API 4th Quarter Update 2009

Good Bye 2009

Happy New Year! I am very happy to see the end of 2009 and all of the turmoil the year held.  In January, we saw a new president sworn in with a platform of change. I do not believe anyone was prepared for the global financial melt-down that was underway. The stock market finally recorded a bottom on March 9th, 2009 amidst fear, greed, short selling, liquidations, bankruptcies and panic selling.

This past year was the most difficult time to endure in my twenty six year career of managing investments. It was extremely challenging to have the conviction that the market had reached a bottom and begin buying good stocks and investments again. Headlines in all media continued to proclaim the market could and would continue to fall.  Headlines screamed about gold, housing price declines, Bernie Madoff and other swindlers in Ponzi schemes, oil, mortgage rates, interest rates, clunker programs, bail outs, the falling dollar, foreclosures, real estate short sales and more.  So, goodbye to 2009, and I never want to see a repeat of the frenzy this year brought. Good riddance!

Ordinary riches can be stolen, real riches cannot. In your soul are infinitely precious things that cannot be taken from you.     Oscar Wilde

Hello 2010!

A new decade is here to greet us. I still see a complicated year and road ahead. Our government deficit must be addressed, we will have rising interest rates, along with inflation at some point, our dollar must be supported, gold and oil depend on many geopolitical factors and our unemployment should start to decrease. We can have a jobless recovery and I do expect solid economic growth in 2010. 

Success is getting what you want.  Happiness is wanting what you get.  It's not how much you have; it’s how much you enjoy what you have rather than what you lack.

Los Angeles Times Money Makeover

I had the privilege of doing another makeover for the LA Times in November. This was a very long makeover involving a movie producer/director that was living on credit cards beyond her monthly income. This was one of my most frustrating makeovers once I discovered the amount of insurance and annuities she had been sold, almost all inappropriate for her.

 

API News

I will close my comments with a happy note. Carol Somoano is now an equity partner and part owner in Asset Planning. Carol has been with us for five years and I am very happy she is a partner. Nothing else will change in terms of clients; this is a corporate change as Carol is now Vice President. I remain President and CEO. Carol P. and Diane remain owners and directors.

Sandy

Notes from Carol:

Congress ended 2009 with a big tax mess.  The current law has no estate tax in 2010.  Also, the step in cost basis for heirs is reduced in 2010 and this impacts many families.  Under old law (2009), the value of the inherited property on the date of death was considered the “cost” basis for the heir.  So for example, if a parent paid $500,000 for a home, and the value of the home on the date of the parent’s death is $2,000,000, the child’s cost basis was $2,000,000. For 2010, there is a limit of $1.3 million total to the step-up in basis for all the assets combined.  Congress is expected to make retroactive fixes for these problems, but something always seems to come up that takes their attention elsewhere.

 

Required Minimum Distributions from IRAs and Retirement Accounts are back

This means if you are over 70 ½ you will have to take a mandatory distribution from your accounts in 2010.  We will be calculating the amounts and contacting you in the next 3 months to let you know the amount that must be distributed.  If you want your distribution before then, please contact us.

 

IRA and 401K:

The maximum 401K, 403B and 457 contribution stays at $16,500 and anyone born in 1960 or earlier can contribute another $5,500, for a total of $22,000.  There is no change for IRA and Roth IRAs.  The limits remain at $5,000 plus $1,000 if you are born in 1960 or earlier.

 

Roth IRA:

The Roth contribution limit phase out for couples is when AGI (adjusted gross income) is $166,000 to $176,000 and for singles it is $105,000 to $120,000.

 

Roth IRA Conversion:

You are not allowed to convert from a Traditional IRA to a Roth IRA if your income is over $100,000 but in 2010 (and only 2010) there will be no income limits.  If you convert, you will owe taxes on the entire conversion amount.  The new rule allows you to pay the entire tax due in 2010 or you can elect to pay ½ of it in 2011 and ½ of it in 2012.  Please consult us or your CPA if you are considering this.

