Sowa Financial Group, Inc.Donald Sowa, CFP®, AIF®14 Breakneck Hill RoadSuite 202Lincoln, RI 02865401-434-8090fax: 401-434-8360team@sowafinancial.comwww.sowafinancial.com

Q4 2019

Mutual Funds: Wading into the Passive vs.Active Debate

Social Security: Shoring Up America's Safety Net

What are the warning signs of financial scamstargeting older individuals?

How can you avoid falling for the Social Securityimposter scam?

Sowa Financial Group, Inc.Your Money Matters.Earnings Season: What Investors Can Take Away fromCorporate Reports

See disclaimer on final page

Thank you for taking a few minutes to readour newsletter. We've hand-picked thefollowing articles in response to questionsthat we have been hearing from our clientsand radio listeners over recent months; wehope you find them valuable!

In this issue of our quarterly newsletter weoffer guidance to investors on makingsense of earnings season reports, and thedebate around choosing passive vs. activemutual funds. In addition, we have taken adive into the current state of the socialsecurity system, including some importanttips on avoiding scams targeting socialsecurity recipients.

Be sure to tune in to AM790, weeknights at5PM, to hear Don, Steven, Donna andNathan discuss the topics that matter toyou on the MoneyTalk radio program.Missed tonight's show? Listen in to theMoneyTalk Podcast atsowafinancial.com/moneytalk-radio , or bysearching "DON SOWA'S MONEYTALK"wherever you get your podcasts!

Publicly traded companiesare required to report theirfinancial performance toregulators andshareholders on aquarterly basis. Earningsseason is theoften-turbulent periodwhen most companies

disclose their successes and failures.

U.S. companies included in the S&P 500 indexsuffered year-over-year earnings declines in thefirst two quarters of 2019.1 Rising wages andhigher material costs (partially due to tariffsimposed on traded goods) had started to cutinto profit margins.2

Earnings reports are closely watched becausethey reveal a corporation's bottom line.However, they generally reflect pastperformance and may have little to do withfuture results.

Performance lingoA quarterly report includes unaudited financialstatements, a discussion of the businessconditions that affected financial results, andsome guidance about how the companyexpects to perform in the following quarters.Financial statements reveal the quarter's profitor net income, which must be calculatedaccording to generally accepted accountingprinciples (GAAP). This involves subtractingoperating expenses (including depreciation,taxes, and other expenses) from net income.

Earnings per share (EPS) represents theportion of total profit that applies to eachoutstanding share of company stock. EPS isoften the figure that makes headlines, becausethe financial media tend to focus on whethercompanies meet, beat, or fall short of theconsensus estimate of Wall Street analysts. Acompany can beat the market by losing lessmoney than expected, or can log billions inprofits and still disappoint investors who werecounting on more.

An earnings surprise — whether EPS comes inabove or below expectations — can have animmediate effect on a company's stock price.

Shaping perceptionIn addition to filing regulatory paperwork, manycompanies announce their results throughpress releases, conference calls, and/orwebinars so they can influence how theinformation is judged by analysts, financialmedia, and investors.

Pro-forma (or adjusted) earnings may excludenonrecurring expenses such as restructuringcosts, interest payments, taxes, and otherunique events. Although the Securities andExchange Commission has rules governingpro-forma financial statements, companieshave leeway to highlight the positive andminimize the negative. There may be a vastdifference between pro-forma earnings andthose calculated according to GAAP.

Many companies also take steps to manageexpectations. Issuing profit warnings or positiverevisions to previous forecasts may promptanalysts to adjust their estimates accordingly.Companies may also be able to time certainbusiness moves to help meet quarterlyearnings targets.

The media hype surrounding an earningssurprise can sometimes draw attention awayfrom important details that may be revealed in acompany's quarterly report. Factors such assales growth, research and development, newproducts, consumer trends, governmentpolicies, and global economic conditions can allaffect a company's longer-term prospects.

The return and principal value of stocksfluctuate with changes in market conditions.Shares, when sold, may be worth more or lessthan their original cost. The S&P 500 is anunmanaged group of securities that isconsidered to be representative of the U.S.stock market in general. The performance of anunmanaged index is not indicative of theperformance of any specific investment.Individuals cannot invest directly in an index.1 FactSet, August 9, 2019

2 Reuters, April 9, 2019

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Mutual Funds: Wading into the Passive vs. Active DebateIt's fairly difficult — even for professionalinvestors — to consistently "beat the market."This realization led to the creation of indexmutual funds, which are passively managedinvestment vehicles designed to match theperformance of a particular market index byowning the same securities included in theindex.

Today there are hundreds of indexes and indexfunds tracking various types of assets.1 Still,index funds are not the only game in town, andthere is plenty of discussion in the financialmedia around whether investors are better offusing passive or active investing strategies.

Source: The Wall Street Journal, November 29, 2018

According to Morningstar, just 38% of activeU.S. funds outperformed their benchmarksduring the 12 months ending in December2018, and success rates are even lower overlonger periods. Even so, active and passivefunds tend to perform differently during differentmarket cycles, and they may serve a variety ofpurposes in your portfolio.2

Here are some pros and cons associated withboth types of mutual funds.

A passive approachMany of the well-known, third-party indexes thatare commonly tracked by index mutual fundsare broad based and capitalization weighted.Thus, index investing traditionally involvesbuying all the securities in a market or marketsector and weighting them based on their valuein the marketplace.

Passively managed index funds have lessmanagerial involvement, so fees are oftenlower than they are for actively managed funds.Index funds may also buy and sell assets lessfrequently, and lower turnover may helpminimize distributions subject to the capitalgains tax. Tax efficiency may be an importantconsideration when mutual funds are owned intaxable accounts.

The money flowing in and out of index fundshas become a more powerful force in thefinancial markets, and it's possible that theirstructure may be distorting prices of theindividual assets in the index. For example,when investors buy or sell shares of an indexfund, all of the underlying companies aretreated the same (rewarded or punished)whether they deserve it or not.3

A hands-on strategyActive fund managers strive to outperformbenchmarks by hand picking securities basedon rigorous research and a defined investmentstrategy. Thus, an actively managed fund offersinvestors the chance to outperform the overallmarket, although most of them historically havenot.

An actively managed mutual fund may be morediversified than an index fund holding stocks inthe same asset category, simply because theperformance of a market-weighted index can bedominated by a small number of the largestcompanies. Diversification is a method used tohelp manage investment risk; it does notguarantee a profit or protect against loss.

Active managers also have more flexibility andmay use a variety of trading strategies to helpmanage risks. For these reasons, some activelymanaged funds may offer defensive benefitswhen markets are falling.

Declare a drawThere is no need to pick a side in theactive-versus-passive debate. Depending onyour goals and risk profile, there may be plentyof room in a well-diversified portfolio for bothtypes of mutual funds.

The return and principal value of stocks andmutual funds fluctuate with changes in marketconditions. Shares, when sold, may be worthmore or less than their original cost. Theperformance of an unmanaged index is notindicative of the performance of any specificsecurity. Individuals cannot invest directly in anindex.

Mutual funds are sold by prospectus. Pleaseconsider the investment objectives, risks,charges, and expenses carefully beforeinvesting. The prospectus, which contains thisand other information about the investmentcompany, can be obtained from your financialprofessional. Be sure to read the prospectuscarefully before deciding whether to invest.1-2 Morningstar, 2018-2019

3 Bloomberg.com, December 4, 2018

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Social Security: Shoring Up America's Safety NetEver since a legal secretary named Ida MayFuller received the first Social Securityretirement check in 1940, Americans have beencounting on Social Security to provide much-needed retirement income. For many olderAmericans, Social Security is their main sourceof guaranteed retirement income — income thatcontinues throughout their lifetimes and isindexed for inflation every year (in 2019, thecost-of-living adjustment, or COLA, was 2.8%).

Social Security provides more than justretirement income, though. It also providesdisability and survivor insurance benefits. About62 million people — more than one in six U.S.residents — collected some type of SocialSecurity benefit in 2018, with approximately80% of these recipients receiving SocialSecurity retirement or survivor benefits.1

How Social Security worksSocial Security is a pay-as-you-go system,which means that payments from currentworkers (in the form of payroll taxes) fundbenefits for current beneficiaries. The payrolltax rate for Social Security is 12.4%, with 6.2%paid by the employee and 6.2% paid by theemployer (self-employed individuals pay theentire 12.4%). These payroll taxes aredeposited into the Old-Age and SurvivorsInsurance (OASI) trust fund (for retirement andsurvivor benefits) and the Disability Insurance(DI) trust fund (for disability payments).

Because of demographic and economic factors,including higher retirement rates and lower birthrates, there will be fewer workers perbeneficiary over the long term, worsening thestrain on the trust funds. This year, the trusteesof Social Security reported that the OASI trustfund is projected to run out in 2034. After that,payroll tax revenue alone would be sufficient topay 77% of scheduled benefits.

Ideas for reformThere has been little national consensus bypolicymakers on how to deal with SocialSecurity's looming demographic challenges.Meaningful reform will require broad bipartisansupport, and the trustees have urged Congressto address Social Security's challenges soonerrather than later, so that solutions will be lessdrastic and can be implemented gradually,lessening the impact on the public.

Some Social Security reform proposals on thetable include:

• Raising the current Social Security payroll taxrate — according to the 2019 trustees report,an immediate and permanent payroll taxincrease to 15.1% (up from the current12.4%) would be necessary to address the

long-range revenue shortfall (16.05% if theincrease started in 2035)

• Raising or eliminating the ceiling on wagescurrently subject to Social Security payrolltaxes ($132,900 in 2019)

• Raising the full retirement age beyond thecurrently scheduled age of 67 (for anyoneborn in 1960 or later)

• Reducing future benefits — to address thelong-term revenue shortfall, the trustees havenoted that scheduled benefits would have tobe immediately and permanently reduced byabout 17% for all current and futurebeneficiaries, or by approximately 20% ifreductions were applied only to those whoinitially become eligible for benefits in 2019 orlater

• Changing the formula that is used to calculatebenefits

• Changing the formula that is used to calculatethe annual cost-of-living adjustment forbenefits

Understand your retirement benefitsThe amount you'll receive from Social Securityis based on the number of years you've worked,the amount you've earned over your lifetime,and the age when you file for benefits. Yourbenefit is calculated using a formula that takesinto account your 35 highest earnings years,but you don't need to work for that long toqualify for retirement benefits. Generally, youneed to have earned a minimum of 40 workcredits, which is about 10 years of work in a jobcovered by Social Security. If you haven'tworked long enough to qualify on your own, youmay qualify for spousal benefits based on yourspouse's work record. A spousal benefitclaimed at your full retirement age is generallyequal to 50% of the primary worker's fullbenefit.

You can get an estimate of your future SocialSecurity retirement benefits by visiting theSocial Security website at ssa.gov and usingthe Retirement Estimator tool or by viewingyour Social Security Statement. Yourpersonalized statement contains a detailedrecord of your earnings history, as well asestimates of the retirement, survivor, anddisability benefits you can expect at differentages. To view your statement online, you'll firstneed to register. If you haven't registeredonline, you'll receive your Social SecurityStatement in the mail every year if you are age60 or older and not yet receiving benefits.1 Top Ten Facts About Social Security, Center onBudget and Policy Priorities, August 14, 2018

Future projections

In 2019, the trustees of SocialSecurity reported that theOld-Age and SurvivorsInsurance (OASI) trust fund isprojected to run out in 2034. Atthat time, payroll tax revenuealone would be sufficient to pay77% of scheduled benefits.

Page 3 of 4, see disclaimer on final page

Sowa Financial Group,Inc.Donald Sowa, CFP®, AIF®14 Breakneck Hill RoadSuite 202Lincoln, RI 02865401-434-8090fax: 401-434-8360team@sowafinancial.comwww.sowafinancial.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019

The accompanying pages havebeen developed by an independentthird party. CommonwealthFinancial Network® is notresponsible for their content anddoes not guarantee their accuracyor completeness, and they shouldnot be relied upon as such. Thesematerials are general in nature anddo not address your specificsituation. For you specificinvestment needs, please discussyour individual circumstances withyour representative. NeitherCommonwealth nor Sowa FinancialGroup, Inc. provide tax or legaladvice, and nothing in theaccompanying pages should beconstrued as specific tax or legaladvice. Securities offered throughCommonwealth Financial Network,Member FINRA/SIPC, aRegistered Investment Adviser.Sowa Financial Group, Inc. is aRegistered Investment Adviser.Investment advisory services andfixed insurance offered by SowaFinancial Group, Inc. are separateand unrelated to Commonwealth.

How can you avoid falling for the Social Securityimposter scam?The scam generally starts likethis. You answer a call orretrieve a voicemail messagethat tells you to "press 1" to

speak to a government "support representative"for help in reactivating your Social Securitynumber. The number on your caller ID looksreal, so you respond. The "agent" you reachtells you that your Social Security number hasbeen suspended due to suspicious activity orbecause it has been involved in a crime.

You're worried. You know how important it is tokeep your Social Security number safe. Sowhen the caller asks you to confirm this numberto reactivate it, or says your bank account isabout to be seized but the Social SecurityAdministration (SSA) can safeguard it if you putyour money on gift cards and provide thecodes, you don't know what to do. If you balk,you may be reminded that if you don't actquickly, your accounts will be seized or frozen.

Although none of this is true (the SSA will neverthreaten to seize benefits or suspend numbers),many people have fallen for the Social Securityimposter scam, and the numbers are rising.According to the Federal Trade Commission

(FTC), more than 76,000 reports of the SocialSecurity imposter scam were filed betweenApril 2018 and March 2019. Reported lossesduring this period were $19 million, and almosthalf of the reports were filed in February andMarch 2019.1

Here are some tips directly from the FTC tohelp you avoid becoming a victim.

Do not trust caller ID. Scam calls may showup on caller ID as the Social SecurityAdministration and look like the agency's realnumber.

Don't give the caller your Social Securitynumber or other personal information. If youalready did, visit IdentityTheft.gov/SSA to findout what steps you can take to protect yourcredit and your identity.

Check with the real Social SecurityAdministration. The SSA will not contact youout of the blue. But you can call the agencydirectly at (800) 772-1213 to find out if the SSAis really trying to reach you and why. (You cantrust this number if you call it yourself.)1 FTC Consumer Protection Data Spotlight, April2019

What are the warning signs of financial scams targetingolder individuals?If you or someone you knowhas been targeted by a scamartist who is trying to stealmoney or personal

information, you're not alone. According to theSenate Special Committee on Aging, olderAmericans lose an estimated $2.9 billionannually to fraud and exploitation, a numberthat is probably substantially underreported.1

Most scams start with a call, an email, a text, oran official-looking letter that appears to be froma government agency or a legitimate company.Sometimes the scam artist will go door-to-doorsoliciting business or donations to charity.

Scam artists are very good at gaining the trustof well-meaning people by convincinglyimpersonating someone authoritative,knowledgeable, or trustworthy — such as an IRSagent, a tech repair person, or even a relative.They play on your sympathy or makeconvincing threats to pressure you to go alongwith a scam. "Send money or provide personalinformation right now," they say, "if you want tohelp someone or prevent something bad fromhappening." Here are some typical scenarios.

• IRS scam: "You owe back taxes andpenalties. Send payment immediately via awire transfer, or you will be arrested."

• Sweepstakes scam: "Congratulations,you've won a prize! To collect it, provide uswith your bank account number so we candeposit a check."

• Grandparent scam: "Hi Grandma, it's me.Don't you recognize my voice? I've been inan accident and need money for car repairs.Send gift cards, and don't tell anyonebecause I'm embarrassed."

• Home repair scam: "I was just doing somework down the street for your neighbor, Bob,and I saw that you need some shinglesreplaced. I can do that for half the price Iusually charge if you pay me in cash today."

If you are targeted, never give out personalinformation or send money. You don't need tomake a quick decision. Call a friend, a relative,or the police for advice. Report the scamimmediately to a fraud hotline such as theSenate Committee's toll-free hotline, (855)303-9470.1 U.S Senate Special Committee on Aging, 2019

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