Portfolio Management

Posted by & filed under Portfolio Management.

The Investment Advisor Believes it is More Important Than Ever to Have an Investment Philosophy, Strategy and Tactics in Place. With the Government Shut Down and Possibility of a Default on the Debt Cap Can You Afford Not too? As a Guide to Getting Started Review The Investment Advisor’s Views About Portfolio Management at http://www.theinvestmentadvisor.net/portfolio-management.html

You Can Review The Investment Advisor’s Investment Philosophy at www.theinvestmentadvisor.net/investment_philosophy.html

5 Tips For Managing Your Company or Non-Profit Retirement Plan

Posted by & filed under Retirement Plans.

Affluent Family Small 2

Your Organization’s Retirement Plan. When was the Last Time You Reviewed it? Creating and Maintaining Your Retirement Plan Produces a Great Employee Benefit Which Helps You Attract and Retain Talent to Help You Grow Your Company or Non-Profit Organization. Over the Last Few Years the Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) Have Made a Number of Changes to the Regulations Governing How You Manage Your Qualified Retirement Plan. This Affects Not Only Your 401k, 403b or Profit Sharing Plan. There has Also Been Talk of Applying these Regulatory Concepts to Less Complicated Retirement Plans such as Individual Retirement Accounts (IRA) Which Could Include Both SEP-IRA Plans (Simplified Employer Plans) and SIMPLE Plans (Savings Incentive Match Plan for Employees of Small Employers). This Article Provides a Few Helpful Tips to Help You Understand the Concepts, Regulations and Laws to Help You Administer Your Retirement Plan for the Benefit of Your Employees. Retirement Plan Regulation Has Become Synonymous With the Best Interest of Your Employees. For Purposes of Discussion This Article is Limited to Defined Contribution Plans. The Scope of This Article Profiles Broad Categories Involving the Regulation of Qualified Retirement Plans and is Not a Comprehensive Discussion. It Should Not Replace Counsel with Your Attorney, Accountant, Investment or Financial Advisor.

1. Fiduciary Responsibility: Since the Financial Crises the Government has Become Very Serious About Protecting Your Employees Retirement Savings. The Balances in 401k Plans for the Average Person is Extraordinarily Low in Relationship to the Amount Needed to Fund a Secure Retirement.  Therefore, the Government Wants Money Saved for Retirement Protected in the Belief that More Secure and Cost Effective Retirement Plans Will Help Prompt Employees to Use Them. This is Really Just One Arrow in the Quiver to Spurring Greater Retirement Savings. Most Business Owners, Managers, Employees and Professionals Not Schooled in the Operation of Retirement Plans Still have Trouble Understanding How to Administer and Invest Within Them. One of the Outgrowths of This has Been to Make You the Plan Sponsor (i.e.: You the Company, Non Profit, Organization, Plan Trustee) Responsible for Managing Your Retirement Plan in the Best Interest of Your Employees Who Participate in Your Plan.

Fiduciary Responsibility Holds You to the Status of an “Expert” in Managing Your Retirement Plan. Under ERISA (Employees Retirement Income Security Act) You are Held Accountable for How the Plan is Managed. It is Vitally Important You Perform the Necessary Due Diligence for Each Aspect of Your Plan. This includes Documenting the Steps You Take in Managing Your Plan and Monitoring the Investments Held in Your Plan.

According to the Department of Labor a Retirement Plan Fiduciary is Required to:

  • Act Solely in the Interest of Plan Participants and Their Beneficiaries, With the Exclusive Purpose of Providing Benefits to Them
  • Carry Out Their Duties with Skill, Prudence, and Diligence
  • Follow the Plan Documents (Unless Inconsistent with ERISA)
  • Diversifying Plan Investments
  • Pay Only Reasonable Expenses of Administering the Plan and Investing its Assets
  • Avoiding Conflicts of Interest

2. Parity: Parity Refers to the Relative Equality of Plan Contributions Between Management and Rank and File Employees. Retirement Plans Are Managed for the Benefit of All the Employees for Which They Are Created. Not Simply Owners, Senior Management or Other Highly Compensated Employees. A Good Rule of Thumb is No More Than 60% of Your Retirement Plan’s Assets Should Come From Highly Compensated Employees.

Qualified Retirement Plans Are Required to Have Non-Discrimination Testing Performed Each Year. Non-Discrimination Testing is Used to Determine Whether or Not Your Retirement Plan “Discriminates” in Favor of Highly Compensated Employees. If This is the Case Your Retirement Plan Will be Deemed to be Out of Compliance.

3. Fees: Under Retirement Plan Regulations Created by Rule 408b(2) by the DOL (Department Labor) and the EBSA (Employee Benefit Security Administration) All Fees Paid by Your Retirement Plan Must Be Fair and Reasonable. As the Trustee of Your Retirement Plan it is Your Responsibility for You to Determine That the Fees Your Plan Pays Offer the Best Value. Simply Choosing the Least Expensive Providers and Vendors Does Not Satisfy the Requirements of Rule 408b(2). Rule 408b(2) Requires Choosing Providers That are the Most Effective in Helping You to Properly Administer Your Plan to Help You Secure the Best Outcomes and Produce the Greatest Value for Your Employees and Their Investments in Your Plan.

Some Examples of Service Provider Fees You May Need to Document While Managing Your Retirement Plan May Include: Accounting, Auditing, Actuarial, Banking, Consulting, Custodial, Insurance, Investment Advisory, Legal, Recordkeeping, Securities Brokerage, Third Party Administration, or Valuation Services.

