Post-crash, advisers yearn for structure
When financial advisers did their business post-mortems after the 2008-09 economic downturn, many were alarmed to find that their firms weren't well-prepared to handle such a crisis. http://www.investmentnews.com/article/20100516/REG/305169993
Article features Jay Heller.
Tuesday, May 25, 2010
Monday, April 26, 2010
Quarterly Economic Update - First Quarter 2010
Jay Heller, CPA, PFS and Brian Kohute, CPA, CFA
Wow—another roller coaster quarter—a rebound, but with many little corrections, including a pullback in January.
The Dow Jones Industrial Average ended up the 1st Quarter of 2010 with a total return of 4.1%. This marks the Dow’s 4th consecutive quarterly gain and its best first-quarter performance since 1999. The Dow closed above 11,000 on Monday, April 12th, something it hasn’t achieved since the financial system started deteriorating 19 months ago.
Just over a year ago the Dow hit bottom. It has now rallied more than 70%. The NASDAQ Composite index was up 5.7%. (Source: WSJ, 4/1/2010)
A big question is how much of the market’s rebound was driven by improving economic fundamentals (such as optimism about corporate profits and the latest debt release plan for Greece) and how much by government stimulus.
This revival of our economy is very similar to past recoveries, with consumer spending leading the way, followed by industrial production and, much later, employment and capital spending. The market still looks poised to gain a lot more ground in 2010. However, investment returns are still likely to be volatile and unpredictable.
Global Overview
The global recovery has been driven by growth in China. In 2009, the U.S. economy shrank by 2.4% to $14.5 trillion in size, while China’s economy grew by 8.7% to $4.9 trillion in size. Chinese revitalization of Asian capitalism remains one of the most important positive events in the world in the last 30 years. However, instead of treating China like the indispensable capitalist partner it has become, the U.S. treats China as an adversary because it defies us on global warming, dollar devaluation and internet policy.
Emerging Markets
It has become an investing truism lately: If you want stocks with high-octane potential, you are wise to invest in the fast-growing economies of the emerging markets. The result has been frenzied demand for such stocks and sky-rocketing valuations. The MSCI Emerging Markets index has risen 76% in the last year and China’s main stock index now trades at a price/earnings ratio of 31, more than 50% higher than that of the S&P 500. Many larger companies are experiencing their fastest growth from places like China, Brazil, and India, which makes it possible to buy shares of companies in established economies that provide significant exposure to emerging markets.
Emerging markets could suffer reversals, but their long-term outlook is robust, according to many economists. Many emerging markets are exiting the global recession on stronger footing than many developed markets, and widespread shifts in growth and consumption suggest there is significant opportunity in global markets for patient, long-term investors. (Source: Barron’s, 4/12/2010) Please also remember that international investing can involve special risks including greater economic and political instability, as well as currency fluctuation risks, which may be even greater in emerging markets.
U.S. Budget Deficit
According to the latest Administration projections for fiscal year 2011 (October 1st, 2010 to September 30, 2011), the U.S. debt has reached record highs for peace time—$1.6 trillion (10.6% of GDP). While some of that reflects the downturn in the business cycle, which cuts into tax revenue while boosting unemployment compensation, bank bailouts and other spending, it is not temporary. The budget office projects a deficit as high as $752 billion in 2015 despite some rosy economic assumptions. And this doesn’t even include the multi-billion dollar deficits facing most states. (Source: Time Magazine, February 15th, 2010) When the President signed into law a 2-year stimulus package worth about $787 billion, the White House predicted that unemployment would peak at about 8%. Instead, unemployment rose to 10% in 2009. This unexpected bad performance means the President must focus on the weak labor market just when he ought to start switching his attention towards deficit reduction. (Source: The Economist, 2/6/2010)
Federal Reserve Chairman Ben Bernanke warned about the two giant fiscal waves headed for the federal government—the big deficit caused by the economic downturn, followed by the ballooning costs of baby-boomer retirees drawing Social Security and Medicare funds. He worries that our huge deficit threatens the nation’s long-term economic health and should be addressed soon. (Source: WSJ, 4/8/2010)
Mr. Bernanke also stated that there are 2 ways to reduce the deficit—cut spending or increase taxes. Many political battles during the next few years will pit taxpayers against the beneficiaries of public spending, as well as workers against retirees. (Source: The Economist, 3/6/2010)
To understand how hard it is to cut Federal spending, consider the breakdown in public spending:
· 57.3% - direct payments to individuals (or on their behalf) by healthcare and housing
providers, for example
· 19.6% - military operations and hardware
· 16.0% - transportation, education, homeland security, law enforcement and disaster relief,
just to name a few (none of which gets even 3% of the budget and many are well
under 1%) (Source: Kiplinger’s Personal Finance, 4/20/2010)
Our tax revenues are adequate to cover just 4 budget items: military spending, health spending, Social Security, and interest on the national debt. Every other program has to be covered with borrowed funds, including unemployment compensation, support for state and local governments, etc. (Source: World Report, 4/2010)
Therefore, President Obama has proposed a number of different tax increases in order to help reduce this deficit, but these are not easy to swallow and may not be enough.
