~ Your
Money ~
Shannan Bate, Branch Office Administrator &
Patrick C. Cruser, Financial Advisor
___________________________________________________
Supercommittee Appears
Poised to Fail
Few expected the congressional
supercommittee to deliver a grand solution to the country's deficit problems. But
almost everyone thought the committee would find some areas of agreement and
take at least a small step toward long-term deficit reduction. Despite such
very low expectations, the committee members failed to reach any agreement. The
market reacted with dismay to another demonstration that
More Decisions Ahead
Without a deficit reduction agreement from
the supercommittee by the Nov. 23 deadline, automatic spending cuts of $1.2
trillion become part of the 2013 federal budget, using a process called
sequestration. But no one is certain these cuts will be made, either, and many
expect that Congress will propose other changes. The rating agencies are
monitoring the situation and may become more concerned about the lack of
progress, although we don't believe another downgrade is imminent. While the
supercommittee's failure is disappointing, it does not have any immediate
consequences and does not change the near-term outlook for the deficit or the
economy. As the situation in
In addition, several tax cuts and other
provisions -- including the 2% payroll tax cut, the temporary patch for the
alternative minimum tax (AMT) and some unemployment benefits -- expire at the
end of 2011. We expect these will be extended into 2012, since most policymakers
are concerned that the economy remains fragile. However, these issues may
trigger the same divisions that appear to have defeated the supercommittee.
Political disarray is distressing,
especially when important issues are dividing policymakers. Unfortunately, most
investors can't wait for the outcome of
* Own investments with tax diversification in
mind
* Review the quality of their investments
* Consider international investments*
We think most investors should consider a
well-diversified portfolio that includes quality companies, most of which have
experienced other times with wide political divisions. Stock prices of many
companies with rising earnings and a track record of increasing dividends have
dropped due to broad, global fears focused on government debts. As a result, we
feel stock prices of these quality companies may not currently be appropriately
reflecting the company's prospects. When fear seems to dominate fundamentals
and headlines, we believe investors often find quality opportunities when
trying to work toward long-term goals.
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Market Mood Sours As Debt
Focus Shifts to Italy
Heightened worries about
Wednesday's decline reversed the market's
gains on Monday and Tuesday, and we expect this pattern of ups and downs to
continue. Hidden by the news from Europe washing across the
Concerns
Shift to
The concerns have shifted from
The situation in
In contrast,
Interest rates on Italian bonds spiked above
7%, up from 5.8% just two weeks ago, reflecting increasing investor worries
that budget reforms will fall short of expectations, heightening
The recent pressure from European Union
leaders to get Greek leadership to comply with the bailout plan suggests that
coordination among the eurozone officials may be gaining steam, which could
reassure investors. We think policymakers will continue to address troubles
piecemeal in
Better
Domestic News
As a result of the drama in Europe,
investors have paid little attention to positive news about the
* Slow but solid job growth
* Slightly lower inventory levels
* Rising purchases of big-ticket items
We believe these factors point to an economy
that is slowly, but steadily, gaining strength. Companies are navigating this
uncertainty remarkably well, and those in the S&P 500 reported
third-quarter earnings rose more than 17% over the past year. Long term, stock
prices tend to follow the growth in earnings and the economy, so in our view, these
are positive trends for long-term investors.
Although we're fairly certain European debt
troubles will continue to disrupt markets day to day, it's important to
remember that this type of short-term volatility isn't new. Owning a well-diversified
portfolio is a strategy investors have used to help navigate through similar
times in the past. If you're concerned, work with your financial advisor to
ensure your mix of investments includes appropriate proportions of equities,
fixed income and international investments, and rebalance if needed. We
continue to recommend investors consider allocating a portion of their
portfolio to international investments. Discuss with your financial advisor
this allocation and the specific percentage that may be appropriate for you.
While international investing involves
additional risks,* today's concerns about
I hope you found this information helpful.
Should you have any questions, please contact me, and we can schedule a time to
talk.
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What Woke the Bear Market?