The Types of Services These Providers Offer Range From Plan Design, to the Investments Held in Your Plan to the Platform From Which Your Plan is Delivered. Fee Sharing Arrangements or Revenue Sharing Where Fees are Allocated Back to Your Retirement Plan to Cover Certain Plan Costs May be Considered to be Plan Assets. Fee Revenue Sharing Arrangements Should Be Structured to Benefit Your Retirement Plan. As Plan Assets They Should be Used to Benefit Your Employees as Participants in Your Retirement Plan. It is Also Important to Determine Which Fees Your Organization Will Pay and Which Fees Your Employees Will Pay.

It is Vitally Important You Document Your Philosophy and Process Around Which You Select Providers, Vendors and Investments for Your Retirement Plan with Respect to the Fees Your Plan Pays. (See It’s Not Your Father’s Retirement Plan Anymore)

4. Employee Communication: Communicating to Your Employees How Your Retirement Plan Operates, Functions and How to Investment in Your Plan is Critical to Your Employees Successfully Creating a Financially Secure Retirement. Some of the Documents You May Need to Create for Your Plan to Communicate With Your Employees Include:

a. Your Plan Document: This is the Document Which Creates the Terms and Conditions Under Which Your Retirement Plan is Created. It Can be Provided by Your Retirement Plan Services Provider. It May be a Prototype Plan Document (a Pre-Created Document) or a Custom Document. Custom Documents are Generally Created by an Attorney Well Versed in ERISA Law Specifically for Your Organization.

b. Your Plan’s Summary Plan Description: Your Summary Plan Description (SPD) is an “Important Disclosure Document Prepared by the Plan that Describes, in Understandable Terms, the Rights, Benefits, and Responsibilities of Participants and Beneficiaries in ERISA Covered Pension, Health and other Employee Benefit Plans. The SPD Must Include Important Information Regarding the Plan, Such as Information on How the Plan Works, Eligibility requirements, What Benefits the Plan Provides, and How Those Benefits May be Obtained.

Plan Sponsors are Required to Automatically Provide Copies of These Documents to Plan Participants Upon Enrollment and Upon Written Request of a Plan Participant or Beneficiary. ERISA also gives the Department of Labor the Authority to Request Copies of These Documents from Plan Administrators/Employers on Behalf of Participants and Beneficiaries.”

c. Annual Report (Form 5500): Your Retirement Plan’s Annual Report Provides Financial Information About Your Plan. “This Report is Required to be Submitted Annually by Many ERISA-Covered Plans. It Contains Various Schedules with Information on the Financial Condition and Operation of the Plan. Certain Entities in Which Plans Invest or Participate Also File Annual Reports with the Department of Labor. These Entities, Called Direct Filing Entities or “DFEs,” Include Banks, Common or Collective Trusts, Insurance Company Pooled Separate Accounts, Master Trusts, Group Insurance Arrangements and Entities Covered by Department of Labor regulation 29 CFR 2520.103-12. These Reports Include Financial Information Regarding the DFE and a List of the Investing or Participating Plans. Generally, the Six Most Recent Reports filed by Employers or Plan Administrators are Available. (Note: electronic copies of the data contained on all of the Forms 5500 and schedules filed each year are available for a fee by submitting a Freedom of Information Act request)”

d. Summary Annual Report (SAR): Your SAR “Outlines in Narrative Form the Financial Information in the Plan’s Annual Report, the Form 5500 and is Furnished Annually to Participants.”

e. Summary of Material Modification (SMM): Your SMM “Apprises Participants and Beneficiaries of Changes to the Plan or to the Information Required to be in the SPD. The SMM or an Updated SPD for a Retirement Plan Must be Furnished Automatically to Participants Within 210 days After the End of the Plan Year in Which the Change Was Adopted.”

f. Individual Benefit Statement (IBS): Your Employees IBS “Provides Participants With Information About Their Account Balances and Vested Benefits. Plans That Provide for Participant-Directed Accounts Must Furnish Statements on a Quarterly Basis. Individual Account Plans That do Not Provide for Participant Direction Must Furnish Statements Annually.”

g. Automatic Enrollment Notice: Your Plan’s Automatic Enrollment Notice “Details the Plan’s Automatic Enrollment Process and Participant’s Rights. The Notice Must Specify the Deferral Percentage, the Participant’s Right to Change That Percentage or Not Make Automatic Contributions, and the Plan’s Default Investment.”

h. Blackout Period Notice: The Blackout Period Notice “Requires at Least 30 days’ (but Not More Than 60 Days’) Advance Notice Before a 401(k) or Profit Sharing Plan is Closed to Participant Transactions. During Blackout Periods, Participants (and Beneficiaries) Cannot Direct Investments, Take Loans, or Request Distributions. Typically, Blackout Periods Occur When Plans Change Recordkeepers or Investment Options, or When Plans Add Participants Due to a Corporate Merger or Acquisition.”

i. Plan and Investment Information for Participant Directed Accounts: Plan and Investment Information, Including Information about Fees and Expenses, so Participants Can Make Informed Decisions to Manage Their Individual Accounts. The Investment Information Must be Provided in a Format, Such as a Chart, That Allows for Comparison Among the Plan’s Investment Options.

j. Operational  Process: Documents Communicating to Your Employees in Plain Language the Details of Processes for How Your Plan Functions Including  Where Employees Can Find Information to Access Your Plan Such as Websites, Investment Information, Enrollment Kits, PDF’s and Other Printed Material.

