Happy Holidays and I hope this email finds you in great health, good spirits, and plenty of holiday cheer. Happy New Year! If I may suggest some tasks for 1 January 2018… 1. Please review your estate planning documents. a. Is your Will current? Did you have a new child? Are you responsible for anyone new? Did you get a divorce? Are you getting/were you married? Have you added/divested any large capital purchases/investments? b. Are your Living Wills current? Do you need to change/adjust anything? c. Is your personal inventory current? Does it need updating? d. Are your Trusts current/up-to-date? Do you need to add any assets? 2. Please take the time to replace important home products. a. Replace/recharge ALL fire extinguishers (Prof Note: I had two house fires in as many houses in 2017…this is no joke!) b. Replace/recharge all fire detectors/carbon monoxide detectors c. Replace HVAC filters, etc. Make a point of going out on the 1st to get this done! 3. Please review all your insurance products. Are you correctly insured? a. (Prof Note: I discovered a HUGE hole in coverage a few days ago which is not plugged. I am embarrassed to say I had not been focusing enough on my own coverage.) b. Include health insurance, Long-term care, Disability, etc. 4. Please complete your own Personal Financial Statements (PFSs). a. Balance Sheet (EoP 2017) i. Compare with EoP 2016. How has it changed? Are you happy? Did it change as you predicted? What is the quality of your assets? What are the risks/quality of liabilities? How has net worth changed in 12 months? b. Income Statement 2017 i. How has revenue changed from 2016 to 2017. Most importantly, what is the mix of passive and active income? Is passive income increasing by retirement target? How “at risk” is your revenue stream? Time for a side hustle (or two?)? ii. Consider reviewing Statement of Cash Flow with Income Statement. (Prof Note: In truth I look at cash flow on a daily and monthly basis but for planning largely consider income statement) 5. Retirement a. Are you on track? Have you considered how much passive income you will require at retirement? How are adjusting assets/investments to achieve the required passive income level(s) required? b. (Prof Note: My current thinking is that retirement planning is done, as most planning is done, incorrectly. It needs to start with a lifestyle in today’s dollars, layer in inflation- protected investments/passive income flows that will get you there, etc. Most articles focus on needing a capital amount, e.g. $2.5m at retirement. This could not be more wrong, in my opinion. What is needed in retirement is a passive income flow to the desire/amount that each individual requires.) Prof Note: I do hope that everyone has a blessed New Year’s Eve and is safe. Also, and this is meant for the younger students, please consider yourselves businesses as that is technically what you are. Apply the fundamentals taught in academic to your personal life and manage yourself with financial rigor. It is never too early to start thinking of retirement. Focus on developing passive income sources. It is not about how much money/assets one has, it is most about the passive income created to sustain and build. Two students taught me and/or helped me developed a new term that I hold dear, i.e. “net zero.” The concept, which I have embraced, is that one’s financial goal should be to reach “net zero”. It is when passive income equals active expense. It is the financial equivalent of perpetual motion only it is achievable. After “net zero” one is wealthier every next moment! A physicist cannot achieve perpetual motion but a financier can achieve “net zero”. The first and second law of thermodynamics do not apply to finance! ☺ 30 December 2017 Question: According to “lifestyle” on MSN.com; people are judged on what two things? Global growth powers stocks to strongest performance in 8 years – Pg. 1 - Global stocks have enjoyed their best annual performance since the post-crisis recovery, as accelerating economic growth across the world helped power several important markets to double-digit gains in 2017 - The global stock market gauge rose 1.8% in December and has notched up 14 straight months of gains – the longest run on record - …S&P 500 has gained nearly 20% in the past 12 months, its sixth-best annual performance over the past two decades - The biggest driver of the roaring stock market rally has been the accelerating growth in the US, Europe and Asia Retail in Therapy – Pg. 5 - Under pressure from Walmart, ToysRUs in 2005 sold itself to a consortium of buyers including private equity firms Bain Capital and KKR and real estate group Vornado. Analyst say the move left the company hamstrung by debt repayments as an even larger threat – Amazon – stole a march on rival retailers over the past decade - ToysRUs was one of the largest retailers bought by private equity groups as investors poured cash into the sector. But after a string of successes in the early part of the century, retail turned turbulent. More than half of the largest leveraged retail buyouts completed since 2007 have either defaulted, gone bankrupt or are in distress… - At least 50 US retailers – including ToysRUs, children’s retailer Gymboree, show store Payless and jean maker True Religion – have filed for bankruptcy this year, the most in six years… - The swift unravelling of the towy seller, at $6.9bn the third-largest retail bankruptcy in history… - For many, private equity and the use of excessive debt proved the decisive factor in why so many retailers failed to invest in their business as competition intensified - …over the next two years, $68bn of US retail debt will fall due, including more than $20bn from companies that the rating agencies view as being below investment grade, … Forecasting the world in 2018 – Pg. 7 - Will the Democrats take back the majority in the midterm election in the US House of Representatives? o Yes – by an eyelash. - Will impeachment proceedings begin against Donald Trump? o Yes – just. Democrats will regain control of the House of Representatives in the November midterm elections. - Will Trump spark a trade war with China? o Yes. In 2018 President Trump will deliver on some of his protectionist campaign rhetoric by taking punitive actions against China - Will the BoJ tighten monetary policy? o No. The BoJ’s life will get tougher in 2018 as the US Federal Reserve tightens policy and widens the interest rate gap with Japan - Will emerging market GDP growth pass 5%? o Yes. With the US Federal Reserve likely to raise interest rates a few times in 2018, trading is likely to be choppy in emerging markets - Will Tesla produce more than 250,000 Model 3s? o No. The much-hyped US electric carmakers once promised to make 400,000 of its new dream machines in 2018. - Will the S&P 500 finish the year above 2,650? o Yes. There are plenty of positives: earnings, economic growth, and US tax cuts. Stocks look ridiculously expensive by historical standards, but that tells us nothing about short-term moves. Ultimately, it comes down to liquidity, which has driven markets since they emerged from the crisis in 2009 o If all goes according to plan, central banks will be decreasing their balance sheets, and removing liquidity, by the end of 2018. If they go through with this, the odds are that the S&P will stall. But even a tiny tremor could make the bankers blink. - Will the 10-year Treasury yield finish the year above 3%? o No. Wall Street strategists’ predicting that the US government’s 10-year borring costs will climb above the 3% mark in the coming year is as much a staple of the Christmas period as award office parties - Will oil finish 2018 above $70/barrel? o Yes - Will a stable and liquid bitcoin futures market develop? o No Hunt for yield pushes car loan securitization to post-crisis high – Pg. 8 - Securitization of US car loans hit a post-financial crisis high in 2017, as investors demand for yield continued to provide favourable borrowing conditions across a range of credit markets - Most US cars are bought on credit, creating more loans that can be bundled up into ABS deals (Prof Note: I purchased my car exactly one year ago. I purchased on credit as rates were so low the money was virtually free!) Themes that gripped the globe in 2017 – Pg. 11 - Subdued volatility in US stocks - Central bank QE near tipping point o The era of central bank bond buying that has sent prices of government and corporate debt soaring since the 2008-09 financial crisis is set to reach a turning point in 2018, after policymakers sketched out plans this year to rein in stimulus measures - Dollar going ‘down, down, down’ Answer: (1) Can I trust this person? (2) Can I respect this person? 29 December 2017 Question: The top 500 billionaires increased their wealth by how much over the past 12 months? US tax reform piles pressure on IRS – Pg. 2 - The agency has been dealing with real-terms funding cuts of 21% since 2010, ….Mr Trump’s March budget proposed an additional reduction of $239m. Staffing is down 21,000 since the start of the decade - The overhaul is the biggest since 1986 reforms under Ronald Reagan and encompasses temporary cuts to individual taxes alongside a new system for non-incorporated businesses and a complete transformation of the international company tax code - The new tax rules for unincorporated businesses – known as pass-throughs – present a wide range of loopholes for tax advisers to exploit - While the 1986 law took two years to push through, the current package moved through Congress in a month on the back of limited debate Equities hit heights as dollar extends slide – Pg.