Some investors aren’t too concerned about the deficit. When we hear the media saying, “Oh, a trillion here, a trillion there,” almost daily, do we become immune to the seriousness of this amount of money? Here is what a trillion dollars looks like: $1,000,000,000,000. That’s a lot of zeros, and a trillion dollars is a lot of MONEY!
Social Security Changes
With all the baby boomers retiring, many taxpayers have wondered how long it would be until Social Security would start paying out more than what it took in. Well, you don’t have to wait any longer – it just happened!
The Congressional Budget Office (CBO), which did not expect this to happen until at least 2016, stated that this would have no affect on benefits in 2010 and retirees would keep receiving their checks as usual. Unfortunately, payments rose more than expected during the downturn because jobs disappeared and people applied for benefits sooner than planned. Revenue also fell sharply because of the high unemployment.
At least a bit of good news—the latest projections state the program will not exhaust its funds until about 2037. Let’s hope that this projection is more accurate. (Source: NYT, 3/24/2010)
National Health Plan
On March 23, 2010, President Obama signed healthcare reform legislation. The bill is massive – nearly $1 trillion in spending and $400 billion in new taxes over the next decade. Did I mention it came in at over 2,000 pages?
A Little Perspective:
· The Lord’s Prayer: 66 words
· The Ten Commandments: 179 words
· The Gettysburg Address: 286 words
· The Declaration of Independence: 1,300 words
· U.S. governmental regulations on the sale of cabbage: 26,911 words (source: Game Over
by Stephen Leeb)
This legislation is the biggest change in America’s welfare state since the 1960s. It will extend coverage to 32 million uninsured by expanding Medicaid rules, establishing new health-insurance changes to provide more competitive rates, and providing subsidies for middle class families to buy into private plans.
This healthcare legislation carries with it important tax implications including:
· an additional 0.9% Medicare Health Tax (from the current 1.45% to 2.35%) on earned
income above $200,000 for individuals and $250,000 for joint filers
· a Medicare tax of 3.8% on investment income (e.g., dividends and interest) for individuals
with Adjusted Gross Income (AGI) above $200,000 ($250,000 for joint filers)
The new tax laws do not take effect until 2013, and a lot can happen between now and then.
Tax Planning Strategies
Let’s look at a tiny sliver of taxpayers for a minute—the top 1% of taxpayers. In 1980, they paid 19.1% of all federal income tax while the bottom 50% of taxpayers paid 7.1%. In 2007, they paid 40.4% of all federal income tax while the bottom 50% of taxpayers paid only 2.9%. Thus, since 1980 the top 1% of taxpayers has gone from paying nearly three times the federal income tax of the bottom 50% of taxpayers to nearly fourteen times as much! (Source: Tax Foundation, By The Numbers, 2/15/10)
Projections from the Urban-Brookings Tax Policy Center show that 38% of Americans were expected to have zero or negative federal individual income tax liability in 2009 before the stimulus package was enacted. After the stimulus and other tax changes, this proportion will increase to nearly 46%! Today, according to the Tax Foundation, 50% of Americans consume more in government services than they pay in taxes. (Source: WSJ, 4/14/2010)
The tax law changes from this health care plan is one of many different tax increases that will affect many taxpayers. For example, taxpayers at all income levels could be affected by new limits on medical flexible spending accounts and medical deductions. The 3.8% Medicare tax, combined with the expected expiration of the Bush tax cuts for high income taxpayers on January 1, 2011, would produce a top federal income tax rate of 23.8% on long-term capital gains from the sale of investments in 2013, up from 15% today. The top income tax rate on interest and other types of “passive” income would increase to 43.4% from 35% today.
