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Financial Considerations for 2015

October 21st, 2014 | No Comments | Posted in Financial News

Is it time to make a few alterations for the near future?

shutterstock_357479652015 is less than three months away. Fall is the time when investors look for ways to lower their taxes and make some financial changes. This is an ideal time to schedule a meeting with a financial, tax or estate planning professional.

How do economists see next year unfolding? Morningstar sees 2.0-2.5% GDP for the U.S. for 2015, with housing, export growth, wage growth, very low interest rates and continuing vitality of energy-dependent industries as key support factors. It sees the jobless rate in a 5.4-5.7% range and annualized inflation running between 1.8-2.0%. Fitch is far more optimistic, envisioning U.S. GDP at 3.1% for 2015 compared to 1.3% for the eurozone and Japan. (Fitch projects China’s economy slowing to 6.8% growth next year as India’s GDP improves dramatically to 6.5%.)1,2

The Wall Street Journal’s Economic Forecasting Survey projects America’s GDP at 2.8% for both 2015 and 2016 and sees slightly higher inflation for 2015 than Morningstar (with the CPI rising at an annualized 2.0-2.2%). The Journal has the jobless rate at 5.9% by the end of this year and at 5.5% by December 2015.3

The WSJ numbers roughly correspond to the Federal Reserve’s outlook: the Fed sees 2.6-3.0% growth and 5.4-5.6% unemployment next year. A National Association for Business Economics (NABE) poll projects 2015 GDP of 2.9% with the jobless rate at 5.6% by next December.4

What might happen with interest rates? In the Journal’s consensus forecast, the federal funds rate will hit 0.47% by June 2015 and 1.17% by December 2015. NABE’s forecast merely projects it at 0.845% as next year concludes. That contrasts with Fed officials, who see it in the range of 1.25-1.50% at the end of 2015.3,4

Speaking of interest rates, here is the WSJ consensus projection for the 10-year Treasury yield: 3.24% by next June, then 3.58% by the end of 2015. The latest WSJ survey also sees U.S. home prices rising 3.3% for 2015 and NYMEX crude at $93.67 a barrel by the end of next year.3

Can you put a little more into your IRA or workplace retirement plan? You may put up to $5,500 into a traditional or Roth IRA for 2014 and up to $6,500 if you are 50 or older this year, assuming your income levels allow you to do so. (Or you can spread that maximum contribution across more than one IRA.) Traditional IRA contributions are tax-deductible to varying degree. The contribution limit for participants in 401(k), 403(b) and most 457 plans is $17,500 for 2014, with a $5,500 catch-up contribution allowed for those 50 and older. (The IRS usually sets next year’s contribution levels for these plans in late October.)5

Should you go Roth in 2015? If you have a long time horizon to let your IRA grow, have the funds to pay the tax on the conversion, and want your heirs to inherit tax-free distributions from your IRA, it may be worth it.

Are you thinking about an IRA rollover? You should know about IRS Notice 2014-54, which lets taxpayers make “split” IRA rollovers of employer-sponsored retirement plan assets under more favorable tax conditions. If you have a workplace retirement account with a mix of pre-tax and after-tax dollars in it, you can now roll the pre-tax funds into a traditional IRA and the after-tax funds into a Roth IRA and have it all count as one distribution rather than two. Also, the IRS is dropping the pro rata tax treatment of such rollover amounts. (Under the old rules, if you were in a qualified retirement plan and rolled $80,000 in pre-tax dollars into a traditional IRA and $20,000 in after-tax dollars into a Roth IRA, 80% of the dollars going into the Roth would be taxed under the pro-rated formula.) The tax liability that previously went with such “split” distributions has been eliminated. The new rules on this take effect January 1, but IRS guidance indicates that taxpayers may apply the rules to rollovers made as early as September 18, 2014.6

Can you harvest portfolio losses before 2015? Through tax loss harvesting – dumping the losers in your portfolio – you can claim losses equaling any capital gains recognized in a tax year, and you can claim up to $3,000 in additional losses beyond that, which can offset dividend, interest and wage income. If your losses exceed that limit, they can be carried over into future years. It is a good idea to do this before December, as that will give you the necessary 30 days to repurchase any shares should you wish.7

Should you wait on a major financial move until 2015? Is there a chance that your 2014 taxable income could jump as a consequence of exercising a stock option, receiving a bonus at work, or accepting a lump sum payout? Are you thinking about buying new trucks or cars for your company, or a buying a building? The same caution applies to capital investments.

