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Every investment person has their favorite asset class. Since Ispend a good deal of time analyzing new, exciting growthcompanies, mine happens to be equities. One must alwaysremember that the key to financial success and achieving yourgoals is to adhere to some basic investing principles.
one principle that is very important to financial success is the
concept of asset allocation. At its core, asset allocation meansspreading your portfolio across multiple asset classes in an effortto lower the overall volatility of your returns. You’ve heard thesaying, Don’t put all your eggs in one basket! A typical diversifiedportfolio may consist of US and International equities, stocks fromemerging and frontier markets, bonds and alternative assets likereal estate, commodities, and precious metals. Private equityinvestments may also be appropriate to consider, depending on your needs.
Studies show that the majority of your returns over the long term can be generated by tactical assetallocation decisions. If you’re investing for the “long term” (5-7 years or longer), allocating themajority of your portfolio to equities may be warranted. Over long periods of time, equities haveperformed better than other asset classes, albeit with more volatility.
Each client’s allocation will differ based on their goals, time frame and tolerance for risk. Forexample, a 40-year-old person will most likely be planning for 40-50 years of living and can justifyowning a larger percentage (maybe 75-80%) of their portfolio in equities. An 80-year-old may notbe comfortable taking that much risk, so their portfolio would then consist of safer, less volatilesecurities. The point here is that asset allocation matters. It is important to spread your portfolioout across multiple asset classes so that your investments will have the benefit of being exposedto a broad spectrum of the market. Not every market sector moves in the same way at the sametime, and that’s a good thing!
Another key element to financial success is using discipline in your decision making.Implement a target allocation and rebalance at least yearly if your mix gets out of line. You shouldalso institute a loss discipline. Sell a stock if it breaches a downside limit, and harvest your profitsby trimming positions if they grow to be too large. These simple strategies will help increase yourprobability of success over the long term.
one final point regarding asset allocation: avoid performance killers. High-cost products andtax-inefficient investments can have a huge impact on the long-term success of your plan. TheCabot team works meticulously to keep our clients away from these types of products. Furthermore,we are also not fans of complex hedge fund strategies, which never seem to be able to offer returnsor safety to justify their high cost. Our advice: keep it simple.
Financial success is achieved when your wealth empowers you to reach your lifetime goals. Ourmission is to take the stress and complexity out of your finances so you can enjoy life. Thank youfor your continued confidence in our services.
Best wishes,
Robert T. LuttsPresident and Chief Investment Officer
QuArtErLy rEVIEWtHIrd QuArtEr 2014
Cabot Wealth Management, Inc.216 Essex Street
Salem, MA 01970978-745-9233 / 800-888-6468
eCabot.com
Log on to eCabot.com
for our latest articles, interviews and reports. Email
if you would like to receive Cabot updates.
eCabot.com
IN tHIS ISSuE
1PrESIdENt’S MESSAGE
Keys to Success:
Asset Allocation and Discipline
2-3INVEStMENt StrAtEGIES
Growth Investing:
Don’t Panic! Think Longer Term
Interest Rates:
Not the Only Factors Driving
Real Estate Prices
4CLIENt SErVICES
Cyber Security:
Protecting Yourself
from Identity Theft
5-6WEALtH MANAGEMENt
Elder Financial Planning:
Protecting Aging Parents and
Loved Ones
Tax Saving Tips for Year End
7-8ArouNd CABot
25th Annual
Conference Celebration
Introducing Cabot Advisor Blog
What’s New with the
Cabot Crew
ArouNd
CABot
Follow us@cabotwealthmgmt
for our latest updates,articles, and media clips.
Follow our company or join our group
Wealth Management
with Cabot
216 ESSEX STREET, P.O. BOX 150, SALEM, MA 01970 / 978-745-9233 / 800-888-6468
This quarterly newsletter is intended for information purposes only. Articles, graphs, charts and discussions should not be construed as specific investment advice. Individuals should personally consult with a financial professional to review their own specific situation in light of any information discussed here. Cabot is not under any obligation to update the information and while every attempt is made to insure that it is accurate,we are not responsible for misstatements or inaccuracies. This quarterly is intended for dissemination in the United States and is not intended forcirculation elsewhere. It is important to note that any performance reporting or implied performance is not indicative of future results. Investmentsare not insured and may lose value. Asset allocation and diversification does not protect against loss. For complete disclosures, please contact usat (800) 888-6468 or [email protected] to receive a copy of our Form ADV and privacy statement.
Like us on Facebookto see what’s happening
around Cabot.
Read the Cabot Advisor Blog
for updates, news and information.
Mikki Wilson Rejoins the Cabot Team
Cabot is pleased to welcome back Mikki Wilson as the firm’s new Director of Marketing& Business Development. The business development role is a newposition for the firm, which will focus on identifying newopportunities in all areas of business. In this role she willcontinue maintaining the firm’s marketing andcommunications while developing new programs andrelationships to further strengthen Cabot’s recentrebranding efforts and increase visibility on the NorthShore.
