Finish Strong
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Bruce Doole
April 12th, 2011
FINISH STRONG…
On April 3rd, I completed my first triathlon, the Lavaman Triathlon in Hawaii and learned a few lessons that I want to share with you. The first one is that a strong start and especially a strong finish are the key to not only races but many endeavors (particularly financial) in life. At the start of the triathlon, I was determined to get into a good early rhythm and make sure that things were working as smoothly as possible. This was all made possible by our coach who prepared us for every possible scenario based on his 30 years of coaching and participation in over 280 triathlons himself during the past 50 years. We spent five months preparing for the race where I made sure I could complete all three distances but the three days prior to the race on location were by far the most valuable. I tested swimming in the bay that would be our race course (with and without a wetsuit); biking and running on the actual course as well as what nutrition I would take prior to the race itself. I was thus fully prepared and had gotten all my mistakes out of the way before the gun (actually a conch shell) sounded for the main event. This helped me to have a mistake-free race and I even had an unexpected but pleasant surprise when my son Jordan ran with me the last quarter mile to the finish.
Now how does this apply to my finances you might ask? Being prepared and getting sound coaching is essential to having a successful financial strategy. You can take simple steps like making retirement plan contributions automatic and on time, keeping a working budget and establishing a healthy surplus every month. While I had a head coach and a nutritionist, I also had a separate run, swim and bike coach for each event in the triathlon. I asked them a lot of questions and always consulted them when I was not getting the results I wanted in training. You have us, your financial advisor, as your head coach; you also have coaches in estate planning, taxes, and risk management. You need to see all of them when appropriate, test their advice on your own financial situation and take their advice in a timely fashion to make your strategy the most effective it can be. Finishing strong is critical in planning because that is when mistakes can have the biggest impact. If you tested your strategy early in your financial life and are confident in the race you are running you are likely to finish strong. Having someone to help run you in to the finish and encourage you (like your financial advisor) certainly helps make it more worry-free and pleasant as well.
SPRINGING INTO SUMMER…
We look forward to meeting with you in the next few months to discuss your strategy so we can help you make all the critical adjustments necessary for you to be successful. We would like to review all your finances two to three times per year depending on your schedule and will be calling to get your help in gathering the information we need so the meeting can be as efficient and effective for you as possible. Thank you in advance for your cooperation and have an enjoyable spring and summer. We look forward to seeing you soon.
First Quarter Review
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Bruce Doole
April 5th, 2011
THE MARKETS
STOCK MARKET RISES SHARPLY
It may not have felt like it, but the stock market, as measured by the S&P 500, rose 5.4% during the quarter. Despite some trying moments, the market rose “amid growing optimism that the recovery from the financial crisis had become self-sustaining, according to The Wall Street Journal. The stock market seems to have taken to heart the U.S. Postal Service commercial that said, “…neither snow, nor rain, nor heat, nor gloom of night, nor the winds of change, nor a nation challenged, will stay us from the swift completion of our appointed rounds.” In this case, the “appointed rounds” was a stock market that went up.
Here are the returns from a few other countries:
First Quarter Country Returns Based on the Dow Jones Global Indexes Ranked by U.S. Dollar Performance
TURMOIL IN THE MIDDLE EAST AND NORTH AFRICA
Political instability in the world’s leading oil-producing region sent shockwaves through the oil market. In fact, during a 13-day period in February, oil prices rose a stunning 25%. For the quarter, they rose 16.8% and settled above $100 per barrel, according to The Wall Street Journal. Should oil prices remain above $100 per barrel for an extended period, it could become a drag on global economic growth and may lead to pressure on stock prices. About the only good news on oil prices is they are still well below the $145 per barrel price reached in 2008.
THE DOLLAR AIN’T WORTH WHAT IT USED TO BE
Pardon the poor grammar above, but the dollar keeps sliding. During the quarter, it lost 5.7% against the euro, 2.4% against the Japanese yen, 2.8% against the British pound, 1.2% against the Australian dollar, and 1.6% against the Brazilian real, according The Wall Street Journal. There was no flight to safety in the dollar during the quarter despite the Middle East problems, the Japanese triple tragedy, and the continuing sovereign debt issues in Europe.
