It is better to deserve an honor and not receive it, than to receive one, and not deserve it!! Mark Twain, 1835-1910, American Humorist, Writer
The above quote is dedicated to my beloved Trojans. USC should have been ranked #1 and selected to play in the BCS Sugar Bowl instead of playing in the Rose Bowl against Michigan. USC beat Michigan 28-14 and were voted #1 in the AP poll after the Sugar Bowl.
USC Trojans are National Champions!
Looking back, looking forward
In addition to the Trojans football record, 2003 was a very good year. I am feeling more positive about the economy, productivity, manufacturing and the job market for 2004. The market has slowly and steadily risen over the past year.
The small capitalization companies have performed best, with an average gain of 40%. Mid-cap companies have gained an average of 30%. I believe as the market recovery continues, the large-caps will catch up to the gains of the small and mid caps. The S&P 500 returned 28.7% in 2003; this was the best return since l997. From the October 2002 market bottom, small-caps, as measured by the Russell 2000, continued their outperformance over the S & P 500 ( 73.1% vs. 46.4%) as well as for the one, three, and five year periods. This was the best return for the Russell 2000 since l979.
Interest rates may remain low since we are in a presidential election year. I do not expect interest rates or inflation to raise more than .25 to.50% over the next 6 months.
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
Qualified Contribution amounts increased
The 401k, 403b, 457 limits have increased to $13,000 with an additional $3,000 catch up provision for those over age 50. IRA contribution limits remain the same at $3,000 plus $500 for the catch up provision. The estate tax application exclusion increased to $1,500,000.
Lynne Cox
One of my close friends is Lynne Cox, the renowned long distance swimmer and now, finally, an author. Her book is available to the public on January 13 and she is beginning her 13 city book tour this week. The book is Swimming to Antarctica-Tales of a Long-Distance Swimmer. Lynne is in People magazine this week and named one of the top women in the world by Glamour magazine. She recently appeared on David Letterman, 60 Minutes and will be on Ellen January 19th. Oprah is also trying to schedule her.
I began taking ocean swim lessons from Lynne in the early 80�s once I started to compete in triathlons and ocean swims. I traveled to communist Russia (Siberia), Austria, and Germany with her as a team member as she completed swims in the late 80�s. Since I was the money manager (deemed a control position by USSR) for the team of journalists, crew and entourage, I had the privilege of having my home phone tapped by the FBI and CIA for many long months. The book recounts many of her record breaking swims and the reason why she strives to swim for cold water research and to bring nations together. Los Alamitos will declare another Lynne Cox Day and we will be having a local book signing for her in this area. The book is a great read.
Annuities
I am on the warpath over annuity companies. We had several client deaths this past year and have helped client beneficiaries� deal with redeeming annuities. Almost without reservation, I can tell you to never buy an annuity through your bank. Some clients were sold annuities through Washington Mutual and Wells Fargo banks and I have never seen such incompetence in the way the contracts were written.
If annuities are not correctly structured, they can become a living nightmare for the beneficiaries. Most annuities should not have joint owners or the trust named as the beneficiary when the spouse is living. When there is an IRA inside the annuity (always a no-no) the beneficiary structure is important to avoid taxation of benefits. The main problem I have with annuities is that they will not pay out the death benefit. The companies will require a ream of paper documentation, and then not process the claims until multiple letters and phone calls are made. We have found this with five different annuity companies and only two, Pacific Life and Jefferson Pilot, acted promptly and correctly. The worst companies are Jackson National, ING, Safeco, and Sun America.
If you have an annuity, you should have it reviewed for correct title and how the beneficiaries are named. You can make changes while you are living and mistakes can be corrected. Thirty minutes of your time now can save your beneficiaries hours of frustration upon your passing.
Memory Loss
Your mind is your most prized possession, so don�t neglect it. Each of us must decide what kind of brain or memory capability we want and what steps we will take to get to our goal and stay there. There are different types of memory-memory for key ideas and memory for detailed facts. Almost everyone loses the ability to remember all the details as they age. In contrast, with practice, the ability to remember the big picture and key issues can be preserved into late life.
Here are the keys for good memory retention: Treat medical concerns. Memory loss can be a symptom of physical health problems such as diabetes, high blood pressure, thyroid problems and Alzheimer�s disease. Consider depression or any other mental aliment since any kind of mental illness affects cognition, a component of memory. Eat properly. Vitamin deficiencies cause cognitive decline. Folic acid, found in leafy green vegetables, is also vital to good mental functioning. Eat walnuts or almonds daily. Get enough sleep. Socialize. Isolation increases your risk of cognitive decline.