Recent stock market declines have pushed
Bear markets frequently start because fears
dominate fundamentals. Basically, what people think may happen overshadows
what's actually happening. This time, the fears that pushed the stock market
into bear territory aren't new, and they've largely been responsible for the
volatile markets we've experienced since early August. The two major concerns
are:
* High government debts -- This is especially
troublesome in eurozone countries. This week's decline was sparked by
* Slower economic growth -- Many people are
worried that the
Encouraging Manufacturing Data Went
Unnoticed - The latest disappointment from
While the economic indicators are likely to
remain mixed, additional evidence suggesting the economy remains on a path of
modest growth could help soothe recession fears and relieve pressure on stock
prices.
Surviving Bear Markets - Although the start
of a bear market can raise worries about what's to come, remember, market
pullbacks, like commercial breaks, are normal and happen regularly. Bear
markets are rarely as severe as the one we experienced in 2008, but surviving
any bear market requires patience, discipline and controlling your emotions. In
fact, you may be able to use the situation to your advantage by:
* Looking for opportunities to add quality
investments that have lower prices due to the recent sell-off
* Working to ensure your portfolio is
appropriately balanced and diversified to help better weather the volatility
that is likely to continue in the near term
Consider
what strategies may be appropriate for you.
I know markets like this can be frustrating
and I remain committed to helping you make progress toward your long-term
goals. Please contact me if you have any questions.
Sincerely,
Patrick
C Cruser
Financial
Advisor
___________________________________________________
Is Volatility the New
Normal?
The equity markets were down sharply Thursday
in reaction to disappointing jobless claims and a larger-than-expected jump in
consumer prices. And as has become the norm of late, continued worries out of
What's New?
We believe three new pieces of economic data are behind Thursday's decline:
1. Initial jobless claims -- These claims, which are seasonally adjusted, rose
9,000 last week to 408,000, reversing course from the previous week's
better-than-expected reading. But it's important to note that this is a weekly
reading. While we don't believe they should be dismissed, these are short-term
figures, not predictors of the long-term course of the labor market. Also, the
four-week moving average is below what it was a month ago and six months ago,
suggesting that the broader trend is getting better, not worse. Remember, last
week's report was better than expected. Although we may prefer a consistent and
dramatic rise in employment trends, the current environment remains one of
frustratingly slow improvement.
2. Consumer Price Index -- The Consumer Price Index (CPI) showed prices rose by
more than expected in July, driven primarily by energy costs. The market was
more concerned about the rise in core consumer prices (excluding food and
energy), which reached an annualized rate of 1.8%, the highest level since
early 2010 and driven in part by rising rent costs. The trend in core inflation
is a key benchmark for the Federal Reserve (Fed) monetary policy, so the rise
last month suggests the Fed has less wiggle room in its intent to keep rates
low for the foreseeable future. The accommodative Fed policy has provided a
cushion for the stock market through the recovery, as investors have for the
most part been comfortable that the Fed can and will take extraordinary action
to spur growth in the economy. This CPI reading seems to have alarmed the
market because the Fed may be less inclined to take further stimulus actions in
the near term.
3.
What's Not New?
European Fiscal Worries Concerns
continue about
Long-term Investors Must Maintain Focus
"When it rains, it pours" may be a
phrase that comes to mind, but to our knowledge, a rainstorm has never lasted
forever, and many even produce a rainbow. While the cumulative effect of these
reports may be exacerbating the market's reaction, this is indicative of our
current economic reality. Data will continue to be uneven, and spates of
pessimism often give way to optimism and back again. (The past two weeks
provide evidence of that.)
We understand there's frustration when the
job market does not improve quickly, especially for those facing long-term
unemployment. But it's still improving. July's CPI report confirmed what we
already knew: Gas prices and rent costs were higher that month. But recently
we've seen gas prices drop, and with unemployment still stubbornly high, rents
are unlikely to rise sharply. Also reflecting the market's sensitivity is the
fact that today's better-than-expected leading economic indicators report is being
all but ignored.
