and a BA from Rutgers College- Rutgers University. He resides with his wife and two sons in Solon, Ohio.

Planned Financial Services Awarded Weatherhead 100 for 6th Time

We’re pleased to announce that Planned Financial Services was named a Weatherhead 100 Upstart company for the sixth time by the Weatherhead School of Management, Case Western Reserve University in September 2017. Established in 1988, The Weatherhead 100 awards are the premier celebration of Northeast Ohio’s spirit of entrepreneurship and the companies leading the way in Northeast Ohio. Each year, the organization recognizes an elite group of companies who are the best example of leadership, growth and success in our region. Companies that make the list are recognized for their percent of revenue growth over the past five years.  Planned Financial Services will be honored among its peers at a special black-tie event marking the 30th Annual Weatherhead 100 awards ceremony on November 30th at the Hilton Cleveland Downtown.

2017 Family Business Conference and Achievement Awards

Planned Financial Services was proud to participate as a sponsor of the Smart Business Northeast Ohio Family Business Conference and Achievement Awards interactive workshop on September 7th at the Corporate College East in Cleveland, Ohio. Frank was honored to participate for the second time as a panelist among a distinguished lineup of industry experts and family business owners. In keeping with this year’s conference theme, Frank provided real life examples of what separates family business success stories from failures. He also shared his perspective on why today’s economic, financial market, and tax landscape have become increasingly complex for privately held businesses to navigate.

The Family Business Achievement Awards segment of the program recognizes companies that have demonstrated a strong commitment to both business and family and are engaged in innovative business practices and strategies designed to enhance the family business dynamic.

Market and Economic Update

**October 19, 2017 marked the 30th anniversary of the 1987 stock market crash, what has come to be known as Black Monday. The Dow plunged more than 22% on that day—the equivalent of a more than 5,000-point drop today—while markets around the world suffered severe declines as well. Here we look back at the crash, draw some comparisons to today’s market environment, and offer some comfort to those who may fear a repeat.


Some blame Black Monday on computer-driven trading that exacerbated the selling (think “flash crash” in more recent terms) and a hedging strategy known as “portfolio insurance” that had gained popularity (too much popularity, in hindsight, as too many institutions were on the same side of the trade at the same time). Once panic began to set in, buyers stepped away, computer programs responded to selling with more selling, and subsequently there was no one to step in and buy, so prices collapsed. A flawed market structure, shortcomings in the regulatory framework, and the government’s efforts to slow leveraged buyouts and stop insider trading were also cited on the list of causes. But for the crash to occur, a number of more traditional fundamental forces had to propel so many to sell, which we address in more detail below.


Some of you may have seen the charts on social media comparing the stock market in 1987 to today. So, let’s start by debunking the theory that another crash is coming. While it’s true that the two years look similar, and we acknowledge that stocks are due for a pullback, comparing the S&P 500 Index today to that of 1987 to make a bear case is misleading. The S&P 500 was up nearly 40% year-to-date in late August 1987. Even just one week before the crash, on October 12, 1987, the S&P 500 was up 28% year-to-date. This year, stocks are up solidly—the S&P 500 is up 14% year-to-date—but that is a far cry from the pre-crash gains in 1987.

From the start of 1985 through the 1987 peak, the S&P 500 more than doubled in price (a greater than 100% gain). Over an equivalent time period today (the start of 2015 through the 2017 peak), the S&P 500 is up 24%. Stocks were a lot more stretched back then, making a sharp move lower more likely.


From a fundamental perspective, a number of concerns spooked investors ahead of Black Monday. One of the more unique characteristics of the crash was how many different factors came together at once, such as:

  • High interest rates. The 10-year yield rose from 7.0% on January 9, 1987, to 10.2% on October 16 of that same year. That’s a sharp increase and a high level for 10-year yields, far from the situation today.

  • Tighter monetary policy. Alan Greenspan had just replaced Paul Volcker as Chairman of the Federal Reserve (Fed) in June 1987 and raised the Fed’s discount rate in September 1987. We are in a tightening cycle now, but the Fed has been very gradual and transparent and rates remain stimulative.