This May Include Communicating How Plan Services and Investments Help You Manage Your Plan and How They May Help Your Employees Succeed in Saving for Their Retirement.

5. Employee Education: The Purpose of Retirement Plan Regulation is Protecting Your Employees Retirement Savings. A Corollary of This Goal is to Help Ensure Your Employees Feel Comfortable Enough to Invest and Save for Their Retirement in Your Plan. Providing Tools to Help Your Employees Succeed in the Endeavor of Creating a Financially Secure Retirement is Paramount in Importance. This is the Reason to Provide Investment Education for Your Employees.

Investment Education for Your Retirement Plan Falls Into Two Categories:

a. General Investment Education: General Investment Education is Not Specific to Your Employees Individual Circumstances. It is Information Only. It May for Example Provide Descriptions and Examples of Investment Concepts Such as:

  • Asset Allocation
  • What a Mutual Fund is
  • How a Mutual Fund Can Be Used to Achieve Diversification
  • How to Project Your Retirement Savings Goal
  • Tools Such as Calculators to Determine the Amount Your Employee Needs to Save to Reach Their Retirement Savings Goal Based on a Presumed Rate of Return

This Type of Investment Education is Typically Delivered via a Website or Other Self Learning Method.

b. Personalized Investment Education: Personalized Investment Education is Specifically Tailored to Each Employees Unique Financial Situation. It is Typically Delivered by an Investment or Financial Advisor Through an in Person Consultation with Your Employee. It takes into Account Your Employees Complete Financial Picture Including: Income, Size of Portfolio, Net Worth, Tax Bracket, Marital Status, Age, Number of Children, and Aversion to Risk. It Considers Other Investment and Savings Accounts the Employee May Have, What Rates of Return are Needed to Achieve Your Employees Retirement Savings Goal, the Retirement Lifestyle Your Employee Wants to Achieve and Over What Period of Time. It Also Considers Where Best to Position Taxable, Tax Free, Tax Advantaged, Growth and Income Producing Investments.

Acting as an Investment Advisor to Employees Participating in your Retirement Plan Makes an Investment or Financial Advisor a Fiduciary to Your Retirement Plan. Providing an Investment Advisor to Counsel Employees as to How Best Invest Within Your Retirement Plan May Involve Financial Planning.

This Article is an Introduction to Some of the Concepts Involved in Managing Your Qualified Retirement Plan. There is a Great Deal More You Will Need to Consider. The Overriding Theme of Managing Your Retirement Plan in the Best Interest of Your Employees Based on Both Regulatory Adherence and Investment Outcomes Sets the Stage for You to Create and Manage Your Retirement Plan so Your Employees Have the Best Opportunity to Create a Secure Retirement.

The Investment Advisor Helps Companies, Self-Employed Individuals and Non-Profit Organizations Manage their Qualified Retirement Plans. The Investment Advisor Provides a Comprehensive Consulting Service with Respect to Defined Contribution Qualified Retirement Plans. The Investment Advisor Also Performs Feasibility Studies For Those Companies, Self Employed Individuals and Non-Profit Organizations Who Wish to Create or Evaluate Their Existing Qualified Defined Contribution Plan such as Their 401(k), 403(b), Profit Sharing Plan, KEOGH, SEP-IRA, SIMPLE-IRA or IRA Plan.

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Email:lwolkenstein@theinvestmentadvisor.net

 

The Investment Advisor is a registered investment adviser exclusively serving business, non-profit organizations, families and individuals doing business and residing in the state of Pennsylvania.  Pennsylvania is the only state in which The Investment Advisor is registered to conduct business. Therefore, only residents of the state of Pennsylvania, businesses or non-profit organizations with a physical place of business and who conduct business in Pennsylvania may consider this article an offer to conduct business. If you are a resident of a state other than Pennsylvania or a business or non-profit that does not have a physical place of business and conduct business in Pennsylvania you may view this article for informational purposes only. If you are a resident, business or non-profit that does not reside in or have a physical place of business and conduct business in Pennsylvania this article is not an offer or solicitation to conduct business in any state other than in Pennsylvania.

This communication should not under any circumstance be construed as a recommendation for any security or any type of financial planning activity. Recommendations are only made in individual consultation with each client after the individual and unique circumstances of each client have been disclosed by the client to The Investment Advisor.

Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are not affiliated with The Investment Advisor. Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are third party vendors who act as financial intermediaries and service providers on behalf of The Investment Advisor and its clients.

Investing and Technology

Posted by & filed under Portfolio Management.

Small Business Men shaking Hands

Focus on the Numbers: Like any Good Business Person You Use Numbers to Measure the Financial Health of Your Business and Your Household. The Federal Government Also Uses Numbers to Measure the Growth and Health of the Economy. Several Months Ago the Federal Government Announced an Initiative to Make the Information Resources of the Federal Government Available to Business. A Good Example of This is the United States Census Bureau’s App Which Makes the Econometric Numbers Reported by the Bureau of Labor Statistics Available Through the App the Moment They are Released. These Numbers Make Up a Good Portion of the Economic Calendar and are Comprised of 19 Statistics Used to Monitor the Economy. These included Measures Ranging from Gross Domestic Product (GDP), Housing, Manufacturing, Unemployment, Inflation, Personal Income, International Trade and More.

You May Have Also Heard that Certain Economic Reports such as the University of Michigan Consumer Confidence Survey Have Been Released a Second or Two Early to Large Institutional Investors Such as Hedge Funds, Private Equity and Others for a Fee. This Begs the Question are All Investors Operating on an Even Playing Field or are Some Investors Being Given an Unfair Advantage?

The Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Department of Justice (DOJ), and other Federal Agencies Have Been Busy Over the Last Number of Years Shoring up the Nation’s Financial Regulations. Many Have Argued the Onerous Burden Such Regulations Impose on Securities and Investment Firms Mandated by Dodd-Frank and Other Laws. These Regulations Combined with Stepped Up Oversight of the Investment Community by the SEC, the CFTC, the DOJ and other Federal and State Agencies Have had the Effect of Exposing Firms Such as: SAC Capital for Insider Trading , JP Morgan Chase Over the London Whale Trades, Goldman Sachs for Conflicts of Interest and Self-Dealing, Bank of America for Securities and Mortgage Violations and  the Exposure of a Number of Various Ponzi Schemes and Securities Law Violations Stemming From the Financial Crisis too Numerous to Mention Here.  These Enforcement Actions Have Resulted in Prosecution, Criminal Convictions and Fines Sending a Message the Laws Will be Enforced.

The Nation is Systematically Working Through Issues Affecting the Operational Integrity and Fairness of the Financial Markets from Securities to Credit to Lending.  The Markets Have Been in a Healing Process for Several Years. The Evidence Showing Rising Asset Values in Housing, Securities, GDP and the Recent Debate by the Federal Reserve to Start an End to Quantitative Easing is Evidence of the Improvement.  As the Country Continues to Work Through This Restructuring the Cumulative Effect of Regulation and Enforcement is Helping to Restore the Health of the Financial Markets Over Time. Given this Approach the Financial Markets and the Economy Will Continue to Improve Despite the Fact There are Still Issues Yet to be Resolved.

Government Economic Information Released Through Apps Like the One Made available by the Bureau of the Census and the Bureau of Labor Statistics as Well as the Federal Government’s Open API (Which Allows Direct Feeds of Government Information to Business, Institutions and Small Investors Who Wish to Avail Themselves of it) is Released the Moment the Government Reports This Information to the Public. You Become Among the First to Receive This Information Electronically if You Have Downloaded the App or Have Set Up Feeds Through the Open API. Access to Information in This Manner While Not Granting Early Access May Serve to Level the Investment Playing Field as Those Who Have Set Up Access are Informed as Fast as Legally Possible.

Fast Access to Government Information Which May Move Markets Delivered Through an App on Your Smart Phone, Tablet, Through a Feed to Your Desktop or IT Network Will Allow You to Access Information on a Timely Basis Helping to Keep You Well Informed.

You Can View Information About the App and Download it at http://www.census.gov/mobile/

 

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The Investment Advisor Can Be Reached by:

Phone

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877-414-9021-Toll Free

570-815-0770-Mobile

On the Request Consultation or Contact Us Page on the Website of The Investment Advisor at www.theinvestmentadvisor.net

Email:lwolkenstein@theinvestmentadvisor.net

The Investment Advisor is a registered investment adviser exclusively serving business, non-profit organizations, families and individuals doing business and residing in the state of Pennsylvania.  Pennsylvania is the only state in which The Investment Advisor is registered to conduct business. Therefore, only residents of the state of Pennsylvania or organizations with a physical place of business and who conduct business in Pennsylvania may consider this letter an offer to conduct business. If you are a resident of a state other than Pennsylvania or an organization that does not have a physical place of business and conduct business in Pennsylvania you may view this article for informational purposes only. If you are a resident or business that does not reside in or have a physical place of business and conduct business in Pennsylvania this article is not an offer or solicitation to conduct business in any state other than in Pennsylvania.

This communication should not under any circumstance be construed as a recommendation for any security or any type of financial planning activity. Recommendations are only made in individual consultation with each client after the individual and unique circumstances of each client have been disclosed by the client to The Investment Advisor.

Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are not affiliated with The Investment Advisor. Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are third party vendors who act as financial intermediaries and service providers on behalf of The Investment Advisor and its clients.

 

 

Fed Creates Uneasiness in the Markets

Posted by & filed under Portfolio Management.

This View is One of Many Advocated By the Investment Industry and is Presented for Your Review

Testimony by Ben Bernanke in Front of Congress Last Month Kicked Off a Wave of Speculation About When the Federal Reserve Will Begin to End Quantitative Easing. The Markets Have Also Been Reacting to Comments by Federal Reserve Regional Presidents. Investors Have Become Uneasy About the Levels Major Market Indices Have Reached Versus Valuations of the Market and the Perceived Potential that Quantitative Easing Could be Scaled Back. This Has Resulted In Market Reactions as Investors Have Been Watching the Release of Economic Reports That Can Impact Federal Reserve Decisions About Quantitative Easing.

Quantitative Easing Has Been the Fuel That Has Ignited the Markets Fire. It Has Propelled the Markets to New Highs. Scaling Back or Ending Quantitative Easing Calls Into Question the Premise Upon Which Investors Have Been Moving Money into the Markets. The 10 year Treasury Closed Friday June 7th at a Yield of 2.16%. This Yield Represents a Substantial Increase Since the Beginning of the Year. Investors Have Been Moving Money out of Bonds and into Equities Raising Bond Yields Despite the Fed’s Efforts to Keep Yields Low Buy Buying $85 Billion of Bonds per Month. These Bond Purchases Had Resulted in Lower Interest Rates Which has Benefited the Economy.