Dividend income is expected to be affected the most, and if Congress doesn’t act, the top income tax rate on dividends will zoom from 15% in 2010 up to 44.6% in 2013.
There are a number of tax law changes that we will cover later this year. These changes can offer tax strategies that you would possibly be able to use. We will review the details of this with you later this year.
The Bond Market
There is now more than $9 trillion sitting on the sidelines in various low-yielding bank instruments. (Source: Investment News, 2/6 /2010)The average interest rate was less than 0.1% on Treasury Bills, as of April 9, 2010. The interest rates on bonds are affected by the demand for loan-able funds, and during a recession, the demand for loans is usually low and interest rates tend to decline. Current interest rates are at historical lows, but can’t stay this low forever. When they eventually start getting higher, what can investors expect?
Although the bond market has historically been less volatile than the stock market, bonds also fluctuate in price, some significantly. When yields for new bonds fall, existing bonds with higher yields become more valuable and can demand a higher price, and vice versa. If history serves as a guide (which is no guarantee), bond investors will suffer when interest rates start to move upward.
Conclusion
The severe global sell-off that erupted in 2008 coincided with the global recession that affected developed and developing markets alike. One year later, the outlook is much different. Most stock markets have recorded extraordinary gains, boosted by government and Central Bank interventions. Stronger-than-expected corporate profits are a sign of stability and recovery in economies throughout the world.
Despite the strong rebound in global stock markets, financial and economic difficulties persist in many countries, particularly the United States. However, remember that the problems facing equity markets today (inflation, unemployment, regulatory uncertainty) have been experienced—and conquered—before.
Don’t fall prey to all the negativity in financial journalism! Journalism’s goal is to keep your focus as short-term as possible (ideally minute to minute) so you won’t dare turn off that television. Our goal is to help you think, plan, and invest for the long term.
P.S. Some good news: The government bailout of various financial companies is starting to look far less expensive than once feared. The government estimate has now dropped from the original $250 billion to approximately $89 billion, which includes the Troubled Assets Relief Program, capital injections into Fannie Mae and Freddie Mac, and various other courses of action it has taken over the last couple of years.(Source: WSJ, 4/12/2010)
About Jay Heller and Brian Kohute:
Jay Heller, CEO and Brian Kohute, President and Chief Investment Officer of HJ Wealth Management, LLC are the co-creators of The Progression Of Wealth® process, a wealth management discipline for high-net-worth families. If you have any questions or would like to speak with Jay or Brian please do not hesitate to call or set up an appointment. We can be reached at (610) 272-4700.
______________________________________________________________________________________________________________Sources: Wall Street Journal (April 1st, 2010, C1; April 8th, 2010; April 12th, C1), New York Times (March 24th, 2010), Barron’s (April 12, 2010), Kiplinger’s Personal Finance (April 20th, 2010), The Economist (February 6th, 2010, page 31; March 6, 2010, pg 95), World Report (April 2010, page 72), Stephen Leeb, Game Over, page 58, Tax Foundation, By the Numbers (2/15/10), Wall Street Journal (April 14, 2010) Contents provided by MDP, Inc.
Note: The views stated in this letter are not necessarily the opinion of HJ Wealth Management, LLC or American Portfolios and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.
Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.
Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.
This optimism about the future does not minimize the fact that we have gone through one of the worst economic periods in market history. Remember that equity markets are volatile and an investor may lose money and there is no guarantee that securities will appreciate.
In general, the bond market is volatile, bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The investor should note that investments in; lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
Wow—another roller coaster quarter—a rebound, but with many little corrections, including a pullback in January.
The Dow Jones Industrial Average ended up the 1st Quarter of 2010 with a total return of 4.1%. This marks the Dow’s 4th consecutive quarterly gain and its best first-quarter performance since 1999. The Dow closed above 11,000 on Monday, April 12th, something it hasn’t achieved since the financial system started deteriorating 19 months ago.
Just over a year ago the Dow hit bottom. It has now rallied more than 70%. The NASDAQ Composite index was up 5.7%. (Source: WSJ, 4/1/2010)
A big question is how much of the market’s rebound was driven by improving economic fundamentals (such as optimism about corporate profits and the latest debt release plan for Greece) and how much by government stimulus.
