Wealth

Trump and Your Taxes

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    Trump and Your Taxes – Changes are Coming December 2, 2016

    First off, it’s important to understand that it’s unlikely all of Trump’s tax proposals will come to pass. Regardless, there are a couple big takeaways to consider given the potential scale of impending tax changes and the high probability tax rates will be lower soon;
    1. Discuss deferring whatever income you can into the future with your CPA or tax attorney.
    2. If you have any deferred deductions, talk with your tax professional about taking them in 2016.

    So, what will Trump push for?
    • Corporate tax rates capped at 15%. This would go with a reduction or even the end of many deductions and credits. AMT to be eliminated. Additional changes to business taxes including advantages to manufacturing in the US and exclusion of employee childcare expense from income.
    • One time repatriation tax for corporations holding $ overseas at 10% rate.
    Individual tax rates would be simplified into 3 brackets:
          o Less than 75k: 12% for Married-Joint filers.
          o $75k to less than $225k: 25% for Married-Joint filers.
          o $225k +: 33% for Married-Joint filers.
          o Brackets for individual filers to be ½ the above.
    Increase in standard deductions;
          o More than doubles deduction for married joint filers to $30,000.
          o Single filers get deduction of $15,000.
          o Exemptions to be eliminated.
    • Death/Estate Tax to be eliminated, but capital gains held until death in excess of $10 million will be subject to tax. To exempt small business and family farms.
    • Significant changes to childcare and elder care deductions for most Americans. Excludes couples over $500k AGI/$250k single. Rebates available to taxpayers under $62.4k MFJ and $31.2k single. Proposes a tax exempt Dependent Care Savings Accounts.
    Capital Gains to stay at 20%.

    Trump’s team estimates this will result in 3% reduction in tax bill for the highest earners, to a 35% reduction for the lowest.  More information on the President-Elect’s proposals available at www.donaldjtrump.com

    The Urban-Brookings Tax Policy Center sees most payers experiencing a reduction, but there are instances where the marginal rate actually increases.   

    brookings-tax-analysis

    To read the full analysis follow this link:  Urban-Brookings Tax Policy Center

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    To Smarter Investing,

    Dak Hartsock

    Market Strategist

    ACI Wealth Advisors, LLC.

    Process Portfolios, LLC.

    6 Key Things Successful Investors Do Differently

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    What the Best Investors Do Differently to Manage, Invest, & Protect Their Money.  October 22, 2016

    A couple times a year I sponsor an educational seminar for investors. This morning I realized that everyone that reads these updates would benefit from the same information, so here is a recap of some of the core points I usually make when educating investors.

    6 Key Investment Lesson from the Wealthiest Investors
    1. The most successful investors don’t hire brokers or financial advisors to help them, nor do they go it alone — they work with fiduciary investment advisors. That difference has historically been worth about 3% a year according to Dalbar Associates, an independent research firm. That difference adds up quickly.

    CLICK HERE to learn more about the differences between advisors, and how to tell if your advisor is actually on your side or not.

    2. 87% of brokers and financial advisors do NOT have a fiduciary responsibility to their clients. Instead, they collect hidden commissions on YOUR money. If you think your advisor doesn’t, you are probably in for a surprise.

    3. The majority of companies in the industry base their business models on hidden commissions paid by mutual funds or proprietary products (Edward Jones, Merrill Lynch, AXA Advisors, Ameriprise, Morgan Stanley/etc..) This takes money out of your pocket, where it belongs. (Sometimes a LOT of money!)

    4. The wealthy invest like university endowments and big pensions–they don’t chase the market. Instead, they focus on managing risk. Many use reduced correlation or non-correlated investments to help protect their assets from difficult-to-predict markets.

    5. Diversification is NOT enough. In 2008 there was no real difference between the largest, most diversified global funds in the world and the S&P 500 – all fell hard and took years to recover.

    6. Wealthier investors understand what to expect out of their portfolios and have a plan – they know how much they have to save and by when to hit their goals, they take the least risk possible to get there, and they have a plan for dealing with the market when things go wrong.

    I hope this reminder is timely and helps you as we head into an unpredictable presidential election.

    If you don’t feel you have control over your portfolio or still don’t know how much you are losing to hidden fees, maybe it’s time to act.

    Time goes by fast. Will it be another year before you do something to improve your investments?

    CLICK HERE to get in touch. We’ll check your portfolio for hidden fees, and see if my firm and I can add value to your life and to your investments.

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    To Smarter Investing,

    Dak Hartsock

    Vice President & Market Strategist

    ACI Wealth Advisors, LLC.

    Process Portfolios, LLC.

    Recession Odds Dip – Consumers Spending More

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    Recession Odds Dip – Consumer Spending Still Rising 9/7/2016

    Before we get going, I was recently asked what the point is of understanding whether or not we are entering a recession. This person had been told by their broker that to “ride the rallies you have to ride out the valleys.” Catchy, right?

    The reason to understand when the economy is falling into recession is because around 80% of the time the stock market sells off hard when it does. The market usually takes a few months after the recession actually starts to figure it out, but once it starts selling most of the time it keeps going far longer than anyone other than a billionaire likes to see. The other reason- when the market itself starts into recessionary selling, 70% or more stocks follow the market down.

