Making Cents

August 2010 Monthly Economic Update

Fri, 03 Sep 2010 17:00:00 -0500

August 2010 Monthly Economic Update

For the stock market investor, last month was pretty lackluster – the DJIA suffered its first negative August since 2005, sliding 4.31% and struggling to keep above the 10,000 level.(source) Volume was remarkably light and skepticism permeated Wall Street. It was widely agreed the economy was crawling along: the impact of the 2009 federal stimulus was fading, and the government probably wasn’t going to ride to the rescue again. Businesses and consumers would just have to wait and hope. Yet as August gave way to September, some hope arrived: indicators showed an economy that appeared healthier than proclaimed.

DOMESTIC ECONOMIC HEALTH

Our first shot of hope comes in the form of consumer spending and consumer confidence. Consumer spending rose 0.4% in July after a flat June. That was the biggest increase since March, and welcome after three months without a net gain. Personal incomes were up 0.2%, and the personal savings rate declined to 5.9% from the previous 6.2%.(source) The University of Michigan/Reuters consumer sentiment index improved to 68.9 in August from 67.8 in July, and the Conference Board’s August poll made the same move, rising from July’s 51.0 to 53.5. (Its expectations index rose from 67.5 to 72.5.)(source)(source)

Our second shot of hope comes from the retail and manufacturing sectors. Analysts polled by Briefing.com expected the Institute for Supply Management’s August manufacturing index to fall to 52.9 from the July mark of 55.5. Surprise – it came in at 56.3. Additionally, the Commerce Department said retail sales increased for the first time in three months in July, reporting a 0.4% gain.(source)(source)(source)

In another positive sign, inflation reappeared. In July, the Consumer Price Index rose 0.3% after declining the three previous months; the Bureau of Labor Statistics measured year-over-year inflation at 1.2%. The Producer Price Index advanced 0.2% in July for a 4.2% year-over-year gain.(source)(source)

Other indicators were less reassuring. Unemployment ticked up to 9.6% in August, and analysts were not surprised by that .1% increase. On a positive note, the private sector gained 67,000 jobs. Durable goods orders rose 0.3% in July, not the 2.7% economists surveyed by MarketWatch were forecasting. (It was the first gain in the category in three months.) The ISM service sector index also declined for August, still showing growth but descending from July’s 54.3 mark to 51.5.(source)(source)(source)

At the Fed’s annual Wyoming retreat, chairman Ben Bernanke said that the central bank would intervene in the economy if necessary, admitting that “although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected.” He noted that Fed policymakers did not think the recovery was fading.(source)

GLOBAL ECONOMIC HEALTH

In late August, we learned that the European Union’s collective economy expanded in the second quarter at a rate unseen since 2006. The Eurozone PMI was 55.1 in August, still showing growth but down from 56.7 in July. Still, the index has been above 50 for the last 11 months of data. The pace of manufacturing growth in Germany, England, Italy and Spain slowed in August. Economists polled by Bloomberg felt the European Central Bank would keep interest rates at around 1% for an extended period.(source)(source)

Both the government PMI and the most respected private-sector PMI in China advanced in August – the private sector index went from 49.4 in July to 51.9, a three-month peak. India’s manufacturing sector grew again in August, and Russia’s manufacturing sector expanded by the most since April 2008.(source)

WORLD MARKETS

Some benchmarks did pull off gains, and many foreign indices outperformed the DJIA and S&P 500. The advances were found in the emerging markets: Indonesia’s JSX Composite, +0.4%; India’s Sensex, +0.6%; Chile’s IPSA, +2.8%; the Philippines All Shares Index, +3.4%; and Thailand’s SETI, a remarkable +6.7% last month. The big loser among notable indices was the Nikkei 225, which had its worst month since May (-7.5%). Other monthly descents: England’s FTSE 100, -0.6%; South Korea’s KOSPI, -1.1%; Hong Kong’s Hang Seng, -2.4%; Germany’s DAX, -3.6%; France’s CAC 40, -4.3%; and Brazil’s Bovespa, -4.8%.

Now how did the key MSCI indices fare last month? Not very well. In U.S. dollar terms, the MSCI World Index lost 3.92% while the MSCI Emerging Markets Index retreated 2.15%.(source)(source)

COMMODITIES MARKETS

After a bad July, gold futures enjoyed a strong August. Gold advanced 5.64% for its best month since April. (After eight months of 2010, gold looked pretty good compared to the S&P 500: +12.90% YTD.) August was rough for oil and downright awful for natural gas. Oil fell 8.90% after rising in June and July; the August slide left it at -9.30 YTD. Natural gas futures sank 22.49% in August, a major reversal after prices rose for four straight months; at the end of August natural gas was down 31.59% for the year. The U.S. Dollar Index went +1.89% for the month, moving from 81.54 at the end of July to 83.08.(source)(source)

REAL ESTATE

Well, the National Association of Realtors did have a tiny bit of good news for us: in July, the median sale price of an existing home was $182,600, 0.7% higher than it had been in July 2009. That was about all the good news that the real estate sector gave us in August. Analysts knew home sales would drop without encouragement from the federal government. But they were stunned to learn just how much, especially considering that July is commonly the peak month for home buying. Existing home sales fell 27.2% on the month and were 25.5% under year-ago levels. New home purchases slipped 12.4% in July to the slowest pace since the start of recordkeeping in 1963.(source)(source)

Mortgage interest rates continued their descent. Freddie Mac’s August 26 Primary Mortgage Market Survey showed rates on the 30-year FRM averaging under 4.5% (4.36% nationally) and rates on 15-year FRMs averaging below 4% (3.86% nationally). In the September 2 survey, those numbers got even smaller: 4.32% and 3.83%.(source)

LOOKING BACK … LOOKING FORWARD

It was an unusual August – the worst for the Dow, S&P and NASDAQ since 2001. The numbers were definitely against the norm for the Dow – historically, August is the third best month for the DJIA, with gains occurring 65% of the time.(source)

% Change	YTD	1-Mo Change	1-Yr Change	10-Yr Average
Dow Jones	-3.96%	-4.31%	+5.46%	-1.07%
NASDAQ	-6.84%	-6.24%	+5.22%	-4.97%
S&P 500	-5.90%	-4.74%	+2.81%	-3.09%
Real Yield	08/31 Rate	1 -Yr Ago	5 Yrs Ago	10 Yrs Ago
10 Yr TIPS	0.95%	1.76%	1.65%	4.03

Source: cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 8/31/10(source)(source)(source)(source)(source)
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

So how optimistic should we be? Well, we have some very good signs in the jobless report. August non-farm payrolls only shrank by 54,000, compared to expectations of a loss of 120,000 positions. The private sector gain of 67,000 jobs also surpassed the gain of 41,000 analysts had forecast. Newly revised June and July numbers from the Labor Department indicate that the economy lost 123,000 less jobs than previously assumed.(source) Factor in the recent gains in personal spending and personal income and the continued signs of growth in U.S. and world manufacturing and suddenly things seem a bit brighter. However, unemployment remains the biggest drag on the housing market and a significant drop in joblessness isn’t seen for a long time to come.

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What Exactly is Wealth Management?

Thu, 02 Sep 2010 11:30:00 -0500

WHAT EXACTLY IS WEALTH MANAGEMENT?

The two words signify a far-reaching kind of financial care.

There’s financial planning, and then there’s wealth management. Think of wealth management as a step up from garden-variety financial planning. One office provides a range of services for a client: personal financial planning and investment management, tax reduction and estate planning strategies, and occasionally in-house legal resources. Business continuation planning, tax preparation and even budgeting and bill paying are sometimes added to the menu.

The difference is really big-picture. Financial planning usually means creating a strategy for accumulating wealth for retirement and personal goals. Investment management focuses on managing financial assets with a performance level in mind. Wealth management, in comparison, considers the total net worth of a family, a couple or an individual. It weighs financial decisions in light of an investment portfolio and additional components of the financial picture such as real estate, insurance, a business, charitable gifting and more.

Yet it is also about paying attention to detail. Every successful professional or business owner reaches a point of delegation – there comes a point at which you can’t do it all yourself. Indeed, it can be hazardous to try and keep track of every detail without help. The same goes for your finances – your taxes, your investments, your various accounts.

Good wealth management helps you stay on top of things. A skilled wealth management firm pays attention to many of the financial details in your life for you. You can free up your mind. You feel confident because the wealth management firm has an ongoing relationship with you, with regular reviews and communication.

Wealth management unites advisors from different disciplines as a team. The team looks at your goals, needs and priorities to determine the right, individualized strategy for guiding your invested assets and enhancing your net worth.

When is it time for wealth management? If you have too many financial concerns, issues or priorities to address by yourself, then it is certainly time for this kind of financial care. And even if your financial life is less complex, significant wealth calls for a vigilant, ongoing management approach.

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Good Financial Steps to Take When You Get Married

Tue, 31 Aug 2010 11:30:00 -0500

GOOD FINANCIAL STEPS TO TAKE WHEN YOU GET MARRIED

If you’re going to say “I do”, here are some things you might want to do.

Are you marrying soon? Have you recently married? As you begin your life together, it's important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list …

Build an emergency fund. You’ve probably watched or read a number of stories about couples who were hit hard by the downturn – nice, once-affluent people who suddenly had to live in their car or a motel. When things got rough, many had no emergency fund to sustain them and ended up homeless. Consider building up a cash reserve (gradually, if necessary) that you could tap into should something go wrong. You won’t regret having it around.

