API 4th Quarter Update 2010

Happy New Year and Welcome to 2011

Notes from Sandy

“I’ve got a feeling”  (Black Eyed Peas) this is going to be a good year. 2010 turned out to be a good year for returns in the markets but it certainly had the ups and downs of an amusement ride, from start to finish.  I began New Year’s Day with a Polar Bear Plunge in the Huntington Beach Ocean. I kept yelling “my feet hurt!” until they went numb. It was a crazy, exhilarating and a bold way to start the New Year!

In the final two weeks of 2010, President Obama and former President Clinton worked with the Senate and Congress to get the Bush tax cuts extended for two more years. We were all on hold for trading until we knew for sure the income tax rate brackets would not be raised in 2011. I was very busy trading in the portfolios and accounts after we had a better vision of the next two years, in terms of capital gains taxes and income tax. Estate taxes were also clarified and a choice was given to those families that lost a family member in 2010 with regard to step up in basis.  

Republicans in the house have vowed to repeal the Obama health care overhaul and bring it to vote before the State of the Union to be held later this month.  Another item under attack is the proposed limits on emissions of greenhouse gases from oil refineries and power plants. Even as the federal government plan is under pressure, California has vowed to uphold it. Jerry Brown is our new governor and will try to guide California away from the brink of budget crisis.

I still believe the key to the recovery is in job creation and lowering the unemployment problem facing all states.  I think real estate will still have problems and I have seen values soften and fall in the past month. Mortgage interest rates rose in November and December and that will be enough to choke any recovery in the housing market for the short term.

Set new goals for 2011!  Set them high and dream big. Chase your dreams, and live your life bold.

Life is too short to wake up with regrets. ♥So love the people who treat you right. ♥ Forget about the ones who don't. Believe everything happens for a reason. If you get a second chance, grab it with both hands. If it changes your life, let it. Nobody said life would be easy, they just promised it would be worth it.                                               Catherine Yen

Notes from Carol:

How the bond and equity markets fared in 2010

It was a solid middle-of-the-road performance for the stock market.  Barclays U.S. Aggregate Bond Index closed up 6.24%. The S&P 500 stock index closed up 12.8% for the year and the Dow Jones industrial average closed up 11%.  The majority of the gains came in the last quarter of the year.  The stock market is still well short of its pre-crisis high:  The S&P 500 would need to rise another 24%.  The threat of a double dip recession appears to have passed.  The wild swings in the market have calmed down.  The VIX index, which measures investors’ expectations for future volatility in stock prices, reached its lowest level in 3 years in December.

You will find an additional report in your year-end report package.  It is the Portfolio Performance Summary.   It shows you the total amount your portfolio gained in dollars and percent for 2010.

IRA and 401K:

The maximum 401K, 403B and 457 contribution stays at $16,500 and anyone born in 1961 or earlier can contribute another $5,500, for a total of $22,000.  IRA limits remain at $5,000 plus $1,000 if you are born in 1961 or earlier.

Roth IRA:

There is no income limit if you want to convert all or part of your IRA to a Roth IRA.  Congress left this alone for 2 years.  There is still an income limit for contributing to a Roth. The Roth contribution limit phase out for couples is when AGI (adjusted gross income) is $169,000 to $179,000 and for singles it is $107,000 to $122,000.

Realized Losses and Gains for 2010

I will be mailing out the 2010 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.

Notes from Erin:

The beginning of the New Year is always a good time to reflect, reorganize and try to scratch a few things off the to-do list.  An important and often overlooked task is preparing for unforeseen life events. In 2010 we had a number of families come to us in crisis after a death of a close loved one. Transitions like these are never easy but I offer three items to add to your 2011 checklist to help you and your family be more prepared and avoid a family crisis.

