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Welcome to the February 2011 issue of the Brighton Bulletin!
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We have had the pleasure of meeting with almost everyone either in person or online over the past six months. During our meetings, we have continually discussed our, at best, sanguine outlook for the U.S. economy for 2011. While we continue to have reservations, our fears of a substantial market correction have subsided. This is a result, largely, of the modest performance of equity markets from August 2009 through early December. As the markets remained range-bound between 1,050 and 1,200 (for the S&P 500 Index), corporate earnings improved dramatically. The result is the forward price/earnings ratio for the S&P 500 (as reported by Standard & Poors, Inc. and available for download at their website) is roughly 15. Thus, to us, the market is closer to fair value than it was at the end of 2009. We review and evaluate all holdings on a routine basis and rebalance as necessary when we believe investment opportunity and/or market dynamics make it appropriate to do so.
Consequently, we have reduced the "hedged" equity exposure in all active, discretionary client portfolios to approximately 20% of each portfolios equity exposure. The remaining exposure is equally balanced between two funds - a managed futures strategy and a proxy for a "global macro" strategy. We believe these strategies offer the potential diversification benefits we desire while also offering the potential for positive total returns going forward. The managed futures strategy is not available to all portfolios, and where not available, we have used a long-biased, hedged equity strategy as an alternative.
We have also added equity exposure to Asian markets. We believe the developing markets continue to offer investment opportunities, despite already strong performance and capital flows. This rationale is based on data provided by the World Bank as well as other sources that project strong GDP growth, declining inflation and consistent sovereign fiscal discipline. Among developing markets, the Asian markets appear among the strongest. The allocation is small because we believe it is important to manage overall portfolio volatility as well as strive for returns, this allocation provides an appropriate balance between volatility and return.
We have also returned to global commodity producers. We like commodities long-term as we believe the demand for scarce resources is unlikely to abate any time soon, particularly among emerging markets. However, we exited the fund in June/July of 2010 because we were concerned at the time about an increasing risk of deflation in global markets and believe it appropriate to capture the profit we had in the position. We believed that risk was greater than the potential reward for remaining invested. The deflation risk has subsided over the last six months and, while not completely diminished, we believe the opportunity of investing in commodities globally is greater than the risk of deflation, hence we have added the position to client portfolios.
Finally, we adjusted our core global equity exposure where possible. We remained committed to a global equity approach and believe it appropriate to build on our exposure where cash was available to do so.
Please let us know if there is anything we can do for you. As always, we welcome the opportunity to meet with you to discuss our global outlook and your portfolios as well as address any other financial concerns you may have. We will continue to work hard for you. |
Sincerely,
John P. Middleton, CFA, CAIA
Brighton Financial Planning Follow us on Facebook, and on our blog, the Brighton Perspective! |
New Cost Basis Reporting
Brokers must track and report cost basis
If you're contemplating selling stock in 2011 and beyond, you should be aware of new federal regulations that give you more flexibility in managing the tax impact of your investment decisions. The new regulations, which went into effect January 1, 2011, require brokers to track your cost basis. Even better, they allow you to determine how your brokerage firm reports the cost basis of a sale. That can be helpful if you want to minimize the amount of gain on which you'll owe federal income tax or maximize a capital loss.
Your cost basis represents the original purchase price of a security plus any commissions or other fees; your adjusted cost basis is that cost basis adjusted for a variety of factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends. Until now, reporting the gain or loss from your investments has been your responsibility, and could be very challenging for the average investor. The new regulations should make it easier to record your capital losses or gains accurately on your federal income tax form.
The Emergency Economic Stabilization Act of 2008 requires that, as of January 1, 2011, U.S. broker-dealers and other financial intermediaries must not only track the adjusted cost basis of their investors' accounts, but also report that basis to investor clients on their 1099 forms and to the Internal Revenue Service. The rules will be implemented over time. They'll apply  to shares of individual stocks you buy after January 1, 2011, to investments in mutual funds and dividend reinvestment plans after January 1, 2012, and to bonds, options and other securities bought after January 1, 2013. Shares acquired before January 1, 2011 are exempt from the new rules, as are securities held in retirement accounts.
You can tailor your reporting method to suit your tax situation
The new regulations allow you to determine in advance what accounting method you wish to use for each sale of stock after January 1, 2011. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).
You may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three days after execution of the trade). After the trade settles, you cannot change your mind about the method used. Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days).
