 |
The Ride Continues!
November proved no less volatile than October as most markets declined by double digits. As of this writing the day before Thanksgiving, the S&P 500 was down over 10% for the month, and 41% for the year-to-date. Pundits continue to attempt to equate 2008 with the Depression years but much is different. We are in a recession and could see a contraction of 5% annualized for the fourth quarter which would qualify the current economic environment as a "Depression". However, during the "Great Depression" the economy contracted over 30% and unemployment was greater than 25% at the lowest point. Additionally, we had a very protectionist global economic policy, were on the gold standard for currency valuation and the federal government raised taxes in the early years. We also didn't have insurance such as SIPC for brokerage accounts and FDIC for bank accounts to help prevent runs on the banks.
Gross Domestic Product is the sum of government spending, corporate spending, consumer spending and net imports. Consumer spending accounts for roughly 2/3rds of GDP and has fallen substantially in recent months. That shouldn't surprise anyone. Corporate spending has also fallen. Goldman Sachs suggests that corporations will move from net borrowers of roughly 4% of GDP to net savers of roughly 10% of GDP. What does that mean? Corporations are holding substantial cash balances on their balance sheets anticipating tighter lending standards. This leaves the government as the spender of last resort. In a recession, it does make sense for the government to step up spending to "bridge the gap". It will be important, however, for the government to reduce spending when the economy recovers. For now, fiscal stimulus in 2009 is most likely necessary to aid in our economic recovery.
The future always holds promise, so look to 2009 as a year of recovery. Continued efforts by global governments to improve economic conditions will eventually take hold. Consumers, optimistic by nature, will start spending again and economies will start growing again. However, financial markets will turn upward, most likely, when the future appears most bleak. Therefore, as always, stay with your asset allocation. Research conducted by Morningstar suggests that a 40% fixed income/60% equity portfolio has frequently outperformed an all equity portfolio immediately after a crisis and over longer periods and done so with less volatility! Click on the link for more information.
|
|
Financial Planning for Financial Aid |
|
The College Board has released its annual report on college costs and, as usual, costs have appreciated more than inflation! That's not surprising to anyone already paying tuition bills but may be news to those of us not yet contemplating financing college for our children. For anyone in the latter category, its time to start! The average cost of college for four years, including tuition and fees, room and board, transportation, books and supplies and other expenses is approximately $115,000 for 2008. That cost ranges from a low of $75,000 for an in-state public university student to a high of $150,000 for a private university student. Costs are rising at a rate of roughly 2.4% above inflation.
Click for theCollege Board Report
What can you do to prepare for college? Several options are available. First, considering funding 529 accounts for your children. There are numerous 529 plans with multiple investment options. Additionally, there are considerations regarding how to open an account, so it is wise to discuss with your financial advisor before proceeding. Second, consider financial aid options. There are multiple avenues for pursuing aid - scholarships, grants and work-study for example. Most aid is need based and is based on an evaluation of your financial situation in the calendar year prior to enrollment in college. Thus, it is wise to start planning for applying for financial aid roughly 2 calendar years prior to enrollment. Positioning yourself to maximize your chances for aid involves sound financial planning so sit down with your advisor and get the process started early. This review may involve tax planning as well, so consult with your tax advisor as well.
Brighton Financial has developed a booklet which reviews the financial aid process. Click on the link below to request your copy.
Considering College Aid? |
|
|
Small Business Retirement Planning It is estimated that less than 40% of companies with fewer than 100 employees have established a retirement plan for the organization. Yet, such a plan serves a multitude of purposes not the least of which is employee recruitment and retention. Additionally, they provide the business owner a vehicle with which to plan for his/her own retirement. Many owners don't establish plans because of perceived complexity or cost? They assume its too difficult or too expensive and move on to other topics. If you own your own business, don't make the mistake of overlooking retirement planning. If you know someone who owns their own business and has not established a plan, suggest they do so.
Using a financial advisor can resolve many of the issues associated with establishing a plan. The advisor can assist with plan selection, investment policy statement review, selection and hiring of an administrator, investment options, and on-going employee education. These services won't absolve the owner of fiduciary responsibility but can make life easier and enable the owner to focus on the business issues at hand. In this era of diminishing Social Security funds, a retirement plan is a valued asset for the individual and for the business.
More Details |
|
Thank you for reading this bulletin. I hope you continue to find it useful. I welcome your feedback. If you like it and find it useful, please feel free to forward it on. I also welcome comments and suggestions on topics for future newsletters. Finally, as always, please let me know if there is anything I can do for you.
Sincerely,
John P. Middleton, CFA, CAIA
Brighton Financial Planning, Inc. | |
|
|
| Spotlight |
Despite poor financial markets in 2008, many investors may have realized capital gains from sales during the year or from mutual fund year-end capital gains distributions. Investors can pay the tax due on the gains or attempt to offset the gains by realizing losses from other investments. This approach is not for everyone so please consult with your financial advisor.
More Details
|
|
|