Long-term investors can take some comfort in
the fact that these readings are pieces to a bigger puzzle -- one
that we believe reveals an economy that, while frustratingly uneven, remains on
the mend. This, in our view, is supportive of the markets over time. As always,
we believe a diversified portfolio is key to weathering volatile markets such
as this.
___________________________________________________
Markets React Sharply to
Headlines -- Reasons to Stay Calm, Stay Invested, Look for Opportunities
Stocks
declined sharply in response to the
As we know, uncertainty often creates
volatility. We're seeing a shift in how much risk investors are willing to take
amid these near-term distractions, causing stocks to decline in the short run.
We understand that big declines can make investors nervous, but even with the
most recent pullback, the stock market is up more than 60% from its March 2009
lows.
What we're going through today may evoke
memories of 2008. We don't believe this is a repeat of 2008, however, because
there are fundamental differences in economic and market conditions, which we
believe is good news for long-term investors. Specifically:
Economic growth remains sluggish but
positive. While the economy grew just 0.8% in the first half of the year, most
economists expect it to pick up in the second half. Recent economic reports are
consistent with slow, but positive, growth. While slower than many had hoped,
economic growth is expected to be positive in 2011. It shrank in 2008.
Job growth has nearly doubled this year.
Almost 1 million jobs were added in the first seven months of 2011, about the
same as in all of 2010. The economy was shedding jobs in 2008, not adding them.
Corporate earnings are on a record pace.
Corporate earnings are expected to reach a record high this quarter, while they
were declining in 2008. S&P 500 earnings are up about 12% over the past
year. Since stock prices haven't kept pace, the S&P 500 is trading at about
10 times forward operating earnings. This is well below its historical average
of 15 times earnings. While past performance does not guarantee future results,
we believe this represents an attractive value for investors.
Oil prices are lower. Oil prices have fallen
below $90, giving consumers some help. They soared to nearly $150 in 2008.
What Should Long-term Investors Do?
This is one of the hardest parts of being a
long-term investor. It's easy to stay the course when markets are rising. It's
harder to stay the course during declines and view them as potential investing
opportunities. But that's what being a long-term investor is all about. Here's
what you should remember:
This is what it feels like to buy low. A
stock market decline of 10% has occurred about once a year since 1900. They're
typically opportunities for adding quality stocks, especially if you may not
own enough equities.
Reposition equities and rebalance if needed.
Consider adding quality stocks, especially those that have a track record of
increasing their dividends.
Stay invested. A diversified portfolio
of quality investments is a sensible strategy during volatile markets.
I hope you found this information helpful.
If you have questions, please let me know.
___________________________________________________
S&P Downgrades U.S. Debt
Rating –
What You Should Know
Late Friday, August 5th, S&P
lowered its long-term credit rating on the
While the news headlines may appear scary,
the likely impact is short-term market volatility, not sharply higher interest
rates that could hurt the economy. You may also hear about some municipal
bonds, government-agency bonds (Freddie Mac, Fannie Mae or TVA) or other
securities closely tied to the
1. Downgrade Does Not Mean Default -- Rating
agencies such as Standard & Poor's(S&P) and Moody's assign ratings to
bonds to help investors assess credit risk, or the chances that they won't
receive timely payments. A downgrade to AA+ means investors would be slightly
less likely to receive future expected payments than if the bond had an AAA
rating. That's a big difference from default, which would mean investors don't
receive current payments.
2. U.S. Credit Rating is Still High Quality
-- It's important to note that S&P didn't change the U.S. government's
short-term credit rating (which applies to debt maturing in less than one
year), which is more relevant for money market funds due to their short-term
investment holdings. In addition, a long-term credit rating of AA+ is still
considered high quality. In fact, according to S&P a rating of AA
"differs from the highest-rated obligations only to a small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong." And remember two other major rating agencies, Moody's and Fitch,
both recently affirmed their "AAA" rating on the
3. Downgrade Not a Big Surprise; Market
Impact Uncertain -- It's not certain what the impact to the markets will be
since this is the first time the
Interest Rates -- While higher interest rates
are a possibility, it's important to note that when S&P downgraded
Stock Market -- Stock market volatility was
already running high due to concerns over European debt and slower
Your Goals, Not the Media, Should Drive
Your Investment Decisions
The market might react negatively to
this in the short term, but our advice is to stay the course and not overreact
to the headlines. In time of increased market uncertainly it's natural for
investors to think they should "do something." However, making big
changes to your investment strategy could be expensive and may cause your
portfolio to no longer be positioned to meet your long-term goals. Although it
can be difficult to remember sometimes, long-term investors understand that
short-term market declines aren't a reason to overreact and can even present
good opportunities to buy quality investments at lower prices.
