Schwartz
Financial Weekly Commentary
May 26,
2014
The Markets
Alongside the
irises, daffodils, tulips, and other perennials that were popping up (in
seasonal parts of the United States) last week, there was a lot of talk about
the housing market and what its performance means about the state of the
economy. Perceptions varied.
The U.S. housing market
has showed improvement in recent years; however, sales slowed during 2013 as
interest rates and home prices moved higher. Last week’s housing data showed
sales of existing homes were up 1.3 percent for April which was lower than
expected, but sales of new single-family homes were up more than expected. In
addition, the S&P/Case-Shiller 20-City Composite Home Price Index showed February
housing prices had reached levels last seen in 2004.
According to MarketWatch.com, some big-name investors
are worried about the housing market’s recovery because younger investors are
not inclined to take on mortgage debt. Others suggest homeownership may drop
because people are marrying later. Balancing the naysayers are pundits who
believe demand for housing will continue to strengthen. Finally, the minutes of
the Federal Open Market Committee, which were released last week, showed the
Fed recognized recovery in the housing sector remained slow, but expects
economic activity to expand at a moderate pace:
“Most participants
commented on the continuing weakness in housing activity. They saw a range of
factors affecting the housing market including higher home prices, construction
bottlenecks stemming from a scarcity of labor and harsh winter weather, input
cost pressures, or a shortage in the supply of available lots. Views varied
regarding the outlook for the multifamily sector, with the large increase in
multifamily units coming to market potentially putting downward pressure on
prices and rents, but the demand for this type of housing [is] expected to rise
as the population ages. A couple of participants noted mortgage credit
availability remained constrained and lending standards were tight compared
with historical norms, especially for purchase mortgages.”
What are we to make
of the conflicting opinions? The housing market is considered to be a leading
economic indicator. This means it tends to change direction before the economy changes
direction and offers some indication about where the economy may be headed. (It
should be noted housing data generally is several months old before it is
reported.) Housing is not the only leading indicator. The Conference Board tracks an index of leading economic
indicators. For April, its Leading Economic Index® showed improvement for a
third consecutive month. It’s a reminder of how important it is to pay
attention to the big picture.
Data as of
5/23/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard
& Poor's 500 (Domestic Stocks)
|
1.2%
|
2.8%
|
15.2%
|
13.0%
|
16.5%
|
5.7%
|
10-year
Treasury Note (Yield Only)
|
2.5
|
NA
|
2.0
|
3.1
|
3.5
|
4.7
|
Gold
(per ounce)
|
-
|
7.5
|
-6.5
|
-5.1
|
6.5
|
12.9
|
DJ-UBS
Commodity Index
|
0.4
|
7.9
|
2.4
|
-5.5
|
2.3
|
-1.1
|
DJ Equity
All REIT TR Index
|
-0.6
|
14.2
|
2.5
|
11.5
|
23.7
|
10.3
|
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 newest european import is the chip and pin card. Discussions about
credit and debit card security were heating up even before retailers
experienced data breaches last winter. Needless to say, after the breaches and a
wealth of media reports touting the fact that Europe, Canada, and most of the
rest of the world already have more secure payment systems than the one we use
in the United States, interest in replacing our current system increased.
Eighty
countries around the world are currently implementing Europay, MasterCard and
Visa, or EMV™ technology. In some places, EMV compliance is further along than
it is in others. For instance, about 95 percent of point-of-sale credit card
machines (aka terminals) in Europe are EMV compliant; 79 percent of terminals
in Canada, Latin America, and the Caribbean; 77 percent of terminals in Africa
and the Middle East; and 51 percent of terminals in the Asia Pacific region.
Why
is a card with a chip and pin better than a card with a magnetic stripe and a
signature? One of the primary reasons, according to Forbes, is improved security:
“Most credit cards in the United States
operate with a simple magnetic stripe that can be captured and copied
relatively easily. Much of the rest of the world uses a small chip on the
credit card to validate with a transaction. The chip employs cryptography and a
range of other security features and measures that create a multi-layered
defense against card fraud. When combined with a Personal Identification Number
or PIN code (the sort used on ATM cards), it substantially raises security.
Even with just a signature it makes a marked improvement over a simple magnetic
stripe.”
The United States, until recently, was the
last major market holdout. However, according to current estimates, 60 percent
of merchants will have EMV compliant devices by 2015. Check your mail. A new
card may be on its way soon.
Weekly Focus – Think About It
“Kindness is the
language which the deaf can hear and the blind can see.”
