Are You on the Hook for your Parents Nursing-Home Bill? In Pa you just might be

If you are a PA resident and have older parents, you can be held responsible for their unpaid Long Term Care costs. 
Please call my office at 215-886-2122 to discuss ways to avoid these costs.

http://online.wsj.com/article/SB10001424052702303506404577446410116857508.html?KEYWORDS=kelly+greene

Congressional Compromise Increases Costs To Some Student Loans

http://www.washingtonpost.com/business/economy/some-student-loans-to-become-more-expensive-despite-deal/2012/06/27/gJQAltw46V_story.html

"Same Problems From The Same World"

June’s been a rather crazy month, hasn’t it?

Well, it has for me anyway.  Hopefully you’ve been enjoying the warm weather, soaking up some sun, and spending time outside.  But for those of us tasked with keeping track of the markets, June has been a crazy month, indeed.  In fact, even my most outdoorsy clients are noticing.  A lot of people have asked me: “What’s up with the markets—why all the volatility lately?  What’s going on in Europe?  Should I be worried?” 

Well, wonder no further.  By the time we get to the end of this letter, you’ll be up-to-date.

Market Volatility

Let’s start with the main subject on every investor’s mind.  The most recent burst of volatility started in May with the S&P 500^® falling 127 points from May 1^st to June 1^st, while the Dow^® dropped over 1,000 points in the same period.  Since then, the Dow has risen over 600 points higher, and the S&P over 60, but we’re still nowhere near the highs we saw a few months ago.  And in the past month alone, we’ve seen our share of individual peaks and valleys.

So that’s what happened.  Now, here are some of the reasons why.

Same Old Problems from the Same Old World

Two of the major players in this game of economic roulette are countries that once ruled the western world: Greece and Spain.  Greece has been mired in debt for years, and has enjoyed (or suffered, depending on your point of view) several massive bailouts, courtesy of its larger European Union brethren.  To put it simply, the longer Greece is a burden on the rest of the continent, the longer there will be unease about investing in Europe as a whole.  That’s because if Greece’s economy fails, other countries could fail, too.  Remember, the EU is primarily an economic union.  Not only do most of its members share the same currency, but also the same regulations and obligations.  If Greece’s economy were to fail, it would not be able to meet obligations to its neighbors, thus making it harder for those countries to pay their debts.  The EU’s response has been in the form of bailouts and austerity measures.  Whether you agree with these things or not, the EU has clearly decided to implement short-term fixes to keep the worst from happening.

On top of this Greek tragedy has been a new Greek drama—their national election.  After the most recent austerity measures in February, the population voted to elect a new government.  Two parties vied for control—the New Democracy Party and Syriza.  It was the latter that has been giving the markets an ulcer.  If Syriza had won the election, they would have ended the austerity measures, left the European Union, and dropped the Euro in favor of their old currency.  Most importantly, it would have meant Greece defaulted on its loans.  We’ve already covered what would happen then.

But on Sunday, June 17^th, 2012 the news broke that the New Democracy Party won.¹  They didn’t win by a wide enough margin to govern Greece entirely, meaning they’ll have to form a coalition with their rivals, but at least it means Greece will be staying in the EU for now.  The news caused a brief rally in the markets, but it remains to be seen if that rally will continue.  At the very least, Greece can take comfort in the fact that their national soccer team reached the quarterfinals of the European Championships.²  No doubt that will solve everything.³

Spain Replaces Running of the Bulls with Running of the Bears

So the forecast for Greece right now is partly cloudy with a chance of rain.  That seems downright sunny when you compare it to Spain, who has been undergoing a debt crisis of their own.  In short, Spain has asked the EU for a €100 billion bailout⁴, mainly to help recapitalize their failing banks.  But Spain is also in a recession with nearly 25% unemployment.  And earlier this month, their credit rating was downgraded to the brink of junk status.⁵  Once you put all that together, it’s easy to see why even Rafael Nadal’s triumph at the French Open⁶ isn’t enough to generate optimism.

But the big problem with Spain is the bailout they’ve requested.  For some, the idea of loaning one-hundred billion of anything is absurd.  For others, the number isn’t nearly high enough—the most pessimistic analysts think it barely a band-aid.  Spain’s government (in addition to their banks) needs their own bailout, and the two together could top over 300 billion.  Regardless, it all means that Spain is becoming an even bigger drag on the European economy than Greece.  The most frightening fact of all, the EU’s total remaining bailout fund is €557 billion.⁷  That would be obliterated if Spain were to get all the money it needs. 

