GENERATING AFTER-TAX INVESTMENT INCOME: THE … · Leveraged Loan Index and bonds are represented by the Barclays Capital U.S. Aggregate Index. Analysis includes all rolling one-year

Legend Financial Advisors, Inc.®

5700 Corporate Drive, Suite 350

Pittsburgh, PA 15237-5829

Phone: (412) 635-9210

E-mail: [email protected]

www.legend-financial.com

EmergingWealth Investment Management, Inc.



Phone: (412) 548-1386


GENERATING AFTER-TAX INVESTMENT

INCOME:

THE IMPORTANCE OF OUTPACING

INFLATION OVER THE LONG RUN

http://www.legend-financial.com/



LOU STANASOLOVICH, CFP®, CCO, CEO

Lou is founder, CCO, CEO and President of Legend Financial Advisors, Inc.®

and EmergingWealth Investment Management, Inc.

Legend’s founder, Lou was selected by Financial Planning magazine as part of

their inaugural Influencer Awards for the Wealth Creator Award recognizing the

advisor who has made the most significant contributions to best practices for

portfolio management.

He is one of only four advisors nationwide to be selected 12 consecutive

times by Worth magazine as one of “The Top 100 Wealth Advisors”

in the country.

Lou has also been selected 12 times by Medical Economics magazine as one of

“The 150 Best Financial Advisors for Doctors in America”

Lou has been selected four times by Dental Products Report as one of “The Best Financial Advisors for Dentists in America.”

He has twice been named one of “The 100 Great Financial Planners in America” by Mutual Funds magazine.

Lou has been named three times to Investment Advisor magazine’s “IA 25” list, ranking the 25 most influential people in and around the financial advisory profession.

Lou was profiled in Financial Planning magazine as one of the country’s “Movers & Shakers” recognizing the top individuals who have done the most to advance the financial advisory profession.

Lou has also been selected three times by Pittsburgh Magazine as one of the Pittsburgh area’s FIVE STAR Wealth Managers, a list that represents the most elite financial advisors in Pittsburgh.

With over 30 years advising clients, he has shared his financial planning and investment management expertise through dozens of speeches, radio and television broadcasts, webcasts, and hundreds of times as an interviewee, writer and publisher.

GENERAL ISSUES

INCOME ≠ CASH FLOW

WHAT IS INCOME?

• Income is derived from interest

payments, dividends, capital gains from

securities and/or other assets that are

sold.

• Generally, all of the above events are

taxable with the exception of municipal

bond income.

WHAT IS CASH FLOW?

• Cash flow includes all forms of income

previously mentioned, plus:

• Return of capital, principal from

investments and annuities;

• Borrowings from insurance policies, real

estate and businesses

CENTRAL BANK TERMINOLOGY

QE = Quantitative Easing

ZIRP = Zero Interest Rate Policy

NIRP = Negative Interest Rate Policy

TAX PLANNING INFORMATION

INCOME TAX BRACKET

IRA DEDUCTION LIMITS

FEDERAL INCOME TAX RATES FOR 2016

Married Filing Jointly

Taxable Income Income Tax Rate

$0 to $18,550 10.0%

$18,551 to $75,300 15.0%

$75,301 to $151,900 25.0%

$151,901 to $231,450 28.0%

$231,451 to $413,350 33.0%

$413,351 to $466,950 35.0%

More than $466,950 39.6%

FEDERAL INCOME TAX RATES FOR 2016

Single

Taxable Income Income Tax Rate

$0 to $9,275 10.0%

$9,276 to $37,650 15.0%

$37,651 to $91,150 25.0%

$91,151 to $190,150 28.0%

$190,151 to $413,350 33.0%

$413,351 to $415,050 35.0%

More than $415,050 39.6%

CAPITAL GAIN TAX RATES FOR 2016

Asset Holding Period Income Tax Bracket

10.0% 15.0% 25.0% 28.0% 33.0% 35.0% 39.6%

Short-Term Capital Gains Rate 10.0% 15.0% 25.0% 28.0% 33.0% 35.0% 39.6%

Long-Term Capital Gains Rate 0.0% 0.0% 15.0% 15.0% 15.0% 15.0% 20.0%

IRA AND RETIREMENT PLAN LIMITS FOR 2016

Maximum IRA Contributions

Type of AccountIncome

Tax Rate

Roth IRA (single) $5,500

Roth IRA (married filing jointly) $11,000

Traditional IRA (single) $5,500

Traditional IRA (married filing jointly) $11,000

Catch-up contributions1 (Single) $1,000

Catch-up contributions1 (married filing jointly) $2,000

2Age 50 or older.

