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92 TAMPA BAY MAGAZINE
WHAT TO DO WITH YOUR 401K?
| JANUARY/FEBRUARY 2017
V. Raymond Ferrara, CFP®
Chairman
Chief Executive Officer
Eric R. Ebbert, MBA, CFP®
President
Chief Operating Officer
It is often said that the only two things certain in life are death
and taxes. To that we might add a third certainty…uncertainty.
This is especially true for 2017 as we enter it with a Republican
in the White House and Republicans controlling both houses of
Congress. While speculating is a fool’s game, we would like to
share some thoughts about the New Year.
It is highly likely that we will see tax reform at both the
corporate and individual levels, but it is also likely that
President Trump will have to bargain not only with the
Democrats, but with some members of his own party. Thus,
the final product will be different from the proposals advanced
during the campaign. We keep our clients and friends up to
date through the ProVise Bullets. If you would like to receive
the semi-monthly Bullets, visit the website (Provise.com) and
request them via email.
A new health care law is also in the offering. ObamaCare
can be repealed, repealed and replaced, or simply amended.
We believe that the repealing and replacing option is the
most likely as even Mr. Trump has said he wants to keep the
provision allowing insurance for children up to age 26, along
with precluding insurers from excluding those with preexisting
conditions. Medicaid has been a contentious issue here
in Florida because the Republicans in Tallahassee didn’t want
to expand Medicaid under ObamaCare; rather, they preferred
block grants which would allow the state to manage the
Medicaid process on its own. Expect these block grants to be
part of the new law.
Mr. Trump has also indicated he wants to spend more money
annually on the military, which will likely come to pass. As
it did during the Reagan years, this should make defense
contractors very happy. He also wants to spend up to $1 trillion
on infrastructure around the country. This will face greater
opposition, but he will get some part of it as many roads,
bridges, ports, etc. are in dire need of repair or replacement.
The “shovel ready” projects were already done during the
Obama administration, so this will take at least a year to trickle
into the economy. Nonetheless, this will be good news for the
construction industry.
The 2017 economy will not be affected in any major way
by the legislation that passes this year, but there could be a
significant impact in a variety of ways going forward. For
2017 we expect Gross Domestic Product (GDP) to be better
than 2016, but still less than 3%. A recession does not appear
to be on the horizon. As for corporate earnings, they will begin
increasing again after being down most of 2016. This may not
translate into a significant increase in the stock market because
it is at the high-end of fair valuation already. Unless something
strange happens, look for a single digit increase in the market.
Be prepared for a 10-15% correction at any time during the year,
but it should be a cleansing of the market, not the beginning of
a bear market.
Rising interest rates, which will put a great deal of pressure
on bonds and other interest sensitive investments, will be a
big story. We are likely seeing the end of the bull market in
bonds that began back in the early 80s and, if this happens,
bondholders may see negative returns, even after considering
interest payments.
Employment numbers will continue to be good but not as
robust as they have been in the past and the unemployment
number is likely to drift down slowly. Because of tax cuts
people are likely to spend more and that is important since the
consumer represents about 70% of our GDP. With increased
government spending, higher oil prices, and increasing wages,
the threat of higher inflation could be a drag on the economy.
Just like Goldilocks’ porridge, 3% inflation tastes just right. A
higher rate is a negative as the Fed would raise interest rates
faster than currently anticipated, and as we’ve seen the past
few years, a lower number holds back growth.
There are many reasons to be cautiously optimistic. Do not
overreact to events in the short run. Instead take a long term
view.
About ProVise Management Group, LLC: ProVise is a financial planning and investment management firm registered with the Securities and Exchange Commission
(SEC) and has been in business since 1987. Our 12 professional advisors serve approximately 1030 clients in over 30 states. As of 9/30/16 we were managing approximately
$1.22 billion for our individual, corporate, not-for-profit, and 401k retirement plans. Please visit our website at: provise.com. Investment Advisory Services offered through
ProVise Management Group, LLC. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations
are complex and are subject to change.
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