Low interest rates in the U.S. appear to be the main culprit in keeping pressure on the value of the dollar. Low rates make the dollar less attractive relative to other countries that may offer higher rates. The good news is a weak dollar makes our exports cheaper and that may help some of our large, multi-national companies. Analysts are keeping an eye on the Federal Reserve for any sign of a change in monetary policy. Once they start raising rates, which many analysts don’t expect until 2012, it could lend some support to the dollar, according to The Wall Street Journal.
FEAR IN THE MARKET
How scared are investors? One way to measure fear in the market is to look at the CBOE Market Volatility Index — the “fear gauge” known as the VIX. This measure rose significantly during the height of concern over the Japanese earthquake. In fact, it jumped 20% in one day in Mid-March before declining 39% over the next week, according to The Wall Street Journal and Bloomberg. Despite all the gyrations, the VIX ended the quarter roughly flat.
SUMMARY
There’s no shortage of things to worry about in the market, but the strength of the economy and the expectation that corporate earnings will hold up seem to outweigh any nervousness over geopolitical issues or natural disasters. Some key things to monitor over the next few months include commodity prices, interest rates, the status of QE2, and, of course, corporate earnings. As always, we have our hands full!
WEEKLY FOCUS – Think About It
“How much pain have cost us the evils that have never happened.”
–Thomas Jefferson
New Year, New Possibilities
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Bruce Doole
January 13th, 2011
NEW YEAR, NEW POSSIBILITIES…
2011 is here and the elections are over. We last talked about how the elections were a referendum on how the new administration is guiding our economy and judging by the huge Republican shift in Congress, the voters expressed that they want the government to go in a different direction. Congress will be trying to enact those changes that will take the government in a different direction but will have to work with the administration to do so. As a result, there has already been a significant tax deal which we will detail below.
THE NEW TAX DEAL…
On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The Bush tax cuts are thus extended for all income levels through year-end 2012. As a result, the dividend and capital gains tax rates remain at 15% through 2012. The AMT is “patched” through 2011, mitigating its consequences for middle-income taxpayers in the same manner as in prior years. The employee’s share of Social Security tax is reduced by two percentage points in 2011. As a result, working taxpayers will pay Social Security tax in 2011 at a 4.2% rate (rather than the prevailing 6.2% rate). A worker with compensation in excess of the Social Security wage base maximum of $106,000 will save $2,120 in Social Security tax in 2011. Most expired or expiring tax provisions are extended through 2011. Of particular note, investors may move up to $100,000 from an IRA to a charity in each of 2010 and 2011 to satisfy their RMD requirement without incurring tax. To provide investors with additional time to arrange this transfer, the legislation treats transfers from IRAs to charities made during January 2011 as if they were made in 2010. Perhaps most surprising was that the compromise included estate and gift tax provisions more generous than any past estate tax change. These new rules remain in effect through year-end 2012: a $5 million estate tax exemption and a 35% estate tax rate and reinstatement of stepped-up basis at death. One thing is clear: eventually, taxes must go up. Whether higher taxes occur through further stratification of upper-income tax rates or through tax reform that eliminates many of the deductions we’ve come to expect, mathematically the budget deficit simply demands greater revenues. We have a two-year reprieve, but we are likely to be paying back our tax refunds with interest. *(source The Washington Update Jan 2011) Now you might be thinking, “How do you stay up on all these changes and make the best recommendations for me?” The same answer applies to executing the strategy as it does to designing it. We know how to identify the issues that need addressing and then we rely on tax and legal experts to help us analyze your situation and make recommendations that best fit your financial situation.
EXECUTING THE STRATEGY…
In our last letter we discussed how to design a strong financial game plan. As you may have seen or heard while watching the college bowl season or the NFL playoffs, executing the game plan is even more important than designing it. Every coach knows that without proper execution and adjustments, the best plan is useless. That is why open communication between you and your advisor to discuss implementation of action items and ongoing changes is so important. We are the offensive and defensive coordinator that helps design how to grow and how to protect. You are the head coach who helps set the strategy and then we make sure it gets executed properly. Luckily we have unlimited timeouts to discuss strategy but the clock is ticking and we want to have a sense of urgency. As always, we are continuing to work on your investment and financial game plan on a regular basis and look forward to our “huddle” with you to discuss it.
Have a Happy New Year from all of us.