Insure yourself. If you are under 40, you may not have any kind of disability or life insurance. You may feel you don’t need it yet. However, getting a policy early can be cost-efficient: if you buy a term life policy when you are young and healthy, chances are you will pay less expensive premiums than people in their 40s and 50s who have health issues.

Live within your means. An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift, and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.

Plan for retirement. There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may all need to become millionaires.

Consider this: according to current Social Security Administration projections, the average 63-year-old in 2010 is projected to live until age 84.(source) So today’s typical retiree is looking at a retirement of approximately 20 years. Some of these people will live past 100 – many more than in previous generations.

Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might become commonplace for the members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement in which you don’t outlive your money.This (strong) possibility means you may want to make saving for retirement NOW a higher priority.

In a typical couple, one spouse is more risk-averse than the other (sometimes dramatically so). So you need to agree on the investment approach you take, preferably with the help of a financial consultant who can help you determine how much money you might need for certain life goals or financial objectives.

Manage debt. Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be seen as “his debt” or “her debt”. Arguments may start because “your debt” is hurting “us”.

Debt management should be a priority for any newly married couple. There are good debts which we assume on the way to a positive result (such as a mortgage), but there are also bad ones we assume through our credit cards and other channels.

Save for college. If you plan to raise children, it’s never too soon to start. You can do it a little at a time, a little per month. You can open a college savings account using different investment vehicles – stocks, funds, or investments with lower risks. 529 plans in particular offer you some fine tax breaks.

Communicate to avoid surprises. No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time”. That’s great, but that’s probably not the best approach when it comes to your shared financial life. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship.)

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Health Savings Account Advantages

Wed, 25 Aug 2010 11:30:00 -0500

Health Savings Account Advantages

Health Savings Accounts offer more than tax breaks.

Why do people open up Health Savings Accounts in tandem with high-deductible insurance plans? Well, here are some of the compelling reasons why younger, healthier employees decide to have HSAs.

#1: Tax-deductible contributions. These accounts are funded with pre-tax income. Your annual contribution limit to an HSA depends on your age and the type of insurance plan you have in conjunction with the account. For 2010, the limit is set at $3,050 (individual plan) and $6,150 (family plan). If you are older than 55, those limits are nudged $1,000 higher.(source)

#2: Tax-free growth. The money in an HSA grows untaxed – and some HSAs even have investment options, including mutual funds. Some HSA owners choose to invest the assets in money market funds, but they are commonly held as cash.(source)

#3: Tax-free withdrawals (as long as withdrawals pay for heath care costs). To make withdrawals even easier, many HSAs offer you checkbooks and debit cards to make it easier to pay healthcare expenses and reimburse yourself. There is no need to provide reimbursement claims to the IRS; all you need to do is keep your receipts in case of an audit.(source)

Add it up: an HSA lets you avoid taxes as you pay for health care. Additionally, these accounts have other merits.

You own your HSA. If you leave the company you work for, your HSA goes with you – your dollars aren’t lost.

No use-it-or-lose-it rule. This is an improvement from a Flexible Spending Account (FSA). If you don’t use the money in an FSA at the end of a year, you lose it. With an HSA, there is no such penalty. For the record, you can’t have both an HSA and an FSA.(source)

Hidden social advantages? Since HSAs impel people to spend their own dollars on health care, the theory goes that they spur their owners toward staying healthy and getting the best medical care for their money.

How about the downside? Well, HSA funds don’t pay for all forms of health care. For example, you can’t pay for over-the-counter drugs with HSA assets.(source) In the worst-case scenario, you get sick while you’re enrolled in a high-deductible health plan and lack enough money to pay medical expenses.

If you use funds from your HSA for non-medical expenses, the federal government will hit you with a withdrawal penalty – 10% in 2010, going north to 20% in 2011. And in case you might be wondering, some HSAs do assess monthly fees and transactional charges to account owners.(source)(source) Look for HSA companies that do not have monthly or transactional fees. They exist!

Even with those caveats, younger and healthier workers see many tax perks and pluses in the HSA.

Who is eligible to open up an HSA? You are eligible if you enroll in a health plan with a sufficiently high deductible. For 2010, the eligibility limits are a $1,200 annual deductible for an individual or a $2,400 annual deductible for a family. You aren’t eligible if you are enrolled in Medicare or if someone else claims you as a dependent on their federal return.(source)

You don’t need an employer-sponsored health plan to have an HSA. You can open one with a personal health plan, too. In June 2010, the American Medical Association’s American Medical News reported that HSA enrollment had reached the 10 million mark, growing by 2 million alone during 2009.(source)(source)

As health insurance costs are repeatedly increasing for businesses, and as health plans with higher deductibles generally cost less for a company compared to traditional coverage, you will likely see the population of HSA owners growing in the 2010s.

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Protecting Your Assets with LTC Insurance

Mon, 23 Aug 2010 11:30:00 -0500

Protecting Your Assets with LTC Insurance

How will you pay for long term care? The sad fact is that most people don’t know the answer to that question. But a solution is available.

As baby boomers leave their careers behind, long term care insurance will become very important in their financial strategies. The reasons to get an LTC policy after age 55 are very compelling.

Your premium payments buy you access to a large pool of money which can be used to pay for long term care costs. By paying for LTC out of that pool of money, you can preserve your retirement savings and income.

The cost of assisted living or nursing home care alone could motivate you to pay the premiums. Genworth Financial conducts a respected annual Cost of Care Survey to gauge the price of long term care in the U.S. The 2010 report found that:

•    In 2010, the median annual cost of a private room in a nursing home is $75,190 or $206 per day – $14,965 more than it was in 2005.
•    A private one-bedroom unit in an assisted living facility has a median cost of $3,185 a month – which is 12% higher than it was in 2009.
•    The median payment to a non-Medicare certified, state-licensed home health aide is $19 in 2010, up 2.7% from 2009.(source)

Can you imagine spending an extra $30-80K out of your retirement savings in a year? What if you had to do it for more than one year?

AARP notes that approximately 60% of people over age 65 will require some kind of long term care during their lifetimes.

Why procrastinate? The earlier you opt for LTC coverage, the cheaper the premiums. This is why many people purchase it before they retire. Those in poor health or over the age of 80 are frequently ineligible for coverage.

What it pays for. Some people think LTC coverage just pays for nursing home care. That’s inaccurate. It can pay for a wide variety of nursing, social, and rehabilitative services at home and away from home, for people with a chronic illness or disability or people who just need assistance bathing, eating or dressing.(source)

Choosing a Daily Benefit Amount. The Daily Benefit Amount (DBA) - the maximum amount that your LTC plan will pay per day for care in a nursing home facility. You can choose a Daily Benefit Amount when you pay for your LTC coverage, and you can also choose the length of time that you may receive the full DBA on a daily basis. The DBA typically ranges from a few dozen dollars to hundreds of dollars. Some of these plans offer you “inflation protection” at enrollment, meaning that every few years, you will have the chance to buy additional coverage and get compounding - so your pool of money can grow.

The Medicare misconception. Too many people think Medicare will pick up the cost of long term care. Medicare is not long term care insurance. Medicare will only pay for the first 100 days of nursing home care, and only if 1) you are getting skilled care and 2) you go into the nursing home right after a hospital stay of at least 3 days. Medicare also covers limited home visits for skilled care, and some hospice services for the terminally ill. That’s all.

Now, Medicaid can actually pay for long term care – if you are destitute. Are you willing to wait until you are broke for a way to fund long term care? Of course not. LTC insurance provides a way to do it.

Why not look into this? You may have heard that LTC insurance is expensive compared with some other forms of policies. But the annual premiums (about as much as you’d spend on a used car from the late 1990s) are nothing compared to real-world LTC costs.(source) Ask your fiduciary fee-only financial advisor about some of the LTC choices you can explore – while many Americans have life, health and disability insurance, that’s not the same thing as long term care coverage.

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Planning for a Child's Private School Education

Thu, 19 Aug 2010 11:30:00 -0500

Planning for a Child’s Private School Education

Sending your child to private school is an expensive proposition. For most people, it’s made a little tougher by the fact that it’s necessary to save for a child’s college education at the same time. Some have the income that makes this easier, but for the rest, it’s necessary to create a pay-as-you-go system that will somehow make it all work.

The parents who make it work tend to plan from the time the child is very young. They keep abreast of every possible resource for scholarships, discounts, loan programs and other forms of financial aid.

It makes sense to find a fiduciary fee-only financial advisor, such as a CERTIFIED FINANCIAL PLANNER™ professional, who can link a child’s pre-college education planning to the financial planning necessary for college, grad school and beyond. Here are some things to know about the process:

Start with cost: The National Association of Independent Schools (NAIS), a national organization representing private pre-schools, elementary and secondary schools, estimates that the median annual tuition in 2009-10 for all grades of private day schools was $17,880. For boarding school, the average annual tuition was $34,900.

Is aid available? Definitely, and that’s why it’s important to keep your ear to the ground as part of your overall planning strategy. Just remember that grants and scholarships are the best form of financial aid because they don’t have to be paid back. Financial aid grants for private elementary and secondary schools are awarded on the basis of demonstrated need, just like college. According to NAIS, the average endowment per student during 2009-10 was $19,122. This is why it is important to check the size of the endowment fund at any school you consider – that’s money that the school keeps in reserve to invest so it can extend aid to families in need.

The application process: Most schools use the Parents' Financial Statement (PFS) from the School and Student Service for Financial Aid (SSS). This is a service owned by NAIS that helps schools determine how much a family can afford to pay for school tuition and other educational expenses. If the school you are considering does not use SSS, be sure to ask what steps you need to follow in order to apply for assistance. The form considers how many children you’re paying tuition for in K-12 or college and how high the cost of living is in your area.

