Good morning, and happy August.

In the investment markets, large US companies have held onto their gains for the year in spite of some ups and downs and are now up more than 20% year-to-date.  International developed-market stocks are up more than 12%.  Emerging markets stocks have had a rough several-month period and are now down approximately 8% year-to-date.  And the broad US bond market is down just over 2% for the year as we've seen some interest rates start to increase.  We have more information on how the bond market changes may affect your portfolio later in the newsletter.

Voting for the Keller Citizen Best of the Best is going on now through this Sunday the 18th.  I've been honored to receive the "Best Financial Planner" recognition for the past four years.  If you have a chance to vote this year, I would greatly appreciate your support.  The link is on the right side of the page at www.KellerCitizen.com or click here to go directly to the survey.  Thank you!

In this edition of the newsletter, we have information on how the the recent supreme court rulings affect financial planning for same-sex couples, how to correct an error on your credit report, the schedule for this fall's retirement workshops at the Keller Library, and more. 

Please let me know if you have suggestions for newsletter articles or questions on your financial planning world, and enjoy these last few weeks of summer.  Thanks for reading, and Live Well!

Effect of Supreme Court Rulings on Same Sex Marriage

On June 26, 2013, the U.S. Supreme Court announced its rulings on two landmark cases related to same-sex marriage. The 5-4 decisions bolster the federal benefits available to same-sex married couples and clear the way for same-sex marriages in California.

In the first case, the court struck down Section 3 of the Defense of Marriage Act of 1996 (DOMA), which defined marriage as the union of a man and a woman. This case involved a claim by Edith Windsor, who sought a refund from the IRS of the $363,000 in estate taxes she paid because the federal government did not recognize her marriage to her long-time partner and spouse, Thea Spyer. Her suit contended that DOMA violated the principles of equal protection.

In their written opinion, the court's majority agreed, stating that DOMA "violates basic due process and equal protection principles applicable to the Federal Government ... Its unusual deviation from the tradition of recognizing and accepting state definitions of marriage operates to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages."

The second case, Hollingsworth v. Perry, concerned California's Proposition 8, which banned same-sex marriage in that state. The justices ruled that the petitioners did not have standing to defend Proposition 8 in federal court. This left in place a lower federal court decision that threw out the ban on gay marriage in California, effectively legalizing same-sex marriage in that state. 

In Texas and other states where same sex marriage is not legal, the ruling doesn't change much today from a financial planning perspective.  Federal agencies have numerous definitions of how marriage is defined.  Two of the most significant agencies from a financial planning perspective -- social security and the IRS -- base their definition on your state of residence.  So even if you were legally married in another state or country that permits gay marriage, if you are a resident of Texas, you are still not considered legally married and are not eligible to file your taxes as a married couple or receive spousal and survivor benefits through social security.

In states that have legalized same-sex marriage

Because the Supreme Court justices struck down Section 3 of DOMA, couples in the 13 states (including California) and the District of Columbia that have legalized same-sex marriage will be allowed to receive federal benefits and protections that were previously available only to opposite-sex married couples.

Striking down Section 3 of DOMA means that the legal definitions of "marriage" and "spouse" under federal law now include legal unions between same-sex partners as well as opposite-sex partners. The effect of this change is enormous, because more than 1,000 federal laws reference marriage or spousal status.

The following list details some of the federal benefits or protections that may now be available to legally married same-sex couples:

• Social Security survivor's and spousal benefits
• Certain veterans benefits, such as pensions and survivor's benefits
• Lifetime gift tax-free property transfers to spouses
• Estate tax relief for surviving spouses
• Military spousal benefits
• Family medical leave rights
• Spousal IRA contributions
• Spousal visas for foreign national spouses
• Joint filing of federal income taxes
• Private pension benefit options (e.g., survivor annuities)
• Employer health-care benefits may be received on a pretax basis

Many questions remain. It's unclear if and how the right to federal benefits will be protected when a couple marries in a state where same-sex marriage is legal, then moves to a state where it isn't. It's also unknown if and when federal policies will be updated to eliminate the disparity that now exists at the Federal level between same-sex couples living in states that recognize gay marriage vs. states like Texas that don't.  We will be closely monitoring this issue as changes occur and encourage you to call us to discuss financial planning questions for your particular situation.

Parts of this article were adapted with permission from Broadridge Investor Communications Solutions Inc.  

If you hold bonds in your investment portfolio, you've likely noticed that they experienced negative returns in second quarter this year. 

Bond prices go up when rates go down, and rates have been doing just that since the Reagan Administration.  Back in 1982, 10-year Treasuries were paying 15%, and after 30 years of steady decline, they dropped below 2% last year and trended down slightly for the first part of 2013.  This remarkable three-decade drop in interest rates has been described as the ultimate bull market in bonds, perhaps the most rewarding period for bond investors in all of investment history.