 

Realized Losses and Gains for 2009

I will be mailing out the 2009 realized Capital Gains and Loss reports the last week of January.  This will have the cost basis and net proceeds for any sales.  It will also have the capital gains and dividends paid for the year.  You will need this in addition to the 1099s that you will receive from Schwab or TD Ameritrade to give to your tax preparer.

 

Wishing you a Happy, Healthy and Prosperous New Year!  Carol Somoano

 

API 3rd Quarter Update 2009

What a Difference a Year Makes!

The market had a rebound of over 50% in the S&P from the March lows to September. Has everyone jumped back into the market to capture these jaw dropping returns? I would say no. March was the depth of the market decline and fear was palpable. Would the market turn up or continue down brought on by another fear based sell-off? Very few had the conviction and courage to begin investing at that time.  I think most individual investors are still sitting on the sidelines. The inflows into bond funds so far this year prove this to be true.  The majority of inflows into all mutual funds this year went to bond funds.  80% of money flowing into open end mutual funds went this way: 60% to taxable bond funds and another 20% to municipal bond funds.


PIMCO Total Return Bond Fund is the top selling fund of the year and took in $5.5 BILLION in August alone. This one fund now accounts for 13% of the entire taxable bond fund universe to invest in.

I worry over this equity market run up because the volume has been below the normal trading volume. Is a correction still coming? It looks as though most equity investors still believe so and are showing that belief by not reinvesting in the market.  Although some investors have watched the S&P rise and are now concerned they are missing the rally, I think they still have time. It is very hard not to second guess decisions when memories are short. The market was in a complete melt down with financial stocks one year ago at this time. Merrill Lynch, Lehman Bros, AIG were daily headlines. What a difference a year makes!  I am happy to put this past year behind us.

How has the market performed year to date?  The MSCI EAFE (International) index is up 29%; the Dow is up 10.7% and the S&P 500 is up 17%.

 

Everything can be taken from a man but one thing; the last of the human

 freedoms - to choose one's attitude in any given set of circumstances,

to choose one's own way." Viktor Frankl

 

My summer racing recap

 

I did not comment on my racing the last 2 quarters and clients have asked what I have been doing. I did the Redondo Beach Triathlon, Long Beach Triathlon, two mile ocean swim from Balboa Pier to Newport Beach pier, two mile ocean swim from Hermosa Beach Pier to Manhattan Beach Pier, one mile ocean Corona del Mar race and the big swim in Hawaii. On Labor Day, I completed the 2.43 mile swim from Diamond Head, along the Waikiki coast line, and finished at the Hawaiian Rainbow Tower. I swam with many different beautiful fish, giant sea turtles and one six foot ray under me. We swam a half mile off the coast where the water is very deep and crystal clear (unlike our coastline) and you can clearly see the coral and fish you pass over. That was the 7th time I have completed that swim and it is on my life list of goals to complete it 10 times. One more triathlon next week!

 

"Our lives are not determined by what happens to us but by how we react to what happens, not by what life brings us, but by the attitude we bring to life.  A positive attitude causes a change reaction of positive thoughts, events and outcomes.  It is a catalyst, a spark that creates extraordinary results."  Anonymous 

 

 

Asset Planning is proud to announce we were once again included in the 2009 Financial Advisor Top RIA Ranking. This is a list published by Financial Advisor Magazine. We were also blessed to be named one of the Wealth Manager’s “Top Wealth Managers” in the country. This was announced in their 2009 July/August issue. I thank our clients for your continued trust in us to achieve these honors.

 

Sandy

 

 

Notes from Carol:

 

This past week I attended a conference presented by WISE – Women Investing In Security and Education, a philanthropic educational organization that facilitates the financial education of women and girls.  The main speaker was Bill Gross – the bond guru for PIMCO and the fund manager for the fund Sandy mentioned above among others.  The main points that I took away were that the US will not recover to the growth it enjoyed in prior years.  The “new normal” will have GDP increasing at 1-2% for the next few years and unemployment will be around 7-8%.  The exception to this will be the emerging markets.  He sees growth in Brazil and China among others.  He sees the California housing market prices dropping another 10% because of the unavailability of jumbo mortgage loans.  The auto and housing industries are broken and will take time to recover. Consumers are starting to heal by saving more and while it hurts the economy in the short term it will benefit all of us in the long run.

