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
Asset Planning certainly has news! Joanne is off on maternity leave and her baby boy (Miles) is due July 17. We already miss her. Lori left Asset Planning on June 7 and moved to Texas after the passing of her mother. We wish her well and can not blame her for leaving California. She was able to buy a house outright in Texas and her daughter now has a horse to ride on her own property. Who says there isn�t a real estate bubble in California??
Our great new additions to the staff are Carol Somoano and Margo Lynch. Both Margo and Carol will assist me with financial planning clients. Carol will also develop her own asset management clients and manage money.
Carol received her CFP designation in 2004, in addition to her Personal Financial Planner certificate from UCI. She also has an MBA from Cal State Fullerton. She holds licenses in insurance, real estate and is also a Notary Public. Keep this in mind when you need something notarized- Carol is here to assist you! Carol will focus on comprehensive financial planning and asset management. Carol is also the mother of three children.
Margo has her certificate in Personal Financial Planning from ucla (have to put it in small caps since I am from USC) and has taken the Certified Trust Financial Advisor exam and is awaiting news of passing. She is working on her CFP and will sit for the exam soon. Margo�s focus in on the complexity of trusts and avoiding taxation.
Try a thing you haven't done three times. Once, to get over the fear of doing it. Twice, to learn how to do it. And a third time, to figure out whether you like it or not. ~Virgil Thomson (advice given at age 93)~
TD Waterhouse and Ameritrade announce the intention to merge
TD Ameritrade is the proposed name of the new company. Ameritrade is acquiring 67% of TD Waterhouse. Combined, the two companies will make the third largest brokerage company, behind Charles Schwab and Fidelity. It will become the largest discount brokerage in the US. I see this move in a positive light. Ameritrade did not have a brokerage branch network which TD Waterhouse has. It may take six months or more for the merger to be completed so any changes will not be apparent until then.
Identity Theft
Check your current homeowner insurance policy to see if they are adding coverage for identity theft. Allstate, Fireman�s Fund, AIG, Chubb, Farmers, Metlife and Travelers have all added this coverage. Some companies add it to the homeowner coverage and some sell it as a rider for $25 to $50 per year. The policy will help with the hassle and expense of restoring your good name. It may also pay for legal fees for advice, lost wages, credit reports and loan reapplications when needed.
Summer Travel plans aboard
Check a ship�s sanitation record. The Centers for Disease Control posts cruise ships� scores and date of last inspection at www.cdc.gov/nceh/vsp. You will also find tips to avoiding a stomach illness aboard an ocean liner.
The Yuan and the Dollar
Is there a link between China�s currency and the US housing market? James Berman, JD explains it this way:
China pegs the yuan to the US dollar. The Chinese don�t want to do anything to cut off the source of their massive growth over the last decade-exports. The yuan�s artificial undervaluation boosts their massive export machine. In order to link the yuan to the dollar, Chinas has to hold large dollar-denominated reserves. It has to buy massive amounts of US Treasury bonds. That artificially depresses yields on the 10 year Treasury. That�s why, even though the fed funds rate has been raised, the 10-year yields have had a relatively flat yield curve. Pushing those yields down artificially pushes 15 and 30 year mortgage rates down. They are at 40 year lows, supplying a huge amount of cheap money for people to purchase homes they could never have afforded before.
Someday, China will buy fewer of our bonds. It�s a question of when, not if. When they do, interest rates are going to go up more that most people are predicting, possibly 200 or 300 basis points. 100 basis points is equivalent to 1%.
I think he has an interesting point of view. Many economists are concerned over the amount of US Treasuries the China holds. What to do? Convert your adjustable rate mortgage to a fixed mortgage. 22% of all new mortgages are a form of �interest only� so people can qualify. If interest rates spike, foreclosures will be very high.
�If you think you can�t, you won�t. If you think you can, you might.� Henry Ford
2005 is half over already! Are you making progress on your goals set for this year? I completed the Danskin Triathlon on June 5. It was � mile swim, 14 miles biking and a 3.1 mile run in the hills. I have a few more triathlons and ocean swims scheduled. I am trying to get back to training four days a week. Get outside and enjoy your summer!
One goal for the summer: Write a letter of gratitude to someone who has never been properly thanked. Take the time.
Sandra Field, CSA, MBA, CFP
Asset Planning, Inc.
