The frenzy is building. Should you care?

Anticipation is high. Facebook filed an S-1 form with the Securities and Exchange Commission on February 1, taking its first big step toward going public. It aims to raise $5 billion through its upcoming IPO. Some of the details from the S-1 form:

• Facebook’s revenue climbed from $777 million in 2009 to $3.71 billion in 2011.
• Its annual profits went from $229 million (2009) to $1 billion (2011). 
• Its profits grew by 65% last year alone.
• Its top source of revenue is advertising. (12% of Facebook’s 2011 revenues came from Zynga, a social network gaming company.)

The Google IPO raised $1.9 billion, and this IPO could potentially dwarf that.¹

Will this IPO live up to all the hype? It might; it might not. Let’s examine some other key tech IPOs and see how those shares have done since.

• Google. The IPO set the share price at $85. Here in early February 2012, the share price is now around $580. A home run by any definition.
• LinkedIn. On the day of the IPO, the share price climbed from $45 to a peak of $122.70 and settled at $94.25. At the start of February, LinkedIn was trading for about $72.
• Pandora. Shares were offered at $16 in June 2011; eight months later, they were trading at $13.
• Zillow. Shares were offered at $20 in July 2011 and ended at $35.77 on the day of the IPO; in early February, Zillow traded at around $30.^2,3

All in all, these numbers look pretty good, right? Sure they do, to institutional investors. Keep in mind that the little guy gets there second. It is the institutional investor – not the small investor – who gets first dibs on the stock and who frequently realizes the terrific upside. The individual investors get to get in after the shares take off; sometimes they pay a price.

Lessons from the dot-com (and dot-bomb) years. The 1990s may seem like ancient history, yet there are examples from the past worth noting when it comes to IPOs.  

• University of Florida finance professor Jay Ritter has maintained a huge database on IPOs for decades. He did a study of 1,006 IPOs from 1988-1993 (these were all IPOs that raised $20 million or more) and found that the median IPO underperformed the Russell 3000 by 30% in the first three years after going public, and that 46% of the IPOs produced negative returns.
• In 1999, 555 firms went public and the median share price gain for these issues on the day of the IPO was 30%. But what if you bought after the first day? If you did, the median gain after three months averaged 0%. Additionally, almost 75% of all U.S. Internet-related IPOs from mid-1995 to 1999 traded underneath their offering price at the moment of publication.²

Should Mom & Pop dive in? As MarketWatch columnist Mark Hulbert pointed out, Facebook’s IPO will be three times as expensive as Google’s and about 40 times as expensive as the average large IPO since 1975. As Hulbert found in the wake of a chat with Professor Ritter, Facebook’s price-to-sales ratio (PSR) looks to be about 26, with 2011 revenues of $3.71 billion and a reported IPO valuation of circa $100 billion. Google’s PSR was 8.7 at the time of its IPO. ^1,3 

Looking back, Ritter found 76 companies since 1975 with trailing 12-month sales from the date of their IPOs of $3 billion or more (in 2011 dollars), firms with more or less reliable revenue streams. Their average PSR: 1.0. AT&T Wireless was the highest of them at 8.9, and that was a 2000 IPO.³

So in other words, Facebook would need staggeringly high revenues (or a consistently remarkable profit margin) for its shares to behave as well as Google shares did in those first few years out of the gate. 

Could the tech sector see a “Facebook effect”? Yes, remember the “wealth effect” of the Google IPO? Some of the “best and the brightest” in the tech sector became overnight millionaires and went off and founded their own profitable firms. That sort of thing could happen again; there are tens of thousands of start-ups now generating revenues off of Facebook’s platform, so you have a whole ecosystem of smaller firms that are anticipating the IPO as much as institutional investors.⁴

Caution might be in order for those awaiting Facebook’s IPO. Individual investors have swung for the fences many times in situations like this, only to strike out.

