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May 13th, 2016

Stock Market Rebounds

     It's a pleasure to announce that after the worst start of any year in history, the S&P 500 has rebounded back into positive territory for the year.  There are four main reasons that caused this volatility: central banks, currencies, commodities, and corporate earnings. 
     Several foreign government central banks (like the Federal Reserve in the U.S.), including in Japan and Europe, lowered their interest rates below 0% in an effort to stimulate growth and spending.  This came at a time when chairwoman Janet Yellen and the U.S. Federal Reserve were contemplating raising rates.  This sent the U.S. dollar soaring higher, which in turn hurt the earnings of U.S. exporters in the first quarter.
      Increases in oil prices, from a low of around $26 a barrel in January up to around $45 currently, have also helped to rally stocks. The abundance of oil being produced worldwide caused 130 North American oil and gas producers to file for bankruptcy since 2015, according to law firm Haynes & Boone. Even with oil around $45/barrel, there is fear of more defaults and concern for the big banks that lend large sums to these oil producing companies.  The good news is that despite the abundance of supply, production is beginning to be cut due to the lack of profitability.  Reports are also suggesting a potential increase in summer oil demand. This could further increase oil prices.  I think it's safe to say that oil prices bottomed out at the beginning of this year.
      The chart above shows that the price changes in the XOI Oil Index (black mountains) and the S&P 500 (orange line) have been closely correlated since the beginning of the year.
      The most direct factor contributing to the S&P 500 volatility is corporate earnings.  Earnings reports are still coming in for the first quarter and the results are trending towards the 4th quarter in a row of lower earnings.  This was highly anticipated due to the negative impact from the higher dollar on U.S. export companies and low oil prices hurting the oil industry.  
       You are probably wondering why then, is the S&P rallying back so strong?  The reason is due to some weakness recently in the U.S. dollar and improving oil prices (albeit still at low levels) which should benefit corporate earnings going forward. U.S. companies are projected to break the four quarter downtrend of decreasing earnings reports in the later half of the year.  In summary, the sluggish U.S. economy and foreign economic concerns are causing the U.S. Federal Reserve to hold off on raising interest rates.  Patience from the Fed should buy some time before we see signs of consumer spending growth.

     What does all this mean for you and your retirement portfolio? It is very important not to let the stock market's daily, or even every quarterly, price changes affect your long-term strategy.  When you partner with a disciplined investment advisor representative, like myself, you gain an appropriately allocated investment portfolio that addresses your risk tolerance.  

Justin's Q&A

I'm a big fan of the website  You can find a video or article on just about any financial topic at this website.  I recently came across an article titled "6 Questions to Ask a Financial Advisor." I thought it would be a good idea to go ahead and answer these questions for you.  For more information click on this link.

1. Are you a fiduciary? Yes, I have a fiduciary responsibility, and let's breakdown what that means. A fiduciary is responsible for acting in the best interests of the party of whose assets they manage.  Financial advisors who are registered with the Securities and Exchange Commission (SEC) or state securities regulators have a fiduciary duty to their clients. However, not all financial advisors are not required to be registered, so many are not bound by fiduciary duty. Instead, they are only required to recommend financial products that are "suitable" for their clients but not necessarily in their best interest. Because it is a legally binding obligation, the choice between using an advisor who is governed by fiduciary duty versus one who is not can be of utmost importance.

Read more: Why is fiduciary duty so important? | Investopedia 
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2. What is your fee structure (Difference Between Fee-Only, Fee-Based, and or Commission)?
Our business model at CIM is a fee-only structure.  Our fee for service is a 1% annual fee based on the client's account balance.  We do not receive commissions or kick-backs (12B-1 fees*) for recommending any investment products.  We want to keep investment fees to a minimum.

3. Why am I right for you?  I take a total balance sheet approach when looking at my client's finances. before recommending an investment strategy. to meets their specific needs.  Our firms knowledge diversified investing among different asset class.  We can tailor the different options to match your investment needs and will work with you to reach your goals.

4. What is Your Investment Philosophy?  At CIM, we take a diversified investment approach across multiple asset classes and within each asset class.  The allocation of investments must be appropriately based on our client's age and identified risk tolerance.

5. How Personalized Are Your Recommendations for Your Clients? We do not believe in a one-size-fits-all approach to investing.  We take the needed time to assess my client's needs before making specific recommendations. We value the relationships with 

6. Do You Have Any Asset or Revenue Minimums? No way. We see the long-term value and find it very rewarding to work with and grow with each of my clients, regardless of their initial investment.


* BREAKING DOWN '12B-1 Fees'

Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund.

Read more: 12B-1 Fee Definition | Investopedia 
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Monthly Finance Tip

      The most important factor that determines our financial success is how much of our earnings we actually save.  Saving money does not come easy.  It's kinda like my 7 year old friend, J.P., who just learned how to tie his shoes.  Before he learned how, he would continue running around with his shoes untied instead of taking the time to sit down and try it himself.  After some practice, he can now do it with his eyes closed!  The same goes for saving, the key is to do it without even thinking about it.  You can do this by setting up an automatic draft from your paycheck or bank account.  If you have access to an employer sponsored retirement plan, fill out the required deferral election form (or consider increasing your percentage if you do this). If you are on your own saving for retirement, set up an auto-draft from your bank account each pay period that will go into your IRA.  The earlier you set up an automatic savings draft, the farther you can run.
I hope you enjoyed this issue of the CIM newsletter.  If you got value from this newsletter, please share with friends and family.  As always, feel free to contact me with any questions and topics of interest. Thank you.
Picture of JB
Justin Burgess
Investment Advisor
Copley Investment Management
5025 B Wrightsville Ave
Wilmington, NC 28409

CIM's goal is to provide quality financial advice at an economical cost. Whether investing for retirement or the next generation, you can rest assured that we are paying attention. Our professional credentials, independence, experience, integrity, and transparent business model qualify us to accomplish this goal.

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