Financial Symmetry News & Views

Archive for January, 2010

After going through multiple investment bubbles, a severe credit crisis, and two painful recessions, the “Lost Decade” for stock investments has come to an end.   In fact, the latter half of 2009 left us with a rather robust recovery and the idea that we may be participating in a sustainable economic recovery.

At the beginning of every month, during what we’ve coined our long-term investment “Outlook” meeting, our investment team gets together to debate different investment ideas of where we each see opportunity in the marketplace, while also trying to identify potential risks that could trip us up.  This process involves detailed discussions in which we compile a healthy collection of economic data and opinions to determine where the financial markets may be headed.  One of the things we have learned in our meetings is that a big part of being a successful investor is understanding where and how you have a competitive advantage over another investor.  A key to identifying these opportunities is knowing which sources are worth listening to vs. which ones are using biased assumptions to create support for their opinions.  After formalizing how these scenarios may or may not develop, we investigate specific ways that we can position our clients’ assets with the expectation that their portfolios will most advantageously benefit.  So without further ado, following is a summary of a few of the issues we discussed in our January “Outlook” meeting:

• Even though the unemployment percentage still hovers around 10%, this could be yet another positive for future stock market growth.  Typically, high unemployment coincides with the start of an economic expansion which is good for the stock market.

• Consumers and US corporations continue to improve their balance sheets.  Both groups have built up a healthy amount of pent-up demand which will likely continue to fuel the recovery.

• The average age of a car on the road is now 9.5 years old (which is the oldest average ever) and 2009 saw new car sales reach their lowest unit level since 1982, even with the added cash for clunkers steroid shot.

• China is now the largest consumer of cars in the world, which increases global demand for oil however; at some point other energy sources will become viable which would reverse this trend.  We realize that as oil prices rise, pressure for alternatives will continue but in the short-term we are not decreasing our energy holdings.

• One of the pressing primary risks is how smoothly the hand-off will be from government stimulus to private sector growth.  It’s important to remember that discussions about the removal of stimulus funds, interest rate increases, the speed of recovery and inflationary threats are a part of all economic recoveries and are typical for a bull market as it climbs its wall of worry.

• On average the market experiences a 10% drop at some point every year, so it’s not out of the realm of possibility that these lingering fears could cause some short-term market fluctuations.

• We feel that US high quality dividend focused companies’ likely hold the most opportunity for 2010.  However, we’re still allocating a significant portion to foreign stocks as a way to add diversity to client portfolios as well as provide a hedge against the US dollar.

• We still see little threat of inflation in the short term as the world has substantial under utilized resources. It will likely take years to re-employ those resources, though we may still get an up tick in inflation in the medium term.

How did your investments fare during the Lost Decade?

We’ve recently launched a newly designed website- www.FinancialSymmetry.com.   We felt that a new site was needed to showcase our services in an easy-to-navigate manner.

A few of the new features include client stories, frequently asked questions and additional details of our services.

We invite you to browse our new website and hope you find it easy to navigate and helpful.  Feel free to leave comments!

Our new website is designed and managed by FatCat Strategies.

In response to the many fears and uncertainties that arose during the recent economic crisis, The National Association of Personal Financial Advisors (NAPFA) Consumer Education Foundation sponsored multiple financial advice events around the country as part of the “Your Money Bus” tour.  On Tuesday January 19^th, the “Your Money Bus” rolled in to downtown Raleigh, in partnership with NC State Treasurer Janet Cowell’s office.

With unemployment hovering around 10% and dramatic swings in the stock market, the need for financial advice was very apparent in the crowd of more than 85 that showed up at the State Government Complex in downtown Raleigh.  The impressive turnout of people came with a wide mix of questions that dealt with everything from how much and in which accounts they should be saving to which debts they should be paying down the quickest.

Partners of Financial Symmetry, Allison Berger and Chad Smith, participated in the event for the second consecutive year.

“We’ve really enjoyed being involved with the ‘Your Money Bus’ tour over the last two years.  It’s a great opportunity to spread financial literacy and make a difference in our community.” -Allison Berger

“Volunteering our advice has been a neat way to provide people with action steps that can help them gain some peace of mind when dealing with their finances.” -Chad Smith

Have you made your 2009 Roth IRA contribution?

If you have not yet made the maximum contribution, you still have time!  Tax payers have until April 15^th of 2010 to make their Roth contributions for the 2009 tax year.  If you are within the income limitations to make contributions, a Roth IRA is an excellent investment account as investment growth is tax deferred and withdrawals in retirement can be tax free.  For 2009, single filers are able to fund their Roth IRAs with 100% of the contribution limits if their income is below $105,000.  Their amount of contribution availability drops if they are above the $105,000 and are phased out completely at $120,000.  For Married Filing Joint taxpayers, income restraints begin at $166,000 and end at $176,000.

