Investing For Retirement

THE 2 BIGGEST RETIREMENT MISCONCEPTIONS

2010-06-24T09:25:00.000-07:00

While the idea of retirement has changed, certain financial assumptions haven't.

We've all heard about the "new retirement", the mix of work and play that many of us assume we will have in our lives one day. We do not expect "retirement" to be all leisure. While this is becoming cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven't really changed with the times.

In particular, there are two financial misconceptions that baby boomers can fall prey to - assumptions that could prove financially harmful for their future.

#1) Assuming retirement will last 10-15 years. Historically, retirement has lasted about 10-15 years for most Americans. The key word here is "historically". When Social Security was created in 1933, the average American could anticipate living to age 61. By 2005, life expectancy for the average American had increased to 78.

However, some of us may live much longer. The population of centenarians in the U.S. is growing rapidly - the Census Bureau estimated 71,000 of them in 2005 and projects 114,000 for 2010 and 241,000 in 2020. It also believes that 7.3 million Americans will be 85 or older in 2020, up from 5.1 million 15 years earlier.

If you're reading this article, chances are you might be wealthy or as least "affluent". And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.

Here's the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years... or longer. So assuming you'll only need 10 or 15 years worth of retirement money could be a big mistake.

In 2010, the American Academy of Actuaries says that the average 65-year-old American male can expect to live to 84, with a 30% chance of living past 90. The average 65-year-old American female has an average life expectancy of 87, with a 40% chance of living past 90.

Most people don't realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2...

#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.

Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation.

Will the minimal inflation we've seen at the start of the 2010s continue for years to come? Don't count on it. Over the last few decades, we have had moderate inflation (and sometimes worse, think 1980). What happens is that over time, even 3-4% inflation gradually saps your purchasing power. You dollar buys less and less.

Here's a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?

This is an extreme example, but that's what can happen if your income doesn't keep up with inflation - essentially, you end up living on yesterday's money.

Taxes will likely be higher in the coming decade. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing - we need to be prepared financially for the cost of acute, chronic and long-term care.

As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live - and how long retirement may last - growth investing is extremely important.

No one wants the "Rip Van Winkle" experience in retirement. No one should "wake up" 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.

How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you're at, it is vital to avoid the common misconceptions and proceed with clarity.

Stephanie Shinn is an Investment Advisor Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or Stephanie.Shinn@KMSFinancial.com.

This material was prepared by Peter Montoya, Inc. and does not necessarily represent the views of the presenting Representative's Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The published is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

ASSET ALLOCATION IN “STORMY WEATHER”

2010-04-21T15:23:00.000-07:00

Diversification has the potential to help portfolios in rough times.

In any stock market climate, proper asset allocation matters. In a down market, you could argue that it matters more than anything else.
Did you have a well-diversified portfolio during the fall of 2008? That was a time when the importance of having a bond allocation and proper equity diversification really hit home. Nearly all investors were hit hard, but some were his harder than others. What percentage of your portfolio was held in Treasuries (or cash) at that time?

Wise asset allocation may help you as the market recovers. Yes, even diversified portfolios lost money at the end of 2008 and the start of 2009. Yet with rebalancing, these same portfolios may be poised to take advantage of a rebounding market.
You might say there are two schools of thought when it comes to diversification and asset allocation - hands off, and hands on.

Modern Portfolio Theory. In 1952, a University of Chicago Ph.D. candidate names Harry Markowitz published a thesis - a brief, provocative paper that called for investors and money managers to see risk with new eyes. That was the start of Modern Portfolio Theory, which still has many advocates today.
Before MPT, money managers and investors tended to look at investments in isolation: if a stock had performed will in 1948, it was a good stock and it would probably perform well in 1949. They analyzed a stock almost like they would analyze a business.
In his paper, Markowitz basically said "You guys are going about this the wrong way." He first assumed that all investors wanted to avoid risk (which he defined as standard deviation from expected portfolio returns). He then contended that you should measure the risk level of a whole portfolio instead of individual securities. (In other words, if you want to include a security in your portfolio, you should think about how that will alter the risk level of your entire portfolio, rather than simply consider the risk of the security.)
MPT asserts that for every portfolio, there exists an "efficient frontier" - an ideal asset allocation among diversified asset classes that should efficiently balance maximum return and minimum risk. Markowitz further developed the theory with economists Merton Miller and William Sharpe, and it eventually won a Nobel Prize in economics.

MPT has its fans - but also its critics. In the last 20 years or so, many investment advisors and money managers have practiced a buy-and-hold style of portfolio management using the diversification principles of MPT. But as the markets dropped in 2008-09, critics pointed out the danger of buying and holding - you can "hold" positions too long. In the crisis, some investment advisors took more of a hands-on approach to portfolio management - others has always done so.

How long is the long run? If history is any guide (and it may not be), the longer your investment horizon, the more sense buy-and-hold can make - at least when it comes to stocks. For example, $1 invested in stocks in 1929 would be worth $759 in 2009, whereas $1 invested in bonds in 1929 would only be worth $74 today. The critics counter that argument with the fact that the S&P 500 traded at the same level in mid-2009 as it did in summer 1997. Stretch or contract different windows of time and you can reach all kinds of conclusions.

