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Welcome to the October issue of the Brighton Bulletin!
The last quarter has been rather turbulent for equity markets and rather placid for fixed income markets. As a stats geek, it is always interesting to me to review index performance at the end of each month and get a sense for what investors are favoring or avoiding. There is a remarkable consistency, at least to me, with regard to what performed well in September and what performed well for the third quarter.
Here is a snapshot of the S&P 500 Index(1) and the exchange-traded fund, BND(2) which shows how volatile equity markets were and calm fixed income markets were.
The S&P went from down (-2)% to up 8% back to essentially flat then closed at roughly up 10% for the quarter, while BND hummed along at roughly 2% total return. It's kind of a good snapshot of longer-term performance for both, equity offers greater upside but with greater volatility. As the old saying goes - "don't put all of your eggs in one basket"!
So what worked best during the month and the quarter? The leaders were specific emerging market countries - Argentina, Thailand, Turkey, and Chile all did very well. For those paying attention to global economics, that shouldn't come as much of a surprise. Emerging markets look very attractive as they have lower debt levels, declining inflation and better forecast growth (3) than developed markets such as the United States, Japan and Europe. Also doing well were telecom and technology stocks and a little further down the list, domestic small cap stocks. Most fixed income indexes were up for the quarter but not much.
As a firm, we've been skeptical of global economic performance and have serious reservations about forecast growth for 2011. The formula for Gross Domestic Product is simplified to Consumption (C) + Investment (I) + Government (G) + Net Exports (X-M). Consumption refers to consumer spending and, in the U.S, accounts for roughly 70% of GDP. With "under-employment" hovering around 18%(4) and consumer spending trending down since June (4), it's difficult to forecast GDP improving significantly in the near term. While we're unimpressed by current economic conditions, we do believe that markets are a discounting mechanism of forward expectations. Emerging market performance isn't surprising to us but third quarter and September performance for telecom/technology and small cap growth stocks may be suggestive of improving conditions in U.S. markets. Consequently, while we remain conservative investors, we'll be evaluating traditional equity opportunities closely in the near-term.
(1) S&P 500 Index- The S&P 500® has been widely regarded as the best single gauge of the large cap U.S equities market since the index was first published in 1957. The index has over US$ 3.5 trillion benchmarked, with index assets comprising approximately US$ 915 billion of this total. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities.
(2) BND- Vanguard Total Bond Fund-Total Bond Market ETF (BND)- The Vanguard Total Bond Market ETF employs a "passive management" - or indexing - investment approach designed to track the performance of the Lehman U.S. Aggregate Bond Index. This index measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States - including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.
(3) International Monetary Fund - http://www.imf.org/external/data.htm
As always, if there is anything we can do for you, please contact us. Follow us on Facebook, and on our blog, the Brighton Perspective!
Sincerely,
John P. Middleton, CFA, CAIA Brighton Financial Planning |
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Health-Care Reform: How Does It Affect You?
Now that comprehensive health-care reform has been signed into law, how will it affect you? While some portions of the law become effective in 2010, other provisions are phased in over time. Nevertheless, it is almost certain that at least some of these reforms will have an effect on you and your family.
How will health coverage change?
The health-care reform law contains provisions that expand benefits, improve access to health care, and protect the rights of consumers. Here are some of the changes that will apply to most health plans (although some will apply only to new, not existing, coverage).
ü Plans must fully cover certain wellness and preventive care benefits (e.g., immunizations, cancer, diabetes, and heart disease screenings, smoking cessation programs)
ü Plans can no longer charge more for out-of-network emergency care
ü Plan can't impose lifetime limits on health coverage (annual limits will be gradually phased out, and will be fully phased out by 2014)
ü Children can remain on a parent's health plan up to age 26
ü Health coverage can't be rescinded due to illness (only for fraud or intentional misrepresentation)
Changes to employer-sponsored high-deductible health spending accounts aren't quite so favorable. For example, if you participate in a health flexible spending account (health FSA), health reimbursement account (HRA), health savings account (HSA), or Archer medical savings account (MSA), the cost of over-the-counter drugs not prescribed by your doctor will not be considered a qualified medical expense (an exception applies for insulin). And you'll pay an increased penalty tax of 20 percent on money you take out of your HSA or Archer MSA that isn't used for qualified medical expenses. And, beginning in 2013, contributions to health FSAs that are part of a cafeteria plan will be limited to $2,500 per year.
How will Medicare be affected?
