Live as if you were to die tomorrow. Learn as if you were to live forever.
-Mahatma Gandhi
The market continues to shake off worries of a possible economic turn down. Inflation has increased and the possibility of a fed funds rate cut has been postponed until spring, 2008. I would not rule out a quarter point increase in the fed funds rate before year end. Preferred stocks and bond prices, especially longer term bonds, have fallen recently and mortgages have increased. The rate for a 30 year mortgage was 6.74% last week.
Home prices continue to fall as the supply of home for sale continues to grow. Homes are now being listed for sale for months, without one offer. I forecast continued softness in the housing market for another nine months to one year. Energy prices continue to rise, always in time for our summer driving months. Initial claims for unemployment insurance recently hit their highest level since April.
35 mile bike ride to raise funds for Diabetes Research.
Summer is officially underway! I am on vacation while you are reading this and Carol, Diane, Carol P, Joanne and Erin are holding down the fort while I am gone.
My daughter and I raced in the Women�s Las Vegas Triathlon in April, a very hilly and hot course for her. We also rode 35 miles in May for the American Diabetes Association, did the Danskin Triathlon and the Redondo Beach Triathlon. Nikki took 2nd place in Redondo Beach and earned her first time on the podium. We have several more ocean swims and triathlons to do in 2007!
You can not control what happens to you, but you can control your attitude toward what happens to you, and in that, you will be mastering change rather than allowing it to master you. � Brian Tracy
Notes from Carol:
Asset Planning is pleased to welcome Erin Nelsen to our staff. She is a student at Cal State Fullerton and is majoring in Business Administration � with an emphasis in Investments & Financial Planning. She is currently working part-time while going to school full-time. She hopes to graduate in December 2007.
Joanne is off on maternity leave awaiting the birth of her 2nd child. Her baby girl is due August 4.
Meanwhile, I am just trying to keep up with my kids. My eldest daughter graduated high school this June. My 15 year old daughter is taking driving training and my 11 year old son is busy with Boy Scouts, Little League and summer camps. Work is usually where I find my peace and quiet.
Identity Theft � Protect against Phishing
TD Ameritrade and Schwab have been encouraging all of our clients to receive their statements electronically via email notifications and some of you have signed up for this and some of you have not but many of you have computer ids that allow you to view your portfolios on-line, but still receive paper statements. While email and on-line viewing on Schwab and TD web-sites are secure, there is a scam known as phishing in which thieves attempt to get your personal information and steal your identity. Here are some ways to guard against this scam.
� Contact is usually made via an email, pop-up window asking you for your user id and password. They pretend to be TD or Schwab representatives.
� Be suspicious of any request for personal information.
� Keep your browser updated.
� Never reply to an email asking for personal information.
� Never enter sensitive information into a pop-up window.
� Do not click on links in email. Re-enter the address in the browser.
� Check the site address before you sign in.
� Look for the locked padlock or key icon at the bottom of your browser.
Call us at Asset Planning if you suspect someone is trying to get your information.
Enjoy your summer!
Carol Somoano
carols@assetplanninginc.com
I attended the TD Waterhouse conference in Orlando, Florida in February. One of our speakers was former President George H.W. Bush. It was quite an honor to be in the presence of a former president. He told very entertaining stories about his presidency, being the Director of the CIA, his views on global problems, the economy and the war.
He told of risks and reward. He was the youngest pilot in the Navy and flew 58 combat missions during World War II. He loved flying. He went skydiving on his 80th birthday, much against the wishes of wife, Barbara. He jumped from the plane at 12,000 feet, glided down to the marked landing area, landed on both feet and proudly said to Barbara �Well, what do you think of that jump?� She replied �I have not seen a free fall like that since l992.� (This was his landslide loss to President Clinton)
You always have enough energy to do the things you love. ~Alan Cohen~
A measure passed by Congress on Feb. 1 will increase the limit on federal deposit insurance for certain bank accounts. It was included in the $39 billion budget bill. The provision raises federal deposit insurance levels on retirement accounts held at banks to $250,000 from $100,000. The bill, S 1932, was signed Feb. 8 by President Bush.
A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort. ~Herm Albright~
Interest Rate increases
Fed policymakers unanimously agreed at their meeting on March 23 to raise the benchmark federal funds rate to 4.75 percent. This was the 15th time since June 2004, when the rate was 1%, that the rate has been increased.
The Fed noted that higher oil and gasoline costs have not resulted in higher consumer prices for items other than food and energy. Such "core" prices rose just 1.6 percent in the 12 months that ended in January, well within the Fed's comfort zone. Bonds continue to fall in reaction to interest rate increases.
Morningstar Investment Reports
We have the ability to run aggregate (grouping your accounts together) snapshot views of your holdings with us at TD Ameritrade or Schwab. These reports will be available by April 10, after downloads are available, and thereafter, just after the quarter end. If you would like to receive these reports, please let Carol Somoano know and we will mail the report to you. You will see your one year return, three year return and the performance of each security in your accounts. At this time, preferred stocks and some of the other investments I use are not available to be listed. We will substitute a proxy for those investments, as similar to the original, as we can.
Cost Basis: Why I keep talking about it!
Our portfolio statement from API shows your current investment value, but it is not a true picture of your investment gains. If I purchase a mutual fund for $25,000, this is your �cost basis� in that fund. If the fund pays a quarterly dividend of $250, and the dividend is reinvested, you purchase more shares and now your �cost basis� is $25,250. When capital gains pay at the end of the year, that amount (let�s use $1,000) is usually reinvested and is added to the �cost basis�. When your portfolio statement shows the cost basis as $26,250 and the current value as $26,750, it appears this investment has only gained 2% since it is calculated using the cost basis. In reality, the investment has increased in value from the purchase price of $25,000 to $26,750, or an increase of 7%. I hope our clients look at the bottom line, or the overall investment gain in their accounts and do not read the investment gain/loss % on the bottom of the statement as the gain the account has produced. That would be very misleading and understating our performance.
Please schedule a meeting with me if your cash flow needs or investment time horizon has changed. The market is very positive and is at 5 year highs, as of the end of March.
Securities have responded well, bonds have not.
My vacation should be April 14th to April 21st. I am glad tax season is almost over and I am looking forward to Easter vacation with my family. I will be swimming and riding my bike over the hills in Napa valley, training for a longer and harder triathlon this year. I hope everyone has some exciting summer plans to look forward to.
Sandra C. Field, CSA, MBA, CFP
WISE Conference September 2006
I had the privilege to do a live financial makeover for the Women Investing in Security and Education conference. This is an annual event and approximately 400 women attended. There were three candidates and three financial planners. My makeover candidate was a teacher, age 63, whose husband left her at age 40 with three children and a bankruptcy. She had 13 different jobs over the next 15 years. She is a delightful lady and the entire makeover will be covered in the Orange County Register in December. My candidate, Val, is on the far right of our Oprah style stage.
Gold is the best form of insurance when you're not sure what you're insuring against Fred Sturm, Ivy Global Natural Resources Fund, New York Times
The Market
The Dow passed the milestone high it set in January, 2000. The S&P 500 is still 13% under the high of 2000 and the NASDAQ is 58% below the high. The market has responded to the possible end of interest rate increases by the Federal Reserve Board and the falling price of oil.
Is it time to buy gold? Is it time to buy or sell real estate? Is inflation in check or is it roaring back? Is the economy going to grow at 5% a year, hit a soft patch or have a rough landing? Is Ben Bernanke doing a good job? Will 2006 end with a market high?
I believe the Fed is doing a good job right now and is engineering a correct path. I do not see the same warning signs of inflation and soft recession I saw at the beginning of the year. I still believe real estate should not be purchased until fall, 2007. I believe that housing prices will continue to fall an average of 9%. Consumers with adjustable rate mortgages and those that purchased homes with interest only loans as the down payment, may implode in 2007 and 2008. Their monthly payments may increase beyond what they can afford, they will be forced to sell their homes, putting more properties on the market and thus lowering home prices. Foreclosures will rise and it will be an optimal timing to purchase property. This is my opinion only, not an economic forecast.
New changes to Social Security and Medicare
The 2007 Social Security wage base will be $98,400, an increase of $4,200.
For the first time, the government will start determining the Medicare Part B premium based on a person�s income. This will begin January 1, 2007. Assuming that the base Medicare premium continues to grow at 11.6% since 2002.For individuals income under $80,000 and joint income under $160,000, the premium will only subject to the annual rate of increase. Any income at higher level will subject to the income level increase. For more infomation, please contact our office.
The Pension Bill
You may now transfer up to $100,000 tax free from your IRA directly to a charity. The donor must be at least 70.5 and this applies to 2007 and 2008. A tax deduction is not taken for the charitable contribution. Look at this as a tax savings and an estate planning strategy for those already gifting large amounts to church, etc.
Non-spousal heirs can now inherit qualified plan accounts and roll the monies into their own IRA. In the past, only spouses were allowed to roll over inherited plans.
Income limits on deductible IRAs will be indexed to inflation beginning in 2007. This will allow more taxpayers to deduct their contributions.
Higher contribution limits for IRAs, 401k, catch up provisions, etc are now permanent. They had been scheduled to expire in 2010. 529 plans will remain tax free after 2010 also.
Worried about an IRS audit? Avoid what's called a red flag. That's something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That's a red flag.
�Jay Leno
Kiplinger's Magazine "Jump Start your Retirement"
Kiplinger's magazine offered a six hour window to call in and speak to a financial planner for free. The offer was nationwide and the financial planners were all NAPFA registered members. I volunteered for three hours and answered questions on many different subjects. Some calls were about the new pension law, self employed retirement plans, 529 plans, estate taxation, and IRA contribution levels. I was very surprised at how many of the callers were multiple property owners and new landlords. Several had recently purchased rental properties with large mortgages and they believe their retirement is now based on the equity appreciation of these properties.
Holiday Schedule
We will be doing our normal buying and selling to match realized capital gains and losses in late November and December. We will be taking time off for the Holidays and year end so plan ahead if you need us for year end planning. SIMPLE IRA and 401k contributions are due in the accounts by Dec 29, 2006 so if you send the payment to us, we must receive the contribution by December 15th.
It's All About Goals And Working Out
Clients always ask what I have been doing so here is my sports update. Since last quarter, I raced the one mile Seal Beach Rough Water Swim, the one mile Santa Barbara ocean swim, and the Santa Barbara Triathlon with my daughter. Nikki and I ended up on the front page of the Santa Barbara Newspaper because they loved that we finish the event hand in hand and Nikki was wearing a tiara. We are prissy girls.
The hardest event I did was called the Vineman Aquabike race in Santa Rosa. It was a 1.2 mile swim and a 56 mile very hilly bike ride through the vineyards of Napa valley. I was so happy when that was over! Next I raced the 2.4 mile Waikiki Rough Water Swim in Hawaii on Labor Day. The last event was the Long Beach Triathlon just last Sunday.
Holidays are just around the corner! Daylight savings time is almost gone and fall weather will soon be here.
Sandra C. Field, MBA, CFP
Asset Planning, Inc.
Interest Rates
Here we are after yet another interest rate increase! Is there an end in sight? I hope so. I believe that Mr Ben is making his statement to set his style and clearly outline that this is not Alan Greenspan�s house anymore. Most Federal reserve board meetings are scheduled for two days and if there is action taken by the Fed, it is usually announced by 1:00pm on the first day. By that time on June 28, we were told he would make the interest rate action announcement by the afternoon of the second day. I can not remember that happening for many, many years. Mr Bernacke is clearly marking his turf. He has issued several reports and the economists have poured over every word to form their opinions.
The reports validated the idea that economic growth is moderating - and it is that moderation, the Fed indicated in its recent FOMC statement, that should help to limit inflation pressures over time. In normal English, this means they may pause and not raise rates again in August, their next scheduled meeting. Today, the prime rate stands at 8.25% and one year ago, it stood at 6.25%. I hope we have an end in sight.
The Bond Market
We have a flat yield curve, as opposed to an inverse yield curve. An example of this is that a six month t-bill will yield 5.28%. A ten year treasury will yield 5.19% and the 30 year yield is 5.28%, exactly the same as the six month rate. This indicates that you can lend your money for six months or thirty years and receive the same rate. There is no premium earned for lending your money (buying a bond) with a longer maturity, so smart money is staying with short durations right now.
The Stock Market
During the months of May and June, the market was a Disney adventure ride. The market fell and the bears were out. The market rose and the bulls were back. All in response to the outcome of the fed meeting (inflation under control?), rising interest rates by 25 or 50 basis points, housing construction falling and the dollar falling against the euro.
Enjoy your summer!
I am still training for the Vineman Aqua Bike on August 12. It is a 1.2 mile swim and a 56 mile hilly bike ride through the hills and vineyards of Santa Rosa, Ca. I will also swim in the Seal Beach rough water swim on July 15 as long as I do not see any dorsal fins in the water! Get out and enjoy the outdoors and summer bbq�s.
My Mom
Funeral services for my mother were held July 5, 2006. She has rejoined my father, brother, and all of my grandparents. She was a strong, beautiful, gracious woman who was loved by many friends and family. There is now an excellent bridge player in heaven.
Sandra C. Field, CSA, MBA, CFP
And in the end, it�s not the years in your life that count. It�s the life in your years.
~Abraham Lincoln~
Other Information
In addition to our regular phone number 714-827-5794, API now has a toll free number, 866-642-5173.
The new privacy laws (HIPPA) are impacting the use of Health Care Directives (HCD). I have enclosed a form that should be signed and kept with your HCD. This form directs your doctor to release all protected health information to the individual named in your HCD. If you would like the form emailed to you, please call or email me at carols@assetplanninginc.com.
Medicare Premiums
Starting in 2007, the Medicare Part B premium will be based on the member�s adjusted gross income (AGI). Currently, the part B cost is $88.50/month. In 2007, the premium is expected to rise to $99.50. If a married couple has an AGI of $160,000 or more the premium will be $112.70; AGI more than $200,000 will be $132.60; AGI more than $300,000 will be $152.50 and if your AGI is over $400,000 the premium will be $172.40.
If you are properly diversified, you always have something to complain about. ~J. Patrick Collins, Jr. ~
Enjoy the summer and let us know of all your adventures!
Carol Somoano, MBA, CFP
Asset Planning, Inc.
The best news of the summer is that my daughter, Nikki, completed the Santa Barbara Triathlon with me. She joined my triathlon training group, TriDivas, and trained for months; doing ocean swims, biking and running. We did the triathlon, side by side, in 1:33. Quite a feat for an 8 year old! She loved tackling such a big goal and the accomplishment that goes with it. I competed in the Seal Beach Rough Water Swim, Naples Island Swim, Santa Barbara Swim (all one mile each), the Long Beach Triathlon and the Santa Barbara Triathlon.
Ask yourself this daily question: How would the person I want to be do the thing I'm about to do?" - Jim Cathcart, Professional Speaker/Author
The Fed and the Economy
The Federal Reserve could have taken a pause in the race to raise interest rates, in light of Katrina, but they did not. They lifted rates another � point, the eleventh rate increase in a row. They are scheduled to meet again on November 1 and December 13th. By now, the adjustable rate mortgages and home equity lines of credit are beginning to climb. I am fearful of adjustable mortgage rates increasing for all those that purchased homes in the last few years and wage increases cannot keep pace. I see signs of inflation coming back in 2006 and the Fed must also be concerned to continue raising rates.
Greenspan will leave office in January, 2006 and he does not want to leave the economy in jeopardy. Oil and natural gas prices are driving inflation pressures, as expected, and discretionary income will be squeezed as this continues. Are prices of homes beginning to deflate? The market has cooled and this time next year may be the time to buy as the 5 year adjustable rate mortgages will be coming due. As homeowners find they cannot afford the increased mortgage payment, this will put more homes on the market and prices should decline.
The economy and the market were in good shape before the devastation of the hurricanes. The future of the rebuilding and the demand for building materials will positively impact many sectors and companies. Prices have already increased for raw materials, such as lumber, concrete, and copper. The S & P 500 is up 1.7% year to date but 7% of the holdings are in energy. The oil and gas companies are rising to the top, as their cap weighting grows.
If you want to test your memory, try to recall what you were worrying about one year ago today ~E. Joseph Cossman~
Hurricanes Katrina and Rita have done unbelievable damage, both physically and emotionally, to those in their path. For days, we stared at the television, trying to comprehend the damage done by a force of nature. How long will this clean up and rebuilding take? How will it be rebuilt? How will New Orleans, one of the most unique cities in the US, be restored? How will the people be able to resume their lives when all has been lost? We have several families in our area that have been relocated from Louisiana and New Orleans, arriving sick and devastated, with children needing to begin school. We must realize people are still living in shelters and need help. They will need to be supported for many, many months to come. Please continue to give for their continued support.
Steven Covey
I attended the Financial Planning Association Conference and had the privilege of hearing Steven Covey, author of �The Seven Habits of Highly Successful People,� and more recently �The Eighth Habit,� which was the subject of his presentation.
His message was this: �Find your voice and inspire others to find theirs.� By this Covey means that each person has a unique personal gift to offer the world and when those gifts are activated, the world is changed for the better. He said that each of us should cultivate our vision, our discipline, our passion and our conscience, which he associated with mind, body, heart and sprit. �Vision is what is possible,� he said. �What you envision in the future, or what you see in another person, makes those things possible and gives them permission to happen.� What is your vision? What do you see in others? Find your voice!
Disaster ready
Are you prepared for a major disaster to hit Los Angles or Orange County? We are at risk for earthquake and fire damage. Do you have food and water stored in your home? Work out at plan and know where you would meet your family members if your home or surrounding area is damaged or inaccessible. Cell phones may not work so have a plan in advance. Have your data stored on a CD.
Sandra C. Field, CSA, MBA, CFP
