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Spring 2009 Quarterly Newsletter
(view as pdf)
ANNOUNCEMENTS/EVENTS
We are excited to announce our partnership with Miami University in the research of
active vs. passive management. This will help our clients receive value in a way no
other Advisory can currently offer!
The Financial Planning Association's 2008 Chicago Conference gave us insight into
other Advisor's clients and issues they are dealing with. This sharing helps us assist
our clients with similar issues.
You're invited to an online webinar -Mending a Broken Nest Egg- on Tuesday, April
21st from 6:00-6:30 PM! We will focus on how to model a retirement portfolio with
a Q&A session at the end. Email info@BHAdvisory.com for login information.
Newsletters will be delivered electronically next quarter.
QUARTERLY ECONOMIC REVIEW
Mark Fissel (M.Fissel@BHAdvisory.com)
 This quarter has seen a large amount of economic news and
influences. In short, equity and fixed income markets appear to
be normalizing a bit after an extremely dismal and volatile winter.
This is not to say that the clouds have parted, bear markets
can have significant short term appreciation.
After a dismal 2008 and a steep 25% selloff early this quarter
the equity markets rebounded in March, although not offsetting
the selloff. Value style underperformed Growth due to Banks
and Real Estate underperforming and the Tech sector over performing.
Small capitalization stocks underperformed large
capitalization, as in total, risk was punished.
Large cap stocks (Russell 1000): (-9%)
(S&P 500): (-10%)
Small Cap Stocks (Russell 2000): (-12%)
The fixed income markets were all over the
board this quarter. The government went to
great lengths to drive down yields (summarized
on continuation), hoping to decrease borrowing costs. All in all, the yield curve (the yield on bonds of different maturities) has stayed relatively
flat and low.
Broad Bond Market: Morningstar Intermediate Core Bond Index:
+1.8%
Broad TIPS market: BarCap (fka Lehman) Treasury Inflation Protected:
+4%
Below we have included a concise summary of the current stimulus in the economic pipeline.
For perspective, we have also included a graphical comparison of our current recession
to the Great Depression.
Notes: GDP is measured at a seasonally adjusted rate in
constant (1939 and 2000); employment levels are for nonagricultural
jobs; 1920s-30s figures are annual and exclude the military; price
data are consumer price indexes.
Sources: National Bureau of Economic Research Macrohistory
Database (Depression-era GDP and employment); Commerce Department
(current GDP); Labor Department (current employment and all price
data)
TAX TIME! GET YOUR IRAS FUNDED
 Guest commentary: John Beneviat
Partner: Beneviat & Tortora, CPA
April Fools and Tax Day, too much fun for one month!
We know this information is not new to you but we hope the
timing may motivate you to do things if you have not. If you
have prepared and finalized your 2008 taxes and tax deferred
investments- kudos to you!
2008 IRA contributions
2008 IRA contributions are due by April 15th. Make sure you
speak to your advisor about how to specifically delineate that
this is a 2008 contribution should you decide to make this contribution
in the next few days. If you have already made a
2008 contribution during 2009,
you may want to be sure it is specified
as a 2008 contribution.
In the event that you have
been living under a rock for the
past decade, IRA contributions are
typically a "no brainer" decision,
it's a free way to get tax deferral.
A few rules of thumb:
Conventional IRAs: You receive an immediate tax write off, future
gains are deferred (can grow tax free), and you are taxed on the withdrawals.
These are beneficial if you believe your marginal tax rates
will be lower when you start to withdrawal than they will be throughout
your contribution period.
Roth IRAs: You do not receive a tax write off immediately, future
gains are deferred, however, you are NOT taxed on the future withdrawals.
Generally, the longer the funds will be invested, the more
beneficial the deferral and tax free advantages of the Roth vs. the
conventional IRA. A taxpayer who expects to be in a higher tax
bracket at retirement than during the contribution period would favor
a Roth.
A few notes applicable to both: The current limits for contributions
are $5,000 per person. If you are over the age of 50 you may deduct
an additional $1,000. You must have earned-income to contribute.