DEDUCTIBLE TRADITIONAL IRA PHASEOUTS

Covered By Employer Plan and:

Single $61,000-$71,000

Married filing jointly $98,000-$118,000

Deductibility depends on AGI and whether you or your spouse is covered by an employer-sponsored

retirement plan. You must figure your deduction and your spouse’s deduction separately. The deduction for

contributions to traditional IRAs phases out over the following AGI levels:

There is no income limit for contributions to a non-deductible traditional IRA.

Not Covered by Employer Plan and:

Single or married filing jointly with

a spouse who also is not coveredNo limit

Married filing jointly with a spouse

who is covered$184,000-$194,000

ROTH IRA ELIGIBILITY PHASEOUTS

Filing Status

Single $117,000-$132,000

Married filing jointly $184,000-$194,000

Married filing separately $0-$10,000

Eligibility for Roth IRAs is phased out over the following AGI levels:

MAXIMUM RETIREMENT PLAN CONTRIBUTIONS

Type of plan

401(k) and 403(b) $18,000

SIMPLE-IRA $12,500

401(K) AND 403(B) Catch-up contributions2 $6,000

SIMPLE-IRA Catch-up contributions2 $3,000

The amount you can contribute to an employer-sponsored retirement plan generally is the lessor of 100% of your

salary or:

2Age 50 or older.

INFLATION

U.S. LONG-TERM IMPLIED INFLATION RATE NOW BELOW 2.0%

Source: Bloomberg Investment Services

COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.®

REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®As of: June 3, 2016

INTEREST

GENERATING

INVESTMENTS

Around a Third of Global Government Debt Has Negative Yield

•usfunds.com•June 2016 | 16-196

•Source: World Gold Council

FIXED INCOME INVESTMENT RISK CHARACTERISTICS

Source: Legend Financial Advisors, Inc.®, Copyright 2016

Legend Financial Advisors, Inc.®, Reprinted with Permission

Source: Bank of America Merrill Lynch Global Investment Strategy, Bank of England, Global Financial

Data, Homer and Sylla “A History of Interest Rates” via 361 Capital, LLC, Weekly Research Briefing,

June 13, 2016, www.361capital.com

REPRINTED WITH PERMISSION FROM 361 CAPITAL, LLC

As of: June 13, 2016

COPYRIGHT 2016 361 CAPITAL, LLC

THE LOWEST INTEREST RATES IN 5,000 YEARS

Note: The intervals on the X-Axis change through time up to 1700. From 1700 onwards, they are annual intervals. Full methodology available

upon request.

20.0%

18.0%

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

3000 BC 300 1720 1755 1790 1825 1860 1859 1930 1965 2000 2035

Short-term rates Long-term rates

LOWEST

http://www.361capital.com/

Source: Barclays Capital, JP Morgan, BofA Merrill Lynch and Standard & Poor’s via

Eaton Vance Monthly Market Monitor, May, 2016, www.eatonvance.com

FIXED INCOME CHARACTERISTICS AND PERFORMANCE ANALYSIS

As of: May 31, 2016

Averages

REPRINTED WITH PERMISSION OF EATON VANCE DISTRIBUTORS, INC.

