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Long-term outlook allows Warren Buffett to maintain optimism on the market 

WarrenBuffett

View Warren Buffett's interview with Charlie Rose here.

 

I thought our readers might be interested in this recent editorial which appeared in The Street.

 

Joe

 

Warren Buffett has been the oracle of President Omaha's unwavering optimistic view of the ongoing global economic recovery. Using a variety of mediums including New York Times op-eds, shareholder letters, and sit-down interviews, the billionaire investor has attempted to ease investor fears, arguing that the world's largest economy still holds promise over the long run.

 

As investors have clamored and panicked following Standard & Poor's' credit downgrade and renewed concerns over the European debt crisis, Buffett has once again taken to the stage in an effort to quell fears.

 

Speaking with news outlets including Bloomberg and CNBC, the famed investor reiterated his confidence in the U.S. marketplace, explaining that the ratings agency made a mistake in slashing the nation's credit rating. Adding a dash of his famed down-home wit, Buffett went as far as to state that, if it were possible the U.S. should have a quadruple-A rating.

 

Buffett's comments may have been enough to instill confidence into some. However, the Nebraska native is not relying on words alone. On top of reiterating his general optimism for the U.S. economy, the investor appears to be taking action, itching to spend cash.

 

Despite resounding market fears, investors learned recently that Buffett, armed with his acquisition elephant gun, was back on the hunt. This time, the investor had his sights set on reinsurer Transatlantic Holdings.

 

Over the past year, the famed investor, flush with cash, has made a number of well-documented purchases. In March, he dropped $9 billion to purchase chemical maker, Lubrizol and in late June, it was announced that Berkshire Hathaway would spend over $500 million to acquire the remaining 20% stake in Wesco Financial Corp it didn't already own.

 

Interestingly, while the Oracle's previous 2011 purchases had largely gone off without a hitch, Berkshire Hathaway's attempt to romance Transatlantic has been met with steep opposition. Berkshire's initial $52 per share offer, valued at $3.25 billion, was turned down at the start of the week despite trumping previous bids offered by Swiss insurer Allied World Assurance Company Holdings and Bermuda-based Validus Holdings.

 

According to a report from Reuters, Transatlantic is in negotiations with Berkshire branch National Indemnity in hopes of coming to an agreement upon a "superior proposal."

Those who have kept close watch over every market fluctuation that has taken place during the past week may find it difficult to side with Buffett at this time. However, it is important to remember that a crucial factor contributing to the investor's optimistic outlook is his ability to maintain a long-term focus.

 

Rather than allowing day-to-day market performance to spur emotions and drive actions, this billionaire is more interested in general economic recovery picture. A champion of patience, Buffett's calm, levelheaded approach to investing will aid him greatly when it comes to riding out current turbulence as well as future storms on the horizon.

 

In the coming days and weeks, volatility will likely remain present. By constructing a balanced, well-diversified portfolio, however, it is possible to mitigate concerns. 


  

Chornyak & Associates lifestyle seminars: We need your input!

WineTasting    

A recent study published by the American Psychological Association found that negative news about the economy is causing significant stress for 8 out of 10 people - up from 66% from last year. In these troubled financial times, we at Chornyak & Associates want to help you enjoy your life by focusing on non-financially related pastimes.

 

Our team is in the preliminary stages of planning some periodic seminars, or 60 - 90 minute idea exchanges that would be offered, at no cost, to our clients and their family/friends to discuss key areas of interest in improving our lifestyles - personal growth of non-financial interest.  

 

The topics we're considering are:

  • healthy cooking class
  • starting a personal health plan to get on track for a longer life
  • wine tasting
  • stress relievers and how to relax better
  • educating your children about your financial/estate planning
  • group golf lesson
  • how to care for your aging parents
  • gardening class
  • CPR Training
  • social media for fun and profit
  • how to write more effectively to convince and entertain
  • any other "non-business" ideas of interest that would help improve your enjoyment of life and balance work with pleasure

If you think you might be interested in attending one or more of these "self-improvement" seminars in the future, please e-mail Joe Chornyak, Jr. at [email protected]  and let us know which of the above topics would be of interest to you.  Please feel free to add a topic of your own.   

 

Chornyak & Associates has gained new clients almost exclusively through specific recommendations made by our existing client base - people like you. We'd like to do more than simply say "Thank you" by providing this complementary service that we believe will improve our relationship and give us the opportunity to have some fun together.