    Think of it this way. If you were getting into your car this morning and you received a credible message that there was nearly an 80% chance you would get in a car accident today, and that about 70% of the cars on the road were also going to be involved in a crash today, would you crank it up and head for the freeway or would you decide to preserve your car (and maybe more than that) and stay at home?

    Now that doesn’t mean that you should stay at home at all costs, but if those were my odds for the day, I’d sure like to know about them before I decided to take a drive.

    So, my firm and I use what’s called the Recession Probability Indicator (“RPI”) to identify whether or not we are in (or entering) a recession. Think of it as a lookout in the crow’s nest of an old school sailing ship – he’s keeping an eye out for storms or rocks so the ship gets where it’s heading safely.

    My firm and I use the RPI for the same reasons – to help steer client accounts away from storms and rocks so they can live their lives focused on what’s important to them rather than worrying about the next market crash. We aren’t going to see every single rock or approaching storm, but if we weren’t looking we wouldn’t see any of them. I think of it as Wealth Preservation 101. It’s basic.

    Absent a recession, it’s best to stay invested. If you’d like more information on this idea, follow this link —> CLICK HERE.

    So, if recession is what we need to pay attention to, are we in one yet?

    Nope.

    Consumer activity drives about 70% of the American economy and spending is still rising at +4.2% vs. last quarter. As a result, we are seeing a slightly reduced probability of recession vs. earlier in the year. This is subject to change, but for now the investment climate is stable and likely to stay that way for a while longer.

    If you don’t know how the Recession Probability Indicator works, CLICK HERE. Make sure to scroll down to take a look at the tables below the description.

    Below is an updated graph of the RPI. It runs on a 2 – 3 month lag.

    If you’d like to take a look at the American Institute of Economic Research business conditions update CLICK HERE.

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    To Smarter Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC.
    Process Portfolios, LLC.

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    Is There a Correction Coming?

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    Correction Around the Corner? 9/1/2016

    Markets have witnessed two corrections so far this year and fears seem to be mounting that another is right around the corner. The first correction took hold following the Fed rate raise last December with the S&P 500 falling approximately -14% before markets began to stabilize. Despite the dark promises of pundits, the markets began to move higher from there and didn’t face another hiccup until the short-lived Brexit, when markets experiences a 2 day panic of -6% before reason prevailed.

    What’s important to realize is that normal markets typically experience a -10% or so correction about once per year, and two -5% or so corrections per year. There are numerous -3% pullbacks. Most times an acorn falling on your head is just an acorn falling on your head. It doesn’t mean the sky is falling.

    Corrections are not worth getting worked up about. They are basically short lived sales on the market, really no different than when your favorite store holds its Labor Day Clearance Sale except they aren’t scheduled a year in advance. Therefore, corrections represent significantly more opportunity than risk. A correction rarely slips into a bear market. It’s far safer to buy during corrections than sell, absent recession.

    At this point, my view is that we have a good probability of a near term correction, particularly if the Fed decides to raise rates in September or October. There are no guarantees that correction occurs, but if it does I’m anticipating something in the area of -6% at this point.

    If the Fed raises rates next month, it may be deeper. However, I see the Fed holding off until December as the highest probability, but they may raise in October. September is probably too early — I think the Fed wants to hold fire until there is greater visibility in how the Brexit will actually play out in Europe. That being said, I’m not convinced my crystal ball works better than anyone else’s.

    A rate hike doesn’t really matter, though. It may cause near term market gyrations, but the U.S. economy can withstand a raise and if the markets do tank it should be considered a buying opportunity unless we’ve moved into recession.

    Thanks to the media, investors often confuse vanilla corrections with damaging bear markets. Corrections and bear markets are materially different, and bear markets can be further differentiated into cyclical bear markets and recessionary bear markets. Recessionary bear markets BITE. Cyclical bear markets are generally simply nippy.

    A solid investment plan is all that is needed to endure standard corrections and even cyclical bear markets. Adjustments in investment plans should only be made when the economy moves into recession.

    bear market blues

    Questions? Please reach out through one of the contact forms on the site or email me directly.

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    To Smarter Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC.
    Process Portfolios, LLC.

    Process Portfolios 1st Half Summary & 2nd Half Outlook

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    ACI Process Portfolios: 1st Half 2016 Performance & 2nd Half Outlook

    The video below has the most important information in the first minutes including performance details. The video player has controls to allow you to fast forward, pause or repeat whatever section of the video is most relevant to you.

     
     
    Executive Summary

    • 3/6 portfolios beat their benchmarks
    • 2 portfolios beating the market
    • Strong performance in Market Income and Full Cycle Portfolios
    • Adjustments to Durable Opportunities in 2nd half of 2015 working
    • Core Equity still lagging due to biotech, pharma, healthcare, but showing it may overtake market quickly if election rhetoric on industry softens or market stabilizes for a few months
    • Recession Probability Indicator still suggesting stable investing environment
    • Performance details are minutes 2:19 – 5:50 in video
    • Color on portfolios occurs in minutes 5:51 – 10:40
    • 2nd Half Outlook is 10:41 – 14:32

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    To Smarter (and more transparent) Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC
    Process Portfolios, LLC

    Recession Watch June 2016

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    Will a Fed Rate Raise Put the U.S. In Recession? Once again, media pundits are all atwitter about the idea the Fed will raise rates either this month or next, putting the US into Recession.