1.42

1.41

2.37

1.55

2.41

3.14

7.31

5.91

5.89

5.34

6.63

1.85

PRICE IMPACT OF A 1% RISE/FALL IN INTEREST RATES

Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management

COPYRIGHT 2016 J.P. MORGAN ASSET MANAGEMENT

REPRINTED WITH PERMISSION OF J.P. MORGAN ASSET MANAGEMENT

As of: March 31, 2016

Source: The Leuthold Group, LLC, Perception Express, June 7, 2016, http://leuth.us/bond-market

REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: June 7, 2016

COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

MUNIS TAX EQUIVALENT YIELD / BARCLAYS U.S. CORPORATE BOND YIELD

1.8

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

1.6

1.4

1.2

1.0

0.8

Yield Ratio

Median: 1.15

May-16:

0.98

http://leuth.us/stock-market

As of: April, 2016

COPYRIGHT 2016 THE LEUTHOLD GROUP

Source: The Leuthold Group, LLC, Benchmarks First Quarter, Vol. 28, No. 1, April, 2016

www.leutholdgroup.com


As of: April, 2016


Source: The Leuthold Group, LLC, Benchmarks First Quarter, Vol. 28, No. 1, April, 2016





REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®As of: June 3, 2016

BARCLAYS U.S. HIGH YIELD BOND MINUS TREASURY BOND YIELD

High Yield Bond Yields Rise Again

20

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

15

10

5

Source: The Leuthold Group, LLC, Perception Express, May 6, 2016, http://leuth.us/bond-market


As of: June 7, 2016


May-16:

5.88%

Differential

Median: 5.15


HIGH YIELD BONDS

Source: Barclays Capital, Federal Reserve, J.P. Morgan, Strategic Insight, U.S. Treasury,

J.P. Morgan Asset Management




Average Latest

High Yield Spreads 5.9% 7.6%

High Yield Default Rates 3.9% 2.4%

YIELD CURVE IS STARTING TO FLATTENU.S. Treasury Yield Curve

Source: J.P. Morgan Asset Management. Dalbar Inc.






REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC..

YIELD CURVE: ALL ISSUERS

As Of: JUNE 3, 2016

As of: June 3, 2016



REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®

As of: June 3, 2016

All Yields Denominated in Local Currency

INTERNATIONAL SOVEREIGN DEBT BONDS & NOTES CURVE

As Of: JUNE 3, 2016

Source: The Leuthold Group, LLC, www.leutholdgroup.com



As of: December 31, 2015

AN INVESTMENT

THAT IS ALMOST ALWAYS

A GUARANTEED LOSS

SOURCE: BLOOMBERG INVESTMENT SERVICE

COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.®As of: April 30, 2016

ANNUAL INCOME GENERATED BY $100,000 INVESTMENT IN A 6-MONTH CD

Source: FactSet, NAREIT, J.P. Morgan Asset Management




THE CASE FOR

FLOATING-RATE

LOANS

DESPITE A HISTORIC “BULL RUN” IN BONDS…… Loans Outperformed Bonds In Majority Of Intra One-Year Periods

Source: Eaton Vance, Floating-Rate Loan Chart Book Q1 2015, www.eatonvance.com

Note: Data provided is for informational use only. It is not possible to invest directly in an Index. Loans are represented by Credit Suisse

Leveraged Loan Index and bonds are represented by the Barclays Capital U.S. Aggregate Index. Analysis includes all rolling one-year

periods since inception of Credit Suisse Leveraged Loan Index in February 1992.


REPRINTED WITH PERMISSION FROM EATON VANCE

THE FUTURE: WILL RATES RISE, STAY LEVEL OR FALL?Looking Ahead, Most Interest-Rate Scenarios Favor Loans (Thanks To Generally Low Rates)

Source: Eaton Vance, Floating-Rate Loan Chart Book Q2 2015, www.eatonvance.com

Note: Data provided is for informational use only. It is not possible to invest directly in an Index. Bonds are represented by the Barclays

Capital U.S. Aggregate Index, with a yield of 2.4% and duration of 5.6 years. For loans, we use the S&P/LSTA Index, with a net yield of

4.6%, based on a market yield of 5.3%, reduced by 0.7% to account for expected defaults and recoveries—the average level observed by

Eaton Vance over 20 years. Duration is 0.1 years. Calculations are based on standard duration formula, assuming instantaneous rises in

interest rates and adjustments of benchmark yields on loans. Chart represents projections based on various interest rate scenarios but

is not intended to predict any particular scenario. The information is based, in part, hypothetical assumptions and the experience of

Eaton Vance. Certain of the assumptions have been made for modeling purposes and are unlikely to be realized. Changes in the

assumptions and scenarios may have a material impact on the information shown.