Citations.
1 –www.cbsnews.com/8301-500395_162-57369966/facebook-files-to-go-public-plans-to-raise-$5b/ [2/1/12]
2 – cbsnews.com/8301-505123_162-57369940/why-facebooks-ipo-shouldnt-excite-you/ [2/2/12]
3 – www.marketwatch.com/story/facebooks-ipo-will-be-way-overvalued-2012-02-01 [2/1/12]
4 – www.mercurynews.com/business/ci_19881493 [2/2/12]

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 not a solicitation or a 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. This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with Stonecreek Wealth Advisors, Inc.

WEEKLY QUOTE
“If you would be loved, love and be lovable.”
- Benjamin Franklin

JOBLESS RATE DOWN TO 8.3%
Are we seeing a trend here? The unemployment rate has now fallen 0.8% in the last six months. We haven’t seen a descent this sharp and swift since 1984. January hiring blew away forecasts: the Labor Department said the economy added 243,000 jobs last month, while economists polled by Briefing.com expected non-farm payrolls to grow by 155,000 positions. The labor force hasn’t grown so much in a month since last April, and the numbers are making analysts wonder if the Federal Reserve will tinker with interest rates months ahead of expectations.^1,2

HOUSEHOLDS SAVE FIRST, SPEND SECOND
Consumer spending was flat in December after gains of just 0.1% in November and October. More significantly, consumer incomes rose 0.5% for December and so did the personal savings rate. People essentially put the extra money in the bank. In related news, the federal government estimated 2011 GDP at 1.7%, about half of the economic growth seen in 2010.³

BOTH ISM INDEXES RISE
The Institute for Supply Management’s closely watched purchasing manager indexes signaled expanding service and manufacturing sectors in January. ISM’s service sector PMI improved 3.8% to 56.8. Its manufacturing PMI advanced 1.0% to 54.1.⁴

CASE-SHILLER INDEX DECLINES AGAIN
This was the third straight monthly dip for the 20-city roundup of residential home prices. The latest available edition (November) showed a 1.3% monthly retreat in prices with a 3.7% year-over-year drop.⁵

NASDAQ TOPS 2,900
The tech-heavy index closed at an 11-year high Friday: 2,905.66. The Dow settled at 12, 862.23 at week’s end, its best close since May 2008. The S&P 500 finished Friday at 1,344.90. The weekly gains: DJIA, 1.59%; S&P, 2.17%; NASDAQ, 3.16%.^1,6

THIS WEEK: Earnings take center stage in a stretch without much economic data. Monday brings Q4 results from Yum Brands, Humana and Hasbro. Tuesday, earnings arrive from Disney, UBS, Toyota, BP, Coca-Cola and Hartford Financial. Wednesday, Groupon, VISA, CVS, Sprint Nextel, Time Warner and Cisco join in. Thursday, the Bank of England and ECB wrap up policy meetings; new initial claims figures complement earnings reports from Expedia, PepsiCo, Dunkin’ Brands, Sirius XM Radio, Rio Tinto and Credit Suisse. Friday, the University of Michigan’s initial February consumer sentiment survey comes out plus Q4 results from Barclays.

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +5.28 +6.63 +0.33 +3.28
NASDAQ +11.54 +5.51 +3.47 +5.66
S&P 500 +6.94 +2.89 -1.43 +2.29
REAL YIELD 2/3 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS -0.21% 1.23% 2.42% 3.48%

Sources: money.msn.com, bigcharts.com, treasury.gov, treasurydirect.gov – 2/3/12^1,7,8,9 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

Meeting your obligations & finding some opportunities.