For Example, there has Been a Pickup in the Value of Residential Real Estate. The Case-Schiller Index Showed a Substantial Year Over Year lncrease as Home Prices Have Risen. Unemployment Has Risen to 7.6% and More People Have Begun Actively Looking for Work. The Release of the Beige Book as a Gauge of Economic Performance Shows Low to Moderate Economic Performance

At the Same Time the U.S. Economy May be in the Midst of Slowdown in the Second Quarter. Most Recently the ISM Survey Showed a Drop in Manufacturing. Wages for Those Who Have Jobs Have Stagnated as of Late. Personal Spending Has Fallen. Doug Kass in his Article “False Economic Dawn” on The Street.com Reported “The Personal Savings Rate is at a Five Year Low (2.5%). This May Restrict Second-Half Growth in Personal Consumption Expenditures, a Variant View Relative to the Market’s Consensus of Accelerating Growth. The May Chicago Manufacturing Index was Strong at 58.7 Compared to Consensus of 50 and 49 in the Month of April. This Was the Highest Reading in 15 months, Though at Odds with the Richmond, Philadelphia and Empire Indices as Well as Other Manufacturing Metrics Recently Released. When One Combines the Income and Spending Data With Other High-Frequency Data, the U.S. Economy is Growing More Slowly Than First Quarter 2013.” Projections for GDP for the Second Quarter Thus Far Have Been in the 1.6% to 1.9% Range. Much Less Than 1st Quarter GDP. First Quarter GDP Came out Initially at 2.5%. Then Was Revised Down to 2.4%. BankRate.com Reports the Rate for a 30 Year Mortgage Has Risen to 3.98% and the 15 Year Mortgage Has Risen to 3.15%. .

The Fed has Set Two Either or Parameters Under Which it Will Wind Down Quantitative Easing. Either an Unemployment Rate of 6.5% or an Inflation Rate of 2.5%. Consider Bill Gross’s Projection of a 2.5% Yield on the 10 Year Treasury by the End of the Year. There is Also Much That Has Been Written Lately About an Impending Market Correction. As Secondary Market Rates Rise there is the Potential for the Benefits Very Low Yields Have Provided Could Stop Producing Gains the Economy Needs for Example in Housing and Manufacturing.

Commodities Can Also be Considered a Proxy for an Expanding or Contacting Economy. Rising  Commodity Prices Can Signal an Increase or Decrease in Demand for the Products and Services They are Used to Make and Provide. For Example, Rising Oil and Gas Prices May Indicate a Pickup in Economic Activity as People Drive More, More Goods Need to be Transported and Business Needs for Them. Commodities May Also Contribute to Inflation. Rising Inflation Can Also Signal an Improving Economy as Demand Picks Up.  Commodities Prices are Not Governed Entirely by the U.S. but by Global Demand or Lack of it. As Examples; Gold and Silver Have Fallen Dramatically. Yet Natural Gas Has Risen this Year. Oil is Hovering at 96.14 as of the Close Friday June 7th. Goldman Sachs Sees the Bull Run in Commodities as Over as  Commodity Returns Trail Stocks. 

Last Year The Investment Advisor Projected the Yield on the 10 Year Treasury Would be Range Bound After it Hit its Low of 1.45% (Read A Word About the Economy). With the 10 Year Treasury Now Yielding 2.16% it is Possible the Yield on the 10 year Could Hit 2.5%.  Rising Yields Could Further Lower Gross Domestic Product (GDP), and Employment.  The Bureau of Labor Statistics (BLS) Reported the April CPI “All Items Index Increased 1.1 Percent Over the Last 12 months, the Smallest 12-month Increase Since November 2010. The Index for All Items Less Food and Energy increased 1.7 percent over the Span; This Was its Smallest 12-month Increase Since June 2011. The Food Index Rose 1.5 percent While the Energy Index Declined 4.3 percent.”

It has Also Been Poisted The Federal Reserve Will Need to See 4 Consecutive Months of Jobs Growth at the 200k Level Before it Will Consider Throttling Back on Quantitative Easing. Expect to See Continued Volatility Over the Next Several Months in the Stock and Bond Markets as Investors Continue to Watch Economic Reports. The Federal Reserve’s Next Meeting is Scheduled for June 18th, as is the Next Release of the CPI. The Investment Advisor Expects the Federal Reserve Will Hold its Hand Pat and Continue Quantitative Easing at its Current Levels as a Counterbalance to the Sequester.

For Further Questions or Concerns Contact The Investment Advisor.

The Investment Advisor is Offering a Complimentary Portfolio Review or Retirement Planning Review. If You Would Like to Take Advantage of This Offer Request a Consultation

The Investment Advisor-Exclusively Helping Investors in Pennsylvania

ISM Index Falls to 49 Signaling Contraction

Posted by & filed under The Economy.

Market Watch Reported The Institute for Supply Management Index Fell to 49 from 50.7% in April. The Index was expected to rise to 51. This was the ISM Index’s Third Straight Monthly Decline. ISM Index Readings Below 50 Indicate Contraction for Manufactures. Readings Above 50 Indicate Expansion.

“Several Comments From [Executives] Indicate a Flattening or Softening in Demand Due to a Sluggish Economy, both Domestically and Globally, said Bradley Holcomb, Chairman of the ISM Survey Committee.”

“Economists say the Weakness in Manufacturing Underscores the Likelihood that U.S. Growth in the Second Quarter Will Slow From the First Three Months of the Year. Gross Domestic Product is Forecast to Sag to 1.9% From 2.4% in the First Quarter.”