Don’t forget your retirement: Despite the huge challenge of paying for your child’s education, you have to pay yourself first. Talk to a fidcuairy fee-only financial planner to see how much you’ll need in retirement and how much you’ll need to save weekly to make that goal. Keep in mind that your greatest potential for a successful retirement comes from starting savings early and you can’t forfeit that in favor of your child’s education.

Consider a Coverdell Account: While the best solution will differ by family, one savings vehicle might be a Coverdell Education Savings Account. Coverdells are trusts created to save money for a child’s primary, secondary or college education. Contributions are relatively small -- $2,000 per beneficiary from all sources during the year. Yet since Coverdells are considered the asset of the account owner, you may want to keep it in your name since an account in the student’s name could adversely affect financial aid eligibility.

Enlist the grandparents: If your grandparents can afford to help, they have several options to help you save for your child’s education without triggering their gift tax obligation. First, each grandparent can give up to $13,000 tax-free to each child. Also, they can give up to $2,000 annually to a Coverdell account you’ve set up for the child.

Don’t use debt as a Band-Aid: Avoid the trap of being forced to use debt while trying to “do it all.” Stay within your means. If you find yourself close to using your debt options, enlist the help of a financial planner to talk through ways to adjust your spending or find student aid.

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How Will Obamacare be Paid For?

Tue, 17 Aug 2010 11:30:00 -0500

How Will Obamacare be Paid For?

By Taxing the Rich! How will you be affected?

Beginning in 2013, wealthy (loosely defined lately) Americans will pay extra Medicare taxes. Congress, President Obama and the IRS are putting a surcharge on the wealthy to help fund the health care reforms.

• In 2013, joint filers with adjusted gross incomes of $250,000 or greater and single filers with AGI of $200,000 or greater will have to pay 0.9% extra in FICA taxes (that is, Social Security and Medicare taxes). The employers of these taxpayers face no such increase.(source)

• Also, joint filers with modified adjusted gross income (MAGI) of $250,000 or more and single filers with MAGI of $200,000 or more will be docked with a 3.8% tax on investment income. (Even estates and trusts will be subject to this new 3.8% levy.)(source)

What might the dollar impact be? The Tax Foundation, a politically conservative watchdog organization, thinks the richest 1% of American families will pay an average of $52,000 more in federal taxes by 2016.(source)

What are the chances of these tax hikes being repealed? Think slim and none. Basically, you’d have to repeal the health care reforms to make it happen.

How can you avoid the 3.8% tax on dividends, capital gains & interest? It won’t be easy. Real estate investors may luck out the most, because federal law characterizes rental income as “active” rather than “passive”. On the other hand, if you sell a home you’ve owned for decades and see a taxable gain above the home sale exclusion ($250,000 single, $500,000 married), you’ll face the 3.8% tax.(source)

Some forms of unearned income won’t be slapped with the tax. IRA distributions and income distributions from 401(a), 403(b) and 457(b) plans will be exempt. The same goes for pension income and Social Security income. Annuities that are part of a pension plan will be exempt. Any income from a business that you participate in won’t be hit with the 3.8% tax. Veterans’ benefits, life insurance payouts and interest earned by municipal bonds will also be spared.(source)(source)

As a result of this tax, you might start to see subtle shifts in financial strategy. You might see more muni bond purchases, more interest in life insurance, and more installment sales. As qualified Roth IRA distributions don’t boost AGI, you might be looking at another factor promoting Roth IRA conversions.(source) Everybody will think about taking some capital gains prior to 2013.

The richest Americans have always paid the bulk of the income tax burden in recent decades. In 1955, the 400 largest incomes in America paid 51.2% of those incomes back in federal taxes. That led to the “tax shelters” of the 1960s and 1970s. In comparison, the top 400 incomes in America in 2007 paid out only an average of 16.6% in federal taxes, yet this amounted to the largest share of income tax collected still.(source)

So how can you reduce your taxes in 2013? It is not too early to think about it. You might want to devote a planning session to this topic, or start to read up on your options. Contact a fiduciary fee-only planner to sort out the details of your particular income tax situation.

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Investment Fees Have an Impact!

Fri, 13 Aug 2010 11:30:00 -0500

Investment Fees Have an Impact!

Over time, those little mutual fund charges can really pinch you.

"Beware of little expenses, a small leak will sink a great ship."

Benjamin Franklin

Funds come with fees. In fact, so do IRAs, 529 plans, brokerage accounts and many other types of investments. Over time, the impact of these little fees is significant.

Back in 2006, the Government Accountability Office (GAO) studied 401(k) plan fees and found that just a 1% increase in these fees could whittle a worker’s 401(k) savings down by 17% across 20 years. (source) How would you like to have 17% less retirement money?

Fees are inevitable, but it pays to shop around. When you think of the compounding and potential annual gains that 1% or 2% of your current fund balances could enjoy over 10 or 20 years, you see how fees matter. No mutual fund or retirement plan is going to operate for free, but trying to minimize fees could help you save more and retain more for retirement and other goals.

Expense ratios. The proper name for a mutual fund fee is the expense ratio. (The expense ratio represents the total operational cost of running the fund.) You can find mutual funds with expense ratios as low as 0.1% … and you can find others with expense ratios above 3.0%. Hence the popularity of exchange-traded funds (ETFs), which commonly have expense ratios in the 0.1%-0.7% range. ETFs also have no minimums, while you can find mutual funds with minimums of $50,000.(source)(source)

Why are some mutual fund expense ratios so high? Here are some contributing factors.

12b-1 fees. Most investors have no idea what these are, but they are common even among funds offered through discount brokerages. A 12b-1 fee is a fee used to pay the company or brokerage through which you buy fund shares. Mutual fund investors paid around $9.5 billion worth of these fees in 2009.(source) These fees are also under the Congressional microscope and may be eliminated in the very near future. Thank goodness! Avoid mutual funds with these fees is good advice.

An example: let’s say you happen to buy into a fund via a discount brokerage. You may be assessed a 12b-1 fee, usually 0.25% (though it can run as high as 1.0%). Charging you a 0.25% fee helps to cover the typical 0.4%-of-shares cost that the fund pays out to the brokerage. A true “no-load” fund does not contain 12b-1 fees.

Loads. In addition, many mutual funds ding investors with loads. There are front end loads (entry fees) on A share mutual funds and back end loads (surrender charges) on B share mutual funds. Many options are available, so try to avoid "load" funds if at all possible.

Transaction fees. Brokerages commonly charge these fees when they get a buy or sell order. These fees often run $10-50 per trade at a full-service brokerage, less at a discount brokerage. If you aren’t selling or buying big, these fees can add up.However, it is more difficult to avoid these fees for the convenience of a discount brokerage account.

Custodian/account fees. IRAs charge custodian fees (to help them pay for IRS reporting expenses) and mutual funds can charge annual account maintenance fees. Annually, these charges are usually under $100 in each instance – but think how much even $30 or $60 could grow and compound through the years.

Read that fund prospectus. It isn’t exactly light reading, but you can usually find the expense table in short order. Fund fees are always worth checking out – and if you don’t understand what a fee represents, ask a fiduciary fee-only financial advisor.

Keeping Your Credit Score Healthy

Wed, 11 Aug 2010 16:00:00 -0500

Keeping Your Credit Score Healthy

Annual income, twenty pounds; annual expenditures, nineteen pounds; result happiness.

Annual income, twenty pounds; annual expenditures, twenty one pounds; result, misery.

Charles Dickens

It doesn’t take much these days to damage a credit score. Before the recession, late payments and blasting through credit limits would take its toll. But in the past year, Fair Isaac, the company that developed the algorithm that is the leading determinant of our scores, made an important change in its formula.

It’s now putting much more emphasis on the size of your balances and how close they are to your total credit limit. It’s a behavior trigger that creditors see as a bigger worry than ever. So the best thing you can do for your credit score is to get your balances down to under half of your credit limit.

Even better, pay them off entirely and use them only when you know you can pay them off at the end of the month. Inactive accounts will ding your credit score, but quick payments can only help.

The latest revision in the FICO system will actually allow a bit of lenience on late payment – something that might affect more than a few consumers with the downturn in the economy. Obviously, this won’t mean that someone can chronically pay late, but once or twice won’t make the same impact as in earlier FICO versions.

Yet credit utilization – the amount of credit you’re actually using relative to your credit limit – is a much bigger deal simply because high balances are still prevalent among consumers. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers.

So, one more time. What’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit limit, and if you can get it significantly lower than that over time, that’s a good plan. The lower your credit utilization, the better your score.

What does that mean for ordinary Americans who don’t meet that under-50 percent goal? It means you shouldn’t be applying for new credit or refinancing for awhile, and that includes something as innocuous as a department store charge.

So maybe that means deferring gratification for awhile until you get things under control. But look at it this way – you can use this time as a way to develop more knowledge about credit and be in a better position long-term. Here are some things you need to know:

You’ll need at least a 740 score for the best rates: You’ll often hear that credit scores of 700 and up will get you best customer status with lenders. That’s true, but you need to aim significantly higher. For the lowest rates and best terms, you need to get your credit score above 740 (the top credit score, by the way, is 850), so keep that target in mind.

Budget: If you’ve never reviewed your spending and picked out areas where you can cut, you’ve never done a budget. Start tracking your spending either on paper or with financial planning software (Quicken)(Mint) and start pinpointing what spending you can shift over to paying off debt.

