Market Update through 7/31/12

as of July 31, 2012        
  Total Return
Index 12 months YTD QTD July
Stocks        
Russell 3000 7.33% 10.40% 0.99% 0.99%
S&P 500 9.14% 11.01% 1.39% 1.39%
DJ Industrial Average 10.12% 8.06% 1.15% 1.15%
Nasdaq Composite 7.89% 13.54% 0.20% 0.20%
Russell 2000 0.19% 7.03% -1.38% -1.38%
EAFE Index* -14.36% 1.84% 1.07% 1.07%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.25% 3.78% n/a 1.38%
Barclays Intermediate US Gov/Credit 4.94% 3.09% n/a 0.97%
Barclays Municipal  10.51% 5.31% n/a 1.59%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $89.28    $86.87
Natural Gas    $3.15    $2.83
Gold    $1,602.70    $1,587.10
Euro    $1.23    $1.22

Mark A. Lewis

Director of Operations

Share this:

Citius, Altius, Fortius

Today marks the official start of the 2012 Summer Olympics, with the opening ceremonies taking place in London. With all the news about Greece and its part in the European debt crisis, I sometimes forget that this is the same country that was once the pinnacle of Western civilization and the birthplace of the Olympic Games. It is said that the first Olympic Games took place in 776 B.C., and continued for almost 12 centuries before being banned by Emperor Theodosius in 393 A.D. 1200 years! The height of Greek civilization ranged for more than 800 years, during which we saw the creation and rise of democracy, the founding of the great philosophical schools of Socrates and Plato, and Hippocrates’ establishment of medicine as a distinct discipline.

What a long, strange trip it’s been for Greece.  It brings to mind a word of Greek origin, hubris, meaning “exaggerated pride or self-confidence.” I’m sure the ancient Greeks could not have imagined a future that is our present day, and the depths to which their country would fall. The path to solvency for Greece will likely be difficult and painful, but European policymakers are still hopeful that they can create a plan that will keep the country in the Euro zone. Perhaps the Greeks can come to terms with austerity measures by taking comfort from Socrates, who said, “He is richest who is content with the least, for content is the wealth of nature.”

Sarah DerGarabedian, CFA

Director of Research

Share this:

Meaningful Changes to 401(k) Plans

Regulations 408(b)2 and 404(a)5 mark the most dramatic change to 401(k) retirement plans in many years.  Arguably, these regulations will change the very nature in which service providers operate, compete for business and are held accountable for their actions.  These regulations refer to disclosure requirements and are imposed on all service providers, such as investment advisors, broker dealers, attorneys, consultants, third party administrators (TPA), and record keepers.  To briefly summarize:

408(b)2:  Is the plan-level disclosure in which service providers discuss (1) fees and expenses incurred by the plan, (2) acknowledgement of fiduciary status, and (3) potential conflicts of interest.  Upon review of the disclosures from service providers, the plan sponsor should have a good estimation of the “reasonableness” of the expenses associated with operating the retirement plan in relation to the services being provided.  

404(a)5:  Is the participant-level disclosure.  This disclosure helps the participant understand how much of the plan-level expenses were attributable to their investment account.  Fees include mutual fund expense ratios, custodian fees, TPA fees, and Investment Advisory fees.  It is noteworthy to mention that the participant disclosures only include fees that not paid by the plan sponsor.  For example, Investment Advisor fees may be paid by the sponsoring employer. In this case, no Investment Advisor fees are reported to the participant.

Prior to these regulations, the term “fiduciary” was loosely used.  Also, fees and expenses were not fully disclosed.  With no standardized process for determining the “reasonableness” of a retirement plan’s offering, it’s not surprising that plan sponsors were not fully informed.  In my opinion, these regulations represent a huge victory for 401(k) plans.  Finally, plan sponsors and participants will be able to better understand whose interests are being served (referring to fiduciary status and conflict of interest disclosures) and a better understanding of the cost associated with saving for retirement. 

I’m pleased to share that Parsec has been in agreement and in compliance with these rules well before the government imposed deadline of July 1, 2012.  In our view, these are welcome changes to the retirement plan industry and perhaps a little overdue.  We believe in being transparent with our clients because this fosters stronger relationships and better overall satisfaction.

Neal Nolan, CFP®

Financial Advisor

Share this:

Market Update through 7/15/12

as of July 13, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 3.78% 9.03% -0.26% -0.26%
S&P 500 5.40% 9.15% -0.31% -0.31%
DJ Industrial Average 5.24% 6.07% -0.71% -0.71%
Nasdaq Composite 5.47% 12.32% -0.88% -0.88%
Russell 2000 -1.93% 8.91% 0.35% 0.35%
EAFE Index* -15.55% -0.69% -1.44% -1.44%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.25% 3.30% n/a 0.90%
Barclays Intermediate US Gov/Credit 4.95% 2.69% n/a 0.58%
Barclays Municipal  10.06% 4.54% n/a 0.85%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $86.87    $83.55
Natural Gas    $2.83    $2.85
Gold    $1,587.10    $1,597.50
Euro    $1.22    $1.25

Mark A. Lewis

Director of Operations

Share this:

When Things are Going Well, Watch Out!!!