The bottom line. The buy-and-hold adherents and critics certainly agree on one thing: diversification is hugely important. If your assets are allocated across 10 or 12 "baskets" instead of one or two, for example, you are theoretically less affected by the whims of the financial markets.

So what is "proper" asset allocation for you? Only you and your financial advisor can determine that. Your time horizon, preferred investment style, accumulated assets, life goals and financial objectives - these all have to be taken into consideration. It's worth a conversation, today.

Stephanie Shinn is an Investment Advisor Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or Stephanie.Shinn@KMSFinancial.com

These are the views of Peter Montoya, Inc., and not the named representative or broker/dealer, and should not be construed as investment advice. Neither the named representative nor broker/dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your financial advisor for further information.

IS IT TIME TO MOVE CASH INTO EQUITIES?

2010-02-11T10:38:00.000-08:00

The market has rebounded … is it poised to keep rising?
provided by Stephanie Shinn

Remember when people were getting out of stocks? In the last quarter of 2008 and the first quarter of 2009, some people made the decision to move money into forms of investment with low or no stock market correlation. The recession was going full blast; the Dow was falling. But recessions are temporary, and markets improve.

The recent recovery wowed even the most jaded market analysts. From the March 9, 2009 market lows to the end of the year, the S&P 500 shot up 64.83%, the DJIA gained 59.28%, the NASDAQ 78.87% and the Russell 2000 82.19%. The CBOE VIX, the so-called fear index, dropped 56.14% in that stretch.

Was March 9, 2009 the point of capitulation? Have you heard of that term? It references a point of “surrender” or maximum exodus from stocks to CDs and Treasuries in a bear market. The theory goes that when that point of capitulation is reached, a measured, rational market recovery will begin leading to either a cyclical bull market or (fingers crossed) a new long-term bull market.

The rebound off the March 9 lows wasn’t measured, it was phenomenal. On August 6, 2009, the head of Goldman Sachs’ investment policy committee declared that “the new bull market has begun.” On CNBC, Abby Joseph Cohen shared her belief that the S&P 500 would finish 2009 in the 1,050-1,100 range, up from a March 9 trough of 666.79. It exceeded her expectations, ending the year at 1,115.10.

Will stocks keep advancing in 2010? There’s an old phrase people like to cite: past performance is no indication of future success. That disclaimer aside, many analysts think that the stock market will realize at least moderate gains in 2010. The mood is certainly more optimistic and the economy seems to be improving.

Will investors be patient? Good question. In late 2008, you had people swearing off stocks. In 2009, some of those same people changed their mind and ran back to stocks. If 2010 brings a correction, will these investors ditch stocks again? History suggests that these short-term shifts may be damaging.

DALBAR, that goldmine of investment research, looked at the behavior of the average mutual fund investor over a 20-year period ending December 31, 2007. The 20-year survey found that while the broad stock market (S&P 500) returned an average of 11.82% over those 20 years, the average mutual fund investor bailed out at times, missed out on great market days, and only realized an average return of 4.48%. This is a really compelling argument for patience and sustained investment. In late 2008, both Warren Buffett and John Bogle made the case that investors should stay in the market, as some major values were available as a result of the downturn.

How are you invested these days? We’ve seen a lot of change in the last three years, and many people have really changed up their portfolios. How about yours? Is your asset allocation still appropriate for your long-term objectives? You might want to talk to a qualified financial advisor today to review where you are at and how you might position yourself for the years ahead.

Stephanie Shinn is an Investment Advisor Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or Stephanie.Shinn@KMSFinancial.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

SOME FINANCIAL NEW YEAR’S RESOLUTIONS

2010-01-06T11:30:00.000-08:00

Things you might want to consider doing in 2010

Okay. It’s that time of year - the time for new year’s resolutions. They can include financial resolutions. Here are some possibilities for 2010.

Control non-mortgage debt. Experian says the average American carries about $17,000 in debt unrelated to home loans. Too much of this is simply credit card debt. So how about paying down, paying off and maybe getting rid of some cards?
How much financial ground can you lose to plastic? Well, if you have a credit card with a $17,000 balance and 10% APR and you pay $200 monthly on it, it will take you 12 years to pay it off.
You may have so-called “good debts” as a consequence of your business or your professional career. Yet ultimately, debt is debt. You can certainly plan to build wealth and control debt at the same time, and why not plan to do both?

Play catch-up if you’re older than 50. All of us over 50 have the chance to make a catch-up contribution to our IRAs and 401(k)s. If you have a 401(k), you can defer up to $22,000 of your 2010 salary into it if you’re over 50 (an extra $5,500 above the usual limit). You also have the chance to contribute an extra $1,000 to your IRA (or among multiple IRAs if you have more than one). And if you’ve got an IRA, there’s no point in waiting until April 15, 2011 to make your 2010 contribution – if you wait that long, you’ll potentially lose 15 months of interest.

Look into the possibility of a Roth IRA conversion. 2010 presents investors with a prime opportunity to convert traditional IRAs into Roths. The IRS has removed the income limitations on Roth conversions this year, and it will let you spread the taxes due on a 2010 Roth conversion across 2011 and 2012. However, you should definitely talk to a tax professional before you make this move. As income tax rates could be raised for 2011 or 2012, you may want to take the tax hit on a Roth conversion in 2010 instead.