    As before, this is less about the actual impact to the economy and more about attracting eyeballs to either sell advertising or convince investors they have to do something and do it NOW, which generally rewards Wall Street.

    While the risks have risen since the last Recession Probability Indicator update, they are still within the “Stable Investing Climate” range. Historically, investors have been best served by making few, if any, changes to their portfolios when the investing climate registers a “stable” reading on the RPI.

    The Recession Probability Indicator (“RPI”) scored a 17 at the most recent reading, meaning the economic environment for investment is stable and below the “reduce risk” warning level of 20. That is subject to change but as with all things that have to do with investing, it’s better to take direction from facts and not fears.

    Most of the time the RPI moves between 3 and 17.

    RPI Update June 2016

    The market can move around a lot even with a stable reading. Despite that, history vastly favors those who stay invested as long as there is no recession imminent.

    If you’d like to review a more in depth examination of why it’s important to stay invested absent recession signals, click to visit the Recession Probability Indicator page and scroll down to see what happens if you stay invested except for recessions. CLICK HERE

    If you’d like to understand why it’s important to try to reduce risk ahead of recessions CLICK HERE.

    A quick note on my expectation for what the Fed will or will not do regarding rates and when. Regular readers know that, so far, I’ve been reasonably accurate in gauging Fed decisions. Famous last words, right? I did say “so far.”

    My outlook at the moment is that the Fed will hold off in June but is likely to raise in July if things are as they are right now.

    My opinion is that if the Fed raises in June, it means they have assurances that the British will not exit from the European Union. Conversely, if they do not raise in June that suggests they are holding fire because they don’t know what the Brits are going to do. If Britain does exit the EU I do not believe the Fed will raise until the impact of such a move becomes clear. That may mean September, that may mean later. If oil falls again in the interim, that may also put off rate hikes as the inflation numbers will mitigate slightly.

    Regardless, the US economy is capable of withstanding a rate raise. However, such a raise combined with a British exit from the EU is likely to stoke fear in investors and result in yet another double digit sell off. Barring recession, such a sell off represents opportunities rather than obstacles.

    As always, a link to the American Institute for Economic Research’s Monthly Business Conditions for those interested. Their view is similar to mine– risks are rising, but still no clear warning of imminent recession. CLICK HERE

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    To Smarter Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC.
    Process Portfolios, LLC.

    Q1 2016 Quarterly Update and Market Outlook

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    Q1 2016 Year-to-Date and Market Outlook Update

    The video below reviews performance for all 6 Process Portfolios year-to-date through April 15, 2016 and also includes an updated Market Outlook near the end.

    2016 saw the worst January in at least a generation and a return to higher levels of volatility thanks to central bank actions that seem to be increasingly opaque to many market watchers. I’ve been fortunate in that the Fed hasn’t done anything far distant from my expectations, at least so far. We’ve also seen the financial media predictably stoking fear and the usual parade of media guests short on data but long on opinion.

    Regardless, careful students of the markets have seen a number of signs that suggest we may see smoother waters later in the year, as long as the economy does not move onto a recessionary footing.

    Overall, reasonable performance with 4 of 6 portfolios beating the benchmarks, and 3 of 6 outpacing the broad market. Most portfolios have managed to do so with less risk than investing in an index fund. It’s fair to say it’s been a very good quarter for the 3 portfolios that clocked a 4%+ return, 2 with substantially less risk than buying an S&P 500 index fund. That’s a nice result for such a tumultuous period.

    The video below features the executive brief and results updates in the first 4 slides. Feel free to use the video player’s tools to skip ahead to what you are interested in. Thereafter there is a little more “color” on each portfolio followed by an updated Market Outlook. Rounding out the periphery of the presentation are descriptions of each ACI Process Portfolio, including risk management.

    This video concludes with the always exciting regulatory disclosures, which seem to get longer by the day. We can thank the admirable solidarity law school graduates in government demonstrate with their private sector compatriots, constantly striving to make sure their fellows on the other side of the fence have plenty of work.

    As I know everyone loves to read the disclosures, I’ve had our theme music looped at the end to give you an even better reading experience.

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    Warm Regards,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC.
    Process Portfolios, LLC.

    What’s Up With The Economy? Recession Probability and Business Conditions Update

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    April 4, 2016

    There has been a lot of economic doom and gloom talk over the last couple months, with media “expert” after media “expert” saying the US economy is about to fall into a recession. It comes with the predictable warnings about a bad bear market. The vast majority of these talking heads are just voicing opinions based on their own views and often get emotional when voicing their perspective. The problem with these “experts” is there very little in the way of factual economic data to support any of their positions.

    Understand that investing is not an activity that benefits from either uninformed opinion or emotions. In fact, the opposite is true – uniformed opinions and emotional decision making often cause grief to investors.

    Success in the investment game is primarily about WHAT IS, not WHAT IF. What IF is the progenitor of fear and greed, arguably the cause of more financial grief than Alan Greenspan (that was a market nerd joke). What IS, by definition, restricts consideration and decision to the facts at hand.

