Mike's Market Commentary: Schwartz Financial Weekly Commentary 2/4/13

The Markets

“The future’s so bright, I gotta wear shades.”

For the last several weeks investors have appeared to agree with the sentiment expressed in the 1980s song by Timbuk3. A high degree of investor optimism has helped push markets higher.[i] The trend continued last week as the National Association of Active Investment Managers’ weekly survey found that professional investors are as bullish as they have been since the survey began six years ago.[ii] That may be part of the reason that the Dow Jones Industrial Index moved to within one percent of its all-time high during Friday’s rally.[iii]

With markets hitting new highs, investors have to ask: Are stocks fully valued in general? According to noted economist Robert Shiller, stocks are somewhat pricey relative to earnings, but not as expensive as they have been in the past.[iv] The Standard & Poor's 500 Index recently traded at about 13 times expected earnings for 2013. It traded at 15.2 times expected earnings in October of 2007 and at 25.6 times in March of 2000.[v] Forecasted or expected earnings reflect analysts’ estimates of companies’ earnings going forward. They are projections that help analysts evaluate companies’ potential and not facts.[vi]

While contrarians – individuals who invest against prevailing market trends[vii] – may argue that all of this optimism means it’s a good time to bet against equity markets, historically strong performance during January often has been followed by strong annual performance. There have been notable exceptions, of course, including 1987 and 1997.²

Data as of 2/1/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.7%	6.1%	14.3%	11.6%	1.6%	5.8%
10-year Treasury Note (Yield Only)	2.01	N/A	1.9	3.7	3.6	4.0
Gold (per ounce)	0.5	-1.5	-4.1	15.4	12.8	16.3
DJ-UBS Commodity Index	1.2	2.4	-1.3	2.4	-5.6	1.9
DJ Equity All REIT TR Index	-0.7	4.2	16.1	21.0	5.9	12.6

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.

The unflattering names for victims of elder financial abuse – freeloader’s friend, human ATM, pushover partner – may go a long way toward explaining why the crime often goes unreported. The Administration on Aging (AoA) suggests that for every documented case of elder abuse, up to five cases may go unreported.[viii]

Elder financial abuse occurs when someone – a stranger, a family member, a trusted professional, or someone else – illegally takes or uses the assets or property of an older individual or accepts payment for goods and services that are never delivered.[ix] Despite underreporting, the cost to Americans over the age of 60 is enormous. A 2011 study of elder abuse estimated that the annual financial loss suffered by victims was almost $3 billion.[x]

In an effort to focus attention on the problem, the AoA declared 2013 the Year of Elder Abuse Prevention (YEAP). The organization has developed materials and resources to raise awareness about and protect against elder abuse.[xi] Here are a few of their suggestions:

· Call or visit elderly relatives, friends, and neighbors regularly.

· Offer to fill in for a caregiver for a few hours or days.

· Engage older acquaintances by asking them to share their talents and skills.

· Ask faith leaders to discuss the issue of elder abuse with their congregation.

· Ask the local bank manager to teach tellers the signs of elder financial abuse.

· Suggest to the local paper, radio, or TV station that it cover World Elder Abuse Awareness Day or YEAP.

Source: Administration on Aging Fact Sheet⁸

Educating older people about telephone and computer scams may be a wise idea since fraud can be a significant way in which elders are parted from their money.¹⁰ To learn more about YEAP and protecting elders from abuse of all types, visit the AoA web site at www.aoa.gov.

Weekly Focus – Think About It

“The future belongs to those who believe in the beauty of their dreams.”

—Eleanor Roosevelt. First Lady[xii]

Value vs. Growth Investing (1/25/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	0.69	6.48	6.48	7.23	16.75	14.50	4.52
Large Cap	0.73	5.97	5.97	6.09	16.83	13.54	3.72
Large Core	0.78	7.25	7.25	7.89	19.21	14.39	5.16
Large Growth	0.57	4.13	4.13	4.66	14.85	13.92	5.24
Large Value	0.86	6.75	6.75	5.89	16.97	12.40	0.56
Mid Cap	0.62	7.95	7.95	10.43	16.84	16.87	6.14
Mid Core	0.56	7.49	7.49	9.90	16.81	18.69	7.77
Mid Growth	0.19	7.71	7.71	10.15	14.29	16.94	5.01
Mid Value	1.14	8.65	8.65	11.23	19.53	14.91	5.44
Small Cap	0.46	7.58	7.58	10.35	15.42	16.90	7.45
Small Core	0.26	7.18	7.18	10.45	14.93	15.71	6.99
Small Growth	0.31	7.19	7.19	9.91	12.81	18.12	6.72
Small Value	0.83	8.38	8.38	10.69	18.59	16.88	8.56
US Core	0.69	7.29	7.29	8.47	18.51	15.45	5.93
US Growth	0.48	5.03	5.03	6.06	14.53	14.90	5.35
US Value	0.92	7.24	7.24	7.27	17.57	13.21	2.09

©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:

Navigating NEW Health Care Taxes

What is considered investment income?

The new health care laws will implement a 3.8% surtax on net investment income starting in 2013.

Below is a list of what is and is not considered investment income.

Investment Income: Interest, dividends, capital gains (long and short), annuities (not those in IRAs or company plans), royalty income, passive rental income, other passive activity income

NOT Investment Income: Wages and self-employment income, active trade or business income, distributions from IRAs, Roth IRAs and company plans, excluded gain from sale of a principal residence, municipal bond interest, proceeds of life insurance policies, veterans’ benefits, Social Security benefits, gains on the sale of an active interest in a partnership or S corporation

Identify the surtax income thresholds. The first step is to know the MAGI (modified

adjusted gross income) thresholds to avoid the 3.8% surtax on net investment income.

They are as follows: Married Filing Jointly ($250,000); Individuals ($200,000); Married Filing Separately ($125,000); Trusts and Estates (approximately $12,000).

Trusts and estates are hit particularly hard with the surtax kicking in at a much lower income level.

Look at TAXABLE income. Taxable income from all sources can push taxpayers over the

MAGI threshold and cause their investment income to be subject to the 3.8% surtax. Income tax-free Roth distributions will NOT affect MAGI.

Understand how much will be taxed. The 3.8% surtax is imposed on the lesser of (1) net

investment income or (2) the amount of MAGI over the certain income threshold.

Taxpayers with income below those MAGI levels will NOT be subject to this tax.

Know other health care tax provisions coming in 2013. The 3.8% surtax gets the

attention, but there is also an additional 0.9% Medicare tax on wages and self-employment income over the MAGI thresholds. Also, medical expenses must exceed 10% of AGI (up from 7.5%) to be deductible (if age 65 or older, effective in 2017). That 10% also applies to the medical expense exception to the 10% penalty on early IRA or plan withdrawals.

You need to know that while IRA and plan distributions are exempt from the surtax, taxable distributions from these accounts can push income over the MAGI thresholds. 2012 Roth conversions are valuable as a vehicle to eliminate future taxable income and for taxpayers with a discretionary trust as their IRA beneficiary who are staring at harsh trust tax rates. Note, salary deferrals [401(k)s for example] can reduce MAGI for the 3.8% surtax but NOT for the 0.9% additional Medicare tax.

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.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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”.