IRA Charitable Gifting

Barbara Gray wrote the following blog post back in April of this year.  I thought it would be worth re-posting as we enter Fall.  This is the time of year when our clients are thinking of charitable donations, and making sure they’ve taken their required distribution from their IRA.

Harli L. Palme, CFA, CFP®

Financial Advisor

 

The option to gift charitably from your retirement account has been extended through 2011. This tactic is available only to those individuals that are age 70 ½ and who are already receiving required minimum distributions. The gift counts toward your required minimum distribution, but does not increase your taxable income – so no taxes to pay. You cannot, however, deduct the gift as a charitable contribution. Total gifts cannot exceed $100,000 and must be made directly to the charity from your retirement account.

If you are interested in gifting from your retirement account, please contact your advisor.

Barbara Gray, CFP®
Partner

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Market Update through 8/15/11

as of August 15, 2011        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 15.04% -3.48% -9.25% -7.12%
S&P 500 13.84% -3.06% -8.57% -6.67%
DJ Industrial Average 14.40% 0.77% -7.20% -5.25%
Nasdaq Composite 18.80% -3.15% -7.77% -7.24%
Russell 2000 19.33% -7.65% -13.04% -9.78%
EAFE Index* 5.29% -7.94% -10.62% -9.12%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.29% 5.81% NA 1.40%
Barclays Intermediate US Gov/Credit 4.42% 4.92% NA 0.95%
Barclays Municipal  4.02% 7.25% NA 1.68%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $86.46    $98.13
Natural Gas    $3.97    $4.20
Gold    $1,778.80    $1,616.20
Euro    $1.43    $1.43
         
         
RECOVERY!        
  Since 3/09/09    
Index  Total Return TR annualized    
Stocks        
Russell 3000 92.45% 30.84%    
S&P 500 87.17% 29.35%    
DJ Industrial Average 87.50% 29.45%    
Nasdaq Composite 106.27% 34.62%    
Russell 2000 116.14% 37.23%    
EAFE Index* 67.50% 23.59%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Director of Operations

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Stock Market Volatility

It’s been a wild week for stocks.  Not only are stocks down roughly 9% from the end of July as of the close of market August 11, but the pathway down has been marked by extreme volatility.  This month we have experienced six of the 200 most volatile days of the past 50 years.  We have had daily losses of 2.5 – 6.6% and have had daily gains of greater than 4.5%.  These losses were kick started with the political wrangling of the debt ceiling, and were intensified with the ensuingU.S.debt rating downgrade by S&P.  The market losses and volatility are leaving many investors uncertain about the state of the economy and their portfolios.  We offer three scenarios to consider – base-case, worst-case and best-case – and their potential effects on the stock market.

The base-case scenario is the one that we consider most probable, and that is continued slow-growth in the near-term, with eventual normal growth resuming in the long-term.  We’ve seen two quarters of slow growth already, 0.4% for the first quarter of 2011 and 1.3% growth in the second quarter of 2011.  Slow growth quarters are historically not useful predictors of recessions.  Given our fragile economy, such slowing may induce the Federal Reserve to engage in more economic-stimulating measures.  We recognize that an offset to these growth stimulators are high, though slightly improving, unemployment, as well as global political and fiscal uncertainty.

Despite a slow-growth economy, corporate earnings are at an all time high, with expectations that S&P 500 earnings this year will be $100 per share.  This puts the stock market at about an 11.5 price-to-earnings ratio, far below its historical average of 15.  For this reason, we don’t see a catalyst for a further, significant, sustained drop in stocks.

The worst-case scenario is another recession.  Reasons for this possibility are well known:  tax uncertainty, high unemployment, nervous consumers.  General panic is not known to cause recessions, though some fear this could become a self-fulfilling prophecy.  Panic does indeed affect stocks however, which is what we are seeing currently.  Stocks are known to be a leading indicator of recessions.  When recessions do occur, the median historical market peak is about 7 months prior to the start of the recession.  But typically once you know you’re in a recession, it’s actually time to buy stocks.  In fact, the recessions of 1953 and 1990 saw stocks go straight up.