Look at tax efficiency in your portfolio. You may want to put income-producing investments inside an IRA, for example, and direct investments with lesser tax implications into brokerage accounts.

Finally, do you need to change your withholding status? If major change has come to your personal or financial life, it might be time. If you have married or divorced, if a family member has passed away, if you are self-employed now or have landed a much higher-salaried job, or if you either pay a lot of tax or get unusually large IRS or state refunds, review your current withholding with your tax preparer.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 – news.morningstar.com/articlenet/article.aspx?id=666682&SR=Yahoo [9/29/14]
2 – 247wallst.com/economy/2014/09/30/downside-risks-to-global-gdp-growth/ [9/30/14]
3 – projects.wsj.com/econforecast [9/30/14]
4 – blogs.wsj.com/economics/2014/09/29/business-economists-see-lower-interest-rates-than-the-fed-sees-in-late-2015/ [9/29/14]
5 – shrm.org/hrdisciplines/benefits/articles/pages/2014-irs-401k-contribution-limits.aspx [11/1/13]
6 – lifehealthpro.com/2014/09/30/irs-blesses-split-401k-rollovers [9/30/14]
7 – dailyfinance.com/2013/09/09/tax-loss-selling-dont-wait-december-dump-losers/ [9/9/13]

Four Words You Shouldn’t Believe

October 21st, 2014 | No Comments | Posted in Financial News

These are the words that make investors irrational.

shutterstock_145288138“This time is different.” Beware those four little words. They are perhaps the most dangerous words an investor can believe in. If you believe “this time is different,” you are mentally positioning yourself to exit the stock market and make impulsive, short-sighted decisions with your money. This is the belief that has made too many investors miss out on the best market days and scramble to catch up with Wall Street recoveries.

Stock market investing is a long-term proposition – which is true for most forms of investing. Any form of long-range investing demands a certain temperament. You must be patient, you must be dedicated to realizing your objectives, and you can’t let short-term headlines deter you from your long-term quest.

If stocks correct or the bulls run away, keep some perspective and remember how things have played out through some of the roughest stretches in recent market history.

In 2008, many people believed the market would never recover. The Dow dropped 33.84% that year, the third-worst year in its history. That fall, it lost 500 points or more on seven different trading days. Some prominent talking heads and financial prognosticators saw the sky falling: they urged investors to pull every dollar out of stocks, and some said the only sensible move was to put all your money in gold. It wasn’t unusual to visit your favorite financial website and see a “Dow 3,000!” pay-per-click doomsday ad in the margin.1

The message being shouted was: “This time is different.” Forget a lost decade, it would be a lost generation – it would take the Dow 10 or maybe 20 years to get back to where it was again, the naysayers warned. Instead it took less than six: the index closed at 14,253.77 on March 5, 2013 to top the 2007 peak and went north from there. The bear market everyone thought was “the end” for Wall Street lasted but 17 months.2,3

Where is the Dow today compared to fall 2008? Where are the S&P 500, the Nasdaq, the Russell 2000 compared to back then? And how has gold fared in the last few years? While the Federal Reserve has played a significant role in this long bull run, record corporate profits have played a major role as well.

The stock market has seen remarkable ascents through the years. From 1982-87, the S&P 500 gained more than 300%. The 1990s brought a 9½-year stretch in which the S&P rose more than 500%.2

A recovery from a Wall Street downturn usually doesn’t take that long. The bear market of 1987 – the one that came with Black Monday, the worst trading day in modern Wall Street history – was over in three months. The bursting of the dot-com bubble set off another bear market in 2000 that lasted a comparatively long 30 months – definitely endurable for an investor focused on long-term goals.3

What happens when investors believe those four little words? They panic. They sell. If they are mostly or wholly out of equities when the bulls come storming back, they run the risk of missing the best market days.