  • S. dollar collapse. After reaching an all-time high in March 1984, the U.S. Dollar Index began a sharp decline that continued through 1987. Even though the dollar is weakening today, the decline is far less severe, started from a much lower level, and policymakers are not talking the greenback down as Treasury Secretary James Baker did in 1987.

  • Rising oil prices. Oil prices were rising steadily from the summer of 1986 through August 1987, sparking inflation worries. Today, oil prices have been at or near $50 per barrel for the past 15 months and inflation is well contained.

  • Geopolitical concerns. The headlines in the mid-1980s centered on how the U.S. compared to Japan in the global economic hierarchy and ending the Cold War. Today’s concerns are similar in some ways (substitute China for Japan) and very different in other ways (North Korea and the global fight against terrorism).

  • Stretched valuations. Stocks got expensive in the mid-1980s at a price-to-earnings ratio (PE) of 14–15, compared to today’s level of 17–18 (on forward 12-month earnings). But interest rates are a key input into stock valuations, so we would argue that a PE of 17 with a 10-year yield at 2.3% is cheaper than a PE of 14 with the 10- year yield at 10%.


Comparing technical analysis characteristics can be instructive when looking back at the market conditions that contributed to the 1987 crash. One indicator that highlights a clear distinction is the advance-decline (A/D) line, a measure of market breadth. An A/D line shows how many stocks are advancing versus declining on a various index or stock exchange. If many stocks are falling, but the overall index hasn’t yet broken lower, it is a warning sign that something could be wrong as relatively few stocks are propping up the index. That is indeed what happened in 1987, whereas today’s technical picture is much stronger with an upward trending NYSE A/D line.

Taking a more global perspective, Ned Davis Research, Inc. notes that its measure of global breadth, which was rolling over in 1987, just set a record high this month. Finally, a quick look at sentiment is also instructive here. Derivatives positioning then versus now suggests investors were more euphoric than they are now. And the American Association of Individual Investors Bulls versus Bears survey, which began in 1987, has a long enough history to compare sentiment then versus now. In September 1987, the percentage of bulls registered at 60%. The highest reading this year is 41%, reflecting some healthy skepticism, and from a contrarian perspective, reducing the odds of a market collapse.


We believe that the stock market stands on a much stronger fundamental and technical foundation today than it did in October 1987, with less euphoric sentiment, making another crash like 1987 appear unlikely. Improvements in regulations and market structure can be debated, but investors clearly have better access to information and can trade much more easily. So, on this 30th anniversary of Black Monday, let’s appreciate the gains that we have enjoyed during this bull market but not get complacent. Stocks don’t go up in a straight line. Market events don’t repeat themselves, but they sometimes rhyme. 

Closing Remarks

Your Return on Life® is always our top priority. We remain committed to providing you with the education, advice, and insight to help you retain a long-term perspective and focus on your individual goals. We continue to watch the financial markets, economy, and geopolitical factors closely and adjust our portfolios in response to market activity to ensure our clients’ investment strategies are aligned with their stated investment objectives.

If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130. We are always honored to help our clients’ friends and business associates take greater control of their future with the guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide.

We wish you and your family a joyous holiday season!

Real People. Real Answers

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder

Before You Renovate Your Home, Do the Math

Written by: Jeremy Bok

Thinking about renovating your home to boost its market value? You’re not alone. In the first quarter of 2017, the Remodeling Market Index, compiled by the National Association of Home Builders, reached 58. That’s close to its historical high and is its strongest showing since the fourth quarter of 2015.

But before you hire a contractor or head for your nearest home improvement store, be sure to consider your options. Some projects pay off better than others when it’s time to sell your home.

Recoup ratios

The fact is that few homeowners completely recover the costs of their remodeling projects. In 2017, the average cost-to-resale-value ratio for remodeling projects was 64.3%, according to the 2017 Cost vs. Value Report from Remodeling Magazine. So, for each dollar that homeowners invested in a project, they captured 64.3 cents when they sold their homes. Obviously, this number will fluctuate with the economy and the housing market in your area. For example, back in 2005, the average cost-to-resale-value ratio topped 80%.

