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Growing a Strong Financial Future
Published Quarterly • Spring 2007
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2007 Markets
At the time of this writing, the Dow closed its worst week in over four years, down 4.2%. Worries about the stability of the global economy, in particular China, drove the index down 416 points in one day. This was not a record loss in terms of percentages. However, investors have become complacent after four years of fairly steady stock market upswings.
Many investors have ignored caution to load up on risky emerging market funds and lower quality bonds. Trying to chase performance without a plan means buying at the height. This can leave unwary investors at loose ends when market volatility strikes.
Goldman Sachs economists discussed three competing predictions in a report issued last week. This could be a long overdue short-term correction. If this is true, the stock market should rebound within a few weeks. Second, this could be investors pulling back from riskier investments, like small US stocks. If the pullback continues, a correction could follow. Third, it is possible the economy is softening and we could be heading into a recession. If this proves true, many analysts expect the Fed will start cutting interest rates this summer.
Wiiken & Gorman tries to stress regularly that market volatility is inevitable, both ups and downs. There is no predictable course of action at any time for investors. We urge our clients to be long-term investors and not short term speculators. Staying the course with a good plan is a reasoned decision.
Check in with yourself to be sure your asset allocation reflects your risk tolerance. Call us or come in for a meeting if you feel your stock, bond and cash percentages are not consistent with your goals. We have been readying ourselves for a real market change—this may or may not be it.
A Quote To Bring A Smile To Your Face
“Diversification is the conscious choice not to make a killing, in exchange for the blessing of never getting killed.”
—Nick Murray, Financial Writer
Investing in collectibles, which can include baseball cards and comic books along with Picassos, is complicated because of valuation and insurance. Pricing and investment value can be very subjective with more arcane items.
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Classic cars. Establish how often the car is driven; rarely driven and well garaged vehicles may get an insurance discount. You may have to study comps on sales of similar cars to keep track of the appreciating value.
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Collectors of stamps or antiques can find qualified appraisers without difficulty. Less common collections may be more difficult to value. Consult reputable experts to avoid clever reproductions and when in doubt, get a second opinion!!
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Keep careful records. Sales receipts, photos and video recordings for any collectible are acceptable ways to establish value. Contact your insurance company so they add coverage as your collectible grows in value.
Financial Planning
and the Pursuit of Happiness
Jonathan Clements wrote a thought provoking article for the Wall Street Journal in December titled “The Pursuit of Happiness.” He consulted six experts in happiness research and concluded that money can buy happiness if you spend with care.
Hedonic Adaptation.
You receive that long desired pay raise. Within a short time, the thrill is gone and you want something else. This is an example of hedonic adaptation. The academics suggest we find a way to hang onto the good event for longer. Take photos, celebrate the small things or buy something to commemorate the event.
Commuting
Commuting is one of life’s least enjoyable activities because the uncertainty of traffic leads to a lack of control and stress. The advice here was to slash your commuting time.
Friends
Taking a demanding, high paying job may make sense initially. Eventually you will take the salary for granted but deeply miss spending time with family and friends. The suggestion is not to sacrifice family time for work.
Buying Memories
Think about how you spend your time and try “buying memorable experiences.” Anticipate the event, enjoy the event and relish it after its conclusion. One expert framed the ticket from a Super Bowl game he attended with his father.
Limiting Options
Studies indicate that when options are too open, the mind generates debate. Limiting choices can actually lead to more satisfaction.
We take our mission statement very seriously. (You can read it below.) If there are changes you want to make in your life, in the way you spend your money, we are here to help you formulate a sound financial plan. Spending with care seems like very good advice to us.
“Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails.”
—Mark Twain
Mission Statement
Wiiken & Gorman pledges to use our expertise to help clients imagine a better financial future and develop a plan to experience more financial security and happiness in their lives.
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Financial Tips
Charitable Giving
Taxpayers who are 70 1/2 or older can give up to $100,000 a year from an IRA directly to a qualified charity. Typically the taxpayer gets an exclusion for the donation as long as the money is paid directly. The donation counts toward the required minimum distribution for that year. So far this rule applies only to 2006 and 2007.
After August 17, 2006, gifts of clothing and household items are deductible only if they are in “good” condition or better. You might take photos of the donations and keep a more detailed inventory to prove the condition of your items
Roth IRA Income Limitations
The income limitations for contributing to Roth IRAs have increased in 2007. Single taxpayers with an adjusted gross income under $99,000 may contribute the full $4,000 ($5,000 if age 50 or over.) The maximum contribution is phased out between $99,000 to $114,000. Joint filers making less than $156,000 can make the maximum contribution; their phased out contribution range is $156,000-$166,000. Anyone showing an amount over the highest phase out amount cannot contribute at all to a Roth IRA for 2007.
Stop Unsolicited Mail and Calls
Credit Card Offers
If you want to stop unsolicited credit card offers, go to www.optoutprescreen.com. You can opt out for five years online or print and complete a form to mail if you want to permanently opt out of these mailings.
Commercial E-mail
Go to www.dmaconsumers.org. You can remove your e-mail addresses for five years on this site.
Do Not Call and Unwanted Mail
Go to www.dmaconsumers.org. You can remove up to two telephone numbers and must pay $1 for this service. You can also remove your address for another $1.
Mutual Fund News
Vanguard re-opened Strategic Equity Fund and increased its minimum investment to $10,000.
Fidelity is the new program manager for the California Scholarshare 529 plan. The Fidelity plan has lower costs and more investment choices than the previous TIAA CREF plan. Existing accounts are being converted, but you must activate them by completing the Fidelity paperwork.
Management
Wiiken & Gorman manages money in pension plans, IRAs, personal accounts, and trusts. We charge a retainer fee for portfolio development, monitoring and reporting. We also help with financial life planning issues that arise. Please call us if you would like to work with us in this capacity. The minimum portfolio size is $500,000 and we welcome your business.
 Paula will be at the NAPFA National Conference in Chicago from May 2-May 6. It is a unique opportunity to network with fee-only planners from all over the country.
Mike will be teaching “Choosing and Managing Commission-Free Investments in a Difficult Market” at the Petaluma campus of Santa Rosa Junior College on March 31.
Mike and his wife Pat will be traveling in Australia from May 23-June 17th. Mike plans to check in occasionally when not snorkeling on the Great Barrier Reef or exploring the Outback.
529 Plans in Retirement
529 plans are college-savings vehicles. Most accounts are opened by parents planning to use the funds to pay for their children’s college education. The investments grow tax free; all withdrawals are also tax-free as long as they are used for qualified educational expenses. In some states contributions to the 529 plans are tax deductible.
Now adults contemplating retirement are opening these accounts for themselves. Future retirees plan on getting advanced degrees, learning for a new career or taking computer classes just for fun. As long as the course is accredited at a college or vocational school, the 529 funds can be used tax-free to pay. Each educational institution can advise whether the class or degree study will qualify.
Schools are aware of the trend to education in retirement. They are starting to offer seminars, online classes and overseas programs that can be paid for with 529 withdrawals.
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