    I’m sure you’ve gone to a doctor at some point in your life because you had a cold – runny nose, sore throat, a bit of fever, maybe some aches and pains. Has the doctor ever said, “What if this isn’t a cold? What if this is pneumonia? What if one of your lungs is collapsing? Could it be that you have cancer? Maybe you are sniffling because you are about to fall victim to a hemorrhagic fever and the bleeding has started in your sinuses? Maybe you are achy because you are going to come down with Dengue Fever? Is it possible this is Malaria?

    Do you believe the doctor could effectively manage your condition if the diagnostic conversation was about What IF rather than What IS?

    Investing is no different. Any effective conversation or action has to be about What IS. What IF is basically irrelevant.

    So, let’s look at What IS.

    At the most recent reading, the Recession Probability Indicator is cruising along at a steady 12, meaning the overall investment environment continues to be stable. That is subject to change, but for right now there is no recession on the horizon and in fact several key areas of the economy strengthened in the most recent month. If you aren’t familiar with the RPI, CLICK HERE to see how well it works.

    RPI Graphic March 2016 update

    Manufacturing, responsible for about 30% of our economy, moved back into expansion mode last month for the first time since last fall and the non-manufacturing sector of the US economy also strengthened a bit, which is good news for the other 70% of our economy.

    A reminder – just because there is no recession doesn’t mean the market can’t go up and down, but that history vastly favors those who stay invested despite volatility, as long as there is no recession imminent.

    If you’d like some evidence, take a look at the facts– Why Recessions Kill Investment Portfolios.

    Fear helps the media sell advertising and brokers increase commissions, but it doesn’t help your investment portfolio get you to retirement with the assets you need to live the way you want to.

    The point? Don’t let short term noise get in the way of a solid investment plan. Only impending recessions should do that, and if you have a real investment plan, you already know what you are going to do when the next recession comes.

    Don’t have a retirement income and investment plan? Newsflash – one of the key differences between the wealthiest investors and the average person is that they know what they have to invest and save and when they need to do it.

    We can help. Use the contact page or email and we’ll have a no pressure, get to know chat to see my firm and I can add value to your life.

    For those interested, here is a link to the most recent Business Conditions Report by the American Institute of Economic Research–CLICK HERE

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    To Smarter Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC.
    Process Portfolios, LLC.

    Stock Market Outlook Q1 2016

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    Stock Market Outlook Q1 2016: Impending Bear Market Or Just A Correction?
    I’ve front loaded this video with most of my observations in the first 4 minutes for busy subscribers/clients, but for those interested in more than a summary opinion I’ve included a deep dive into what I’m seeing in the market that drives my current view.

    In slide 11, the red line somehow moved when I converted the presentation to video. It should be around the 23.5 mark rather than the 27 or so displayed. FYI.

    Enjoy.

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    To Smarter Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLC
    Process Portfolios, LLC

    2016 Stock Market: What You Need to Know

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    4 Things You Need to Know About Investing in 2016

    We’ve seen a lot of headlines recently, most of them pretty alarming to the average person. Hand in hand with those headlines we’ve seen markets make some of the most substantial short term moves in recent history. In the first 5 market days of 2016 the S&P 500 dropped nearly 6%, the biggest 1 week drop we’ve seen since August 2011 (when the S&P dropped about 11% in 5 days).

    The deluge of negative news stories and depressing angles on the global economy and the stock market can be overwhelming and really create the idea that some kind of action has to be taken or something terrible will happen.

    Reality, at least at this point, is more than a little bit different.

    There are four crucial things serious investors need to understand about the market we face in 2016:
    1) The Federal Reserve is less able to suppress market volatility in the short term as they guide to higher interest rates.
    2) Market volatility is likely to return to pre-QE levels.
    3) Short term market swings in both directions will be larger and occur faster as a result.
    4) Bear markets are almost always accompanied by recessions.

    #1 answers the “why” of what we are seeing, and #2 and #3 describe the immediate result of #1. #4 is the reason successful investors aren’t going to let the first 3 drive them to take actions that are likely to hurt their investment goals.

    As you may have surmised, investors that exited the market in 2011 due to fear missed out on a substantial move up in the market, and a lot more money in their investment accounts.

    This is like running out of a building when the lights go on and off for a couple minutes because you are afraid you might die in a fire. Most of the time, lights going on and off don’t mean the building is on fire. Most of the time, smoke means a building is on fire.

    Right now, the lights are flickering in the market, but there isn’t any smoke to indicate a recession.

    So, how do the most successful investors deal with flickering lights?

    According to a recent LPL behavioral finance paper on 5 Common Investor Mistakes, the top 3 things successful investors do differently are 1) They do not react to easily available information (read that as media headlines and the underlying stories, i.e. incomplete information), 2) They basically completely ignore short term performance (including the deluge of messages about short term events in financial markets) and 3) They follow their investment plan, not the herd.

    What’s really interesting is that the less successful an investor you are, the more likely you are to act on incomplete information (i.e. headlines and media articles, short term falls in stock prices).