___________________________________________________
Better-than-expected July
Jobs Report
The
July jobs report brought some much-needed good news for the economy. About 117,000
jobs were added, and the unemployment rate slipped to 9.1%. The report was
better than most had expected and helps ease concerns about slowing economic
growth. Economists anticipated the unemployment rate to remain at 9.2% and a
gain of 85,000 jobs, according to Bloomberg, but the range of estimates was
wider than usual. Initial stock market reaction was positive, as many had
worried about a weak employment report.
The details of July's employment report also
showed some strength:
* Private payrolls rose 154,000, in line with
the average in 2011.
* The decline of 37,000 government workers
included about 23,000
* Average earnings rose in July, putting them
up 2.3% over the past year.
* Average hours were unchanged in July but are
up slightly over the past year.
Jobs
Report Suggests Positive but Sluggish Growth
While
the pace of job growth remains slower than most would like -- especially those
who have faced long-term unemployment -- it is improving. The economy created
almost 1 million jobs in the first seven months of 2011, about the same number
added as in all of 2010. That means the rate of job growth has almost doubled
over the past year. In our view, the slow improvement in the employment picture
is consistent with overall economic growth that is positive but sluggish,
rather than a return to recession.
How Should You Respond?
Of course, you may still be concerned about
the sudden sell-off in the stock market. While this left stocks down 10% from
their late July highs, they are down only slightly from the beginning of the
year. This is never pleasant to experience, but it's important to remember that
such drops have occurred about once a year on average since 1900. A strategy
that includes owning a diversified portfolio of quality investments has helped
investors successfully navigate similar downturns in the past. It worked
because it guided investors to stay invested, add quality investments during
stock market declines and rebalance back to their target mix of investments
when needed. We think this approach is appropriate today as well.
I hope you found this information helpful.
If you have questions, please let me know.
Patrick C Cruser, Financial
Advisor
Phone: 587-3972
___________________________________________________
Buy When Others Are Fearful,
Sell When Others Are Greedy
With everything going on in the markets and
economy, many people are wondering if this is going to be like 2008 again. If
you're concerned, I understand and thought the following commentary from our
investment strategist, Kate Warne, may be helpful.
Why You Should Continue to Look Forward
We understand that you may be worried after
the past few days of stock market declines. After all, the Great Recession is
still fresh in the minds of many investors. And while it may seem repetitive,
we still believe that solid investing principles of time and patience are key
to weathering this recent round of bad news.
Fear Is Fueling the Decline - The stock
market decline is due to ongoing concerns about slower economic growth and new
worries about European debt. Europe's current plans appear insufficient to deal
with the size of the problems, especially in
Despite the worries around economic growth,
recent indicators continue to suggest it's slow but positive. Retail sales at
stores open more than a year increased 4.4%, according to Thomson Reuters,
reflecting better consumer spending, and weekly unemployment claims stayed the
same. However, investors appear to be ignoring these and other signs of slow
but positive growth.
This Is Not 2008
We understand that the memories of the 2008
market decline may be still fresh and painful. The current environment may make
you feel uncomfortable about staying invested -- especially if you are nearing
or in retirement.
While it may be difficult, remember that
emotions are rarely a good guide to investment decisions. Facts paint the whole
picture, and here are a few you should know:
The last downturn combined a severe
recession with a financial crisis. Recessions are frequent, and you'll probably
experience many over time. Financial crises are rare.
