Issue: #  34    OCTOBER 2011
Bautis Financial
Dear ,
 

Welcome to the October 2011 issue of The Wealth Chronicle.   

 

Feature Article 

Third Quarter Review

This has been a year of contrasts, starting with a first quarter that saw strong increases with the second quarter flat. The third quarter was ugly with a capital U, with extreme volatility and the sharpest decline since the first quarter of 2009, when we were in the middle of the global financial crisis. The main drivers of this decline were sovereign debt worries in Europe and a dramatic downgrading of growth forecasts for the global economy, with a slowdown in China and mounting talk of a double-dip recession fueling anxiety.

 

Below are results for key markets

3rd Quarter Performance 

I would like to focus on four themes that will dictate what happens next in the economy by looking at quotes from prominent economists

 

Theme 1 - Challenges for Western Economies

The first theme relates to some of the troubling issues facing the United States and Europe.

Warren Buffet on the challenges for Europe: "It was clear well over a year ago that we were headed toward a cliff. Europe tried a grand experiment where the imperfections in it are becoming manifest and the numbers are big.   The solvency of the banks is intertwined with the solvency of sovereigns and vice versa. They melded the currency for 17 countries; however they didn't meld the culture."

Meredith Whitney on US housing: "What really powered the US economy for the past 20 years was housing. The biggest structural unemployment problems are in those states like California or Florida that were wed to housing. Housing's not coming back, and it's hard to imagine housing becoming a driver o the US economy going forward"

 

Theme 2 - The end of America.. or a new beginning?

Despite the issues facing the country, there was broad consensus about America's ability to make the changes needed to compete

Jim Leech, (head of Ontario Teachers Pension Plan) on why the US will adapt. "Maybe America is in its denouement. And then you sit back and look on a relative basis and say, 'No you can't count out the largest, the most innovative economy in the world...' The US has the economic, the political, and the legal constitution to have the flexibility to solve issues. Those factors aren't apparent in the Far East; they aren't apparent in China."

 

Theme 3 - The price of avoiding risk

One topic that gets a lot of attention is the risk avoidance as the paramount objective for many investors

Larry Fink, CEO of BlackRock on the biggest risk for investors: "I would avoid 2% treasuries - it's very hard to make a living earning 2%. So if I had to look where to invest, I would own a core amount of Treasuries just for liquidity purposes, and I would be looking towards dividend stocks. I would be looking towards credit opportunities. Especially with the European banks selling assets, there are going to be some great credit opportunities for investors in Europe. The greatest worry I have is under-investing and destroying your foundation, and I think that will be the greatest risk in the next few years."

 

Theme 4 - Opportunities in global markets

A majority of experts agree that current valuations make US and European stocks exceptionally attractive.

Pierre Lagrange, a London hedge fund manager on the upside for European companies: "Europe is making adjustments at the political level structurally which is very good.   Since 2008, companies have really had the license not to spend money. And you have had an extraordinary drive to productivity increases and cost rationalization, so we have a lot of companies which have an extraordinary operating leverage."

The key points to take from the four themes are that clearly we should be cautious given the policy challenges ahead, but for those investors who need growth to achieve their long-term goals. We also need to take a longer view on outstanding companies available today at inexpensive prices.

 

The fourth quarter started out strong. October saw the best month for stocks since 1974. A lot of that has to do with the strong corporate earnings and progress in Europe with their debt crisis.

Article
Open Season!

No I'm not talking about hunting; I'm talking about the annual window as to when you can sign up for, or adjust, your participation in a variety of employee benefits.  Given today's economic environment and the increasing cost of benefits, no doubt you want to save as much money as you can.   This makes Flexible Spending Accounts (FSA's) a benefit that you really want to understand and take advantage of during this open enrollment season.  FSAs enable you to set aside pre-tax dollars to pay for qualified health care costs.  Depending upon your tax-bracket, an FSA can save you up to 40% on items you already pay for out of pocket such as doctors visits, prescription drugs, and even commuting costs.

Save Smart Spend Healthy is a website where you can find more information about FSA accounts.   A wealth of information on these accounts is available on this educational website sponsored by WageWorks. Tools available include an easy-to-browse list of eligible expenses, a savings calculator, and a video library.

Article 

401k Loans

Interest rates are at historical lows, but banks have tightened up their lending requirements. Another source of funding is your 401k plan. Taking a loan on your 401k is becoming more popular and a study showed that 1 in 4 people eligible to take a loan have taken one with an average balance of $8,800. This article is going to take a look at the advantages and disadvantages of taking a 401k loan.

 

Advantages

The biggest advantage is the interest rate you will pay on your loan, which will be lower than you would have received from a third party. Secondly, you are paying interest back to yourself rather than a bank of other financial institution.

Not all 401k plans offer the ability to take a loan, but if yours done, there is some security knowing you can make the maximum contributions to your 401k because you can take a loan should you need to at any point. Loans also help you avoid depleting your 401k plan when a financial crisis occurs. You will be required to take a loan from your 401k plan before you are allowed to take a distribution.