  The Institute for Supply Management Report  said:

“Of the 18 manufacturing industries, 10 are reporting growth in May in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Wood Products; Furniture & Related Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Machinery; and Paper Products.

The six industries reporting contraction in May — listed in order — are: Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; Plastics & Rubber Products; Computer & Electronic Products; and Primary Metals.”

Read the full ISM Report by Clicking the Link Above.

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The Investment Advisor-Exclusively Helping Investors in Pennsylvania

May Manufacturing Index Rises

Posted by & filed under The Economy.

The May Manufacturing Purchasing Managers Index Rose to 52.3 from 52.1 in April.  Aprils’ Level was a 6 Month Low. The Initial Estimate for May was 51.9. “The May Survey Paints a Downbeat Picture of U.S. Manufacturing Business Conditions. Output, Order Books and Employment are All Growing Modestly, Suggesting the Sector is at Risk of Stalling, said Chris Williamson, Chief Economist at Markit” For Further Details Click the Link Above.

2013 Tax Code Changes

Posted by & filed under Legislation and Regulation Affecting Investments.

There are a Number of Tax Code Changes Going Into Effect in 2013. These Changes are Created by the Taxpayer Relief Act of 2012. This Law Affects Affluent High Income Earners as Well as Individuals and Families in Lower Tax Brackets. The Reset of Social Security Taxes Due to the Expiration of the Payroll Tax Cut Affects all Employees and Those Who are Self Employed.

There is Also Now an Incentive for People in the 25% and 15% Tax Brackets to Invest as the Tax Rate for Capital Gains and Qualified Dividends Falling into These Tax Brackets is 0.

Planning for These Changes is Essential So You are Not Surprised During Tax Filing Season.

Keep in Mind The Investment Advisor Does Not Provide Tax Advice or Make Tax Recommendations. The Information Below is Presented for Informational Purposes Only and Does Not Constitute Tax Advice, Tax Recommendations or Investment Advice.

The Investment Advisor Does Stand Ready to Work with You, Your Accountant and/or CPA, Attorney and other Advisors to Help Provide You with the Investment Management, Advice, Securities Recommendations and Types of Accounts of Accounts You May Need to Implement a Comprehensive, Integrated Investment Portfolio in Line with the Recommendations of Your Accountant, CPA and Attorney.

Intuit Spells Out Many of The Tax Changes Which Include but are Not Limited to:

1.  A Top Tax Bracket of 39.6% for Earnings Above $400,000 for Individuals and $450,000 for Married Couples Filing Jointly

2.  A 3.8% Medicare Tax on Investment Income Affecting Those individuals With Incomes over $200,000 and Married Couples Earning over $250,000.

3.  A 20% Tax Rate on Long Term Capital Gains and Qualified Dividends.

4.  “The Law Permanently Extends a 0% Tax rate on Capital Gains and Qualified dividends for Taxpayers Below the 25% Bracket, as Well as the 15% Rate for Other taxpayers. However, the Law Adds a 20% Rate for Gains falling in the New 39.6% bracket.

5.   A .9% Medicare Tax On Wages and Earnings Resulting From Employment or Self Employment on Incomes over $200,000 for Single Individuals and $250,000 if Married Filing Jointly.

6.  An Increase in the Taxable Wage Base Upon Which Social Security Taxes are Calculated to $113,700.

7.  Compensation subject to the Medicare portion of FICA is Unlimited.

8.  A “Sunset” of the Bush-Era Tax Cuts. The Law Makes Permanent the 10%, 15%, 25%, 28% 33% and 35% tax brackets.

9.  “The Law Permanently Extends the 0% Tax Rate on Capital Gains and Qualified Dividends for Taxpayers Below the 25% bracket, as well as the 15% Rate. However, the Law Adds a 20% Rate for Gains Falling in the New 39.6% bracket.”

10.  “For 2013, Personal Exemptions Will be Reduced by 2% for Each $2,500 (or portion thereof) of AGI above $300,000 for Joint Filers and Surviving spouses, $275,000 for heads of households, $250,000 for singles, and $150,000 for marrieds filing separately. The Total Amount of Itemized Deductions Will be Reduced by 3% of the Amount by which Adjusted Gross Income Exceeds the Same Threshold Amounts.”

11.  “For 2013, the Alternative Minimum Tax (AMT) Exemptions are $51,900 for singles, $80,800 for Joint Filers, and $40,400 for Marrieds Filing Separately. The Law Permanently Extends the Provision Allowing Nonrefundable Personal Credits to Offset the AMT.”

12.  “Tax-free distributions from IRAs for Charitable Purposes are extended through 2013”

13.  “In 2013, Health Flexible Spending Arrangements Must Limit Tax-Free Salary Reduction Contributions to $2,500 per year. The $2,500 limit is Indexed for Inflation in Future years. The Contribution Limit Carries a January 1, 2013 Effective Date; However, the IRS has Announced That Plans are Not Required to Apply the Limit Until the First Plan Year Beginning after December 31, 2012. Inflation adjustments to the Contribution Limit Will Also Apply on a Plan Year Basis.”

14.  “Medical Expense Deductions for Most Taxpayers Will be Subject to a 10% Deduction Floor—Up From 7.5% for Prior Years. However, for 2013 through 2017, the 7.5% Deduction Floor Will Continue to Apply if Either the Taxpayer or the Taxpayer’s Spouse has Reached age 65 Before the End of the Tax Year.”