The best-case scenario is the resumption of robust growth.  The record corporate earnings may spur business and investor confidence.  There is said to be pent-up consumer demand waiting to be unleashed at the suggestion that theU.S.is still on the road to recovery.  Too, oil prices have come down considerably.  You may recall that just a few months ago high oil prices were a huge concern for the economy, as this necessary product would hamper other consumer spending.  And though theU.S.debt downgrade has spooked the stock market,U.S.treasuries, the very debt that was downgraded, have actually rallied.  This is because, in the end, investors still believe in the strength of theUnited States.

Our Chief Economist, Jim Smith, predicts year-over-year GDP growth of 1.9% for 2011 and 3.9% for 2012.  Whatever the economic outcome over the next few months, we must accept that our economy is a cyclical one, in which we experience recessions and expansions.  Long-term growth of GDP and corporate earnings leads to long-term appreciation of stocks.  Being a buyer and holder of equities gives you the ability to participate in this long-term growth.

We believe that to be a successful investor in stocks you have to accept the volatility, and the uncertainty that surrounds it.  Corrections and bear markets are part of the territory.  As an investor, it’s tempting to believe that you have the ability to guess the timing and direction of stocks, but attempting to do so is hazardous to your financial health.

Harli L. Palme, CFP®

Financial Advisor

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What now?

On Friday, August the 5th the Standard and Poor’s credit rating agency downgraded the U.S. government’s credit rating from AAA to AA+. Since 1941, the U.S. has enjoyed its AAA status, but in light of the financial crisis and the extraordinary lengths the Federal Reserve has taken to try and stabilize our economy, there are concerns about the Fed’s long-term ability to meet its obligations.

Wall Street’s reaction to the downgrade on Monday was that of panic, judging by the huge sell-off. To confound the matter, the very security that investors were most worried about (Treasuries) seemed to rally for a bit. Are you confused yet? The next trading day saw a strong rally on news of the Fed’s extension of low rates until mid-2013, which gave a firm definition of the long-used “extended period of time” phrase that had eluded most analysts. This too leads to unpredictable markets. On the one hand, the Fed admits the recovery has lost steam and they recognize that they need to continue current monetary policy in an attempt to breathe life into the economy. Yet on the other hand, investors should be relieved that we have clarity over the target interest rate and how long we can expect such extraordinary measures.

Yesterday found the Europeans back in the spotlight with concerns over their debt issues. Investors, with fears in tow, are sellers of quality blue chip companies with healthy balance sheets.

What should an investor do? First, I recommend you turn off the 24/7 broadcast of CNBC and Bloomberg TV stations. Secondly, take a deep relaxing breath so that you can think better.

At the onset of all client relationships, we discuss the pros and cons of the stock and bond markets. We also try our best to determine a client’s risk tolerance and portfolio requirements. After agreeing on an asset allocation, we build portfolios of quality stocks, equity funds and bond funds with an eye to the long-run potential of the investor and his or her portfolio. We believe that, even during times of extraordinary events such as those that are taking place right now, if the asset allocation was correct at the beginning of a relationship, then it is still the right allocation despite these events.

In closing, some would argue that there are risks for another recession. Concerns such as fears of the 2008 recession might cause consumers to hunker down and employers to impose a hiring freeze. Admittedly, this could tip the scales. But it’s important to recall that investors may have already “priced-in” this into current stock prices.

A balanced approach that includes proper diversification and monitoring is the prudent thing to do. There is too much risk in swinging for the fences in an attempt at making a home-run. Investors who have a portfolio built on quality should fare much better in the long-run than those who try to time the market.