Get some advice: Remember that debt is just one part of your overall financial picture. It might not be a bad time to sit down with a financial planner to talk about your debt issues, planning for retirement, your kids’ college education and any other key financial goals.

Monitor your credit reports: Remember that you have the right to get all three of your credit reports -- from Experian, TransUnion and Equifax -- once a year for free. You can do so by ordering them at annual credit report. Order them individually at different points in the year. That means you’ll get an extended picture of how your credit picture looks because the three bureaus feed each other the latest information. You’ll also be able to clean up errors as you find them -- errors can drag down a credit score – and you’ll also keep an eye on identity theft. Oh, and make sure you use the site above and avoid the businesses that use “free credit report” in their title. It’s easy. If they ask for your credit card number, don’t do business with them.

Make electronic payments: Electronic bill payment will allow you to save on postage while guaranteeing on-time payment, and the budgeting advice mentioned above will allow you to put a few more bucks toward getting that loan or credit card bill paid off. It’s important to always pay more than the minimum payment on your bill – otherwise your balance will barely move.

July 2010 Monthly Economic Update

Fri, 06 Aug 2010 17:00:00 -0500

Dow Jones: @11,000 or @ 7,000?

July 2010 Monthly Economic Update

July 2010 in Brief

July is historically a good month for stocks, and July 2010 was no exception. Bulls took back Wall Street, encouraged by earnings reports (as of July 31, about two-thirds of companies in the S&P 500 had published earnings with about 75% beating expectations). The DJIA enjoyed its best month in a year.(source) Financial reforms were passed on Capitol Hill, and are now the law of the land. Rates on conventional mortgages hit lows unseen since the 1950s.The spring correction became a memory, even as analysts worried about a double dip and a stalling recovery.

DOMESTIC ECONOMIC HEALTH

A poll of “Main Street” revealed an American consumer who was markedly less optimistic. The final July University of Michigan/Reuters poll came in at 67.8; compare that to 76.0 for June. (That 67.8 was also a nine-month low.) The Conference Board poll also went south, declining from a 54.3 for June to a 50.4 in July. One minor morale boost happened early in July when June’s unemployment rate was announced by the Labor Department: 9.5%, down 0.2% from June and better than the 9.8% Wall Street analysts were expecting.(source)(source)

The manufacturing and service sectors were growing, just not booming – at least according to the latest readings from the respected ISM indexes. The non-manufacturing (service sector) index came to 53.8 for July after three straight months at 55.4, and the manufacturing index went from a 56.2 for June to a 55.5 in July (but that was much better than the 54.1 mark that analysts had predicted).(source)(source) Other indicators were less encouraging. We learned factory orders had fallen 1.4% for May, while durable goods orders had dropped by 1.0% for June (economists polled by MarketWatch had forecast a 1.1% advance). The Commerce Department also estimated retail sales down 0.5% for June.(source)(source)(source)

Analysts had new reason to discuss deflation. For the first time since the presumed depths of the recession (October-December 2008), the Consumer Price Index declined for a third straight month. In June, it was down 0.1%, although the Labor Department did estimate core CPI at +0.2% for June.(source)

In other news, the 2Q GDP number came out: +2.4%. No one was too excited about it. The Dodd-Frank financial reform bill was signed into law (the “no more bailouts” bill). Besides trying to prevent a repeat of TARP, it green-lighted the creation of a new watchdog agency to help protect and educate consumers in the financial arena, opened up derivatives trading to the public eye, and set the FDIC insurance limit permanently at $250,000.(source)(source) Long-term jobless benefits were extended for another six months and allowed homebuyers another three months to claim federal tax credits of up to $8,000.(source)(source)

GLOBAL ECONOMIC HEALTH

The fire was almost out in the European Union – or maybe it was just smoldering. The EU and the International Monetary Fund had put the debt crisis in Greece on the back burner with a 110 billion euro bailout (plus about $1 trillion worth of rescue packages for other EU nations with scarily high debt levels). The EU also conducted a stress test of 91 banks – all but a handful passed the test, which many economists thought was too easy. At the top of August, the euro was at a high unseen since March: $1.3261.(source)

The whole world watches Chinese manufacturing closely, and China’s official PMI index came in at 51.2 for July – a little disappointing, but easing concerns that its economy might be overheating. (However, a private sector PMI from that nation, the HSBC China PMI, went to 49.4 in July, indicating a bit of sector contraction plus the fourth month of decline in a row.) The pace of manufacturing declined across Asian economies in July, although the PMI in India improved for the sixteenth consecutive month. The EU’s manufacturing index also improved in July, going from 55.6 in May to 56.7 with Germany driving sector growth.(source)(source)

WORLD MARKETS

Indices around the world advanced dramatically last month. The MSCI World and Emerging Markets indices respectively gained 8.02% and 8.00%. Other big gains were recorded by Brazil’s Bovespa (+8.84%), Argentina's MERVAL (+8.70%), the RTSI in Russia (+9.16%), the Shanghai Composite (+7.24%) and even the FTSE in Great Britain (+8.05%). India’s Sensex (+2.43%), China's Hang Seng (+ 3.41%), Germany's DAX (+3.37%) and France's CAC 40 (+4.77%) all had nice months. The Nikkei 225 rose 0.51%. If you looked long and hard, you could find a down month – such as the July performance of the stock indices of Venezuela (-1.16%) and Vietnam (-1.35%). Year-to-date at the end of July, the global forerunners were Chile’s SSE (+20.79%) and the Jakarta Composite in Indonesia (+20.03%). In contrast, the Nikkei 225 (-10.58%) and the Shanghai Composite (-21.52%) represented the rear of the pack.(source)

COMMODITIES MARKETS

Would you believe gold had the poorest month of any headline commodity in July? It was -5.15% for the month, and silver also lost some ground, going -3.58%. However, other metals did much better. Copper rebounded in July (+12.79%) and palladium was almost as hot (+12.51%). Platinum pulled off a 3.00% July gain. Among energy futures, oil was up 4.39% for July, natural gas gained 6.65%, and gasoline and heating oil futures respectively rose 2.24% and 1.41%. The big mover was an unglamorous but hugely important crop: wheat. Wheat futures soared 37.74% in July and sugar didn’t do too badly either, jumping 21.86%. Other crops had strong Julys: milk went +10.67%, oats went +12.25%, and corn went +17.90%.(source)

REAL ESTATE

Home sales continued to seesaw, affected by the perceived expiration of federal tax breaks. In June, existing home purchases dropped by 5.1% from May levels (an effect from the closing of the deadline for federal homebuying credits). NAR did say they were up 9.8% from June 2009. New home sales rebounded from a startlingly bad May – they rose 23.6% for June. The latest Case-Shiller index (May 2010 data) had new home prices in 20 major cities 1.3% above year-age levels.(source)(source)(source)

Could mortgage rates get any lower? Yes. It seemed every week we reached another all-time low for the national average on the 30-year FRM. In Freddie Mac’s July 28 Primary Mortgage Market Survey, rates on 30-year conventional home loans were averaging 4.54% and rates on 15-year FRMs were averaging 4.00%.(source)

LOOKING BACK

The S&P 500 and the Dow had their best months in a year in July, and the NASDAQ logged its first monthly gain since April. At the end of July, the DJIA was back in the black.(source)

% Change	Y-T-D	1-Month Change	1-Year Change	10-Year Avg
Dow Jones	+0.36%	+7.08%	+14.33%	-0.05%
NASDAQ	-0.64%	+6.90%	+13.63%	-4.01%
S&P 500	-1.21%	+6.88%	+11.64%	-2.30%
Real Yield	07/30 Rate	1 Yr Ago	5 Years Ago	10 Years Ago
10 Year TIPS	1.14%	1.78%	1.92%	4.03%

Source: cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 7/30/2010 (source)(source)(source)

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

In August, we have the widely held perception that the recovery is crawling along. We now have news from the Commerce Department that both consumer spending and consumer income were flat for July, adding fuel to that fire.(source) Again and again, the stock market has recovered from downturns faster than the economy. Another stimulus is probably not in the cards. So we are in sit-and-wait mode: frustrating perhaps, but the Great Recession was one of the severest in memory. Talk of a double-dip has begun to fade a bit. At the end of June, who would have guessed July would have been so fantastic? Hopefully, we will see stocks rise a bit, if not in late summer then perhaps after election time.

In Family Finances, Women Are Taking A Larger Role

Fri, 30 Jul 2010 13:00:00 -0500

In Family Finances, Women Are Taking A Larger Role

Financial advisers are noticing a shift.

A development few have noticed. The recession that started in 2007 quietly brought an economic shift to millions of American families - the woman of the house became the primary wage earner.

In June 2010, Labor Department data showed that nearly 22% of American men aged 25-65 were unemployed. This male population also undoubtedly makes up a big chunk of the “underemployed”, which includes part-time workers and those who have given up looking for jobs. As of June, 16.6% of Americans were underemployed.(source)

So in mid-2010, we have a situation where perhaps about 25% of men aged 25-65 cannot find full-time work. (That figure might be higher.) It’s also worth noting that layoffs have plagued construction and manufacturing - two sectors of the economy with mostly male employees.

The effects? Women are presently breadwinners in millions of families. When a new breadwinner emerges in a family, you often have some shifts in the family’s financial life – and financial priorities and objectives can be altered.

As an article on the website of Financial Advisor Magazine noted, some financial consultants are seeing a “significant uptick” in the number of women asking them for advice.(source) When a secondary earner in a family becomes the prime earner, that person usually develops more awareness of the family’s financial state and may seek financial advice in a way that the previous breadwinner has not.