Financial companies have raised capital and
improved their balance sheets, and many new regulations are in place, which
should make another financial crisis unlikely.
Oil prices have dropped below $90 a barrel,
providing some relief for consumers. They rose to nearly $150 a barrel in
mid-2008.
Companies are much stronger financially than
they were in 2008, and earnings have been rising due to growing sales and strict
cost controls.
Legendary investor Warren Buffett has
frequently said that the recipe for success as an investor is to buy when
others are fearful, and to sell when others are greedy. When markets decline
sharply, it's only natural to be concerned. However, long-term investors have
frequently found these events represent opportunities to add quality stocks at
lower prices. While no one ever knows which way the market will move day to
day, don't let declines cause you to make decisions to overturn your investment
strategy or lose sight of what you're working to achieve. Instead, consider
adding quality stocks, especially those that have a track record of increasing
their dividends.
If you have any questions or want more
information, please give my office a call.
Patrick C Cruser, Financial
Advisor
Phone: 587-3972
___________________________________________________
Plan for the Expected — But
Prepare for the Unexpected
To enjoy a comfortable retirement lifestyle,
you’ll need to have adequate financial resources in place. And that means you
must plan for the expected — but prepare for the unexpected.
In planning for the “expected” aspects of
your retirement, consider these factors:
• Your vision of your retirement lifestyle —
What do you want to do during your retirement years? Spend more time with your
family? Volunteer? Open your own business? Your expectations of your retirement
lifestyle will dictate, to a large extent, your savings and investment
strategies.
• Your
expenses — Once you’ve established a vision for your retirement lifestyle, you
can begin to estimate the expenses you expect to incur during your retirement
years.
• Your income — You can expect to receive income from a
variety of sources: Social Security, pensions, part-time employment and
investments, such as your IRA, 401(k) and any taxable investment accounts you
may have. You’ll need to estimate about how much income all these sources could
provide.
• Your withdrawal rate — If your investments
are going to provide a significant part of your retirement income, you need to
carefully manage annual withdrawals from your portfolio. Your withdrawal rate is key in helping to
ensure your portfolio provides for your needs as long as you need it.
• Your portfolio reliance rate — Related to
your portfolio withdrawal rate is your portfolio reliance rate — how much you
rely on your portfolio to provide income. For instance, if you will need
$50,000 per year in retirement, and $30,000 will come from your portfolio, your
reliance rate will be 60% ($30,000 divided by $50,000). Your reliance rate will help determine how
sensitive your strategy might be to outside events, such as market
fluctuations.
While you need to be familiar with these expected
elements of your retirement, you also must be prepared for the unexpected
aspects, such as these:
• Living longer than you expect — How long
you can expect to live is somewhat of a mystery. If you were to live longer
than you anticipate, would you be financially prepared? To help make sure your
money lasts throughout your lifetime, you may need to consider investments that
can provide you with a lifetime income stream. And your longevity will
obviously also affect your annual portfolio withdrawal rate.
• Inflation — At an average inflation rate of
three percent, your cost of living will double in about 24 years. That’s why,
even in retirement, you will need some growth-oriented investments, such as
quality stocks to ensure you can maintain your desired retirement lifestyle.
But if the unexpected happens, and inflation takes off at a much higher than
average level, you may need to consider a greater amount of investments that
offer the potential for rising income.
• Health care — Even after you’re on
Medicare, which won’t cover everything, you need to prepare for the unexpected,
such as a lengthy illness or the need for some type of long-term care. You may
also wish to “self-insure” to a certain extent by setting aside funds in a
liquid, stable account.
By positioning your investment portfolio for
both the expected and the unexpected, you can go a long way toward enjoying the
retirement lifestyle you seek. So plan ahead — and make the necessary
adjustments as time goes by.
Written by Edward Jones for use by Edward
Jones Financial Advisor, Patrick C. Cruser
_____________________________________________________________________________
Roth IRA: A Lifetime
Investment
Some investments are appropriate during your
working years, while others are more suitable for retirement. But a Roth
Individual Retirement Account (IRA) can provide you with benefits at virtually
every stage of your life. Let’s take a quick “journey” through some of these
stages to see just how valuable a Roth IRA can be.