Meanwhile, Back in the Colonies …

So now you know what’s happening on the other side of the pond.  We even found the room to slip in some sports.  But why is it affecting us?

Before I answer that, remember these two facts:

·         Money knows no barriers.

·         Speculation drives the markets.

We live in a global economy.  While countries might separate themselves with boundaries, walls, languages, and currencies, money is allowed everywhere.  We invest in other countries, buy products in other countries, loan money to other countries (or apply for loans, as the case may be), and even send our businesses to other countries.  Even the pond I mentioned isn’t enough to keep us apart.  The ripples at one shore are always felt near the other.

Or at least, we believe they are.

Look at the second fact again.  Speculation drives the markets.  The volatility we see can be traced back to one simple phenomenon.  Much of the time, we make decisions based on what we think might happen, not on what actually has happened.  It’s true that if Greece defaults, or if Spain sucks the EU dry, then all their neighbors will genuinely be affected.  And we would be affected as well, if indirectly, and for many of the same reasons.  But none of that has happened yet.  Greece hasn’t defaulted, and Spain hasn’t yet sunk.  It’s our fear that plays a large part in making the markets drop.  We speculate, and then buy or sell as appropriate.

So that’s the big reason for the market volatility.  Europe is in trouble, and it’s stressing us all out.  Now, that’s not to say big things aren’t happening over here, too.  Here’s what’s going on in our country, at least as far as the markets are concerned:

·         Optimistic speculation abounds that the Federal Reserve will soon provide more stimulus to the economy, possibly by buying up more bonds.⁸

·         In May, home builders filed for the greatest number of building permits since 2008, far above predictions.  That could mean an uptick in the housing market, which has remained gloomy.⁹ 

·         May also brought us an extremely disappointing jobs report, with unemployment rising slightly to 8.2%.  It was the first rise in a year.¹⁰

·         Congress continues to squabble, meaning that another fight over raising the debt ceiling looms.  If Congress can’t agree to act in some fashion, tax increases and spending cuts will be automatically triggered at the first of next year.¹¹

·         The biggest hamper on optimistic speculation is uncertainty, and there’s never more uncertainty than during an election year.  Economists, speculators, and most of all, politicians, are all waiting to see who our next president will be before making too many decisions.  They’re uncertain, and uncertainty might be the biggest weight on the markets of all.

So there you have it, I know it’s a lot of information to digest, but I’ve always felt that part of my job as your advisor is to make sure you’re informed.  Personally, I don’t think there’s too much cause for concern.  As I alluded to above, these are old problems that we’ve known about for some time.  While the European debt crisis is certainly important, it doesn’t mean that the goings-on in Greece will have an immediate effect on you.  As long as we pay attention and don’t allow ourselves to react emotionally, we’ll be able to continue on the road toward your financial goals.

It would be impossible for me to say what’s going to happen next, but I’ll tell you this: at the very least, you can always be sure that my team and I are staying up-to-date.  If something ever happens that could affect your personal economy, you’ll be the first to know.  So go and enjoy your summer.  Have some fun with the people you like best.  And remember that we’ll always be here to hold down the fort.

If you have any questions about Europe, the markets, or anything else, please give us a call at 215-886-2122.  We’d love to hear from you.

Sources:

¹ http://tinyurl.com/6wrbuu6   ² http://tinyurl.com/cm9g84n   ³ http://tinyurl.com/38bdq       ⁴ http://tinyurl.com/6ugjfbd    

⁵ http://tinyurl.com/847zv46     ⁶ http://tinyurl.com/7gwzu25     ⁷ http://tinyurl.com/6ugjfbd                     ⁸ http://tinyurl.com/7knao64   

⁹ http://tinyurl.com/79vjqt5        ¹⁰ http://tinyurl.com/7lqmgvj     ¹¹ http://tinyurl.com/6tzkyeu

Major IRA Article in The Wall Street Journal - "IRA Rules Get Trickier"

"Uncle Sam is about to get a lot tougher on individual retirement account mistakes—and that could trip up investors who aren't careful."
This article highlights costly IRA mistakes and cites statistics from the Treasury Inspector General for Tax Administration (TIGTA) report on the hundreds of millions of dollars IRS is losing by not collecting penalties for IRA errors, such as missed required minimum distributions (the 50% penalty) and excess contributions (the 6% penalty).

IRS WILL start cracking down on this possibly beginning later this year.

http://online.wsj.com/article/SB10001424052702304441404577480690440266320.html?mod=ITP_businessandfinance_5
IRA rules are complicated and require specialized expertise. Is your advisor up to the task? Probably not.