In 2010, are women more realistic about retirement? The 2010 Retirement Confidence Survey from the respected Employee Benefit Research Institute indicates that women are much more realistic (and pragmatic) about their financial readiness for retirement than men. In the 2010 survey, 19% of men said they felt that they would have enough money to live comfortably throughout their retirement years, while only 12% of women taking the survey said so. While 33% of men felt they would have enough money to cover basic retirement expenses, only 25% of women did.(source)

If you ask many financial consultants, they will tell you that they find women more open to financial education, with fewer entrenched beliefs and presumptions. Women are often quick to realize how much they don’t know, how much they can learn, and how much needs to be done. Only 22% of the workers in the 2010 EBRI Retirement Confidence Survey said they had savings or investments of more than $100,000, so coming to the realization that you need to do more for retirement is a very good thing.(source)

Some men have a very subjective take on the financial world and their financial status and potential, whereas women tend to be in search of a candid, objective assessment of what needs to be done and what options are available. With the economy affecting retirement accounts, retirement dreams, and employment, it isn’t surprising that high-earning women are taking the lead for millions of families – and taking and interpreting all the financial advice they can get.

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Will Financial Reform Live up to the Political Hype?

Thu, 22 Jul 2010 10:30:00 -0500

Will Financial Reform Live Up to the Political Hype?

Much is hazy about the Dodd-Frank bill, even though it has passed.

Will the goals of the reform bill really be met? On July 15, the Dodd-Frank Wall Street Reform and Consumer Protection Act passed 60-39 in the Senate. Next week, the bill is expected to be signed it into law.(source)

"Because of this reform, the American people will never again be asked to foot the bill for Wall Street's mistakes," the President said in mid-July. "There will be no more taxpayer-funded bailouts, period." Time will tell if this is true, Mr. President.

Will his words prove true? Some doubt it, while the bill’s adherents think this is a great and necessary step to prevent another Wall Street crisis. Frankly, there are some good ideas in the legislation, yet is troublesome for the many new government agencies and bureaucracy created. Congress avoided the Fannie Mae and Freddie Mac controversy by denying these quasi-government agencies contributed to the financial meltdown. Further, Senator Dodd's banking committee booted the fiduciary standard entirely.

However, the step is still being taken – it remains to be seen how the reforms passed will be implemented, and some may be implemented to a lesser degree than intended.

Goal 1: No replay of TARP. In brief, the bill gives federal regulators added power to ward off possible bank collapses. In the near future, these regulators could make too-big-to-fail determinations, set bank capital ratios and ceilings on financial industry CEO compensation, and rule on the types of proprietary investments allowable for banks. The idea is keep financial giants from turning into houses of cards. However, conservatives warn that too much regulation could prompt U.S. financial firms to conduct increasing amounts of business in nations with less-regulated financial markets.(source)

One of the most vocal opponents of the bill was House Minority Leader John A. Boehner (R-OH), who likened the legislation to "killing an ant with a nuclear weapon.” Boehner thinks that the bill “institutionalizes” the too-big-to-fail notion. (source) Other conservatives agree and think that the federal government might keep the bailout option around for big banks when it should be throwing it away.

Goal 2: Consumer education and protection. The bill creates a Consumer Financial Protection Agency within the Federal Reserve – a new bureau to watch over mortgage lenders, credit card companies and consumer banking practices. The idea is to prevent things like “liar loans” and specious fees. Detractors think the CFPA and its regulations will actually bear a negative byproduct - they think businesses and individuals will have a tougher time getting credit. How big a reach will the CFPA have? How much autonomy will it have? That hasn’t been defined.

Goal 3: Transparent derivatives trading. Most of the trading in the derivatives market happens out of the public eye. No more, according to this reform bill: it will take place on public exchanges, the better to pinpoint systemic risks. Almost everyone applauds this measure.(source)

Goal 4: Identifying bubbles. No just stock or commodity bubbles, but also real estate bubbles and bubbles in any economic sector. A new agency, the Financial Stability Oversight Council, will seek to find them. No one knows its regulatory scope yet. Seems almost laughable the government can identify bubbles. (source)

Goal 5: Double-checking credit ratings. Why did Wall Street fall in love with derivatives? Didn’t the credit ratings agencies warn banks about the peril of such investments? Allegedly not. So an Office of Credit Ratings will be created as part of the Securities & Exchange Commission. The OCR will monitor the big Wall Street credit ratings firms and watch out for possible conflicts of interest affecting ratings.(source)

Interesting minutiae. When Dodd-Frank bill is executed, it will kill the Office of Thrift Supervision – that’s the office that was supposed to prevent bank collapses. As we can tell by the failure of Washington Mutual and IndyMac, the “supervision” may not have been all that focused. The Office of the Comptroller of the Currency will pick up its duties. (The Dodd-Frank bill also has a nice wrinkle for former IndyMac accountholders: it boosts the FDIC coverage on those accounts to $250,000, retroactive to before IndyMac went bust.) (source)

Another consequence of the Dodd-Frank bill: all TARP payments will end immediately. And don’t look for a new futures market in the offing based on Hollywood box office receipts – the big movie studios wanted to try and make that a reality, but the reform bill won’t allow it. (source)

What do you think about financial reform?

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June 2010 Monthly Economic Update

Wed, 07 Jul 2010 16:00:00 -0500

June 2010 Monthly Economic Update

The month in brief

June was not a good month for U.S. economic indicators, and therefore not a good month on Wall Street. Concerns surfaced that the recovery was running out of gas, and that the economic rebound witnessed over the last year was an effect of federal measures. The housing market figures were particularly sad. Additionally, worries about Europe were joined by concerns about China. June was better than May on Wall Street, but that’s not saying much.

Domestic economic health

Indeed, all kinds of May economic data seemed to point to a slowdown – and some of it indicated deflation.

Housing market malaise aside, factory orders were down 1.4% for May, and durable goods orders diminished by 0.6%.(source) The ISM manufacturing index was 59.7 for May yet a disappointing 56.2 for June (its May service sector index was over 50 at 55.4).(source)(Source) Retail sales for May unexpectedly fell 1.2%, and auto sales fell 10.8% (though those figures were respectively 6.9% and 14.4% above year-ago levels).(source)

June’s jobless rate was down 0.2% to 9.5%, but as an effect of the U.S. Census layoffs, you had just 83,000 jobs added and 125,000 jobs shed.(source)

Personal spending was a bright spot: consumer spending was up 0.2% for May, with wages up 0.4%. Consumer prices retreated 0.2% in May, and producer prices fell 0.3%.(source)(source)

Global economic health

As June drew to a close, the big news item was not from Europe but from Asia. China’s benchmark manufacturing index registered 52.1 for June, down from 53.9 in May and the second straight month of decline. PMI indices in India, Taiwan, South Korea and Australia dipped in June as well – all of them still showed growth, but at a slower pace.(source) This added to concerns about a global slowdown.

As for the European Union, the EU announced that no member country would need to have its debt restructured. Former EU Commission President (and former Italian prime minister) Romano Prodi went on record with his proclamation that the “worst part” of the debt crisis in Europe was over, with little risk of any EU country ditching the euro.(source)(source)

World financial markets

Some stock indices fared better than ours. The Dow Jones Stoxx Europe 600, for example, lost but 0.67% last month. England’s FTSE 100 slipped 5.23%. There were even gains: the Stock Exchange of Thailand rose 6.3. Indonesia’s JSX Composite and the KSE in Pakistan both advanced 4.2%. South Korea’s KOSPI rose 2.8% while the Hang Seng went up 1.8% for June. The Taiwan 50 and the CAC 40 respectively dropped 1.7% and 1.8%. Russia’s RTSI fell 3.3% and the Shanghai A Shares Index dipped 7.5%. Germany’s DAX managed a flat month. The MSCI World Index fell 3.56% in U.S. dollar terms, while the MSCI Emerging Markets index lost only 0.91% on the month.(source)(source)(source)

Commodities markets

Key metals, energy futures and the dollar did well in June. In the middle of last month’s market turmoil, gold rose 2.75% (by the way, the 2Q gain was 11.87%). Gold topped the $1,250 mark in June and ended the month at $1,245.50 per ounce. Copper prices fell another 5.20% to $2.94 a pound. Natural gas futures rose 6.33% while oil futures pulled off a 2.24% monthly gain. The U.S. Dollar Index rose 0.10% last month, and that also put it up 10.60% on the year.(source)(source)

Housing & interest rates

June was a month characterized by lows. The spirit in the real estate market was pretty low after the May home sales data was released; it seemed to hint that the housing rebound of the last few months was too reliant on federal stimulus measures. Without the $8,000/$6,500 federal tax credit in place, new home sales sank a jarring 32.7% according to the Commerce Department. The National Association of Realtors said existing home sales also slipped for May, falling 2.2%. May housing starts were down also: 10.0% overall and 17.2% for single-family homes.(source)(source)

Another kind of low resulted in more positive headlines. At the end of June, mortgages had become almost as cheap as they were during the 1950s. On June 30, Freddie Mac’s Primary Mortgage Market Survey had average interest rates on 30-year FRMs at 4.58%, with rates on 15-year FRMs averaging 4.04%, rates on 5/1-year ARMs at 3.79% and rates on 1-year ARMs at 3.80%.(source)

Looking forward

As we get into July, Wall Street has a number of things on its mind – the strength of the recovery, the concern about economies in Asia and Europe slowing down or struggling with debt, the apparent fragility of the housing market. Looking at barometers like consumer spending and the ISM indices, the economy is still growing. The question is, can it grow fast enough or strongly enough to please the investor? We are getting into another earnings season in mid-July, which should provide a bit of a boost. Unemployment is the prime domestic economic indicator in the way of the bulls right now.