    Wealthy, successful investors beat the average investor by a measurable margin year in and year out. They are less likely to panic sell and they maintain long term perspective. That doesn’t mean they buy and hold no matter what, but they are not affected by short term market noise and rarely trade assets for cash except in the face of looming recessionary bear markets and the high probability of serious losses.

    Why is that?

    The graphic study below was put together by JP Morgan (Bear Markets and Bull Runs). For those that don’t like these graphs and data tables, I’ll put it together for you;

    Of the 10 bear markets we’ve seen since 1929;
    * 8 included a recession
    * 4 saw spikes in commodity prices
    * 4 featured an overly aggressive Federal Reserve (2 of those came with recessions)
    * 5 had extreme valuation bubbles (3 of which also had a recession)

    So, it’s clear the common denominator of bear markets is recession.  Only 2 bear markets occurred without a recession, and they were shorter and shallower than the others.

    Bear markets that don’t include recessions last an average of 5 months and drop 30% less. They generally don’t result in catastrophic damage to investment portfolios.

    So, where are we now?

    As yet;
    * There is no recession currently on the horizon
    * 1 rate raise in 6 years does not yet make an overly aggressive Fed
    * Commodities are crashing
    * While valuations are high in some areas they are not in bubble territory in comparison with the past.

    So, until one of these situations experiences a material change, the most successful investors will continue to prosper by sticking to their investment plans.

    Yes, the lights appear to be flickering. But it pays to wait for smoke before deciding the building is on fire.

    Bear Markets and Bull Runs

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    To Smarter Investing,

    Dak Hartsock
    Chief Market Strategist
    ACI Wealth Advisors, LLc
    Process Portfolios, LLC.

    © Copyright 2015
    Dak Hartsock

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    Investment Management

    For ACI, investment management begins with understanding and actively managing risk for our clients and partners.  We do this through smarter investments built on low cost, highly liquid and diversified investments rather than expensive financial products.

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    RETIREMENT INCOME PLANNING

    Understanding the needs of investors seeking stable results for portfolios greater than $500,000 is a core strength of ACI.  One of the most important things we do is help your investments to create stable income while generating sufficient growth to meet your future demands and the needs of those you care for. 

    ACI uses customized planning and software to create retirement income plans to meet the specific needs of each of clients while providing confidence, flexibility, and cost efficiency.

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    FINANCIAL PLANNING

    Success in any endeavor comes from hard work, vision, and planning. We can help you create a more confident future by working with you, your CPA, your tax and estate counsel to make sure that when the tomorrow becomes today, you are where you want to be.

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    Market Income

    This portfolio invests in a basket of highly liquid Index or Sector securities and sells off atypical returns in exchange for a premium on a rolling basis. That’s a fancy way of saying we take the bird in hand and let someone else have the two in the bush.  We buy sectors that are undervalued relative to the rest of the market or vs. their historical value ranges which reduces downside risk vs. the broad market.  Typically out-performs in bear markets, neutral markets and mild bull markets.   while under-performs strong bull markets.

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    Core Equity

    Invests in diversified components of the financial markets and broad economy by targeting sectors which demonstrate the greatest potential for a consistent range of multi-year returns, while offering a risk adjusted investment profile equal to or lower than the broad markets.  Our research tells us which sectors demonstrate the greatest potential for consistent multi-year returns while offering greater risk efficiency than the broad markets.  We invest on an “Outcome Oriented” basis – meaning we have a good idea what the returns over time will be at a given purchase price.

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    Durable Opportunities

    This portfolio invests in companies possessing a Durable Competitive Advantage.  Such companies are likely to be around for decades, easing the concern of principal return.  DCA companies often suffer less in bear markets and usually lead recoveries.  These companies allow ACI to build portfolios with minimum expected returns that can be in the mid-single digit range over any 3-5 year period which can provide long term stability partnered with long term growth in equity.

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    Full Cycle

    This portfolio is derived from the ground breaking work in ‘risk parity’ by Ray Dalio, arguably one of the top 10 money managers in history and founder of Bridgewater Associates.  The Full Cycle portfolio is built on the allocation models Ray designed to provide the highest potential risk adjusted returns possible through all phases of the economic cycle.  Bridgewater’s “All Weather” fund was designed for pension funds and other large institutional investors that needed to earn stable returns with stable risk, and has been closed to new investors for years.  At the time the fund closed, the All Weather Portfolio had a minimum required investment of $100 million.

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    Equity Builder

    This is a risk management overlay which helps build and protect accounts by collecting small premiums against held positions on an opportunistic basis during correcting markets.  EQB seeks to collect an extra 2% – 5% per year against the cost of underlying investments.  While primarily targeted at increasing account equity, EQB gives an extra layer of protection to capital during periods of higher volatility.

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    Fixed Income

    Diversified, broad exposure to fixed income ETFs and best of breed no load funds including core fixed income components such as Government, Corporate or MBS, municipals, and unconstrained “Go Anywhere” funds.

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    ACI Investment Team

     

    Dak Hartsock; Investment manager with over 15 years of experience with securities & securities options. Dak has worked full time in the financial markets since 2007. He has more than a decade of operating experience as a business owner & developer, with substantially all personal net worth invested in ACI. He is a graduate of the University of Virginia.