 

Get your flu shots and stay healthy,

Carol

 

API 2nd Quarter Update 2009

Market update

Where is the recovery? Are we there yet? There are signs we are improving and some economic recovery is underway but there are other indicators signaling we may need more time. The media headlines announcing layoffs and closures are beginning to dim and hiring is beginning in some industries. Target announced today it is adding 9,000 jobs and if you work 20 hours a week, you receive full medical benefits, a 401k, life and disability insurance. Target believes unemployment has peaked for them. It is a fact that unemployment continues to rise even after the economic recovery is under way.

The media has been writing about the best quarter results we just had. In reality, the quarter was good because we declined to a market bottom (I hope) on March 6th.  By example, the Dow is down 3.7% year to date but was up 11% for the quarter.  The S&P 500 is up 1.8% year to date and is up 15% for the quarter. While the quarter rebound numbers are encouraging, it is the outlook for the end of the year and next year that I focus on.

“Knowing is not enough; we must apply. Willing is not enough; we must do.” Bruce Lee

Refinance Rules Changed July 1, 2009

The new Home Affordable Refinance rules were passed in March but did not impact the market very much. Under the March guidelines, homeowners could borrow up to 105% of their home value. Today, the loan to value amount is increased to 125% to those that use Freddie or Fannie loans. These new limits help those who owe more than their homes are worth. I am hoping they also make 40 or 50 year mortgages common. I support whatever it takes to help people stay in their homes and bring the payments into a range they can afford. We do not need more foreclosures diluting real estate values. The next wave of interest only loans and adjustable mortgages set to adjust is going to hit in July, August and September. I believe this wave will be the Alt A and documented loans but perhaps, at this time, homeowners may have lost their job and cannot afford to pay an increased monthly payment. If their loan cannot be modified, they will go to foreclosure.

 

Blog updates

Are you subscribed to our blog? We have been busy blogging trying to keep you up to date in areas of interest. These are the most recent titles we have posted this quarter: Property tax and loan modification scams, Orange County Home prices will still decline as median price rises; FDIC Extends Coverage Limit and New Credit Card law; Pension lump sum distribution rule changes; Zillow estimates; Helping Seniors with Daily Living; Market gains since March low; and Ways to save money.

We welcome areas of interest from our clients.  If you have a question about something or think others should be aware of a new scam, etc. please let us know.

“In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”––Teddy Roosevelt

Credit Card interest rates rise

Citi raised interest rates on up to 15 million credit cards today. I expect more banks will follow suit as they begin to adhere to the new guidelines dictating when they can raise rates. Make sure your credit card bills are paid on time as you leave on vacation this summer. Making even one payment late gives the company a reason to cancel your card and new cards are harder to obtain right now.

California’s Budget Woes

California's state controller is ready to issue more than $3 billion in IOUs this month as the state's budget stalemate wears on. The IOUs are technically called individual registered warrants. It's not the big companies that will suffer most from getting a promise instead of cash, but small businesses that rely on state contracts.  It's also unclear if some of California's biggest banks will accept the IOUs.  Currently only Bank of America has confirmed that they will honor the warrants.  IOUs will also be sent to California counties, which now must find other ways to fund a wide array of social programs.  Governor Arnold Schwarzenegger declared a fiscal state of emergency July 1. State offices will be closed three days a month to conserve cash.

How does this affect California bonds?  Right now, the market still believes that bondholders will be paid in cash on a timely basis. In California, bond interest payments are 2nd on the priority payment list after education funding.  Let’s hope that the state legislature can cut spending and balance the budget soon.

 

Wishing you a relaxing, stress-free enjoyable Summer!

Sandy, Carol, Joanne and Erin

API 1st Quarter Update 2009

 

 

Asset Planning’s Open House

It was great to see so many of you attend our open house on March 5th. The photo exhibit of Italy by Jules Reuter was enjoyable; as were the wines he poured and talked about. Thank you for attending and helping us celebrate our new office.