Looking forward for 2010 contributions, contribution limits for this year have stayed the same.  This includes the limits for the Roth and Traditional IRAs and the majority of employer sponsored plans such as 401ks and 403bs. A very good practice is to contribute enough of your salary to receive at least the employer match.  Also, pay raises often present an easy opportunity to increase your deferral, while reducing your adjusted gross income.

The contribution limits for nearly all types of retirement plans are listed in the following chart:

Qualified Plans	2009	2010
401k, Roth 401k, and 403b plans	$16,500	$16,500
Catch-up for ages 50 & over	$5,500	$5,500
457 Plans of tax exempt employers	$16,500	$16,500
Catch-up for ages 50 & over	$5,500	$5,500
SIMPLE IRA or SIMPLE 401k plans	$11,500	$11,500
Catch-up for ages 50 & over	$2,500	$2,500
Limits on annual additions to SEP Plans	$49,000	$49,000
Traditional and Roth IRAs	$5000	$5000
Catch-up for ages 50 & over	$1000	$1000

Our wealth management service monitors your income and determines every year how much you should be contributing to each of these investment accounts.  It also reviews your income tax and estate picture, which may provide opportunities for tax savings.  If you are interested in this service, please contact us.

There’s no better time than the beginning of a new year to implement a new budget in order to gain control of your spending.  In the final installment of our series on Quicken, we provide a few pointers to make using Quicken more meaningful so that you can better track where your money goes.

Should I be trying to hit the same number every month?

Comparing expenses on a monthly basis can be another source of frustration. There are many fluctuations that occur throughout the year, like holidays, summer vacation, and surprise home/car maintenance issues.

This is why it’s most helpful to measure your progress against a rolling year period. For example: You’ve just finished November, so you will want to measure December 1st of last year to November 30th of this year against the calendar year amount of your budget. If the amount is more, then you know you are a little ahead of pace and you should scale back.

If you’ve been diligent enough to hang in there for a year of budgeting, then you are fortunate enough to have a full year of meaningful comparison points.  So for this month, it would be best to investigate how January 2010 is comparing to January 2009’s data.  Barring any unusual spending activities in Jan. 2009, you should have some useful targets to compare to this year’s spending.

Performing this exercise monthly can greatly improve your overall financial picture as it allows you to have greater control over your regular expenditures.

How many categories should I be using?

Trying to determine which category your expense should go can be very confusing when you have forty to choose from.  Add in multiple subcategories for each of the main categories and you’re about ready to pull your hair out.

Luckily, Quicken allows you to edit the category list which should be your first action step when loading the software.  We recommend using 8-10 categories that will capture all of your spending.  This list includes:

• Clothing
• Communication (Phone, TV, Internet)
• Discretionary (Cash, Travel, Fun, Church/Charity Contributions)
• Food (Dining Out, Alcohol, Groceries)
• Debts (Mortgage, Equity Line, Car Payments, Credit Card or Student Loan Payments)
• Education (Books, Private School, College Tuition)
• Health & Hygiene (Gym Membership, Doctor Visits, Prescriptions)
• Household (Maintenance, Home Improvements)
• Investments (Roth/IRA Contributions)
• Risk Management & Financial Services (Bank Charges, Insurance)
• Taxes
• Transportation (Gas, Repairs, Car Insurance)

By practicing these two steps you should be well on your way to becoming a successful budgeter.

When selecting mutual funds to use in our client’s accounts we use various quantitative and qualitative factors to evaluate if we believe a fund can add value.  Morningstar is the most widely used source of mutual fund data and analysis, so we rely on their data for a significant portion of our research.  One thing we have learned over the years, however, is to take their star ratings with a grain of salt. This is because the star ratings are really a measure of past performance and are not an indicator of what the future will hold.

“Advisor Perspectives” recently reviewed the predictive ability of the star rating system over a full market cycle and the results of their study were similar to our experiences.  In a recent letter published by Robert Huebscher, he states, “We concur that the ratings are not an effective forward-looking measure, but that is not how they are used in the industry.  By calling this calculation a rating, Morningstar imparts at least the implicit endorsement of higher- rated funds and an expectation that their relative performance advantage will endure.”

To read the full article and learn more about fund performance over a full market cycle go to:

http://www.advisorperspectives.com/newsletters09/Morningstar_Ratings_Fail_over_a_Full_Market_Cycle.php

On November 1^st, 2009 Allison Berger completed the Rex Healthcare Half Marathon in Raleigh, NC.  She finished with a time of about 2:05:20.  Although the course was hillier than her training runs she still beat her goal of running 10 minute miles.  This was the first distance running event that Allison has participated in and she plans to do more in the future.