New Quarterly Reports

We have introduced new reports for our quarterly review statements that we send out to clients.  As a client, you will receive these over the next few months.  These new reports are an improvement over the former reports both ascetically and informatively.  Take some time to review these reports and let us know if you have any questions about how you should be reading them.  In the new reports you will find:

  • An introductory letter commenting on the financial markets and economic situation;
  • An invoice calculating your fee;
  • Household Overview listing all of your accounts;
  • Portfolio overview that depicts year-to-date contributions and withdrawals, year-to-date realized and unrealized gains, income received and fees charged;
  • Portfolio overview that depicts your asset allocation in graphic and table format, as well as a graph showing the increase/decrease of your portfolio over the quarter;
  • Performance report that shows a time-weighted return (TWR).  TWR is the standard industry performance calculation that accounts for cash flows in and out of the portfolio.  There are columns that show year-to-date, latest 1-year (rolling 12-months), and annualized since inception returns.  The returns shown are for your total account, returns for the equity portion of our account, and fixed income portion if applicable.  We have also provided returns for a variety of indices for your comparison:
    • Russell 3000 Index – largest 3000 U.S. stocks
    • MSCI EAFE Index – an international index for Europe, Asia and Far East stocks
    • S&P 500 Index – largest 500 U.S. stocks
    • Barclays Intermediate Gov’t/Credit Index – corporate bonds and U.S. government securities, 3-10 years in maturity
    • Barclays Muni Bond Index – a national aggregate of municipal bonds

In general our portfolios are comprised of a mix of these investments.  The equities portion often has 20% international (EAFE) and 15% in small and mid-size companies (represented in the Russell 3000).

  • Appraisal that shows a listing of your current holdings.

We hope that you find the new reports informative.  Thank you!

Harli L. Palme, CFA, CFP®

Partner

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Market Update through 12/14/12

as of December 14, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 19.12% 15.01% -0.96% 0.00%
S&P 500 18.94% 14.89% -1.33% -0.06%
DJ Industrial Average 13.73% 10.45% -1.55% 0.98%
Nasdaq Composite 18.74% 15.78% -4.10% -1.05%
Russell 2000 16.75% 12.70% -1.34% 0.32%
EAFE Index* 15.91% 12.29% 4.99% 1.96%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 4.43% 4.20% n/a -0.16%
Barclays Intermediate US Gov/Credit 4.03% 3.85% n/a -0.14%
Barclays Municipal  8.04% 7.33% n/a -0.73%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $86.73    $88.91
Natural Gas    $3.31    $3.56
Gold    $1,695.80    $1,710.90
Euro    $1.31    $1.30

Mark A. Lewis
Director of Operations

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The Fiscal Cliff and Capital Gains

Towards the end of the year, we do a final review our clients’ taxable accounts for year-to-date capital gains as well as unrealized gains or losses.  Typically, we are looking for opportunities where it might make sense to offset some of the realized gains with some of the unrealized losses, if we can do so without compromising the integrity of the portfolio.  This is a difficult exercise in normal times, because each client’s situation is unique.  For example, does the client already have a significant capital loss carry forward?  Is the client retired and in a relatively low tax bracket where realized large gains would subsequently push up their Medicare premiums?

This is an odd year for tax planning.  Currently, if the Bush tax cuts expire on 12/31, the rate on long-term capital gains would increase from 15% to 20%.  If you have unrealized gains this year and no loss carryforward, it may make sense to accelerate some gains in order to pay tax at the current 15% rate.

If you already have a loss carryforward, these losses would be more valuable next year when capital gains tax rates are higher.  Therefore, you would want to hold off on taking additional gains.

If you are subject to alternative minimum tax (AMT), this further complicates the analysis.  We currently do not know what the AMT exemptions are for the current year or for 2013.  If Congress does not pass a one-year “patch” as they have done in the past, then a significant number of households (possibly 20-20 million additional) will be paying AMT for 2012.