Because the new regulations don't apply to investments purchased before January 1, 2011, you'll still need to do your own calculations on those transactions. The cost basis information will be included on the 1099 form you receive from your broker for tax year 2011.
Copyright 2006-2010 Forefield Inc. All rights reserved.
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The Patient Protection and Affordable Care Act (PPACA), signed into law in 2010, makes significant changes to our health care delivery system. Some of these reforms took effect in 2010 while many others take place in 2011. The following is a brief description of some of the most important provisions of the health care reform legislation that take effect this year.
· Individual and group health insurance plans are required to extend dependent coverage for adult children up to age 26. While this requirement was effective November 2010 for active employees, enrollment elections made during the 2011 open enrollment period will be effective on January 1, 2011.
· The cost of over-the-counter drugs not prescribed by a doctor can no longer be reimbursed through a Health Reimbursement Account or a health Flexible Spending account, nor can these costs be reimbursed on a tax-free basis through a Health Savings Account or Archer Medical Savings Account. Also, the additional tax on distributions from health savings accounts or Archer MSAs that are not used for qualified medical expenses increases to 20%.
· Medicare Part D participants will receive a 50% discount on brand-name prescriptions filled in the coverage gap (i.e., the donut hole) from pharmaceutical manufacturers, and federal subsidies for generic prescriptions filled in the coverage gap will start to be phased in.
· Health plans that do not spend at least a minimum percentage of premiums (85% for plans in the large group market and 80% for plans in the individual or small group markets) on health care services must provide a rebate to consumers.
· Certain preventive services covered by Medicare are no longer subject to cost-sharing (co-payments); the deductible is waived for Medicare-covered colorectal cancer screening tests; and Medicare now covers personalized prevention plans including a comprehensive health risk assessment.
· High income ($85,000 for individuals, $170,000 for married filing jointly) enrollees in Medicare Part B and Part D coverage will likely see their premiums increase. The income thresholds used to determine Medicare Part B and Part D premiums for higher income individuals is frozen at 2010 income rates through 2019 and will not be adjusted for inflation. Also, the federal subsidy for high income Part D participants is reduced, resulting in increased premiums based on income levels that exceed the applicable threshold.
· Medicare Advantage (MA) plans can no longer impose higher cost-sharing for some Medicare-covered benefits than would be imposed by traditional Medicare Parts A or B insurance. Also, Medicare Advantage plans cannot exceed a mandatory maximum out-of-pocket amount for Medicare Parts A and B services. The maximum amount in 2011 is $6,700, but MA plans can voluntarily offer lower out-of-pocket amounts. Also, the annual enrollment period for MA plans is changed to October 15 to December 7 each year beginning in 2011 for plan year 2012.
· Community Living Assistance Services and Supports Program (CLASS) is to be established to provide national long-term care insurance funded by voluntary participant premiums that can be paid through payroll deductions.
· The disclosure of the nutritional content of standard menu items offered through chain restaurants and vending machines is required.
· The requirement that employers report the total value of employer-sponsored health benefits on employees' W-2s was to begin in 2011. However, the IRS has deferred this requirement for 2011 so employers will not be subject to penalties for failure to meet this requirement.
copyright 2006-2010 Forefield Inc. all rights reserved
These changes may impact your health insurance benefits and costs. Please call us if you would like to discuss anything further or click on the link below to email us.
John
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Tax-Free Charitable Contributions from IRAs Extended Once Again
The Pension Protection Act of 2006 first allowed taxpayers age 70½ or older to exclude from gross income otherwise taxable distributions ("qualified charitable distributions," or QCDs) from their IRA that were paid directly to a qualified charity. Taxpayers were able to exclude up to $100,000 in both 2006 and 2007. The law was extended through 2009 by the Emergency Economic Stabilization Act of 2008, and has just been extended again, through 2011, by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief Act).
How QCDs work for 2011
You must be 70½ or older in order to make QCDs. You direct your IRA trustee to make a distribution directly from your IRA (other than SEP and SIMPLE IRAs) to a qualified charity. The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income in 2011. If you file a joint return, your spouse can exclude an additional $100,000 of QCDs in 2011. Note: You don't get to deduct QCDs as a charitable contribution on your federal income tax return--that would be double dipping.
QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to receive from your IRA in 2011, just as if you had received an actual distribution from the plan. However, distributions that you actually receive from your IRA (including RMDs) that you subsequently transfer to a charity cannot qualify as QCDs.
Please call us if you have any questions or would like additional information.
February is American Heart Month!
Don't forget to take care of your heart! |
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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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