Asset Planning, Inc Blog

The latest from the team.

Deadline for 2017 IRA Contributions

The deadline for getting your 2017 IRA contributions to us is Wednesday, April 11th. Tax season is an extremely busy time so the sooner you get these in the better. Feel free to stop by the office anytime from 8am-4pm to drop them off.

Have a great weekend!

Melani

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241 Hits

Market Moves

The Dow Jones and S&P 500 posted a loss of 7.92% and 7.17%, respectively, in the last 5 days, however this is not a reason to panic.  The market has been steadily increasing without a significant market move or correction and we have enjoyed 15 consecutive months with positive returns.  The headlines can be misleading, but this is just volatility returning to markets.  Some of the loss today was likely due to computerized algorithms that were triggered to start selling as the market reached certain levels.  This increased selling intensifies the loss, but will normalize when those same algorithms buy back in to the market.

We have been anticipating this correction and will take advantage of this opportunity.

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290 Hits

Bitcoin Mania

There is no denying it, Bitcoin is all anyone is talking about right now. We know that a lot of you have questions as to what it is, how it works, the risks etc. I came across an article this morning on Seeking Alpha written by Victor Dergunov that I feel has been the most comprehensive in explaining exactly what Bitcoin is and the risks involved when investing in it. I thought I'd share it with you to give you some insights on the mysterious cryptocurrency that is taking over the headlines. Follow the link below to read the article.

https://seekingalpha.com/article/4132006-bitcoin-big-short-coming?lift_email_rec=false&utoken=896c83f5aaeb6c09476c6308df1c6ef8

Have a great weekend!

Samantha

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321 Hits

Reasons Why People Put Off Saving for Retirement

Retiring comfortably is a dream for most people. Unfortunately a lot of people are not adequately saving for their retirement or, even scarier; they are not saving at all. What is preventing them from saving? Usually it’s a mind block that gets in the way. Retirement seems too far off to think of or it’s uncomfortable to talk about. Here are a few reasons that most people delay saving and some tips to overcome these excuses.

Paying off debt and paying for current living expenses - With a lot of people burdened with a mound of student debt after college and paying for current living expenses, the idea of putting anything extra towards retirement savings can seem daunting. While it is important to pay off your debt it is also important to save for your future. Even the smallest amount that you can spare is better than nothing at all.

Instant Gratification- Spending money on items or trips that you want to go on now is highly more satisfying then putting money into a retirement account that you can’t touch for a long time. Sure everyone loves a new purse or a shiny new set of golf clubs. But one thing to ask yourself; are these items worth my future financial security?

Unsure of where to start- A big reason people put off saving for retirement is that they do not know how to get started. There are also many online resources that offer retirement calculators and tips to guide you through the process. You can also contact a financial advisor to help you assess your retirement needs and set up a customized plan to get you started on the right track to a successful retirement.

Procrastination- The mindset of “I’ll do it tomorrow” and then never actually doing it can be one of the biggest disadvantages off all to your retirement savings. Most people do not understand the concept of compounding interest when it comes to savings. Basically, the sooner you start saving, your principal will not only earn interest but over time you’ll earn interest on top of previous years interest and therefore the compounding effect can be huge. If you put off starting to save until you are in your 30s instead of starting in your 20s your money will miss a decade of compounding. The end result is you will have to save significantly more money every month to get to your desired retirement goals then if you had started earlier. The easiest way to get started is through your company if they offer a 401k plan or by setting up an IRA account. With both of these options you can have contributions set up to automatically come out of your paycheck or account. The less you have to think about it the more likely it is that you will do it.

The bottom line is that there are a lot of excuses that people make as to why they can’t save for retirement. The sooner you get started, no matter how much you start with, the better. When you get ready to retire you will not regret taking those first steps you made to invest in yourself and your future.

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Reminder: 2016 IRA Contributions

We wanted to send out a reminder that it's not too late to contribute to your IRA accounts for 2016 as long as you are still working and have not yet met your contribution limit. The IRS deadline for contributions is April 18, 2017. Please give us a call if you would like to make a contribution or have any questions.