Keep important documents where you can access them. Tax returns, wills, trust documents, deeds, insurance policies – you don’t want to have to hunt for this stuff, and neither should your heirs in a crisis. You may not want to keep these documents out in the open, but you should know where they are. Resolve to put them all together in a central place in 2010. Another option: you may want to store copies online. Some financial advisors offer their clients firewall-protected, password-only “web vaults” for this purpose, so you can take a look at these items away from home if needed.

Understand how your portfolio assets are allocated. A new FINRA survey finds that 79% of Americans regularly contribute to retirement savings plans. That’s the good news. The bad news? About a fifth of those people had no idea how those assets were invested.
When stocks do well, it is easy to become less vigilant about your investments. It is also easy for your portfolio to get out of whack and become overweighted in this or that asset class. So the first part of 2010 is a very good time to check in with your financial advisor. After all the volatility in the market the last couple of years, it is prudent to review your investments and see if your portfolio needs rebalancing to bring it back in line with your risk tolerance and investment horizon.

More people abide by financial resolutions than you might think. In late 2009, Fidelity surveyed a group of about 1,000 Americans and found that 60% of them had kept financial resolutions they made at the start of the year. So it can be done. Resolve to change your financial habits for the better – and follow through on it.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or sjs@purcellas.com.

DON’T FORGET THESE 2009 TAX BREAKS

2009-10-13T11:20:00.000-07:00

The year goes by, you get busy … and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.

The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.

The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.

3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.

The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.

A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.

The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.

COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.

$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.

An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.

The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.

The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.

And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.

This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code, and it is worth asking your accountant or advisor to do some research and/or collaborate to find you as many as possible.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

IS YOUR ADVISOR PROACTIVE?

2009-09-11T13:32:00.000-07:00

Here’s hoping your financial consultant has kept up with the times.

The memory is indelible: in the last two quarters of 2008, investors with short- to mid-range time horizons cringed as their portfolios lost 20%, 30%, even 40% of value. This bear market was not only a test of investors … it was also a test of financial advisors.

Did your advisor respond to the changing environment? When the market corrects, a good financial advisor stays on top of things. As things turned bearish in fall 2008, many portfolios went the way of the market, with numerous investors moving to the money market for cover. Yet other investors found themselves making money during the downturn. Was it luck? Or simply the right strategy?

Some market conditions demand a change. In late 2008, was your advisor sharp enough to meet with you and alter your financial strategy to one appropriate to the bear market? Did he or she offer you an approach that could exploit opportunities in that market with your goals in mind? An astute advisor recognizes that being proactive in a changing market can potentially change the client outcome – for the better.

The market is dynamic. More bull and bear markets will follow. What do you think your current financial advisor will do next time? Sit back and relax when conditions improve? Mysteriously ignore you when the markets slump?

The nonprofit National Bureau of Economic Research (NBER) has recorded five recessions since 1980 and three since 1990. If you are investing by a 20-year or 30-year financial plan, you may ride through a handful of recessions over the next two or three decades if history is any guide. If recessions and bear markets rear their heads, will your investment strategy be updated? What is the risk of having it set in stone?

Today, anyone frustrated with current portfolio values has reason to consider a new financial advisor. If you feel that inattention and misdirection characterize your relationship with your current advisor, perhaps it is time for a change. You are not forbidden from changing advisors. You may look back one day and realize that the change helped your portfolio.

Stephanie Shinn is a Representative with KMS Financial Services, LLC and may be reached at 253.627.8101 or sjs@purcellas.com.

Monthly Economic Update for September, 2009

2009-09-04T08:49:00.000-07:00

Quote of the month. “We will either find a way, or make one.” – Hannibal

The month in brief. Pessimists thought the market would pull back; it didn’t. Stocks did well and there was mounting evidence of a real estate rebound. We got news of a decline in the jobless rate, and better news from the manufacturing and service sectors. The government’s health care reform effort met with rowdy public opposition. Consumer spending inched up, and new cars sold like mad. The commodities markets had a mixed month with oil futures hitting a 2009 peak.

Domestic economic health. The jobless rate went down to 9.4% in July from 9.5% in June; perhaps it was an aberration, or perhaps (could we hope?) the start of a trend. It was the first time that America’s unemployment rate had dropped since April 2008.
Consumers managed to spend just a little bit more. Consumer spending rose 0.4% in June and 0.2% in July (while personal incomes fell 1.3% for June and stayed flat in July). There will likely be a bump in the August consumer spending and durable goods orders – the C.A.R.S. program, although quickly replenished by Congress, went through its $3 billion allotment of rebates by August 24.
In July, factory orders rose by 0.4% (economists thought they would fall) and industrial production went north 0.5% (the first increase in nine months). Producer prices fell by 0.9%, and durable goods orders soared 4.9%, with an 18.4% leap in transportation orders. In the wake of the C.A.R.S. program, the Institute for Supply Management’s gauge of manufacturing activity went above 50 in August for the first time since January 2008, coming in at 52.9.
“The prospects for a return to growth in the near term appear good,” Federal Reserve Chairman Ben Bernanke said at the Kansas City Fed’s annual symposium in Wyoming. The Fed’s August policy meeting produced the opinions that “economic activity is leveling out” and that inflation will be “subdued for some time”. Public response to the government’s attempt to advance health care reform was not subdued at all, and the contention delayed any notion of progress until after the Congressional summer recess.

Global economic health. New Eurostat data gave us a look at how things were faring in the EU nations. The overall EU unemployment rate rose 0.1% in July to 9.5%. However, the jobless rate in its biggest economy (Germany) was just 8.3%. (Spain’s jobless rate for July: 18.5%.) A key purchasing managers survey had EU manufacturing output at a 14-month high in August.
In Asia, the big concern came late in August when the central bank of China issued an internal memo telling its branches to tighten lending practices. This hit stocks hard, but fresh data pointed to a nice recovery for some of the region’s economies. A pair of China’s PMI indexes stayed above 50 (indicating expansion). Hong Kong’s manufacturing pace increased for the first time since June 2008. South Korea had a surplus of $1.67 billion (U.S.) in August, compared to a $3.81 billion (U.S.) deficit in August 2008. Inflation in Indonesia had increased moderately to 2.75%, and consumer prices in Thailand had moderated their descent.

September outlook. Well, September started with a triple-digit hit to the Dow – you could hear bears growling, worrying about banks and wondering if the summer rally had been justified. Will everyone sell in September? Or will stocks defy expectations? Is this a cyclical bull market or a secular bull market? We do have some history to consider: on average, the Dow, S&P 500 and NASDAQ have declined a bit more than 1% during the typical September. Many eyes are on the jobs report coming out September 4, and whether the jobless rate climbs or descends. Any descent (for the second month in a row) would provide a strong hint of an ebbing recession and a shot of reassurance to Wall Street. Even pessimists have to concede that many indicators are improving and that the economy is definitely recovering.

Securities offered through KMS Financial Services, Inc.

ROTH IRA CONVERSIONS FOR 2010

2009-06-05T13:11:00.000-07:00

A unique opportunity for IRA owners

In 2010, anyone may convert a traditional IRA to a Roth IRA. No income limits will stand in the way of the conversion.1 Should you do it? Here’s why it may (or may not) make sense for you to go Roth next year.

Why you might want to consider it. A Roth IRA permits tax-free growth and tax-free income distributions in retirement (assuming you are age 59½ or older and have held your Roth account for 5 years or longer). You can contribute to a Roth IRA after age 70½, without having to take mandatory withdrawals. While contributions to a Roth IRA aren’t tax-deductible, the younger you are, the more attractive a Roth IRA may seem.2

However, older investors have reason to go Roth as well – especially if they don’t really need to withdraw IRA assets. Under present tax law, converting an untapped traditional IRA to a Roth will shrink the size of your taxable estate, and careful estate planning could foster decades of tax-free growth for those IRA assets.3

Currently, if you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. So those Roth IRA assets can keep compounding untaxed across the rest of your spouse’s life.

If your spouse then names a son or daughter as a beneficiary, that heir has the choice to make minimum withdrawals according to his or her life expectancy, all while the assets continue to compound tax-free. Currently, withdrawals from an inherited Roth IRA are not subject to income tax.3

Why you may want to think twice about it. The IRS regards a traditional IRA-to-Roth IRA conversion as a distribution from a traditional IRA – a taxable event.4 You’ll need to pay taxes on the entire amount of the conversion. Do you have the money to do that?

Keep in mind, however: with the market down, many IRA values are lower than they have been for years. That translates to paying less tax on gains. It is also worth remembering that tax rates could increase in the years ahead – another reason why now may be a good time to convert. (You could simply do a partial Roth IRA conversion if converting the full amount would send you into a higher tax bracket.)4

You may be tempted to use the current IRA assets to pay the conversion tax, but should you? If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.5

Why you might want to fund a Roth IRA this year. In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA.6 Interesting. Why is this so?

In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA. But the federal government has suspended mandatory IRA withdrawals for 2009.7 Any IRA withdrawals made in 2009 are thereby elective withdrawals. So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.6

In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan. This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less. More good news: there is no limit to the conversion amount.1

A potential tax break for those who convert in 2010. If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.8

Be sure to consult your tax advisor before you convert. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.8

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Citations.
1 kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html [1/09]
2 thestreet.com/print/story/10505164.html [5/26/09]
3 smartmoney.com/personal-finance/retirement/estate-planning-with-a-roth-ira-7966/ [1/22/09]
4 smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/ [1/9/08]
5 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/ [1/10/08]
6 online.wsj.com/article/SB123033785000236433.html [12/26/08]
7 usnews.com/blogs/planning-to-retire/2008/12/23/president-bush-signs-pension-relief-bill.html [12/23/08]
8 kiplinger.com/columns/ask/archive/2009/q0601.htm [6/1/09]

Monthly Economic Update for May, 2009

2009-05-15T15:12:00.000-07:00

The month in brief. If the economy was downtrodden, the stock market sure was upbeat – at the end of April, blue chips were wrapping up their best two months since 2003. As headlines and nightly news relayed anxiety about banks and automakers, Wall Street advanced powerfully. The three major indexes gained between 7.3 and 12.4% in April. Statistics indicated gloom, but confidence returned to consumers and investors.

Domestic economic health. New concerns about the viability of automakers and the capitalization of banks surfaced; in April, Wall Street rode through these concerns remarkably well. The big news, of course, was Chrysler LLC entering bankruptcy proceedings April 30 at the instruction of the White House. Fiat said yes to a partnership and a 20% stake in the U.S. automaker, but Chrysler bondholders (notably about 40 hedge funds) said no to slashing $6.9 billion in debt to $2.25 billion.

The Federal Reserve unveiled some details about bank stress tests in late April. The tests were evaluations: could 19 major U.S. thrifts potentially survive two financial scenarios, or would they need more capital to do so? Scenario one assumed a 2009 with -2.0% GDP, 8.4% unemployment, and a 14% drop in home prices. Scenario two plugged in -3.3% GDP, 8.9% joblessness and a 22% decrease in home values. We get the results May 7. Any undercapitalized banks will be directed to sell assets or draw on private-sector sources of capital before turning to the government.

As for consumers, the latest rounds of data showed them spending a bit less, but also far more confident. Personal spending and personal income respectively fell 0.2% and 0.3% in March; disposable income was flat. Retail prices and retail sales were down in March: the Consumer Price Index decreased by 0.1% and the Commerce Department had retail sales slipping by 1.1%. Producer prices also fell 1.2%. CPI dropped 0.4% and PPI fell 3.5% from March 2008 to March 2009 - the first year-over-year drop in CPI since 1955 and the biggest 12-month fall in PPI since 1950. However, the numbers from the consumer confidence indexes were certainly something to smile about: the Reuters/University of Michigan index came in at a final April level of 65.1, its biggest gain in two years. The Conference Board’s April survey hit 39.2, trouncing the 29.7 figure economists polled by Bloomberg News had expected. In other news, unemployment climbed to 8.5% in March. The Fed said GDP for the first quarter was pretty miserable: -6.1%. However, the Fed also reported that consumer spending did not contract, maintaining a 2.0% annualized pace last quarter. The Fed left interest rates alone.

World financial markets. We saw gains across the globe – tremendous gains. The MSCI World Index was up 10.9% in April – its best month since January 1987. The MSCI Emerging Markets Index rose 16.3% last month, and that was its hottest month since December 1993.

In Europe, the DAX gained 16.8% in April, and the CAC 40 rose 12.6%. England’s FTSE 100 gained 8.1%, and Ireland’s ISEQ rose 19.5%. In Asia, the April data: Hang Seng, +14.3%; Shanghai Composite, +4.4%; Sensex, +17.5%; Nikkei 225, +8.9%; Singapore Straits Times Index, +13.0%; Australian All Ordinaries Index, +6.0%.

Housing & interest rates. The March numbers weren’t very encouraging. The Commerce Department said new home sales fell by 0.6% for the month, and the National Association of Realtors reported residential resales down by 3.0%. However, the inventory of unsold new homes shrank from 12.5 months worth to 10.7 months worth across the first quarter of the year.

Rates on conventional mortgages finished April down more than a percentage point from a year ago. 30-year FRMs ended the month averaging 4.78%, according to Freddie Mac; 5-year ARMs averaged 4.80%, 1-year ARMs averaged 4.77%, and 15-year fixed-rate loans averaged 4.48%.

May outlook. On Thursday, May 7 (after the markets close), we are supposed to learn the results of the stress tests. The government has put itself in a difficult place: if it reveals too much, the markets might react too wildly, and if it reveals too little, that could breed suspicion or pessimism. Now of course, the results could surprise us all and not be as bad as anticipated. Or they could be worse than presumed.

Pessimists say that the stock market ignored economic reality in April. Optimists see the potential for great gains across the balance of 2009. In fact, Anthony Bolton, Fidelity International’s president of investments, recently told Bloomberg Television that “All the things are in place for the bear market to have ended.” Let’s hope he’s right.

HOW FAST THE MARKETS RECOVER

2009-03-18T12:55:00.000-07:00

Don’t let the headlines get you down. Look at how the markets have rebounded.

provided by Stephanie Shinn

The stock market is amazingly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns.

2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points (the biggest single-day drop ever) to 8920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.

There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.

As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.

1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.3 (That would be akin to a 2,300-point one-day drop today.) The S&P 500 lost 20.4%.4 By comparison, the initial “Black Monday”, the stock market crash of 1929, represented a 12.8% market loss.

Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year. By January 1990, the DJIA was at 2,800.

If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.

1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.

I hope these examples give you some encouragement and confidence when it comes to the market right now. The Dow, S&P and NASDAQ have been through some rough periods, but the important thing is to look at how they have climbed across the decades.

On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. That’s a 1,500% gain in 17½ years. This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.

What should you do now? That’s a good question. If you would like to talk about how to invest in light of this recent market, and what financial moves you might make that could help you manage risk and take advantage of a rebound, then talk with a qualified financial advisor today.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

WHAT WILL 2009 BRING?

2009-01-06T15:38:00.000-08:00

Can the markets rebound?

