Stock Market Perspective

It’s a new high for the Dow Jones Industrial Average, closing Friday at 14,397.  The S&P 500, currently at 1,550, is just shy of its high of 1,565 in October of 2007.  Friday, the unemployment rate dropped to an unexpected 7.7%.  It’s hard to believe that four years ago in March of 2009 (S&P 500 low of 676) we were hearing from clients their concern about another Great Depression, the potential for martial law in the streets, and the end of America as we know it.  Thankfully, there were careful, albeit scary and unprecedented, steps taken to slowly and painfully back away from brink of the abyss.  Miraculously we moved on from that to these new highs.

Recently the CFA Institute conducted a poll of the readers of their news digest, many of whom are CFA charter holders.  They asked what the next major financial-market mover, with effects significant enough to last more than one year, would be.  About 27% chose the option “a macroeconomic event” (pretty vague), and another 24% said “a random unforeseeable event.”  The remaining chose more concise, specific options having to do with quantitative easing, corporate profits, technology, etc. 

What I took from this is that over half of the poll respondents, who are presumably well-informed professionals in the field of investment management, have no clue what will happen next to shake the markets.  This may be disconcerting at first glance, but I found it comforting.  We often receive pressure to predict the short-term future of the financial markets.  But we don’t believe it is possible to do this with any real success. 

However, we do believe in the long-term success of a well-diversified portfolio that is suited to the investor’s risk tolerance.  We believe that keeping your allocation intact during good and bad times is the best way to avoid the pitfalls of market timing.  The crash of 2008-2009 may have been “unforeseeable” but so was the stock market reaching new highs this spring — even just one year ago we thought Greece was going to fall off the map. 

Predictions may be interesting, but they shouldn’t be used to decide whether or not to make a short-term investment in an asset class.  Maintaining your chosen asset allocation is crucial.  Of all of the predictions that I recall from the spring of 2009, I don’t remember anyone suggesting that we’d see new highs on the stock market in four years with unemployment slowly ticking down to 7.7%.

Harli L. Palme, CFA, CFP(r)

Partner

Market Update through 2/28/13

as of February 28, 2013
	Total Return
Index	12 months	YTD	QTD	MTD
Stocks
Russell 3000	13.02%	6.89%	6.89%	1.33%
S&P 500	12.94%	6.61%	6.61%	1.36%
DJ Industrial Average	11.05%	7.77%	7.77%	1.76%
Nasdaq Composite	7.51%	4.86%	4.86%	0.75%
Russell 2000	12.25%	7.43%	7.43%	1.10%
EAFE Index	10.15%	4.35%	4.35%	-0.89%
Bonds
Barclays US Aggregate	3.12%	-0.20%	n/a	0.50%
Barclays Intermediate US Gov/Credit	3.01%	0.12%	n/a	0.48%
Barclays Municipal	5.01%	0.72%	n/a	0.30%
		Current		Prior
Commodity/Currency		Level		Level
Crude Oil		$90.63		$95.91
Natural Gas		$3.50		$3.15
Gold		$1,583.90		$1,609.80
Euro		$1.29		$1.33

Mark A. Lewis

Director of Operations.

Always Be Prepared

Last fall, there was an interesting news story circulating that some of you may recall.  It was the story of Walter Samasko and his house full of gold coins.  Poor Samasko, whom neighbors described as quiet, reclusive and strongly anti-government, had died from a heart attack and his body was undiscovered for at least a month.  When authorities went to clean Samasko’s house, they discovered boxes of gold coins worth more than $7 million in his garage and crawl space.     Samasko had no will, so local authorities used a list of attendants from his mother’s funeral in 1992 to track down his nearest surviving relative, first cousin Arlene Magdanz, a substitute teacher in California.  Can you say Eureka?

I can only imagine what it would be like to be told I had inherited $7 million from a long-lost relative.  I would like to believe that I would not regret the fact that the government would take over $800,000 in estate taxes and other fees.  I mean, this is found money, right?  But I am sure there is one person who rolled over in his grave:  Walter Samasko.  Remember, Samasko had no will or trust and he had not taken the necessary steps to create a plan that would prevent his estate from the taxation he surely would have hated.  Rather than die intestate, Walter should have drawn up a will and created a trust leaving his assets to charity.  Not only would these documents protect his assets from taxation, the living trust would have prevented probate court, thus preserving the privacy Samasko clearly desired.

The federal estate-tax exclusion now is set permanently at $5 million and is indexed for inflation. But because of inflation, the amount for 2013 works out to $5,250,000 for individuals and $10,500,000 for couples.  The federal gift and generation-skipping transfer tax exemption is the same as the estate-tax exclusion amount.  The top federal estate-tax rate on the largest estates is now 40%, up from 35% in 2012. Transfers from one spouse to the other typically are tax-free.   

These exemptions mean many of us will never need to worry about estate taxes.  This does not mean you don’t need an estate plan.  Wills, trusts, powers of attorney, living wills and health care powers of attorney are all important documents that allow you to determine who receives your assets, who will have guardianship over your children, who will make decisions for you when you are unable, who will manage your financial and legal affairs and so on. 