After you turn 70½, the IRS requires you to withdraw some of the money in your retirement savings accounts each year. These withdrawals are officially called Required Minimum Distributions (RMDs).¹ 

While you never have to make withdrawals from a Roth IRA, you must take annual RMDs from traditional, SEP and SIMPLE IRAs, pension and profit-sharing plans and 401(k), 403(b) and 457 retirement plans annually past a certain age. If you don’t, severe financial penalties await.¹ 

If you are still working as an employee at age 70½, you don’t have to take RMDs from a profit-sharing plan, a pension plan, or a 401(k), 403(b) or 457 plan. Your initial RMDs from these accounts will only be required after you retire. However, you must take RMDs from these types of accounts if you own 5% or more of a business sponsoring such a retirement plan.² 

You must take RMDs from IRAs after you turn 70½ regardless of whether you are still working or not.²

The annual deadline is December 31, right? Yes, with one notable exception. The IRS gives you 15 months instead of 12 to take your first RMD. Your first one must be taken in the calendar year after you turn 70½. So if you turned 70½ in 2011, you can take your initial RMD any time before April 1, 2012. However, if you put off your first RMD until next year you will still need to take your second RMD by December 31, 2012.¹

Calculating RMDs can be complicated. You probably have more than one retirement savings account. You may have several. So this gets rather intricate. 

• Multiple IRAs. Should you have more than one traditional, SEP or SIMPLE IRA, the annual RMDs for these accounts must be calculated separately. However … the IRS gives you some leeway about how to withdraw the money. You can withdraw 100% of your total yearly RMD amounts from just one IRA, or you can withdraw equal or unequal portions from each of the IRAs you own.
• 401(k)s and other qualified retirement plans. A separate RMD must be calculated for each qualified retirement plan to which you have contributed. These RMD amounts must be paid out separately from the RMD(s) for your IRA(s).
• Inherited IRAs. The same applies – a separate RMD must be calculated for each inherited IRA you have, and these RMD amounts must be paid out separately from RMD(s) for your other IRA(s).¹

This is why you should talk to your financial or tax advisor about your RMDs. It is really important to have your advisor review all of your retirement accounts to make sure you fulfill your RMD obligation. If you skip an RMD or withdraw less than what you should have, the IRS will find out and hit you with a stiff penalty – you will have to pay 50% of the amount not withdrawn.² 

Are RMDs taxable? Yes, the withdrawn amounts are characterized as taxable income under the Internal Revenue Code. Should you be wondering, RMD amounts can’t be rolled over into other tax-deferred accounts and excess RMD amounts can’t be forwarded to apply toward next year’s RMDs. ²

What if you don’t need the money? If you are wealthy, you may come to see RMDs as an annual financial nuisance – but the withdrawal amounts may be redirected toward opportunities. While putting the money into a savings account or a CD is the usual route, there are other options with potentially better yields or objectives. That RMD amount could be used to…

• Start a grandchild’s education fund.
• Fund a long term care insurance policy.
• Leverage your estate using life insurance.
• Diversify your portfolio through investment into stock market alternatives. 

There are all kinds of things you could do with the money. The withdrawn funds could be linked to a new purpose.

So to recap, be vigilant and timely when it comes to calculating and making your RMD. Have a tax or financial professional help you, and have a conversation about the destiny of that money.

WEEKLY QUOTE
“Judge each day not by the harvest you reap but by the seeds you plant.”
- Robert Louis Stevenson

A noted economist disputes that generalization.

True or false? You may have heard this claim before (or something like it): “Many Americans are being forced to retire later because their savings and investments took a hit in the Great Recession.” 

Recently, a big-name economist disputed that belief. In a commentary for Bloomberg, former White House budget director Peter Orszag wrote that some of the statistics don’t seem to back up this conventional wisdom, but perhaps it all depends on which statistics you cite.

A fact that can’t be ignored. In mid-January, a widely reprinted Washington Post article mentioned that since the start of the recession, the population of U.S. workers older than 55 has increased by 12% to 3.1million.¹

Examining this Labor Department finding, the Post feature referenced longevity and the loss of traditional pension plans as contributing factors. It presented stories of older workers who didn’t think they could easily retire, and quoted respected commentators such as Alicia Munell, director of the Center for Retirement Research at Boston College, who remarked that “some of these people are just clinging by their fingernails to jobs.”¹

But is there more to the story? It turns out that Americans were trending toward staying in the workforce longer even before the recession. In 1994, Orszag notes, 43% of Americans aged 60-64 were working; in 2006, it was 51%. Nearly half of 62-year-olds went and claimed Social Security benefits in 1994, but 12 years later, less than 40% of 62-year-olds followed suit.²

Orszag mentions another factor that may have kept older employees working during the recession: declining home equity. Put that alongside diminished IRA and 401(k) balances, and there was every reason to stay on the job these last few years.

