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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...
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Greetings!
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.
If you enjoy this newsletter, please share it with a
friend by using the Forward email button at
the end of the newsletter.
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| What Lies Ahead in Your Financial Future? |
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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.
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| Test Your Mutual Fund Knowledge |
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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.
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| Dive Into Dividends |
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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.
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| Preserve Your Estate with Second-to-Die Life Insurance |
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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.
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| Inflation and Your Life Insurance |
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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.
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