This revival of our economy is very similar to past recoveries, with consumer spending leading the way, followed by industrial production and, much later, employment and capital spending. The market still looks poised to gain a lot more ground in 2010. However, investment returns are still likely to be volatile and unpredictable.
Global Overview
The global recovery has been driven by growth in China. In 2009, the U.S. economy shrank by 2.4% to $14.5 trillion in size, while China’s economy grew by 8.7% to $4.9 trillion in size. Chinese revitalization of Asian capitalism remains one of the most important positive events in the world in the last 30 years. However, instead of treating China like the indispensable capitalist partner it has become, the U.S. treats China as an adversary because it defies us on global warming, dollar devaluation and internet policy.
Emerging Markets
It has become an investing truism lately: If you want stocks with high-octane potential, you are wise to invest in the fast-growing economies of the emerging markets. The result has been frenzied demand for such stocks and sky-rocketing valuations. The MSCI Emerging Markets index has risen 76% in the last year and China’s main stock index now trades at a price/earnings ratio of 31, more than 50% higher than that of the S&P 500. Many larger companies are experiencing their fastest growth from places like China, Brazil, and India, which makes it possible to buy shares of companies in established economies that provide significant exposure to emerging markets.
Emerging markets could suffer reversals, but their long-term outlook is robust, according to many economists. Many emerging markets are exiting the global recession on stronger footing than many developed markets, and widespread shifts in growth and consumption suggest there is significant opportunity in global markets for patient, long-term investors. (Source: Barron’s, 4/12/2010) Please also remember that international investing can involve special risks including greater economic and political instability, as well as currency fluctuation risks, which may be even greater in emerging markets.
U.S. Budget Deficit
According to the latest Administration projections for fiscal year 2011 (October 1st, 2010 to September 30, 2011), the U.S. debt has reached record highs for peace time—$1.6 trillion (10.6% of GDP). While some of that reflects the downturn in the business cycle, which cuts into tax revenue while boosting unemployment compensation, bank bailouts and other spending, it is not temporary. The budget office projects a deficit as high as $752 billion in 2015 despite some rosy economic assumptions. And this doesn’t even include the multi-billion dollar deficits facing most states. (Source: Time Magazine, February 15th, 2010) When the President signed into law a 2-year stimulus package worth about $787 billion, the White House predicted that unemployment would peak at about 8%. Instead, unemployment rose to 10% in 2009. This unexpected bad performance means the President must focus on the weak labor market just when he ought to start switching his attention towards deficit reduction. (Source: The Economist, 2/6/2010)
Federal Reserve Chairman Ben Bernanke warned about the two giant fiscal waves headed for the federal government—the big deficit caused by the economic downturn, followed by the ballooning costs of baby-boomer retirees drawing Social Security and Medicare funds. He worries that our huge deficit threatens the nation’s long-term economic health and should be addressed soon. (Source: WSJ, 4/8/2010)
Mr. Bernanke also stated that there are 2 ways to reduce the deficit—cut spending or increase taxes. Many political battles during the next few years will pit taxpayers against the beneficiaries of public spending, as well as workers against retirees. (Source: The Economist, 3/6/2010)
To understand how hard it is to cut Federal spending, consider the breakdown in public spending:
· 57.3% - direct payments to individuals (or on their behalf) by healthcare and housing
providers, for example
· 19.6% - military operations and hardware
· 16.0% - transportation, education, homeland security, law enforcement and disaster relief,
just to name a few (none of which gets even 3% of the budget and many are well
under 1%) (Source: Kiplinger’s Personal Finance, 4/20/2010)
Our tax revenues are adequate to cover just 4 budget items: military spending, health spending, Social Security, and interest on the national debt. Every other program has to be covered with borrowed funds, including unemployment compensation, support for state and local governments, etc. (Source: World Report, 4/2010)
Therefore, President Obama has proposed a number of different tax increases in order to help reduce this deficit, but these are not easy to swallow and may not be enough.
Some investors aren’t too concerned about the deficit. When we hear the media saying, “Oh, a trillion here, a trillion there,” almost daily, do we become immune to the seriousness of this amount of money? Here is what a trillion dollars looks like: $1,000,000,000,000. That’s a lot of zeros, and a trillion dollars is a lot of MONEY!