 

A positive month for the market

March gave us a 23.11% return in 13 trading days: the best since 1938.  The market surged over the past two weeks as we began to see signs of recovery and hope from several sectors of the market. The key indicator is the trend in payroll, excluding farming. The highest month for job loss was December with 681,000. January continued with 655,000 jobs lost. February had another 651,000 jobs lost in that month. Each month is a smaller number of jobs, even though the number of jobs lost is astounding. March data is being released on April 3rd, but ADP is estimating 730,000 jobs were lost verses the Labor Department’s estimate of 663,000. The most jobs lost in 2009 have been in New York but the sectors that have the biggest losses are financial, automotive and retail. Another key trend indicator is volume. I will believe the rally has depth when I see a significant increase in volume with rising prices. This means new buyers are coming into the market.

 

The banks led the market rally during the week of March 17th to 31st.  When banks appear to stabilize and look forward to profitable status, the market rallies. Several banks have begun to talk about repayment of their TARP money, which is a very good sign. I think the banks have now realized how hampered they are if they continue to operate with TARP money. Their incentive bonus pool is dry, their CEO’s (and other executives) salary is under a microscope and they are being watched by very angry public shareholders.  President Obama and Congress lashed out at AIG and made their bonuses subject to a 90% tax.

 

“In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”––Teddy Roosevelt

 

 

 

 

 

Asset Planning Blog – Our current thoughts

Are you signed up? When you sign up and confirm, a copy of the blog is email directly to you. I do try and post at least once per week and Carol also recently blogged about the proposed tax changes. Since this newsletter comes quarterly, the blog is my way of staying in touch with current events or changes. I also try and explain what is going on in Washington with the Federal Reserve Board, Congress or Tim Geithner, from my perspective.   Things are changing so quickly on a daily and weekly basis;  you can keep in touch from our blog.  Go to www.AssetPlanningInc.com and click on blog to sign up.

 

 

Mark- to- market and uptick rule

I think the market has already anticipated the restoration of the mark-to-market rule. This would help give the banks more flexibility in putting a value on mortgage assets they are holding that do not have a ready buyer at this time. The assets may have value and cash flow but if a buyer is not able to come forward to purchase it, it does not have liquidity and cannot be sold in today’s market and must be marked down in value to reflect that. This rule would restore some value on the banks balance sheet and lessen pressure to raise more capital. This vote will take place April 2nd.

The uptick rule is something that never should have been removed by Christopher Cox’s SEC.  (See my quarterly comments in April 2008!) When this rule was removed, it allowed the naked short sellers to pummel a stock to the ground. This means you could sell a stock you did not own (naked) and continue to drive the price down. The uptick rule was in place and meant you could not sell a stock until the stock had risen at least 1/8th in price- thus an “uptick” in the price. This stopped many of the short sellers. Stock prices have been driven down and it must be reinstated by Mary Shapiro, the new SEC chair.  

 

Asset Planning in the news

In a consumer survey conducted through Orange Coast Magazine, Sandy was nominated as a “ FIVE STAR: Best in Client Satisfaction Wealth Manager”. Our deepest gratitude goes out to our clients that made this honor possible. Details on the survey are enclosed and you can look for us in the 2009 March issue of  Orange Coast Magazine.

 

      "Our attitudes control our lives.  Attitudes are our secret power working twenty-four hours a day, for good or bad.  It is of paramount importance that we know how to harness and control this great force."             Tom Blandi   

API 4th Quarter Update 2008

 

 

Happy New Year 2009!     

     USC beats Penn State 38- 24

The Good, the Bad and the Ugly.

The Good: Once again, my Trojans were the highlight of my year. USC has played in the Rose Bowl the past four years.  Fourteen of my cousins are coming from Minnesota next year to see the Rose Parade since they sit at home in mounds of snow and see our beautiful sunny weather. The Trojans have won seven consecutive Pac 10 conference titles and played in seven consecutive BCS bowl game, winning six.