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546 Hits

Brexit

 

It’s been a hectic day, but we wanted to give you a few notes on the Brexit vote and its impact:

  • The UK makes up only 4% of the overall global economy
  • Nothing will change overnight; the process of the UK leaving the Eurozone will take approximately 2 years based on current estimates.
  • The economic impact will be felt like a ripple or earthquake, those closest to the epicenter will feel the effects more than those farther away.
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Market Correction not Crisis

As many of you know, the markets have been turbulent, to say the least, followed by a sharp decline yesterday and a sharp rebound today. Though we understand such volatility is unsettling to all of us, we are seeing many indicators that this is an emotional panic driven sell off and not the beginning of a new bear market.

Probably the biggest indicator that the markets are acting irrational is yesterday's market movements where in wake of a US Debt downgrade people sold out of stocks and US treasuries rallied. The exact opposite should have happened, especially given reports of robust corporations earnings and cash surpluses.

Though there is some concern with our less than expected GDP numbers, true recession signs are nonexistent. Furthermore, while the European Union's debt problems are a big one, we must not lose sight of the fact that the growth economies of the world are becoming more significant to global GDP than Europe. We are not in the double dip recession camp and feel the S&P will end positive for the year.

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Fed Takes Action!

Yesterday, the Federal Reserve announced its plan to buy up to $300 billion of long term government bonds and $750 billion in additional mortgage-backed securities plus they are keeping the federal funds rate between 0% and .25%.  This is likely to produce a drop in mortgage rates.  The rates today are under 5% and might go to 4%.

What does this mean?  Basically, if you have a good job, solid credit and you have 20% equity in your home you should consider refinancing.  You need to consider how much it would cost to refinance – points paid, appraisal fees, title insurance, etc. vs. how much you would save in the long run.  How much longer is the term on your current home? Does it make sense to start a new 30 year term loan?  Every situation is unique.  For example, it makes sense for me.  My current loan is only 3 years old and if I just refinance my current balance (and not take any cash out) I will lower my monthly payments by $1,000/month.  The extra cash flow will be great as my expenses will be increasing as my children get older and enter college in the next few years.  Every situation is unique and should be evaluated as such.

This also is a good time for 1st time home buyers to take advantage of the low rates and the $8,000 tax credit.  The criteria for getting a loan is much harder because the banks learned their lesson and don’t want to be stuck with bad loans.  This is good because that should keep home prices from rising as dramatically as they did from 2004-2007.  Prices should rise gradually now.

This action by the Fed will also likely weaken the dollar and increase inflation in the future.  Commodity prices will likely rise as investors anticipate the rise in inflation.  Prices for gold and crude oil have all risen sharply since the Fed announcement.

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1150 Hits

Goodbye Secretary Paulson

In December, Secretary Paulson made the unilateral decision to guarantee $306 billion of CitiGroup's assets. The guarantee was in addition to the $25 billion Citi had already received in TARP funding. The $306 billion "guarantee" was not part of TARP and was extended without Congressional approval.

$306 billion is equal to what our government spent in 2007 for the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development, and Transportation combined. (The Economist)

Is it fair that Bank Of America made very bad business decisions to buy Merrill Lynch and Countrywide Financial and now the taxpayers are backing their losses? And, management keeps their jobs? Nancy Pelosi said it best when describing the bailout of GM and Ford that their failure and incompetence is being rewarded, instead of their success.

The number of financial institutions (and others) that are applying for TARP money is astounding. Billions of dollars are being handed out, without Congressional approval, and without a tracking mechanism to know what the banks are doing with the funds.

I guess this is how it worked at Goldman Sachs. Paulson's net worth is estimated to be near 800 million. Maybe he could make some loans with his own money.

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1161 Hits

Madoff Madness

How did Bernie Madoff mastermind a Ponzi scheme for so long and make fifty billion dollars disappear? How was he able to hide these losses from SEC regulators and his clients? How does a former NASDAQ chairman do this and hide it for so long from the regulators? How do people know if their investments are safe?

