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Growing a Strong Financial Future
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2008 Markets
The economic news has not improved since we wrote the spring newsletter. Warren Buffet, the famous Oracle of Omaha, says that the economy is still in a recession and unlikely to improve before 2009.
Federal Reserve Chair Ben Bernanke refers to a “gale force” financial storm involving the US housing market collapse, the freeze of credit and the uptick in mortgage delinquencies. The Dow has slid from 14,279 last October to 11,400 as of today. The media is broadcasting doom and gloom numbers about unemployment, inflation and stock market drops. Where is the silver lining and what should investors do? Warren Buffet suggests a reason for hope: US stocks are broadly more attractive now than last year. This is the time that a seasoned investor can buy low. In the depths of a bear market, when most investors think they have made nothing but mistakes, there are great bargains available. It is an opportunity to disregard the pessimism, be a contrarian and start picking up downtrodden investments. No one knows when the absolute bottom will come, but buying when markets are down is a time honored strategy. We suggest buying quality mutual funds and exchange traded funds with solid long-term records and proven managers. Buy a little every month while we are far off the highs of 2007. Re-examine your asset allocation and your comfort level and hold your ground. The Leuthold Group of Minneapolis published research that suggests stock markets are in bull territory 66% of the time. This bear will not last forever, so embrace its opportunities while you can. A Quote That Makes You Think and ChuckleWhile it is true that many Americans are overworked and that you have to treat yourself occasionally, self-gifting is more prominent today because of advertising pitched to buy things “because you deserve them.” You also deserve to live out a retirement that doesn’t include regular helpings of Alpo. – Marshall Loeb, Market Watch Presidential ElectionClients occasionally ask what they should be doing with their investments in a Presidential Election year. After researching this question, we realized there is a vague theory floating around. This line of reasoning suggests that there is a way to analyze politics and beat the stock market. Dimensional Fund Advisors published an exhaustive study in 2004 that looked at this issue. They concluded, “In summary, historical data suggests that the presidential election year results do not produce any significant findings that would suggest a change in an asset allocation strategy. “ Wiiken & Gorman suggests that investing based on political data patterns is not a prudent way to make investment decisions. We believe that following an asset allocation strategy based on your risk tolerance is a sounder choice. Social Security TipsOnline Estimator You are already receiving an annual Social Security benefit estimate in the mail. This estimate assumes your salary stays the same until your full retirement age. The new online calculator allows you to factor in a higher estimate of future income and different alternatives for retirement ages. We tried the calculator and found it easy to use. You can formulate multiple scenarios and compare the benefit figures. www.socialsecurity.gov/planners/calculators.htm Calculation of Your Benefit Your benefit is based on income during your 35 highest earning years. The wages are indexed to account for changes in the average wage. If you do not have 35 years of earnings, some years of zero earnings will be used to bring the total years to 35. Applying for Benefits You can now apply for retirement benefits online. Paying Back Your Social Security Benefit If you began taking your benefits early in your 60’s and now wish you could collect the higher benefit available at age 70, there is a strategy available. Social Security allows you to pay back your benefits with no interest owed and no adjustment for inflation. This is how the process works. You complete Form 521, “Request for Withdrawal of Application” and pay back the benefits. Then you re-apply for benefits at the higher level. If you paid taxes on the benefits, IRS Publication 915 has help for trying to recover the taxes. There are some caveats. You must have cash on hand to pay back the benefits; using a pre-tax account like an IRA is not a good strategy. You don’t want to be in ill health or have a poor family history as to longevity. Social Security could change the rules before you reach age 70. If your spouse is collecting based on your benefit, these checks also end and you must pay back these benefits as well. Mark Lassiter is a spokesperson for Social Security and states the process is entirely legal. “We don’t consider it naughty”, he says. Wiiken & Gorman has not yet had a client pay back benefits, but expect it will be happening more in the future as baby boomers age.
Mission StatementAt Wiiken & Gorman we pledge 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. Financial TipsProperty Casualty RemindersDwelling Coverage A recent study estimated that 66% of homes were underinsured in 2007 by an average 18%. This is partly because policies do not factor in the escalating costs of materials and labor to rebuild. Another factor is when a client completes a remodel but neglects to inform the insurance agent. Additionally, the definition of replacement cost differs widely between insurance companies. If you have not spoken to your agent recently, call and re-visit the policy limits on dwelling coverage. Liability Insurance An insurance industry rule of thumb is that your net worth should not exceed your liability coverage. After adding up the value of a home, rental property and investable assets, many people should carry umbrella insurance. Most mass market insurers do not offer liability policies for more than $5 million. However, there are companies that specialize in providing policies with higher limits. Check with your agent so that your personal wealth is not at risk from a lawsuit. CollectiblesWe usually think of collectibles as fine art or jewelry. However, you may have a valuable wine collection or few inherited antiques. You may have never mentioned a cherished collection to us. If you are a collector, be aware that there are low limits on your coverage and you should discuss your coverage with your agent. A Change in Your Financial Situation Please contact Wiiken & Gorman if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Financial planning is a process and we are here to help you transition through important life changes. Mutual Fund NewsMore Fund Re-openingsWhen funds grow too large to manage, companies typically close them. However, if there is market turmoil, spooked investors tend to sell funds, even if those funds have strong track records. Previously closed mutual funds can then re-open to new investors. ManagementWiiken & 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. About Your Planners   Paula and Mike are attending the NAPFA National Conference in Long Beach in mid-May. From there Paula goes to the college graduation of her stepson, Ryan. Paula and Howard visited South Beach and the Florida Keys in February. A snorkeling trip and kayak outing were the highlights. Paula is now training for a Himalayan trek in Bhutan this October. Mike’s older son Alex is expecting a baby in May with his wife Jessica. This will be the first grandchild for Mike and Pat. |