    Robert Hartsock; MBA. Bob has over 30 years of senior management experience in diverse markets, products and businesses. He brings an exceptional record that includes management roles in two Fortune 500 companies and leadership of 7,500+ employees. Bob’s career features a specialization in identifying and fixing management and operational problems for multiple companies including leading over a dozen acquisitions, private placements and a public offering. He is uniquely positioned to provide ACI with highly relevant C-Level management perspective. Bob provides operational & macro perspective on investments ACI undertakes for client portfolios. Bob holds degrees from University of Illinois and University of Washington.

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    Model & Performance Disclosures

    Disclosures Regarding Investment Performance Reporting in compliance with Rule 206(4)-1(a)(5).

    Visit http://www.dakhartsock.com/process-portfolios-historical-performance/ for historical performance of ACI’s Process Portfolios.

    Market Income Portfolio
    1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
    2. Listed Index models and graphs do NOT include transaction, fund or Advisor Management fees as the index model is not available for investment. Live portfolio results include all fees, including Advisor Management fees.
    3. Model results do NOT reflect reinvestment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
    4. Investing involves risk, including risk of loss and/or principle. While the Index model has historically shown reasonable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Market Income is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Market Income may differ from investment in an index fund such as an S&P 500 index fund.
    5. The model for Market Income is the Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM.” BXM has historically displayed less volatility than the S&P 500 and Market Income. BXM cannot be directly invested in. Market Income does not exactly follow the BXM index model – the mechanics of closing and opening positions differ – BXM opens, closes or rolls positions on the same day every month regardless of the profit or loss in a position – Market Income generally, but not always, waits until after expiration before transacting. Market Income will also close or roll ahead of expiration if the position has a high percentage of profit present in order to capture that gain. Options are generally sold again within a week of the closure of the prior position, but not always, and often new position may be opened the same day the prior position is closed.
    Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are believed to be compared with market and the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility will be either less than, equal to, or greater than the volatility experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
    6. The model portfolio (BXM) utilizes the S&P 500 as its basis. Market Income differs from BXM in that the underlying securities are primarily selected on the basis of “relative” value. This simply means that sectors are compared with one another and Market Income generally invests in the sector or sector(s) trading at the greatest discount or the smallest premium relative to its historical average valuation. Other factors are also considered including sector earnings growth and expected return versus other available sector instruments. Advisor believes this gives Market Income a higher margin of safety than repeatedly investing in the S&P 500 on a rolling basis without regard to value or prevailing economic conditions, while preserving liquidity.
    7. The BXM model on which Market Income is based is a non-traded index. As such, results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees.
    8. Market Income also differs from the BXM model in that Market Income seeks to reduce investment during recessionary economic periods while BXM stays invested regardless of economic or market conditions. Advisor believes this will better protect capital vs. BXM model but is materially different than staying invested in all market conditions. This action may cause Market Income to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
    9. Advisor clients have experienced results that exceed the performance of the model to date. There is no guarantee Market Income will continue to outperform BXM in the future regardless of Advisor efforts to do so.

    Core Equity Portfolio
    1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
    2. Model is a historical back test and includes brokerage and fund fees but does NOT include Advisor Management fees which vary by account size, but in general reduce annual performance by approximately 1.5%. Live portfolio results include all fees, including Advisor Management fees.
    Historical back-test means the model portfolio has been tracked on a backwards looking basis prior to the beginning of live investments in order to establish historical risks and results for investment in this portfolio. Back testing has certain inherent limitations as detailed in item #7 below.
    3. Model results reflect regular investment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings.
    4. Investing involves risk, including risk of loss and/or principle. While the back tested Core Equity model has historically shown desirable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Core Equity is designed to provide reasonable returns for the same or less risk than the broad market on a risk adjusted basis, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Core Equity may differ from investment in an index fund such as an S&P 500 index fund.
    5. The model for Core Equity is built of highly diversified, highly liquid sector and index securities, most frequently low cost ETFs. Core Equity live portfolios do not exactly follow the Core Equity model – variances in investor contributions, withdrawals, and risk tolerances result in measurable drift from the model. Over time, client accounts come closer in line with the Core Equity model.
    Core Equity live portfolios may differ from the Core Equity model in an additional material way; when valuations on certain sectors become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those sectors in favor of a sector position which is priced in a more reasonable range in comparison to it’s typical historical valuation. Periodically, Core Equity may allocate a small but measurable percent of assets (up to 5%) in volatility linked instruments in an effort to better manage the portfolio.
    These factors may result in greater or less than model performance over time.
    Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are compared with market and other benchmarks the
    Advisors believe to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
    6. Core Equity invests in diversified components of the financial markets and broad economy by targeting sectors or indices which demonstrate potential for a consistent range of multi-year returns, while seeking a risk adjusted investment profile equal to or lower than the broad markets. These sectors contain a range of equity stocks with an equally broad range of characteristics – some sectors are present in the Core Equity portfolio due to their historically defensive nature, some are present due to their historical growth characteristics, some are a blend of the spectrum between. The intent is to provide a balanced equity portfolio suitable for most investors as an S&P 500 index fund replacement but which seeks lower risk while experiencing, on average, a greater return than an S&P 500 index investment.
    7. The Core Equity model results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees as detailed above in item #2.
    8. Core Equity live portfolios also differ from the Core Equity model in that Core Equity seeks to reduce investment during recessionary economic periods while the Core Equity historical model stays invested regardless of economic or market conditions. Advisor believes this will better protect capital vs. model but is materially different than staying invested in all market conditions. This action may cause Core Equity live portfolios to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
    9. Advisor clients have experienced results that slightly lag the performance of the model to date. This lag is due to a number of factors, primarily the fact that different clients allocate different dollar amounts to Core Equity at different times. In general, the longer a client has been fully allocated to the Core Equity portfolio, the closer it is to model performance.
    The benchmark for Core Equity (The S&P 500) has historically displayed greater volatility (risk) than the Core Equity model or live Core Equity portfolios. This may or may not be the case in the future.