A custodian is the firm that actually holds your securities, cash, bonds, and mutual funds.  Mr Madoff's firm was his own custodian. To open an account with him, you made your check out to Bernard Madoff Investment Securities. He allegedly had four sets of books- actually, the man must be exhausted from the moving of money on paper that he did. He made fake statements and falsified the account values on the monthly statements that were sent to his clients. Since the custodian and the money manager were one and the same, the clients had no way of knowing if their account values were correct. There were no third parties involved to catch him. His auditor was not one of the big accounting firms. His niece is married to an SEC auditor. He ran a hedge fund and the government does not regulate hedge funds. There was a lot of movement to get hedge funds to register with the SEC a year ago and the hedge funds won. They stayed unregulated.

If Mr Madoff never deposited the client monies into an account that was insured by SIPC or FDIC, his clients do not have insurance to fall back on. That would only make matters worse.

We use an outside custodian such as TD Ameritrade and Schwab to hold our clients investments. Asset Planning does not take custody of assets- meaning, we cannot ever hold securities on our own. We do not invest, nor have we ever, invested in hedge funds.

When a situation does not have transparency, there is cause for concern. Mr Madoff ran his hedge fund on a separate floor in a locked room where only three people had access. This is where the algorithms were running the money in a black box. No one understood what they were investing in, yet continued to pour millions of dollars into his scheme. The investors were let down by Mr Madoff and by the SEC, who was supposed to protect them from fraud like this.

Sandy

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1303 Hits

The Government Shutdown

Our government shut down October 1 with both sides vowing to not bend and give in. The last time we had an impasse was in 2008, during the passage of TARP, and the market reacted by falling 777 points. That was enough to get both sides negotiating a bit quicker. We also have the debt ceiling to deal with later this month. Failure to act would be very negative for the financial markets and the world economy. This is really the ordeal to watch- the debt-ceiling extension and our debt ceiling now stands at 16.7 trillion. If we reach an impasse, our debt will default. While the market has reacted in the past, I also believe it is becoming somewhat immune to the actions of our government.

How does this shutdown impact government services and benefits? People will still receive their mail from the U.S Postal Service, Social Security benefits and changes in address, food stamps, school meals, veteran compensation and burial benefits. National parks, museums, federal home loans, VA home loans, IRS suspension of all audit activities and passport operations are all affected by the shutdown and will be suspended until further appropriation of congressional funds. Unfortunately for our economy, it is projected that the shutdown will impact our economic growth by as much as 1.3 % in the 4rth quarter if it continues two weeks.

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1259 Hits

Good News: 'The Sky is Falling'

I hope you enjoy this article regarding the state of bonds  by James A Klotz, President of FMS Bonds, Inc.:

Have you heard the clucking?

It’s the sound of Chicken Little returning to the municipal bond market.

In 2008, he paid a visit during the mortgage crisis. At the time, bond insurers were downgraded when they strayed from their traditional market and ventured into exotic – and toxic – financial products, while major banks, brokerages and hedge funds, which traditionally provided support to the muni market, became net sellers to enhance their own liquidity during the tumult.

Munis themselves were fine, but the chickens clucked, bond prices slumped and too many average investors panicked and sold. Veteran bond investors, meantime, did what they always do: take advantage of the disruptions and feast on fatter yields.

Two years later, Chicken Little reappeared, this time in the guise of a banking analyst whose comments on state and local finances during a TV interview spooked investors and spurred a muni selloff. Nevermind that her warnings of Armageddon were wildly off the mark; many took heed and, as a result, blew a hole in their portfolios.

He’s back

Today, Chicken Little has returned, with the same, equity-oriented pundits warning of a calamitous interest-rate spike and urging investors to shed their bonds.

Which bonds are they referring to? We’re not sure, and due to their lack of expertise in bonds, they’re probably not either. We only hear about Treasury bonds, but we don’t know of a single individual investor who owns any.