You must begin making minimum withdrawals as of age 70 ˝ (for a
conventional IRA), and cannot take withdrawals without a penalty
before 59 ˝.
If you or your spouse are covered by an employer retirement plan you
may not be able to deduct all contributions and should speak to an
accountant.
There are many changes occurring this year that will significantly
change the tax landscape in the future. I encourage anyone to review
the changes this year prior to year end. In addition, these broad statements
cannot cover everyone's unique situation.
In addition, there's no reason to wait to contribute for 2009! The
quicker you do it the sooner you start the tax deferral!
John Beneviat has been a practicing accountant for 25 years as
a Partner with Beneviat & Tortora located in Westerville, OH.
John is available for questions or comments at 614-899-1280
x12.
INFLATION
Clint Edgington (C.Edgington@BHAdvisory.com)
 A predictable stream of steady price increases allows economic
decisions to be made efficiently and the economy to
grow at a steady pace. However, unexpected sharp surges in
inflation can significantly erode the value of investment assets
and fixed income streams (i.e. retirement income).
Recently, we have been experiencing a low inflationary period.
From gas to houses, many items are less expensive
today that they were a year ago. However, we see the potential
for significant inflation in the medium to long term and
want to position our clients for that prospect. This inflation
can hit quickly and occur in spurts (some readers may recall
inflation hitting 15% during the 70?s).
In general, stocks and real estate keep up with inflation in the
medium and long term. Typical fixed income investments
(bonds) and cash have their value eroded by inflation over
any time horizon. Almost all investments are harmed by inflation
over the short term.
What causes inflation?
There is a general consensus that inflation stems from:
-
increases in the money supply and it's velocity
- the economy's output in relation to its potential output
Why have we not been experiencing inflation?
1.) Money Supply
While the money base has exploded recently (see Exhibit 1:
Monetary Base), the velocity of money has slowed and the
money multiplier (the effect of bank's lending out money creating an exponential
supply) has drastically slowed (see Exhibit 2: Money Multiplier).
While the Fed is pushing money out into the economy banks have not
been lending
Exhibit 1: Monetary Base
Exhibit 2: Money Multiplier
2.) Economic Output
The past year has seen the world's economic output dipping
well below its potential. Companies can significantly increase
their output without raising their costs.
Why do we believe there are inflationary pressures
in the pipeline?
The factors that will increase inflation pressures are
within our government?s control, while factors that will
decrease inflation are less so. Stimulative policies hit the
economy with a lag, some stimulative measures can take
up to 18 months to affect the economy. Elected politicians
and the officials that they control have historically
overshot during stimulative periods. The factors that are
out of government control (bank lending and economic
output) could reverse rather suddenly, however.
What to do?
1. Maintain an exposure to equities and real estate
2. We have a portion of our client's fixed income portfolios
invested in Treasury Inflation Protected Securities
(TIPS). TIPS apply a return to the inflation rate experienced
during a period, therefore protecting holders from
inflation. An added bonus is that the principal amount is
guaranteed by the U.S. Government, so there is protection
in the case of deflation. The downside of these
products is that during periods of relatively low inflation
the returns are rather paltry. Currently,
the market is pricing in low future
inflation, so these securities are
not expensive. TIPS are a wonderful
way to maintain the fixed
Further analysis will be presented for several
Beacon Hill workshops in early April and our
April 16 webinar.
SEEN IN THE PRESS
“The New Retirement Realities:
What to do and How to
cope.” by Tom Gray,
Achieve Solutions 1/15/09
(Clint Edgington)
“Ohioans taken in by Ponzi
schemes,” by Steve Wartenberg
Columbus Dispatch 12/21/08
(Clint Edgington)
“Practice triage in your spending...”
by Gregory Karp,
Chicago
Tribune 11/30/08
(Clint Edgington)
“Market Fears, Stay the
Course,” by Clint Edgington,
Columbus Dispatch 10/5/08
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Clint Edgington, CFA
Partner
Beacon Hill Investment Adivsory |
Mark Fissel, RFC
Partner
Beacon Hill Investment Adivsory |
(Return To
Featured Writings)
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