Are you a small business owner? Do you work for a small business? If yes, and you don't have a company-sponsored retirement plan, now is a good time to consider starting one. The benefits are much greater than expected:

 

Contact me for additional information.

 

 

 

 

 

 

By now we're all well aware of market and economic performance for 2008. It has been a remarkable year with numerous significant events. Oil exceeded $100 a barrel in January peaked near $140 and today is $40. The equity markets started the year poorly and continued to disappoint. As of this writing, the equity markets, defined by the S&P 500 are down over 40% year-to-date. If we finish the year at this level it will be the worst calendar year performance since 1934. Fittingly, economic performance is consistent with equity markets performance. U.S GDP contracted 0.5% in the third quarter, marking the weakest quarter since 2001. Forecast GDP for the 4th quarter is greater than 6% which would be the largest decline since the early 1980's.

 

Optimistically, let's look for opportunity in distress. While 2008 has been relentlessly negative, several positives have emerged or will emerge as a result of this years events. The liquidity crisis brought on by the failure of Lehman Brothers has forced many hedge funds out of business, the vast majority of which shouldn't have existed anyway. It has also greatly reduced liquity in the markets. The result is fewer dollars chasing finite assets. Going back to Eco 101, when demand (dollars) exceeds supply (investment assets), prices increase. As demand resets to lower levels, prices decline. The result moving forward, in my opinion, will be investment asset prices that more accurately reflect economic performance. While not appearing so today, this is a good thing. Events have also reminded investors that markets are volatile and that prudent asset allocation and risk management are necesary for long-term performance. This won't eliminate speculation but should temper unbridled enthusiasm and willful neglect of risk.

 

Forecasts for the new year are not attractive, with most economists expecting the recession to continue throughout the year. The average recession post the Great Depression has been 16 months long. We'll exceed that if forecasts are correct and given what we've endured in 2008, shouldn't surprise anyone. Keep in mind, though, as you plan for 2009, that the equity markets are a discounting mechanism of future cash flows. That is, the markets will turn up just when everything seems bleakest. So don't get away from your asset allocation now. If you've made it this far, you can make it through.

 

Finally, an interesting area to explore in 2009 - Corporate Bonds. The liquidity crisis as taken a significant toll on corporate bonds with prices at levels suggesting default rates greater than those experienced during the Depression. I believe these rates are unrealistic and believe that as liquidity returns and market participants reset expectations, corporate bond prices will rise to more realistic levels. This could make for attractive returns going forward. As always, before investing consider the risks and consider meeting with your advisor to determine if changes are warranted given your personal situation. What's good for one investor may not be for another.

 

As we approach year-end, there are several steps individuals can consider which may help to reduce the annual tax burden we all face. Tax planning at the end of the year is equally focused on reducing your current tax bill and on reducing your bill for next year. Take time now to estimate your tax bill for 2008 and consider making adjustments. It is important to know if you'll be subject to the Alternative Minimum Tax. With that in mind, consider the following options:

 

1) Defer income into 2009 if you believe you'll be in a lower tax bracket in 2009.

2) Defer realizing capital gains, if any, into 2009.

3) Consider realizing capital losses to offset realized gains.

4) Make charitable contributions before year-end.

5) Make your January mortgage payment early.

6) If you make estimated state tax payments, make the January payment prior to year-end.

7) Finally, if you haven't taken your RMD yet, you must still do so for 2008 but Congress has provided relief for 2009.

 

Consult with your tax advisor before taking any other steps. You'll want to be sure you will benefit from these actions.

 

 

 

 

 

 

If you have an IRA and haven't made a contribution in 2008, now's the time. Whether or not the contribution is tax-deductible is dependent on several issues such as if you (or your spouse) are in an employee-sponsored retirement plan or if your income exceeds certain levels. However, everyone up to 70 1/2 years old, can make a non-deductible contribution.

 

Good things are in store for 2010 for Roth IRAs, so give due consideration to these vehicles as well.