POSITIVE RETURN TENDENCIES FOR 20 YEARS1.0% - 2.0% Per Quarter Most Common Historically; Skew Has Helped Drive Tendencies Positive

Source: Zephyr via Eaton Vance, Floating-Rate Loan Chart Book Q2 2015,

www.eatonvance.com

Note: Data provided is for informational use only. It is not possible to invest directly in an Index. Loan performance is represented by the

Credit Suisse Leveraged Loan Index.



HIGH YIELD PER UNIT OF DURATIONLoans May Help Amplify Yield Today, While Significantly Shortening Portfolio Duration

Source: Morningstar via Eaton Vance, Floating-Rate Loan Chart Book Q2 2015

www.eatonvance.com

Note: Data provided is for informational use only. It is not possible to invest directly in an Index. Yield to worst is the lowest potential yield that can be

received on a bond without an issuer actually defaulting. Yield to worst is generally calculated by making worst-case scenario assumptions by

calculating the returns that would be received if certain provisions, including prepayment, call or others, are used by issuers. Duration is a measure of

the sensitivity of a bond’s price to a change in interest rates. It represents the number of years until a bond’s interest and principal payments are

received. Treasury represented by Barclays Capital U.S. Treasury Index. Agency represented by Barclays Capital U.S. Agency Index. Aggregate

represented by Barclays Capital U.S. Aggregate Index. MBS represented by Barclays Capital U.S. Mortgage Backed Securities (MBS) Index.

Investment-Grade Corporate represented by Barclays Capital U.S. Corporate Index. Municipal represented by Barclays Capital Municipal Bond Index.

Emerging Markets Sovereign (USD) represented by JPMorgan Emerging Markets Bond Index Plus (EMBI+). High Yield represented by Barclays Capital

U.S. Corporate High Yield Index. Floating-Rate Loans represented by S&P/LSTA Leveraged Loan Index.



DEFAULT RATES WELL BELOW LONG-TERM AVERAGESSOUND FUNDAMENTALS HAVE HELPED LIMIT DEFAULT SCENARIOS

Lagging Twelve-Month Default Rate by Principal Amount

Source: S&P/LCD and S&P/LSTA Leveraged Loan Index via Eaton Vance, Floating-

Rate Loan Chart Book Q2 2015, www.eatonvance.com



Note: Data provided is for informational use only. It is not possible to invest directly in an Index. Default rate is calculated as the amount

default over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period.

ANNUITIES

1. Elderly Individuals Who Are In Their Late 80’s Or In Their

90’s – Fixed Annuities

2. Individuals That Have Plenty Of Cash Flow That Have

Maximized Other Contributory Vehicles Such As IRAs,

401(k)s, 403(b) Plans – Ultra Low Cost Variable Annuities –

Perhaps The Purchaser Should Be Over 59 1/2.

WHERE DO ANNUITIES MAKE SENSE?

THE PROBLEM WITH FIXED ANNUITIES

1. Long Surrender Charge Schedule—Limits Flexibility

2. Worst Time In History To Purchase Fixed Annuities

a. Fixed Annuities’ Underlying Investment Options Are:

i. Treasury Securities

ii. Agency Mortgages

iii. High Grade Corporate Bonds

b. All Of The Above Investment Yields Are At All-Time

Lows

THE PROBLEM WITH VARIABLE ANNUITIES

1. High Fees

a. The Mortality And Expense Charges—Usually At

Least 1.25% Or More Annually

b. The High Cost Of Guarantees (Riders)

2. Complex Contracts Resulting In Purchasing Riders That

Are Overly Complex

3. Limited Investment Options—Usually No More Than 20

To 40 Subaccounts (Investment Options)