 

Before you cross the street,
take my hand.

Life is what happens to you
while you’re busy making other plans.

 -John Lennon, “Beautiful Boy”

When I built my house, there were certain things I really wanted.  Unfortunately, I did not discover a money tree on the property.  I had to face reality and eliminate some “wants.”  Lately, I have been thinking about tweaking the kitchen a bit.  I would like a new countertop and maybe a tile backsplash. 

Of course, life has a way of altering your plans.  One of my cats fell ill.  In six days, I racked up a sizable bill at the vet’s office.  Sadly, she did not survive.  As devastating as the event was, it would have been even worse if I had not squirreled away some cash in an emergency fund.  Knowing that I was financially able (to a point) to do as much as I could to save her was a relief. 

We have talked many times in this blog about saving for the inevitable rainy day.  It is one of the best financial decisions you can make.  You never know when your car might need repair, when one of your kids (human or furry) might be sick, or when you may lose your job.  These events are stressful.  Not having the funds to pay for them compounds the stress.

Automatically transferring funds to an emergency account is a great way to save.  Banks and brokerage firms will allow you to sweep a pre-determined amount from one account to another.  You determine when you want to transfer to take place. 

Conventional wisdom says to save 6 to 9 months of expenses.  I found it easier to first calculate the large, recurring bills – insurance, property taxes, et cetera.  I then added a certain amount for routine savings and overall maintenance items – upkeep of house and car; vet visits; and so on.  I took that figure and divided it by 12 months.  At every payday, my bank sweeps that sum from my checking account into my savings account.  I cannot access my savings account unless I visit the bank, so I avoid the temptation of withdrawing funds for something silly.

The automatic deduction has been wonderful.  I do not “feel the loss” because the money never stays in my checking account.  My emergency fund has saved me on so many occasions. 

You can setup automatic deductions with your investment accounts too.  I also have a sweep in place for a Roth IRA contribution.  We would be happy to assist you with setting up automatic deductions into your brokerage or other investment accounts.  Please contact your advisor if you are interested.

Cristy Freeman, AAMS
Senior Operations Associate

Share this:

Avoiding Email Wire Fraud

A type of email scam has recently become more common.  We at Parsec take the safety and security of client accounts very seriously, and wanted to alert our clients to how this particular scam works and how they can help protect themselves against it.

Basically the criminal hacks into a client’s email account and poses as the client.  They then use the client’s email address to contact any financial services providers in the client’s address book.  For example, we would receive a message (from a client’s actual email address that we have on file) asking to wire money out of their account to a third party. Often there is some urgency to the request, such as a death in the family.  The criminal also claims that they are traveling and will be difficult to reach, but that the wire needs to go out right away. 

Wires out of client accounts to third parties cannot be processed without a wire authorization form signed by the client.  But these criminals will request that a form be faxed or emailed to them, then sign it and fax it back in the hopes that neither Parsec nor the custodian of the account (Schwab, Fidelity, TD Ameritrade, Parsec Trust) will notice the signature does not match that of the client. Authorities have also indicated that in some cases criminals have obtained access to the client’s signature, and provide what appears to be a valid signature on the wire form.  Often these requests are for relatively small dollar amounts so as not to invite suspicion.

In order to protect yourself, we ask that you avoid contacting us via email on the rare occasion when a wire transfer to a third party out of your account is needed.  If you do need to make such a transaction, please call one of our Client Service Specialists or your advisor.  For any request, you can expect a call back to confirm the wire, either from Parsec, the custodian, or perhaps both. 

In many instances, individuals are compromised when they inadvertently respond to phishing e-mails from a range of different sources.  Be careful about responding to any email that you do not recognize, and take particular care to avoid clicking on any links in such a message.

Bill Hansen, CFA

Managing Partner

July 6, 2012

Share this:

Market Update through 6/30/12

as of June 29, 2012        
  Total Return
Index 12 months YTD QTD June
Stocks        
Russell 3000 3.84% 9.32% -3.15% 3.92%
S&P 500 5.45% 9.49% -2.75% 4.12%
DJ Industrial Average 6.63% 6.83% -1.85% 4.05%
Nasdaq Composite 7.06% 13.32% -4.76% 3.91%
Russell 2000 -2.08% 8.53% -3.47% 4.99%
EAFE Index* -16.67% 0.77% -8.37% 6.79%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.47% 2.37% n/a 0.04%
Barclays Intermediate US Gov/Credit 5.42% 2.10% n/a 0.08%
Barclays Municipal  9.90% 3.66% n/a -0.11%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $83.55    $83.00
Natural Gas    $2.85    $2.65
Gold    $1,597.50    $1,625.70
Euro    $1.25    $1.25