 

  

Saving for college? Here's why you should consider a 529 plan

  by Simon Heslop, CFA, director of asset management at  
  Commonwealth Financial Network


SavingForCollege

 

Summer is almost over, and many a parent is already preparing for the back-to-school rush. If college is in your children's future, you may also be wondering about the best way to save for this ever-increasing expense. One option is the 529 plan.

 

What is a 529 plan?

 

A 529 plan is a tax-advantaged investment vehicle sponsored by a state or educational institution that is designed to help families put aside funds to pay for future college costs. It's named after Section 529 of the Internal Revenue Code (IRC).

 

There are two different types of 529 plans-prepaid tuition plans and college savings plans-and each comes with its own advantages and drawbacks:

 

Prepaid tuition plans

  • Allow you to pre-pay all or part of the costs of a college education and are guaranteed to increase in value at the same rate as college tuition
  • Typically must be used at public colleges in a particular state
  • Require tuition credits to be used by the time the beneficiary reaches age 30  

College savings plans

  • Have no guarantees; the account owner bears the risk of investment returns
  • Can be used at any college accredited by the U.S. Department of Education, at home or abroad
  • Have no time limit on withdrawals
  • Your financial advisor can help you assess which plan type is the best fit for your financial goals

529 plan benefits

 

Many people consider 529 plans a good investment, largely due to their federal, state, gift, and estate tax advantages. Let's take a closer look.

 

Tax benefits. The primary tax benefits involve the treatment of contributions, earnings, and distributions. Similar to an IRA, earnings on contributions to a 529 college savings plan are tax-deferred; however, unlike a traditional IRA, distributions from the 529 plan are federal tax-free, as long as the funds are applied toward payment of qualified higher education expenses, which typically include tuition, fees, books, and supplies, and may include room and board.

 

In addition, all but seven states offer a full or partial income tax deduction on contributions made to a 529 plan. Your financial advisor can help you determine the availability and extent of the allowable income tax deduction.

 

The fees, expenses, and features of 529 plans can vary from state to state.  529 plans involve investment risk, including the possible loss of funds.  There is no guarantee a college-funding goal will be met.  The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient's marginal rate and subject to a 10% penalty.  By investing in a Plan outside your State of residence, you may lose any State tax benefits.  529 plans are subject to enrollment, maintenance and administration/management fees and expenses.    

 

Please contact Chornyak & Associates if you'd like more information on this complex topic.  We can also discuss another option: setting up trusts under the Uniform Trust for Minors Act, that has tax-savings advantages. 

 

  

Financially savvy travel: Get to your destination wisely  


CoupleInParis

    

Freedom to travel is one of the well earned rewards of smart financial planning. But as someone who's reaped the benefits of thoughtful guidance and thorough preparation, you know better than to rely on chance to get you to your destination.  

 

Below are some tips to help you minimize both the expense and the risks that travelers face, while maximizing your satisfaction and peace of mind.

 

Plan ahead to control costs

 

Whether you're booking online or over the phone, it pays to shop around. AARP continues to offer transportation and hotel discounts, as well as an online newsletter about the best travel deals.   

 

Check out special vacation packages and all-inclusive rates, too. Although most travel agencies now charge a small fee, they may be a more convenient route to cost-saving options. For many popular vacation spots, off-season travel affords freedom from hordes of tourists and peak rates. By using a credit card to accrue airline miles and other travel rewards, you can also start paving the way for future trips.

 

  • Airfare: A little flexibility can go a long way toward cutting costs. Calendar-based tools on websites like Expedia and Travelocity can help you find the cheapest travel dates for your destination.

    Also, keep in mind:

    -   The window for discounted international tickets usually
        opens about 60 days out, and about 45 days in
        advance for domestic flights.
    -   You'll typically find the best prices midweek, with
        lowest fares available just after midnight on Tuesday.
    -   Red-eye flights for coast-to-coast and international
        trips, Saturday stays, and flying between noon on
        Monday through noon on Thursday can also cost a lot
        less.

To get a sense of price trends for particular airfares, check out Bing Travel.  

 

  • Hotels: Prices tend to plummet during the off-season. Holiday stays in upscale urban hotels are generally available at bargain rates and often include discounts on shopping or theater tickets. Although the savings are less substantial than in the past, many hotel chains still offer senior discounts. Staying in an outlying town rather than a major city can also save money. For longer stays, a vacation rental with a kitchen may be more cost-effective.
  • Other transportation: Road trips remain a great way to see the country, but with soaring fuel prices, car travel is no longer the bargain it once was. Train travel has also become more expensive. Search for special promotions on car rentals and rail tickets early-and often. Their availability tends to shift drastically as demand fluctuates.  
  • For traveling around Europe, rail passes can save you a bundle, but be sure to check out the usage restrictions. The UK's National Rail website lists the latest promotions at www.nationalrail.co.uk/times_fares/promotions/.