4. Riders Frequently Dictate Investment Options

5. Lengthy Surrender Fee Schedule—Resulting In Inability

To Change Strategies

6. Lack Of Low Cost Index Investment Options

Fee Range

Mortality And Expense Charge* 1.25% to 2.00%

Guaranteed Death Benefit** .15% to .35%

Guaranteed Earning Increase Death Benefit** .10% to .40%

Guaranteed Minimum Income Benefit** .50% to .75%

Guaranteed Minimum Withdrawal Benefit** .40% to .65%

Guaranteed Lifetime Withdrawal Benefit** .50% to .60%

Guaranteed Minimum Accumulation Benefit** .25%________________________________________

to .75%______________________________________

Total (Does Not Include Annual Contract Fee

of $30.00 to $75.00)3.15% to 5.50%

THE IMPACT OF COSTS ON VARIABLE ANNUITIES(The Cost Of Owning A Variable Annuity Over And Above A Mutual Fund’s Costs)

*Source of Information – Morningstar, Inc.

**Source of Information – Investopedia.com

GOLD

•The Inverse Relation Between Real Interest •Rates and the Price of Gold


•Gold Rebound Has Been Linked to Fall •in Interest Rates


•Gold vs. Gold Miners


•usfunds.com

•7 Reasons Gold is Rising

• Unprecedented nominal negative interest rate

• Real negative interest rates

• Investors losing faith in central bank policy

• Central banks are now net buyers of gold

• Weakening U.S. dollar

• Greater scarcity: Gold production is rolling over

• China consuming huge amounts

usfunds.comJune 2016 | 16-196

Source: The Leuthold Group, LLC, Perception Express, September 9, 2015, http://leuth.us/stock-market


As of: September 9, 2015


PERFORMANCE OF PRECIOUS METALS

DURING BEAR MARKETS IN STOCKS


ARE WE HEADED FOR A TRAIN WRECK?

Source: www.usfunds.com

THE FUTURE INVESTMENT ENVIROMENT

1. Traditional Fixed Income Investment Return Expectation Next 10 Years

A. Low Single Digit Returns For High Quality-Rated Fixed Income

Investments

B. Lower Quality Fixed And Variable Rate Investments – Mid-Single

Digit Return Expectations

2. Equity Expected Investment Returns Next 10 Years

A. U.S. Equity Returns – Approximately 2.0% to 4.0%

B. Foreign Developed Equities Returns Approximately 30.0% Higher

Than U.S. Equities – But Very Volatile

A. Emerging Market Equities Returns – Approximately 50.0% Higher

Than U.S. Equities – But Very Volatile

B. U.S. REITs Returns – Approximately 4.0% to 5.0%

2016 PERFORMANCE YEAR-TO-DATE

January 1, 2016 to May 31, 2016

(5 months)

Year-to-Date

Total Return

Consumer Price Index (Inflation) 1.57%

90-Day Treasury Bills Index-Total Return 0.11%

Bloomberg Intermediate Term Corporate Bond Index 5.17%

Barclays Aggregate Bond Index-Total Return 3.45%

High Yield Corporate Bond Index – Total Return 8.99%

S&P Leveraged Loan Index – Total Return 4.49%

HFRX Global Hedge Fund Index -1.02%

S&P 500 Index (U.S. Stock Market) 3.57%

MSCI EAFE Index (Developed Foreign Equities) -0.75%

MSCI Emerging Market Index (Equities) 2.34%

Newedge CTA Index (Managed Futures) -0.35%

Dow Jones–UBS Commodity Index-Total Return (USD)** 8.63%

Dow Jones U.S. Real Estate Index-Total Return (USD)** 5.79%

Gold Bullion 14.58%

Compound and Total Returns include reinvested dividends. Newedge Index is equally-weighted.