And that’s the rub.

Successful tax-free bond investors don’t buy and sell based on prognostications. Their goal is to generate a steady and dependable stream of tax-free income. Because investors know they have a promise to be paid at a specific time – a maturity date – unrealized losses or gains are irrelevant. They know that over the life of their long-term bonds, they will sometimes be worth more than they paid for them and sometimes less. Neither scenario should initiate a sale.

In fact, a substantial number of municipal bond buyers welcome higher interest rates to boost their tax-free income, which is the reason they buy tax-free bonds in the first place.

A buying opportunity

Chicken Little’s most recent cry to indiscriminately sell an entire asset class is reckless and can once again be catastrophic for investors.

Unique opportunities abound as muni bond fund shareholders panic and rush to the exits. This forces fund managers to reluctantly toss good bonds overboard to meet redemptions.

With high-quality municipals now yielding 4.25% or more (a tax-equivalent yield of 6.54% for investors in the 35% federal tax bracket), successful long-term investors hear the shrieks for what they really are: a signal to buy.

For more information follow the link: http://www.fmsbonds.com/News/bond_article.asp?id=444

 

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1275 Hits

The Sequester, What Will Happen?

Neither a Democratic nor a Republican bill aimed at replacing the so called sequester was able to get enough support to win a test vote on Thursday. The budget cuts for fiscal year 2013 will not take effect all at once on Friday. Instead, they will go into effect gradually through the end of the fiscal year on Sept. 30. The sequester would cut about $1 trillion over nine years.

Beginning today:

-Across-the-board cuts under sequestration formally take effect today. The cuts amount to "only" 2.3% of total federal spending.

-Sequestratoin is likely to reduce real GDP growth in 2013 by 0.6%, with the effects concentrated in the second and third quarter.

-Having passed the March 1st deadline to avoid sequestration, the next date to watch will be March 27th when current spending authority expires.

-Social Security, Medicaid, veteran benefits are exempt from the sequester.

U.S markets on Thursday shrugged off the budget drama in Washington. Financial stocks held their ground Friday as investors, with plenty of time to adjust their portfolios, looked past looming federal spending cuts.

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1038 Hits

Debt Ceiling Debate and Possible US Default

The debate about whether to raise the debt ceiling and under what conditions has been loud, harsh and somewhat misleading. The debt ceiling is currently set at $14.2 trillion. They don't admit it, but lawmakers basically agree to raise the debt ceiling every time they vote for a spending hike or tax cut. So when they argue over the debt ceiling they are arguing over whether to pay the bills that have already been incurred. The likelihood of a default is virtually 0%. This is because the government still takes in more tax revenue each month than is needed to pay interest on its debt and the same for Social Security payments.

A great deal of what is happening in the media is political posturing and emotional rhetoric and this creates uncertainty. And uncertainty creates nervousness among consumers. And nervous businesses do not expand or hire. Overall, Corporate earnings for the past 6 months have been positive and the stock market has reacted well to good earnings news, but any gains are tempered by uncertainty of the future. Even though the market has been volatile as of late, we expect positive growth to continue, once the political show comes to an end.

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1092 Hits

Japanese crisis and the markets

In wake of the horrible earthquake and tsunami that has overwhelmed Japan, investors might be fearful of a prolonged market downturn. We are still optimistic on the market for 2011. Prior to the Japanese crisis, the market was experiencing a correction which was quite normal, considering the rapid pace of the upswing. It is our belief that Japan's natural disaster exaggerated this correction and caused panic selling in the last couple days. We do not believe this crisis will result in a prolonged market downturn. History has shown us that the contrary, in fact, happens in these types of situations. Typically, a natural disaster results in large stimulus spending for reconstruction. As ill-fated as the circumstances are, the Japanese economy and its major trade partners, such as the US, China and South Korea, will likely see growth in wake of what has happened. We continue to hope for the best for the people of Japan as we monitor the situation.

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1025 Hits

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