It also becomes more difficult to recoup project costs completed many years before a house is put on the market. The same holds true for projects that are out of sync with the home’s value overall — such as installing a commercial-grade kitchen in a starter home.

But even if your project’s cost isn’t completely recouped when it comes time to sell, some renovations or upgrades may cut the length of time your house stays on the market. That’s particularly true if your home otherwise would lack certain features, such as a finished basement or outdoor deck, found on other houses in your neighborhood.

Best bets

Often, it’s cost-effective to focus on replacement projects. These generally have lower price tags than larger undertakings, such as completing an addition. What’s more, many replacement projects can give your home’s curb appeal an immediate boost, which helps get buyers in the door, translating to a higher sale price.

For example, the Remodeling Cost vs. Value Report indicates that the only project that returns a higher value than its cost nationwide is putting loose fill insulation in an attic. Installing a steel entry door and applying manufactured stone veneer to an exterior come close, allowing homeowners to recoup an average of 91% and 89% of their costs, respectively. And, in general, exterior projects, such as replacing windows and siding, generate higher returns than interior projects — an average 75% vs. 63% payback.

Of course, not every home improvement project has high upfront costs. Simply stripping outdated wallpaper and repainting a room can be a fairly quick and inexpensive way to get a fresh look. Rather than redoing an entire bathroom, update it with new hardware and lighting. And if carpets look dirty, but are still in good shape, have them professionally cleaned. In fact, if you’re ready to sell, the most effective way to attract buyers is practically free: Thoroughly clean and declutter your home.

Some caveats

One of the biggest factors in valuing renovation projects is location. In a nutshell: The stronger your local real estate market, the better your project is likely to pay off. In San Francisco, for example, 21 of the 29 projects tracked by the report returned at least 100% of their costs. But in one-third of the country, no project recouped expenditures.

Also keep in mind that few remodeling projects can compensate for a structure that hasn’t been properly maintained. Although prospective homebuyers may “ooh” and “aah” over granite countertops and stainless steel appliances, many will hesitate to place an offer if the furnace isn’t working properly or the wiring needs major upgrades.

Enjoy your home

If you plan to live in your home for a while and have your heart set on building a master suite or luxury kitchen, do it. Just understand that such projects are unlikely to increase the value of your home dollar-for-dollar. 

Sidebar: Selling? How to qualify for the capital gains tax exclusion

Selling a home that has significantly appreciated in value can trigger capital gains taxes. However, you may be able to exclude up to $250,000 ($500,000 for married couples) in capital gains. To qualify for this tax break, you must have:

  • Owned your home for at least two years,

  • Used it as a principal residence for at least two of the five years preceding the sale, and

  • Not have claimed the exclusion within the last two years.

If an unexpected life change (including death and job loss) forces you to sell your home in less than two years, a pro-rata exclusion amount based on the length of your residence may be available. And, in what might be considered a “bonus” tax break, any capital gains eligible for the $250,000 home sale gain exclusion are also excluded from the 3.8% net investment income tax that currently applies to certain higher-income taxpayers.

Estate Planning for Your Digital Assets and Accounts

Written by: Cynthia Yang

Nearly everyone owns at least some digital assets, including online bank and brokerage accounts, bill-paying services, cloud-based document storage, digital music collections, social media accounts, and domain names. What happens to these assets when you die or if you become incapacitated? The answer depends on several factors, including the terms of your service agreements with the custodians of digital assets, applicable laws and the terms of your estate plan. To reduce uncertainty, you should include digital assets in your estate planning.

Pass on passwords

The simplest way to provide your family or estate executor with access to your digital assets is to leave a list of accounts and login credentials in a safe deposit box or other secure location. The disadvantage of this approach is that you’ll need to revise the list every time you change your password or add a new account. For this reason, consider storing this information using password management software and providing the master password to your representatives.

Or, you can use an online service designed for digital estate planning. These services store up-to-date information about your digital assets and establish procedures for releasing it to your designated beneficiary after your death or if you become incapacitated.

