Permanent Value

Keeping Our Heads Above Water

Bruce Doole
January 13th, 2010

FROM THE DEPTHS TO THE…SURFACE?

What a year it was!  We started off with our economy and financial markets continuing to descend with no clear end in sight.  A new president was inaugurated, making history in the process and hope abounded that things would start to turn around.   Springtime came and lo and behold… the financial markets came off life support and the economy showed signs of slowing its descent.   This was driven by positive economic growth for the end of the year which should approach 4% in the 4th quarter of 2009.  This is after almost two years of declines in US economic growth.   The markets mostly ignored the lack of new jobs and little movement in housing prices, mainly focusing on improvements in the financial and technology sectors.  Apparently, if most large banks can return the money the government loaned them and technology companies are doing well, the markets follow.  The current administration is pushing hard for the return of these funds so they can spend it on trying to create new jobs.  You may be asking, if the first trillion spent on creating jobs didn’t work, why would the second trillion work?  Maybe that’s why we aren’t in politics because we have a hard time answering these questions in a way that makes sense.

SO HOW DOES ALL THIS AFFECT YOUR INVESTMENTS THIS YEAR?

After financial stability and economic growth, the factor we follow most closely is inflation, which should continue to stay very low this year but almost certainly has to rise in the next 12-24 months.  Inflation directly impacts your investments because as it rises, so do interest rates.  Interest rates impact how much income you can receive and the borrowing costs you have to endure.   In an ideal world, you have low interest rates when you purchase your home and are paying the interest on your mortgage, higher interest rates when it’s paid off, and then you draw income for retirement.   As we all know, no one lives in that world so we have to make adjustments.   We work to achieve a suitable mix of higher yielding investments in the US and abroad along with shorter duration bonds, so we can eventually take advantage of higher interest rates and also buy TIPS (Treasury Inflation Protected Securities) to protect against rising inflation.  We are using Exchange-Traded Funds (ETFs) because of their transparency, extreme low cost and diversification to implement these strategies and match them up with your Investment Profile Survey.  Thanks to all of you who have filled this survey out and if you haven’t, please send it in so we can most accurately invest your portfolio based on your preferences and financial situation.

As tax season approaches, we are reminded again of how important it is to save and invest in ways that will reduce taxable income while simultaneously saving for the future.  With thorough financial planning, you can reduce your costs not only in income taxes but also in a wide variety of areas.   Examples may include offsetting college expenses for children or grandchildren, reducing insurance costs and eliminating unnecessary coverage, trimming unneeded personal expenses, managing investment costs, and eliminating or significantly reducing estate and gift taxes.  This leaves more money for you to spend in retirement, on your children, or to give to your favorite charity or charities and make an impact in someone else’s life.  There is so much more to your financial situation beyond investing and we have the experts here to help you.  Please call us to schedule a Financial Freedom Tree with one of our advisors (if you haven’t already done so) to explore all the ways we can help you to continue to build a successful financial future.