However, just because older Americans wanted to keep working didn’t mean that they could. 

In the 2011 edition of its respected Retirement Confidence Survey, the Employee Benefit Research Institute found that 45% of retirees ended their careers earlier than they wanted to, in many cases due to layoffs and health issues.³ 

The Post article noted that the jobless rate for workers older than 55 was just 3.2% in December 2007 when the downturn began. In December 2011, it was up to 6.2%.¹ 

The percentage of employed Americans aged 60-64, which had steadily risen during the 1990s and early 2000s, has remained at roughly 51% for the past five years.²

That brings us to Orszag’s central point: “The bottom line is that people’s retirement decisions aren’t always entirely voluntary.”²

How about your retirement decision? Do you think you will retire when you want to retire? Are you prepared for retirement financially? A new year is a good time for a new look at the state of your finances and your retirement readiness. With astute planning, you might be able to retire sooner than you think.

Citations.
1 – www.usatoday.com/USCP/PNI/NEWS/2012-01-17-PNI0117biz-older-workersART_ST_U.htm [1/11/12]
2 – mobile.bloomberg.com/news/2012-01-18/look-at-jobs-before-leap-on-older-retirement-commentary-by-peter-orszag [1/18/12]
3 – www.ebri.org/pdf/briefspdf/EBRI_03-2011_No355_RCS-2011.pdf [3/15/11]

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 not a solicitation or a 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. This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you.

WEEKLY QUOTE
“Do you know the difference between education and experience? Education is when you read the fine print; experience is what you get when you don’t.”
– Pete Seeger

NO CONSUMER INFLATION INCREASE IN DECEMBER
For the second month in a row, the Labor Department reported no advance in its Consumer Price Index. Core CPI did rise 0.1% last month. Across 2011, consumer prices rose 3.0%; last year was the most inflationary year since 2007. As for wholesale inflation, the Producer Price Index declined 0.1% in December.¹

MORE HOMES MOVING ON THE MARKET
The National Association of Realtors announced a 5.0% increase in existing home sales for December, with a 4.6% gain in sales of single-family houses. For all of 2011, existing home sales improved by 1.7% as the median sale price declined 3.9%. One negative real estate signal last week: in December, housing starts fell by 4.1%.^1,2,3

FEWEST INITIAL JOBLESS CLAIMS IN FOUR YEARS
The Labor Department said initial applications for jobless benefits dropped by 50,000 to 352,000 in the week ending January 14. That is the lowest number of initial claims taken in any week since April 2008.¹

DOW RISES FOR A FOURTH STRAIGHT WEEK
Stocks have surprised many analysts this month, as Wall Street has paid more attention to earnings than to news from Europe. The weekly numbers: S&P 500, +2.04% to 1,315.38; NASDAQ, +2.80% to 2,786.70; DJIA, +2.40% to 12,720.48.^2,3

THIS WEEK: EU finance ministers meet on Monday, and Halliburton and Texas Instruments announce Q4 earnings. On Tuesday, Q4 results roll in from Apple, Yahoo!, Johnson & Johnson, Travelers, Verizon, DuPont, and McDonald’s, and President Obama will make a State of the Union address. On Wednesday, Boeing, Netflix, Motorola, Symantec, Amgen, SanDisk, ConocoPhillips and Delta all come out with earnings reports, NAR delivers news about December pending home sales, and the Fed concludes a policy meeting. Thursday brings Q4 earnings from AT&T, Time Warner Cable, Nokia, Starbucks, Caterpillar, 3M, Bristol-Myers and AutoNation, plus reports on December durable goods orders and new home sales and the latest initial claims figures. Friday, we have the government’s first take on Q4 GDP, the final University of Michigan consumer sentiment survey of January and earnings from Chevron, D.R. Horton and Procter & Gamble.

