September, 2009: Investment Perspective – Market Commentary

Since the stock market lows set in early March of this year, we’ve experienced a significant run-up in stocks earning back half of the losses surrendered in last year’s crash. The relevant questions that are being voiced now are: what’s behind this move upwards and has the market come too far too fast. With our portfolios, we want to answer these questions and try to be prepared for the near-term while keeping our strategies geared for the long run.

Historically in recoveries from recessions, one-third a stock market's gains are due to businesses "restocking their shelves" and the remaining two-thirds are consumers returning to buy goods. "Restocking the shelves" means businesses in an effort to replenish their inventories (so they can sell what they make) have to buy "parts" from other businesses. Think of a computer maker buying the input goods from other companies in order to produce computers for sale in stores.

August, 2009: Investment Perspective – Market Commentary

Over the past 24 months, we’ve seen dramatic developments in the economy and the financial markets. The first hint of trouble occurred in late 2007 when Bear Stearns, the now defunct investment bank, admitted that two of their hedge funds concentrated in subprime loan securities were worthless. Since then the biggest banks in the world have revealed extensive losses from terrible decision-making and have been the recipients of an enormous government bailout.

Almost a year ago when the bailout was being voted upon (first voted down and then approved), financial markets that had been slowly weakening fell apart and the economy rapidly came to a halt. Stock markets worldwide fell 20% in October, 2007 alone, the worst month within the 45% freefall which reached a bottom in early March of this year. Since that October, high unemployment emerged, Barack Obama was elected President, huge fiscal stimulus programs were enacted globally, the Fed kept interest rates low, GM declared and then emerged from bankruptcy, healthcare reform was raised and then called into question, and hope-for bipartisanship in our government is now a fading prospect.

April, 2007: Investment Perspective – Market Commentary

Portfolio returns were good in the 1st Quarter of 2007 despite major market volatility that began in late February. After months of relatively calm and well-performing stock markets, we experienced three separate days of significant drops spanning a three-week period. CNBC as well as many cable news networks gave major coverage to these drops.

The market would eventually recover after each of these days and wound up ending the month of March just 2% lower than before the first daily drop. In flipping through numerous press clippings, I found an article from the Wall Street Journal titled “Stock Selloffs are Losing Shock Value.” This was absolutely true – each new day of a relatively big decline sparked less and less panic and more measured news coverage.

April, 2007: Planning Perspective – Roth IRAs Can Work for Older Workers Too

Roth IRAs were introduced in 1998, named after their chief legislative sponsor, Senator William Roth of Delaware. Senator Roth succeeded in pushing through one of the best saving opportunities for U.S. citizens in a long time.  

What is the advantage of the Roth IRA? Roth IRAs allow investors to accumulate tax-deferred earnings and not pay any taxes on withdrawals.  

How are Roth IRAs different from traditional IRAs? Both types of IRAs allow for the accumulation of tax-deferred earnings. That is, capital gains, dividends, and interest within the account are not taxed. They differ in their treatment of contributions and withdrawals. Traditional IRAs allow for certain tax-deductible contributions while Roth IRAs do not. Withdrawals, on the other hand, are limited under traditional IRAs and subject to income tax. Withdrawals under Roth IRAs have fewer restrictions and are not subject to income tax.  

Aren’t Roth IRAs just for young workers? Conventional wisdom has been that Roth IRAs are just for young workers in low tax brackets (because they’re willing to pay a tax on their contribution when they’re in a relatively low tax bracket in exchange for a tax-exempt withdrawal when they are presumably in a higher tax bracket) or those ineligible for traditional IRAs.   

However, more and more retirees and near-retirees are receiving great savings and tax reduction opportunities from Roth IRAs every day. The key is if you have taxable wage income (i.e., compensation earned from services, not pensions), you are potentially a good candidate for a Roth IRA no matter what your age.