Travel insurance: how to avoid going overboard 


Before investing in travel insurance, review your existing insurance, as well as your credit card coverage, to avoid redundancy. Above all, read the fine print on all your policies.

  • Accident liability: Your driver's, automobile club, or homeowner's policies may already provide adequate coverage. A credit card that offers primary collision insurance or premium car rental protection can help you avoid the steep price of a collision/loss damage waiver from an agency, while reducing your liability risk. AARP members can also use the organization's car rental discount code at select companies to cap their total exposure.
  • Medical coverage: Since Medicare typically doesn't cover medical costs outside the U.S. and its territories, it's essential to have primary major medical insurance that covers preexisting conditions and emergency medical evacuations for trips overseas. If your vacation plans include high-risk activities or extreme sports, you may need additional coverage.
  • Trip cancellation: Some travel insurance excludes events such as terrorism and natural disasters. While true travel insurance reimburses you in cash for forfeited deposits and prepayments, waivers merely protect you from cancellation fees or provide travel vouchers. To ensure that you get a good price, consult price-comparison sites such as www.squaremouth.com and www.insuremytrip.com.

Currency: getting your money's worth

To get the most favorable rates, wait to exchange your currency until you arrive at your destination. You'll likely get the best exchange rates using a debit card at an ATM affiliated with a major bank. Before you leave, check with your bank to make sure your card will work in foreign ATMs and let the bank know you'll be withdrawing money abroad.

Above all, avoid the following "tourist traps":

  • Currency exchanges: Bypass the unfavorable rates and high fees at airport currency exchanges and local money exchange companies.
  • Sky-high bank transaction fees: Compare your bank's fee schedule with other financial institutions' to ensure that you're getting a fair deal.
  • The hidden costs of credit cards: Remember that extra transaction fees apply abroad, and beware of friendly merchants who offer to spare you the trouble of translating foreign prices into dollars and cents - it's never worth the additional costs.

The value of security

 

When traveling outside the U.S., your best insurance against unexpected hazards is to register with the State Department online before your departure. The State Department and U.S. Embassies and Consulates provide help in emergency situations; they also offer a wide range of useful online information:

  • News and facts about local conditions, culture, and laws, including emergency announcements
  • Ways to protect yourself from financial scams and other crimes
  • Emergency financial assistance if unforeseen circumstances leave you temporarily without funds

Additional information on travel emergencies is available from the U.S. Department of State.

Like a secure and happy retirement, a fulfilling and carefree vacation depends on strategic planning and a steady focus on your long-term happiness and security.

 

  



This communication is strictly intended for individuals residing in the States of:  AL, AR, AZ, CA, CO, CT, FL, GA, IA, IL, IN, KY, LA, MA, ME, MI, MT, NC, NY, OH, PA, SC, TX, VA WI, WV.  No offers may be made or accepted from any resident outside these States due to various state requirements and registration requirements regarding investment products and services.
 
Securities and Advisory Services Offered Through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser Fixed - insurance products and services offered by Chornyak & Associates, LTD are separate and unrelated to Commonwealth.

This informational e-mail is an advertisement. To opt out of receiving future messages, follow the Unsubscribe instructions below.
September 2011
JoeSrENL
A few weeks ago Warren Buffet got my attention by affirming his confidence in the U.S. economy over the long run. Although many investors have panicked as a result of Standard & Poor's' recent credit downgrade, Mr. Buffett has once again reiterated his interest in the general economic recovery situation.  This view matches my philosophy of focusing on the long term while waiting out short-term downturns.

 

As a "thank you" to our clients, their friends and families, I'm planning to offer a series of complementary seminars/gatherings to discuss subjects designed to make your life more enjoyable in this time of financial stress.  Please take a look at the list of proposed topics at the left and send me an e-mail indicating which ones interest you.  

 

We end this month's letter with two topics that I hope will be relevant to your financial planning: saving for your children's college education and planning travel wisely.

 

Please contact me personally about any topics you'd like to read about in upcoming editions of our e-newsletter, or to ask any questions about your investment planning.  Phone: 614-888-2121 (or toll free 877-389-2122); e-mail: [email protected].