Researchers recently concluded a 21 year study of the elderly. They found participants who read, played board games or cards or played a musical instrument had a reduced risk of developing dementia. Dancing also reduced the risk, but other types of physical activity, like biking, swimming or golf, did not. (Since my golf game involves counting to high numbers when taking penalty shots and counting lost balls, it helps my memory retention!)
A tax expert is anyone who can read five pages of tax law without crying, or ten pages without laughing. Jim Boren, author, Wall Street Journal
Tax time rolls around once again. If you have your taxes prepared by Hood & Burch and would like to see me the same day as your tax appointment, give Lori a call. I can usually meet with you prior to or after the tax appointment.
Goal setting
After a review of my business plan and in order to better serve my clients, I have raised my managed account minimum size to $250,000. Thank you to all of you who have referred friends and relatives to Asset Planning, Inc. We are growing due to your referrals and have found success through service to our clients. This was one of the reasons we were chosen as a top wealth manager by Bloomberg. I greatly appreciate your referrals and the growth of the company.
I have written my goals for 2004, both business and personal, and hope you have done the same. Begin to plot the course of action you will take to meet your goals and visualize how you will obtain the end result.
�Nothing can add more power to your life as much as concentrating all your energies on a limited set of targets. Bend all of your energies to one point, and go directly to that point, looking neither to the right nor to the left.
Success is the result of well directed energy. The sun's rays do not burn until brought to a focus.�
Happy New Year 2004!
Sandra C. Field, CSA, MBA, CFP
Asset Planning, Inc
Let us realize that the privilege to work is a gift, that power to work is a blessing, and that love of work is success. David O. McKay
Our Big News
Bloomberg Wealth Manager Magazine, July/August issue, selected Asset Planning as one of the top wealth managers in the Nation. We are very proud of this honor. We again thank our clients for their continued trust in our abilities. I truly enjoy my work and clients.
Election and possible recall of our Governor
I actually miss the silly commercials for soft drinks, cheese (I like the talking cows) and fast food. I can�t wait until this election is finished and the campaigning and negative political commercials are over. I certainly hope we will have a better credit quality rating for California and lower workers compensation costs in the near future. This is history in the making for California. Remember to vote so your voice is counted.
Jobs gain
The Labor Department said nonfarm payrolls grew by 57,000 last month, much better than the 15,000 decline expected by economists. The August number was also revised to a narrower loss. The unemployment rate stayed at 6.1 percent.
From October 1,2002 to September 30,2003, the Dow gained 18.94%, the NASDAQ gained a whopping 32.06% and the S & P 500 gained 18.51%. I expect the market to give and take since the movement in the past quarter has been great.
This is silly season of reporting earnings. I say silly, since a company such as EBAY can report great earnings and the stock price drops 14%. The reports are based on perceptions and forward internal growth rates. You can always expect added volatility in quarterly earnings season.
Mutual Fund complaints
The New York Attorney General Spitzer filed complaints against four mutual fund companies, alleging improper trading and market timing arrangements with a hedge fund, Canary Capital. He alleged Canary Capital, under agreements with such financial institutions as Bank of America, was granted special trading privileges, including access to illegal late-day trades, in exchange for fees.
Spitzer specifically named four mutual-fund operations -- Bank of America's Nations Funds, Janus Capital, Strong Capital Management and Bank One's Banc One Fund as taking part in the schemes.
At these fund families, only a few mutual funds were involved in the trading. Asset Planning has not used any of the mutual funds that were named in the allegation. This is one of the reasons I believe in such diversification among many funds. I like to spread risk and diversify among fund families and managers, seeking their independent thought process.
Last week's data shows strengthening in both capital expenditures and temporary employment.
Businesses are starting to spend, as indicated by increases in surveys of capital goods companies and temporary employment companies. The capital goods companies survey rose 2.8 points last week to its highest level since 1998�suggesting that old economy equipment capital expenditures probably rose in the third quarter. The use of temporary employees is at the highest level in nine months, another indicator that business is expanding. Industrial Productivity grew last month at an astounding 4.1% annual rate.
Although this looks like good news, there is still a lot of uncertainty about the economy, the course and duration of the recovery, unemployment and growing concerns over medical insurance and the cost of care.
The first wealth is health. Ralph Waldo Emerson (1803-1882)
October is Breast Cancer Awareness Month
Please support the women in your life and encourage them to have regular annual check-ups and mammograms, when they need one. October 13 is the American Cancer Society Women�s Classic Golf Tournament. This is the eighth year I proudly served on this committee. The money we raise from this tournament stays in Orange County to treat women in need of support, treatment, wigs, and to raise awareness. The tournament will always welcome business and individual support and sponsorship. A big thanks to those clients who support this event every year. Please join us next year!