Social Security Changes
With all the baby boomers retiring, many taxpayers have wondered how long it would be until Social Security would start paying out more than what it took in. Well, you don’t have to wait any longer – it just happened!
The Congressional Budget Office (CBO), which did not expect this to happen until at least 2016, stated that this would have no affect on benefits in 2010 and retirees would keep receiving their checks as usual. Unfortunately, payments rose more than expected during the downturn because jobs disappeared and people applied for benefits sooner than planned. Revenue also fell sharply because of the high unemployment.
At least a bit of good news—the latest projections state the program will not exhaust its funds until about 2037. Let’s hope that this projection is more accurate. (Source: NYT, 3/24/2010)
National Health Plan
On March 23, 2010, President Obama signed healthcare reform legislation. The bill is massive – nearly $1 trillion in spending and $400 billion in new taxes over the next decade. Did I mention it came in at over 2,000 pages?
A Little Perspective:
· The Lord’s Prayer: 66 words
· The Ten Commandments: 179 words
· The Gettysburg Address: 286 words
· The Declaration of Independence: 1,300 words
· U.S. governmental regulations on the sale of cabbage: 26,911 words (source: Game Over
by Stephen Leeb)
This legislation is the biggest change in America’s welfare state since the 1960s. It will extend coverage to 32 million uninsured by expanding Medicaid rules, establishing new health-insurance changes to provide more competitive rates, and providing subsidies for middle class families to buy into private plans.
This healthcare legislation carries with it important tax implications including:
· an additional 0.9% Medicare Health Tax (from the current 1.45% to 2.35%) on earned
income above $200,000 for individuals and $250,000 for joint filers
· a Medicare tax of 3.8% on investment income (e.g., dividends and interest) for individuals
with Adjusted Gross Income (AGI) above $200,000 ($250,000 for joint filers)
The new tax laws do not take effect until 2013, and a lot can happen between now and then.
Tax Planning Strategies
Let’s look at a tiny sliver of taxpayers for a minute—the top 1% of taxpayers. In 1980, they paid 19.1% of all federal income tax while the bottom 50% of taxpayers paid 7.1%. In 2007, they paid 40.4% of all federal income tax while the bottom 50% of taxpayers paid only 2.9%. Thus, since 1980 the top 1% of taxpayers has gone from paying nearly three times the federal income tax of the bottom 50% of taxpayers to nearly fourteen times as much! (Source: Tax Foundation, By The Numbers, 2/15/10)
Projections from the Urban-Brookings Tax Policy Center show that 38% of Americans were expected to have zero or negative federal individual income tax liability in 2009 before the stimulus package was enacted. After the stimulus and other tax changes, this proportion will increase to nearly 46%! Today, according to the Tax Foundation, 50% of Americans consume more in government services than they pay in taxes. (Source: WSJ, 4/14/2010)
The tax law changes from this health care plan is one of many different tax increases that will affect many taxpayers. For example, taxpayers at all income levels could be affected by new limits on medical flexible spending accounts and medical deductions. The 3.8% Medicare tax, combined with the expected expiration of the Bush tax cuts for high income taxpayers on January 1, 2011, would produce a top federal income tax rate of 23.8% on long-term capital gains from the sale of investments in 2013, up from 15% today. The top income tax rate on interest and other types of “passive” income would increase to 43.4% from 35% today.
Dividend income is expected to be affected the most, and if Congress doesn’t act, the top income tax rate on dividends will zoom from 15% in 2010 up to 44.6% in 2013.
There are a number of tax law changes that we will cover later this year. These changes can offer tax strategies that you would possibly be able to use. We will review the details of this with you later this year.
The Bond Market
There is now more than $9 trillion sitting on the sidelines in various low-yielding bank instruments. (Source: Investment News, 2/6 /2010)The average interest rate was less than 0.1% on Treasury Bills, as of April 9, 2010. The interest rates on bonds are affected by the demand for loan-able funds, and during a recession, the demand for loans is usually low and interest rates tend to decline. Current interest rates are at historical lows, but can’t stay this low forever. When they eventually start getting higher, what can investors expect?
Although the bond market has historically been less volatile than the stock market, bonds also fluctuate in price, some significantly. When yields for new bonds fall, existing bonds with higher yields become more valuable and can demand a higher price, and vice versa. If history serves as a guide (which is no guarantee), bond investors will suffer when interest rates start to move upward.