Looking back

The big indices did not lose as much territory in June as they did in May, but as you see there is much ground to be made up in the second half.

%Change	Y-T-D	June 2010	2QTR2010	1-Yr Change
Dow Jones	-6.27%	-3.58%	-9.97%	+15.71%
NASDAQ	-7.05%	-6.55%	-12.04%	+14.94%
S&P 500	-7.57%	-5.39%	-11.86%	+12.12%

(Source: CNBC.com, ustreas.gov, 6/30/10)(source)(source)(source)
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

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Financial Reform Bill Highlights

Mon, 28 Jun 2010 14:00:00 -0500

FINANCIAL REFORM BILL HIGHLIGHTS

Congress agrees on a bill. How would it change the financial landscape?

Next month, President Obama will likely sign a bill into law ordering changes in the ways banks, credit card issuers and mortgage lenders interface with consumers. Here are the key features of the financial reform agreement that the Senate and House of Representatives came to on June 24, with a vote pending.

#1: The Bureau of Consumer Financial Protection. This new consumer agency answering to the Federal Reserve would supervise mortgages, credit cards, student loans and the banks, credit unions and private lenders that issue them. Institutions holding less than $10 million in assets wouldn’t be regulated by the BCFP – but they would have to follow its rules. The BCFP would aim to make these products easier to comprehend for consumers and crack down on any possible deceptive practices.(source)(source)

#2: See your credit score for free. If you are turned down for a mortgage or a loan, the new reforms would give you the power to see the credit score supplied to your lender. Right now, you can request three free credit reports each year but you can’t see your actual score.(source)(source)

#3: Tougher rules for mortgage lenders. These rules should have come into play years ago, of course, but better late than never. Mortgage lenders would need to verify the assets and income of borrowers, thwarting any surreptitious comeback for “liar loans”. Loan officers and mortgage brokers would not be able to receive bonuses for guiding you into this or that loan. Borrowers with ARMs and other types of complex home loans could not be hit with prepayment penalties should they want or need to pay off a mortgage before the end of its term.(source)(source)

#4: Retail minimums for the use of credit cards. Score one for retailers, who don’t want to see people make $2 credit card purchases when the swipe fee alone cancels out the revenue. Under the new legislation, stores could set minimums for credit card use. The minimum transaction level could be as high as $10 if a store chooses; the Federal Reserve could raise that $10 limit on the minimum with time.(source)(source)

Alternately, stores could offer consumers discounts if they pay for items with cash or debit cards. (They wouldn’t be able to vary the discounts for different debit cards.)(source) Additionally, the proposed reforms could allow colleges and universities and the U.S. government to set maximums for credit card transactions.(source)

#5: Brokers will not be held to a fiduciary standard. This portion of the bill is not consumer friendly! Under the new reforms, the Securities and Exchange Commission now has the chance to hold brokers to the same fiduciary standard common to financial advisers – that is, investment brokers would have to put a client’s best interest first and not simply recommend a “suitable” investment to a client. That new standard may or may not come into play, however; the SEC is undertaking a six-month study to see if such a rule would amount to regulatory overlap or not.(source)

#6: The “Volcker Rule” would be put into play. This is the rule that would prevent banks from trading with their own money. It would kick in with small concessions. While the reforms would halt most proprietary trading by banks, some limited investment would be permitted – they could provide up to 3% of a fund’s equity, and invest up to 3% of Tier 1 capital in hedge or private equity funds.(source)

The big banks got another key concession from Congress: they don’t have to get rid of their swaps-trading desks (some legislators had contended that this decision would drive such trading to foreign markets). They can still be involved in foreign-exchange and interest-rate swaps dealing.(source)

#7: An Office of Credit Ratings would appear. It would oversee the actions of Moody's, Standard and Poor's and other big names, and one of its objectives would be to flag potential conflicts of interest that could influence ratings judgements.(source)

#8: The SEC would no longer regulate equity-indexed annuities. Another poor provision of the reform bill! The promotion and sale of these annuity contracts has generated much flak in recent years. Interestingly, they would be overseen by state insurance regulators if the reform bill passes, and treated strictly as insurance products.(source)

Now, what about Fannie Mae and Freddie Mac? Two of the larger elephants during the financial meltdown (and continuing to be so) were left untouched. Amazing! Nothing made it into the final reform bill to address that dilemma. Some analysts expect another bill will emerge in 2011 to propose their restructuring or elimination.(source)

Why People Want Independent Financial Advisors

Thu, 24 Jun 2010 13:30:00 -0500

WHY PEOPLE WANT INDEPENDENT FINANCIAL ADVISORS

A new perception has taken hold: “independent” is better.

Times have changed – and so have financial advisors. Today, people don’t want financial advice from a salesman. Instead, they want a relationship with a financial professional who is candid, trustworthy and thoroughly educated, who provides personalized financial consulting for each client.

That search often leads them to a fee-only financial advisor or a Registered Investment Advisor.

A pleasant alternative to Wall Street. A paradigm shift is happening, and the traditional brokerage houses are lagging. While old-school “stock brokers” have gone the way of the wooly mammoth, you still have a sales-first mentality in place at big banks and Wall Street brokerages. If you’re employed by one of them, the mantra is simple: make a sale, earn a commission.

As they try to serve their clients, these “wirehouse” brokers regularly contend with sales quotas and the inherent potential for conflicts of interest. It wears on them: a 2010 survey revealed that only 15% were “very satisfied” at their firms, and another 20% wanted to leave within two years.(source)

Given the tarnished reputations of so many giant banks and brokerages, it isn’t surprising that consumers are turning elsewhere for financial advice. Here are two popular destinations.

Fee-only financial advisors earn no commissions at all. They derive 100% of their income from client fees - annual management fees, hourly or per-project consulting fees. With this compensation arrangement, you know a fee-only advisor is available to help you address myriad issues in your financial life without any conflicts of interest from a product sale. The best and brighest belong to NAPFA, an organization of fee-only financial planners. Consider using NAPFA's "Find An Advisor" service to locate a member close to your location.

Be aware of those using the term "fee-based" financial advisors. These advisor mimic the characteristics of fee-only advisors, yet still sell product during their implementation phase of planning. Conflicts of interest arise and you may not be best served by those operating in this capacity. You have been forwarned!

A Registered Investment Advisor (RIA) usually works to manage the assets of high net worth investors. An RIA receives management fees and does not receive commissions. The management fees usually represent a percentage of the assets a client has invested. RIAs have to register with the Securities and Exchange Commission and any states in which they operate.(source) Individuals, couples, families and institutions with sizable wealth management concerns often turn toward RIAs. Most fee-only financial advisors and planners are registered investment advisors as well. The RIA is not a designation, just a registration with the SEC or state.

Even as the market has struggled since the end of 2007, independent Registered Investment Advisors have gained a greater share of assets under management in the U.S.(source)

People need unbiased advice. That’s probably the #1 reason why people seek a fee-only independent financial advisor. They know the advice they will receive is not influenced by sales incentives or directives. There is often a candor to the discussion that may not always be present at a bank or a brokerage.

People want more investment choices. An independent financial advisor is free to offer investments from dozens, maybe hundreds of companies, rather the investments of a single company. In addition, a fee-only independent advisor can unhesitatingly tell you if an investment is or isn’t appropriate for your financial situation.

This is the age of independence. When it comes to the financial future, no one wants to be “sold” – just advised. That’s why we’ve seen the rise of a new kind of fiduciary fee-only financial advisor who puts the client relationship first and foremost.

May 2010 Monthly Economic Update

Fri, 11 Jun 2010 17:30:00 -0500

May 2010 Monthly Economic Update

The month in brief. Stocks corrected, investors sighed, and Wall Street couldn’t wait for May to end. In performance terms, it was the Dow’s poorest May since 1940 and the S&P 500’s weakest May since 1962.(source) European debts hung like a dark cloud over the markets – and took attention away from earnings and some positive indicators at home.

Domestic economic health. Consumer incomes outpaced consumer spending in April: while personal spending was flat, personal wages were up 0.4% and disposable incomes up 0.5%, and the savings rate increased half a point to 3.6%.(source) We also had a bit of deflation: the Consumer Price Index and the Producer Price Index each declined 0.1%. (Core CPI was flat for April.)(source) The unemployment rate kicked up to 9.9% for April, even as the economy added 290,000 more jobs (more in the government sector than private sector!).(source)

The twin consumer sentiment barometers showed monthly gains: the University of Michigan/Reuters survey improved to 73.6, and the Conference Board’s index hit 63.3, a level unseen since September 2008.(source) More concretely, we had April improvements in industrial output (+0.8%), retail sales (+0.4%) and durable goods (+2.9%).(source)(source)

The Senate passed its take on the financial industry reform bill 59-39 on May 20, with the next stop reconciliation with the House version passed in late 2009. That may occur during June.(source)

Global economic health. The whole world watched Europe, fearing that even as the EU/IMF plan to ease the debt burden on Greece, Italy, Spain, and Ireland got underway, it wouldn’t be enough. The 27 European Union governments have amassed debt equal to 80% of the EU economy.(source) The flashing red debt light naturally led economists to ponder the chances of a double-dip recession. German chancellor Angele Merkel’s mid-May opinion that the bailout effort had “done no more than buy time” didn’t exactly boost confidence within global markets.

