July 31, 2012Vol 5, Issue 7 
DFW Financial Planning

Jean Keener, CFPGood afternoon.


In the investment markets, the last month was positive for most asset classes except U.S. small companies which dipped a bit but are still up for the year so far.   We have a full second quarter market update below. 


Also in this newsletter we have articles on whether gold belongs in your portfolio, an opportunity for a "Money Story Audit" with Dr. Tim Kincaid, and more.  As always, feel free to e-mail me at jean@keenerfinancial.com with requests for newsletter topics you'd like to see covered or to discuss concerns or questions on anything in the financial world. 


I will be out of the office for the early part of next week attending the Garrett Planning Network annual conference in Denver.  I expect to return with lots of great learning to share with you.  This newsletter is a July/August combined issue, so look for your next newsletter in September.  I hope you enjoy the rest of your summer.  Thanks for reading, and Live Well!

In This Issue
Special Offer: Money Story Audit
Should gold be in your portfolio?
Second quarter market review
Social Security to stop mailing paper checks
Potential outcomes with federal estate tax
Women & Money workshop in September
Join Our E-Mail List!
Quick Links

Special Offer: Money Story Audit

Dr. Tim Kind, EdD -- Certified Professional Coach
Tim Kincaid

 I had a lot of positive responses from the article in the April Personal Finance newsletter, "What's Your Money Story?" (Click the link to read it if you missed it the first time.)


 The author, Tim Kincaid, is a certified professional Coach. When he heard that his article sparked so many conversations, Tim created a special limited-time offer just for newsletter readers. 


Tim is offering a complimentary Money Story Audit, which includes a quick self-assessment exercise followed by a confidential 30-minute debrief by phone. He explains: "This is an easy way to briefly explore how deeply held beliefs about money impact various contexts of your life. With new awareness, you are free to re-write your personal Money Story to better feeling, more accurate beliefs about money that are authentically yours."  


This offer is limited to the first 10 Keener Personal Finance newsletter readers who request it. The offer is good through August 31, 2012. To request a Money Story Audit, contact Tim at drtim@kincaidcoaching.com or via his website www.kincaidcoaching.com by August 31, 2012. 


I'm delighted that Tim is providing this unique opportunity to us, and, if it seems interesting to you, I hope you'll get in touch with him.

Gold in Your Portfolio

If you're like many investors, you've noticed the meteoric rise in the price of gold over the last number of years.  This rise, coupled with economic uncertainty and concerns about future inflation, has sparked many conversations in my office about whether gold belongs in the portfolio or not.  So when I came across this recent analysis on the topic by Dimensional Fund Advisors, I wanted to share it with those of you that are giving thought to this topic.  

Is Gold Worth It's Weight in a Portfolio?

Shared with permission of Dimensional Fund Advisors


During a weak global economy and uncertain financial markets, many investors tout the benefits of holding gold. Some proponents claim that gold deserves a significant weighting in most investors' portfolios. Gold's often-cited portfolio benefits include a strong long-term return, a hedge against inflation, and safe haven during turbulent times.


But does the evidence build a case for holding gold as a separate asset class? Let's look at historical returns for the answers


Gold's Long-Term Performance


Investors who think of gold as having strong long-term returns base their belief on two strong performance periods in the past four decades-the most recent decade and the 1970s. These periods account for most of gold's price appreciation.


Figure 1 documents gold's strong performance since 2000. After hitting a twenty-year low in 1999, gold began a steady climb in the wake of the dotcom bust, stock market downturn in 2001, and the 9/11 attacks. As the decade wore on, there were Wall Street scandals, natural disasters around the world, and record oil prices. Gold's strongest performance period has come since 2008-and investors can still recall the emotional and financial stress that came with the mortgage meltdown, volatile financial markets, and worldwide recession.


From 2000 through 2011, gold outperformed major equity asset classes around the world. In terms of real (inflation adjusted) growth, gold turned a dollar investment into $4.05, and US small cap stocks (as represented by the CRSP 6-10 Index) turned a dollar into $1.58, while the S&P 500 Index and MSCI World ex US Index lost value. Gold had a 12.3% annualized real return, versus -1.88% for the S&P 500 Index, -1.4% for the MSCI World ex US Index, and 3.9% for the CRSP 6-10 Index.

Gold in your portfolio figure 1
Now let's step back in time to the other strong decade for gold-the 1970s ... This article continued at www.KeenerFinancial.com.  

