Dear ,
Happy New Year and welcome to December 2013 issue of The Wealth Chronicle!
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The most anticipated economic event of the year occurred when the Federal Reserve announced after its December meeting that it will begin to taper its bond-buying program from $85 billion to $75 billion per month. At the same time, the Fed changed its "forward guidance" to indicate that short-term interest rates are likely to remain near zero for longer - until the economy is showing more strength and unemployment is "well below 6.5%."
Though many investors have long awaited such a move with apprehension, in essence, the stock market got what it wanted - a relatively mild tapering and no tightening of interest rates - and it celebrated.
Why did the market react so well to something it had feared for so long: the reality is that there is still a massive amount of easing going on" at $75 billion in bond buying per month. The Fed suggested it would conclude the taper by the end of 2014, but there are plenty of caveats attached to that eventuality. Another reason the market jumped was because it was relieved that "faster-than-expected tapering is off the table.
What does this mean for investors and consumers? Tapering may increase the cost of financing big-ticket items and rates on student loans. Mortgages could get more expensive. The average 30-year mortgage rate currently hovers at 4.3%, historically a very favorable rate, but that could rise to 5% or 5.5% next year.
On the upside, U.S travelers may get more bang for their buck when they travel overseas next year. The dollar has already rose sharply against several currencies in the past month. Retirees should also do better with the tapering. There's about $7.6 trillion in savings and small time deposits. Every 1% increase would give American savers $76 billion in additional interest income.
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Boost Your Security Against Identity Theft
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Tax Credits and Deductions Set to Expire
According to a Bankrate article a whopping 55 tax deductions, tax credits and other tax-saving laws are set to expire December 31.
This hodgepodge of individual and business tax breaks - some of which apply to large groups of taxpayers, others that are much more specific -- have been on the books for years.
Technically these laws are temporary. Each has a specific end date, typically the conclusion of a tax year. For the most part, Congress has extended these laws year after year. That's why the collective bunch is referred to as "extenders."
Individual filers have seen extenders for years on the various tax forms they file at tax time. They range from a few hundred dollars in tax savings for teachers to thousands added to IRS bills of homeowners facing tax on mortgage debt that is written off by the loan holders.
Here is a link from CNN Money listing 8 of the most popular tax breaks coming to an end
http://money.cnn.com/2013/12/27/pf/taxes/tax-breaks/
Not just individuals are being impacted. Companies, too, are bemoaning the coming loss of several business tax breaks at the end of 2013. They include the 50 percent bonus depreciation option, a larger Section 179 write-off for some equipment, larger deductions for certain business charitable donations, research and development tax credits, and work opportunity tax credits.
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Vote: Worst Financial Prediction of 2013
I saw this poll on Pundittracker.com and thought it would be interesting to share in he newsletter.
The prevailing sentiment heading into 2013 was caution, if not outright pessimism, which of course has not played out in the equity markets. Here are four candidates for the Worst Financial Prediction of 2013.
Please vote in my LinkedIn Group http://www.linkedin.com/groups?gid=5182157 which one you think was the worst prediction for the year.
(1) Byron Wien: Gold will reach $1900/oz and S&P 500 will fall below 1300
Wien's long gold/short S&P call (http://finance.fortune.cnn.com/2013/01/03/byron-wien-2013-surprises/) could hardly have been more wrong, as the S&P is now trading above 1800 (up ~30%) while gold is hovering around $1200 (down ~30%).
(2) Gene Munster: Apple will release a television
Taken in isolation, this prediction from Piper Jaffray analyst Gene Munster was a perfectly reasonable one. Several other pundits predicted the same.
The reason that Munster's prediction makes the Worst list is because he has made this prediction before.... again and again. Starting in mid-2009 Munster has predicted an Apple television every six months or so and of course has been wrong each time.
If Munster doesn't win worst prediction this year, he may well be a candidate again next year as he has now pushed back his Apple television timeline to the first half of 2014
(3) Harry Dent: Dow Jones Index will fall below 5000
Ever since his book The Great Crash Ahead was published in 2011, financial newsletter writer Harry Dent has been hitting the television circuits to sell his message of doom & gloom. His prediction that the S&P 500 would fall 30-50% in 2012 proved wildy wrong.