Neal Nolan, CFP(R)
Financial Advisor

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Market Update through 7/31/11

as of July 31, 2011        
  Total Return
Index 12 months YTD QTD July
Stocks        
Russell 3000 20.94% 3.92% -2.29% -2.29%
S&P 500 19.65% 3.87% -2.03% -2.03%
DJ Industrial Average 19.09% 6.35% -2.05% -2.05%
Nasdaq Composite 23.52% 4.41% -0.58% -0.58%
Russell 2000 23.91% 2.37% -3.61% -3.61%
EAFE Index* 13.89% 1.30% -1.65% -1.65%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 4.44% 4.35% NA 1.59%
Barclays Intermediate US Gov/Credit 4.12% 3.93% NA 1.43%
Barclays Municipal  3.24% 5.48% NA 1.02%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $98.13    $94.34
Natural Gas    $4.20    $4.33
Gold    $1,616.20    $1,486.60
Euro    $1.43    $1.44
         
         
RECOVERY!        
  Since 3/09/09    
Index  Total Return TR annualized    
Stocks        
Russell 3000 107.20% 35.66%    
S&P 500 100.55% 33.81%    
DJ Industrial Average 97.89% 33.07%    
Nasdaq Composite 122.36% 39.72%    
Russell 2000 139.58% 44.15%    
EAFE Index* 84.32% 29.17%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Director of Operations

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The News is Terrible

I believe the media thrives on bad news and it is never ending. Every year there is the same refrain of “this time it’s different – we’ve never experienced anything like this before.” Have you heard or read lately that there will be a double dip recession? The following is a sample of headlines from the last two years concerning this same topic:

8-3-2009 Nouriel Roubini Sees Double Dip Recession Risk (blogs.wsj.com)
8-18-2009 Double Dip Recession Fears are Growing (money.cnn.com)
3-11-2010 Beware of a Double Dip Recession (www.Forbes.com)
8-16-2010 Economists See Increased Chance of Double Dip Recession
(www.huffingtonpost.com/2010)

The Dow Jones Industrial Average (DJIA) was at 9217.94 on 8-19-2009 and it is at 12,425.16 today. The media is still full of double dip recession fears.

There was a great article by Morgan Housel published by The Motley Fool last week called “50 Things You should Feel Great About.” The following are a few interesting points:

• Bad news: 68% of Americans think the country is on the wrong track. Positive spin: The exact same percentage felt that way in 1991. Pessimism is nothing new.
• 115 stocks in the S&P 500 are within 10% of their all-time highs.
• As a percentage of GDP, the federal government was in substantially more debt after WWII than it is today.
• “Five years have seldom passed away in which some book or pamphlet has not been published pretending to demonstrate that the wealth of the nation was fast declining … manufactures decaying, and trade undone.” Adam Smith wrote that in 1775. Again, pessimism is nothing new.

Since 1960 we have had a President assassinated, the Vietnam War, Watergate, a Presidential resignation, Three Mile Island accident, Lockerbie Airliner crash, The Gulf War, Oklahoma City bombed, World Trade Center terrorist attack, Katrina, the Iraq War, the Gulf Oil Spill and the Japanese Earthquake.

With every catastrophe it is always different, yet always the same. Despite bumps along the way, the economy has still managed to grow, we all are living longer and let’s face it, the news might be terrible, but life is good.

Barbara Gray, CFP®
Partner

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Days like Today

Days like today remind you just how unpredictable markets can be.  After a rough beginning to June (the S&P 500 was down roughly 6% in the first half of the month), the index swung back in the 2nd half to nearly the level it was at the beginning of the month.  Today the S&P 500 closed at 1,339.  For this day alone the index rose 1.4%.

Reasons for the recent enthusiasm include increased optimism that Greek debt will not default and positive manufacturing reports.  As we always say, predictions of short-term stock market movements are of little use.  If you are a long-term investor, you would not want to have missed this week in the market.  We don’t know when these weeks will come, so we advocate that you look past the short-term movements and stay invested with a long-term asset allocation that suits you.

The stock market is closed on Monday, July 4 for some much needed rest (for all of us). Happy Independence Day!

