And the Winner Is…
Since the first of August, stock markets around the world have been playing a game of tug-of-war. If you remember, in the game tug-of war, there are teams pulling on each side of a rope with the winning team being decided by who can get the other team to fall down. Using this analogy, stock markets are being used as the rope in this game currently going on. Pulling on one side of the rope is the bad information (European problems, low consumer confidence, fear of another recession, etc.) and pulling on the other side of the rope is the positive information (strong corporate profits, attractive valuations, retail sales up, etc.).
The difficult part of this current game of tug-of-war has been how quickly momentum changes from one side to the other. For example, during the first part of August, the bad information clearly ruled as the S&P 500 declined about 12%. Then, some positive information came out, and over the next four trading days the S&P 500 gained about 7%. Immediately after that, more concerns out of Europe had the S&P 500 fall back to its lows in just three days. Not to be outdone, the positive information tugged back hard and propelled the S&P higher by about 8%. That movement was just up through August and we’ve seen the same type of battle for the month of September as well.
There is no secret as to where the bad information trying to pull stock markets down is coming from. First, it is the problems in Europe. These problems are real and could continue to make things worse, if not handled properly. However, from all indications, it seems that the resources are there to stop this problem from escalating—leadership in Europe must act effectively for this to be solved though. The second main problem is low consumer confidence here in the U.S. which has stemmed from the fiasco in Washington over the debt ceiling and continued high unemployment. In August, consumer confidence actually fell lower than what it was in 2008/2009 to levels not seen since the early 1980’s. The third main driver of bad information is fear of another recession. Economic growth has slowed in 2011, but so far, leading economic indicators are not showing signs of a recession—so it is clearly more of a fear, than a definite reality at this point in time.
Tugging on the other side of the rope is the positive information. Corporate earnings have continued to be strong. In fact, during the 2nd quarter (most recent for earnings), more than 75% of companies in the S&P 500 met or exceeded analyst expectations! At this time, companies have a lot of cash on hand and have positioned themselves to be profitable even in the slower growth recovery we’ve been experiencing. As a result of the earnings picture and the recent pullback in the markets, stocks for the most part are also very cheap based on historical valuation levels. Finally, despite lower consumer confidence, consumer spending has continued to be solid. Retail sales in August gained from the prior year which was very positive sign. We know that consumer spending makes up about 70% of our economic growth and with the government focused on reigning in spending, we will need the American consumer to continue this trend.
At some point in time, the S&P 500 will break the trading range it has been in since the first of August. The question ultimately becomes—who will win this game of tug-of-war? Will it be the bad information, which would likely cause some further market declines? Or, will it be the positive information, which would likely cause the market to start marching higher? Over time we will get that answer but in the interim, one thing is for sure…we will continue to monitor and stay on top of this ever-changing economic environment as in unfolds.
Common Beneficiary Errors
A recent study found that over 90% of investors have beneficiary designations that contain some type of error(s) which can lead to unintended consequences on the distribution of assets. It is important to periodically perform beneficiary reviews and discuss post-death distribution planning strategies to ensure one’s desires are consistent with how things are listed. Taking the time to review beneficiary designations can help assure one’s assets will be distributed in accordance with their goals and are done so in the most tax-efficient manner possible. There are many errors that can be made when listing beneficiaries but here are the 4 most common beneficiary designation errors made by the average investor:
- Naming the estate as beneficiary – Assets in an estate are subject to probate at death, which could subject the retirement assets to creditor claims and the potentially lengthy and expensive process of distributing the estate assets. Accounts with properly designated beneficiaries will avoid the probate process. Also, if the estate is listed as the beneficiary, then the courts determine to whom and what percentages your assets are divided based on probate law—which may not be how you would’ve intended the assets to be dispersed. If the beneficiary designation is left blank, it will have the same result as listing the estate as beneficiary.
- Not having a contingent beneficiary – Many investors will name a primary beneficiary and leave the contingent beneficiary section blank. In this scenario, if a primary beneficiary predeceases the owner, or if the owner and the primary beneficiary die simultaneously, without a contingent beneficiary on the account, the proceeds will be paid to the deceased owner’s estate (which leads back to mistake #1 above).
