Wishing you a relaxing 4th of July! For those of you that have chosen this week for your vacation, I hope some good weather comes your way and we trust a safe and restful time.
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Dividends Omitted:
stock & mutual funds update |
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The trend seems to be continuing with dividends being omitted from mutual funds and stocks. This last quarter American Century Inflation Protected Fund (ACITX) announced it was temporarily suspending its dividend from the fund. I have made the decision to remove this fund from my portfolio holdings, and those of you that had this fund in your allocation should have seen it sold off over the last month.
Additionally, Vanguard Inflation Protected Securities (VIPSX) has also suspended its dividend. At this time, I am holding on to this fund, as it has always served my clients well over time.
In the stock area, Citigroup © also moved to suspend its dividend. This was a move that had to occur in order for them to remain solvent. There are very few portfolios that hold this investment, and at this time, it makes no sense to sell off this stock.
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Changes in portfolio management style: |
Many of you have heard it said "buy and hold", is the best management style over time. This may be true for some investments, but not for all. After last year's market setbacks, and the major collapse of Bear Sterns, one has to give much thought to this concept.
The economic downturn has changed the way the market behaves and it becomes more difficult to read market trends. Unfortunately, we can no longer rely on the accuracy of balance sheets, due to a few unscrupulous corporate insiders.
With few exceptions, you will now be seeing assets sold off, once we attain a 20% gain, whether that happens in 2 months or 20 weeks. I will be "taking profits" quickly. The exception being, if I am looking for a specific target price, and I will use the example of Textron.
Many of you are holding this equity in your portfolio and have seen a huge run and most recently a pull back, and may be questioning why I have not sold this yet. The answer is, I am looking for a target price of $13.19. I know it is painful to give up gains and if some of you are uncomfortable with this strategy, please feel free to contact me to discuss your personal situation.
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First Half Market Report
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As of June 29, 2009, the markets are behaving sporadically, we have had ups and downs throughout the first half of the year, but overall we are up. Below is a chart that reflects the various indices. As for the back half of the year, I believe we will continue to see a volatile and less predictable market. I have added in bonds in almost everyone's portfolio, whether they are in the form of the short-term AAA notes or high yields and most recently - convertibles. I feel that there is some upside to these investment vehicles, and all portfolios can benefit from them over the short-term horizon.
As for how the portfolios under my custody fared - the moderately aggressive portfolios did exceptionally well up 15.9%, due in part to the merger of Petro Canada and the bounce in the Canada Banking Sector, most notably Bank of Montreal. Additionally, the placement of Amgen saw a 12% bump up in stock price, which did offset the decline in US Oil (USO) and Conoco Phillips (COP) both down -3%. This was an exceptional quarter and I do not expect to repeat this going forward.
The moderately conservative portfolios were up 10.8%. Again these portfolio's benefit from the Bank of Montreal and Petro Canada positions as well as the AAA short term notes, which offered 5% yields, far more attractive than CD's. Again, I do not expect to sustain this growth over the year ahead.
Please be advised that these numbers are for benchmarking purposes only and no portfolios are the same. No one has the same risk tolerance or time horizon. No two portfolios have the same asset mix, or asset value. This information is for your reference only and past performance is not an indicator of future performance (the SEC disclaimer!).
Overall, I would be happy ending the year with a plus 8-12% for the moderately conservative accounts, and the moderately aggressive accounts with a range of 15 - 20% - even with bumps in the road.
As a reminder the S&P represents an index of 500 unmanaged widely held common stocks, which includes the reinvestment of dividends. The Russell 2000 are market capitalizations that represent the 2000 smallest companies.
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Forget Annuities - Buy an investment property! |
 Everybody asks me, "Should I buy an annuity for the stream of income?" And I always say no. Annuities have limited applications, carry high fees, and have surrender charges.