  1. Create a detailed contact list for everything and anyone your loved ones would need to know in your absence. Organize all your bank accounts, investments, debts, insurance policies, annuities, recurring bills, advisors, etc. in one document and store it in a secure place your beneficiaries can access. You should include account numbers, contact numbers, online log in information along with any other pertinent information.
  2. Review all your account titles & beneficiaries. Trusts are ineffective unless you titled your property in the name of the trust. Typically, you want all your taxable accounts and real estate in the name of the trust. IRAs can be titled in your name and list beneficiaries. If you would like to change the beneficiaries on your accounts with us, please contact the office.
  3. Do your loved ones know who your regular doctors are and current medications? I recently listened to another advisor’s story of losing his wife prematurely. The emergency room doctors urgently needed to know his wife’s medications and the husband had rush back home to find out. Keep a card in your wallet of your immediate family members’ current medications and doctors’ phone numbers. Sometimes having your medical history readily available makes all the difference.

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


API 3rd Quarter Update 2010

I have so much news to share this quarter.  Last quarter was the first time that I did not write comments in my quarterly newsletter. I was in France and stayed in a wonderful house in the countryside.   Of course, while I was in France, I had to continue to train with biking, walking and swimming for my big triathlon on July 31, 2010.   That was the day I finished my Half Ironman Triathlon. 1.2 miles swimming, 56 miles of hills on the bike and a very hot and hilly 13.1 mile run at the end. We call it 70.3 since I covered 70.3 miles by self propulsion. 

The race began in Guerneville (Sonoma) and finished in Windsor. We biked past beautiful wineries and miles of vineyards.  It was the hardest thing I have ever done in my life and I finished in just under nine hours. It was so hot and hilly, in the main heat of the day, I was so happy to see the finish line!  

Market News

The markets recovered from the June end lows and have provided good gains, year to date. My expected rate of return, good and bad years averaged, is 7% per year.  We are on track to exceed the average this year, barring a market melt-down. I am still concerned over high unemployment, foreclosures and home values, but lenders across the nation are re-working mortgages rather than proceed with foreclosures. I have heard of rewrites at 2% interest rates and the national averages on mortgage rates may soon fall again. It is still a good time to refinance a mortgage with fixed low fees.

Asset Planning hosted a Memorial Golf Tournament for Breast Cancer Month    

On September 25th, we held a golf tournament in the honor and memory of my best friend, Gail Moreno. Gail was a well known breast cancer mentor to newly diagnosed women. BMW honored her with their Drive Across America and she was involved with many other groups as well, and the entire time, she continued to battle cancer herself. She lost her fight after 11 years but she touched the lives of so many people. We had a roster of 52 golfers who had a fun time golfing the 9 hole course at Little Rec in Long Beach.  The food was incredible and catered by Olives Gourmet Grocer in Belmont Shore. Several mutual fund sponsors stepped forward with golf balls and gifts including TD Ameritrade, American Century, Ariel, Payden & Rygel. After all expenses were covered, we raised $3,000 for the Breast Cancer Angels charity. Thank you to so many clients that came out to support this tournament. Next year, it will be all scramble teams so think about putting together a team of friends.  Date will be approximately the same.

Notes from Carol:

It was amazing to see Sandy reach her Ironman goal this summer.  Her dedication is inspiring.  I celebrated my own momentous occasion in September- my 25th wedding anniversary.  Time goes by so fast!

On Saturday, October 23, I will be participating in the Orange County Financial Planning Day.  This is a free event sponsored by the Orange County Financial Planning Association.  It will be held at the Huntington Beach Central Library from 10 am – 3pm.  There will be various educational workshops on credit counseling, social security, medicare, estate planning and more.  There will also be private consultations with a planner and  I will be one of the planners providing advice one-on-one.  There is more information at www.financialplanningdays.orgIt is the first time the FPA is holding this and we expect a big turnout.


API 2nd Quarter Update 2010

Sandy is on vacation, enjoying the beauty of France and the lower Euro.  She left me with the task of writing this quarter’s commentary. 


1st Half of 2010

After 2008's sharp decline and last year's recovery in stock markets, many had hoped that 2010 would see a return to relative normalcy and stability. And certainly, the year started on a positive note, but volatility returned in May and June. Here is a partial rundown of what occurred this past quarter:

v      The intensification of the budget crisis in Greece in February and the fear it would spread to other European countries.

v      Concerns that European budget cuts would slow down economies, with spill-over effects globally; this is especially problematic in light of the need to compete with a devalued Euro

v      The sinking of a BP oil drilling rig that had exploded in the Gulf of Mexico

v      The May 6th "flash crash" in which U.S. markets plummeted in a matter of minutes without explanation

Looking at these events, it's tempting to be negative, but there were positive events that also occurred:

v      While businesses are hesitant to expand their workforce, they continue to make capital investments in equipment and software.  Business spending is leading the slow recovery.

v      Personal incomes rose for 6 out of the last 7 months, and so did personal savings

v      China announced that it will let its currency – the yuan appreciate against the dollar.  Because the yuan is currently undervalued, it unfairly affects our trade deficit.  Currently, the deficit with China is $231 billion.  If this were to be cut in ½, it could create roughly 800,000 jobs (assuming $1 billion in exports creates 7,000 jobs).


Technical Indicators

Sandy and I both subscribe to financial newsletters that concentrate on technical and fundamental indicators.  Also, this past quarter, we both attended different conferences to get an overall perspective of the economy and factors affecting the market. While we did expect a pullback – a bull market cyclical correction, we are still undecided if this will lead to a double dip recession.  This is why we are limiting new purchases in the portfolios to income producing holdings with good dividends and yields.


Let us learn to appreciate there will be times when the trees will be bare, and look forward to the time when we may pick the fruit." Peter Seller

Long-term goals demand long-term thinking
Warren Buffett has said that it only takes two things to make money—having a sound plan and sticking to it—and of those two, it's the sticking to it part that most investors struggle with.

Markets like we've seen of late create understandable stress and can lead to short-term decisions. Hard as it can be at times we've found the only approach to investing that works over time is to keep that long-term view, modifying portfolios as circumstances warrant but never losing sight of the fact that long-term goals demand long-term thinking.

New LA Times Money Makeover (a copy of the article is enclosed)

Sandy and Asset Planning were featured in a Los Angeles Times Money Makeover article on 5/16/2010. This makeover involved helping a young couple, who were quickly spending through a large inheritance, develop a budget and preserve what was left of their windfall.


Financial Reform Bill

There is nothing new to report on the health care reform, but Congress has made progress on the financial-reform overhaul.  It has not been officially voted in as of this writing, but passage seems likely.  It gives regulators a mandate to monitor the biggest financial institutions and clear authority to shut down failing institutions. It promises that the multi-trillion-dollar market in over-the-counter derivatives, will be better regulated through open exchanges. And it gives regulators the authority to impose high capital requirements, forcing banks to hold more equity and thus assume less risk.


One area where I wish Congress had stood firmer was the issue of “fiduciary duty.” The idea here was that a financial adviser or broker would have to act in your best interests—that’s what fiduciary is all about—when making investment recommendations. Right now the standard is simply one of suitability, which stops far short of requiring the broker/adviser to act in your best interests. Unfortunately, the fiduciary rule got kicked down the road in the new bill. All that is going to happen is that the SEC will study the issue. That’s a lost opportunity for Washington to really do something that protects investors.  Asset Planning Inc. is a SEC regulated investment advisor and therefore we already operate under the fiduciary duty.

It’s also frustrating that the SEC lost its ability to oversee the world of Equity Indexed Annuities. The SEC had already issued a rule—not yet enacted—that would have tagged these investments as securities, thus making them regulated by the SEC. But the new legislation undoes all of that, and like all insurance, it falls onto each state to regulate.


Client Education

We are planning to have a client education seminar in the fall.  We welcome any suggestions and input you may have on topics that you would like us to cover.


I will be going on vacation to Yellowstone National Park a few days after Sandy returns.  Last time I was there was about 17 years ago, just after the big fire.  I am excited to see how things have grown back since then.  Have a great summer!


Carol Somoano, CFP, MBA


Look for Asset Planning on Facebook!


