The Markets
They say that
optimism is catching. The performance of markets across the globe last week
certainly supported the idea.
During the
second week of January, there was reason for optimism about the housing market as data showed that
housing starts exceeded economists’ expectations and home construction appeared
to be on the rebound. Last week, the National Association of Realtors disclosed
that very low mortgage rates, falling unemployment, and one of the most
affordable housing markets on record helped make 2011 the best year for home
sales since 2007.
In addition, the
earnings season – the period of each quarter during which public corporations
announce their quarterly earnings to the public – moved into high gear.
Generally solid corporate earnings helped drive markets higher as did
investors’ enthusiasm for stock mutual funds which are experiencing some of
their highest investment levels in a decade. These factors helped the Standard
& Poor’s 500 Index close above 1,500 for the first time in more than five
years.
Across the pond,
the European Central Bank announced that banks plan to repay 137 billion Euros
next week much earlier than many had expected. Markets interpreted the news as a
sign that European financial systems may be on the mend. Global stock markets
gained strength and the Euro reached its highest level in nearly a year against the U.S. dollar. Interest rates in Italy and Spain,
some of the weaker links in the Eurozone economy in recent years, fell significantly
during the week offering further evidence that investors’ optimism and appetite
for risk was on the rise.
Data as of 1/25/13
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
1.1%
|
5.4%
|
13.3%
|
11.1%
|
2.5%
|
5.9%
|
|
10-year
Treasury Note (Yield Only)
|
2.0
|
N/A
|
2.0
|
3.6
|
3.6
|
3.9
|
|
Gold (per
ounce)
|
-1.7
|
-2.0
|
0.6
|
14.9
|
12.6
|
16.2
|
|
DJ-UBS
Commodity Index
|
-0.6
|
1.1
|
-3.4
|
1.3
|
-5.6
|
2.0
|
|
DJ Equity
All REIT TR Index
|
1.3
|
5.0
|
18.5
|
21.5
|
7.4
|
12.9
|
Notes: S&P 500, Gold, DJ-UBS Commodity
Index returns exclude reinvested dividends (gold does not pay a dividend) and
the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT
TR Index does include reinvested dividends and the three-, five-, and 10-year
returns are annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time periods.
Sources: Yahoo!
Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future
results. Indices are unmanaged and
cannot be invested into directly. N/A
means not applicable.
Traditional or roth retirement plan contributions? A provision of the
American Taxpayer Relief Act of 2012 (ATRA) allows many people with savings in
workplace retirement plans to make “in-plan Roth conversions.” They can move
savings from traditional, before-tax 401(k), 403(b), or 457 plan accounts to
Roth plan accounts without a distributable event (such as death, disability, or
reaching age 59½) as long as the employer offers both options.
Traditional
contributions
In general, traditional contributions to
retirement plan accounts are made with before-tax dollars so they reduce
current income. Any earnings in these accounts grow tax-deferred until assets
are withdrawn. Generally, that’s at retirement. Distributions from Traditional
accounts generally are taxed as ordinary income.
Roth
contributions
Contributions to Roth retirement plan
accounts are different. They are made with after-tax dollars so they do not
reduce taxable income today. Any earnings in Roth accounts grow tax-free. Distributions
from a Roth account are tax-free and penalty-free as long as the five-year participation
period requirement is met and the distribution is taken for a qualified
purpose, such as reaching age 59½ or becoming disabled.
How
do I decide whether a conversion is right for me?
The decision about whether to convert a
Traditional workplace retirement plan account to a Roth workplace retirement
plan account should be based on criteria that are similar to the criteria used
when deciding whether to convert a Traditional IRA to a Roth IRA. These
include:
·
Tax brackets now
and in the future:
If you think you’ll be in a higher tax bracket during retirement than you’re in
today, then a Roth conversion may make sense.