Conclusion
The severe global sell-off that erupted in 2008 coincided with the global recession that affected developed and developing markets alike. One year later, the outlook is much different. Most stock markets have recorded extraordinary gains, boosted by government and Central Bank interventions. Stronger-than-expected corporate profits are a sign of stability and recovery in economies throughout the world.
Despite the strong rebound in global stock markets, financial and economic difficulties persist in many countries, particularly the United States. However, remember that the problems facing equity markets today (inflation, unemployment, regulatory uncertainty) have been experienced—and conquered—before.
Don’t fall prey to all the negativity in financial journalism! Journalism’s goal is to keep your focus as short-term as possible (ideally minute to minute) so you won’t dare turn off that television. Our goal is to help you think, plan, and invest for the long term.
P.S. Some good news: The government bailout of various financial companies is starting to look far less expensive than once feared. The government estimate has now dropped from the original $250 billion to approximately $89 billion, which includes the Troubled Assets Relief Program, capital injections into Fannie Mae and Freddie Mac, and various other courses of action it has taken over the last couple of years.(Source: WSJ, 4/12/2010)
About Jay Heller and Brian Kohute:
Jay Heller, CEO and Brian Kohute, President and Chief Investment Officer of HJ Wealth Management, LLC are the co-creators of The Progression Of Wealth® process, a wealth management discipline for high-net-worth families. If you have any questions or would like to speak with Jay or Brian please do not hesitate to call or set up an appointment. We can be reached at (610) 272-4700.
______________________________________________________________________________________________________________Sources: Wall Street Journal (April 1st, 2010, C1; April 8th, 2010; April 12th, C1), New York Times (March 24th, 2010), Barron’s (April 12, 2010), Kiplinger’s Personal Finance (April 20th, 2010), The Economist (February 6th, 2010, page 31; March 6, 2010, pg 95), World Report (April 2010, page 72), Stephen Leeb, Game Over, page 58, Tax Foundation, By the Numbers (2/15/10), Wall Street Journal (April 14, 2010) Contents provided by MDP, Inc.
Note: The views stated in this letter are not necessarily the opinion of HJ Wealth Management, LLC or American Portfolios and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.
Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.
Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.
This optimism about the future does not minimize the fact that we have gone through one of the worst economic periods in market history. Remember that equity markets are volatile and an investor may lose money and there is no guarantee that securities will appreciate.
In general, the bond market is volatile, bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The investor should note that investments in; lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
Monday, March 1, 2010
HJ Wealth recognized as a "Leading RIA Firm" by Financial Advisor Magazine
HJ Wealth Management is proud to announce being recognized as a Leading RIA Firm by Financial Advisor Magazine. For more info follow the following link:
HJ Wealth Management Award
http://www.hjwealth.com
HJ Wealth Management Award
http://www.hjwealth.com
Saturday, February 27, 2010
HJ Wealth Management Update
Dear Clients and Friends,
As we write this letter, it is two weeks from the end of the third quarter in what continues to be a most eventful year for the markets and the economy. We hope you had a great summer and are ready for a beautiful fall.
It has been one year since the weekend that shook the foundations of Wall Street and of the global financial system – when Lehman Brothers collapsed, Merrill Lynch vanished as an independent entity and AIG was taken over by the U.S. government.
In light of that, we thought it might be worthwhile to briefly summarize where we’ve been this year, where we are today and the prospects for the period ahead – and also to highlight some lessons from last year’s financial collapse.
Where we’ve been
Six months ago, in early March, it truly did feel like the world might be coming to an end – talk of a return to a Great Depression like economy dominated radio, television and newspapers. Understandably, fear was rampant – and stocks responded to these nightmarish scenarios by hitting the lowest levels in years, with financials especially hard hit.
Although no one knew it at the time, that turned out to be the bottom. Since then, we’ve seen the economy move back from the precipice – there is a growing consensus that we will return to economic growth in the second half of this year. The Economist recently ran a cover story discussing the extent to which the economic recovery was led by Asia.
As a result, we’ve had a strong recovery in markets – from their bottom in the beginning of March, stock markets are up 50%, retracing a good portion of the losses since last fall.