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +4.12 +7.59 +0.25 +3.10
NASDAQ +6.97 +3.05 +2.74 +4.80
S&P 500 +4.59 +2.74 -1.61 +1.75
REAL YIELD 1/20 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.01% 1.22% 2.47% 3.48%

Sources: money.msn.com, bigcharts.com, treasury.gov, treasurydirect.gov – 1/20/12^2,4,5,6 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

Explaining the difference, and what it means to be a Registered Investment Advisor.

If you meet with a financial professional, be sure to ask a critical question. If you make an appointment with a financial consultant on behalf of yourself, your family or your company, make the following inquiry before the meeting ends: 

 “Are you held to a suitability standard or a fiduciary standard?”

This distinction is very important. You should be aware of the difference.

What is a suitability standard? Financial Advisors and Financial Planners are frequently asked to abide by suitability standards: when they recommend a financial product to a client, they are ethically bound to recommend a product which is “suitable” for that client.

As laid out in the manual of FINRA (the Financial Industry Regulatory Authority, formerly known as the NASD or National Association of Securities Dealers), the suitability standard has long demanded that a broker make “reasonable efforts to obtain information” on four aspects of a client’s financial life:  

• Financial status
• Tax status
• Investment objectives
• Other information used or considered to be reasonable

These factors (and others) have a hand in determining whether a financial product or securities transaction is deemed “suitable” for a client.¹

Suitability standards emerged in response to an age-old Wall Street problem. Decades ago, stock brokers garnered all sorts of bad publicity for calling their clients up and recommending “hot” stocks or funds that were utterly inappropriate for them. The investors may have gotten burned, but the brokers got their sales commissions. 

Suitability standards are good, make no mistake. The problem is that they could be even better.

Even with a suitability standard, a broker has no specified duty to act in a client’s best interest. So while that broker may recommend a “suitable” fund, stock or other financial product to you, he is not prohibited from recommending an investment that will result in a bigger commission for him or higher costs for you.

If a broker has a proprietary security that seems “suitable” for you, the broker may promote it ardently to you even though better-performing securities might be available.

In 2005, the SEC determined that “broker-dealers will not be deemed to be investment advisers” and therefore are not subject to the same fiduciary standards as Registered Investment Advisors (RIAs) when recommending investments to clients.²

In 2011, FINRA Rules 2090 and 2111 expanded the existing suitability obligations while creating new ones. Any recommendations of “investment strategies” and any recommendations to hold securities within an investment strategy must now be “suitable” for the particular client, and the investor profile compiled by the broker to judge suitability must consider additional factors.³

What is a fiduciary standard? This is the standard that Registered Investment Advisors must uphold. An RIA may be an individual or a financial firm. The “Registered” adjective refers to being registered with either the Securities & Exchange Commission (SEC) or a state securities agency. 

RIAs have a fiduciary duty (a legal requirement) to act in the client’s best interest regardless of the level of compensation the advisor may receive as a result of recommendations or actions. Fundamentally, this comes down to two points as stated by the SEC:

• The advisor must avoid conflicts of interest.
• The advisor is prohibited from overreaching or taking unfair advantage of a client’s trust.

A Registered Investment Advisor is not supposed to pitch products, strategies or securities transactions with the idea that “this will be a win-win for both of us.” The client’s best interest comes first and it is the only interest that matters.⁴

Retirement plan sponsors must also meet fiduciary standards. If you sponsor a retirement plan for your workers, then you are by definition a fiduciary. So says the Department of Labor. If you violate fiduciary standards, you may be found personally liable and responsible for restoring any losses to the plan or profits from improper use of plan assets.⁵

If you have hired a third-party administrator (TPA) to help you with your plan, you need to understand whether or not that TPA will assume any share of fiduciary responsibilities. Most TPAs will not.^6,7