Know the law

Although sharing login credentials with your representatives is important, it’s no substitute for covering digital assets in your estate plan. For one thing, a third party who accesses your account without formal authorization may violate federal or state privacy laws.

In addition, many states have laws, such as the Uniform Fiduciary Access to Digital Assets Act (UFADAA), that establish default rules regarding access to digital assets by executors, trustees and other fiduciaries. If those rules are inconsistent with your wishes, you’ll want to modify them in your plan. The UFADAA allows people to provide for the disposition of digital assets using online settings offered by the account provider. For example, Facebook enables users to specify whether their accounts will be deleted or memorialized if they die and to designate a “legacy contact” to maintain their memorial pages.

The act also allows people to establish rules in their wills, trusts or powers of attorney. If users don’t have specific instructions regarding digital assets, the act allows the account provider’s service agreement to override default rules.

Take inventory

To ensure that your wishes are carried out, take inventory of your digital assets now. Then, talk to your estate planning advisor about possibly including these important assets in a formal plan.

A Trust Without a Beneficiary: What's the Purpose?

Written by: Dan Goldfarb

When you think of a trust, you probably picture a vehicle that holds assets for your spouse, children or other beneficiaries. But there’s another type of trust — the “purpose” trust — that has no beneficiaries. Often overlooked, these trusts can be powerful tools for preserving assets and achieving certain estate planning goals.

The flexible NCP

A purpose trust is simply a trust without a human beneficiary. This may seem novel, but you’re already familiar with one type of purpose trust: the charitable trust. The noncharitable purpose (NCP) trust, however, can be used for a variety of estate planning purposes. You might use it to:

  • Care for pets or other animals,
  • Maintain family residences, vacation homes or other real estate,
  • Fund or otherwise support a family business,
  • Provide for the maintenance of a grave site and for graveside ceremonies (“honorary” trusts),
  • Maintain and exhibit an art collection,
  • Safely store family personal property, such as antiques, cars, jewelry, collectibles or memorabilia, and
  • Achieve philanthropic goals that don’t qualify for charitable deductions.

An NCP can also be used to protect digital assets such as online banking, email and social media accounts.

State by state

If you’re considering an NCP trust, you must determine whether your state permits them and, if so, understand any applicable restrictions. Many states have enacted NCP trust legislation and the trusts in those states need to:

  1. Have a purpose that’s certain, reasonable and attainable,

  2. Not violate public policy, and

  3. Be enforceable.

This third requirement typically is satisfied by designating an “enforcer,” a person charged with ensuring — through court action if necessary — that the trust’s purpose will be fulfilled. Most NCP trusts also have a “trust protector” (who may be the same person) with the power to modify the trust when its purpose has been achieved or, conversely, becomes impossible to achieve.

Some states’ laws permit only certain types of NCP trusts, such as pet trusts or honorary trusts. Other states allow NCP trusts to serve virtually any purpose, as long as it’s not illegal and doesn’t otherwise violate public policy.

Many states limit the duration of NCP trusts to 21 years, while some provide for longer or even unlimited terms. This is a key consideration, because 21 years may not be sufficient to accomplish your purpose. For example, you might wish to establish a pet trust to care for a horse or a parrot with a life expectancy well beyond 21 years. Or perhaps your goal is to maintain a property or business for several generations.

Possible pitfalls

Keep in mind that, to take advantage of an NCP trust’s benefits, you must establish the trust in a state that permits NCP trusts with the terms and duration you desire. Don’t make the mistake of assuming that a trust isn’t an NCP trust (and, therefore, doesn’t need to be authorized by state law) just because its assets ultimately will be transferred to one or more human beneficiaries.

Suppose you establish a trust that maintains your vacation home for 21 years and then transfers to your children once its purpose has been fulfilled. This doesn’t alter the trust’s character as an NCP trust, nor does it render the trust enforceable in the absence of an NCP statute. In other words, if you establish such an NCP trust in a state that doesn’t recognize it, a court could declare the trust void and the property it contains would pass directly to your beneficiaries or estate.