Second Quarter Market Review

Market Report A strange and bouncy market experience


For those who watch the investment markets, the first half of 2012 was a strange and somewhat harrowing experience. The first four months of the year saw American stocks zoom upward by almost 10 percentage points, building on one of the best January performances in history. Then came May, when the Wilshire 5000--the broadest index of U.S. stocks--gave back 6.22% of its value. June was a muddle--until the final day of the month, when The Wilshire 5000 gained back 2.53% in a single trading day and essentially saved the quarter from being considered a total disaster. On the same day, the S&P 500 gained 2.49% and the Nasdaq exchange was up 3.00%.


If there is a lesson here--and the markets are always teaching us new ones--it is that the drops, and the rises, take us by surprise, and are almost impossible to predict.


Let's take stock of the past quarter, and look at where we are after the first half of 2012. Overall, the Russell 3000 index (broad US market index) fell 3.15% during the second quarter, but rose 3.92% in June, and is up 9.32% for the year.


When we break the U.S. stock market into different size companies, we see a very similar pattern. The S&P 500 large caps lost 3.29% in the same time period, but is up 8.31% this year.  The Russell midcap index dropped 4.40% in the recent quarter, but is up 7.97% so far this year.  The Russell 2000 small-cap index lost 3.47% in the three months ending January 30, but is up 8.53% for the first six months of 2012.  


Internationally, the broad-based EAFE index of developed economies fell 8.37% for the quarter despite a 6.79% gain in the past month. For the year, the index is up a scant 0.77%. Not surprisingly, the weakest component is EAFE's Europe index, down 9.11% for the second quarter, down 0.12% so far this year.


The EAFE Emerging Markets index of lesser-developed economies fell 10.00% in the second quarter, but is up 2.29% for the year. The bloodiest quarter was experienced by the Eastern European EM countries, down 15.03% in the three months ending June 30, but still up 0.38% for the year.


Commodities are generally down for the year, with the S&P GSCI index falling 12.38% in the second quarter, down 7.23% so far this year. The hardest-hit: energy (mostly oil) down 17.05% for the quarter, down 10.98% so far in 2012.


On the bond side, U.S. Treasuries remained at rock-bottom yields. The 12-month T-Bond yields just 0.20%. Locking up your money for three years gets you 0.39% a year. Ten-year issues yield 1.64%, and 30-year Treasuries bring a 2.75% annual coupon yield. Muni bonds are even lower, with yields of 0.211% (1-year), 0.343% (2-year), 0.808% (5-year) and 1.922% (10-year), while the aggregate of all AAA corporate bonds is yielding 1.14% for bonds with a five-year maturity.


The clearist thing one can say is that these sharp turns in the market--in May, on the last day of June--are not driven by any change in the intrinsic value of stocks, or any interruption in the actions of millions of workers who are daily building stronger, more profitable franchises throughout the global economy. The lurches of the roller coaster represent emotional responses by skittish investors who want to jump into or out of the markets based on headlines that usually seem to overstate the case on the upside and the downside.


So far, 2012 has been a very bumpy ride, and has certainly been scary at times. But from a real investor's point of view, behind all the sturm and drang, the first half of the year has seen unusually positive growth in the markets. We cannot predict what the second half will bring, any more than we can predict what the weather will be at a certain date in October or December. Remaining steadily invested and paying as little attention as possible to the shrill voices of our increasingly frantic news outlets has been a solid strategy so far this year, and has generally worked out well for investors over time.


2012's second half will undoubtedly bring us more surprises. It will force us to remember that we are not investing in current events, but in the far more boring, far more significant daily work and effort of the people who get up each morning and contribute to the growth of our global economy and the growth of the businesses they work for--the companies that we, together, are invested in.


Material adapted with permission from Financial Columnist Bob Veres.

Social Security to Stop Mailing Paper Checks

Social Security Changes If you know someone still receiving paper checks from social security, please pass this information on to them. 


On March 1, 2013, the U.S. Treasury Department will stop mailing paper benefit checks. After that date, all Social Security beneficiaries (as well as anyone receiving another type of federal benefit, such as Supplemental Security Income benefits, Railroad Board annuity payments, federal retirement benefits, or veterans benefits) will be required to receive their benefits electronically. The federal government estimates that switching to electronic payments will save taxpayers $1 billion over 10 years, and cut down on the risk of lost and stolen checks.


Most Social Security beneficiaries are already receiving benefits electronically, and if you're among them, you don't need to do anything-you'll continue to receive your benefits via the method you've chosen. But if you're receiving a paper check, you need to choose one of two electronic payment options as soon as possible.


The first payment option is to have your benefit directly deposited to a bank or credit union account. The second option is to have your benefit put on a Direct Express® Debit MasterCard® prepaid card.  If you haven't chosen an option as of March 1, 2013, you'll be automatically enrolled in the Direct Express ® card option.


