Fall Newsletter 2011

Fall Newsletter 2011
Fall Newsletter 2011
Fall Newsletter 2011
Fall Newsletter 2011
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Transcript of Fall Newsletter 2011

  • 1. Q uarterl yB E A C O N H I L L I N V E S T M E N T A D V I S O RYFall 2011A Review of the MarketsIt was a roller-coaster quarter forto slump under the weight of $1,700 in September as the dollarequities, as weeks and even days concerns about the global impact strengthened against the euro. Afterwhen the Dow swung several of Eurozone debt problems. surpassing $100 a barrel, oil priceshundred points in both directions dropped back to around $80 on fearsseemed to become commonplace.The deficit/debt ceiling debacle of the potential for renewed globalBy the end, the volatility had costwas eventually overshadowedrecession. Other commodities alsothe Dow almost 15% since its April by debt issues abroad. Despite were hit at quarters end.high. The small caps of the RussellStandard and Poors downgrade of2000 suffered the most; by the end the U.S. credit rating, demand fromof the quarter the index had lostnervous investors sent Treasuriesroughly a quarter of its value since soaring, pushing yields on the 10-April, putting it in bear-market year note below 2% to levels notterritory. The S&P 500 lost 17%seen in decades. Gold benefittedin the same time, while the Nasdaq from the anxiety for a while, hittinghas declined almost 16% sincea new record just under $1,900 anApril. The Global Dow continuedounce before plummeting below Market/Index2010 Close As of 3/31End of Quarter Quarterly Change YTD Change DJIA11577.51 12414.3410913.38 -12.09%-5.74% NASDAQ2652.872773.52 2415.40-12.91%-8.95% S&P 500 1257.641320.64 1131.42-14.33%-10.04% Russell 2000783.65 827.43644.16 -22.15%-17.880% Global Dow2087.442134.29 1725.68-19.15%-17.33% Fed. Funds.25% .25%.25% 0 bps0 bps 10-year Treasuries3.30%3.18% 1.92%-126 bps -138 bps84 South Fourth Street, Columbus, OH 43215 (614) 469-4685 info@BHadvisory.com www.beaconhilladvisory.com

2. Quarterly Economic Perspective The world continued to worry The final estimate of U.S. The last-minute resolution ofabout the possibility of global economic growth during the the debt ceiling debate couldntcontagion from European debtsecond quarter was 1.3%. Thatsprevent Standard & Poorsproblems. European leadersslightly higher than the Bureau of downgrade of the U.S. credit ratingagreed to a second bailoutEconomic Analysiss previous 1%(and ratings of various agenciesfor Greece, though individual estimate, and an improvement linked to the federal government)member nations must agree tofrom Q1s 0.4%.from an impeccable AAA toparticipate. However, problems AA+. Two other ratings agenciesbegan spreading to the larger Unemployment remained stalledare watching to see what furthereconomies of Spain and Italy, at 9.1%, according to the Bureau measures are taken to tackle thewhich saw their borrowing costs of Labor Statistics. deficit, including proposals fromrise as investors feared that thea supercommittee charged withEuropean Financial Stability Citing concerns about significant finding at least $1.2 trillion inFacility wouldnt be able to bail downside risks to the economic additional deficit reduction.them out. Despite Greecesoutlook, the Federal Reserveattempts to balance its budget, atannounced it will sell $400 billionthe end of the quarter it was still worth of short-term bonds inunclear whether the new measuresits portfolio and buy an equalwould enable the country to amount of longer maturities.qualify for its October round ofThe plan, which echoes a 1960sassistance. maneuvercalled OperationTwist, also will involve reinvestingprincipal payments on the Fedsagency debt holdings in agencymortgage-backed securities.Source: Forefield Inc.Fall 2011 3. Year-End Investment Planning: The Clock is TickingInvestment planning at the end of 2010 was complicated by uncertainty over whether existing tax rates would beextended. This year, its the congressional supercommittee charged with tackling the countrys deficit financingproblem thats the source of uncertainty. Even though you may not be sure how the committees work mightultimately affect you, here are some factors to keep in mind as you plot your year-end strategy.Harvest tax losses if appropriate To claim the 100% exclusion, you must have acquiredIf you plan to harvest losses to offset capital gains, youthe stock at original issue (with some exceptions for stockmay want to think about the cost basis of those shares. acquired as an inheritance or gift). Also, the businessTo maximize your losses for tax purposes, you would sellmust satisfy certain requirements, and you must holdshares that have lost the most, which would enable youthe stock for at least five years. There are limits on theto offset more gains. Unless you specify which shares oftotal amount of gain that is eligible for the exclusion.stock are to be sold, your broker will typically treat them There also may be special considerations if you roll overas sold based on the FIFO (first in, first out) method, the gain from the sale of your stock to another qualifiedmeaning that the first shares bought are considered small business stock, or if you receive qualified stock asto be the first shares sold. However, you can designate part of your deferred compensation plan. Dont hesitatespecific shares as the ones sold or direct the broker toto get expert help with your specific situation.use a different method, such as LIFO (last in, first out)or highest in, first out. You can also use a standing order Consider theor instruction to specify that a particular method is topotential impact of higher interest ratesbe used.Interest rates have been at historic lows in recent years,but as the economy continues to heal, that wont alwaysAs of this year, brokers must report to the Internalbe the case. The Federal Reserve Board has said thatRevenue Service your cost basis for the sale of any sharesraising interest rates wont be its first step in reducing theof stock bought after January 1, 2011. That will makesupport it has given the monetary system. However, atit even more important to make sure when preparingsome point, interest rates are likely to begin moving upyour tax returns that your cost basis records for suchagain. When that happens--and theres no way to knowsales are accurate and agree with those of your broker. Iffor sure when that might be--bond prices will begin toyou decide to specify stock shares in order to determinefeel the impact. As bond yields begin to rise, bond pricesyour cost basis, you must do so by the settlement datewill begin to tumble, since prices move in the opposite(typically, three days after execution of the trade) in orderdirection from bond yields.for your brokers records for the stock sale to be accurate.Mutual funds, dividend reinvestment plans, bonds, and Dont letother securities eventually also will be subject to the payroll tax increase derail long-term planssame mandatory cost basis reporting requirement.If youve benefitted from the 2% reduction in workersSocial Security taxes in 2011, congratulations! However,Dont procrastinate onbe aware that the provision is scheduled to expire at thetax break for small business stockend of this year. If youve been saving or investing thatIf you plan to invest in a qualifying small business, you money, your long-term plans will benefit if you canmay want to do so by December 31. Thats becausefigure out how to replace that source of funding for your100% of any capital gains on the sale of qualified smallinvestment efforts.business stock issued after September 27, 2010, andbefore January 1, 2012, can be excluded from yourtaxable income. (The exclusion is scheduled to revert to50% next year.)w w w. b e a c o n h i l l a d v i s o r y. c o m 4. Wealth Management Process TMThis Quarter: Tax EfficiencyTax EfficiencyThis quarters topic, planning for tax efficiency, is both important andtimely given a December 31st deadline to take action. In addition to theTax Loss Harvesting items listed, we are analyzing Roth conversions initiated last year to see ifrecharacterizing (undoing) would be beneficial to our clients. Of course, Muni vs. Corporate Bonds we always take this time of year to optimize portfolio gains and losses to Strategic Taxdecrease tax liabilities. We work best alongside your CPA.Asset LocationNext Quarter: Cash Flow PlanningTax Deferred options 84 South Fourth Street Columbus, OH 43215Mark Fissel, CFP Clint Edgington, CFAw w w. b e a c o n h i l l a d v i s o r y. c o m