It’s time to leave 2008 behind. We’ve heard the sound bites. We’ve seen the headlines. It’s all yesterday’s news. Let’s turn our attention to 2009. There is reason to be optimistic. We have a new administration and a huge new stimulus/infrastructure plan that may bode well for the economy. We have the Federal Reserve and the Treasury working to thaw the credit markets. We have economists sensing the beginnings of a recovery later this year. Here are some thoughts as we enter 2009.

Eyes on the first few days. Traditionally, stock market analysts have looked closely at the first few trading days of a new year for a clue as to how the markets will do the rest of the year. When a new President takes office after a bearish year, the interest in these first few days is heightened. If the market performs well or poorly, the thinking goes, it “sets the tone” for the first quarter and the year. Many economists would say this is bunk, and that macroeconomic forces will ultimately shape stock market performance rather than a few market days. Traders would reply by saying that the impulses of investors don’t always correspond to macroeconomic forces.

They can also point to some telling statistics. Read Stock Trader’s Almanac, and you’ll discover that a positive January has led to a positive year for stocks more than 90% of the time.

Historically, Januarys have been bullish on Wall Street. But as the Almanac notes, every January in which stocks have lost ground has “preceded a new or extended bear market, or flat market.” So keep watching.

Stocks up 20.04%. What? What kind of statistical manipulation is that? It’s no trick; it’s reality. On November 20, the S&P 500 closed at 752.44. It ended 2008 at 903.25. So the broad stock market gained 20% in less than 30 trading days at the end of 2008. Hopefully, you didn’t miss that.

Sure, you say, this is just a bear market phenomenon. It could be. But consider these hopeful signs. Our current recession began in December 2007, according to the National Bureau of Economic Research. It is now entering its fourteenth month. The two worst downturns in post-WWII history have lasted 16 months. (The old joke is that a recession is over just about the time that NBER confirms it.) Most economists doubt the recession will last through the end of 2009.

We’re not living in 1931. You’ve probably read articles that compare and contrast the current economy to the 1930s. Well, we haven’t gone that far back. Sure, we’re seeing a lot of short sales and foreclosures. But we’re not seeing every other bank shuttered, soup lines on the corner, or one out of every four Americans looking for work. The economy is down, but not out.

What we’ve done, in a sense, is to go back a few years. Mortgage rates, oil futures, retail gas prices, home prices, inflation – they are all in the ballpark of what we saw in 2003 or 2004 (and mortgage rates are lower than that). Keep in mind that in the last 2-3 years, you had the real estate market at its peak, the stock market setting records, and a commodities market that was on fire. Inevitably, all that cooled off. Severely, yes – but inevitably. Recessions are part of the natural economic cycle.

When do things turn bullish? Well, a few things have to occur to pave the Street for another extended bull run. One, the federal government stimulus and rescue plans have to take effect. Two, banks have to start lending more readily. Three, the real estate market has to show new signs of life. Improvements in corporate earnings, joblessness and consumer spending will also help.

We might be poised for great things. In recent times, powerful bull markets have emerged from low points in stocks and consumer confidence. You can point to 2003, after Black Monday in 1987, and 1982. Moreover, some of the best long-term investing opportunities have emerged from extended bear markets or tepid markets.

Consider this: The Leuthold Group, an institutional research firm based in Minneapolis, just concluded that the annual returns of the S&P 500 from 1998 to 2008 averaged -0.93% per year, not including dividends. (This study wrapped up at the end of November 2008.) As the research notes, “when 10-year annual returns [of the stock market] fall to 1% or less, the next 10 years produce an average cumulative return of 183%”. So there’s some hope for you.

What should you do in 2009? Talk about it with your financial advisor. The start of the year is a good time to review and revisit your financial plan and your long-range investment strategy.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
Past performance is not necessarily indicative of future results.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

PRESIDENTIAL ELECTIONS AND STOCKS

2008-11-18T15:47:00.000-08:00

How has the market reacted to elections and new administrations?
Some interesting statistics from election years past and present.

Is an election year good for stocks? Well, let’s look at some data. Keep in mind, it’s only data – and as the old saying goes, past performance is no indication of future results. But the statistics concerning the Dow Jones Industrial Average sure are interesting. It is time to compare and contrast.

The Dow through Election Day. America has now seen 28 presidential elections since the first publication of the DJIA on May 26, 1896. In 20 of those 28 election years, the Dow posted a Y-T-D gain through Election Day. Would that it was true this year. When the market opened on November 4, 2008, the Dow was down 29.71% from its close on the final day of 2007.

The Dow in “election season”. Between Labor Day and Election Day, the Dow rose an average of 1.92% in the 27 election years between 1896 and 2004. When the incumbent President was a Republican, the Dow’s average gain between Labor Day and Election Day in those election years was approximately +0.6%.1 This year certainly did not live up to statistical expectation: the Dow closed at 11,543.96 on August 29 (the last market day before Labor Day) and opened at 9,323.89 on the morning of November 4 for a loss of 19.23% over that period.

The Dow immediately after a Presidential election. The short-term statistic is positive: on average, the DJIA has gained 1.90% between Election Day and New Year’s Day in the 27 election years past. Here are two statistics seemingly at odds with each other: when a Republican President is in office during an election year, the DJIA gain has averaged approximately 4.6% between Election Day and New Year’s Day. But when a Democrat is elected (regardless of what party holds the White House), the Dow has averaged roughly a -0.9% loss between the first Tuesday in November and New Year’s Day.