We’re looking at a turbulent stock market right now. This is the time for patience. Withdrawing money from a retirement savings account (and the investment funds within it) might feel rational in the short term, but it can be hazardous for the long term – especially since many Americans haven’t saved enough for retirement to start with. A recession is a few quarters long, not the length of your retirement; a bear market may right itself faster than presumed, and you want to be invested in equities when it happens. If you have questions about your money when jitters hit the market, turn to the financial advisor you count on as a resource.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 – djaverages.com/?go=industrial-milestones [10/7/14]
2 – nj.com/business/index.ssf/2013/03/dow_hits_new_record_regaining.html [3/5/13]
3 – nbcnews.com/id/37740147/ns/business-stocks_and_economy/t/historic-bear-markets/#.VDSESBbgVUI [10/7/14]

Medical Identity Theft

October 21st, 2014 | No Comments | Posted in Financial News

shutterstock_128774480Did you know that more than 1.8 million Americans became victims of medical identity theft in 2013, with an average loss of more than $22,000 per incident? Medical identity theft occurs when someone uses another individual’s personal information, which may include his or her social security number, name, birth date and insurance information, to obtain medical services, devices or prescriptions.

The financial impact of medical identity can include loss of money, unpaid bills, collection agency letters, and tarnished credit reports. It can also be a threat to the victim’s health due to inaccurate medical records and insurance claims, misdiagnosis, conflicting prescriptions, missed symptoms and other harmful consequences.

Threats to medical identity security can come from several different sources:

  • Friendly – This occurs when a friend or family member illegitimately uses another person’s identity and medical information to obtain health care services or goods.
  • Providers – Dishonest staff in providers’ offices, including nurses, doctors, technicians, receptionists or other individuals, can steal private information.
  • Hackers – Personal and medical information can be bought online by someone who wants to use another person’s identity to obtain medical services.

Although not completely preventable, early detection of theft will contain the amount of damage and help speed the recovery process. Below are some tips to help prevent medical identity theft:

  • Use strong, unique usernames and passwords.
  • Do not share personal information, and do not give medical insurance cards or information to family or friends.
  • Keep all medical records in a safe place.
  • When disposing of old records, shred them before recycling.
  • Always review your explanation of benefits (EOB) letters, medical bills and any other medical records.
©2014 Zywave, Inc. All rights reserved.

Monthly Economic Update – October, 2014

October 21st, 2014 | No Comments | Posted in Monthly Economic Update

Monthly Economic Update - October, 2014

The Curse of Cheap Gasoline

October 21st, 2014 | No Comments | Posted in Financial News, Lifestyle

gasoline

It’s as predictable as birds soiling your windshield: When gas prices fall, Americans buy bigger cars.

Falling gas prices are generally good news for consumers, since less money going into the tank means more money for other stuff. If gas prices fall by 50 cents per gallon and stay there for a year, the typical consumer’s disposable income rises by 1%, according to forecasting firm IHS. For somebody earning $50,000, that’s an extra $500. Spending rises by nearly as much, which helps the overall economy.

Drivers have been getting this type of break lately. Gas prices at the pump have fallen from about $3.75 per gallon in June to about $3.20 today. They’re below $3 in at least six states, according to the American Automobile Association, and pump prices are likely to fall further as the global oil market works off a glut that could last for months.

There’s a dark side to cheap gas, however, because falling fuel prices—which usually don’t last—lead many car buyers to purchase bigger, thirstier vehicles—which is a long-term commitment.

The numbers from September tell the story. With gas prices falling, light trucks—which include pickups, SUVs and crossover vehicles—accounted for 53.4% of sales, with passenger cars making up the other 46.6%, according to Autodata. Back in May, when gas prices were near $3.75—their high for the year—light trucks had a slimmer 52.1% market share. The difference might not seem huge, but it adds up to about 16,000 additional truck sales per month.