In the meantime, here are six lessons from the last twelve months
1. We were reminded of just how volatile stocks can be.
2. The importance of true diversification.
3. Many investors discovered that they are less comfortable with risk and volatility in their portfolio than they had believed.
4. Investors were also reminded of the need to focus on what they can control – understanding cash needs and thinking through how much risk they can live with to fund those needs.
5. Patience and discipline.
6. Finally, we were reminded that in today’s world, we need to expect the unexpected.
Where we are today
Today many investors can be characterized as extremely nervous.
As a general rule, we think a certain level of healthy anxiety is positive – what gets investors in trouble is an excess of either optimism or pessimism. While today’s mood may be erring on the side of being a bit too pessimistic, we think being cautious in the current market makes sense…provided that prudent caution doesn’t cross the line into panicked inertia.
The good news is that there are still excellent opportunities for investors who are prepared for short-term volatility but are long-term focused. We spend a lot of time listening to the best market minds and to managers who have lived through multiple cycles. We are reassured that most say that they are still finding very good value – not to the extent that they did earlier this year, but still well ahead of what they would have seen a year ago.
The outlook going forward
In August, Business Week ran a cover story called “The Case for Optimism”. The premise was simple: Beyond the issues facing the global economy, there are many underlying positives that give cause for optimism if we look out two and three years beyond.
There are things happening under the surface that will drive economic growth…and with that economic growth will come growth in stock prices. Examples include the positive impact of technology, the recovering housing market, the revitalization of economies and the incredible energy from the developing world’s educated youth and emerging middle class.
Additionally, On Tuesday September 15, 2009 Federal Reserve Chairman Ben Bernanke was quoted saying “the recession is very likely over at this point.”
Let us close by talking about market volatility. In 1907, U.S. financier J. Pierpoint Morgan singlehandedly averted a banking panic among U.S. investors. Later in life, someone asked him his best guess on the direction of markets. His answer: “They will go up and they will go down.”
One hundred years later, that is still the best answer to someone looking for a short term market forecast. No one can predict market movement in the immediate period ahead – all we can do is understand clearly how much short term volatility we can live with, adjust our portfolios accordingly and stay focused on the horizon as we deal with the rough waters. No one likes volatility…but for most of us it is the necessary price to arrive at our ultimate destination.
In the meantime, our team is continuing to look for opportunities to realign portfolios to give our clients the best tradeoff between risk and return.
Thank you for the continued opportunity to work together – remember, we are always here should you have any questions or wish to talk about anything related to your Progression of Wealth®.
Sincerely,
Jay L. Heller, CPA, PFS Brian T. Kohute, CPA, CFA
http://www.hjwealth.com
As we write this letter, it is two weeks from the end of the third quarter in what continues to be a most eventful year for the markets and the economy. We hope you had a great summer and are ready for a beautiful fall.
It has been one year since the weekend that shook the foundations of Wall Street and of the global financial system – when Lehman Brothers collapsed, Merrill Lynch vanished as an independent entity and AIG was taken over by the U.S. government.
In light of that, we thought it might be worthwhile to briefly summarize where we’ve been this year, where we are today and the prospects for the period ahead – and also to highlight some lessons from last year’s financial collapse.
Where we’ve been
Six months ago, in early March, it truly did feel like the world might be coming to an end – talk of a return to a Great Depression like economy dominated radio, television and newspapers. Understandably, fear was rampant – and stocks responded to these nightmarish scenarios by hitting the lowest levels in years, with financials especially hard hit.
Although no one knew it at the time, that turned out to be the bottom. Since then, we’ve seen the economy move back from the precipice – there is a growing consensus that we will return to economic growth in the second half of this year. The Economist recently ran a cover story discussing the extent to which the economic recovery was led by Asia.
As a result, we’ve had a strong recovery in markets – from their bottom in the beginning of March, stock markets are up 50%, retracing a good portion of the losses since last fall.
In the meantime, here are six lessons from the last twelve months
1. We were reminded of just how volatile stocks can be.
2. The importance of true diversification.
3. Many investors discovered that they are less comfortable with risk and volatility in their portfolio than they had believed.
4. Investors were also reminded of the need to focus on what they can control – understanding cash needs and thinking through how much risk they can live with to fund those needs.
5. Patience and discipline.
6. Finally, we were reminded that in today’s world, we need to expect the unexpected.
Where we are today
Today many investors can be characterized as extremely nervous.