Year End
As we approach year-end, we will be evaluating each portfolio for realized and unrealized capital gains. In light of the new tax law changes, changes may need to be made to some portfolios. For those of you 70.5 years and older, we will have most of the required minimum distributions (RMD) taken from the IRA accounts in November. This would not apply to those already receiving quarterly distributions.
There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle. Albert Einstein (1879-1955)
Please schedule a meeting with me if you have life or employment changes, as these do have a bearing on your portfolio. What I want is to be a great financial advisor, to do an outstanding job for my clients, to make a difference in clients� lives, and to enjoy each and every day.
Sandra C. Field, CSA, MBA, CFP
In February, I attended the annual TD Waterhouse conference where I had the opportunity to see Caspar Weinberger speak. He is 86 years young.
Caspar served as Secretary of Defense from 1980 to l987. He gave a wonderful, insightful view of the first war with Saddam Hussein and his view on why war was needed at this time. He saw the �removal of uncertainty� as being of paramount importance. �The one thing business cannot do�, he said, �is deal with uncertainties.� Removing uncertainty meant removing the present Iraqi regime, and that, he believed, would have a �salutary effect� upon business, the nation, and its economy. It was six weeks later when the first bombs began to fall on Baghdad.
No matter what the reason for this war, one thing is certain. I stand in support of our troops. I support each and every person involved with the effort on our behalf, their families and friends, and offer prayers for the safe return of our troops.
My opinion is that once we have victory in Iraq, the market will react positively. When our troops secured targets early in the march to Baghdad, the market rallied. As we secured the Baghdad airport and a palace, the market rallied. We still have unemployment and the economy to worry about, but the greatest fear has been the loss of our troops. Lives cannot be replaced. Victory in Iraq will undoubtedly trigger a rebound in confidence that could well translate into a snapback in spending. I remain cautiously optimistic.
�Even if you�re on the right track, you�ll get run over if you just sit there. � Will Rogers
Lifetime Savings Accounts (LSAs).
President Bush�s 2004 budget has several interesting proposals.
Each year, each person could contribute $7,500 to these accounts, which could be used for any purpose you like. There would be no age or income requirements, and no restrictions on when money could be withdrawn. This is not a retirement vehicle. You can put the money in and take it out without limits or penalties. How could this benefit you? Think of putting your taxable savings, such as your emergency money fund or CD�s, in this account. The earnings would now be tax deferred and be taken out tax- free.
Various kinds of tax-advantaged accounts could be converted into an LSA. These include medical savings accounts (MSAs), Coverdell education savings accounts, 529 plans, and qualified state tuition plans. Those who chose not to convert could continue to put money into the older savings vehicles.
Retirement Savings Accounts (RSAs).
Similar to an LSA, an RSA would cap non-deductible annual contributions at $7,500 per person ($15,000 for a married couple) and permit tax-free earnings and distributions. This would be intended as a retirement vehicle, and would have penalties for withdrawals made before age 58. Think of this as a Roth IRA with a higher contribution ceiling and no income-based limits on eligibility. Indeed, existing Roth IRAs would simply become RSAs. You could also make a taxable conversion of a traditional IRA to an RSA; you wouldn�t have to convert, but you couldn�t make additional contributions to IRAs. And you could contribute to both an LSA and an RSA, with a total annual ceiling of $15,000 ($30,000 for you and your spouse).
Proposal of tax-free treatment of dividends
This issue will get a lot of debate. The current proposal is for the dividends to be 100% tax-free. I do not believe this will be the final outcome, but some tax relief would be welcomed. This is intended to eliminate the double taxation of dividends at the corporate level, and then again, at the personal shareholder level.
The proposal will be fought as another benefit for the rich, but in truth, many seniors also rely on dividends. I hope that some percentage of the dividend will become tax-free.
�Yield is back in style. History tells us that a large component of the stock market�s total return comes from dividends, but it�s usually only in bear markets that anybody cares.� Haywood Kelly
The proposals are great in the form presented but I worry over the future government tax burden if these accounts allow tax deferral on growth and tax-free income. This current war with Iraq is very costly, will continue to be, and our government will need revenue to replace the income tax it forgoes. As more companies eliminate the match to their 401k plans, the burden of retirement falls directly upon the shoulders of the individual. These additional vehicles to create increased saving are beneficial in allowing individuals to put more away for retirement, and are welcomed.
