Issue: #  52   APRIL 2013
Bautis Financial
Dear ,
 

Welcome to April 2013 issue of The Wealth Chronicle!

The first quarter in review: Why Warren Buffet is bullish on stocks

As we enter the second quarter of 2013, I'm writing to summarize market developments since the start of the year. Also I will share some thoughts from Warren Buffet, America's most famous investor, regarding where he sees stocks heading.

At the end of March, US stock markets crossed the all-time high reached in October of 2007. This was due to an exceptionally strong performance to start the year following the agreement by U.S. Congress in early January to avoid the "fiscal cliff" which would have required dramatic reductions in spending and risked throwing the U.S back into recession.

Warren Buffet's view: Stocks still offer value.

Mr. Buffet is arguably and often considered the greatest investor of all time. From 1966, when he began running Berkshire Hathaway, to the end of 2012, the overall US stock market has returned an average of 9.4% annually. That means that $1,000 invested in the US market in 1966 was worth just over $74,000 at the end of 2012. During that same time, the value of Berkshire Hathaway increased by almost 20% per year, twice the US market return. The result: that same $1,000 invested in Berkshire Hathaway would have grown to over $5 million.

Each year Warren Buffet writes an annual letter to his investors. In this year's letter there were three key messages.

  1. Invest in "wonderful" businesses - Buffet is known for saying that he'd rather buy "a wonderful business at a fair price than a fair business at a wonderful price."   He touched on Berkshire Hathaway's investment in American Express (he owns 14% of it), Coca-Cola, IBM, and Wells Fargo (each of which he owns between 6-9%).
  2. Look past today's uncertainty - He addressed the uncertainty that preoccupies many members of the media and has dampened the willingness of American business to invest. He points out that uncertainty has been a constant in the United States since 1776. Buffet continues to express confidence in the resiliency of American in a public letter titled "Buy American, I AM", which appeared in The New York Times close to stock market bottoms during the uncertainty in the aftermath of the global financial crisis
  3. Stay in the game - In this year's letter Buffet addressed the temptation to, in his words, "try to dance in and out (of the stock market) based upon the turn of tarot cards, the prediction of so-called experts or the ebb and flow of business activity." He went on to say that since the long-term outcome of investing in stocks is so overwhelmingly favorable, "the risks of being out of the game are huge compared to the risks of being in it."

Read Warren Buffet's Letter to Investors

Watch an excerpt of Buffet's television interview which followed the release of his letter.  

Should you hire a Financial Advisor?

 

If you believe much of the media, you hire a Financial Advisor to try to outperform the market. But what else can a Financial Advisor help with? Here are some of the better reasons:

Press you to answer questions you don't want asked.  How to plan to take care of your aging parents if you need to, whether your will is up to date, how you are going to send your kids to college, what will you do if you lose your job? These are the types of questions that make most of us too uncomfortable to ask ourselves.

Put together a financial plan. Very few people ever do this on their own, and a lot of people drag their feet on doing it with their Financial Advisor. It takes time to do and it can be painful, but putting one together matters and is extremely satisfying.

Talk you through market volatility. Most energetically claim that this is not needed. It's hard to project forward an image of ourselves being nervous or scared, and recollection of past pain has been shown to fade over time. But another voice besides your own during tough markets can be invaluable. Everyone wants to buy low and sell high. It takes extreme discipline to do that. Many people sold at the lows after the markets crashed in 2008 and just recently have re-entered the markets after the markets have more than doubled from their lows in 2008.

Identify risks in your portfolio that you might look right past.  These risks include overweight the US or being mostly invested in tech stocks. Or on the reverse having all of your assets earning .25% when inflation is rising at 3% per year.

If someone is strictly hung up on the percentage return that an advisor can add a paper titled Alpha, Beta, and Now ... Gamma by David Blanchett and Paul Kaplan of Morningstar, claim that an additional 29% of retirement income (1.82% a year in return), may be realized by working with a financial planner who uses specific planning strategies

This is a great video from a financial planning company (EMoney) on the benefits of working with an advisor and how to go about selecting one.

eMoney - Advisor Marketing - Advisor Decide
eMoney - Advisor Marketing - Advisor Decide

 

What you can learn from your tax returns 

 

 

In last month's newsletter one of the articles contained questions that you should ask your CPA as you are getting your taxes done. Now that tax day has come and most of us have filed our taxes and it's a good idea to look at your return carefully as it can yield a lot of intelligence about your household finances, including the state of your investments. With that knowledge, you might be able to make adjustments to reduce your tax bill in the years ahead.

Here are a few line items that you should look at before you stash away your 2012 return.

Line 8 of your 1040: Interest income - You can see the raw dollar amounts of your interest income on line 8. Line 8a shows taxable income and line 8b shows tax-exempt income, generally from municipal bonds. Most likely your interest income is depressed relative to years past, given that yields have generally sunk. If it isn't, that could be a signal that you're taking more risks with the fixed-income portion of your portfolio than you did in the past. Credit-sensitive bonds often boast higher yields than higher-quality credits, but they don't offer the same diversification away from equities that high-quality bonds do.