Avoid unpleasant surprises

An NCP trust can play a valuable role in your overall estate plan. To avoid unpleasant surprises, ensure that your state recognizes such vehicles and that the requirements are compatible with your intended purpose. If not, you might consider setting up an NCP trust under the laws of another jurisdiction. Talk to your legal advisor about options based on your specific needs and situation.

Against the Grain: Why Contrarian Investors Take an Unconventional View

Written by: Frank Fantozzi

Do you root for the underdog? Take a “secret” shortcut instead of the crowded highway to work?

If you rarely follow the crowd but have conviction in your opinions, contrarian investing might appeal to you. The idea is to invest contrary to current market trends or investor attitudes about a particular stock, group of securities — or even the entire market. This approach entails buying investments when they’re out of favor and thus advantageously priced, but poised, in the contrarian’s opinion, for a rebound.

Long view

Contrarians believe that most investors overreact to market news: They’re too optimistic that a rallying stock will continue to rise and too pessimistic that a poor performer will continue to struggle. This near-term focus, contrarians say, causes many investors to overlook long-term opportunities.

Through patience and careful research, successful contrarian investors can take advantage of price dislocations by buying securities they believe are unjustly cheap and selling those that they believe are undeservedly expensive and perhaps vulnerable to a steep fall. Contrarians anticipate that, when investor sentiment eventually shifts, price anomalies will normalize and savvy investors will be positioned to reap the gains.

Ready for rapid reversals

In the financial marketplace, news gets reflected in prices quickly. When a fundamentally good business is struggling, its stock price will tend to drop, especially if its near-term prospects are particularly poor. But if something unexpected happens to cause investors to feel more optimistic, cheap stocks often experience a disproportionately large gain in valuation for a period of time.

It’s this sort of situation that contrarian investors are seeking. If the market is expecting a company to perform poorly and it outperforms those limited expectations, a contrarian can still experience a significant gain in the value of the investment.

Understand the challenges

The big risk when it comes to contrarian investing is that sometimes “the market” is right and the naysayers aren’t. For example, expensive stocks can continue to rise if they outperform investors’ expectations, while cheap stocks can become even cheaper if the underlying companies perform as poorly as many investors fear.

Contrarian investors must be patient, because securities can remain depressed for years until something fundamentally changes to alter the market’s outlook. Sometimes that change never happens, and eventually it becomes time for contrarians to cut their losses and move on.

This is why it’s important to adequately consider the downside risk of contrarian investments, in addition to their potential upside. In fact, whatever your philosophy, make sure you evaluate the worst-case scenario for any investment — that you will lose money.

How to get started

Contrarian investors need to have confidence in their unorthodox opinion and a willingness to hold firm. One way to get into contrarian investing is to gradually rebalance your portfolio. In effect, you add to positions that have underperformed while selling some of your holdings that have already seen big gains. This approach has the added value of maintaining your desired asset allocation and thus keeping the risk of your portfolio in line with your overall investment strategy.

Successfully executing a contrarian approach can be particularly difficult for individual investors, who typically have fewer resources and less time to find diamonds in the rough. That’s why many invest in value-oriented mutual funds or exchange-traded funds that are professionally managed by contrarians. Note, however, that even investment professionals make mistakes and can bet on the wrong horse.

Adopt selectively

Of course, you don’t have to adopt an exclusively contrarian approach. Your financial advisor can explain how to incorporate the potential benefits of certain contrarian techniques into your existing portfolio while remaining mindful of the associated risks.

IMPORTANT DISCLOSURES **Research Source: LPL Research: Weekly Economic Commentary, October 2017 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies. The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. Price to Forward Earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings for the P/E calculation. All investing involves risk including loss of principal. INDEX DESCRIPTION The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Investment advice offered through Planned Financial Services, a Registered Investment Advisor Securities offered through LPL Financial, Member FINRA/SIPC Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor. Other advisory services offered through Planned Financial Services, a registered investment advisor. 401(K) Prosperity and Planned Financial Services are separate entities from LPL Financial. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. A portion of this material was prepared for the representative's use. © 2017

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