·
Assets available to
pay the taxes due:
When you convert from a Traditional to a Roth plan account, you will owe taxes
on the assets you convert. If you have non-retirement savings available to pay
these taxes, a Roth conversion may be a good choice.
·
Legacy and estate
planning goals: If
a Roth 401(k) account offers estate
planning opportunities that suit your needs, conversion may be a good choice.
·
Income needs during
retirement: If
having a source of tax-free income to supplement taxable income during
retirement could boost retirement income, then a Roth conversion may make
sense.
Source: Investment News
It’s
important to recognize a retirement plan conversion is different from an IRA
conversion. Plan conversions do not allow a do-over while IRA conversions can
be revoked for a certain period of time. If you have any questions about this
topic, please give us a call.
Weekly Focus – Think About It
Optimism is the faith that leads to achievement. Nothing can be done
without hope and confidence.
--Helen Keller, the first
deaf and blind person to earn a Bachelor of Arts degree
Value
vs. Growth Investing (1/25/13)
|
1.28
|
5.75
|
5.80
|
7.78
|
16.09
|
13.94
|
5.43
|
|
|
1.05
|
5.19
|
5.18
|
6.36
|
15.85
|
13.00
|
4.51
|
|
|
1.69
|
6.42
|
6.11
|
8.54
|
18.45
|
13.96
|
5.85
|
|
|
0.18
|
3.54
|
3.65
|
5.12
|
14.69
|
13.01
|
5.86
|
|
|
1.38
|
5.84
|
5.96
|
5.57
|
14.92
|
12.07
|
1.62
|
|
|
1.91
|
7.28
|
7.39
|
11.83
|
16.76
|
16.29
|
7.38
|
|
|
1.38
|
6.89
|
6.97
|
12.28
|
16.90
|
18.04
|
8.94
|
|
|
2.86
|
7.51
|
7.61
|
11.80
|
14.57
|
16.68
|
6.09
|
|
|
1.47
|
7.43
|
7.59
|
11.46
|
18.88
|
14.08
|
6.96
|
|
|
1.74
|
7.08
|
7.61
|
11.64
|
16.45
|
16.25
|
8.80
|
|
|
1.74
|
6.90
|
7.57
|
12.66
|
16.06
|
15.07
|
8.50
|
|
|
1.52
|
6.86
|
7.60
|
10.77
|
14.29
|
17.43
|
7.73
|
|
|
1.94
|
7.48
|
7.64
|
11.48
|
19.08
|
16.27
|
10.12
|
|
|
1.63
|
6.56
|
6.40
|
9.56
|
18.05
|
14.96
|
6.77
|
|
|
0.80
|
4.53
|
4.68
|
6.78
|
14.58
|
14.13
|
6.08
|
|
|
1.44
|
6.27
|
6.40
|
7.13
|
15.99
|
12.76
|
3.26
|
©2004
Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is
proprietary to Morningstar; (2) is not warranted to be accurate, complete or
timely. Morningstar is not responsible for any damages or losses arising from
any use of this information and has not granted its consent to be considered or
deemed an “expert” under the Securities Act of 1933. Past performance is no
guarantee of future results. Indices are
unmanaged and while these indices can be invested in directly, this is neither
a recommendation nor an offer to purchase.
This can only be done by prospectus and should be on the recommendation
of a licensed professional.
Office Notes:
2012: The Year in Review
Every
January, it’s customary to take a look back at the year that was. What were the
highlights? What were the “lowlights”? What got us to where we are today? What
were the events we’ll always remember?
2012
was a year that featured stunning scientific breakthroughs, amazing athletic
achievements, and landmark legislation.
Sadly, the year was also dominated by politics, economic uncertainty,
and violence both at home and abroad. I
suppose that every year has its share of triumphs and tragedies. What’s important are the lessons we can draw
from them.
When I look back at the past twelve
months, there’s one lesson that jumps out at me: how important it is to always plan ahead.