Line 9 of your 1040: Dividend Income - Line 9a shows the total amount of ordinary dividends you received last year; those that count as qualified - meaning they are subject to the more favorable tax treatment are on line 9b. As with the taxable interest in line 8, take a hard look at any investments, such as REIT's that are paying nonqualified dividends; those investments may be better housed in a tax sheltered account such as an IRA.

Line 13 of your 1040: After strong gains in 2012, more investors are probably showing a positive number here than in years past. If you see a big number on this line, make sure you're paying due attention to proper tax management: limited trading, avoiding mutual funds that frequently make large capital gains payouts, and selling losing holdings to offset winning positions.

Line 25 of your 1040: Health Savings Account Deduction - Have you evaluated whether a health savings account, used in conjunction with a high-deductible health-care plan, is a good fit for you?  For those who are relatively healthy and have cash on hand to cover-out-of-pocket expenses that might arise until they hit the maximum for the year, HSAs can serve as supplemental savings vehicles. You'll enjoy tax benefits on your contributions, and the money in your HAS will roll over from one year to the next.

Form 6251 - This is the form to determine whether you own the Alternative Minimum Tax and if so, how much. On if you can see the specific line items that affect whether you are subject to the tax. Exercising incentive stock options is one of the key ways to bump yourself into the AMT zone. Those with a big share of their portfolios in municipal bonds should also keep an eye on line 12, which depicts your income distributions from private-activity bonds; these distributions are not subject to the regular tax, but they are subject to the AMT. Such investors may want to consider muni funds that explicitly avoid AMT-subject bonds.

The Watercooler

 

In 2012 Washington collected $2.4 trillion in taxes, more than $20,000 for every American household...and spent $3.5 trillion.... Where do your tax dollars go?

 

  

Buffet on fixing congress - I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election." The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971 - before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took one (1) year or less to become the law of the land - all because of public pressure.

A lot of hoopla is surrounding the Super Bowl coming to the Meadowlands in 2014. There is an event that came to the area this April that may be just as big. Wrestlemania. In the five days of events of Wrestlemania it is expected that over 125,000 fans flocked to the area. Last year in Miami they estimated the economic impact of $103 million. A nj.com article claims that it broke the record for the highest grossing entertainment event at Met Life stadium.

Seton Hall wrestling teammate and WWE star Charlie Haas.

   

When you think of the state of NJ and taxes the first word that comes to mind is high. I found one list where NJ shows up on a list as having one of the lowest tax rates in the country - Gas tax

A WSJ article this month claimed that states across the country are raising gas taxes as one way to raise funds for road repair and construction.

 
 

 

Morningstar Partnership 

 

I am pleased to announce a partnership with Morningstar, Inc to upgrade our firm's practice and portfolio management platform. In addition to being the leading global provider of independent investment research, Morningstar offers a comprehensive suite of reporting and research tools that will allow us to become more efficient and provide you with better reports.

What it means for you:

A Client Web Portal -

We now have the ability to quickly and safely share reports and other documents with you using a secure Client Web Portal. Using your E-mail address and password, you will now be able to view documents and account information online. In addition to being a more convenient and secure way to communicate, the Client Web Portal helps us with our initiatives to "Go Green," eliminating the need for mass mailings and the resending of lost reports.

New Reports -

Morningstar allows us to choose from a multitude of informative reports and research - letting us create report packets that meet your needs. Your statements can now include graphically appealing charts and Morningstar analytics like the Morningstar Star Ratings, Equity Style Boxes, and a whole lot more. You will be notified any time a report is uploaded to your portal and it will be displayed under the Documents tab.

What it means for our firm:

Research -

We now have access to the latest research on more than 360,000 domestic and global securities and by partnering with Morningstar we also gain access to their tremendous independent staff of analysts. Morningstar has one of the largest independent research analyst staffs in the world.

Overall Office Efficiencies -

Finally, we are excited to partner with Morningstar because their platform will simplify and streamline common processes and operations that used to take significant firm "manpower." By becoming more efficient, we hope to provide you with even better service and support.

 

 

Company Spotlight - SERVPRO

 

SERVPRO, the national Fire & Water Restoration company, has a great slogan - Like it Never Happened.  This is certainly the outcome you want if you are cleaning up after a disaster.

SERVPRO Wired Commercial
SERVPRO Wired Commercial

 

In addition to the work they do with restoration, few people know that SERVPRO also specializes in cleaning services including:

  • Air ducts and HVAC
  • Biohazard, Crime Scene and Vandalism (Harvey Keitel's character Mr. Wolfe was actually a SERVPRO employee)
  • Carpet, Upholstery, Drapes and Blinds
  • Ceilings, Walls and Hard Floors
  • Deodorization

Another great aspect to SERVPRO's service is the fact that they are available 24/7.

Leia Yoon is a representative from ServPro of Hoboken/Union City and can be reached at

SERVPRO of Hoboken/Union City
Leia Yoon
 
lyoon@servprohobokenuc.com
201-656-0035

 

 

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?
The first quarter in review: Why Warren Buffet is bullish on stocks
Hire a financial advisor
Your tax return
The Watercooler
Morningstar Partnership
Company Spotlight - SERVPRO
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 also the author of a recent book The Retirement Fitness Challenge: Shape Up Your Finances and Make Your Money Last a Lifetime, which is available on Amazon.com.

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, new daughter Charlotte and Old English Bulldog, Winnie.

 

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