Schwartz Financial Weekly Commentary (2/25/13)

 

The Markets

Like Canadian geese migrating in anticipation of winter, stock markets moved south last week in anticipation of monetary tightening. Minutes from the January Federal Reserve Open Market Committee meeting were released mid-week. After reviewing them, many analysts decided that quantitative easing may begin to taper off before the end of the year. Not everyone agreed with this interpretation; however, it caused major U.S. stock markets, as well as some Asian and European stock markets, to dip lower. Many markets recovered ground before Friday, but in the U.S., only the Dow Jones Industrial Index finished the week with a gain.

 

Interestingly, expectations that the Fed’s quantitative easing program may end relatively soon had little effect on Treasury bond markets. This seems counterintuitive because an end to quantitative easing (the Fed’s program of buying Treasuries to create liquidity and encourage economic improvement) could potentially lower demand for these securities and cause Treasury yields to move higher. Instead, yields moved lower last week. Experts suggested that bond investors’ apparent lack of concern may be rooted in the belief that the Federal Reserve will not ease interest rates even if it changes its policy on quantitative easing. In previous statements, the Fed has said it will not modify interest rates until unemployment rates and inflation reach specific targets.

 

Last week, The Conference Board announced that its Leading Economic Index® (LEI) for the U.S. showed America’s economy gaining some momentum. The LEI tracks 10 leading economic indicators to gauge short-term economic outlooks. The Conference Board’s LEI for China also signaled improvement. While this may prove to be good news, the impact of sequester – $85 billion in automatic spending cuts that are scheduled to begin in early March – on America’s economic growth remains unknown and highly debated.

 

Data as of 2/22/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-0.3%	6.3%	11.6%	11.0%	2.3%	6.2%
10-year Treasury Note (Yield Only)	2.0	N/A	2.0	3.8	3.8	3.8
Gold (per ounce)	-2.2	-6.9	-10.0	12.2	10.8	16.1
DJ-UBS Commodity Index	-1.8	-1.7	-7.8	0.6	-8.0	0.9
DJ Equity All REIT TR Index	0.1	5.1	17.9	20.2	7.5	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.

 

It’s important to look at more than tuition and fees when planning for college. That’s because tuition and fees account for just about 39 percent of the total budget for students who live on campus at public four-year state colleges and universities. Tuition and fees are about 20 percent of the budget for students who live off campus at public two-year state colleges and universities.

 

If that’s an unwelcome surprise, you won’t be thrilled to learn that during the 2012-2013 school year the average college budget for a student who lived on campus and attended an in-state, four-year public institution and was more than $22,000. That budget included:

 

·         Tuition and fees

·         Room and board

·         Books and supplies

·         Transportation

·         Other expenses

 

On average, the same items for a student who commuted to a two-year, in-state public college ran about $15,500. At a private non-profit, four-year college or university the average budget was more than $43,000.

 

Making college possible

So, how do students and their families afford college? The good news is that financial aid is available for many. Total financial aid for full-time students was more than $14,000 on average during the 2011-2012 academic year (the most recent data available). In addition, according to the College Board, undergraduate students received financial assistance from a variety of sources:

 

·         39 percent received federal loans and work/study

·         26 percent received Pell and other federal grant programs

·         18 percent received institutional grants

·         9 percent received federal education tax credits and deductions

·         5 percent received state grants

·         4 percent received private or employer grants

 

Is it worth it?

Scrimping and saving to pay for college often has a significant pay off. The median income for a person with a bachelor’s degree who worked full-time, year-round in 2008 was almost $56,000. That’s about $22,000 more than the median income for a high school graduate. In addition, the unemployment rate for college graduates was significantly lower than that of high school graduates during 2008 (the most recent data available).

 

Weekly Focus – Think About It

 

“Education is the ability to listen to almost anything without losing your temper or your self-confidence.”

--Robert Frost, poet

Value vs. Growth Investing (2/22/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-0.36	6.83	1.81	10.19	14.13	13.81	5.21
Large Cap	-0.12	6.31	1.69	9.06	14.07	13.07	4.37
Large Core	0.08	8.11	2.86	10.92	17.92	13.87	5.73
Large Growth	-0.45	4.08	0.49	5.79	10.00	13.10	5.74
Large Value	0.05	7.05	1.89	10.85	14.73	12.33	1.48
Mid Cap	-0.99	8.16	2.05	12.89	14.16	15.59	6.77
Mid Core	-1.11	8.28	2.12	12.69	15.24	17.52	8.18
Mid Growth	-1.00	6.95	1.85	10.96	9.77	15.26	5.43
Mid Value	-0.85	9.28	2.19	15.09	17.64	13.91	6.55
Small Cap	-1.01	8.43	2.28	14.58	14.50	15.72	8.70
Small Core	-0.93	8.17	2.40	14.39	13.18	14.58	8.00
Small Growth	-0.97	7.58	1.68	13.47	12.05	16.98	8.09
Small Value	-1.12	9.52	2.70	15.82	18.45	15.63	9.92
US Core	-0.26	8.15	2.67	11.52	17.13	14.75	6.51
US Growth	-0.59	4.87	0.83	7.28	10.04	13.88	5.88
US Value	-0.22	7.66	2.01	12.03	15.54	12.88	3.07

©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 Ongoing Philanthropist—

Are You Prepared to Leave a Legacy?

You box toys and shoes for disadvantaged children, collect canned goods and donate to your favorite charity every year, but have you considered leaving a permanent legacy to help support your cause?

Bequeathing money to a charity in your will is one of the best ways to act as a philanthropist through your lifetime and beyond.  Many charities rely on legacies to run their programs.  Some receive as much as 40 percent of their income from bequests.  There are many ways to leave a bequest to the charity or charities of your choice.  For example, you can donate all or part of your retirement plan, IRA, 401(k), life insurance plan, stock portfolio, or estate.

You can even ask a charity to put your money towards a specific cause or program.  For instance, those bequeathing funds to Running Strong for American Indian Youth, a nonprofit organization that helps American Indians meet their immediate survival needs and promotes self-sufficiency and self-esteem, can ask that their money support Running Strong’s community garden program or youth programs.

If you do not specify how you want your money to be used, the charity will most likely add the money to their endowment, where it can be used to support any number of worthy causes.

Many charities offer legacy programs to help potential benefactors give. Americans Helping Americans, a nonprofit that helps improve the lives of impoverished people living in Appalachia, created its Americans Helping Americans Legacy Society to recognize those who wish to include the charity in their will.

More than 80 percent of Americans give to charities.  But, a 2007 survey conducted by Indiana University’s Center on Philanthropy found that only 8 percent of all Americans include legacies in their wills.  Considering our rocky economy, that percentage has surely dropped.

Many Americans worry that by leaving a charitable bequest, they may put their heirs at a disadvantage.  But leaving a legacy in your will could reduce the estate taxes that your other beneficiaries need to pay.  Gifts given to Running Strong and Americans Helping Americans, for example, are free of federal estate taxes, as well as inheritance taxes in most states.

Charities are a wonderful way to give back to our community.  All of us want to make a difference in the world, and do something people will remember us by.  I can think of few better or easier ways than through bequeathing a legacy through your will.  If you’d like more information about how to leave a permanent legacy through charities, give me a call at 215-886-2122.

 

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.

 

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