So many of the major headlines from 2012 were either the result of
good planning, or unhappy effects of not planning at all. Here are a few examples:
Politics
Perhaps the single biggest story of
2012 was the ongoing presidential election, pitting former Massachusetts
governor Mitt Romney against the incumbent, Barack Obama. Every election is a bitter contest, but at
times, this one seemed downright vicious.
Because there was so much at stake, neither side spared any effort to
try and get ahead. In the end, it was
Obama who emerged the victor. There are
probably many reasons for this, most of which I’m not qualified to give an
opinion on. But leaving politics aside,
there was one aspect of Obama’s campaign that most experts agreed on: the
amount of planning he did ahead of time was a huge benefit.1,2 Long before Romney’s nomination, Obama’s
campaign planned how to win key battle states, like Ohio. They analyzed the numbers from the last
campaign and planned massive “get-out-the vote” measures to galvanize
supporters. And they planned their advertising
strategy well in advance, taking to the airwaves long before Romney did. According to some experts, this enabled Obama
to set how the public perceived Romney before the race even began. The point of all this is not to endorse Obama
(or Romney, for that matter,) but to show why planning ahead is so
effective.
Hurricane
Sandy
Another thing we learned last year:
Mother Nature still reigns supreme. That
fact was driven home when Hurricane Sandy hit.
The storm took over one hundred lives, and cost billions of dollars in
damage.3 The importance of
planning is evident here, too. While
thousands of people were left without power, those who planned ahead secured
generators for themselves to keep the lights and heat on. Actually, every
natural disaster highlights the need to plan ahead—from stocking up on food and first aid kids, to acquiring
flashlights, batteries, and reviewing your insurance needs.
Foreign
Affairs
The 21st century world is
an interconnected one, where events on one shore send ripples out to all the
others. The civil war in Syria has
stretched on for almost two years now, resulting in over 60,000 deaths and
fleeing refugees beyond count.
Meanwhile, the debate continues about how to contend with Iran and their
burgeoning nuclear program. But the
biggest international news story, at least here in the United States, was the
attack on the American diplomatic mission in Benghazi, Libya. On September 11, a large group of armed men
attacked the compound of the U.S. consulate.
When the attack ended, four Americans had died, including U.S.
Ambassador Chris Stevens.4
Yet it was not Stevens’ tragic death that most media coverage focused
on, but rather the response by the Obama administration. Initially describing the violence as a
spontaneous protest in response to an anti-Muslim film, officials later stated
that organized terrorists were behind the attack. This inconsistency has been the focus of much
criticism in the media and in Congress, especially by members of the Republican
Party.
Domestic
Affairs
Unfortunately, violence isn’t
limited to the Middle East. The July
shootings in Aurora, Colorado, and the December shootings in Newtown,
Connecticut, are two tragic examples of this.
While everyone has their own opinions as to the cause of these attacks,
and how to prevent them in the future, I think one lesson everyone can learn is
simply this: life is precious. That’s
something we all agree on. So never let a day go by without showing
kindness to other people. Never let a
day pass without telling your family and friends how much you love them. If there’s one thing we take from 2012, let
it be that.
Sports
and Science
Let’s move on to happier
memories. For instance, we’ll always
remember 2012 for the Summer Olympics in London. What do the Olympics have to do with
planning? Everything, actually. Think about the stunning opening ceremony,
all about synchronizing Britain’s past to music and dance. Talk about planning! Or, ask Michael Phelps, the most decorated
Olympic athlete of all time, how much planning and preparation figured into his
career. I’m sure renowned gymnasts Gabby
Douglas, McKayla Maroney, and others would say the same after they dazzled the
world with their skill and artistry.
There were also a number of notable
scientific achievements from the past year.
For example, in August NASA’s Curiosity rover landed on Mars. Considering that many attempts to reach the
Red Planet have failed, the simple fact that Curiosity landed at all is a
success. The rover is also equipped with
incredible new technology to help us learn more about our nearest
neighbor. Meanwhile, European scientists
possibly discovered a higgs particle in
July, which could answer numerous
questions about the nature of the universe.