- Naming a minor as beneficiary – A minor can be listed as a beneficiary, but minors are not legally capable of inheriting death benefit proceeds. If you want to name a minor as a beneficiary, make sure you also identify an adult to act as custodian/guardian until the minor reaches the age of majority to manage the money themselves.
- Failing to update a beneficiary – Death of a beneficiary, divorce, or birth of a new child/grandchild create life events that may require beneficiary designations to be updated. By performing reviews on a regular basis, one can ensure these life events are accurately reflected in your beneficiary designation wishes.
If you haven’t reviewed your beneficiary designations within the past few years, then now may be the perfect time to do so. We can help you sort through all your investment accounts to verify and update (if necessary) all listed beneficiary designations. Please let us know if you would like to have this type of review₁.
Check Out Our New Website!
Last month we introduced the new layout to our monthly newsletter. And now, this month, we wanted to let you know we have updated and enhanced our website as well! We’ve been working with a web design company for several months to improve our website to be one of the top in our industry. The new site is much more interactive and user friendly. Among other things, we have added video commentary and a ‘Recent News’ section where we will put up-to-date information (more frequent than articles in the monthly newsletter) about current market conditions, client events and other relevant data. As time goes on, we will also add pictures from client events and upload more videos throughout the site.
We hope the new website will enhance your client experience in a couple ways. First, it will allow us to post our views on current conditions more frequently than on a monthly basis, so you can continue to receive quick, relevant information from us. Second, it can act as an archive if you want to verify event dates or look back at past newsletter articles. Finally, we hope you feel comfortable forwarding the new website to your friends, family and co-workers to let them have the chance to experience and see what makes us different as investment advisors so we can help others achieve their dreams and goals as they plan for their own financial freedom.
We encourage you to take a moment in the coming days to check out our new site at WealthCare Partners. Feel free to let us know what you think as your feedback is valuable to us!
Did you know?
Recessions and Jobs – From the official end of the 8-month recession in 2001, the nation’s unemployment rate continued to rise for an additional 19 months before peaking in June 2003 at 6.3%, 0.8% higher than where the rate was when the recession ended. From the official end of the 18-month recession during 2007-2009, the nation’s unemployment rate continued to rise for an additional 4 months before peaking (so far) in October 2009 at 10.1%, 0.6% higher than where the rate was when the recession ended (source: Department of Labor)
Fraud and Abuse – $57 billion of improper payments were paid to Medicare and Medicaid recipients during fiscal year 2010, equal to more than $1 billion a week (source: Government Accountability Office)
Stay Positive and Believe in Yourself!
“Challenges are what make life interesting; overcoming them is what makes life meaningful” Joshua J. Marine
“Attitude determines altitude” Anonymous
Don’t Keep Us a Secret!
We are always looking to help others achieve their financial goals. Any friends, family, or colleagues you come across needing assistance with planning for retirement or college, rolling over a 401k, or just frustrated with their current advisor please pass them along our name. Your referrals are the best compliment we can receive! Please feel free to forward this monthly newsletter to your family, friends or colleagues (see ‘Forward email’ link below).
Disney Vacation Home Rental
We have arranged a special benefit for “clients only” who wish to vacation in the Disney area. You can rent a 4 bedroom home 8 miles from the Disney entrance for a substantially discounted rate of $500/week + taxes. This is a fully furnished home with private pool, full kitchen, living room, master suite, 2 full baths, and washer/dryer. The house must be rented for at least a full week and is available on a first come/first serve basis. This discounted rate is the minimum to cover costs and is available only to clients at this special rate.
Disclaimer: © 2011 WealthCare Partners – Securities are offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. WealthCare Partners and Cadaret, Grant & Co., Inc. are separate entities. WealthCare representatives are licensed in the States of Indiana, Florida, North Carolina, South Carolina, Texas, Washington, California, Oregon, Michigan, Illinois, Ohio, Mississippi, and New York.
Article 2: Pieces of this article were taken from ‘The Edge’ newsletter distributed by Jackson National Life Distributors