** USD = U.S. Dollar

Source: Bloomberg Investment Service

COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC. ®

REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ®As of: May 31, 2016

MARKET FLUCTUATIONS

What Past Market Declines Can Teach Us

A History Of Declines (January 1, 1900 - May 31, 2016)

Type of

Decline

Percentage

Decline

Number of

Declines

Average

Frequency

Average

Length

Dip -5.0% to -10.0% 388 About 3 times a

year

46 days

Correction -10.0% to -15.0% 125 About once a

year

115 days

Severe

Correction

-15.0% to -20.0% Included in

corrections

total

About once

every 2 years

216 days

Bear Market* -20.0% to -30.0% 17 About once

every 6.25 years

11 months

Severe Bear

Market*

-30.0% or more 14 About once

every 8.25 years

22.8

months

Source: American Funds Distributors, Inc., Bloomberg, Dow Jones,

Ned Davis Research, Edward Jones, The Leuthold Group, LLC

* Either a Bear Market or a Severe Bear Market occurs approximately every 3.7 years.

Source: The Leuthold Group, LLC, Perception Express, May 6, 2016, http://leuth.us/bond-market


As of: June 7, 2016


Note: The Risk Aversion Index combines ten market-based measures including various credit and swap spreads,

implied volatility, currency movements, commodity prices and relative returns among various high- and low-risk

assets.

MONTHLY RISK AVERSION INDEX (RAI)MOVED UP BUT STILL “LOWER RISK” RANGE

4

3

2

1

0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

4

3

2

1

0


As of: June 3, 2016

FINANCIAL CONDITIONS INDEXES

European Financial Conditions -0.380

U.S. Financial Conditions -0.290

S&P 500 Index 2099.13



ASSET CLASSRETURN FORECASTS

26.44

Note: Created by Robert J. Shiller, Professor at Yale University, this Price Earnings Ratio is based on

average inflation-adjusted earnings from the previous 10 years (Each year of earnings is inflated

and quoted in current dollars), known as the Cyclically Adjusted P/E Ratio, also known as the

Shiller PE Ratio, or PE 10 Ratio. Because this factors in earnings from the previous ten years, it is

less prone to wild swings in any one year. The bad news: Because of the current high P/E valuation

of 26.44 returns on the S&P 500 are likely to be in the very low single digits over the next ten years.

SHILLER PRICE/EARNINGS RATIOSLong-Term Stock Market P/E Valuations Fell A Bit In December-Still In Highest Valuation Levels

As of: June 7, 2016

REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®Source: www.multpl.com


45

40

35

30

25

20

15

10

5

0

Black Tuesday

Black Monday

1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

1881-01-01

P/E

U.S. STARTING VALUATIONS HAVE DEMONSTRATED A STRONG

IMPACT ON FUTURE RETUNS

Subsequent nominal returns (annualized)*

As of: December 2015 Source: Robert Shiller Online Data; Via PIMCO

* Median of the annualized subsequent returns calculated at each month end, using Shiller P/E and S&P 500 monthly

returns from December 31, 1927 to November 21, 2014

Current level: 26.44

Source: AQR, Robert Shiller’s Website, Kozicki-Tinsley (2006), Federal Reserve Bank of

Philadelphia, Blue Chip Economic Indicators, Consensus Economics via CMG Capital Management

Group, Inc. On My Radar, September 11, 2015, www.cmgwealth.com

REPRINTED WITH PERMISSION FROM CMG CAPITAL MANAGEMENT GROUP, INC.

As of: August 31, 2015

COPYRIGHT 2016 NED DAVIS RESEARCH, INC.

10-YEAR EXPECTED REAL RETURN OF U.S. STOCKS, BONDS AND A 60/40 PORTFOLIO

January 1900 To December 2014

Concluding Thoughts: Valuations are high and forward 10-year annualized returns look to be in the 2.0% to 4.0%

range (returns annualized before inflation is factored in). Therefore, the S&P 500 is likely to decline significantly

during the next recession to obtain such low long-term returns.