How about Asia? Well, new tensions between North Korea and South Korea built in late May, adding to global financial concerns. Away from that, Japan’s household spending retreated by 0.7% in April (better than the -2.5% economists expected) and its unemployment rate reached 5.1%.(source) Manufacturing indexes in China, Taiwan, South Korea and Australia all pointed to further expansion in May (though the pace of expansion was slower than in April).(source)

World financial markets. There were actually some monthly gains in May – the Philippines All Shares Index advanced 1.0%, and Chile’s IPSA rose 0.6%. That positive news aside, sizable May losses occurred on multiple continents. The DAX fell 2.8%, Canada’s TSX Composite 3.4%, the Sensex 3.5%, the South Korean Kospi 6.0%, the Hang Seng 6.4%, the Bovespa 6.6%, the FTSE 100 7.1%, the Singapore STI 7.5% … and all of those indices did better than the Dow. Others suffered double-digit drops: Australian All Ordinaries, -10.3%; Spain’s IBEX, -11.1%; Russia’s RTSI, -12.0%.(source) The MSCI World Index lost 9.91% in U.S. dollar terms; the MSCI Emerging Markets index fell 9.18% in those terms last month.(source)

Commodities markets. So how did gold do given all this turmoil? Very well. Those futures gained 8.88% in May. The other notable NYMEX/COMEX gains: coal, +7.72%; milk, +7.59%; pork bellies, +6.30%; orange juice, +5.62%; silver, +5.15%. The major monthly declines included oil (-11.89%), gasoline (-12.46%), copper (-12.62%) and at the bottom, sugar (-14.47%). The U.S. Dollar Index gained 6.00% in May.(source)

Housing & interest rates. The numbers were influenced by expiring tax breaks, an expiring school year and warmer weather, but they were still encouraging: existing home sales rose 7.6% for April month according to the National Association of Realtors, and the Commerce Department had new home sales up 14.8% that month (and 47.8% above year-ago levels).(source) Pending home sales, affected by the same phenomena, were 5.3% higher in March and reached a five-month peak.(source) Housing starts increased by 5.8% for April, but the Commerce Department had building permits down 11.5% - again, an effect of expiring federal credits.

With no murmurs of the Federal Reserve hiking interest rates in the near future, average rates on assorted home loans remained low. In fact, they went lower. According to Freddie Mac’s Weekly Primary Mortgage Market Survey on April 29, the average rate for a 30-year FRM was 5.06%; on May 27, it was 4.78%. The average rate for a 15-year FRM went from 4.39% to 4.21% during that interval. As for 5/1-year hybrid ARMs and 1-year ARMs, the average rates for those home loan types in the May 27 survey were 3.97% and 3.95%. Compare that to 4.00% and 4.25% in the April 29 survey. With Treasury yields going lower last month, some called this the American silver lining to the European debt crisis.(source)

Major indices. The numbers tell a rather painful story, hopefully not to be repeated in June. The CBOE VIX rose 45.40% in May, the biggest monthly percentage increase since October 2008.(source)

% Change	1-Month	Y-T-D	1-Year
Dow Jones	-7.92%	-2.79%	+20.62%
NASDAQ	-8.29%	-0.53%	+28.84%
S&P 500	-8.20%	-2.30%	+20.13%
10-Yr TIPS	+2.33%	-10.81%	-20.96%

(Sources: cnbc.com, bigcharts.com, ustreas.gov, 6/1/10)(source)(source)(source)
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

June outlook. Will the austerity measures and bailout package in the European Union inspire confidence? Will investors stop selling out of fear and buy with renewed confidence? Will the correction reach a point of capitulation soon? (Has it already?) Can certain European countries alter their financial behavior as well as their balance sheets? These are the big questions. Could a rebound start with news of a drop in the jobless rate, and further encouragement from other domestic indicators? There is plenty of bullish sentiment left in the tank – and there could plenty of volatility to contend with this month and this summer if the situation in Europe isn’t stabilized. Let’s hope that the market has witnessed a bottom and can return to rally mode.

The New Migraine Headache - Form 1099

Mon, 17 May 2010 12:30:00 -0500

The New Migraine Headache - Form 1099

Warning! Please be seated when you read this blog post. One of the provisions of the Health Care Reform bill is going to give all Americans a migraine headache. Section 9006 of the health care reform bill is going to require the use of Form 1099 in huge quantities.

Picture this … it’s a chilly morning in January 2012. You head out to your local office supply store to stock up on some essentials for your business – printer cartridges, copy paper, post-it notes, and a 500-pack of 1099 forms.

What? What was that last item again? 1099s? Yes, we may need them in bulk.

In 2012, you may need hundreds of 1099s. Why? Section 9006 of H.R. 3590 (the Patient Protection and Affordable Care Act, better known as the health care reform bill) has quietly ordered an enormous change in tax reporting.

Section 9006 says that starting on January 1, 2012, all businesses must issue 1099 tax forms not only to freelancers and vendors, but also to any individual, business or corporation from which they purchase more than $600 in goods or services in a tax year. What? Unbelievable. (source)(source)

Think about this for a moment. Let’s say that in 2012, you spend a few days in Dallas on business and stay at a nice hotel. If the bill is more than $600, you’ll have to give that hotel (and the IRS) a 1099 for your visit. Suppose you buy $900 worth of office furniture at a big-box retailer. Guess what: your company will have to give that retailer (and the IRS) a 1099.(source)

If you rent office space, you’ll need to send a 1099 to the IRS and your landlord. If your business buys a used truck worth more than $600, it will be time for a 1099. And so on.(source)

Even if you pay more than $600 incrementally to a business for goods or services in 2012 (i.e., you buy wine and sparkling water for your café every week from the same warehouse), you will still have to issue that business and the IRS a 1099.(source)(source)

This means you’ll have to have taxpayer ID numbers for every freelancer, vendor and business from whom you purchase tangible goods and services. Another unbelievable burden on small and large business alike.

Why would the government do this? The goal is better reporting, plain and simple. The IRS estimates that $300 billion (that’s billion) in tax revenue goes down the drain annually as a consequence of unreported income.(source)

If 1099s record the majority of payments a business makes, that means businesses and self-employed individuals will be less likely to understate revenue and overstate expenses. In 2012, it will be easier to figure out precisely which business transactions need 1099s. If more than $600 is involved, the answer will be yes – that will be the only test.(source)

Is anyone working to repeal this change? Yes. Rep. Dan Lungren (R-CA) has introduced the Small Business Paperwork Mandate Elimination Act to try and get rid of this demand. At some point in 2011, the IRS will have public hearings on the new law and release regulations pertaining to it. Expect a loud, lively protest.(source)

As a small business owner, this has my blood boiling. It seems surreal the firm's clients will issue the firm a 1099 for services provided. Shame on Congress for legislating such a burden on the American taxpayers.

If you disapprove, contact your Congressman and Senator immediately in writing. Further, there is an election in November. Make your voice heard at the ballot box. It is time to bring sanity back to our legislative process and the IRS Code.

European Debt and the U. S. Markets

Mon, 10 May 2010 13:00:00 -0500

EUROPEAN DEBT & THE U.S. MARKETS

Why the crisis has Wall Street stressed.

It would be wonderful if the U.S. financial markets could “decouple” themselves from what is going on in Greece, Portugal and Spain. Unfortunately, the debt situation in these countries is like a ripple in a pond. The question is, how strong will the ripple ultimately be and will its full force reach our markets?

The problem. Greece, Spain, Portugal, Italy and Ireland are all carrying enormous debts. On May 1, the New York Times put up a chart breaking this down: Greece owes $236 billion, which believe it or not is the smallest debt among these five countries. Portugal’s debt stands at $286 billion – and it owes roughly a third of that to Spain. Spain carries around $1.1 trillion in debt, and its economy is in horrible shape (20% unemployment). According to the Bank for International Settlements, it owes $220 billion to France and $238 billion to Germany. Ireland has $867 billion in debt, with about 40% of that owed to the U.K. and Germany. Italy owes $1.4 trillion, including $511 billion to France (almost 20% of France’s GDP).(source)

After the euro was launched, Greece had access to a whole bunch of cheap debt - and the country used it nonchalantly. In the years since the establishment of the euro, Greece’s debt-to-GDP ratio has remained repeatedly above 100%.(source)

Europe’s biggest banks are heavily exposed to these debts, and so are some of ours: names like Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley. In fact, these five banks have $2.5 trillion of cross-border exposure in the crisis, with Citigroup the most exposed. So you have potential risk to these banks, the euro, and the European and world economy.(source)

The offer on the table. Fortunately, Greece has the chance to accept a $146.5 million bailout from the International Monetary Fund and the European Union in exchange for austerity measures (less government spending and a lower standard of living). This would help Greece avoid default – that is, having to renegotiate its debt and possibly assume more. (As a sovereign nation, Greece cannot go bankrupt.) Many economists think Greece will go into a deep recession (or depression) which could last most of the decade.(source)(source)

The potential ripple. It looks like the bailout will be accepted by Greece and its EU partners. This means some confidence will return and other Eurozone nations with big debts will be slightly less threatened. However, Greece still has a risk of default.

Should Greece default even with the bailout, some major lenders in France and Germany would be hit very hard. They would have to raise capital ratios and reduce the frequency of loans. That would hamper economic growth in France, Germany and in turn across Europe. In coming months, the U.S. and other nations could feel the pinch from such a slowdown.(source)

Keep in mind, Greece only represents about 2% of the Eurozone economy.(source) In the roughest scenario, Spain or Italy defaults and the shock wave to European banks (and U.S. banks exposed to the debt) is significantly greater. What would happen then? A credit freeze across Europe? Diving stocks? A trashed euro? A flight to gold?