How can you tell if a TPA will? Look at the contract you sign. Look for language (in the fine print) stating that the individual or firm recognizes that it will act as a fiduciary under ERISA and the Advisers Act when offering advice to plan participants. If the TPA exercises discretion and control over the retirement plan or some aspect of it, then it could be defined as a fiduciary.⁶

Seek strong standards. When you enter an advisory arrangement with a financial professional or financial consulting firm, the agreement you sign should tell you whether the advisor is held to a suitability standard or a fiduciary standard. In the opinion of many investors and financial professionals, a fiduciary standard clearly amounts to a higher standard.  

We are a Registered Investment Advisor Firm.  

If you or someone you know needs help managing retirement assets or need help setting up an investment savings plane feel free to give us a call or click here. 

Citations.
1 – finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3638 [1/10/12]
2 – www.sec.gov/rules/final/34-51523.pdf [4/15/05]
3 – www.wnj.com/Publications/New-FINRA-Rules-on-Knowing-Your-Customer-and- [2/1/11]
4 – www.sec.gov/about/offices/oia/oia_investman/rplaze-042006.pdf [4/06]
5 – www.dol.gov/ebsa/publications/fiduciaryresponsibility.html [1/10/12]
6 – www.seethebenefits.com/showbenefit.aspx?Show=740 [1/10/12]
7 – montoyaregistry.com/Financial-Market.aspx?financial-market=why-choose-an-independent-financial-advisor&category=5 [1/10/12]

WEEKLY QUOTE
“Sweet are the slumbers of the virtuous man.”
– Joseph Addison

AN UNDERWHELMING RETAIL SALES REPORT
Holiday shopping was strong … or was it? The Census Bureau’s newest monthly retail sales data indicated only a 0.1% gain for December. Yet in the big picture, 2011 was the best year for retail sales since 1999. Total retail sales rose 7.7% last year, online and catalog sales were up 10.6% and overall sales have now improved about 20% from the depths hit during the Great Recession.^1,2

CONSUMER SENTIMENT INDEX INCREASES
The University of Michigan’s preliminary January consumer sentiment survey showed further improvement, with a gain from 69.9 to 74.0; the best reading since last May and better than the 71.5 economists polled by Reuters anticipated.³

NEW BEIGE BOOK NOTES IMPROVING ECONOMY
The Federal Reserve’s new economic snapshot of its 12 banking districts showed 11 noting economic growth. The anecdotal survey noted improvement in auto and retail sales, manufacturing and consumer spending in the last six weeks of 2011.⁴

S&P CUTS CREDIT RATINGS OF 9 EU NATIONS
After U.S. markets closed Friday, Standard & Poor’s downgraded a third of the European Union: it took France from AAA to AA+, cut ratings for Austria, Slovakia, Slovenia and Malta by a notch and booted the ratings of Italy, Portugal, Spain and Cyprus down two notches. S&P said the EU’s debt reduction plan lacks “sufficient size or scope”. Additionally, EU talks on restructuring Greek debt fell apart Friday.⁵

STOCKS ON A WINNING STREAK
The S&P 500 posted its second straight weekly gain across January 9-13, rising 0.88% to 1,289.09. The DJIA rose 1.67% to 12,422.06 and the NASDAQ gained 1.36% to 2,710.67. Last week also saw gains for the U.S. Dollar Index (0.24%) and COMEX gold (0.87%).^5,6

THIS WEEK: U.S. financial markets are closed Monday for the federal holiday honoring Martin Luther King, Jr. Tuesday, Wells Fargo, Citigroup and Charles Schwab issue earnings reports. Wednesday, the December PPI arrives and we will have Q4 earnings from eBay and assorted financial heavy hitters: Goldman Sachs, Bank of NY Mellon, State Street, Northern Trust, PNC Bank and US Bancorp. Thursday, we have December’s CPI, a new initial jobless claims report and Q4 results from more big names: Bank of America, Morgan Stanley, AmEx, IBM, Microsoft, Google, Sony Ericsson, UnitedHealth and Capital One. Friday, last month’s existing home sales figures will be released along with earnings from GE.