The average mileage of all vehicles sold in September dropped from 25.8 miles per gallon the prior month to 25.3 MPG, an unusually large swing in just one month—especially given that manufacturers have been dramatically improving fuel economy in all vehicles, to comply with rising federal standards. The September drop was the largest since 2011, according to the University of Michigan Transportation Research Institute, which attributes the lower mileage to increased sales of trucks and SUVs.

Many of those light trucks sold in September were the giants of their class. Large SUVs such as the Chevrolet Tahoe and the Ford Expedition notched the biggest gains of any segment, with sales up 21.9% over the prior year. Crossovers, pickups and luxury SUVs were close behind. Sales of small cars, by contrast, rose by just 3.9%, with medium-sized cars up just 0.4%. For automakers and dealers, selling more big vehicles can be a bonanza. Profit margins on pickups and large SUVs can approach $15,000 per vehicle, while margins on smaller cars can be in the hundreds, if the automaker makes a profit at all.

Buyers don’t always think about the long-term costs they’re committing to when buying a bigger vehicle. Larger cars have higher prices to start with, simply because there’s more metal and other components, and engines often need to be bigger to move it all. And gas-mileage costs add up over time. Choosing the cheapest Jeep Grand Cherokee SUV (which averages 25 miles per gallon) over the cheapest Honda Accord sedan (31 MPG) would cost a typical driver an extra $280 per year in gas at $3 per gallon, and an extra $325 at $3.50.

There are many considerations that go into a car purchase besides gasoline costs, of course. Many families feel they need three rows of seats for carting around kids and their gear (including friends), which necessitates a large vehicle. In some cases buying one megahauler is cheaper than the alternative: buying two smaller cars.

Yet there’s an unmistakable correlation between rising or falling gas prices and the types of cars drivers buy, which suggests some buyers are influenced too much by the cost of fuel today. When gas spiked to $4 per gallon in the summer of 2008, demand for high-mileage hybrids and thirfty small cars surged. That helped undo the three Detroit automakers, which had a very weak stable of small offerings. Within six months, however, gas prices had plunged by nearly 60%, to $1.70 per gallon–and hybrids quickly fell out of fashion.

The shrewdest way to buy a car is to disregard monthly swings in gas prices and choose the most efficient model that meets your needs. It doesn’t make sense to buy a big SUV for daily commuting, nor would a Mini get a family of five to the soccer game. And if you want to factor in gas prices, it’s safe to assume they’ll go up. They usually do, sooner or later.

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Where Young College Graduates Are Choosing to Live

October 20th, 2014 | No Comments | Posted in Lifestyle

Denver

When young college graduates decide where to move, they are not just looking at the usual suspects, like New York, Washington and San Francisco. Other cities are increasing their share of these valuable residents at an even higher rate and have reached a high overall percentage, led by Denver, San Diego, Nashville, Salt Lake City and Portland, Ore., according to a report published Monday by City Observatory, a new think tank.

And as young people continue to spurn the suburbs for urban living, more of them are moving to the very heart of cities — even in economically troubled places like Buffalo and Cleveland. The number of college-educated people age 25 to 34 living within three miles of city centers has surged, up 37 percent since 2000, even as the total population of these neighborhoods has slightly shrunk.

Some cities are attracting young talent while their overall population falls, like Pittsburgh and New Orleans. And in a reversal, others that used to be magnets, like Atlanta and Charlotte, are struggling to attract them at the same rate.

Even as Americans over all have become less likely to move, young, college-educated people continue to move at a high clip — about a million cross state lines each year, and these so-called young and the restless don’t tend to settle down until their mid-30s. Where they end up provides a map of the cities that have a chance to be the economic powerhouses of the future.