To sign up for electronic payments, you need to visit the government website, www.GoDirect.org, or call the U.S. Treasury Electronic Payment Solution Center at (800) 333-1795. You can also sign up for the direct deposit option at your bank or credit union, or for the Direct Express ® card at www.usdirectexpress.com.


Material adapted with permission from Broadridge Investor Communication Solutions, Inc.

Potential Outcomes with the Federal Estate Tax

Potential Estate Tax Outcome As you may be aware, the federal estate tax currently in effect is scheduled to revert back to 2001 levels on January 1 next year.  While there's no way to know what Congress will enact, understanding the possibilities can allow you to think through your planning options.


 So, let's take a look at what could happen. There are five possibilities: (1) Congress could extend current tax law (commonly referred to as the "Bush tax cuts"); (2) Congress could do nothing, essentially turning the calendar back to 2001; (3) Congress could compromise, agreeing on something between the 2001 tax rules and the rules that apply in 2012; (4) Congress could enact new estate tax reform; or (5) Congress could repeal the estate tax altogether.


Note:   Only a few of the estate tax laws that are affected are discussed here.


Congress could extend current tax law again, probably for two years


That would mean the top gift and estate tax rate would remain at 35%. The generation-skipping transfer (GST) tax (this is an additional tax that's imposed on transfers to beneficiaries who are two or more generations below you) would also remain at a 35% tax rate. The gift and estate tax exemption (may also be referred to as an exclusion) would remain at $5,120,000 (plus any adjustment due to inflation) plus any deceased spousal unused exclusion amount (DSUEA).


The DSUEA is the amount of the gift and estate tax exemption that the first spouse to die does not use. This amount can be transferred from the estate of the first spouse to die to the surviving spouse. This is referred to as portability. Portability would remain.  The GST tax exemption of $5,120,000 plus any adjustment due to inflation would remain. There is no DSUEA for the GST tax (i.e., the GST tax exemption is not portable between spouses).  This type of approach has been Congress's recent tendency.


Congress could do nothing


Congress could allow all or some of the provisions that sunset to expire, reverting to the 2001 tax rules. The top gift and estate tax rate would be 55% with a 5% surtax on estates that exceed $10 million but do not exceed $17,184,000. The GST tax rate would also be 55%. The gift and estate tax exemption would be $1 million. And, the DSUEA would no longer apply. The GST tax exemption would be $1 million indexed for inflation (estimated so far to be $1,360,000).  Some analysts have proposed letting the Bush tax cuts expire as part of a plan to balance the budget over time.


Congress could compromise


Congress could pass a compromise bill that would set the top tax rate to 45% and the exemption amount to $3.5 million. Whether portability would expire or be extended is anyone's guess.

President Obama supports this option. His 2013 budget plan would return the gift and estate tax, and the GST tax, to 2009 levels; the top tax rate would be 45%, the exemptions would be $3.5 million (but only $1 million for gift tax purposes), and portability would be made permanent.


Congress could enact estate tax reform


Many believe that permanent and comprehensive estate tax reform is needed. However, the political landscape is probably not currently amenable to this option. Besides, permanent tax reform does not really mean that it will be permanent (it could, of course, be modified or repealed by future legislation).


Congress could repeal the estate tax altogether


The arguments for and against the repeal of the estate tax continue to wash in, like ocean waves. The tide was high for repeal a few years back, but the current economic and fiscal situation may have slowed its momentum, and the tide seems to be ebbing.


Some material adapted with permission from Broadridge Investor Communication Solutions, Inc.

Upcoming Personal Finance Workshops
Keller Public Library Free Financial Education Seminars

Personal Finance Workshops are held on the third Tuesday of the month at 6;30 pm at the Keller Public Library.


September's topic is Women and Money.  We will discuss the unique opportunities and challenges women encounter in managing our personal finances throughout our lives.  We'll also review some straight-forward solutions to balance competing priorities in working with our money.  This will be an interactive discussion, and women of all ages are invited to attend.  Women and Money is Tuesday, Sept. 20 at 6:30 pm.  Please RSVP to library@cityofkeller.com for planning purposes.


October's topic is Investing Basics: How to build a diversified portfolio and keep more of your money.


The Keller Public Library is at 640 Johnson Rd.

I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients.  To learn more or schedule a time, call 817-993-0401 or e-mail jean@keenerfinancial.com.
Jean Keener, CFP®, CRPC®, CFDS
Keener Financial Planning

Keener Financial Planning provides as-needed financial planning and investment services on an hourly and flat-fee basis.

All newsletter content except where otherwise credited Copyright ©2012, Keener Financial Planning, LLC.