One alternative for your consideration may be real estate! The rental environment is perfect. It is akin to an annuity. Let me explain. The insurance person is always pitching the value of annuity providing you with a stream of income over time. So invest your $100,000 in the annuity and you will have cash flow - right? Wrong! They never tell you about the 6% front-end load and the trail that they receive that follows, and at the end you don't necessarily get your $100,000 back.
Now follow my train of thought: in Providence the average selling price of a home has dropped down to $75,000, due primary to the high rate of foreclosures. Yes you can buy something for $100,000. It may be a condo, but it is something. You put your $100,000 down. Soon you will be generating a stream of income, through rental income.
Now you must put some of that money aside for insurance and taxes and any unforeseen expenses, let us anticipate a conservative 50% of that is yours annually. We'll project that you receive $1,000 a month x 12 = $12,000 after expenses - $6,000 take away. Now we hand this property to over to your CPA, who can do the most wonderful job with depreciation and tax saving ideas.
After 15 years you sell your property with 3% annual appreciation, the national average for properties. The final selling price is $155,000, less realtor's fees and other costs, brings you down to $145,000. You have now pocketed $90,000 in rental income + $45,000 in appreciation and your original $100,000 investment for a total of $235,000. That equates to a conservative 6% return on your investment. That does not take into consideration rent increases over the years or taxes savings on the property, or years where you take more than $6,000 out of the property. It doesn't even consider you reinvesting the $6,000. The investment options are limitless.
I will take real estate over an annuity any day, as you are paying yourself and not a salesperson. Don't wait, in the month of April existing home sales increased by 2.4%, according to the National Association of Realtors.
Happy real estate hunting. If you are looking for a qualified real estate agent, please contact my office for a referral. |
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Your Planner - Out and About |
In June I had the opportunity to attend a Fidelity economic conference and hear what their great minds felt the direction of the economy was headed as well as what the outlook for the equity markets were. I am happy to say they felt that there would still be bumps in the road, but the back half of the year looked to hold some promising returns, particularly in certain sectors.
Their primary sector focus was on high-income, Latin American and Emerging Markets. As many of you have seen in your own portfolios, we went into High Income in January and you have seen those positive gains in your investments. As for Latin American, I had held those positions over from last year, and will not be adding to them. For now I will not be going into the Emerging Markets sector, as I feel the risk level is still too great for the returns we are seeing.
Also, I would like to take this time to thank my clients for remaining calm over the last year, as I know it has been a rocky road and we are just seeing a return to positive numbers.
Thank you for your continued support. If you know of anyone seeking a new advisor, please offer our name as a referral. New clients are the cornerstone of our business and I appreciate your referrals.
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Sincerely,
Angela Thomson, CFP (r)
Coastal Financial Planning, Inc. |
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Our Question of the Quarter is... |
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What percentage of U.S. voters believe workers should be able to opt out of Social Security and provide for their own retirement planning?
a) 21%
b) 38%
c) 42%
d) 46%
According to a recent survey by Rasmussen Reports, a large number of U.S. workers are become increasingly uneasy with the future of Social Security and would rather rely on their own personal investment decisions and take control of their finances rather than contribute to the Social Security System, which is currently in place.
When surveyed 42% of U.S. voters believed workers should have the ability to control their own retirement planning dollars. So if you answered C to our question of the quarter, you were correct.
This discussion is not new, many advisors, including myself, believe that for those people that are now in their 20's, Social Security will be a "needs based" system - similar to that of Medicaid.
That doesn't mean you shouldn't save, lest you not get what you put into the system. It is projected that many will need up to 85% of the pre-retirement salary in their retirement years. This is a large dollar amount by any standard. This number also takes into account housing costs.
If you have no mortgage at retirement, this figure will drop down substantially. Do you know what you will need in retirement dollars? If not, start your budgeting now, and get a general idea of which costs are fixed and what variables will go away or accelerate.
For example, property taxes will increase, as well as gas and electric bills. Spend a few hours today and avoid surprises at retirement.
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