To begin with, you can open a Roth IRA at any
age, provided you have earned income and meet certain income limits. So if
you’re just starting out in your career, put as much as you can afford into
your Roth IRA and gradually increase your contributions as your income rises,
up to the contribution limit. A Roth IRA is an excellent retirement savings
vehicle because it can grow tax free and your contributions can be invested
into just about any investment you choose — stocks, bonds, mutual funds, CDs
and so on.
Of course, when you’re young, you might not
be thinking much about retirement. But the earlier you start contributing to a
Roth IRA, the more you could end up with — and the difference could be
substantial. In fact, if you started putting money into a Roth IRA at age 30,
and you contributed the maximum amount each year until you reached 65, you
would accumulate more than $766,000, assuming you are in the 25% tax bracket
and you earned a 7% return, compounded annually. But, given the same
assumptions, you’d end up with only about $365,000 if you waited until 40
before you started contributing.
It clearly pays to contribute early and
annually to a Roth IRA. (In 2011, the annual contribution limit is $5,000, or
$6,000 if you’re 50 or older.) There are additional benefits to funding a Roth
IRA, such as its flexible withdrawal options, which are available to you even
before you retire. Since you already paid taxes on the money you put into your
Roth, you can withdraw your contributions at any time without paying taxes or
penalties. Generally speaking, it’s certainly best to leave your Roth IRA
intact for as long as possible. But if there's an emergency and you need access
to the funds, you can also withdraw your Roth’s earnings tax free, provided
you’ve held your account at least five years and you don’t start taking
withdrawals until you’ve reached 59½.
Now, let’s fast-forward to your retirement.
Unlike other retirement accounts, such as a traditional IRA or a 401(k), your
Roth IRA does not require you to start taking withdrawals at age 70½ — or ever.
If you don’t need the money, you can leave it alone, possibly to grow further,
for as long as you like. This means that you might have more money to bequeath
to your children or other beneficiaries, and they won’t have to pay income
taxes on withdrawals from either your contributions or your earnings, provided
your Roth IRA account has been open for at least five years. Keep in mind,
though, that your beneficiaries will be required to take distributions based on
their life expectancy.
As you can see, a Roth IRA can be an
excellent financial “traveling companion” as you go through life. So consider
adding a Roth to your portfolio — and bon voyage.
Written by Edward Jones for use by Edward
Jones Financial Advisor, Patrick C. Cruser
__________________________________________________________________
Know Your Investment Risks —
and How to Respond
When you invest, you take some risks. While
you can’t totally avoid these risks, you can take steps to help reduce their
impact and increase your comfort level. And the more comfortable you are with
your investments, the easier it will be to follow a long-term strategy that can
help you meet your goals.
Let’s look at the most common types of risk
related to investing, along with some suggestions on helping to reduce these
risks:
* Losing principal — This type of risk is
most closely associated with investing. For example, when you purchase a stock,
you know that its value could go up or down. If it drops below your purchase
price, and you then sell your shares, you will lose some of your principal.
* Your response — You can’t eliminate the
risk of losing principal, but by owning a mix of stocks, bonds, government
securities and other types of investments, you can help reduce the impact of
volatility on your portfolio. Keep in mind, though, that diversification, by
itself, can’t guarantee a profit or protect against loss.
* Losing value when interest rates change —
This type of risk primarily affects fixed-income investments, such as bonds. If
you purchase a bond that pays, say, a 4% interest rate, and the market rate
goes up to 5%, then the value of your bond will drop because no one will be willing
to pay you the full price for it when newer, higher-yielding bonds are
available.
* Your response — You can combat, or even
ignore, interest rate risk by holding your bonds until they mature. By doing
so, you’ll get your full principal back, provided the issuer doesn’t default,
and you’ll continue to receive regular interest payments unless the bonds are
“called,” or repurchased by the issuer. (You can help protect against this by
purchasing bonds that have some degree of “call protection” and by owning bonds
with different maturities.)