Although taxes are a factor in the investment decision-making process, we never want to make an investment decision solely for tax reasons.  We also want to look at the client’s overall asset allocation, portfolio diversification, and financial goals.  If you have questions or thoughts about your specific situation, please contact your Parsec advisor.  Keep in mind that the more information we have about your individual situation such a marginal tax rate and the amount of any capital loss carryforward, the better we can advise you.  Also, we are not accountants and are not licensed to give tax advice, so you should check with your CPA before making any major tax-related decisions.

According to Barron’s, the potential tax shock portion of Fiscal Cliff is about $506 billion.  Contrary to popular belief, many of the components would raise taxes on the middle class in addition to the wealthy.  For example, of the rollback of the Bush taxes cuts on income would increase taxes about $38 billion by restoring the 36% and 39.6% brackets on income and an additional $22 billion if dividends were taxed at ordinary income rates, for a total increase of $60 billion.  The impact on all other income brackets would be about $95 billion, since there are a lot more taxpayers affected.

Failure to patch the AMT by indexing the exemption amount for inflation would cause taxes to increase by about $114 billion.  This would hit middle and upper-middle class income families hard, particularly those living in areas with high state income tax rates.

By contrast, the amount of taxes hikes due to “Obamacare” is projected at $23 billion, which is much smaller than the major components above despite all the media attention.

Since the Fiscal Cliff would hit all taxpayers hard, not just the “rich”, I am optimistic that a compromise will be reached, particularly with regard to tax rates for the middle class and the AMT patch.  This would lessen the impact of the tax portion of the Fiscal cliff by 40-50%.  In the meantime, we can expect continued media focus and possibly an increase in short-term market volatility until there is clarity on these important issues.

Bill Hansen, CFA

Managing Partner

December 3, 2012

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Market Update through 11/30/12

as of November 30, 2012
Total Return
Index 12 months YTD QTD Nov
Stocks
Russell 3000 15.95% 15.01% -0.96% 0.77%
S&P 500 16.14% 14.96% -1.28% 0.58%
DJ Industrial Average 11.11% 9.38% -2.50% -0.12%
Nasdaq Composite 16.41% 17.01% -3.08% 1.39%
Russell 2000 13.09% 12.35% -1.65% 0.53%
EAFE Index* 9.00% 10.14% 2.98% 2.20%
*EAFE index does not include dividends.
Bonds
Barclays US Aggregate 5.51% 4.36% n/a 0.16%
Barclays Intermediate US Gov/Credit 4.81% 3.99% n/a 0.30%
Barclays Municipal  10.17% 8.12% n/a 1.65%
Current Prior
Commodity/Currency Level Level
Crude Oil  $88.91  $85.99
Natural Gas  $3.56  $3.74
Gold  $1,710.90  $1,710.50
Euro  $1.30  $1.26

 

Mark A. Lewis

Director of Operations

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Market Update through 11/15/12

as of November 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 9.58% 9.48% -5.73% -4.07%
S&P 500 10.06% 9.75% -5.75% -3.98%
DJ Industrial Average 6.64% 5.16% -6.27% -3.98%
Nasdaq Composite 7.04% 10.20% -8.72% -4.52%
Russell 2000 5.07% 5.12% -7.98% -5.94%
EAFE Index* 3.38% 4.73% -2.07% -2.81%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.34% 4.36% n/a 0.16%
Barclays Intermediate US Gov/Credit 4.39% 3.93% n/a 0.24%
Barclays Municipal  10.08% 7.65% n/a 1.20%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $85.99    $87.07
Natural Gas    $3.74    $3.66
Gold    $1,710.50    $1,715.80
Euro    $1.26    $1.29

Mark A. Lewis

Director of Operations

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Post-Election, Pre-Fiscal Cliff

The election is over.  While we slept, there was a three-hour respite between the election being called and the wee morning hours of the next day when there was no news.  But since then, the nation’s attention has turned from the campaign battle to the ominous “fiscal cliff” talk that will dominate the headlines until the end of the year.  Market observers and economic analysts are trying to predict what compromise Congress might come to in the coming months and how it might impact markets and the economy.

In the two days following the election the market has sold off a little over 3%.  Is the recent market drop due to President Obama winning the election?  And if so, does that mean the drop will continue?  It was widely believed that the markets had priced in an Obama win, so it should not have been a surprise to the markets.  The morning after the election Germany announced that its economy was showing signs of a slowdown, something that also rattled markets.  It is unclear to what extent the market sell-off has been directly caused by Obama’s re-election.  What does seem probable is that the uncertainty over our tax and spending policy will lead to increased market volatility in the near-term.

The re-election of Obama means a greater probability of higher tax rates on high income earners.  For taxpayers making more than $250,000 (married filing jointly) these taxes would be applied to not only earned income, but passive income as well, such as dividends, interest and capital gains.  Fear of higher future capital gains rates could be contributing to a short-term sell-off.  In addition to higher rates, high income earners will see a 3.8% Medicare surtax on passive income as well.  There is concern that these higher rates, coupled with spending cuts and expiration of the payroll tax holiday, will lead to economic slowdown.

On the upside, political commentators believe that a positive for the market is that Obama is likely to keep Ben Bernanke in place, giving more certainty to Fed operations.  The current easy money policy should continue and interest rates will be kept low for the next year or so.  Low rates usually are a positive for stocks and for real estate.  Also, if higher inflation is an eventual consequence of these low rates, stocks and real estate will serve as an inflation hedge.

The so-called fiscal cliff is another matter that the market is grappling with at the moment.  At the end of the year the Bush tax cuts expire and large spending cuts and tax increases that the 2011 Congress imposed will take effect.  Most people believe that Congress will come to some type of compromise to avoid such severe measures.  The interim between now and when a potential agreement is made could be a volatile time period for the market.

The closer we get to the deadline without a decision, the crazier it will make investors.  Not knowing the outcome could be worse for markets than knowing the outcome, whatever that may be.  Just coming to an agreement on the fiscal cliff alone may send stocks higher.  In the meantime, it warrants some guidance to hang on to your hats, but also caution against making radical portfolio changes.  The stock market shuddered, too, at the looming debt-ceiling crisis of 2011, dropping nearly 16 percent in the weeks prior to, and immediately following, the agreement to lift the debt ceiling.  About six months later stocks had regained all that ground.

If your portfolio is invested to suit your risk tolerance and financial situation, there are most likely no changes that you need to make at this time.   When investing with long-term goals in mind, the rocky play of politics against short-term movements of stocks is not something to try to predict.  If you’re spending from your portfolio you should talk to your advisor about ensuring that you have a combination of income providing securities and/or fixed income sufficient to meet a few years of cash flow needs.  This will allow you to weather any short-term drop in the market.

One common investor flaw is taking something in the present and extrapolating it into the future, believing that what you see today is what you’ll see tomorrow.  But that can’t be so or markets would only go in one direction.  Time after time research and experience have shown that investors cannot accurately predict the future with enough consistency to beat the market by timing in and out.  Keeping a strategic asset allocation in the face of uncertainty may seem like doing nothing, but we believe it is the right thing to do, despite being psychologically difficult.

Harli L. Palme, CFA, CFP®

Partner

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Sandy!

Tell me about it, stud.

There have been no shortage of Grease references this week, and I still couldn’t resist. My favorite was this:

Sandy’s impact on the market this week was to shut down U.S. stock markets for two whole days – the longest weather-related closing since the Blizzard of 1888. That’s 124 years, if I used my calculator correctly. I looked at a website chronicling all the special closings of the NYSE from 1885 to present. The most shocking information I gleaned was that the market was regularly open on Saturdays up until the 1950s! Six day workweeks? How Dickensian. Looks like they quit working Saturdays about 65 years after 1885, and it’s been almost that long since the 50s…about time to drop another day, I think.

