Rising Interest Rates and the Effect on Your Portfolio

Rising Interest Rates and the Effect on Your Portfolio

As Published in the Fall 2013 Edition of NJ Lifestyle

In 1981, the yield on a 10 year U.S. Treasury peaked at over 15%. Over the last 30 years, fixed income investors have largely experienced a “bull market” for bonds as yields have consistently fallen, bottoming out in July 2012 at 1.53%. With the Federal Reserve taking unprecedented monetary policy action through the setting of the federal funds target rate between 0% and 0.25%, coupled with their bond purchases of $85 billion monthly, rates don’t have much room to fall further. As the Fed “tapers” their bond buying, and eventually raises the fed funds rate, what effect will investors see on their portfolios? It is widely known that as bond yields rise, bond prices will fall. An investor who purchases a hypothetical bond today yielding 2% will earn $20 of interest annually per $1,000 par value bond. If yields were to rise to 3%, an investor can now earn $30 of interest per $1,000 par value, therefore making the 2% bond less valuable, resulting in a reduction in price. Investors today face heightened interest rate risk, the risk that rising yields will make their fixed interest rate bonds less valuable, as it is inevitable rates will rise in the future.

Read more

Another Unaffordable Consequence of Affordable Health Care

Another Unaffordable Consequence of Affordable Health Care

As Published in the Shore 2013 Edition of NJ Lifestyle

We are currently in a near zero interest rate environment and the Federal Reserve seems intent on keeping rates right there for the foreseeable future. This has caused investors to diversify the income portion of their investment portfolios and re-think ways to generate income outside of traditional savings and interest bearing accounts. Accordingly, investors have been bidding up dividend paying stocks. high yield bonds, MLP’s and real estate investment trusts, in part to replace the lost income that in the past had been previously so highly predictable and easily obtainable. Now the Federal Government wants its share too. Let us explain.

Read more

Second Quarter 2013 Market Overview

Second Quarter 2013 Market Overview

The big news event of the second quarter revolved around the sudden rise in US interest rates based upon the possible conclusion of the FOMC’s latest stimulus program. Consequently, the US stock market posted its first monthly decline since October 2012 as the second quarter came to a close. The DJIA declined by 659 points alone in a 4 day trading period between June 19th and June 24th. In addition, gold, precious metals, REIT’S, developed international and emerging markets all traded lower based upon that assumption as well as the prospect of a China slowdown, including its own looming credit crisis. Consequently, during the latter half of the second quarter volatility returned to the capital markets in full force.
Read more

Getting Your Fiscal House in Order

Getting Your Fiscal House in Order

As Published in the Spring 2013 Edition of NJ Lifestyle

With all of the current discussion about the U.S. Government struggling to get its fiscal house in order (debt ceiling, deficits,  sequester, etc.), we thought it was the ideal time to discuss household fiscal responsibility and provide readers with some tips for getting their fiscal house in order. As financial planners and practicing CPA’s, we interact with people from all across the financial spectrum. Our experience has taught us that whether a household is in good financial condition or not has less to do with household income, and more to do with household spending. (Sound familiar … can you say federal government?)
Read more

2012: The Year in Review

2012: The Year in Review

As Published in the Winter 2013 Edition of NJ Lifestyle

Stocks shrug off concerns and climb wall of worry in 2012 to double-digit gains

Europe —The year 2012 began much as the year 2011 ended, with much of the news revolving around the fiscal crisis in Europe. Would Greece default and leave the Eurozone? Would the Eurozone break up or kick some of the smaller financially weaker nations out? It seemed again that Europe might drag the rest of the developed world back into the recession it had just left several years before. That is, until the European Central Bank’s (ECB) President Mario Draghi announced in August that the ECB would use the roughly $500 billion Euros ($620 billion dollars) of the ECB’s lending capacity to purchase bonds of struggling countries in an attempt to keep yields from rising sharply on these cash strapped countries. It was a brilliant move for two reasons. First, the ECB did not have enough money to bail out all of the countries in need, but by preventing escalating borrowing costs for these countries, he bought them the much-needed time to get their fiscal houses in order. Secondly, it restored confidence in Europe, at least for the time being. In financial markets, as we saw in 2008, confidence, or lack of confidence, can mean life or death.
Read more

Simpson-Bowles: A Sensible Plan of Compromise and Realism

Simpson-Bowles: A Sensible Plan of Compromise and Realism

As Published in the Holiday 2012 Edition of NJ Lifestyle

This past week, while attending a national investment advisor conference Schwab Impact 2012 in Chicago, we had the privilege of hearing a speech from former Senator Alan Simpson (Republican) and former Chief of Staff for President Clinton Erskine Bowles (Democrat) on the fast approaching fiscal cliff our nation faces (See Spring 2012 Issue for our analysis of the fiscal cliff) and the need for comprehensive federal budget reform.