“We are thrilled to have Mikki rejoin our team,” saysRob Lutts, of Cabot Wealth Management. “She alreadyhas extensive experience with our marketing operationsand is deeply involved within the North Shorecommunity, making her a great fit for this role.”
“I’m very happy to come full circle and be back in this newposition. My goal remains the same: to tell Cabot’s story andintroduce people to the benefits provided by professional wealth management services,which are critical to long-term financial stability,” says Wilson. “Cabot has always beencommitted to taking a personal interest in meeting our clients’ needs as they changethroughout the course of their lifetime.”
Jill Cripps Promoted to Trading/Operations Associate
Cabot is also proud to announce the recent promotion of Jill Cripps, a member of theCabot team for over five years. Beginning with a marketing internship at Cabot in 2008,
Jill has since transitioned into the role of Accounts PayableReceivable Controller, maintaining Cabot’s business
allowances while assisting its Operations team. InSeptember, Jill was promoted to Operations and Trading
Associate, now providing direct support to our Tradingand Operations manager. In this new role, she will workclosely with the portfolio management team to effectbest execution for trades. Jill’s responsibilities includeassisting in trade order creation and execution, accountreconciliation, researching and processing corporateactions as well as identifying and implementing system
automation functions. Over the years, Jill has proven tobe extremely motivated and ambitious. We look forward
to her continued success as she transitions into her new
position. Congratulations Jill!
What’s New With the Crew?
October 2014
INVEStMENt
StrAtEGIES
CABot WEALtH MANAGEMENt, INC. CABot WEALtH MANAGEMENt, INC.
After a stellar 2013 for growth and smaller-cap segments of the U.S. equity markets, 2014 has sofar proven to be a more volatile ride. In recent months, the volatility of these areas of the marketshas increased amid macroeconomic uncertainties, potential Federal Reserve actions, andgeopolitical uncertainties in places like Russia, Ukraine, and the Middle East – along with fearsof a broader Ebola outbreak. While the broad, larger-cap equity indexes have remained resilient– notwithstanding the recent pullback – many growth and small-cap stocks have come underperiods of significant pressure in 2014. It is important to note that this is normal – as investorsentiment ebbs and flows between multiple parts of the global markets. Looking beyond the short-term variability, we continue to believe that growth equity investing – and investing in leadingcompanies in strong secular growth themes – is a profitable strategy over the longer term.
What is clear from looking at various parts of the equity markets and various time periods is thatthese markets are always dynamic, and different market segments go in and out of favor. Whileinvesting in smaller-cap and growth-oriented stocks can offer higher volatility in certain periodsof time, the risk of higher volatility can be rewarded with higher returns in the longer term. Ahigher risk tolerance helps to weather such volatility, but we believe growth investing deserves aplace in our clients’ asset allocation. Periods of shorter-term volatility – perhaps what we haveseen so far in 2014 – often can result in attractive buying opportunities in our favored areas of themarket.
The investment themes we illustrate in this whitepaper – within Technology, Health Care andClean Technology – are examples of growth areas in which we have significant interest and thathave delivered strong returns – and offer the potential to remain interesting investmentopportunities going forward. We are always on the lookout for important secular growth themes– and those innovative companies leading the way – that have the potential to become excellentinvestment opportunities for our clients. Volatility in the various segments of the equity marketsoften results in buying opportunities, and we continue to believe investing in growth stocks candrive strong, long-term performance, warranting an allocation in our clients’ portfolios. Ouradvice during normal periods of volatility: Don’t panic! Think longer term.
Behind the ScenesGrowth Investing: don’t Panic! think Longer term.
Dennis Wassung, Jr., CFA®
Portfolio Manager
Cabot’s 25th Annual Conference Celebration
Over 125 guests celebrated Cabot’s 25th Annual Investment & Wealth ManagementConference held at the historic Hawthorne Hotel in downtown Salem,Massachusetts, on Friday, September 26, 2014. The day kicked off with a warmwelcome address by Jim Gasparello, Director of Wealth Management, who thenpresented a special 25th Conference Anniversary award to Cabot’s own president,Rob Lutts.
Attendees then moved onto breakout sessions where advisors and portfoliomanagers presented investment-themed and wealth management-related topics.Attendees had numerous opportunities to ask questions and mingle with membersof the Cabot team. Rob Lutts finished the afternoon by applauding staff andpresenting his keynote, highlighting four signs of trouble ahead as well as Cabot’stop investment themes.
If you were unable to join us in Salem for this year’s conference, all of ourpresentations are available online. Visit our website to download presentations and
view our conference slideshow.
Next year’s date has already
been set for Friday, September
25, 2015. don’t forget to mark
your calendar!