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +1.67 +5.88 -0.21 +2.56
NASDAQ +4.05 -0.90 +1.66 +3.62
S&P 500 +2.50 +0.42 -1.98 +1.32
REAL YIELD 1/13 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS -0.14% 0.97% 2.49% 3.48%

Sources: money.msn.com, bigcharts.com, treasury.gov, treasurydirect.gov – 1/13/12^1,5,7,8,9 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

A look at some financial changes & the opportunities they may present.

Every year brings some financial change, so here are some relevant changes relating to investment, tax and estate planning for 2012.

Retirement plans. 401(k), 403(b) and 457 plan annual contribution limits rise slightly to $17,000, and you can contribute an additional $5,500 to these accounts if you are 50 or older this year. IRA contribution levels are unchanged from 2011: the ceiling is $5,000, $6,000 if you will be 50 or older in 2012.¹

As you strive to contribute as much as you comfortably can to these accounts this year, you will probably notice some changes with the retirement plan at your workplace. In 2012, retirement plan sponsors (i.e., employers) will have to note all of the fees and expenses linked to the funds in the plan to plan participants. So if you have a 401(k) or 403(b), you may notice some differences in the disclosures on your statements and you will probably notice more information coming your way about fees. There is also a push in Washington, D.C. to have financial companies provide lifetime income illustrations on retirement plan account statements, projections of your expected monthly benefit at retirement age.² 

Income taxes. Wealthy Americans are set to face greater income tax burdens in 2013, so 2012 may be the last year to take advantage of certain factors. For example, the top tax bracket in 2013 is slated to be at 39.6% instead of the current 35%. This year, capital gains and dividends will be taxed at 15% or less for everyone, 0% for those in the 10% and 15% tax brackets. In 2013, the qualified capital gains tax rate is scheduled to rise to 20% and qualified dividends will be taxed as ordinary income. So taking a little more income in 2012 could be smart.³

In 2013, the wealthiest Americans are supposed to be hit with new Medicare taxes: a new 3.8% levy on unearned income (such as capital gains, income from real estate, dividends and interest) and a new 0.9% tax or earned income. So next year, the truly wealthy could effectively face in the neighborhood of 45% federal taxes.³ 

Additionally, the IRS is planning to limit itemized deductions for upper-income taxpayers in 2013. A phase-out will also apply for the personal exemption deduction.³

Estate & gift taxes. At the end of 2012, some very nice estate tax breaks could sunset. Barring action by Congress, 2013 could see a 20% leap in the federal estate tax rate from 35% to 55%. The individual estate tax exclusion (currently $5.12 million) is scheduled to be reduced to $1 million.³

As we have unified gift and estate tax rates, those numbers and percentages also apply to gift taxes. That is, from 2012 to 2013 top federal gift tax rate is set to go from 35% to 55% and the lifetime gift tax exemption amount is scheduled to fall $4,120,000 per individual to $1 million. The annual gift tax exemption is $13,000 per recipient in 2012; there is an exemption limit for qualifying educational and medical payments. If you want to gift relatives or friends, you may want to avoid procrastinating for another very good reason: when you make such a gift early in a year, the recipient will gain both the principal and any appreciation tied to the gifted asset in that year.^3,4

Speaking of gifts, we said goodbye to charitable IRA gifts in 2011. The IRA charitable rollover, a boon to non-profits and a handy tax deduction option for taxpayers older than age 70½, was not extended into 2012, not even temporarily as a sweetener to the payroll tax extension bill. There is hope it will be back. Two bills have been introduced in Congress with that goal, one sponsored by Sen. Olympia Snowe (R-ME) and Sen. Charles Schumer (D-NY) and another by Rep. Wally Herger (R-CA) and Rep. Earl Blumenauer (D-OR). The proposed legislation would let IRA owners start making charitable IRA gifts at age 59½ and remove the $100,000 limit on the rollovers.⁵ 

The limits on the generation-skipping transfer tax could change, too: assuming the Bush-era tax cuts do sunset, the GSTT rate would jump from 35% this year to 55% in 2013, with the GSTT exemption falling from $5,120,000 per person this year to roughly $1.3 million per person next year.³

So given all these changes, it might be wise to meet with an Investor Coach in 2012 as you strive to start the year off on the right foot. You have until April 17 to file your federal return, but you can plan now.