AAII
On March 22, I gave a two-hour speech for the American Association of Individual Investors at the senior center in Corona de Mar. My topic was �Survival Guide-2003 Investment Changes�. I arrived early and was able to wander the rows of the community garden, admiring the patches of vegetables and flowers. I find many investors keeping their portfolios like the garden. Some have tidy rows of growth, with signs posted as to what is planted. Others have weeds, scattered plants and have lost focus on the overall plan. We will keep your garden focused and growing according to plan.
Success is not measured by what you accomplish. The opposition you encounter, and the courage with which you maintain your struggle against the odds is how it is measured.
If your risk tolerance has changed; or if there are material changes to your life, intended time frame or purpose of the portfolio, please schedule an appointment with me. I like to stay involved with your life, goals and objectives so I can see the big picture for each client. Each portfolio is designed and adjusted based upon individual parameters.
Sandra C. Field, CSA, MBA, CFP
Happy Fourth of July!
Summer is finally here and the markets have been sizzling since March. The great rebound of the market is exactly why the thought process to �stay invested� actually works. The rebound can come so quickly, the market can rise 10% in one week. It is nice to see some recovery in the portfolios that held growth funds during the downturn. This was the best quarter of performance in four and � years! S&P 500 is up 11% and NASDAQ has gained 22%, year to date.
�Patience is a necessary ingredient of genius." �Benjamin Disraeli
Will this turn out to be the next bull market? Will this be a false bull run and only another brief rally? I do not know. We have crossed over several technical indicators that are triggering many investors to re-enter the market. Worth noting is many portfolio managers are beginning to invest the cash hoards they have accumulated. They cannot afford to be left behind their peers in performance. This is all based upon a (hopeful) positive earnings season to be released over the next few weeks. The economy still has worries, no doubt, but some indicators are starting to look positive.
I personally believe that mild inflation is more likely than deflation. Most of the economists and fixed-income managers I listen to are sharing this view. People are seeing low and declining interest rates and are interpreting slowing of inflation as deflation. No one expects inflation to become rampant, and most see a period of low inflation and low economic growth ahead. Of course, I hear and read opinions that range from depression to deflation to inflation to robust growth.
The Federal Reserve recently lowered interest rates � percent on June 25th. Yields on money market funds will be extremely low and some of the funds may have expenses greater than the rate of return being generated. If you are considering a new mortgage or a refinance, please do it now. Rates at some banks and credit unions can be lowered with a phone call and a flat fee of $250. Some banks want to rewrite the loan as a new loan and charge fees. Rates and fees are very competitive at this time. Car loans are being written for zero percent financing for five years.
"Sharing makes you bigger than you are. The more you pour out, the more life will be able to pour in." Jim Rohn
Here is a brief summary of some of the new tax law changes:
Lower Capital Gains: Capital gains taxes have come down from the 20% maximum to 15%. This will apply to capital gains paid out by mutual funds. However, because it applies to capital gains received on or after May 6, it will not include gains that were paid out in March. Now, more than ever, capital gains are more valuable than the income you receive from short-term gains. Why? Under the old tax laws, the gap between the highest income tax bracket of 38.6% and the capital gains rate of 20% was 18.6%. Now the gap has grown to 20%, the difference between the 15% capital gains rate and the 35% highest income tax rate.
Lower Dividend Taxes: Dividends paid from stocks, and by mutual funds, will now be taxed at the 15% rate rather than one�s individual tax rate. This includes virtually all dividends paid out by equity funds. It does not include dividends paid by REITs. The reason is REITs are not taxed on their income if they distribute substantially all of it to shareholders. The lower dividend tax was aimed at reducing, or eliminating the �double taxation� on dividends, first at the corporate level and then at the shareholder level. Dividends are now on a par with capital gains as a store of after-tax value, making stocks a bit more competitive with bonds than they�ve been in the past.
Lower Income Taxes: While the �income� distributions from bond funds won�t be taxed at the 15% dividend rate, our tax hit will come down because of the lower income tax rates that will be applied across the board. That said, high-yield stocks have become more competitive with bonds because their dividends will be taxed at 15% while bond interest will be taxed at rates as high as 35%. I am assuming that the mutual fund companies now have to report, and break out both the dividend income and the interest income that funds distribute each quarter, and year, given that interest income will be taxed at individuals� income-tax rates while dividend income will be taxed at the new 15% rate. This dissection of �income� will also be necessary for accurate reporting on the tax efficiency of funds, which fund companies are now required to make in their reports to shareholders. Look for more lines of information in your upcoming tax forms and more work for your CPA.
Please call or make an appointment if you wish a personal assessment of the tax law changes and how they relate to your portfolio. Each taxable portfolio is undergoing analysis and possible changes for dividend yield and lower taxable income.