On Election Day 2008, the Dow gained 305.45 or 3.28%. However, a day later, all the gain had been lost in the wake of troubling indicators.

The Dow after a new President takes office. The DJIA has gained an average of 4.85% during the first year of a presidency. But when a Democrat is elected, that average gain has been approximately 6.0%. Historically, when a Democrat replaces a Republican in the White House, the average gain has been approximately +13.7% - but that statistic is skewed, because the Dow gained 64% in the year after Roosevelt replaced Hoover. Put 1933 aside, and the average such gain is approximately 1.2%.

As for the S&P 500 … TheStreet.com columnist Scott Rothbort tracked S&P 500 data going back to 1950 and found that the price-only return of that index in a post-presidential election year has averaged +3.06%.6 On the other hand, a research report released November 5 by the Zero Alpha Group (an international network of financial advisory firms) indicates that the S&P 500 has gained approximately 15.8% during Democratic administrations (as compared to about 11.2% during Republican administrations).

And what about your financial strategy? While the above data is fascinating to consider, the fact is that we can’t foretell the effect a new administration will have on our money. Long-term discipline is the most important factor in an investment strategy, and your financial advisor can help you to practice it.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

IS IT TIME FOR A REBOUND?

2008-10-22T11:39:00.000-07:00

Is now the right time to invest?

Up 936! Back above 9,000! The stock market is amazingly resilient – you can’t count it out. After last week’s series of plunges, Monday brought one of the best days in the history of the Dow Jones Industrial Average. The Dow rose 936 points – that’s an 11.08% gain in one day. The S&P 500 soared 194.74 to move up to 1,003.35 (+11.35%). The NASDAQ rose 11.81% to finish at 1,844.25.
A rebound was widely expected, but not as large as this. Of course, we had some major news developments that for once were more encouraging than discouraging.

All kinds of help coming. Assistant Treasury Secretary Neel Kashkari spoke Monday and said that the Treasury would buy shares in healthy banks as well as troubled ones as part of the $700+ billion rescue plan. The G-7 leaders met in Washington, D.C., and the European Central Bank, the Bank of England, and the Swiss National Bank announced a coordinated effort to provide as much short-term funding as possible to beleaguered lenders. The Bank of England pledged up to $63 billion to a trio of leading British banks in need. President Bush called for a meeting of the G-8 leaders "in the next few weeks" to plan further responses to the credit crisis.

Happy days are not quite here again … but it is time to buy? Some market analysts are wondering whether we have just seen the worst of a historic correction. Others say don’t bet on it and see a rocky quarter (or several) ahead for the markets. The last bear market (2000-2003), even factoring out 9/11, saw waves of dramatic short-term ascents and descents.
Last week, journalists started to flirt with the D-word when describing the possibilities of the economy. But in recent world history, major governments have acted ably to stave off catastrophe when severe recessions have hit. Investors, economists and market analysts alike have applauded the recent global actions, and their long-term prospects.
Long-term market watchers have noticed some “deep discounts” on some quality stocks, and they are not going unnoticed. Since late September, renowned investor Warren Buffett has bought a total of $8 billion worth of shares in General Electric and Goldman Sachs, and a New York Times piece last weekend noted stocks of some prime companies trading at or close to historical lows - five to nine times their annual profits per share. While some of these firms improved their standing Monday, it is still a buyer’s market in the eyes of many analysts – as of last weekend, the S&P 500 was trading at about 13 times its expected profits for 2009, compared to 30 times its expected profits in early 2000.

An argument for perseverance. More than a few investors liquidated themselvperformance of the market recently. Patient investors hung on, keeping the historical, long-term performance of the market in mind. Whether the market pulls off an amazing rebound in the next few weeks or struggles over the next few quarters, this may be the time to invest in some solid companies rather than sit on the sidelines. Of course, any such investments should ultimately be made in light of your long-term financial goals - and with the help of a good financial advisor.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com

WHAT DOES WARREN BUFFETT THINK?

2008-10-07T15:46:00.000-07:00

Fresh perspectives on the economy from the wisest investor in the world.

Did you see Charlie Rose’s interview with Warren Buffett? On October 1, the two of them met in San Diego for a brief chat about the economy and the financial markets. Earlier that day Buffett had announced that his holding company, Berkshire Hathaway, would invest $3 billion in General Electric.1 The great investor was realistic about today’s economy – and also optimistic.

“It’s like a great athlete that’s had a cardiac arrest.” That’s Buffett’s view of the U.S. economy right now. What led to the heart attack? He puts it as simply as he can: “300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market.”

Everyone leveraged up, and when “you have a 20% fall in value of a $20 trillion asset, that’s $4 trillion. And when $4 trillion [in] losses lands in the wrong part of this economy, it can gum up the whole place.” Now, with so many major financial institutions trying to deleverage, “there is only one institution in the world that can leverage up in [a] countervailing force to that, and that’s the United States Treasury.”2

“An economic Pearl Harbor.” Dire words? Well, in Buffett’s view, that was what the last month or so on Wall Street had meant for the country. “In my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now. They are not wrong to be worried.” When something like this hits, he added, “You better spring into action with the best people you have.” He praised the initiative and vision of Treasury Secretary Henry Paulson – and FDIC Chairman Sheila Bair, in his view the unsung hero of the crisis. For the next administration, “it’s more important who the Treasury Secretary is than who the Vice President is.”