When Sandy’s path was predicted, the NYSE had originally planned to only shut down the physical trade floor, and keep the electronic trading venue (ARCA) open. Apparently, exchange customers fought to have all trading shut down on Monday, saying that the markets still need humans to function. Even though all-electronic exchanges other than the NYSE could technically have been open, they opted to close because the NYSE acts as the official opening and closing price-setter for many benchmark stocks.

Wait a sec – so humans still need to be physically present for markets to function? NPR’s Robert Siegel wondered the same thing, so he asked Wharton’s Jeremy Siegel on Tuesday why (or if) he thinks the exchange still needs a physical trading floor. (I heard the interview on the radio but looked up a transcript so I could reference it. You would think they would use something other than last names to preface the comments when both parties have the same last name, but no.) Siegel (that would be Prof. Jeremy) thinks the real reason all trading was suspended was not so much that electronic trading still needs people to function, but more that the NYSE would be at a disadvantage to other exchanges if their guys couldn’t make it to work, so they wanted to shut everything down until they were all on the same playing field.

Whatever the reason, markets re-opened on Wednesday and trading resumed smoothly, contrary to predictions of extreme volatility and volume from pent-up demand. See? A few extra days off from trading didn’t hurt a thing…they should really give some thought to dropping Fridays.

Sarah DerGarabedian, CFA
Director of Research

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Market Update through 10/31/12

as of October 31, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 14.75% 14.12% -1.72% -1.72%
S&P 500 15.21% 14.30% -1.85% -1.85%
DJ Industrial Average 12.56% 9.51% -2.39% -2.39%
Nasdaq Composite 12.32% 15.41% -4.40% -4.40%
Russell 2000 12.08% 11.75% -2.17% -2.17%
EAFE Index* 1.14% 7.76% 0.76% 0.76%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.25% 4.20% n/a 0.20%
Barclays Intermediate US Gov/Credit 4.24% 3.68% n/a 0.14%
Barclays Municipal  9.03% 6.36% n/a 0.28%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $87.07    $92.02
Natural Gas    $3.66    $3.44
Gold    $1,715.80    $1,744.70
Euro    $1.61    $1.30

Mark A. Lewis

Director of Operations

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2013 Changes to Retirement Plan Contributions

Contribution limits for a 401(K), 403(b), and most 457 plans will rise to $17,500 (from $17,000). The catch-up provision for those over age 50 is $5,500. Be sure to take advantage of the over 50 limit if you feel that you haven’t saved enough for retirement.

Simple IRAs will increase to $12,000. Traditional IRAs and Roth accounts will increase to $5,500 with the catch-up for those over age 50 still at $1,000. There is an income limit for contributing to a Roth. The amount that can be contributed starts to phase out if your adjusted gross income is $178,000 – $188,000 for joint filers and $112,000 – $127,000 for singles. Remember, contributions to a Roth are not tax deductible but are tax-free for any withdrawals. Converting all or some of your existing IRA to a Roth is available to all income brackets. If you have any questions, please contact your advisor.

Saving for retirement is crucial and the unfortunate truth is that most people have not saved enough. The consensus for recommended retirement spending is 4% of your portfolio assets. If you have saved $500,000 throughout your working life, the yearly spending would be $20,000, plus Social Security.

Barbara Gray, CFP®
Partner

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Market Update through 10/15/12

 

as of October 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 19.82% 16.09% -0.03% -0.03%
S&P 500 20.25% 16.52% 0.06% 0.06%
DJ Industrial Average 18.45% 12.18% -0.01% -0.01%
Nasdaq Composite 16.31% 18.76% -1.63% -1.63%
Russell 2000 17.94% 13.02% -1.06% -1.06%
EAFE Index* 3.56% 7.31% 0.34% 0.34%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.17% 4.16% n/a 0.16%
Barclays Intermediate US Gov/Credit 5.10% 3.70% n/a 0.17%
Barclays Municipal  9.69% 6.29% n/a 0.22%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $92.02    $92.19
Natural Gas    $3.44    $3.32
Gold    $1,744.70    $1,771.10
Euro    $1.30    $1.28

Mark A. Lewis

Director of Operations

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