Sandra C. Field, CSA, MBA, CFP
Asset Planning, Inc Comments
Fourth Quarter 2002
Every big accomplishment is a series of little accomplishments. To achieve maximum success, you must accept that progress is made one step at a time.
2003 brings new higher limits for 401k and 403b contributions. You will be allowed to contribute $12,000 this year and $3,000 is the contribution limit for your IRA. The estate tax application exclusion remains at $1,000,000.
If you have a taxable account with us, we have matched realized gains with losses for 2002 and took additional losses, where it was applicable, to offset income. The current limit to realize an additional loss is $3,000; the same limit has been in effect for thirty years. I am hoping the new Republican House and Senate will take action to increase this limit. It could be effective for 2002 and your taxes to be filed by April 15, 2003.
Success seems to be largely a matter of hanging on after others have let go.
-William Feather
Enough is enough. This coming March will be three years since the market peaked and began the infamous decline into the bear cave. The S&P has had negative returns for the last three years. 2000 was � 9.33%; 2001 was �12.15% and 2002 recorded a loss of �21.23%. The 5- year annualized return for the S&P 500 index is �0.54.
Bear markets can occur for three different reasons. First, prices of shares may simply decline as a reflection of a downturn in the economy and corporate earnings. Second, excessive valuations can collapse, as they did for many growth stocks over the past three years. Third, misguided government policies, political or major bank failures can paralyze the financial system.
The recent bear market has been more severe than the economy alone can explain. There's clearly been a correction in stock valuations. But, we haven't seen the pervasive problems in the economy that make for chronically depressed stock prices. Economic slumps almost always end within two years -- and corrections for overvalued P/Es rarely last longer than three years.
Everything seemed to point to recovery in the economy by the fourth quarter of 2002, but the fear of war with Iraq and North Korea weighed heavily on everyone�s mind. When the market fundamentals finally showed improvement, the political agenda kept the market from a sustained rally. I do believe we have been through the worst now and I look for positive returns in 2003. The first day of trading in 2003 brought a 3.5% return to the Dow, S&P and the NASDAQ exchanges. Stocks are clearly less overvalued than they were at the start of 2000. Corporate scandals and fraudulent accounting are being investigated and cleaned up. And we're doing more to stop terrorism than we were a couple of years ago. Dare I say there is recovery ahead?
The current comments from the managers at Longleaf Partners are as follows: The return on ownership significantly exceeds the return on lending for the first time in many quarters, and equity earnings �coupons� are ultimately taxed at long-term capital gains rates and grow, while bond coupons are taxed at ordinary rates and are fixed. These numbers do not necessarily signal the end of the bear market, but the deck is now stacked in favor of long-term equity investors.
You don�t get points for predicting rain. You get points for building an ark.
�Louis Gerstner, Chairman of IBM
Tidbits
Beverly passed her CFP exam in November so congratulations are in order. We have also expanded our staff to add Joanne Liu as a research analyst and a Para planner to assist with financial planning. We now have a Medallion Stamp Guarantee available in the office (free of charge) when you need to have a signature guaranteed. I was a speaker at CSULB this past quarter. It was fun to go back on campus to meet with students that have selected finance as their chosen field. You will also notice a new format to our quarterly statements that better reflect the diversification we try to achieve with each portfolio.
Looking ahead� I will be on vacation April 14 to 20, 2003. IRA and SEP contributions need to be made early so they are posted by April 10. Plan ahead for all contributions and tax filings. I will be spending the tax-filing day on a golf course with my family.
I have written my resolutions and have worked on an action plan to map out how to achieve the goals that I have set for 2003. Have you written yours yet? It is never too late to begin dreaming, setting and reaching for new goals. I have just finished my monthly review of each portfolio and made notes for changes in 2003. Interest rate changes may be ahead and holdings will be changed to stay ahead of rising rates.
Our greatest fear is not that we are inadequate, but that we are powerful beyond measure. It is our light, not our darkness, that frightens us. We ask ourselves, who am I to be brilliant, gorgeous, handsome, talented and fabulous? Actually, who are you not to be? You are a child of God; your playing small does not serve the world. There is nothing enlightened about shrinking so that other people won�t feel insecure around you. We are born to make manifest the glory of God within us. It is not just in some; it is in everyone. And, as we let our light shine, we consciously give other people permission to do the same. As we are liberated from our fear, our presence automatically liberates others. �Nelson Mandela Inaugural Speech
Happy New Year 2003!
Sandra C. Field, CSA. MBA, CFP