 

Disadvantages

While tapping your 401k plan is almost always a better option than putting debt on a credit card, there are some things to consider before taking the loan.

Double Taxation - Your 401k plan interest payments face double taxation, since they are made with after tax dollars and then get taxed again when you withdraw from your 401k later in retirement.

Job Security - Consider how safe your job is. One of the dangers of a 401k loan is that if you leave your job or are laid off, you have to pay the loan off in full within a short period of time. Any balance you haven't paid off at the end of that time is considered an early withdrawal which you will have to pay both income tax and a 10% penalty on.

Compounding - Because of the valuable concept of compounding, by taking a loan you may end up with a smaller nest egg at retirement.


 

When deciding whether or not to take the 401k loan it is important to weigh the advantages and disadvantages to your unique situation. 

Social Security Updates

 

This month I hosted a Social Security Planning Seminar at the Fort Lee Public Library. One of the topics that I discussed was how important the cost of living adjustments (COLAs) with Social Security benefits are to meeting your retirement income needs. COLAs protect against one of the biggest retirement risks, inflation. In 2009 and 2010 there were no COLA increases to everyone's social security benefits, however just this past week it was announced that a 3.6% raise would be instituted to everyone's benefits. To read a really good article about how Cost Of Living Adjustments impact your Social Security benefits please click on www.bautisfinancial.com/SocialSecurity_COLA.pdf

 

Seminar

 

Financial Tip of the Month:

Spend less than you make & save the rest. It's also the tip of the day, week, year, & your lifetime. 


 The Watercooler

  

Ameriprise workers sue over company's own 401k plan - A group of workers at Amerprise financial have filed a lawsuit against their employer alleging that the company placed their 401k contributions in proprietary funds, which cost them over $20 million in excessive costs. What makes this suit ironic is that these are the same investments that they are pushing as financial advisers on their clients. http://www.investmentnews.com/article/20110929/FREE/110929919

 

Billionaire Steve Jobs Died Tax Free! - Steve Jobs was a genius on how he was able to achieve a cult following for his Apple products. However his best masterpiece may be
 ow he and his advisers put his estate plan together to minimize the amount of taxes paid on his $6 billion estate.
http://thetrustadvisor.com/news/stevejobs

 

Green Bay Packers set to offer stock - You have always dreamed about owning a professional sports team and now is your chance. The Packers are offering shares ofGreen Bay stock priced at $200 to the public. The money raised will be used to finance $130 million in renovations to Lambeau fields. As an investment, Packer stock may be a poor choice. The shares would include voting rights, though the value would not appreciate and there would be no dividends. Stockholders would be able to attend annual meetings at Lambeau, and they'd enjoy such perks as tours of the playing field and locker rooms.

 

Warren Buffet has made headlines recently urging Congress to raise taxes on the rich. He tried to prove his case by making his income tax return public. In 2010 Buffet's gross income was $63 million and his taxable income was $40 million. His federal income tax bill was only $7 million which means he paid only 17.4% of his taxable income in taxes. There are two reasons which explain the low rate. 1) The huge difference in gross income and taxable income is because he gives a lot of money away to charity. 2) He only pays 17.4% in taxes because a majority of his income is from investments which are taxed more favorably than earned income.  For example the dividends that he receives from the stocks he owned is taxed at a 15% max not at his ordinary income tax rate.  Interest earned from municipal bonds is tax exempt. http://money.cnn.com/2011/10/12/news/economy/buffett_taxes_2010/index.htm

 

Harrison, NJ showed up on a list published this month of American cities going broke. The reason the article gives for Harrison going broke is partly because of the financing involved with building the Red Bulls stadium. Also to blame are the half finished development projects around the stadium. http://finance.yahoo.com/real-estate/article/113588/american-cities-going-broke-247wallst

 

 

 


Please contact me if you have any questions about the articles above or about your personal or business finances.

  

Sincerely,

Marc Bautis
Wealth Manager

 

office: 201-842-7655
cell: 201-221-6895
fax:  201-754-9760
Disclaimer:The information contained in this newsletter is for information purposes only and may not be suitable for your specific financial situation.  You should consult a financial advisor before making any investment decisions relating to the information contained in this newsletter

What's Inside?
Third Quarter Review
Open Season
401k Loans
Social Security Updates
Financial Tip
The Watercooler
Marc Headshow w Skyline, 9-2011
MEET MARC  

Marc Bautis is a Wealth Manager specializing in working with young families as well as retirees and those nearing retirement. He understands that everyone wants to not only protect their principal, but also be sure that their money lasts.  He is committed and proud to deliver independent advice, always in the interest of his clients.

Marc is the creator of the Retirement Fitness Challenge™,  a program designed to be sure his clients enjoy the retirement years as they have always envisioned them.  Marc's program is designed to prevent outliving your money but also to minimize expenses during retirement and find the best time to start taking Social Security benefits.   

Marc is a graduate of Seton Hall University.  He is a Bergen County native, from Lyndhurst, where much of his extended family still resides. He currently lives in Hasbrouck Heights with his wife Katie and Old English Bulldog, Winnie.

 

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