His prediction for 2013, that the Dow Jones would tumble below 5000 was equally wrong. The Dow is at 16000 today.
(4) Wall Street Analysts: S&P Price Targets
Here were the S&P forecasts of six bulge bracket firms at the start of each of the past three years.
Bank
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2011
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2012
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2013
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Average (Banks)
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1378
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1338
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1543
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UBS
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1350
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1325
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1425
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Barclays
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1420
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1330
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1525
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Credit Suisse
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1250
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1340
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1550
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Goldman Sachs
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1450
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1250
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1575
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JP Morgan
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1400
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1430
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1580
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Bank of America Merrill Lynch
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1400
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1350
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1600
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Actual
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1258
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1426
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1818*
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2011
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2012
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2013
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Average Projected Rise
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9.9%
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6.4%
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8.2%
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Actual Rise
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0.3%
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13.4%
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27.5%
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The mean S&P estimate has been considerably off-target each year: by +960 basis points in 2011, -700 basis points in 2012, and a whopping -1930 basis points so far this year.
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Time is on Your Side
Building up a big enough nest egg for retirement is a goal for most people. The amount of savings you have available when you retire is a function of three things:
Time - When you start saving. The earlier you start the better.
Investment Return - The amount of money your savings earn. Usually this comes from interest, dividends, and capital gains.
Savings Amount - How much you save per month or year.
One could make the argument that Time is probably the biggest factor to how much money you have available for retirement. The main reason Time has such a positive impact on your savings is because of the concept of compound interest.
Compounding is the process of generating earnings on an asset's reinvested earnings. To work, it requires two things: the re-investment of earnings and time. The more time you give your investments, the more you are able to accelerate the income potential of your original investment, which takes the pressure off of you.
To demonstrate, let's look at an example:
If you invest $10,000 today at 7%, you will have $10,700 in one year ($10,000 x 1.07). Now let's say that rather than withdraw the $700 gained from interest, you keep it in there for another year. If you continue to earn the same rate of 7%, your investment will grow to $11,449.00 ($10,700 x 1.07) by the end of the second year.
Because you reinvested that $700, it works together with the original investment, earning you $749, which is $49 more than the previous year. This little bit extra may seem like peanuts now, but let's not forget that you didn't have to lift a finger to earn that $49. More importantly, this $49 also has the capacity to earn interest. After the next year, your investment will be worth $12,250.43 ($11,449 x 1.07). This time you earned $801.43, which is $101.43 more interest than the first year. This increase in the amount made each year is compounding in action: interest earning interest on interest and so on. This will continue as long as you keep reinvesting and earning interest.
Let's look at a couple of examples on how compounding affects retirement savings. We will keep the return and savings constant in the three examples and show how starting to save at different ages impacts what you have available when you retire at 65.
I save $1,000 a month and earn a 7% return on my investments.
If I start saving when I'm 25 I will end up with $1,500,000 which I can convert into an income stream of $80,000 a year from age 65 to 90.
If I start when I'm 35, I will end up with $855,000 which I can convert into an income stream of $43,000 a year from age 65 to 90
If I wait 10 more years and don't start saving until I am 45, I will end up $418,000 which could generate $21,000 in income a year.
For every 10 years that you wait after age 25 to start saving you are basically left with half of the amount of money when you retire. When you are in your twenties and early thirties thinking about retirement is often not on the forefront of people's mind, but it is the best time to start saving for it.
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Watercooler
Last month we looked at the best sandwhich from every state. This month we are going to look at the most popular TV Series from each state. A map put together by Kirsten Acuna and Mike Nudelman from Business Insider
Selections were based on each show's longevity, audience and critical acclaim using info from IMDB/Metacritic, awards, and lasting impact on American culture and television.
Sopranos being the most popular NJ show and Seinfeld winning NY were not big surprises. What shows are missing?
http://www.businessinsider.com/most-popular-tv-shows-set-in-each-state-2013-12
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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
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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
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 | 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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