Schwartz Financial Weekly Commentary 6/25/12

The Markets

While nobody knows what the future holds, one powerful person came pretty close to accurately predicting the problems Europe is having with the euro – a full 17 years before the current crisis began in 2010.

Former British Prime Minister Margaret Thatcher strongly resisted having Britain join the single currency and, instead, pushed the country to keep the pound sterling. Her view prevailed.

Today, the controversial Lady Thatcher is retired from public view, but her take on the common currency of Europe has proved uncannily accurate.

Paraphrasing her 1993 autobiography, a November 18, 2010 article in the Daily Telegraph said Thatcher argued, “The single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would ‘devastate their inefficient economies.’”

True to Thatcher’s prediction, the euro zone is suffering from the imbalances caused by a currency shared by countries with dramatically different economic, political, and cultural norms.      

We monitor the euro zone problems because, in our global society, a breakdown in Europe could spread to the rest of the world. And, once again, euro zone leaders are meeting this week to try and solve their structural problems. But, consider this. In the U.S. we have one country and two major parties. In Europe, 17 countries share the euro and each of those countries have multiple major parties. Knowing how hard it is for Democrats and Republicans to agree, imagine how hard it is to get 17 countries and their respective parties to agree on anything!

Given this difficulty, it’s not surprising that the euro crisis has dragged on and on and on. Eventually, though, Europe will have to make some tough decisions – or the market may do it for them.

Data as of 6/22/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-0.6%	6.2%	5.3%	14.3%	-2.3%	3.0%
DJ Global ex US (Foreign Stocks)	0.0	-1.5	-17.6	4.6	-7.4	4.8
10-year Treasury Note (Yield Only)	1.7	N/A	3.0	3.7	5.1	4.8
Gold (per ounce)	-3.8	-0.6	0.8	19.4	19.1	17.0
DJ-UBS Commodity Index	-0.4	-8.8	-19.6	2.0	-5.6	2.6
DJ Equity All REIT TR Index	-0.5	10.3	8.7	32.9	1.6	10.0

Notes: S&P 500, DJ Global ex US, 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.

VOLATILE MARKETS HAVE EXPOSED ONE FLAW in the traditional thinking about how to determine an investor’s “risk tolerance.” Traditionally, risk tolerance was thought of in terms of a spectrum moving from very conservative at one end to very aggressive at the other. And, risk was defined as how much of a loss an investor could stomach. That makes sense, but it’s only one part of the risk tolerance story.

Investors essentially have two types of risk tolerance:

(1)Financial risk tolerance – which is an investor’s financial ability to withstand a decline in their portfolio.

(2)Emotional risk tolerance – which is an investor’s emotional ability to withstand a decline in their portfolio.

Source: The Charles Schwab Corporation

Now, here’s the key – there could be a very large gap between these two levels. For example, some investors may be able to financially withstand a 30 percent decline in their portfolio without it negatively impacting their ability to meet their long-term goals and objectives. However, some of those same investors may be able to withstand only a 20 percent decline in their portfolio from an emotional standpoint.

The emotional risk tolerance level is effectively your “sleep” level. It’s the level where if your portfolio went down any further, it would affect your ability to sleep soundly at night.

But, there’s more…

We also have one other factor to consider here and that’s your time horizon. If you are 10 years away from needing to tap your investment portfolio, then a decline in your portfolio today should not be a cause for alarm. Why? Because you have 10 years to recoup the decline. Remember, today’s stock market prices are only relevant to those who are selling today.

As your advisor, it’s important for us to know your financial risk tolerance level and your emotional risk tolerance level. With this knowledge, we do our best to manage your portfolio in such a way that we won’t breech either of those levels. After all, we appreciate a good night’s sleep, too!

Weekly Focus – How to Sleep Better…

Are you one of the lucky 42 percent of Americans who consider themselves “great sleepers?” If not, try these tips from the National Sleep Foundation:

·         Set and stick to a sleep schedule by going to bed and waking up at the same times each day.

·         Exercise regularly, but do it in the morning or afternoon.

·         Establish a relaxing bedtime routine such as reading a book or listening to soothing music.

·         When you go to sleep, make sure your room is dark, quiet, and cool.

·         Avoid caffeinated beverages, chocolate, tobacco, or large meals right before bedtime.