--Mark Twain, American writer and
humorist
Value
vs. Growth Investing (5/23/14)
1.33
|
3.35
|
1.30
|
3.24
|
17.78
|
15.35
|
19.46
|
|
1.31
|
3.65
|
1.69
|
4.20
|
17.35
|
15.64
|
18.35
|
|
0.85
|
4.05
|
1.27
|
4.91
|
16.09
|
17.28
|
18.95
|
|
2.20
|
3.35
|
3.11
|
2.46
|
21.92
|
16.84
|
19.71
|
|
0.83
|
3.54
|
0.62
|
5.39
|
14.08
|
12.89
|
16.54
|
|
1.27
|
3.56
|
0.59
|
1.04
|
19.31
|
14.79
|
22.39
|
|
1.08
|
5.36
|
1.51
|
2.18
|
18.92
|
15.93
|
23.23
|
|
1.55
|
0.70
|
-0.03
|
-3.03
|
16.74
|
11.76
|
20.86
|
|
1.15
|
4.98
|
0.37
|
4.59
|
22.61
|
16.77
|
23.06
|
|
1.73
|
-0.39
|
-0.85
|
-0.48
|
17.66
|
13.72
|
22.14
|
|
1.61
|
1.36
|
-0.65
|
1.28
|
17.65
|
13.08
|
21.55
|
|
2.40
|
-4.72
|
-1.21
|
-5.06
|
17.21
|
12.52
|
21.04
|
|
1.24
|
2.13
|
-0.73
|
2.29
|
18.10
|
15.55
|
23.78
|
|
0.95
|
4.11
|
1.18
|
4.10
|
16.74
|
16.74
|
20.04
|
|
2.08
|
2.29
|
2.20
|
0.84
|
20.55
|
15.49
|
20.09
|
|
0.92
|
3.73
|
0.47
|
5.00
|
16.09
|
13.86
|
18.34
|
©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:
Attention Retirement Savers:
Retirement Accounts Are Different!
According to the Investment Company Institute,
it is estimated that there is over $20 trillion in retirement accounts as of
December 30, 2013. Retirement accounts make up the majority of many people’s
assets and unfortunately, many owners of IRAs and their financial advisors are
not fully aware of the complicated tax laws regarding distributions of these
retirement accounts.
Many people focus on the investments within
these accounts and their returns, which are very important, but they overlook
the important strategies that can save investors and their heirs’ money in the
long run.
Retirement accounts are different!
People often forget that retirement accounts
have to be in the name of an individual and that the beneficiary designation
will override any other estate planning document such as your trust, will, etc.
Therefore, it is imperative that you separate the retirement accounts from any
other part of your estate when establishing a proper plan for distribution of
these assets.
The rules regarding these retirement accounts
or IRAs can be very complex and cause many mistakes.
Many times, financial professionals refer to
IRAs as “Individual Riddle Accounts” because they are significantly different
from most other assets in your estate plan.
Some of the differences are they:
Do
not pass through the will (unless payable to an estate)
Are
not subject to probate (unless payable to an estate)
Receive
no capital gains treatment
Receive
no step up in cost basis up death
Cannot
be gifted (in most cases)
The
title cannot be transferred to a trust
Are
subject to special rules, called Required Minimum Distributions
IRA accounts are perhaps the only assets in
your estate that will require you to take out a minimum distribution. Also,
please remember that by placing a title of an IRA into a trust, you may cause
immediate taxation. Once again, IRA or retirement assets are different!
Through proper planning, you can set up your
IRA so that your heirs, whether they are your children, grandchildren or anyone
else, can receive what is called an Inherited IRA. There are various tax laws,
regulations, rules and even private letter rulings that may effect the
decisions you make in setting up these Inherited IRAs. Investors should note
that stretch or inherited IRAs are designed for individuals who will not need
the money in the account for their own retirement needs.
In planning your retirement account, it is
imperative that you review the importance of choosing the right
beneficiary/beneficiaries. An informed decision can help you better understand
your options, when considering tools like Roth IRAs, which were created by the
Taxpayer Relief Act of 1997 and further modified by the IRS Restructuring
Reform Act of 1998. Remember, Roth IRAs are significantly different than
traditional IRAs and need proper planning as well.
Keeping current with new tax laws is another
essential ingredient for successful retirement planning. In fact, The Pension
Protection Act of 2006 (PPA) made some significant changes for retirement
accounts.
The bottom line is retirement account
distribution and planning, while it may look simple on the surface, is
something that should be taken seriously and work through with knowledge of the
rules, regulations and tax code. Sometimes even people in the financial arena
or savvy investors are not familiar with these complicated tax laws.
Whatever you do, make sure you or who you are
working with is familiar with the tax laws regarding retirement distribution
rules.
One very basic but important thing to
understand is that it is extremely important to remember that there can be two
sets of rules:
1. The
IRA’s rules
2. The
IRA custodian or Retirement Plan Administrator’s rules
The law says you must use the stricter of
these two sets of rules! Many people are not aware that a custodian may not be
or does not have to be current with respect to allowing you to use provisions
under the new tax laws. In fact, the IRS may state a particular rule that
allows the entitlement that you want to use but if your custodian or
administrator does not reflect that rule then you must use their rules, even
though the IRS tax laws allow you to do differently.
In addition to understanding all the rules and
regulations regarding retirement accounts and distributions, it is equally as
important to know not only what the IRS laws are, but what your custodian
allows. Please make sure that in addition to reviewing all the IRS rules, you also
carefully review your IRA custodian or Retirement Plan Administrator’s rules.
This is a crucial part of retirement planning that should be taken as serious
as making your important investment decisions and choices.
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
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Michael
L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and
advisory services through Independent Financial Group, LLC., a registered
broker-dealer and investment advisor.
Member FINRA-SIPC. Schwartz Financial and Independent Financial Group
are unaffiliated entities.
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.
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