Get a FREE copy of our Investor Awareness Guide, click here now!

Citations.
1 – www.irs.gov/retirement/article/0,,id=96461,00.html [10/20/11]
2 – www.marketwatch.com/story/retirement-plan-changes-coming-in-2012-2011-12-29 [12/29/11]
3 – www.sbnonline.com/2012/01/how-to-approach-tax-and-estate-planning-opportunities-for-2012/?full=1 [1/3/12]
4 – advisorone.com/2012/01/06/10-tax-tips-for-advisors-in-2012 [1/6/12]
5 – www.northjersey.com/news/business/business_opinion/136217658_Payroll_tax_cut_benefits_charities.html [12/25/11]

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 not a solicitation or a 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. This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you.

WEEKLY QUOTE
“Being brilliant is no great feat if you respect nothing.”
– Johann Wolfgang von Goethe 

UNEMPLOYMENT DOWN TO 8.5%
In December, the jobless rate declined for the fourth straight month to its lowest level since February 2009. (The problem is this may not be the true number due to the fact that they stopped reporting those who can no longer qualify to collect unemployment.)  The Labor Department announced that the economy added 200,000 net new jobs last month, topping the consensus forecast of analysts polled by Reuters who expected a gain of 155,000. Separately, payroll processing firm ADP reported private sector firms hiring 325,000 workers in December. Whether December’s boost reflects a seasonal hiring boom or not, Labor Department data indicates that private sector payrolls expanded by an average of 132,000 jobs per month during the second half of 2011.^1,2

MANUFACTURING, SERVICE SECTOR GAUGES RISE
According to the twin barometers of the Institute for Supply Management, the U.S. manufacturing and non-manufacturing sectors continued to expand last month. ISM’s service sector PMI came in at 52.6, up 0.6% from the November reading; its manufacturing PMI rose to 53.9 from November’s 52.7 mark.³

STOCKS START 2012 WITH GAINS
Across January 3-6, the Dow rose 1.17% to 12,359.92, the NASDAQ climbed 2.65% to 2,674.22 and the S&P 500 advanced 1.61% to 1,277.81. Optimism prevailed despite more woes from the Eurozone: Fitch Ratings lowered Hungary’s credit rating to “junk” status on Friday and the euro fell to a 16-month low versus the dollar.²

THIS WEEK: Monday, German chancellor Angela Merkel and French president Nicolas Sarkozy meet to discuss the EU’s new fiscal pact; Alcoa kicks off the Q4 earnings season. Tuesday, we get a report on November’s wholesale trade. Wednesday brings a new Beige Book from the Federal Reserve and Q4 results from Lennar. Thursday, the Census Bureau releases December retail sales figures, the latest initial jobless claims data arrives and the European Central Bank and Bank of England issue monetary policy statements. On Friday, the University of Michigan’s preliminary January consumer sentiment survey will be out, plus Q4 earnings from JPMorgan.

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +1.17 +5.66 -0.0006 +2.12
NASDAQ +2.65 -1.32 +1.97 +3.13
S&P 500 +1.61 +0.31 -1.87 +0.97
REAL YIELD 1/6 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS -0.11% 0.96% 2.39% 3.48%

Sources: online.wsj.com, bigcharts.com, treasury.gov, treasurydirect.gov – 1/6/12^2,7,8,9 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

MONTHLY QUOTE
“Don’t try to solve serious matters in the middle of the night.”
 – Phillip K. Dick