And in September, scientists announced that warp travel—like you see in Star Trek—might even be possible
someday.5 I don’t know about
you, but I love news like this. Advances
in science show that the human race is still progressing, still developing, and
that there are still untold wonders to discover. It gives me hope for an exciting future. It also demonstrates how, by planning for a
goal, and then implementing the plan,
we can accomplish whatever we set our minds to.
Popular
Culture
Now it’s time for a brief glimpse at
two songs that topped charts in 2012: “Call Me Maybe” by Carly-Rae Jepsen, and
“Gangnam Style” by Psy.6 Let’s just say that no one could have planned for the latter.
Government
and the Economy
One of the biggest stories of 2012
was the Supreme Court’s surprise decision to pass the Affordable Care Act. Also known as Obamacare, this law drastically
remakes our national healthcare system.
The law impacts our finances, too, especially for investors. For one thing, a new 3.8% surtax on
investment income—like dividends and capital gains—goes into effect this year
for all individuals making over $200,000 a year ($250,000 for families).7,8 But the most controversial aspect of the new
law is the individual mandate, which requires most Americans to have or buy
health insurance. The mandate doesn’t
start until 2014, but when it does, those without insurance must pay a penalty
of $285 per family or 1% of their income, whichever is greater. The penalty increases to 2.5% by 2016.9
And then there was the dreaded
fiscal cliff. This was the combination
of automatic spending cuts and tax hikes set to hit at the end of the
year. Taken together, they likely would
have caused a second recession. It came
down to the last minute, but Congress passed a bill on New Year’s Day to avoid
the cliff and avert disaster, mostly by delaying the spending cuts and
canceling the tax hikes. A big relief,
for sure, but the question is, why did we allow ourselves to come so close in
the first place?
Simple: because Congress didn’t have
a plan.
Our leaders in Washington knew about
the fiscal cliff for the entire year.
They had to, because their own legislation created the cliff in the
first place. They knew about it in the
spring, and did nothing. They knew about
it in the summer, and did nothing. They
knew about it in the fall, and decided to wait until after the election before
doing anything. In other words, they
left it to the last minute. Congress could have avoided so much of the
controversy around the fiscal cliff if they had only planned ahead.
Planning
for 2013
It’s impossible to know exactly what
will happen in 2013. When you come right
down to it, that’s sort of the point of this letter. No one can see into the future. But what we can do is gauge what’s probable.
For instance, the fiscal cliff debate in Washington isn’t over, and our
economy isn’t yet out of the woods.
Congress will soon have a major fight over the debt-ceiling, and the
possibility of massive spending cuts still looms large. These two stories are likely to take up a lot
of air-time on the TV, and print-space in the newspapers. They will likely have an effect on the
markets, as well. Europe still has their
own ongoing debt crisis to deal with, and that will impact the markets,
too.
With all this in mind, that’s why
it’s so important to have a plan. As we
saw in 2012, those who plan come out ahead, and those who don’t get left
behind. Whether the plan is for your safety,
your finances, your goals, or all of them put together, determining what you
want, how to get it, and what stumbling blocks are in your way is
critical. The good news? We can help.
Here’s what I want to do I want you to call my office at 215-886-2122
and schedule a time for us to talk, whether on the phone or in person. Together, we can create a plan for 2013. We’ll review your existing financial goals,
or create new ones if necessary. We’ll
decide exactly what we need to do to accomplish those goals, and how to avoid
any road blocks along the way. Then
you’ll be prepared. You’ll be ready. And if you implement the plan, you’ll be
moving forward. So when 2013 ends, you can look back and
think, “This is one year I’ll definitely remember.”
Let’s do all we can to make 2013 the
best year it can be. Give me a
call.