15.  “The Employee Share of FICA and Self-Employment Tax is Two Percentage Points Higher than in 2012, Due to the Expiration of the Payroll Tax Holiday that Ran in 2010 and 2011. If You’re Self Employed, You Can Deduct the So-Called Employer Share (i.e., one half of self-employment tax). “

16.  Companies Can Contribute on a Tax-Deductible Basis up to $51,000 to Profit-Sharing Plans and SEPs in 2013 (up from $50,000 in 2012).

Possible Strategies for Individuals and Families With Incomes in the Top Tax Bracket May Include Deferring Income Through a Deferred Compensation Plan if You are Self-Employed or if Your Employer Offers Such a Plan.

You May Also Consider Maxing Out Your Retirement Plan Contributions. If You are Not Able to Participate in an Employer Sponsored Retirement Plan Such as a 401k Plan, 403b Plan, Profit Sharing Plan, SEP Plan or SIMPLE Plan You May Consider Maxing Out on Your IRA Contributions. Always Check with Your Accountant and/ or CPA and Attorney Regarding Your Personal Financial Situation Before Making These Decisions.

Holding Individual Stocks and Bonds May Provide You With a Greater Degree Control over Tax Related Matters as Opposed to Mutual Funds. This May Provide an Easier Way to Offset Losses Against Gains. Mutual Funds Payout Long and Short Term Capital Gains at the End of the Year.  Remember Not to Comprise a Diversified Portfolio in Which You May Need Mutual Funds, Index Funds and Exchange Traded Funds to Achieve.

You May Also Want to Consider Tax Free Municipal Bonds if They are in Line with Your Personal Financial Situation.

As With Any Type of Investing Your Specific Personal Financial Situation, Objectives, Goals and Risk Tolerance are Paramount in Making These Decisions. The Investment Advisor Recommends You Consult with The Investment Advisor, Your Investment or Financial Advisor, Your Accountant and/ Your CPA and Attorney to Advise You Regarding Such Matters.

Investing in Securities Involves Risk of Loss. You Should be Prepared to Bear These Risks. The Value of Your Investments Will Fluctuate Over Time and You May Gain or Lose Money. Past Performance is No Guarantee of Future Results.

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Has the Market Cycle Turned?

Posted by & filed under Portfolio Management.

This Hypothesis is One of Many Espoused in the Investment Industry and is Presented for Your Consideration.

The Release of the Case-Schiller Home Index Showed a 10.9% Increase. This was Followed by a Year Over Year Increase in the Price of Homes. The Median Price of a Home Now Stands at $271,600. However, the Real Story in Residential Real Estate is Told by Homeowners Equity. Homeowner Equity has a lot to do with Consumer Spending and the Perceived Wealth of Homeowners.

The Wealth Effect is Created When an Asset Owned by a Consumer or Investor Rises in Value. This Could be Stocks, Bonds Mutual Funds or Real Estate. The Markets Rise in 2013 Has Helped Investors. This May Have Helped Consumer Spending so Far This Year. However, the Clouds on the Horizon Relating to the Pullback in Government Spending Vis a Vie the Sequester, the Markets Skittishness Over the Possible Unwinding of Quantitative Easing, the Lack of Approval of a Permanent Raise in the Debt Ceiling and Gridlock in the Federal Government are Still Fueling Uncertainty.

Residential Real Estate has Indeed Risen. It was Reported Earlier This Year by Economists and Pundits Who Saw Real Estate Contributing About .5 or ½ of 1% to Gross Domestic Product (GDP) in 2013. This is Not Only Due to the Rise in Home Values but Includes all the Related Purchases People Make When Buying a Home Such As Furniture, Appliances, Home Improvements and the Like.

Zillow Real Estate Research Has Recently Published Their Negative Equity Report. Negative Equity is the Amount by Which a Home is Worth Less Than the Value of the Loan Used to Buy it. The Report Finds that Negative Equity Rate Fell From 27.5% in 2012 to 25.4% in the First Quarter of 2013. It Also Showed a Sequential Year Over Year Decrease From the First Quarter of 2012 to the First Quarter of 2013 Falling 31.4% to 25.4% Respectively.

The Street.com Reported:

“About 44% of Homeowners With Mortgages Cannot Afford to Sell Their Homes”, according to Zillow.

“Despite a Recovery in Prices, Over a Quarter of Homeowners With Mortgage Loans Still Owe More Than Their Homes are Worth. But another 18.2 percent of Homeowners with Mortgages, While Not Technically Underwater, Likely Do Not Have Enough Equity to Afford to Move,”

“43.6% of Homeowners Have Less Than 20% Equity in Their Homes. That Makes it Hard for Them to Move or Trade-Up, Given the Considerable Costs Involved in Buying and Selling a Home, Including the Cost of a Down Payment for the Next Mortgage.”

“This Inability to Sell is One of the Big Factors Behind the Acute Shortage of Existing Homes for Resale in the Country. Strong Investor Demand for Foreclosed Homes is Another Reason.”