Read the
complete
white paper
online at
eCabot.com
To illustrate how a thematic, growth approach can outperform, the Global
Alternative Energy ETF has far outpaced the Small-Cap Growth and Large-
Cap Value indexes over the last two years. (Chart Source: Bloomberg)
Introducing the Cabot Advisor BlogWe are excited to announce the launch of our brand new Cabot Advisor Blog that we have addedto our recently redesigned website. We are always looking for ways to provide updatesand related information and news to our clients and colleagues in a quickand convenient manner. Our goal is to always offer the bestinformation that will help you make informed decisions.
Blog post content will include content related to both wealthand investment management-related topics as well as generalupdates of what’s happening around Cabot. The new blog ismanaged by Mikki Wilson, Marketing and Business DevelopmentDirector, and will contain content from several experienced seniorstaff members, including Robert Lutts, president and CIO, and GregStevens, CFP®, Senior Wealth Advisor.
Visit http://ecabot.com/news/blog today!
ArouNd
CABot
Mikki L. Wilson,
Director of Marketing
and Business Development
Just because you file your tax return in April doesn’t mean that you shouldn’t be thinking abouttaxes in October! In fact, giving some thought to your overall tax situation throughout the yearcan translate into potential savings come April 15. Here are a few things to consider:
tip u defer Income to 2015 if you expect to be in a lower bracket
next year.
Always know what that next dollar of income will cost you. If it makes sense, pushoff that income to a lower tax year.
tip v Make tax-deductible payments in 2014 if you expect to be in
a lower tax bracket next year.
Real estate taxes, state taxes and medical payments are all examples of tax-deductibleexpenses. You can make those payments in 2014 rather than defer them to 2015 if thedeductions would be of value to you now.
tip w Make sure you’re on track to fully fund your retirement
plans.
You can contribute up to $17,500 ($23,000 if over age 50) to your 401(k) plan at work.This contribution comes out of your paycheck pre-tax. The growth grows tax fee untilwithdrawn in retirement. Your company may also offer a ROTH 401(k) which providesfor post-tax contributions and tax-free withdrawals in retirement.
If you’re contributing to a traditional IRA or a ROTH IRA, you’re eligible to defer$5500 ($6500 if over age 50) in 2014.
tip x take your required minimum distribution if you’re 70.5 or
older.
If you fail to take your full RMD, the IRS will impose a penalty of 50% of the amountthat you should have withdrawn.
Keeping abreast of changes in the tax code can be daunting. The steps outlined above are simpleways to get the most “bang for your buck” when it comes to tax planning.
CABot WEALtH MANAGEMENt, INC. CABot WEALtH MANAGEMENt, INC.
Interest ratestax Savings tips for year-End INVEStMENt
StrAtEGIES
William Larkin, Jr.
Portfolio Manager
Not the only Factors driving real Estate Prices
Buying real estate is often a person’s most expensive life-long purchase. It’s a transaction full ofemotion, which makes measuring the value proposition of a home very difficult. Consumer trends,schools, social connections and employment opportunities drive a consumer’s perception of value.Many homeowners see their home as part of a lifestyle choice linked to the success of theAmerican dream.
If you remove all the emotional factors, the reality of buying real estate requires the consumer tobuy not only at the right price, but also at the right time. Real estate prices tend to move alongdecades-long cycles. If you get caught at the wrong time, it could take decades to break even. Toanalyze where we are in the cycle you need to examine the three major factors that supporthomeownership.
Available financing is one of the key drivers to energize demand for real estate. It’s easy toborrow when rates are perceived to be low and banks are willing to lend. Today lenders areapprehensive about current lending standards. Lenders are concerned that bad loans they writetoday could be returned to the bank by the government if the borrower defaults. The governmenthas made it clear that they want banks to share in the pain in the next crisis. This has pushedstandards to very high levels, hindering the ability of many to gain access to mortgage loans. Ifhistory gives us any guidance on this issue, lending standards should loosen over time.Additionally, new innovative lending products should continue to entice potential buyers even ifinterest rates start rising.
the cost of financing definitely has an impact on home values. Household income and financecosts are two parts of the equation that determine what an individual can afford. It’s also helpfulto understand that the biggest cost of buying a home is often the financing costs, not the purchaseprice. As you can see with the chart below, a small change in the interest rate has a big impact onthe cost of homeownership. Today’s low rates make it especially appealing to own rather thanrent. This is particularly true if you plan to remain in the same community for an extended periodor mortgage lending rates rise to more historical averages (6.5-8.5%).
Demand is driven by shifts in demographic, employment, income, and consumer trends. Supplyis impacted by the number of existing homes, new construction and the ability to modernizeexisting stocks. Major urban cities are restrained by strict building codes and a scarcity of openspace and higher construction costs. Residential areas can be restricted by public serviceslimitations, environmental laws, proximity to highways and transportation hubs and proximityto major employers. The delicate balance between supply and demand is intertwined with thenumber of potential buyers and the prices they are willing to pay. This brings us to conclude thatreal estate, based on these factors, can be, and often is, especially influenced by a property’slocation.
the Math Behind a $250,000 Fixed-rate 30-year Mortgage
Interest Rate Last Date When Offered Financing Costs3.5% August 2012 $154,0004.5% January 2014 $206,0005.5% June 2009 $261,000
6.0% Sept 2008 $290,000
by Greg Stevens, Principal, Wealth Advisor
WEALtH
MANAGEMENt
If you are a client with specific tax-related questions,
please contact your Wealth Advisor.