    Market Momentum Portfolio
    1. The performance of the broad market over the same time periods is included to help investors understand market conditions present during the period covered by live investment.
    2. Listed comparison Index graphs and statistics do NOT include transaction, fund or Advisor Management fees. Live portfolio results include all fees, including Advisor Management fees.
    3. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
    4. Investing involves risk, including risk of loss and/or principle. While the closest benchmark for Market Momentum has historically shown reasonable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that Market Momentum that will continue such performance into the future. Market Momentum is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Market Momentum may differ from investment in an index fund such as an S&P 500 index fund.
    5. The closest benchmark for Market Momentum is the Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM.” BXM has historically displayed less volatility than the S&P 500 and Market Income. BXM cannot be directly invested in. Market Momentum differs in key ways from BXM – the mechanics of closing and opening positions differ – BXM opens, closes or rolls positions on the same day every month regardless of the profit or loss in a position – Market Momentum targets closing or rolling positions based on technical factors including trend support and resistance. Market Momemtum will also close or roll ahead of expiration if the position has a high percentage of profit present in order to capture that gain. Options are generally not sold again until the underlying investment has moved into an area of resistance but not always; new position may be opened the same day the prior position is closed.
    Benchmark comparisons are made on a best available basis – meaning that live performance is believed to be compared with the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility will be either less than, equal to, or greater than the volatility experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500. Market Momentum , like BXM, is an options writing strategy seeking to reduce investment volatility and improve risk adjusted returns for investors.
    6. The model portfolio (BXM) utilizes the S&P 500 as its basis. Market Momentum differs from BXM in that the underlying securities are primarily selected on the basis of “relative” value. This simply means that sectors are compared with one another and Market Momentum generally invests in the sector or sector(s) trading at the greatest discount or the smallest premium relative to its historical average valuation. Other factors are also considered including sector earnings growth and expected return versus other available sector instruments. Advisor believes this gives Market Momentum a higher margin of safety than repeatedly investing in the S&P 500 on a rolling basis without regard to value or prevailing economic conditions, while preserving liquidity.
    7. The BXM model on which Market Momentum is compared is a non-traded index. As such, results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees.
    8. Market Momentum also differs from the BXM model in that Market Momentum seeks to reduce investment during corrective or recessionary economic periods while BXM stays invested regardless of economic or market conditions. Advisor believes this will better protect capital in comparison to BXM but such action is materially different than staying invested in all market conditions. This action may cause Market Momentum to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
    9. Advisor clients have experienced results that exceed the performance of the benchmark to date. There is no guarantee Market Momentum will continue to outperform BXM in the future regardless of Advisor efforts to do so.

    Durable Opportunities Portfolio
    1. The performance of the broad market in the form of the Dow Jones Industrial Index over the same time periods is included for live portfolio comparison to help investors understand market conditions present during the period covered by live investment.
    2. The Index results do not include brokerage, transaction, or Advisor fees. Live portfolio results include all fees, including Advisor Management fees.
    3. Actual results reflect limited reinvestment of dividends and other earnings.
    4. Investing involves risk, including risk of loss and/or principle. Portfolios compromised of companies matching the profile of those selected for including in Durable Opportunities have historically displayed superior risk adjusted performance to the Index, but there is no guarantee that will continue into the future. Durable Opportunities is designed to provide investment in companies that firm believes meet a stringent set of criteria firm believes reduces the likelihood of permanent capital impairment while allowing investors to participate in investment in companies firm believes will stand the test of time and provide superior long term returns. While the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with the Dow Jones are included to help the average investor understand how an investment in Durable Opportunities may differ from investment in a concentrated index fund such as a Dow Jones Industrials index fund. Durable Opportunities is not restricted to investment in industrial companies or in companies with a specific level of capitalization, unlike the Dow Jones.
    5. Durable Opportunities is primarily a value driven strategy; when valuations in holdings become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those holdings by either liquidation or hedging, and may re-allocate funds into a holding which is priced in a more reasonable range in comparison to it’s typical historical valuation. Periodically, Durable Opportunities may allocate a small but measurable percent of assets (up to 5%) in volatility linked instruments in an effort to better manage the portfolio.
    Benchmark comparisons are made on a best available basis – meaning that live performance is compared with the benchmarks the firm believe to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the Dow Jones Industrials although the firm invests with an eye on reduced volatility vs. the Dow Jones Industrials Index. 6. Durable Opportunties invests in companies firm believes to possess a Durable Competitive Advantage. Such companies are likely to be around for decades, easing the concern of principal return. DCA companies often suffer less in bear markets and usually lead recoveries. These companies allow ACI to build portfolios with minimum expected returns that may be in the mid-single digit range over any 3-5 year period which may provide long term stability partnered with long term growth in equity. There are no guarantees the strategy will be successful in this endeavor.
    6. The Durable Opportunities portfolios also differ from the benchmark comparison in that Durable Opportunities reduce investment by hedging or raising cash during recessionary economic periods while Dow Jones Industrial Index reflects 100% investment at all times regardless of economic or market conditions. Firm believes this will better protect capital vs. model but is materially different than staying invested in all market conditions. This action may cause the Durable Opportunities portfolio to experience reduced participation in markets that continue to move up despite Advisors reduction in investment.
    7. Advisor clients have experienced results that have lagged the performance of the benchmark to date. This lag is due to a number of factors, primarily the fact that the current high valuation investing environment has made it difficult to identify companies that fit the parameters of Durable Opportunities at a desirable valuation level. Different clients allocate different dollar amounts to Durable Opportunities at different times, which has also impacted the performance of the overall portfolio.