Mark A. Lewis

Director of Operations

Share this:

Required Minimum Distributions

All retirement plans, with the exception of Roth accounts, have required minimum distributions (RMD) beginning when the account holder turns 70 ½. More specifically, you must start receiving distributions by April 1st of the year following the year in which you reach 70 ½. Thereafter, you must take the required distribution by December 31st of each year. Consequently, the first year of required minimum distributions is on April 1st, but you must take the 2nd one by December 31st. Required distributions are fully taxable so we encourage our clients to take their first distribution by December 31st of the first year rather than waiting until April of the next year in order to spread out the tax consequence.

The rules for retirement plans can be found in Pub 590 on the IRS website. Values of all of your retirement accounts are calculated on December 31 prior to your required minimum distribution. The Uniform Lifetime Table in Pub 590 has 27.4 as the initial divisor for those aged 70 ½. If the values of your retirement accounts came to $675,400, for instance, your required minimum distribution for the first year would be $24,649.64. You can take the distribution from any of your accounts, as long as it adds up to the correct distribution. The penalty for not taking your distribution is 50% of the RMD. Each subsequent year, the divisor is reduced to reflect your longevity (26.5, 25.6, 24.7, 23.8, etc).

If the spouse is ten years younger than the account holder (and is the sole beneficiary), your divisor can be found on Table II (Joint Life and Last Survivor Expectancy). Retirement accounts pass according to the beneficiary indicated when you opened your account and not what might be in your will. Spouses inherit retirement accounts “as their own” and they take RMDs at age 70 ½. All others who inherit IRA accounts must start taking distributions immediately according to their age as listed on Table 1 (Single Life Expectancy).

Roth accounts do not have required minimum distributions for the account holder (or if a spouse inherits the Roth). All other beneficiaries of Roth accounts must take required minimum distributions. The upside to having a Roth account is that the distributions are tax free because the contributions were not tax deductible. It is a great estate tool to leave your children a tax free Roth account.

If you have any questions about your retirement account, please contact your advisor.

Barbara Gray, CFP®
Partner

Share this:

A Little Contrarianism Can Be a Good Thing

In our most recent quarterly letter, we reiterated our belief that you should allocate 15-25 percent of your equities portfolio to international stocks. Some of our clients still question the logic of this position in light of the ongoing EU crisis. However, let me make a case for contrarianism.

While the pall hanging over Europe has worsened in the last few years, things have not been rosy for a long time. According to June 2, 2012 article published by The Economist (http://www.economist.com/node/21556299 ):

Robert Buckland, an equity strategist at Citigroup, points out that about 44% of pan-European corporate profits are generated outside Europe (British companies earn 52% of their profits outside the continent). Around 24% of European profits come from emerging markets, roughly double the exposure of American companies to the developing world.

This diversification is not a coincidence. European companies have already endured a decade of sluggish growth and have sought out markets elsewhere (for production as well as sales).”

This indicates that worsening conditions in Europe will compel European companies to expand even further into the global economy. And, our dividend yield loving clients have another good reason not to flee European investments. While the average dividend yield for American markets is 2.2%, European markets are yielding 4.1%.

Beyond Europe, emerging markets continue to provide opportunities for investment. Mongolia is enjoying a rapidly expanding economy thanks to a boom in coal and copper mining. The Arab spring has led some analysts to predict major growth in Libya. A return to oil production and distribution is giving Iraq’s economy a much needed shot in the arm. Additionally, economists see much opportunity for growth in Africa, with several countries expected to post growth rates in excess of 7.5%.

I am not suggesting that European markets have hit bottom or that you should put all of your international investment dollars in emerging markets. What I do espouse is that a well diversified portfolio for the long-term investor has some exposure to international equities, even when the headlines indicate otherwise.

Tracy H. Allen, CFP®

Financial Advisor

Share this:

Market Update through 6/15/12

as of June 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 6.78% 7.45% -4.80% 2.14%
S&P 500 8.49% 7.86% -4.20% 2.57%
DJ Industrial Average 10.30% 5.86% -2.73% 3.11%
Nasdaq Composite 10.42% 10.86% -6.82% 1.66%
Russell 2000 0.41% 4.75% -6.84% 1.33%
EAFE Index* -17.07% -2.62% -11.45% 3.20%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.87% 2.38% n/a 0.05%
Barclays Intermediate US Gov/Credit 4.85% 2.08% n/a 0.06%
Barclays Municipal  9.71% 3.54% n/a -0.23%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $83.00    $83.80
Natural Gas    $2.65    $2.35
Gold    $1,625.70    $1,614.00
Euro    $1.25    $1.23

Mark A. Lewis

Director of Operations

Share this: