WH Cornerstone Newsletter
Independent solutions for life's financial opportunities July 2005

in this issue

Second Half of 2005 Outlook

What Lies Ahead in Your Financial Future?

Test Your Mutual Fund Knowledge

Dive Into Dividends

Preserve Your Estate with Second-to-Die Life Insurance

Inflation and Your Life Insurance


Second Half of 2005 Outlook

With all the economic news coming out lately, it's easy to forget how well the U.S. economy has been performing. Headlines in 2005 have worried over oil prices, interest rates, pension problems, and Social Security reform, while strong growth and low unemployment and inflation have gone largely unheralded.

It's the nature of news to focus on uncertainty, so the steady drumbeat of downbeat headlines is probably not much different from what we've seen in years past. Nonetheless, as you review your personal financial outlook, it can be useful to remind yourself of both the positive and negative aspects of the U.S. economy.

Interest Rates and Inflation - The Federal Reserve began an interest rate-tightening campaign in June 2004 that some experts believe may be winding down soon. The Fed promised and then delivered a series of "measured" increases in key short-term interest-rate targets intended to help stave off inflation - often a by-product of economic growth. And inflation has been fairly well under control. As of May 2005, the Consumer Price Index has been growing at less than 3% over the past year, despite the run-up in oil prices.

The 200% increase in the federal funds rate between June 2004 and May 2005 has had a predictable effect on short-term interest rates, but long-term rates have reacted differently. Between May 2004 and May 2005, the yield on the 10-year Treasury bond actually fell from 4.7% to about 4.1%. This is a somewhat puzzling development but it seems to indicate that lenders are indifferent to the amount of time they tie up their money because they don't see interest rates changing significantly anytime soon.

Oil and Economic Growth - The recent spike in oil prices has been blamed on a range of factors: concern over supply disruptions in the Middle East, limited U.S. refinery capacity, and rapidly growing consumption by China and India. Oil is essential to economic growth in the United States, and changes in the price can have an exponential effect on the economy.

Read on...

 Quick Links...

Happy summer! We are at the half way point in the year and if you have not yet honored your New Year's Resolution to put your financial affairs in order, it is not too late! We would be happy to help you. Will permanent repeal become law, and if so, what are the potential ramifications? If you are interested in receiving an article update of the Estate Tax Repeal just contact us and we will email you a copy.

Time to Share. Create a Buzz. The Duxbury Bay Maritime School ACCESSAIL program is designed for students who have either physical or cognitive limitations that may have previously limited them from a traditional sailing experience. The 5th Annual Water Garden Tour presented by Kingston Nursery will be held on Saturday, August 6 and Sunday, August 7 from 10 am - 5 pm. The tour features water gardens in the towns of Marshfield, Duxbury, Kingston, Plympton, and Plymouth. The tour may be taken either or both days and participants are provided with a guide booklet which includes maps and brief descriptions of each garden. Tickets may be purchased prior to or on either day of the tour. Tickets are $20 per person and are available at Kingston Nursery, 191 Summer Street, Kingston (781-585-3671). Proceeds will benefit the Duxbury Bay Maritime School ACCESSAIL program to provide scholarship assistance.

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  • What Lies Ahead in Your Financial Future?
  • The 1950s brought the invention of the transistor radio, the first successful kidney transplant, and the introduction of color television broadcasting. It was a time when the average consumer spent a large share of total outlays (40 percent) on food and clothing (the basics) and a mere 4 percent on health care.

    Today, American technology and spending habits are very different - with the average consumer spending just as much on health care as on food and clothing.

    Read on...
  • Test Your Mutual Fund Knowledge
  • More than 60 percent of people responding to an investor literacy survey could not estimate a "reasonable" average annual return from a broadly diversified stock mutual fund.

    One in four had no idea of what return to expect. Perhaps more alarming was the 21 percent who expected a 15 percent or higher average annual return over time.

    Read on...
  • Dive Into Dividends
  • Considered by some to be old-fashioned, dividends brought handsome gains to many investors in 2004. Dividend increases were at the highest point since 1998.

    This improvement is likely a product of three factors: rising corporate profits, greater cash flow, and favorable tax treatment for dividends.

    Read on...
  • Preserve Your Estate with Second-to-Die Life Insurance
  • Estate taxes could be called an uncertain certainty. That's because tax-law changes are slowing reducing the top estate tax from a high of 55 percent in 2001 to a low of 45 percent in 2007, with the total elimination of estate taxes in 2010.

    This is good news for high-net-worth taxpayers, except a sunset provision in the law reinstates the top tax rate at 55 percent in 2011, unless Congress acts to make the estate tax repeal permanent.

    Read on...
  • Inflation and Your Life Insurance
  • It's been many years since U.S. consumers have experienced the jolting effects of double-digit spikes in inflation. Over the last 20 years, the average yearly increase in the Consumer Price Index (CPI) was around 3 percent.

    An inflation rate of 3 percent may seem good by historical standards and is probably not enough to worry most Americans. But if you have a life insurance policy, you may want to consider the cumulative effects of 20 years of inflation on your eventual death benefit.

    Read on...
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