    Full Cycle Portfolio
    1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
    2. Model is a historical back test and includes brokerage and fund fees but does NOT include Advisor Management fees which vary by account size, but in general reduce annual performance by approximately 1.5%. Live portfolio results include all fees, including Advisor Management fees.
    Historical back-test means the model portfolio has been tracked on a backwards looking basis prior to the beginning of live investments in order to establish historical risks and results for investment in this portfolio. Back testing has certain inherent limitations as detailed in item #7 below.
    3. Model results reflect regular investment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings.
    4. Investing involves risk, including risk of loss and/or principle. While the back tested Full Cycle Portfolio model has historically shown desirable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Full Cycle Portfolio is designed to provide reasonable returns for the same or less risk than the broad market on a risk adjusted basis in all phases of the economic cycle by holding risk weighted non-correlated assets, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so in the future. Comparisons with the S&P 500 are included to help the average investor understand how an investment in the Full Cycle Portfolio may differ from investment in an index fund such as an S&P 500 index fund.
    5. The model for the Full Cycle Portfolio is built of diversified, liquid sector and index securities, most frequently low cost ETFs and low cost funds. The live Full Cycle portfolio does not follow the Full Cycle model exactly – variances in investor contributions & withdrawals result in measurable drift from the model. Over time, client accounts come closer in line with the Full Cycle model.
    Full Cycle live portfolios may differ from the Full Cycle model in an additional material way; when valuations on certain sectors become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those sectors in favor of a comparable position which is priced in a more reasonable range in comparison to it’s typical historical valuation.
    These factors may result in greater or less than model performance over time.
    Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are compared with market and other benchmarks the
    firm believes to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
    6. Full Cycle invests in diversified components of the global financial markets and broad economy by balancing risks with non-correlating or reduced correlation assets in opposition to one another each of which is designed to prosper in some phase of the economic cycle and intended to offset reduced or poor performance in other portfolio holdings.
    7. The Full Cycle model results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees as detailed above in item #2.
    8. Full Cycle live portfolios also differ from the Full Cycle model in that the live portfolio may be rebalanced more or less frequently depending on prevailing market conditions. While firm believes this difference positions portfolio for improved risk adjusted performance, it is not clear that this difference results in clear over or under performance versus the Full Cycle model.
    9. Advisor clients have experienced results that slightly outperform the performance of the model to date. This outperformance may or may not persist. In general, the longer a client has been fully allocated to the Full Cycle portfolio, the closer it is to model performance.

    Fixed Income Portfolio
    1. The performance of the broad bond markets over the same time periods is included to help investors understand market conditions present during the period covered by live investment.
    2. Listed comparison Index graphs and statistics do NOT include transaction, fund or Advisor Management fees. Live portfolio results include all fees, including Advisor Management fees.
    3. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
    4. Investing involves risk, including risk of loss and/or principle. While the closest benchmark for Fixed Income has historically shown reduced volatility and reasonable performance versus many classes of fixed income investments, there is no guarantee that Fixed Income that will continue such performance into the future. Market Momentum is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with US Aggregate Bond Market and PIMCO Total Return are included to help the average investor understand how an investment in Fixed Income may differ from investment in an alternative index or fixed income fund.
    5. The closest benchmark for Fixed Income is the Pimco Total Return Fund. Fixed Income differs in key ways from BOND – including selection of underlying investments and reduced diversification. Benchmark comparisons are made on a best available basis – meaning that live performance is believed to be compared with the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility and performance will be either less than, equal to, or greater than the volatility and performance experienced by the benchmark although the firm invests with an eye on out performance.
    6. The benchmark may include securities not contained in Fixed Income, and vice versa. Fixed Income currently holds significantly more cash than PIMCO Total Return Fund, a situation likely to continue in the near future. This action may cause Fixed Income to have reduced participation in markets that move up despite Advisors reduction in investment.
    7. Advisor clients have experienced results that lag the performance of the benchmarks to date. There is no guarantee Fixed Income will continue to outperform benchmarks in the future regardless of Advisor efforts to do so.

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