14.0%

10.0%

6.0%

2.0%

-2.0%1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

Today:

3.7%

0.2%

Versus

History:

8th percentile

4th percentile

2.3% 1st percentile

CPI +5.0%

Equity Real Yield Bond Real Yield

60/40 Real Yield CPI +5.0%

Stocks are represented by the Standard & Poor’s 500 Index since 1957, and bonds are represented by long-dated Treasuries, The 60/40 Portfolio is 60.0%

Stocks and 40.0% bonds. The equity yield is a 50/50 mix of two measures: 50.0% Shiller E/P 1.075 and 50.0% Dividend/Price +1.5%. Bond yield is 10 year real

Treasury Yield over 10 year inflation forecast as in Ilmnen (2011). Scalars are used to account for long-term real Earnings Per Share (EPS) Growth.

Source: Hussman Funds, Weekly Market Comment, June 13, 2016, www.hussman.com

REPRINTED WITH PERMISSION FROM HUSSMAN FUNDSAs of: June 13, 2016

COPYRIGHT 2016 HUSSMAN FUNDS

12 YEAR RETURNS

FOR A

60.0% EQUITY, 30.0% TREASURY BOND, 10.0% TREASURY BILL PORTFOLIO

18.0%

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

Estimated 12-year annual total return on conventional 60/30/10 mix of S&P 500, Treasury bonds and T-bills

Adjusted subsequent 12-year annual total return

19

50

19

53

19

55

19

58

19

61

19

64

19

66

19

69

19

72

19

75

19

77

19

80

19

83

1986

19

88

19

91

19

94

19

97

19

99

20

02

20

05

20

08

20

10

20

13

20

16

Est. 12-year S&P 500 annual total return:

0.096-.1256*In (nonfinancial market cap/corporate gross value added)

Est. 12-year annual Treasury bond return:

0.9*current 10y Tbond yield +0.1*current 30y Tbond yield

Est. 12-year annual Treasury bill return:

0.56*current T-bill yield +.021

http://www.361capital.com/

ALTERNATIVE

INCOME/CASH FLOW

SOURCES

As of: October, 2015


Source: The Leuthold Group, LLC, Benchmarks Third Quarter, Vol. 27, No. 3, October, 2015



EQUITY DIVIDEND YIELDS

Source: FactSet, MSCI, J.P. Morgan Asset Management




Yields show are that of the appropriate MSCI Index

REIT YIELDS

Source: FactSet, NAREIT, J.P. Morgan Asset Management




Dividend vs. capital appreciation returns are through 12/31/14. Yields show are that of the appropriate FTSE NAREIT REIT index, which excludes

property development companies.

DIVERSIFICATION

INVESTMENTS

TO

STABILIZE

PORTFOLIOS


COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.®As of: May 31, 2016

BUSINESS CYCLE AND RELATIVE STOCK PERFORMANCE

Source: Stovall, Sam. The S&P Guide to Sector Investing. New York: McGraw-Hill, 1995As of: October 5, 2015

Key Economic Cycle Stock Market Cycle

Top Peak

Bottom

Early

bull

Middle

bull

Late

bullEarly

bear

Middle

bear

Late

bearTrough

Middle

recoveryMiddle

recession

7

5

6

Technology

Basic Industry

Capital Goods

8

9

10

Transportation

Energy

Utilities

Precious Metals11

11

8

4

57

6

9

1

3

2

4

10

2

3

4

Consumer Staples

Consumer Cyclicals (durable & non)

Health Care

Financials

1

VARIABILITY

OF

S&P 500 RETURNS

As of: December 31, 1929 SOURCE: BLOOMBERG INVESTMENT SERVICE



















COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.®As of: December 31, 2015

TAX-EFFICIENT

INVESTMENT

PLACEMENT

TAX-EFFICIENT INVESTMENTS

1. Equity-Focused Exchange-Traded Notes (ETNs)

2. Municipal Bond Funds (Suitable For Only High

Income Tax Bracket Individuals)

3. Exchange-Traded Funds

4. Tax-Managed U.S. Equity Funds

5. Tax-Managed Balanced Funds

6. Domestic Equity Funds

7. Foreign Equity Mutual Funds

8. Gold Equity Mutual Funds

MODERATELY TAX-EFFICIENT

INVESTMENTS

1. High Dividend Paying Dividends

2. Preferred Stock Funds

3. Real Estate Mutual Funds

4. Managed Futures Funds

5. Gold Bullion Mutual Funds

SOMEWHAT TAX-EFFICIENT

INVESTMENTS

1. Asset Allocation Funds

2. Balanced Funds (Combination Of Stocks And Bonds)

3. Long/Short Funds

4. Master Limited Partnership Exchange-Traded Funds

(ETFs)

