Good morning.  It's been awhile since the last newsletter, so I'm happy to be reaching out to you again to share some financial updates as summer winds down.

Despite the volatility of the last month in the financial markets, this year is on track for another positive outcome.  The S&P 500 (large US company stocks) is up more than 8% year to date, and developed international market stocks are up about 1.8%.  Emerging markets stock is up almost 9.5%.  Bonds have also had a good year so far with the Barclays US aggregate bond index up 4.4%.

I recently returned from the Garrett Planning Network annual conference.  A highlight of the event was learning about My Classroom Economy, an inspiring program designed to teach students about financial discipline and the rewards that go with it.  If the issue of youth financial literacy is of interest to you also, I hope you'll check it out.  And if you've already had experience with this program as an educator or parent, I would be really interested to hear about your experience.

Voting is going on again for the Keller Citizen's Best of the Best. I'm grateful for the votes we've received for the Best Financial Planner Award for the last 5 years - thank you!  If you have a moment to cast your vote prior to the end of the day on Sunday, I would appreciate it!

In this edition of the newsletter, we have an articles on why we shouldn't fear a correction, 10 tax breaks that haven't been extended yet for 2014, the benefits of Roth IRAs for teens, and how the Windsor decision affects 401(k) plans.

Please let me know if you have suggestions for newsletter articles or questions on your financial planning world.  Thanks for reading, and Live Well!

At of the end of July, the Standard & Poors 500 index has completed 33 full months without a correction of 10% or more.  We are living in a remarkably long bull market; the average time span without a full-blown correction is just 18 months.  Since the last correction in September of 2011, the S&P 500 has gained 75%, threatening the remarkable 100% advance that began in March of 2003 and lasted until the market peaked in October of 2007.

Today, as the stock indices again near record territory, it may be a good time to prepare for that inevitable correction down the road.  It may take the market down 10% or, worse, reach the technical definition of a full market correction, which is a downward move of 20% or more.

Prepare how?  First, it helps to recognize that every market has pullbacks, and that these are a normal part of stock market behavior.  Since the Great Recession lows in March 2009, the S&P index has experienced nine different corrections, ranging in magnitude from 6% to more than 21%.

Second, it helps to recognize that these pullbacks are almost totally unpredictable.  Knowing there will be a pullback doesn't tell us when or help us maximize returns.  If we take money out of the market today, on the certainty that a pullback is coming, we are just as likely to miss another year or two of upward movements as we are of sidestepping an immediate downturn.  Nor do we know how long the downturn will last.  Add in trading costs and taxes, and the decision to guess when to step out of the market, and back in gain, is not likely to add value in the long run.

Third, recognize now that the next unpredictable correction will look blindingly obvious in hindsight.  It will seem like everybody but you knew in advance what was coming and when.  In reality, what you'll be hearing is reporters quoting the same few people over and over again, people who confidently predicted that a downturn was nigh and turned out to be right.  Look a bit more deeply than the reporters do, and you'll find that this small number of people had been predicting that the end was nigh over and over and over again for years.

Finally, realize that inaction is actually taking strong and unusual action.  People who simply kept their money in stocks during each of the market downturns ended up seeing the indices reach new highs once the correction had run its course.  Strong long-term investors benefit from the incremental daily, weekly, monthly efforts of millions of workers who come into the offices, factories and warehouses and build the value of their companies. 

People will change their opinions about what stocks are worth, but in general, over time, the value of most companies will rise to the extent that those workers add value during their workdays.  When people lose faith in that value, as they will when the next correction hits, it will put stocks on sale and give the rest of us an opportunity to rebalance and buy at lower prices--if we have the courage to separate ourselves from the herd.  

 Material adapted with permission of financial columnist Bob Veres.

Top 10 Tax Breaks You'll Miss in 2014

You probably didn't notice, but when the clock struck midnight on December 31, 2013, a number of popular tax benefits, commonly included in the list of provisions referred to as "tax extenders" expired. While it's entirely possible  that Congress could retroactively extend some or all of these items, it's good to be aware that, as of now, these provisions are not in effect for 2014. 

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

Roth IRAs for Teens

Your teenager is in the last month of his or her summer job, and chances are the wages have been collecting in a bank account. What should happen with that money when your child goes back to school?

One possibility is to start a custodial Roth Individual Retirement Account, owned by your teenager. All you need is a custodial account with an adult co-signing (if the teen is under 18). That money can grow for many decades and come out tax-free 30 or 50 years down the road. 

How much are we talking about? If the money were to grow at an average rate of 5% a year (which, of course, is not guaranteed, but is in line with long-term averages for a balanced portfolio), then a $5,000 contribution at age 19 would grow to $52,006 by age 67. If your child waits until age 25 to invest the same amount in a Roth IRA, under the same return assumptions, the balance at age 67 would be just $38,808.

If that contribution becomes a habit, the numbers become more interesting. A 19-year-old who maxes out on a $5,500 Roth contribution every year until age 67, under the same rate of return assumptions, would see the account grow to $1,164,985. 

Suppose your teen decides to spend some of that money, or use it for college tuition? Parents and/or grandparents can match whatever contribution the child decides to make, to bring the total back up to $5,500. They money in a Roth or other retirement account doesn't count toward the FAFSA financial aid form, so you don't have to worry about compromising the teen's financial aid eligibility. And having a hefty Roth IRA at retirement might address the possibility that retirement is likely to be even more of a do-it-yourself proposition by the time your teen gets there.
 

Material adapted with permission of financial columnist Bob Veres.