These are merely scenarios, not present realities – but in a nutshell, this is what had Wall Street biting its nails this spring.

So is the bailout truly a solution? It was unpopular throughout the EU, but the right step to take. The move certainly helped defend the stability of the euro; in fact, German Chancellor Angela Merkel and French President Nicholas Sarkozy have jointly pledged to preserve the euro’s value.(source)

The worry is that other bailouts will be needed to preserve the fiscal health of other Eurozone nations. We all hope these countries can effectively manage their debt levels, for the sake of the U. S. stock market and our economy.

A Wild Thursday - May 6, 2010 - On Wall Street

Fri, 07 May 2010 13:30:00 -0500

A WILD THURSDAY ON WALL STREET

What’s the difference between “billions” and “millions”? About 650 points.

Did a mistake make a selloff more severe? The Dow Jones Industrial Average settled at 10,520.32 Thursday after a 347.80 loss, with fears over European sovereign debt affecting Wall Street. Yet the 347.80 decline was just half the story.

The Dow also saw its greatest-ever intraday swoon Thursday, diving 998.50 below the open at one point and taking an intraday swing of 1,007 points.(source)(source)

What happened? At this point, it looks like the same kind of thing that happened on Black Monday in 1987: technology and trading errors betrayed Wall Street.

That was “millions”, not “billions”! Citing multiple sources on May 6, CNBC and Reuters reported that a trader, possibly at Citigroup, mistakenly typed a “b” for billion instead of an “m” for million – apparently when authorizing a trade concerning Procter & Gamble. P&G shares fell 37% at one point (more than $22) before recovering to lose 3% on the market day.(source)(source)(source)

As the selloff gained momentum, some weird things happened Thursday. In a stretch of two minutes, 16 billion e-minis (futures contracts tied to the S&P 500) were sold. Accenture became a penny stock – no kidding, share values were showing up at $.01 on the New York Stock Exchange at one point. PG and 3M shares actually went below the “circuit breaker” level on the NYSE, freeing traders to purchase and sell shares of those companies on other exchanges. Clearly, technology was running wild.(source)(source)

Will trades be erased? Apparently some will be: Thursday evening, the NASDAQ announced it would cancel all trades of stocks whose prices moved more than 60% between 2:40-3:00pm EST on May 6. Just minutes after that news item, the NYSE said it would do the exact same thing.(source)

What’s the lesson here? Don’t panic. Be patient. Don’t succumb to impulse when it comes to stocks. In the last few years, we have seen amazing market volatility AND amazing rebounds - and the resilient bull market we’ve seen has taught every investor that stocks can impressively snap back. Curse the technology that caused this swoon if you like, but keep fundamentals and diversification ever in mind.

April 2010 Monthly Economic Update

Fri, 07 May 2010 10:30:00 -0500

April 2010 Monthly Economic Update

If you don't know who you are, the stock market is an expensive place to find out.

~Adam Smith

The month in brief. As the weather warmed up, the market was still pretty hot: the S&P 500 pulled off a 1.48% gain for April.(source) On the whole, stocks overcame some major challenges: credit ratings were slashed for three European nations, and Goldman Sachs faced an investigation on charges of securities fraud. With scandal on Main Street’s mind, a financial reform bill started a journey through the Senate (see this blog post for more details)

Domestic economic health. There were two great economic developments in April. First, consumer spending rose by 0.6% for the month (after a 3.6% increase in the first quarter). There was also a 0.3% gain in wages, the first gain of 2010. Additionally, the Institute for Supply Management’s factory index hit 60.4 for April, the best reading since June 2004 and a nice complement to the ISM March service sector index, which moved north 2.4 points to 55.4.(source)(source) Durable goods orders also improved in March, with a 1.3% gain.(source)

On paper, the recession seemed by all means over … but it seemed the recovery was only starting to trickle down to Main Street. As President Obama remarked last month, “’You're hired’ is the only economic news [Americans] are waiting to hear.” Yes, Mr. President, Americans want this first and foremost the day you entered office. Are you listening now?

The jobless rate remained at 9.7% in March, and analysts see little movement for the April report.(source) Consumer sentiment polls differed: the Reuters/University of Michigan survey slipped to 72.2 – still better than the 71.0 economists forecast – while the Conference Board’s April survey indicated the best consumer sentiment since September 2008.(source)

A massive financial reform bill was cleared for debate in the Senate. If made law, it will create a new consumer watchdog agency regulating banks and brokerages, impose the “Volcker Rule” to bar banks from proprietary trading, and put tighter scrutiny on hedge funds and derivatives – all with the ultimate mission of preventing another bank bailout.(source) Is this a good and necessary move, or more bureaucracy and more pain for banks when they are trying to recover from the downturn? You’ll hear both sides of the story across spring, summer and maybe fall. In our opinion, this new bureaucratic regulatory watchdog is totally unnecessary.

Global economic health. In the last week of the month, Standard & Poor’s downgraded the debt ratings of Spain, Greece, and Portugal – cause for alarm, and a shock to the Euro.(source) The International Monetary Fund and the European Union announced a $144 billion bailout package for Greece as April ended.(source) However, investors worried about contagion. Was this just a band-aid on the way to default? How hard would this hit global banks?

In the Asia Pacific region, the news was decidedly better. China’s gross domestic product was growing at its fastest pace since 2007 – annualized GDP was projected at 11.9% off the February data.d(source) Australia learned its inflation rate nearly doubled during 1Q 2010, and Japan’s overall retail sales saw a third straight monthly gain. Japan’s central bank changed its 2011 economic forecast to show minimal inflation instead of mild deflation.(source)

World financial markets. Most of the foreign indices had a poor month, thanks to sovereign debt issues. Ireland’s ISE index actually rose 6.9% last month; the Philippines All Shares rose 3.3% and Argentina’s Merval rose 1.0%. Russia’s RTSI was flat for the month.

As for the downside, Germany’s DAX was down 0.3%. Australia’s All Ordinaries lost 1.4%, the FTSE 100 lost 2.2%, Spain’s IBEX fell 3.0% and France’s CAC 40 slipped 3.4%. Portugal’s PSI 20 dropped 9.4%.(source) The MSCI World Index gained 0.07% in local currency terms for April; the MSCI Emerging Markets index lost 0.15% in local currency terms last month.(source)

Commodities markets. Call it a flight to quality, a flight to safety, whatever you wish – it was a fine month for gold and other precious metals. Gold advanced 6.0% for April, settling at $1,180.10 on the NYMEX at month’s end. Silver gained 6.4% and platinum 6.0%; palladium went north by 15.8%. Copper was not so fortunate – futures fell 5.9% in April. The metal that had such a fantastic 2009 was up only 0.3% YTD through April.(source)(source)

Oil gained $2.39 a barrel in April, putting prices at $86.15 at the end of the month and capping an 18.19% jump in crude futures since the start of February. The U.S. Dollar Index gained 0.97% last month.(source)(source)

Housing & interest rates. The numbers got a little wacky, skewed again by the rush to take advantage of expiring tax credits. March new home sales rose by 26.9%. It was the biggest monthly jump in new home purchases since 1963. Census Bureau data had new home prices averaging $258,600 nationally, right about where they were a year before.(source) Existing home sales went north by 6.8%, and pending home sales rose by 5.8% - both encouraging signs, even with the seasonal fluctuations of the residential real estate market.(source)18 the February’s S&P/Case-Shiller Home Price Index had prices surveyed across 20 cities (on average) 0.6% above February 2009 levels. Yes, the average price was 0.9% below January, but this marked the first year-over-year gain in the index since December 2006. (In April 2009, prices were 24.0% below year-ago levels in the index.)(source) Construction spending also increased by 0.2% for March.(source)

So did mortgage rates shoot through the ceiling last month? No. The Federal Reserve made its way out of the mortgage market, and it was not the end of the world.

Looking over Freddie Mac’s Weekly Primary Mortgage Market Survey, here is the movement from the April 1 snapshot to the April 29 snapshot: average rates on 30-year FRMs went from 5.08% to 5.06%, averages on 5/1-year hybrid ARMs went from 4.10% to 4.00%, averages on 1-year ARMs rose from 4.05% to 4.25%, and averages on 15-year FRMs were 4.39% on both dates.(source)

Major indices. As mentioned earlier, it was another up month for stocks. The NASDAQ led the way among the big three, gaining an impressive 2.64% for April. The Russell 2000, by the way, advanced 5.59% last month, bringing its performance to +14.58% through the first third of 2010.(source)

% Change	1-Month	Y-T-D	1-Year
Dow Jones	+1.40%	+5.57%	+34.78%
NASDAQ	+2.64%	+8.46%	+43.32%
S&P 500	+1.48%	+6.42%	+35.96%

(Sources: cnbc.com, bigcharts.com, 4/30/10)(source)(source)(source)(source)
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

May outlook. As May opens, all eyes are on Europe, and on whether the EU can adequately solve the debt crisis plaguing three nations. Will Spain need a bailout? How about Portugal? And for that matter, is China’s real estate market overheated? While there is plenty of speculation, and while speculation makes for juicy economic headlines, there is also the reality that the manufacturing and service sectors and consumer spending are also quite healthy here and in other parts of the globe. So the adage “sell in May and go away” may be ignored. In fact, May is the month that has seen the best returns for the S&P 500 since 1990.(source)