As a general rule, we think a certain level of healthy anxiety is positive – what gets investors in trouble is an excess of either optimism or pessimism. While today’s mood may be erring on the side of being a bit too pessimistic, we think being cautious in the current market makes sense…provided that prudent caution doesn’t cross the line into panicked inertia.
The good news is that there are still excellent opportunities for investors who are prepared for short-term volatility but are long-term focused. We spend a lot of time listening to the best market minds and to managers who have lived through multiple cycles. We are reassured that most say that they are still finding very good value – not to the extent that they did earlier this year, but still well ahead of what they would have seen a year ago.
The outlook going forward
In August, Business Week ran a cover story called “The Case for Optimism”. The premise was simple: Beyond the issues facing the global economy, there are many underlying positives that give cause for optimism if we look out two and three years beyond.
There are things happening under the surface that will drive economic growth…and with that economic growth will come growth in stock prices. Examples include the positive impact of technology, the recovering housing market, the revitalization of economies and the incredible energy from the developing world’s educated youth and emerging middle class.
Additionally, On Tuesday September 15, 2009 Federal Reserve Chairman Ben Bernanke was quoted saying “the recession is very likely over at this point.”
Let us close by talking about market volatility. In 1907, U.S. financier J. Pierpoint Morgan singlehandedly averted a banking panic among U.S. investors. Later in life, someone asked him his best guess on the direction of markets. His answer: “They will go up and they will go down.”
One hundred years later, that is still the best answer to someone looking for a short term market forecast. No one can predict market movement in the immediate period ahead – all we can do is understand clearly how much short term volatility we can live with, adjust our portfolios accordingly and stay focused on the horizon as we deal with the rough waters. No one likes volatility…but for most of us it is the necessary price to arrive at our ultimate destination.
In the meantime, our team is continuing to look for opportunities to realign portfolios to give our clients the best tradeoff between risk and return.
Thank you for the continued opportunity to work together – remember, we are always here should you have any questions or wish to talk about anything related to your Progression of Wealth®.
Sincerely,
Jay L. Heller, CPA, PFS Brian T. Kohute, CPA, CFA
http://www.hjwealth.com
Research Indicates that Humans are not Naturally Wired for Long-Term Investing
Dear Clients and Friends,
The title of this note reads, “Research Indicates That Humans Are Not Naturally Wired for Long-Term Investing.”
However, we, both clients and your Advisors at HJ Wealth Management, are not typical when it comes to investing. Rather, we follow The Progression of Wealth® and as such our job is to help you reach Financial Independence, Preserve your Wealth when you get there and ultimately help you Pass on your Wealth paying the least amount of Taxes along the way.
Each time we meet our conversation surrounds long-term planning. The hardest part of investing is controlling the natural urge to sell when the market dips, or to buy when the market surges.
We have included a great video on the subject of behavioral biases by Scott Bosworth for your entertainment. Please click the following link for this video:
http://www.dfaus.com/2009/12/behavioral-biases.html
We hope you are all fairing well with this record breaking winter snow and we hope to see you in the near future. As always if you have any questions please do not hesitate to call or set up an appointment.
Sincerely,
Brian Kohute, CPA, CFA Jay L. Heller, CPA, PFS
http://www.hjwealth.com
The title of this note reads, “Research Indicates That Humans Are Not Naturally Wired for Long-Term Investing.”
However, we, both clients and your Advisors at HJ Wealth Management, are not typical when it comes to investing. Rather, we follow The Progression of Wealth® and as such our job is to help you reach Financial Independence, Preserve your Wealth when you get there and ultimately help you Pass on your Wealth paying the least amount of Taxes along the way.
Each time we meet our conversation surrounds long-term planning. The hardest part of investing is controlling the natural urge to sell when the market dips, or to buy when the market surges.
We have included a great video on the subject of behavioral biases by Scott Bosworth for your entertainment. Please click the following link for this video:
http://www.dfaus.com/2009/12/behavioral-biases.html
We hope you are all fairing well with this record breaking winter snow and we hope to see you in the near future. As always if you have any questions please do not hesitate to call or set up an appointment.
Sincerely,
Brian Kohute, CPA, CFA Jay L. Heller, CPA, PFS
http://www.hjwealth.com
Subscribe to:
Posts (Atom)