 

Sincerely,

Joe 

Monthly Market Update
Debt debate looks to be resolved-for now
Markets don't like uncertainty, and the ongoing debate about raising the debt ceiling has provided a large dose of doubt and confusion. Though Republicans and Democrats reached a tentative agreement to avert an immediate crisis, they failed to agree on enough spending cuts or tax hikes to permanently reduce the national debt. At least their last-minute deal will lift the debt ceiling and implement some fairly significant requirements for forthcoming spending cuts.

All of this has happened under the watchful eyes of the ratings agencies. The critical element at play here was that the government needed to enact a plan before the August 2 deadline cited by the U.S. Treasury Department. This prompted an extremely busy and tense few days, as Congress and the president worked to hash out a plan over the last weekend in July. Some investors had worried that the government might forego paying interest on its debt-in other words, default-if a compromise had not been reached. The more likely scenario, however, would have been a deferment of government expenditures. At the moment, it looks as if both possibilities have been avoided.

Volatility in equities persists
As noted previously, markets react negatively to uncertainty; so, not surprisingly, the last week of July was the worst for domestic markets since July 2010. The S&P 500 Index lost 3.37 percent for the week, though the month was slightly better, showing a 2.03-percent loss. The Dow Jones Industrial Average lost 3.57 percent for the week ending July 29 and was 2.05 percent lower for the month.

Markets have definitely been more volatile, as evidenced by the VIX, which spiked nearly 5 points higher during the last week of July, ending at 25.25. The last time the VIX was at these levels was during the sharp selloff in March 2010.

International markets have also struggled, affected by further concern over the ongoing Greek debt situation. Another deal brokered by the European Central Bank, and sponsored in large part by Germany and France, helped avert systemic problems for the time being. But markets responded with continued skepticism. The MSCI EAFE Index lost 1.59 percent for the month while the MSCI Emerging Markets Index dipped 0.74 percent for the same period.

Bond markets face uncertain times
Fixed income markets saw their share of volatility, as the uncertainty in Washington intensified. There was substantial buying in 10-year Treasuries at month-end, pushing yields down to 2.79 percent from 3.16 percent at the beginning of the month. This left the Barclays Capital Aggregate Bond Index up 1.59 percent for July. Riskier assets also gained during the month, with the Barclays Capital U.S. Corporate High Yield Bond Index moving 0.47 percent higher on a price return basis and 1.16 percent on a total return basis.

The outlook for Treasury yields is unclear, given that there is the potential for a downgrade of U.S. sovereign debt. On the one hand, the textbook expectation is that investors should demand higher yields because of higher theoretical default risk. On the other hand, fears that spending cuts may hinder economic growth could cause a "flight to safety" and drive yields down instead.

Economic fundamentals steady but weak
The U.S. economy continues to struggle. Manufacturing remains positive but has slowed considerably since the beginning of the year. The unemployment rate is still elevated, at 9.20 percent.

A troubling development in late July was the release of initial GDP growth estimates of only 1.30 percent for the second quarter of 2011; a downward revision of first quarter GDP from 1.90 percent to just 0.40 percent was published at the same time. Previously, the Bureau of Labor Statistics had estimated that inventory growth had contributed 1.31 percent to first-quarter GDP. But, after receipt and processing of all the data, it turns out that inventory rebuilding contributed only 0.32 percent.

As for what held back growth in the second quarter, weak consumer spending was a major factor. In particular, sales of motor vehicles and parts detracted 0.65 percent from headline GDP. There is some evidence that the earthquake in Japan may have slowed inventory buildup in the first quarter and hurt consumer spending on automobiles in the second quarter. But, despite this mitigating factor, it is clear that a robust economic rebound hasnt materialized so far.

Although still in the doldrums, the U.S. housing market showed some signs of stabilizing, after the seasonally adjusted S&P Case-Shiller 20-City Home Price Index was revised upward. The index showed home prices rising 0.44 percent in April and falling only slightly in May. It is far too early to call this a rebound, but the data may at least suggest that the worst in terms of price declines is over.

The outlook for investors
To be certain, markets have navigated uneasy times before. Because much of the current confusion has been created by Washington, it is no surprise that Congress enjoys one of the lowest approval ratings in its history. Still, for investors in risky assets, uncertainty is to be expected. Reacting to short-term market swings can be a challenge, given that rallies and selloffs are difficult to predict. As a result, we believe that investors who stay the course and follow a disciplined process are positioned to experience better portfolio outcomes.

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