In second quarter, we experienced a rise in interest rates as investors began to anticipate the end of fed's bond-buying program which has kept interest rates artificially low.  Bond prices, as we would expect, declined when rates rose.  At the same time, U.S. stocks are up, in aggregate, substantially this year.  So the obvious question is:  

Why should we have a portion of each investment portfolio in bonds?

The purpose of bonds in an investment portfolio is not to generate high returns--the past 30 years notwithstanding.  Bonds protect against the worst kind of market risk--the times when stocks suddenly, unexpectedly plunge.  The last time stocks took a nosedive, in 2008, U.S. equity markets seemed to be sailing toward another year of gains and bond prices were experiencing 30 year lows.  Why own bonds in an environment like that?  Yet by the end of the year, a mixed portfolio of bonds had achieved a 5.24% positive return, while stocks were losing 37%--meaning bonds outperformed stocks by more than 42 percentage points.  In 2000, 2001 and 2002 when stocks dropped 9.11%, 11.89% and 22.10% respectively, bonds rallied to give investors returns of 11.63%, 8.43% and 10.26%.  Over time, investors holding bonds enjoy a smoother market ride, and experience fewer losses during market downturns.

More importantly, having bonds (and cash) in your investment portfolio gives you options if and when stocks fall.  If you need income, you can liquidate the bonds, rather than having to sell stocks at a loss.  If the prices of stocks drop to the point where stocks become a screaming buy, you have some money set aside to rebalance and buy at bargain prices to make up some of the losses.  And having a diversified portfolio including both stocks and bonds helps you control the level of volatility to which your portfolio is exposed. 

As interest rates reverse themselves, and yields move up, you will experience losses in the bond portion of your portfolio.  There are ways for us to manage this risk by ensuring that all bonds are short- and intermediate-term and maintaining diversification across multiple sectors of the bond market.  But as we focus on meeting your financial goals, bonds are still your best protection against the volatility of stock market returns.  We don't know what the markets are going to do next and when or how quickly interest rates will rise, so the most prudent course is to keep protecting you against the possibility that another 2002 or 2008 is lurking somewhere around the corner.

For more perspective on this topic, please visit our website www.KeenerFinancial.com to see an expanded version of this article.  

Fixing an Error on Your Credit Report

Good credit is an important part of your overall financial well-being. It can impact everything from the interest rates you'll pay to being a prerequisite for employment. As a result, you'll want to try to fix any errors on your credit report and have them removed as soon as possible.   

If you haven't reviewed your credit report lately, you can get one free credit report from each of the three agencies once a year at www.annualcreditreport.com. 

If you discover an error, your first step should be to contact the credit reporting agency in writing to indicate that you are disputing the information contained on your credit report. The credit reporting agency usually has 30 days to complete an investigation of the disputed information. Once the credit reporting agency investigation is complete, they must provide you with written results of their investigation.

If, during its investigation, the credit reporting agency confirms that your credit report does contain errors, the information on your report either must be removed or corrected.

If the investigation does not resolve the issue, you still have a couple of options. First, you can try to mitigate the disputed information by adding a 100-word consumer statement to your credit bureau file. Even though consumer statements are often dismissed or ignored by potential creditors, it can at least provide you with a chance to tell your side of the story. You can also try to resolve the issue with the creditor that submitted the inaccurate information in the first place. The creditor will be obligated to investigate the disputed issue and notify you of its findings.

If you believe that the error is the result of identity theft, you may need to take additional steps to try and resolve the issue, such as placing a fraud alert or security freeze on your credit report. You can visit the Federal Trade Commission (FTC) website at www.ftc.gov for more information on the various identity theft protections that might be available to you.

Finally, due to the amount of paperwork and steps involved, fixing a credit report error can often be a time-consuming and emotionally draining process. If at any time you believe that your credit reporting rights are being violated, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) at www.consumerfinance.gov. 

Some material adapted with permission of Broadridge Investor Communication Solutions Inc.   

Fall Retirement Workshop Schedule

We're offering the Countdown to Retirement Series again this fall at the Keller Public Library.  This is a repeat of this Spring's popular series and is designed for individuals and couples within 5 - 10 years of retirement

Part I: Creating your Retirement Plan

This session will cover how to maximize tax-efficiency in saving for retirement, assessing when it's time to retire, building a retirement budget, and making decisions on possible long term care funding needs.   Tuesday, September 24 

Part II: Maximizing your Social Security Benefit

Attendees will learn how to increase their retirement income by making smart decisions on social security benefits.  We'll cover how to decide when to file, filing strategies for couples, and how to plan for taxes on your social security benefit.  Tuesday, October 15  

Part III: Investing in Retirement

Attendees will learn how to adjust their portfolio to shift from accumulation to distribution and steps they can take to minimize the effect of a market downturn on their retirement plans.  We'll also cover the basics of how to build a low-cost retirement portfolio.  Tuesday, November 19  

Cost: Free

Time: 6:30 pm

Location: Keller Public Library, 640 Johnson Rd

RSVP: Please RSVP to library@cityofkeller.com