Where the Population of College Graduates Is Growing

As metropolitan areas vie for these residents, some are attracting them at a higher rate than the national average. The rate over the last dozen years does not necessarily reflect the current percentage. For example, Denver’s percentage in this age group is 7.5, higher than Houston’s and more than the national average of 5.2 percent, but lower than that of Washington, the Bay Area and Boston.

live

“There is a very strong track record of places that attract talent becoming places of long-term success,” said Edward Glaeser, an economist at Harvard and author of “Triumph of the City.” “The most successful economic development policy is to attract and retain smart people and then get out of their way.”

The economic effects reach beyond the work the young people do, according to Enrico Moretti, an economist at the University of California, Berkeley, and author of “The New Geography of Jobs.” For every college graduate who takes a job in an innovation industry, he found, five additional jobs are eventually created in that city, such as for waiters, carpenters, doctors, architects and teachers.

“It’s a type of growth that feeds on itself — the more young workers you have, the more companies are interested in locating their operations in that area and the more young people are going to move there,” he said.

About 25 percent more young college graduates live in major metropolitan areas today than in 2000, which is double the percentage increase in cities’ total population. All the 51 biggest metros except Detroit have gained young talent, either from net migration to the cities or from residents graduating from college, according to the report. It is based on data from the federal American Community Survey and written by Joe Cortright, an economist who runs City Observatory and Impresa, a consulting firm on regional economies.

Denver has become one of the most powerful magnets. Its population of the young and educated is up 47 percent since 2000, nearly double the percentage increase in the New York metro area. And 7.5 percent of Denver’s population is in this group, more than the national average of 5.2 percent and more than anywhere but Washington, the Bay Area and Boston.

Denver has many of the tangible things young people want, economists say, including mountains, sunshine and jobs in booming industries like tech. Perhaps more important, it also has the ones that give cities the perception of cultural cool, like microbreweries and bike-sharing and an acceptance of marijuana and same-sex marriage.

“With lots of cultural things to do and getting away to the mountains, you can have the work-play balance more than any place I’ve ever lived,” said Colleen Douglass, 27, a video producer at Craftsy, a start-up with online classes for crafts. “There’s this really thriving start-up scene here, and the sense we can be in a place we love and work at a cool new company but not live in Silicon Valley.”

Other cities that have had significant increases in a young and educated population and that now have more than their share include San Diego, Baltimore, Pittsburgh, Indianapolis, Nashville, Salt Lake City and Portland, Ore.

At the other end of the spectrum are the cities where less than 4 percent of the population are young college graduates. Among those, Detroit lost about 10 percent of this group, while Providence gained just 6 percent and Memphis 10 percent.

Atlanta, one of the biggest net gainers of young graduates in the 1990s, has taken a sharp turn. Its young, educated population has increased just 2.8 percent since 2000, significantly less than its overall population. It is suffering the consequences of overenthusiasm for new houses and new jobs before the crash, economists say.

The population of young, educated people in Dallas, Charlotte and Raleigh is also growing more slowly than their populations as a whole.

The effects of the migration of the young and the restless are most vividly seen in urban cores. In 1980, young adults were 10 percent more likely than other people to live in these areas, according to the report from City Observatory, which is sponsored by the Knight Foundation. In 2010, they were 51 percent more likely, and those with college degrees were 126 percent more likely. The trend extends to all the largest metropolitan areas except Detroit and Birmingham, Ala.

Of the metropolitan areas with the most populous city centers, Washington and Philadelphia showed the largest increases of young adults living there, at 75 and 78 percent. Other cities that have made big gains in that category are Baltimore, Los Angeles, San Diego, Dallas, Miami and St. Louis. Washington also had the largest share of young college graduates over all, at 8.1 percent.

“They want something exciting, culturally fun, involving a lot of diversity — and their fathers’ suburban lifestyle doesn’t seem to be all that thrilling to many of them,” Mr. Glaeser said.

How many eventually desert the city centers as they age remains to be seen, but demographers predict that many will stay. They say that could not only bolster city economies, but also lead to decreases in crime and improvements in public schools. If the trends continue, places like Pittsburgh and Buffalo could develop a new reputation — as role models for resurgence.

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