In our work, we often find people who are reluctant to address the topic of estate and incapacity planning.  While I realize this can be a touchy subject, I always think of the old adage, “Those who fail to plan, plan to fail.”  So please, don’t be like Walter!  If you have not yet created your estate plan, get started today.  If you need help finding an estate planning attorney or if you would like some general guidance on estate planning, your financial advisor is happy to assist.

 

Tracy H. Allen, CFP^®

Financial Advisor

 

Market Update through 2/15/13

 

as of February 15, 2013
	Total Return
Index	12 months	YTD	QTD	MTD
Stocks
Russell 3000	15.77%	7.28%	7.28%	1.70%
S&P 500	15.74%	6.86%	6.86%	1.60%
DJ Industrial Average	12.40%	7.11%	7.11%	1.13%
Nasdaq Composite	11.19%	5.85%	5.85%	1.70%
Russell 2000	15.09%	8.80%	8.80%	2.39%
EAFE Index*	8.22%	3.71%	3.71%	-1.41%
*EAFE index does not include dividends.
Bonds
Barclays US Aggregate	2.71%	-0.65%	n/a	0.05%
Barclays Intermediate US Gov/Credit	2.59%	-0.29%	n/a	0.07%
Barclays Municipal	4.90%	0.47%	n/a	0.05%
		Current		Prior
Commodity/Currency		Level		Level
Crude Oil		$95.91		$97.46
Natural Gas		$3.15		$3.36
Gold		$1,609.80		$1,668.00
Euro		$1.33		$1.36

Mark A. Lewis

Director of Operations

Market Update through 1/31/13

as of January 31, 2013
	Total Return
Index	12 months	YTD	QTD	January
Stocks
Russell 3000	16.90%	5.49%	5.49%	5.49%
S&P 500	16.78%	5.18%	5.18%	5.18%
DJ Industrial Average	12.75%	5.91%	5.91%	5.91%
Nasdaq Composite	13.41%	4.08%	4.08%	4.08%
Russell 2000	15.47%	6.26%	6.26%	6.26%
EAFE Index*	13.49%	5.19%	5.19%	5.19%
*EAFE index does not include dividends.
Bonds
Barclays US Aggregate	2.59%	-0.70%	n/a	-0.70%
Barclays Intermediate US Gov/Credit	2.47%	-0.36%	n/a	-0.36%
Barclays Municipal	4.80%	0.42%	n/a	0.42%
		Current		Prior
Commodity/Currency		Level		Level
Crude Oil		$97.46		$93.97
Natural Gas		$3.36		$3.42
Gold		$1,668.00		$1,684.90
Euro		$1.36		$1.32

Mark A. Lewis

Director of Operations

Getting an Early Start

It is well known that an investor’s best friend is time. Many investors that are approaching retirement frequently wish that they had just started saving earlier, which in many cases would have afforded them the ability to retire much earlier than they now plan. According to a recent Wall Street Journal article, nearly two-thirds of American workers between the ages of 45-60 now anticipate delaying their prior retirement plans. Much of this is due to recent weak investment returns, but much of it may be due to the fact that they didn’t begin saving for retirement early on in their careers.

By getting an early start on building your investments in your career you stretch out your investment horizon. This allows you to achieve a return that approaches long term historical averages (as opposed to short investment horizons where asset returns are more volatile).  It also allows for compounded returns on your investment – which is one of the most powerful tools an investor can have. This basically means you are receiving a return on your prior investment returns, and as you stretch out the number of years you are investing then the compounding power continues to grow.

Let’s look at a quick example of two young professionals to see the benefits of extending your investment horizon:

•  At age 25 both professionals have a starting salary of $50,000
• Their employer provides a 5% matching 401(k) contribution
• Each of them receives an average raise of 4% per year – slightly above inflation due to continued career advances and post graduate studies
• Both will choose a 100% equity allocation due to their long term investment horizons, and over their  career they receive a 9.8% annual compounded investment return (based on Ibbotson data of large company stock returns from 1926-2011)

The only difference between these two will be that one chose to immediately begin participating in the 401(k) plan with a 10% salary deferral. The other chose to wait just 5 years until they were 30 years old to begin a 10% salary deferral. Both continued saving until they were 65 years old, and stuck with a 100% equity allocation over the entire investment period. The difference based on these assumptions: Almost $1.42 million. Over a period of those first 5 years the salary deferrals for the smart investor was just $27,000, but employer matches and compounding investment return power led to this massive difference in their 401(k) balance as they approached retirement. 

For many of you nearing retirement this piece isn’t helpful since time travel is still in the works. But, you likely have children or younger relatives who would really appreciate it if you helped them get on the right path. Maybe they won’t appreciate it now, but in 30-40 years when they have developed sizable wealth then you will certainly be their favorite relative.

Reach out to your advisor and we will be glad to review your retirement options at work as well as those of your younger relatives.