MINIMALLY TAX-EFFICIENT

1. Master Limited Partnership Exchange-Traded Notes

(ETNs) That Distribute Income

2. Announced Merger/Arbitrage Funds

3. Convertible Bond Funds

TAX-INEFFICIENT INVESTMENTS

1. Mortgage Real Estate Investment Trusts

2. High Yield Bond Funds

3. Bank Loan Funds

4. Corporate Bond Funds

5. Agency And Non-Agency Bond Funds

6. Treasury Bond Funds (Though Tax-Efficient For State

Tax Purposes)

7. Treasury Inflation Protection Securities Funds (TIPS)

8. Foreign Developed Country Bond Funds

9. Emerging Market Bond Funds

10. Currencies In All Forms

THE GAME PLAN

THE INCOME TAX REDUCTION GAME PLAN

I. Avoid Income And Capital Gain Taxes Where Possible

A. Maximize Contributions To Tax-Deferred And Tax-Shelter

Vehicles

1. Maximize 401(k) And 403(b) Plan Contributions

2. Maximize IRA-Type Contributions

i. Deductible

ii. Non-Deductible

3. Low Cost (No Bells And Whistles) Variable Annuities As

A Last Resort

4. Rollover High Cost Variable Annuities Into Low Cost

Variable Annuities (No Bells And Whistles) Via A 1035

Exchange (Tax-Free Transfer)


II. Income Tax-Efficient Placement Of Assets

III. Harvest Capital Gain Losses Where Possible

A. Losses Should Generally Be At Least 10.0% And More Than

$1,000.00 To Make It Worthwhile To Sell

B. Sell Mutual Funds That Are Going To Pay Out Capital Gains

Prior To Payout In Order To Minimize The Amount Of Gain

IV. Income Tax-Efficient Placement Of Investments

V. Gift Appreciated Assets

A. To Family Members In Lower Income Tax Brackets

B. To Charitable Organizations

THE INCOME TAX REDUCTION GAME PLANVI. Avoid Paying Cash For Large Purchases

A. $10,000.00 to $80,000.00 Or The General Vicinity

1. Ex. Vehicles – 0.0% to 2.0% Loan Rates

2. Ex. Home Improvements – 2.0% to 4.0% Lending Rates

B. Borrow The Money – It’s Never Been Less Expensive

C. Avoid Taking Money From Retirement Accounts At All Costs

1. Ex. An IRA Withdrawal That Is Taxed At 25.0% Is

Equivalent To A 5.0% Per Year Financing Cost Over Five

Years Excluding State Income Taxes


D. Avoid Taking Money From Your Taxable Portfolio

1. Liquidation Costs – Trading Costs To Sell

a. Capital Gains Exceeding Capital Losses

b. Rebalancing Costs

c. Trading Costs To Buy

2. At Times, Monies Can Be Generated Without Income

Taxes Being Generated – However, All Other Costs Will

Be Incurred

E. Don’t Forget That Liquidating Your Portfolio To Withdraw A

Lump Sum Will Also Lead To:

1. Rebalancing The Portfolio

2. Trading Costs

3. Taxation On Investment Positions Sold


F. Have An Emergency Reserve Account Equivalent To Six

Months Spending

1. Avoid Unnecessary Purchases

G. Obtain A Home Equity Line Of Credit

Legend Financial Advisors, Inc.®



Phone: (412) 635-9210


www.legend-financial.com

CONTACT INFORMATION

EmergingWealth Investment

Management, Inc.



Phone: (412) 548-1386



Documents

GENERATING AFTER-TAX INVESTMENT INCOME: THE … · Leveraged Loan Index and bonds are represented by the Barclays Capital U.S. Aggregate Index. Analysis includes all rolling one-year