The Bad: The market closed out 2008 with the worst year since 1931, with a loss of 38.5% for the S&P.  The Dow dropped 33.8% and NASDAQ turned negative 40.5% for the year.  It is safe to say that many unprecedented events took place this calendar year that will never happen again.  There were so many panic areas: banks failing, brokerages falling to liquidation points, insurance companies at risk, airlines in bankruptcy, auto makers on the brink of disaster, commodity prices soaring and then crashing. 

The Ugly: New York finds Bernie Madoff living in his penthouse apartment, instead of jail, after he confessed to a 50 billion dollar fraud of investments from charities, foundations, pensions and investors.  It was announced this morning that he mailed over one million dollars worth of jewelry to friends and relatives over the past few days. I do not understand why he is under house arrest instead of jail.

"Our lives are not determined by what happens to us, but by how we react to what happens; not by what life brings us, but by the attitude we bring to life.  A positive attitude causes a change reaction of positive thoughts, events and outcomes.  It is a catalyst, a spark that creates extraordinary results."  Anonymous

We have been a nation of spenders and we need to become savers instead. I think the economy in recession, rising unemployment and foreclosures is scaring many people to their core. More lay- offs are coming from all sectors.  The housing debacle has shaken the employment in banks, financial and mortgage, home builders, construction, home improvement, and more. It is not over yet. The next wave of the Alt A adjustable rate mortgages are due to reset their interest rates in 2009 to 2011. The move to cut interest rates to almost nothing will put pressure on mortgage rates to stay low in hope that these Alt A mortgages are refinanced, instead of foreclosed on.

Are retirement dreams deferred? Even conservative asset allocation portfolios saw losses of 20 to 30% in a matter of weeks. Panicked selling by hedge funds that were overleveraged brought the market to volatility never seen before. The market moving by over 400 points in the final trading hour of the day became the norm in October and November.

I wish president elect Barack Obama success with his new cabinet appointments and his crisis team. President Obama will take office in less than two weeks in the midst of the worst financial crisis this nation has ever faced.  My daughter will be at the inauguration to witness history in the making.

We look forward to seeing you in our new offices! Sandy

"Keep your dreams alive. Understand to achieve anything requires faith and belief in yourself, vision, hard work, determination, and dedication. Remember all things are possible for those who believe.” Gail Devers

Notes from Carol:

Please check out our blog on this site and sign up for email notices of each new post.  This is our way to keep in communication with you in these hectic economic times.

 

2009 Tax Changes - Here are some highlights of the changes:

 

Required Minimum Distributions from IRAs and Retirement Accounts are WAIVED for 2009

This means if you are over 70 ½ you will not have to take a mandatory distribution from your accounts.  You will not have to make this up, the Treasury is letting you skip the distribution.  This waiver also applies to Inherited IRAs.  We will be sending a letter if this applies to you.

 

IRA and 401K:

Working taxpayers can put more money away for retirement.  The maximum 401K, 403B and 457 contribution increases to $16,500 and anyone born in 1959 or earlier can contribute another $5,500, for a total of $22,000.  There is no change for IRA and Roth IRAs.  The limits remain at $5,000 plus $1,000 if you are born in 1959 or earlier.

 

Roth IRA:

The Roth contribution limit phase out for couples is when AGI (adjusted gross income) is $166,000 to $176,000 and for singles it is $105,000 to $120,000.

 

Estate Tax:

The estate tax exemption is increased to $3,500,000 with the top tax rate at 45%.  The lifetime gift tax exemption is still at $1,000,000 and the annual gift tax exclusion rises to $13,000 per donee.

 

Realized Losses and Gains for 2008

I will be mailing out the 2008 realized Capital Gains and Loss reports the last week of January.  This will have the cost basis and net proceeds for any sales.  It will also have the capital gains and dividends paid for the year.  You will need this in addition to the 1099s that you will receive from Schwab or TD Ameritrade to give to your tax preparer.

 

Wishing you a Happy, Healthy and Prosperous New Year!  Carol Somoano