In 2010, President Obama created the National Commission on Fiscal Responsibility and Reform to identify policies to improve the fiscal situation in the medium term, and to achieve fiscal responsibility over the long run. The bi-partisan commission included nineteen appointees, including six Senators and six members of the House of Representatives. They came up with a report, which is commonly referred to as the “Simpson-Bowles Plan” that included comprehensive budgetary reforms that would cut our federal debt by $4 trillion over a ten year period.

Read more

Weak Housing Market Leads to Anemic Recovery

Weak Housing Market Leads to Anemic Recovery

As Published in the Fall 2012 Edition of NJ Lifestyle

The most recent recession (often dubbed “The Great Recession”) was the longest and most severe recession in the United States since The Great Depression in the 1920’s. Officially, the recession began in December 2007 and ended in June 2009, at which point the economy started to grow again. What has been concerning to so many is that usually by this stage of a ”recovery”, U.S. GDP would be growing at 4-6%, based on historical measures. Instead, the U.S. economy is barely generating 2% growth presently.

Although there are many factors contributing to this lackluster recovery, perhaps the largest factor has been the weak housing sector. It is, of course, intuitive that housing would be weak in a recovery following a recession that was caused by a “housing bubble.” The years leading up to 2007 were marked by excess housing construction, speculation, and poor lending practices. The excess housing supply created by the housing bubble has caused new home construction to slow down dramatically from historic averages. Over the last 40 years, the United States has produced, on an annual basis, approximately 1.5 million new housing starts. This number decreased all the way to 500,000 in 2010.

Read more

Second Half – What’s in Store for the Rest of 2012

Second Half – What’s in Store for the Rest of 2012

As Published in the Summer 2012 Edition of NJ Lifestyle

It is almost futile to attempt to time the markets or consistently predict with any high level accuracy what will unfold in the future, especially with so many major unresolved and pending issues currently confronting investors. As advisors, we strive to remain objective. We weigh the known data and information in order to position our clients and give them the best chance of success, while also reducing, as much as possible, the potential downside risk related to any known or unknown fat tail events. With the first half of 2012 in the rear-view mirror, it is a good time to evaluate and reassess the strengths and weaknesses in the Global Economy. This article will attempt to identify and differentiate between the Good, the Not-So-Bad, and the downright Ugly.

Read more

Facing The Fiscal Cliff

Facing The Fiscal Cliff

As Published in the Shore 2012 Edition of NJ Lifestyle

Since we are in an election year, you would think our politicians would spend time trying to solve our nation’s monumental fiscal problems: A national debt of $15.6 trillion and a 2011 federal budget deficit of $1.5 trillion. Instead, most political journalists and insiders believe that nothing will be done until after the elections in November. What is so troubling about this is that only leaves about 6-7 weeks to address what Federal Reserve Chairman Bernanke referred to as the “Fiscal Cliff”. There are four events that will happen automatically on December 31, 2012 if Congress fails to act:

  1. End of the Bush-era tax cuts
  2. End of the 2% social security payroll tax holiday
  3. End of the extended unemployment benefits package
  4. Automatic spending and budget cuts that are a result of the Budget Control Act Bush Era Tax Cuts

Read more

Why Baby Boomers’ Retirement will be much different from their Parents’ Retirement

Why Baby Boomers’ Retirement will be much different from their Parents’ Retirement

As Published in the Spring 2012 Edition of NJ Lifestyle

  1. Much Longer Retirement: Due to the increase in longevity, today’s retirees that retire in their 60’s may be retired for 30 years, whereas their parents’ life expectancy at age 60 was fifteen years or less. Being retired potentially twice as long as their parents’ means Boomers need more money saved.
  2. Savings Instead of Pensions: Although the Boomers’ parents had a much lower per capita income, many had corporate pensions. Boomers were the first generation to demand higher salaries and the freedom to change employers and, for that flexibility, saw their pensions phased out for 401(k)s. Many Boomers don’t have enough saved in their retirement savings plans and do not have the corporate pension to fund their basic needs.
    Read more
14567