If you're a Medicare beneficiary, you will also see some changes to your coverage. You'll be covered for most preventive and wellness care expenses without co-payments beginning in 2011. If you're covered by Medicare Part D and you've been paying all of the cost of your prescriptions after reaching a minimum threshold, a situation referred to as the "donut hole," your out-of-pocket expenses will gradually decrease, beginning in 2010 with the payment of a $250 rebate, until 2020, when the donut hole is completely filled. If you're a Medicare Advantage beneficiary, however, beginning in 2011, you may see some of the extra benefits offered by these plans dropped as government reimbursements to these plans are restructured and, in some cases, reduced. And, beginning in 2013, if your annual earnings are equal to or more than $200,000 ($250,000 for couples), your Medicare payroll tax will increase by 0.9 percent, and a Medicare tax of 3.8 percent will be applied to some types of investment income, such as rent, capital gains, and annuity payments.
What if you don't have insurance?
By 2014, you'll be required to have health insurance or face a tax penalty (some exceptions apply). However, if you don't have insurance, or if it's too expensive, the reforms may make it easier for you to get and keep health insurance. By 2014, insurers will have to accept you regardless of your health history, and premiums can only vary based on tobacco use and age, not on health status or gender. If you don't have access to affordable health insurance through an employer, you'll be able to purchase coverage through state-based American Health Benefit Exchange. Premium and cost-sharing subsidies will be available to individuals and families with incomes at or below 400 percent of the Federal Poverty Level (FPL), which will help reduce the cost of insurance purchased through an exchange. In addition, Medicaid availability will be expanded to those under age 65 with incomes up to 133 percent of the FPL. Prior to 2014, if you haven't been able to get insurance for at least six months due to a pre-existing condition, you will be able to purchase insurance through temporary high-risk pools.
Copyright 2006-2010 Forefield Inc. All rights reserved. | |
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Generally, each individual is allowed an exemption from the federal estate tax. That amount increased from $2 million to $3.5 million on January 1, 2009. This should be great news, but for some married couples, it could actually mean an increase in state death taxes Here's why:
Not only does the federal government impose an estate tax, but each state imposes some type of death tax as well. In order to avoid double taxation, the federal estate tax system used to allow a credit for state death taxes paid, which was calculated using a table, similar to the federal income tax tables. Many of the states imposed a state death tax equal to the federal credit that was allowed. In 2001, however, a law was passed that repealed the federal tax credit and replaced it with a deduction. In response, many states "decoupled" from the federal system, and began to impose a stand-alone death tax. Many of these states now only allow an exemption of $1 million or less.
Many married couples plan their estates to postpone the payment of estate taxes until the death of the second spouse. For example, a couple's will might provide that an amount equal to the federal exemption passes to children (or first to a trust that benefits the surviving spouse), and the remainder passes to the surviving spouse free from estate taxes (both federal and state) under the unlimited marital deduction. This formula works fine as long as the federal exemption amount and the state exemption amount are the same. However, if the federal exemption amount is greater than the state exemption amount (as it is in 2009), the difference between the two may become subject to state death taxation.
Unless a married couple's estate plan has been updated, one or both estates may owe state death taxes even though one or both estates may pass free from federal estate tax. Deciding how to address this complication can be difficult. Copyright 2006-2010 Forefield Inc. All rights reserved |
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They're Baaack:
RMDs for 2010
Required minimum distributions, often referred to as RMDs are amounts the federal government requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans after you reach age 70½ (or, in some cases, after you retire). RMDs are also required if you inherit an IRA (traditional or Roth) or employer plan account. You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you'll be subject to a federal penalty tax equal to 50% of the shortfall.
In response to deteriorating economic conditions in 2008, Congress waived RMDs from IRAs and defined contribution employer plans for the 2009 calendar year. This allowed individuals to avoid having to deplete retirement plan assets while the value of those assets was suddenly depressed. But RMDs are back for 2010. If you have any questions, we are more than happy to help. |
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Disclosures
The views expressed herein represent the opinion(s) of Brighton Financial Professionals as of the date of this posting, and may change at any time without prior notification. |
The links to other websites provides a path to other entities' websites that are not affiliate with BFP. BFP is not responsible for the content or information practices by websites linked to Brighton. Often we provide links to other sites solely as pointers to information or topics that may be of interest to users of our website. Such links do not imply BFP's endorsement of any information or material on any other site and BFP disclaims all liability with regard to your access to and use of such linked websites.
Brighton Financial Planning utilizes information from third party sources. Brighton Financial Planning is not responsible for verifying the accuracy of any information sourced by such third-party information providers.
Any mention of products or securities does not constitute a recommendation, investment, legal or tax advice, as BFP is not holding itself out as providing such advice.
Any mention of securities does not represent an offer or a solicitation of an offer to buy or sell such securities, particularly in those jurisdictions where such solicitation or offer is prohibited by law.
As with all investments, there are inherent risks to investing that may not be able to be mitigate through responsible investing. You should consult with a qualified investment adviser prior to investing. |
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