Sources:
1 Rebecca Sinderbrand, “Analysis: Obama won with
a better ground game,” CNN, November
7, 2012. http://www.cnn.com/2012/11/07/politics/analysis-why-obama-won/index.html
2 Dr. Amy
Gershkoff, “Obama’s Media Planner Tells Us the 5 Most Important Ad Tactics From
the Presidential Campaign,” Business
Insider, November 12, 2012. http://www.businessinsider.com/5-lessons-from-obamas-ad-campaign-2012-11
3 “Superstorm
Sandy Deaths, Damage and Magnitude: What We Know One Month Later,” Associated Press, November 29,
2012. http://www.huffingtonpost.com/2012/11/29/superstorm-hurricane-sandy-deaths-2012_n_2209217.html
4 Larry
Margasak, “Timeline of Events, Comments Surrounding Benghazi,” Associated Press, October 19, 2012. http://bigstory.ap.org/article/timeline-events-comments-surrounding-benghazi
5 Clara
Moskowitz, “Warp Drive May Be More Feasible Than Thought, Scientists Say,” space.com, September 17, 2012. http://www.space.com/17628-warp-drive-possible-interstellar-spaceflight.html
6 Dino
Grandoni, “Gangnam Style Reaches 1 Billion Hits on YouTube,” The Huffington Post, December 21,
2012. http://www.huffingtonpost.com/2012/12/21/gangnam-style-1-billion-hits_n_2346358.html
7 “Affordable
Care Act Tax Provisions,” IRS, last
reviewed or updated December 28, 2012. http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions.
8 Larry Swedroe, “Healthcare Decision
Means Higher Tax on Dividends,” CBS News,
June 29, 2012. http://www.cbsnews.com/8301-505123_162-57463007/healthcare-decision-means-higher-tax-on-dividends/
9
Jeanne Sahadi, “How health insurance mandate will work,” CNN, June 29, 2012. http://money.cnn.com/2012/06/29/pf/taxes/health_insurance_mandate/index.htm
Regards,
,
Michael L. Schwartz, RFC®, CWS®, CFS
P.S. Please feel
free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list,
please reply to this email with their email address and we will ask for their
permission to be added.
Michael
L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied
Securities, Inc., A Registered Broker/Dealer, Member FINRA-SIPC. Advisory Services offered through First
Allied Advisory Services, A Registered Investment Advisor.
Schwartz Financial
Service is not an affiliate of First Allied Securities, Inc.
This
information is provided for informational purposes only and is not a
solicitation or recommendation that any particular investor should purchase or
sell any security. The information contained herein is obtained from sources
believed to be reliable but its accuracy or completeness is not
guaranteed. Any opinions expressed
herein are subject to change without notice.
An Index is a composite of securities that provides a performance
benchmark. Returns are presented for
illustrative purposes only and are not intended to project the performance of
any specific investment. Indexes are
unmanaged, do not incur management fees, costs and expenses and cannot be
invested in directly. Past
performance is not a guarantee of
future results.
* The Standard &
Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The DJ Global ex US
is an unmanaged group of non-U.S. securities designed to reflect the
performance of the global equity securities that have readily available prices.
* The 10-year Treasury
Note represents debt owed by the United States Treasury to the public. Since
the U.S. Government is seen as a risk-free borrower, investors use the 10-year
Treasury Note as a benchmark for the long-term bond market.
* Gold represents the
London afternoon gold price fix as reported by the London Bullion Market
Association.
* The DJ Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All
REIT TR Index measures the total return performance of the equity subcategory
of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed
are subject to change without notice and are not intended as investment advice
or to predict future performance.
* Past performance does
not guarantee future results.
* You cannot invest
directly in an index.
* Consult your
financial professional before making any investment decision.
* To unsubscribe from
our “market commentary” please reply to this
e-mail with “Unsubscribe” in the
subject line, or write us at “mike@schwartzfinancial.com”.