Zillow’s Negative Equity Report States:

“In the First Quarter of 2013, More Than 730,000 American Homeowners Were Freed From Negative Equity. However, 13 Million Homeowners with a Mortgage Remain Underwater. Moreover, the Effective Negative Equity Rate Nationally —Where the Loan-to-Value Ratio is more than 80%, Making it Difficult for a Homeowner to Afford the Down Payment on Another Home — is 43.6% of Homeowners With a Mortgage. Home Value Appreciation Across the Nation Has Been the Main Factor Reducing Negative Equity Levels. Some Markets, Such as Phoenix (25.5%), Las Vegas (23%) and Several California markets, Such as San Francisco (24.8%), Los Angeles (17.9%) and Sacramento (25.4%), are Experiencing Very Strong Appreciation. Furthermore, Continued Foreclosure Liquidations are Also Driving Down the Negative Equity Rate. Despite These High Rates of Appreciation, Negative Equity is Still Very High and Will Remain High as Deeply Underwater Homeowners are Slowly Being Lifted Toward Positive Equity. However, the Effective Negative Equity Rate Remains Very High at 43.6%. In a Move-Up-Market, Homeowners with Less Than 20% Equity Will Effectively Still be “Locked” Into Negative Equity. On average, a U.S. Homeowner in Negative Equity Owes $73,059 More Than What Their House is Worth, or 42% More Than the Home’s Value. While Roughly a Quarter of Homeowners With a Mortgage are Underwater, 91% of These Homeowners are Current on Their mortgage and Continue to Make Payments.”

There Has Been a Negative Equity Feedback Loop, as Regions With High Negative Equity Have Experienced Acute Inventory Shortages Brought on in Part by Locked-in Underwater Homeowners, and These Shortages in Turn Have Produced Home Value Appreciation Spikes, Which Have Been Reducing Negative Equity at a Fast Pace. The Zillow Negative Equity Forecast Predicts the Negative Equity Rate Among all Homeowners with a Mortgage Will Fall to at Least 23.5% by the first Quarter of 2014, Freeing More Than 1.4 Million Additional Underwater Homeowners Nationwide.

Negative Equity Will Continue to Impact the Real Estate Market, Even Though the Negative Equity Rate is Continuing to Drop Relatively Quickly, and the Depth of Negative Equity is Falling Significantly. However, as Home Values Continue to Appreciate and Mortgage Rates Increase Homes Will Become Increasingly More Expensive, Leading to Slowing Demand Which, in Some Markets, Will Lead to Stagnant Home Values or Even Home Value Depreciation. Once That Occurs, Negative Equity Will be Reduced at a Much Slower Pace and Might Even Increase Again. We Expect These Dynamics to Unfold in Two to Three years From Now Once Mortgage Rates Begin to Return to Normal Levels. In the Short Term, Home Values are up 5.2 % on a year-over-year basis in April 2013, and Given our Forecast of an Additional 4% Home Value Appreciation over the Next Year (April 2013 to April 2014), We Expect That Negative Equity Rates Will Continue to Decrease in the Next Year to a Rate of, at Most of 23.5% by the first quarter of 2014. Next year (April  2013 to April 2014), We Expect That Negative Equity Rates Will Continue to Decrease in the Next Year to a Rate of, at Most, 23.5% by the First Quarter of 2014.”

So Real Estate is on the Mend. At Least Until Mortgage Rates Return to More Historically Normal Levels. As a Sign the Economy is Improving There Appears to be Concern by Some Federal Reserve Governors That it May be Time to Consider Scaling Back or Perhaps Eliminating Quantitative Easing. Rising Interest Rates and Falling Unemployment are Both Signals the Economy is Improving. As Evidence the Yield on the 10 year Bond has Recently Spiked Just above 2% and Unemployment has Fallen to 7.5%. The Fed’s Targets for Elimination of Quantitative Easing is an Inflation Rate of 2.5% or an Unemployment Rate of 6.5%.

It is Most Likely a Reduction in Quantitative Easing Would Create an Initial Knee Jerk Reaction in the Markets to the Downside. However, the Corresponding Increase in Economic Activity Fueled by the Real Economy Such as a Decrease in Negative Equity Could Create a Consumer Wealth Effect that May Facilitate a Continued Upward Movement in the Markets as Bond Prices Fall.

Equities and Real Estate Assets are Pivotal in Creating the Wealth Effect.

Based on Recent Comments by Several Federal Reserve  Governors and Ben Bernanke’s Remarks in Front of Congress the Federal Open Market Committee (FOMC) Will be Watching Economic Reports for Further Economic Strength. Should Such Strength Appear and Become Consistent the Likelihood of a Reduction in Quantitative Easing Increases. At Least One Fed Governor Has Suggested a Clearer Picture of the Health of the Economy May Emerge in Three to Four Months.

The Zillow Report Suggests There May be an Intermediate Term Cap on the Rise in Real Estate Within Two to Three years as Rates Rise with the Broader Economy.

Shorter Term Real Estate Seems to be Leading the Real Economy Higher Fueling Employment, the Market and Leading to a Rise in Interest Rates. Real Estate Got Us Into the Financial Crises and the Federal Reserve has Thrown Everything at it From Quantitative Easing to Historically Low Short Term Interest Rates.  Government Programs Such as Mortgage Modifications and Block Sales of Foreclosed Homes to Investors Seems to be Having a Positive Effect.

The Question That Remains is at What Point Does the Economy Move Past Slow Growth to a Meaningful Recovery.  The Zillow Report Suggests Real Estate as Historical Driver of the U.S Economy Will Continue to Grow for Two or Three More Years. This is Positive for the Markets and the Real Economy. It Also Creates a Counter Argument to the Recent Debate that the Markets Rise in 2013 is Disconnected From the Real Economy and Begins to Show a Connection Between the Two.  The Negative Equity Feedback Loop Zillow Points Out Represents an Engine Upon Which Real Estate Can Grow. This May Represent a Fundamental Paradigm Shift Leading to Higher and Self Sustaining Economic Growth. Now May be the Time to Position Your Portfolio for This Fundamental Shift.

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