Tom Peters, Author and Businessman
We selected the quote above for this month’s commentary because in both our wealth planning recommendations and in our investment management work we are continually seeking opportunities to improve your financial life. Some opportunities appear quickly and are available for only a short time period while others are slow to develop and don’t carry a sense of urgency. When the right opportunity presents itself our task is to help you implement it and benefit from it.
PLANNING COMMENTARY
Many do not know all the ways to maximize their benefit received under the Social Security system. When looking at this government program the view from the window would seem to be filled with a torrent of bad weather and danger. For example, according to the most recent actuarial calculations the Social Security system will be “broke” in 2037. This is when the Social Security Trust Fund is expected to be depleted (note that the Trust Fund consists entirely of Government “I Owe You’s”). Costs associated with the program exceeded revenues generated from Social Security taxes collected last year by $49 Billion and this deficit is projected to continue this year at $46 Billion. Understandably, these fears lead many to claim their benefits as early as possible and automatically opt - into the highest benefit they are eligible for (usually that which is based on their own earnings record). When looking at this system more methodically you notice that there are ways to maximize your benefit if you can look past those immediate fears. For example:
· If you are married you may be eligible for a “spousal benefit” based on your spouse’s earnings record. This is an entirely separate benefit from that which you qualify for given your own earnings record.
· If you are a widow you may be eligible for your deceased spouse’s full retirement benefit based on their earnings record. This is an entirely separate benefit from that which you qualify for given your own earnings record!
· The old rule of thumb that states “if you think you’ll live past 78, delay starting benefits; if you think you will pass away prior to age 78 start benefits as early as possible” just isn’t true anymore! There are a myriad of complexities that this simple rule of thumb never contemplated - all of which change based upon your particular situation.
If you can look past all of the noise and distractions and instead approach these decisions with logic and discipline, the opportunities that fit your situation and goals will become clearer and well within reach.
INVESTMENT COMMENTARY
For the month of July, as well as, over the past three months we have seen a pullback in equity markets around the world due to ongoing concerns about the health of the global economic recovery, uncertainty over whether Congress will raise the debt ceiling and begin to seriously address our budget deficit, and the ongoing fears about debt issues in Europe. Bonds have served their purpose of reducing volatility in portfolios during uncertain times (see positive bond index returns in the chart below for July and the past 3 months versus stock indexes which were negative).
Financial Market Indices | July 2011 | Last 3 Months | Year to Date | Last 12 Months |
S&P 500 TR (US Stocks) | -2.0% | -4.8% | 3.9% | 19.7% |
MSCI Developed EAFE (foreign stocks) | -1.6% | -5.5% | 3.7% | 17.7% |
MSCI Emerging Mkt. Equities (emerging country stocks) | -0.7% | -5.5% | -1.2% | 14.9% |
Barclays Capital Aggregate Bond – Intermediate Term | 1.2% | 2.2% | 3.9% | 4.2% |
Barclays Capital Municipal Bond Index | 1.0% | 3.1% | 5.5% | 3.2% |
Many expected a “relief-rally” in the stock market when a deal was reached on the debt ceiling. Unfortunately, that did not occur. Positive news out of Washington this week has been overwhelmed by a downward revision to GDP and an ugly manufacturing number. These most recent economic releases indicate that the economy is still in recovery mode and not in expansion as many had believed. We can point to the disaster in Japan (and its impact on the global supply chain), severe winter & early spring weather, a spike in oil prices and then the recent debt ceiling / deficit debate as reasons for the economy to slow and confidence to wane. The good news is that corporate earnings have continued to strengthen even though the economy has softened. We don’t believe we’re about to enter a second recession, and we continue to look for an improvement during the second half of this year.
With the recent decline in stock prices, we are once again looking for opportunities that may help improve your long-term returns. We will keep you posted as our thinking and research progresses.