Harli L. Palme, CFP®

Financial Advisor

 

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Market Update through 6/30/11

 

as of June 30, 2011        
  Total Return
Index 12 months YTD QTD June
Stocks        
Russell 3000 32.37% 6.35% -0.03% -1.80%
S&P 500 30.69% 6.02% 0.10% -1.67%
DJ Industrial Average 30.37% 8.58% 1.42% -1.10%
Nasdaq Composite 32.87% 5.01% -0.03% -2.11%
Russell 2000 37.41% 6.21% -1.61% -2.31%
EAFE Index* 26.70% 3.00% 0.33% -1.43%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 3.90% 2.72% NA -0.29%
Barclays Intermediate US Gov/Credit 3.77% 2.47% NA -0.16%
Barclays Municipal  3.48% 4.42% NA 0.35%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $94.34    $98.30
Natural Gas    $4.33    $4.68
Gold    $1,486.60    $1,525.00
Euro    $1.44    $1.43
         
         
RECOVERY!        
  Since 3/09/09    
Index  Total Return TR annualized    
Stocks        
Russell 3000 112.06% 38.47%    
S&P 500 104.71% 36.37%    
DJ Industrial Average 102.04% 35.60%    
Nasdaq Composite 123.64% 41.69%    
Russell 2000 148.56% 48.32%    
EAFE Index* 87.41% 31.26%    
*EAFE index does not include dividends.        

Mark A. Lewis

Director of Operations

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Fire Tower Watchman

I recently read a newspaper article about a man whose career spanned three-and-a-half decades. It was something that he loved doing and even spent long hours fulfilling his duties. What struck me wasn’t his job (a fire tower watchman), or even the fact that he was often snow bound for long periods during winter months. It was his take-life-as-it-comes attitude and dedication to his job.

After reading this article, I began to think about the fire tower watchman and how we at Parsec Financial try to provide security to our clients. One of the obvious ways we help to provide financial security is through our investment management process. Our Investment Committee regularly reviews the investments we buy and hold for all of our clients and cycles through each of them 3-to-4 times each year. There are other ways we help our clients too.

Financial security also comes in the form of a review of insurance needs. While we typically steer away from permanent life insurance policies, we feel that term life is a good layer of protection for families with a mortgage, young children, or other financial commitments that could drain a net worth in the event of a premature death. We normally recommend carrying enough insurance that would pay off mortgages and put children through college.

Another important policy to hold is a personal disability insurance policy; such policies provide income, usually income tax-free, during a time when it’s needed the most. For the same reasons that one should have a life insurance policy, the disability policy can protect individuals and families by helping them pay for mortgages, utilities, medical bills, and maintain a certain standard of living.

I know that we’re not heroic firemen or the vigilant watchman that I read about. But as I think about the services we provide and genuine nature of helping our clients with their investment portfolio and also helping them understand how to protect their net worth, I wonder what the employees of Parsec would say about our careers after 3½ decades of work. My feeling is that each of us will look back over our careers and have a sense of pride, knowing that we acted in our clients’ best interests and helped to provide a layer of financial security like the fire tower watchman did for the mountain ranges he served.

Neal Nolan, CFP(R)
Financial Advisor

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Market Update through 6/10/11

as of June 10, 2011        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 20.38% 2.02% -4.10% -5.79%
S&P 500 19.28% 1.93% -3.77% -5.47%
DJ Industrial Average 20.59% 4.42% -2.47% -4.89%
Nasdaq Composite 20.38% 0.07% -4.74% -6.72%
Russell 2000 23.30% -0.08% -7.43% -8.08%
EAFE Index* 22.74% 0.28% -2.33% -4.04%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.12% 3.31% NA 0.27%
Barclays Intermediate US Gov/Credit 5.76% 2.95% NA 0.31%
Barclays Municipal  3.89% 4.48% NA 0.41%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $98.30    $100.22
Natural Gas    $4.68    $4.64
Gold    $1,525.00    $1,544.90
Euro    $1.43    $1.43
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 103.43% 37.02%    
S&P 500 96.80% 35.02%    
DJ Industrial Average 94.29% 34.25%    
Nasdaq Composite 113.11% 39.87%    
Russell 2000 133.86% 45.76%    
EAFE Index* 82.46% 30.56%    
*EAFE index does not include dividends.        

Mark A. Lewis

Director of Operations

 

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