If you are interested in learning more about our tax
planning services, please contact us at 1-800-888-6468.
CLIENt
SErVICES
CABot WEALtH MANAGEMENt, INC. CABot WEALtH MANAGEMENt, INC.
WEALtH
MANAGEMENt
Greg Stevens, CFP®, CRPS®
Senior Wealth Advisor
Cyber Security: Protecting yourself from Identity theft Elder Financial Planning
Natalie Rubel
Client Services Specialist
Co-written by Natalie Rubel and Mikki Wilson, Director of Marketing and Business Development
October was National Cyber Security Awareness Month and between data breaches, cloud storageprivacy issues and bugs compromising personal passwords, identity theft protection is on theforefront of many people's mind. According to the Better Business Bureau, cybercrime comes inmany forms - online identity theft, financial fraud, hacking, email spoofing, information forgeryand intellectual property crime. It can wreak havoc on victims' lives and at its worst, cybercrimecan lead to financial ruin.
As part of the ongoing training of our employees to maintain security against cyber threats,members from the Cabot team recently attended an Executive Breakfast Forum hosted by theNorth Shore Chamber of Commerce. The topic focused on cyber security, led by Charlie Benwayof the Advanced Cyber Security Center, a nonprofit consortium that brings together industry,university, and government organizations to address the most advanced cyber threats. During thepresentation, various scenarios were explored, along with the tactics, techniques and proceduresnecessary to reduce vulnerabilities.
A key point to take away is that a silver bullet for cyber security doesn’t exist, but there are stepsyou can take to ultimately lower your risk of being hacked.
10 tips for Small Business owners
Broadband and information technology are powerful tools for small businesses to reach newmarkets and increase sales and productivity. However, cyber security threats are real andbusinesses must implement the best tools and tactics to protect themselves.
1. Train employees in security principles.
2. Protect information, computers, and networks from cyber attacks.
3. Provide firewall security for your Internet connection.
4. Create a mobile device action plan.
5. Make backup copies of important business data and information.
Visit http://www.fcc.gov/document/ten-cybersecurity-tips-small-businesses to download
the FCC’s ten Cybersecurity tips for Small Businesses.
Protecting Aging Parents and Loved ones
With the holidays right around the corner, many of us will have the opportunity tospend time with our relatives to enjoy all that the season has to offer. This time togetheris a great way to assess if your aging relatives are still able to handle their financialaffairs. We all know discussing finances with relatives can be uncomfortable, butasking some simple questions will help you understand how prepared they are so youcan offer up your help in the event they are not.
Getting involved with the financial life of your aging relatives is critical. Helping themavoid the pitfalls of identity fraud, scam artists or just absent mindedness can beachieved by simply giving their bank and investment accounts a “second set of eyes”.Ask them if they’ll give you permission to talk with their investment advisor. Manyof our elderly clients are reluctant to let their kids know exactly how much they have.Tell them that you don’t need to know how much they have, just where it is and who
to talk to if the need arises.
u do they have a recent durable power of attorney and health care
proxy in place?
Who steps in to make financial and health care decisions?
v Who have they assigned as executor of their estate?
Many clients come to us with wills or trusts that were drafted decadesago and are no longer valid or give power to someone no longerinvolved in their life. Talk to them about the importance of a properlydrafted estate plan as a way of minimizing the costs associated withprobate settlement and estate taxes.
w How do they handle paying their bills?
Can a family member help with this? If not, there are bookkeepingservices available to take this burden away and make sure bills are paid.
x do they have someone helping them with their investments?
Having an advisor in place is critical for aging family members. Makesure your relative understands why he or she is invested the way theyare by encouraging them to review the allocation with their advisorregularly.
y Make sure they have the correct beneficiaries listed on their
investments.
Many times clients will forget to update the beneficiary on their IRAwhen the person they’ve listed passes away.
7 tips to Protect yourself
Users of technology MUST take responsibility for their actions in regard to safekeeping data. How do youconduct your online transactions? The Department of Homeland Security suggests the following tips to protectyourself from being hacked:
• Set secure passwords and don’t share them with anyone.• Keep your operating system, browser, anti-virus and other critical software up to date.• Verify the authenticity of requests from companies or individuals by contacting them directly.• Pay close attention to website URLs. Malicious websites sometimes use a variation in common spelling or
a different domain to deceive unsuspecting computer users.• Turn off the option to automatically download attachments for emails.• Be suspicious of unknown links or requests sent through email or text message.• Do not give out personal information over the phone or in an email unless completely sure.
Quick Fact:
“Social engineering”is a process of
deceiving individualsinto providing
personal informationto seemingly trusted
agents who turn out tobe malicious actors.
We Are Here to HelpContact your wealth advisor
for advice or assistance in
starting the conversation
with a loved one.
CLIENt
SErVICES
CABot WEALtH MANAGEMENt, INC. CABot WEALtH MANAGEMENt, INC.
WEALtH
MANAGEMENt
Greg Stevens, CFP®, CRPS®
Senior Wealth Advisor
Cyber Security: Protecting yourself from Identity theft Elder Financial Planning
Natalie Rubel
Client Services Specialist
Co-written by Natalie Rubel and Mikki Wilson, Director of Marketing and Business Development
October was National Cyber Security Awareness Month and between data breaches, cloud storageprivacy issues and bugs compromising personal passwords, identity theft protection is on theforefront of many people's mind. According to the Better Business Bureau, cybercrime comes inmany forms - online identity theft, financial fraud, hacking, email spoofing, information forgeryand intellectual property crime. It can wreak havoc on victims' lives and at its worst, cybercrimecan lead to financial ruin.
As part of the ongoing training of our employees to maintain security against cyber threats,members from the Cabot team recently attended an Executive Breakfast Forum hosted by theNorth Shore Chamber of Commerce. The topic focused on cyber security, led by Charlie Benwayof the Advanced Cyber Security Center, a nonprofit consortium that brings together industry,university, and government organizations to address the most advanced cyber threats. During thepresentation, various scenarios were explored, along with the tactics, techniques and proceduresnecessary to reduce vulnerabilities.
A key point to take away is that a silver bullet for cyber security doesn’t exist, but there are stepsyou can take to ultimately lower your risk of being hacked.
10 tips for Small Business owners
Broadband and information technology are powerful tools for small businesses to reach newmarkets and increase sales and productivity. However, cyber security threats are real andbusinesses must implement the best tools and tactics to protect themselves.
1. Train employees in security principles.
2. Protect information, computers, and networks from cyber attacks.
3. Provide firewall security for your Internet connection.
4. Create a mobile device action plan.
5. Make backup copies of important business data and information.
Visit http://www.fcc.gov/document/ten-cybersecurity-tips-small-businesses to download
the FCC’s ten Cybersecurity tips for Small Businesses.
Protecting Aging Parents and Loved ones
With the holidays right around the corner, many of us will have the opportunity tospend time with our relatives to enjoy all that the season has to offer. This time togetheris a great way to assess if your aging relatives are still able to handle their financialaffairs. We all know discussing finances with relatives can be uncomfortable, butasking some simple questions will help you understand how prepared they are so youcan offer up your help in the event they are not.
Getting involved with the financial life of your aging relatives is critical. Helping themavoid the pitfalls of identity fraud, scam artists or just absent mindedness can beachieved by simply giving their bank and investment accounts a “second set of eyes”.Ask them if they’ll give you permission to talk with their investment advisor. Manyof our elderly clients are reluctant to let their kids know exactly how much they have.Tell them that you don’t need to know how much they have, just where it is and who
to talk to if the need arises.
u do they have a recent durable power of attorney and health care
proxy in place?
Who steps in to make financial and health care decisions?
v Who have they assigned as executor of their estate?
Many clients come to us with wills or trusts that were drafted decadesago and are no longer valid or give power to someone no longerinvolved in their life. Talk to them about the importance of a properlydrafted estate plan as a way of minimizing the costs associated withprobate settlement and estate taxes.
w How do they handle paying their bills?
Can a family member help with this? If not, there are bookkeepingservices available to take this burden away and make sure bills are paid.
x do they have someone helping them with their investments?
Having an advisor in place is critical for aging family members. Makesure your relative understands why he or she is invested the way theyare by encouraging them to review the allocation with their advisorregularly.
y Make sure they have the correct beneficiaries listed on their
investments.
Many times clients will forget to update the beneficiary on their IRAwhen the person they’ve listed passes away.
7 tips to Protect yourself
Users of technology MUST take responsibility for their actions in regard to safekeeping data. How do youconduct your online transactions? The Department of Homeland Security suggests the following tips to protectyourself from being hacked:
• Set secure passwords and don’t share them with anyone.• Keep your operating system, browser, anti-virus and other critical software up to date.• Verify the authenticity of requests from companies or individuals by contacting them directly.• Pay close attention to website URLs. Malicious websites sometimes use a variation in common spelling or
a different domain to deceive unsuspecting computer users.• Turn off the option to automatically download attachments for emails.• Be suspicious of unknown links or requests sent through email or text message.• Do not give out personal information over the phone or in an email unless completely sure.
Quick Fact:
“Social engineering”is a process of
deceiving individualsinto providing
personal informationto seemingly trusted
agents who turn out tobe malicious actors.
We Are Here to HelpContact your wealth advisor
for advice or assistance in
starting the conversation
with a loved one.
Just because you file your tax return in April doesn’t mean that you shouldn’t be thinking abouttaxes in October! In fact, giving some thought to your overall tax situation throughout the yearcan translate into potential savings come April 15. Here are a few things to consider:
tip u defer Income to 2015 if you expect to be in a lower bracket
next year.
Always know what that next dollar of income will cost you. If it makes sense, pushoff that income to a lower tax year.
tip v Make tax-deductible payments in 2014 if you expect to be in
a lower tax bracket next year.
Real estate taxes, state taxes and medical payments are all examples of tax-deductibleexpenses. You can make those payments in 2014 rather than defer them to 2015 if thedeductions would be of value to you now.
tip w Make sure you’re on track to fully fund your retirement
plans.
You can contribute up to $17,500 ($23,000 if over age 50) to your 401(k) plan at work.This contribution comes out of your paycheck pre-tax. The growth grows tax fee untilwithdrawn in retirement. Your company may also offer a ROTH 401(k) which providesfor post-tax contributions and tax-free withdrawals in retirement.
If you’re contributing to a traditional IRA or a ROTH IRA, you’re eligible to defer$5500 ($6500 if over age 50) in 2014.
tip x take your required minimum distribution if you’re 70.5 or
older.
If you fail to take your full RMD, the IRS will impose a penalty of 50% of the amountthat you should have withdrawn.
Keeping abreast of changes in the tax code can be daunting. The steps outlined above are simpleways to get the most “bang for your buck” when it comes to tax planning.
CABot WEALtH MANAGEMENt, INC. CABot WEALtH MANAGEMENt, INC.
Interest ratestax Savings tips for year-End INVEStMENt
StrAtEGIES
William Larkin, Jr.
Portfolio Manager
Not the only Factors driving real Estate Prices
Buying real estate is often a person’s most expensive life-long purchase. It’s a transaction full ofemotion, which makes measuring the value proposition of a home very difficult. Consumer trends,schools, social connections and employment opportunities drive a consumer’s perception of value.Many homeowners see their home as part of a lifestyle choice linked to the success of theAmerican dream.
If you remove all the emotional factors, the reality of buying real estate requires the consumer tobuy not only at the right price, but also at the right time. Real estate prices tend to move alongdecades-long cycles. If you get caught at the wrong time, it could take decades to break even. Toanalyze where we are in the cycle you need to examine the three major factors that supporthomeownership.
Available financing is one of the key drivers to energize demand for real estate. It’s easy toborrow when rates are perceived to be low and banks are willing to lend. Today lenders areapprehensive about current lending standards. Lenders are concerned that bad loans they writetoday could be returned to the bank by the government if the borrower defaults. The governmenthas made it clear that they want banks to share in the pain in the next crisis. This has pushedstandards to very high levels, hindering the ability of many to gain access to mortgage loans. Ifhistory gives us any guidance on this issue, lending standards should loosen over time.Additionally, new innovative lending products should continue to entice potential buyers even ifinterest rates start rising.
the cost of financing definitely has an impact on home values. Household income and financecosts are two parts of the equation that determine what an individual can afford. It’s also helpfulto understand that the biggest cost of buying a home is often the financing costs, not the purchaseprice. As you can see with the chart below, a small change in the interest rate has a big impact onthe cost of homeownership. Today’s low rates make it especially appealing to own rather thanrent. This is particularly true if you plan to remain in the same community for an extended periodor mortgage lending rates rise to more historical averages (6.5-8.5%).
Demand is driven by shifts in demographic, employment, income, and consumer trends. Supplyis impacted by the number of existing homes, new construction and the ability to modernizeexisting stocks. Major urban cities are restrained by strict building codes and a scarcity of openspace and higher construction costs. Residential areas can be restricted by public serviceslimitations, environmental laws, proximity to highways and transportation hubs and proximityto major employers. The delicate balance between supply and demand is intertwined with thenumber of potential buyers and the prices they are willing to pay. This brings us to conclude thatreal estate, based on these factors, can be, and often is, especially influenced by a property’slocation.
the Math Behind a $250,000 Fixed-rate 30-year Mortgage
Interest Rate Last Date When Offered Financing Costs3.5% August 2012 $154,0004.5% January 2014 $206,0005.5% June 2009 $261,000
6.0% Sept 2008 $290,000
by Greg Stevens, Principal, Wealth Advisor
WEALtH
MANAGEMENt
If you are a client with specific tax-related questions,
please contact your Wealth Advisor.
If you are interested in learning more about our tax
planning services, please contact us at 1-800-888-6468.
INVEStMENt
StrAtEGIES
CABot WEALtH MANAGEMENt, INC. CABot WEALtH MANAGEMENt, INC.
After a stellar 2013 for growth and smaller-cap segments of the U.S. equity markets, 2014 has sofar proven to be a more volatile ride. In recent months, the volatility of these areas of the marketshas increased amid macroeconomic uncertainties, potential Federal Reserve actions, andgeopolitical uncertainties in places like Russia, Ukraine, and the Middle East – along with fearsof a broader Ebola outbreak. While the broad, larger-cap equity indexes have remained resilient– notwithstanding the recent pullback – many growth and small-cap stocks have come underperiods of significant pressure in 2014. It is important to note that this is normal – as investorsentiment ebbs and flows between multiple parts of the global markets. Looking beyond the short-term variability, we continue to believe that growth equity investing – and investing in leadingcompanies in strong secular growth themes – is a profitable strategy over the longer term.
What is clear from looking at various parts of the equity markets and various time periods is thatthese markets are always dynamic, and different market segments go in and out of favor. Whileinvesting in smaller-cap and growth-oriented stocks can offer higher volatility in certain periodsof time, the risk of higher volatility can be rewarded with higher returns in the longer term. Ahigher risk tolerance helps to weather such volatility, but we believe growth investing deserves aplace in our clients’ asset allocation. Periods of shorter-term volatility – perhaps what we haveseen so far in 2014 – often can result in attractive buying opportunities in our favored areas of themarket.
The investment themes we illustrate in this whitepaper – within Technology, Health Care andClean Technology – are examples of growth areas in which we have significant interest and thathave delivered strong returns – and offer the potential to remain interesting investmentopportunities going forward. We are always on the lookout for important secular growth themes– and those innovative companies leading the way – that have the potential to become excellentinvestment opportunities for our clients. Volatility in the various segments of the equity marketsoften results in buying opportunities, and we continue to believe investing in growth stocks candrive strong, long-term performance, warranting an allocation in our clients’ portfolios. Ouradvice during normal periods of volatility: Don’t panic! Think longer term.
Behind the ScenesGrowth Investing: don’t Panic! think Longer term.
Dennis Wassung, Jr., CFA®
Portfolio Manager
Cabot’s 25th Annual Conference Celebration
Over 125 guests celebrated Cabot’s 25th Annual Investment & Wealth ManagementConference held at the historic Hawthorne Hotel in downtown Salem,Massachusetts, on Friday, September 26, 2014. The day kicked off with a warmwelcome address by Jim Gasparello, Director of Wealth Management, who thenpresented a special 25th Conference Anniversary award to Cabot’s own president,Rob Lutts.
Attendees then moved onto breakout sessions where advisors and portfoliomanagers presented investment-themed and wealth management-related topics.Attendees had numerous opportunities to ask questions and mingle with membersof the Cabot team. Rob Lutts finished the afternoon by applauding staff andpresenting his keynote, highlighting four signs of trouble ahead as well as Cabot’stop investment themes.
If you were unable to join us in Salem for this year’s conference, all of ourpresentations are available online. Visit our website to download presentations and
view our conference slideshow.
Next year’s date has already
been set for Friday, September
25, 2015. don’t forget to mark
your calendar!
Read the
complete
white paper
online at
eCabot.com
To illustrate how a thematic, growth approach can outperform, the Global
Alternative Energy ETF has far outpaced the Small-Cap Growth and Large-
Cap Value indexes over the last two years. (Chart Source: Bloomberg)
Introducing the Cabot Advisor BlogWe are excited to announce the launch of our brand new Cabot Advisor Blog that we have addedto our recently redesigned website. We are always looking for ways to provide updatesand related information and news to our clients and colleagues in a quickand convenient manner. Our goal is to always offer the bestinformation that will help you make informed decisions.
Blog post content will include content related to both wealthand investment management-related topics as well as generalupdates of what’s happening around Cabot. The new blog ismanaged by Mikki Wilson, Marketing and Business DevelopmentDirector, and will contain content from several experienced seniorstaff members, including Robert Lutts, president and CIO, and GregStevens, CFP®, Senior Wealth Advisor.
Visit http://ecabot.com/news/blog today!
ArouNd
CABot
Mikki L. Wilson,
Director of Marketing
and Business Development
Every investment person has their favorite asset class. Since Ispend a good deal of time analyzing new, exciting growthcompanies, mine happens to be equities. One must alwaysremember that the key to financial success and achieving yourgoals is to adhere to some basic investing principles.
one principle that is very important to financial success is the
concept of asset allocation. At its core, asset allocation meansspreading your portfolio across multiple asset classes in an effortto lower the overall volatility of your returns. You’ve heard thesaying, Don’t put all your eggs in one basket! A typical diversifiedportfolio may consist of US and International equities, stocks fromemerging and frontier markets, bonds and alternative assets likereal estate, commodities, and precious metals. Private equityinvestments may also be appropriate to consider, depending on your needs.
Studies show that the majority of your returns over the long term can be generated by tactical assetallocation decisions. If you’re investing for the “long term” (5-7 years or longer), allocating themajority of your portfolio to equities may be warranted. Over long periods of time, equities haveperformed better than other asset classes, albeit with more volatility.