API 1st Quarter Update 2010

What a difference in your portfolio statement values from last March 2009 to this March quarter end. On March 31, 2009, the Dow closed at 7608.92 and the S&P closed at 797.83. On March 31st of this year, the Dow closed at 10,857 and the S&P 500 closed at 1169.43. The S&P 500 gained 46% over that rolling one year. The markets seem to have moved up in a linear line from that point.

Real Estate Still Worries Me

Real estate prices showed improvement, but some areas are again showing a decline in values. This seems to occur on a city by city basis. I met with many new financial planning clients that cannot make their mortgage payments, and have tried and tried to work something out with their bank or lender. They either had no response or the process goes on for months with no help from the banks. The banks will not talk to the borrower until they are in default. I know people are living in their homes without paying a mortgage payment for up to 16 months and the bank has not written them a letter, nor made a phone call or sent a foreclosure letter.  If the banks acknowledge the house as a foreclosure or a short sale, it will appear on the liability half of their balance sheet. If they do nothing, the bad loan does not appear and the lender appears to have more good assets or capital on the balance sheet. Banks are required to keep a certain ratio of capital to liabilities. Is this creative accounting for the banks or are they simply so swamped with upside down mortgage holders and properties they do not want. They are not in the business of selling properties. Maybe Bank of America should buy Century 21 to deal with all the foreclosures and short sales. That could be a better purchase than Merrill Lynch.  

New Health Care Bill

A client emailed to ask me what I thought of the health care bill. I have close friends who have been unable to obtain health insurance due to pre-existing conditions so I am very happy for them. My response to any proposed legislation is how it will affect my clients and their investments. For those taxpayers making over $200,000 as an individual or a couple making more than $250,000, a new Medicare tax of 0.9% will be added so the percentage paid to Medicare will be 2.35% of their wages. I do not have a problem with this and actually wrote about this more than a year ago. This begins in 2013.

The next part of the Medicare tax is a new 3.8% tax on investment income. Investment income is capital gains, dividends, interest, royalties, rental income and are all known as “unearned income”. This also begins in 2013 and this impacts my clients. This may mean a restructuring of portfolios for those clients that will be impacted by this new tax. With the capital gains tax already slated to increase to 20%, from the current 15%, all of these new taxes will impact the cash flow and investment returns of my clients. 

"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

My big fitness goal this year is a Half Ironman Triathlon. I put it in caps because it is a goal that I have wanted to accomplish for years. The Barb’s Half Ironman Triathlon is 70.3 miles of self propulsion in one day. It begins with a 1.2 mile swim in a river, followed by 56 miles on the bike through rolling vineyard hills and ends with a 13.1 mile run. The run portion will be a jog/walk for me.  This will be in Santa Rosa on July 31st.   I have already begun to walk or bike to and from work at least one time a week.


Notes from Carol:

Ways to Improve Your Credit Score

Your credit score is a very important number that lenders use in order to determine whether or not to extend credit to you, and what the interest rate and terms are.  Your credit score can be broken down into five categories:

Payment History – 35%

Total Amounts Owed – 30%

Length of Credit History – 15%

New Credit – 10%

Type of Credit in Use – 10%


The single most important thing that you can do to improve your credit score is to make your payments on-time.  If a lender reports late payments then that negative mark can stay on your report for seven years.  The next thing you need to do is to keep your borrowing under control and to utilize your credit better.  For example, having credit cards that are maxed out or very close to their limits will negatively impact your score.  Two credit cards with a $5,000 limit and a $1,000 balance on each will look much better than a single card with a $2,500 limit and a $2,000 balance.  Many credit cards are lowering credit limits.  If you have a good credit history then I would recommend that you challenge them if they lower your limits.  Closing old accounts is ok if your credit score dings you for too many accounts, otherwise keep the accounts open.


 Tax Season IRA Contribution Deadlines

Tax season is almost over!  Please send all of your IRA and SEP IRA contributions by April 9th to have them posted to your accounts.  They need to be at the custodian (TD or Schwab) before the deadline.


Spring is here - Enjoy the extra daylight!




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.


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