Value vs. Growth Investing (6/22/12)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-0.47	7.01	1.27	-4.10	4.81	17.29	0.21
Large Cap	-0.57	7.72	1.69	-3.26	7.35	16.03	-0.03
Large Core	-0.11	8.28	2.25	-2.50	8.51	16.28	1.52
Large Growth	-0.43	11.22	0.75	-4.58	12.41	17.79	2.13
Large Value	-1.17	4.00	2.03	-2.78	1.21	14.02	-3.96
Mid Cap	-0.35	5.06	-0.20	-6.68	-1.86	20.44	0.37
Mid Core	-0.62	5.85	-0.30	-5.80	1.83	22.54	1.24
Mid Growth	-0.01	6.02	-0.57	-7.32	-3.92	19.88	1.09
Mid Value	-0.47	3.29	0.22	-7.03	-3.63	18.74	-1.54
Small Cap	0.25	4.97	1.00	-5.60	-2.03	20.47	1.27
Small Core	-0.08	4.39	0.21	-6.57	-5.33	19.09	-0.22
Small Growth	0.54	5.30	1.29	-5.28	-1.11	18.99	1.91
Small Value	0.28	5.23	1.54	-4.91	0.69	23.46	1.86
US Core	-0.20	7.56	1.63	-3.40	6.28	17.83	1.51
US Growth	-0.29	9.74	0.52	-5.18	7.97	18.40	1.96
US Value	-0.93	3.95	1.63	-3.81	0.15	15.60	-3.04

©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:

The “Rule of 72”How to Quickly Estimate Whether You Will Run Out of Money Before You Die

by

Wendell Cayton
Wendell Cayton is a financial columnist. He is also a Registered Investment Advisor. This article is reproduced with his kind permission.

Einstein is reputed to have said, “The most powerful force in the universe is that of compound interest.” I choose not to argue the veracity of the quote, but rather use it as a springboard to discuss a most important finance principle.

Better known as the Rule of 72, the power of compounding allows us to determine how long it will take a sum of money, invested at a certain interest rate, to double in size.

The history behind this principal dates to early references in the SUMMA DE ARITHMETICA written by Luca Pacioli in 1494. He postulated that if you divide interest into 72, the result is the number of years it will take for the principal sum to double.¹

This rule can also be used to estimate the interest rate involved in the change in value of an investment.

Here are a couple of examples. Let’s say I am planning my retirement and am concerned about inflation. How long before my cost of living is twice what it is today? If I assume an inflation of 3% then 72 divided by 3 equals 24 … or at 3% my cost of living will double in 24 years or 36 years at 2 percent!

Forty years ago, a U.S. postage stamp cost 8 cents. Today it costs 44 cents. It has doubled in price between 2 and 3 times. (8x2x2 = 32 and 8x2x2x2 = 64). Using the Rule of 72 we can estimate that the price of a stamp has increased between 3.6% and 5.41% by dividing 40 years by the number of times doubled (2 or 3), then dividing that figure into 72. (40/2 =20, 72/20 = 3.6%).

In 1971 gasoline was $.40 a gallon according to Dept. of Commerce figures. If a gallon of gas is selling for $3.20 today, again, using the Rule of 72, we can estimate the inflation by counting the number of times it has doubled, three times to be exact. Divide 40 years by 3 = 13.33, and then divide 72 by 13.33 = 5.6%)

Let’s say your daughter or granddaughter is 18. What has happened to the Dow Jones^® Industrial Average during those 18 years? Using prices at that time, you can determine the Dow had increased 6.52%, compounded annually. This implies a doubling every 11+ years.

According to data from “ANNUITY 2000 MORTALITY TABLE: SOCIETY OF ACTUARIES”² a male age 65 has a 50% chance of living to age 92, females to age 94 or a couple age 65 has a 50% chance of one being alive at age 97!

Statistically, we can assume that one half of this population will live shorter and one half will live longer than those figures. Given the natural inclination of Baby Boomers to want to live forever, we can see why it is important that investments be plentiful and growth bountiful in order to ensure that Baby Boomers do not outlive their money.

Applying our understanding of compounding, at a 3% inflation rate, our cost of living will be double 24 years from now. But, by keeping a long term investment horizon and using the Dow Jones Industrial Average for a proxy, our investments would be adequate to keep pace with inflation, assuming the 6.52% of the past 18 years holds true for the next 18. Naturally, past performance does not guarantee anything at all about the future.

There are two key things to remember from the above discussion: first, inflation has and will continue at some rate for the rest of our lives, and second, to ensure that we will not outlive our money, we need to have something in our portfolio that, over time, will out grow inflation!

References:

¹ http://en.wikipedia.org/wiki/Rule_of_72

² Society of Actuaries – www.soa.org

Best 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”