 

Travis Boyer, CFA

Financial Advisor

 

as of January 15, 2013
	Total Return
Index	12 months	YTD	QTD	MTD
Stocks
Russell 3000	17.29%	3.55%	3.55%	3.55%
S&P 500	16.82%	3.30%	3.30%	3.30%
DJ Industrial Average	11.98%	3.37%	3.37%	3.37%
Nasdaq Composite	16.56%	3.03%	3.03%	3.03%
Russell 2000	17.48%	4.17%	4.17%	4.17%
EAFE Index*	17.08%	3.30%	3.30%	3.30%
*EAFE index does not include dividends.
Bonds
Barclays US Aggregate	3.64%	-0.15%	n/a	-0.15%
Barclays Intermediate US Gov/Credit	3.47%	-0.03%	n/a	-0.03%
Barclays Municipal	5.80%	0.70%	n/a	0.70%
		Current		Prior
Commodity/Currency		Level		Level
Crude Oil		$93.97		$93.49
Natural Gas		$3.42		$3.23
Gold		$1,684.90		$1,693.60
Euro		$1.32		$1.32

Mark A. Lewis

Director of Operations

2012 IRA Contribution Rules

The deadline to make IRA contributions for tax year 2012 is April 15, 2013.  The maximum contribution is $5,000 of earned income or $6,000 for those 50 and over.   These amounts increase to $5,500 and $6,500 respectively for tax year 2013.

There are income limits which determine whether you can deduct your Traditional IRA contribution or if you qualify to make a Roth contribution.  The following table gives the phase-out range for the most common circumstances. 

Do you qualify to deduct your Traditional IRA contribution?
If your income is less than the beginning of the phase-out range, you qualify.  If your income is over the phase-out range, you do not.  If your income falls inside the range, you partially qualify.
	Modified Adjusted Gross Income                                         Phase-Out Range
Single, participates in an employer-sponsored retirement plan	$58,000-$68,000
Married, participates in an employer-sponsored retirement plan	$92,000-$112,000
Married, your spouse participates in an employer-sponsored retirement plan, but you do not.	$173,000-$183,000
Do you qualify to contribute to a Roth IRA?
Single	$110,000-$125,000
Married, filing jointly	$173,000-$183,000

 If your filing status differs from those listed above, please contact your advisor and he or she can help you determine whether you qualify.

Tracy H. Allen, CFP^®

Financial Advisor

Market Update through 12/31/12

as of December 31, 2012
	Total Return
Index	12 months	YTD	QTD	Dec
Stocks
Russell 3000	16.42%	16.42%	0.25%	1.23%
S&P 500	16.00%	16.00%	-0.38%	0.91%
DJ Industrial Average	10.24%	10.24%	-1.74%	0.79%
Nasdaq Composite	17.75%	17.75%	-2.47%	0.63%
Russell 2000	16.35%	16.35%	1.85%	3.56%
EAFE Index*	13.55%	13.55%	6.17%	3.10%
*EAFE index does not include dividends.
Bonds
Barclays US Aggregate	4.22%	4.22%	n/a	-0.14%
Barclays Intermediate US Gov/Credit	3.89%	3.89%	n/a	-0.10%
Barclays Municipal	6.78%	6.78%	n/a	-1.24%
		Current		Prior
Commodity/Currency		Level		Level
Crude Oil		$93.49		$88.91
Natural Gas		$3.23		$3.56
Gold		$1,693.60		$1,710.90
Euro		$1.32		$1.30

Mark A. Lewis

Director of Operations

New Quarterly Reports

We have introduced new reports for our quarterly review statements that we send out to clients.  As a client, you will receive these over the next few months.  These new reports are an improvement over the former reports both ascetically and informatively.  Take some time to review these reports and let us know if you have any questions about how you should be reading them.  In the new reports you will find:

• An introductory letter commenting on the financial markets and economic situation;
• An invoice calculating your fee;
• Household Overview listing all of your accounts;
• Portfolio overview that depicts year-to-date contributions and withdrawals, year-to-date realized and unrealized gains, income received and fees charged;
• Portfolio overview that depicts your asset allocation in graphic and table format, as well as a graph showing the increase/decrease of your portfolio over the quarter;
• Performance report that shows a time-weighted return (TWR).  TWR is the standard industry performance calculation that accounts for cash flows in and out of the portfolio.  There are columns that show year-to-date, latest 1-year (rolling 12-months), and annualized since inception returns.  The returns shown are for your total account, returns for the equity portion of our account, and fixed income portion if applicable.  We have also provided returns for a variety of indices for your comparison:
  • Russell 3000 Index – largest 3000 U.S. stocks
  • MSCI EAFE Index – an international index for Europe, Asia and Far East stocks
  • S&P 500 Index – largest 500 U.S. stocks
  • Barclays Intermediate Gov’t/Credit Index – corporate bonds and U.S. government securities, 3-10 years in maturity
  • Barclays Muni Bond Index – a national aggregate of municipal bonds

In general our portfolios are comprised of a mix of these investments.  The equities portion often has 20% international (EAFE) and 15% in small and mid-size companies (represented in the Russell 3000).

• Appraisal that shows a listing of your current holdings.

We hope that you find the new reports informative.  Thank you!

Harli L. Palme, CFA, CFP^®

Partner