Will taxpayers get their money back? “I would bet on it.” Buffett feels that the Treasury Department’s plan to purchase hundreds of billions of mortgage-related assets will turn a profit given that they will buy them at market, and also “because the United States government has staying power and it has a low cost of borrowing.” The Bush administration’s plan is, in short, “the kind of stuff I love to do.” He noted that “if I could take 1% of that $700 billion pot and take the gain or loss from it and be their partner, and they would buy the stuff at market, I’d make a lot of money.”

“Financial weapons of mass destruction.” Buffett is no fan of derivatives. “They destroyed AIG. They certainly contributed to the destruction of Bear Stearns and Lehman.” He feels that if AIG had resisted the temptation of derivatives, it “would be doing fine today.” He later added that the Federal Reserve structured its $85 billion loan to AIG “very, very well … they have put themselves in a position where they are very likely to get their money back, maybe more … I mean I want to hire the guy that made that deal. He’d fit in well at Berkshire.”

The “choice” America is making. In Buffett’s assessment, the U.S. is “to some extent, making a choice between future inflation and getting off the floor. And we’re likely to have more inflation in the future as a consequence of the things we do to fight the present situation.” He cautions that “unemployment’s going to go up under any circumstances.”

“You want to be greedy when others are fearful.” Personally, Buffett sees many attractive opportunities right now. Cash reserves are certainly important, “but when people talk about cash being king, it’s not king if it just sits there and never does anything. There are times when cash buys more than other times, and this is one of [them].” In addition, Buffett reminds us of the inverse of his principle: “You want to be fearful when others are greedy. It’s that simple.”

“Oh, I think confidence will come back.” When Rose asked him what might “never be the same” about Wall Street or the American economy, Buffett replied optimistically. “We’ve got all the ingredients for a sensational future. It’s just that right now the athlete’s on the floor. But this is a super athlete.”

“I don’t want any viewer to [think] a magic wand exists in Congress,” he stated. “So they’re going to see some more bad news. But if we do this, we’re doing the right thing. And if [we do], the system will work over time.”

Play the video. See the entire interview at charlierose.com/shows/2008/10/1/1/an-exclusive-conversation-with-warren-buffett. Or go to cnbc.com/id/26982338/page/2/ for a full transcript.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

An Overview of the Market: Thoughts For Today's Investors

2008-09-29T11:16:00.000-07:00

When J.P. Morgan was asked what he thought the market would do, in his usual haughty manner, he snapped back, “It will fluctuate.”*
When this answer is placed with the recent stock market as a backdrop, you realize that never a deeper truth has been spoken concerning the equity markets.
Although no two major market events are ever the same, they sometimes possess some similar characteristics from which we can hope to learn.
This is because underlying this answer is the realization that the markets are generally cyclical. If we can understand this simple truth; that markets go up and that markets comes down, we would understand why panicking when the stock market retreats has historically never been such a good idea.
The real issue in bear markets is that when the market is down, many times it feels as if it will be down forever. However, no matter how bad a market feels at its lowest point, it has historically recovered creating wealth for those who did not panic out of their well-planned investments.
A good example of this was back in 1979, when Business Week ran a cover story on "The Death of Equities." This magazine cover and article was published on August 13, 1979 and was on the very door step of the beginning of one of the best bull markets in the history of equities. In this article, Business Week suggested, "The death of equities looks like an almost permanent condition." The next year, in 1980, the S&P 500 was up 32.5% and the rest of the 1980s and 1990s are now historic in terms of market returns.
If history provides any implied qualities, one of the principal lessons is that if you are an investor with equity positions, odds are you should probably stay the course; otherwise, you likely may miss the upswing in the market that may potentially occur after the bear market. You need look no further than the last bear market which ended in 2002, at which time we saw a 28.7% return for the S&P in 2003.
The question is what do you do now? Particularly in this current market and with the volatility and uncertainty that surrounds it. No one has the crystal ball that will tell you exactly what to do or can predict its outcome. We believe that the best thing you can do is use the common sense wisdom that we have learned from other markets we have seen that possess some similar characteristics to the one we are in now. Stay focused, do not try to time the bottom of the market, stay diversified and understand the long-term view.
Historically, all bear markets eventually end. Although no one knows exactly when, this bear market should end too. When it does, it should display the relatively strong characteristics that the equity market has provided in the past. We do not believe that you should put yourself in a position of watching that from the sidelines.
According to the Stock Trader's Almanac, the last 10 bear markets have lasted, on average, 369 days. The most recent bear market which began in October 2007 is approaching that average number of days, although no one can accurately predict when this current bear market will end.
In difficult times like this, we believe it's important to invest with your head and not based on emotion. Stay the course and finally, remember that many times in the past, the bull market typically began when things looked their bleakest.

HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?

2008-08-11T12:25:00.000-07:00

Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently, one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits. This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.