Each client’s allocation will differ based on their goals, time frame and tolerance for risk. Forexample, a 40-year-old person will most likely be planning for 40-50 years of living and can justifyowning a larger percentage (maybe 75-80%) of their portfolio in equities. An 80-year-old may notbe comfortable taking that much risk, so their portfolio would then consist of safer, less volatilesecurities. The point here is that asset allocation matters. It is important to spread your portfolioout across multiple asset classes so that your investments will have the benefit of being exposedto a broad spectrum of the market. Not every market sector moves in the same way at the sametime, and that’s a good thing!
Another key element to financial success is using discipline in your decision making.Implement a target allocation and rebalance at least yearly if your mix gets out of line. You shouldalso institute a loss discipline. Sell a stock if it breaches a downside limit, and harvest your profitsby trimming positions if they grow to be too large. These simple strategies will help increase yourprobability of success over the long term.
one final point regarding asset allocation: avoid performance killers. High-cost products andtax-inefficient investments can have a huge impact on the long-term success of your plan. TheCabot team works meticulously to keep our clients away from these types of products. Furthermore,we are also not fans of complex hedge fund strategies, which never seem to be able to offer returnsor safety to justify their high cost. Our advice: keep it simple.
Financial success is achieved when your wealth empowers you to reach your lifetime goals. Ourmission is to take the stress and complexity out of your finances so you can enjoy life. Thank youfor your continued confidence in our services.
Best wishes,
Robert T. LuttsPresident and Chief Investment Officer
QuArtErLy rEVIEWtHIrd QuArtEr 2014
Cabot Wealth Management, Inc.216 Essex Street
Salem, MA 01970978-745-9233 / 800-888-6468
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IN tHIS ISSuE
1PrESIdENt’S MESSAGE
Keys to Success:
Asset Allocation and Discipline
2-3INVEStMENt StrAtEGIES
Growth Investing:
Don’t Panic! Think Longer Term
Interest Rates:
Not the Only Factors Driving
Real Estate Prices
4CLIENt SErVICES
Cyber Security:
Protecting Yourself
from Identity Theft
5-6WEALtH MANAGEMENt
Elder Financial Planning:
Protecting Aging Parents and
Loved Ones
Tax Saving Tips for Year End
7-8ArouNd CABot
25th Annual
Conference Celebration
Introducing Cabot Advisor Blog
What’s New with the
Cabot Crew
ArouNd
CABot
Follow us@cabotwealthmgmt
for our latest updates,articles, and media clips.
Follow our company or join our group
Wealth Management
with Cabot
216 ESSEX STREET, P.O. BOX 150, SALEM, MA 01970 / 978-745-9233 / 800-888-6468
This quarterly newsletter is intended for information purposes only. Articles, graphs, charts and discussions should not be construed as specific investment advice. Individuals should personally consult with a financial professional to review their own specific situation in light of any information discussed here. Cabot is not under any obligation to update the information and while every attempt is made to insure that it is accurate,we are not responsible for misstatements or inaccuracies. This quarterly is intended for dissemination in the United States and is not intended forcirculation elsewhere. It is important to note that any performance reporting or implied performance is not indicative of future results. Investmentsare not insured and may lose value. Asset allocation and diversification does not protect against loss. For complete disclosures, please contact usat (800) 888-6468 or [email protected] to receive a copy of our Form ADV and privacy statement.
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Mikki Wilson Rejoins the Cabot Team
Cabot is pleased to welcome back Mikki Wilson as the firm’s new Director of Marketing& Business Development. The business development role is a newposition for the firm, which will focus on identifying newopportunities in all areas of business. In this role she willcontinue maintaining the firm’s marketing andcommunications while developing new programs andrelationships to further strengthen Cabot’s recentrebranding efforts and increase visibility on the NorthShore.
“We are thrilled to have Mikki rejoin our team,” saysRob Lutts, of Cabot Wealth Management. “She alreadyhas extensive experience with our marketing operationsand is deeply involved within the North Shorecommunity, making her a great fit for this role.”
“I’m very happy to come full circle and be back in this newposition. My goal remains the same: to tell Cabot’s story andintroduce people to the benefits provided by professional wealth management services,which are critical to long-term financial stability,” says Wilson. “Cabot has always beencommitted to taking a personal interest in meeting our clients’ needs as they changethroughout the course of their lifetime.”
Jill Cripps Promoted to Trading/Operations Associate
Cabot is also proud to announce the recent promotion of Jill Cripps, a member of theCabot team for over five years. Beginning with a marketing internship at Cabot in 2008,
Jill has since transitioned into the role of Accounts PayableReceivable Controller, maintaining Cabot’s business
allowances while assisting its Operations team. InSeptember, Jill was promoted to Operations and Trading
Associate, now providing direct support to our Tradingand Operations manager. In this new role, she will workclosely with the portfolio management team to effectbest execution for trades. Jill’s responsibilities includeassisting in trade order creation and execution, accountreconciliation, researching and processing corporateactions as well as identifying and implementing system
automation functions. Over the years, Jill has proven tobe extremely motivated and ambitious. We look forward
to her continued success as she transitions into her new
position. Congratulations Jill!
What’s New With the Crew?
October 2014