* Losing purchasing power — This risk
largely applies to fixed-rate investments such as certificates of deposit
(CDs). To illustrate: If you purchase a CD that pays 2%, and the inflation rate
is 3%, you are actually losing purchasing power.
* Your response — Despite their
vulnerability to inflation, CDs can offer you some valuable benefits, such as
preservation of principal. Yet if you are concerned about fighting inflation,
you may want to look for investments than have the potential to offer rising
income, such as dividend-paying stocks. In fact, you can find stocks that have
increased their dividends for many consecutive years. (Be aware, though, that
companies can reduce or eliminate dividends at any time. Also, an investment in
stocks fluctuates, and you could lose your principal.)
Apart from these individual techniques to
reduce investment-related risk, you should also save early and save often —
because the more money you accumulate, the greater your ability to follow a
long-term strategy that reflects your personal risk tolerance. That’s why it’s
a good idea to contribute as much as possible over the years to your IRA and
401(k) or other employer-sponsored retirement plan.
By understanding the different types of
investment risk, and by acting to help lessen them, you can reduce much of the
stress sometimes associated with investing — while you increase your prospects
for achieving your objectives.
Written by Edward Jones for use by Edward
Jones Financial Advisor, Patrick C. Cruser.
____________________________________________________________
Women Business Owners Need
Retirement Plans
If you’re a woman who owns a business,
you’ve got plenty of company. In fact, women own more than 10 million
To get a sense of this gap, consider these
statistics:
* According to the U.S. Small Business
Administration’s Office of Advocacy, 19.4% of male business owners have 401(k)
or similar plans, compared with just 15.5% of women owners.
* The percentage of female business owners
with Individual Retirement Accounts (IRAs) is about the same as that of male
business owners — but the men have more money in their accounts. The average
woman’s IRA balance is about $51,000, compared with $91,000 for men, according
to a recent report by the Employee Benefit Research Institute. Although these
figures change constantly with the ebbs and flow of the market, the difference
between the genders remains significant.
One way to help close this savings gap, of
course, is to set up a retirement plan for your business. But for many women
business owners (and male owners, too), the perceived cost of setting up and
running a retirement plan has been an obstacle. However, the retirement plan
market has opened up considerably for small business owners over the past
several years, so you might be surprised at the ease and inexpensiveness of
administering a quality plan that can help you build resources for your own
retirement — and help you attract and retain good employees.
With the help of a financial professional,
you can consider some of the myriad of plans that may be available to you:
* Owner-only 401(k) — This plan, which is
also known as an individual 401(k), is available to self-employed individuals
and business owners with no full-time employees other than themselves or a
spouse. You may even be able to choose a Roth option for your 401(k), which
allows you to make after-tax contributions that can grow tax-free.
* SEP IRA — If you have just a few employees
or are self-employed with no employees, you may want to consider a SEP IRA.
You’ll fund the plan with tax-deductible contributions, and you must cover all
eligible employees.
* Solo defined benefit plan — Pension plans,
also known as defined benefit plans, are still around — and you can set one up
for yourself if you are self-employed or own your own business. This plan has
high contribution limits, which are determined by an actuarial calculation, and
as is the case with other retirement plans, your contributions are typically
tax-deductible.
* SIMPLE IRA — A SIMPLE IRA, as its name
suggests, is easy to set up and maintain, and it can be a good plan if your
business has fewer than 10 employees. Still, while a SIMPLE IRA may be
advantageous for your employees, it’s less generous to you, as far as allowable
contributions, than an owner-only 401(k), a SEP IRA or a defined benefit plan.
As a business owner, you spend a lot of time
thinking about what needs to be done today, but you don’t want to forget about
tomorrow — so consider putting a retirement plan to work for you soon.
Written by Edward Jones for use by Edward Jones Financial Advisor, Patrick C. Cruser.
____________________________________________________________
Consider Establishing a Business
Retirement Plan
(written by Edward Jones for use by Edward Jones
Financial Advisor, Patrick C. Cruser)
If you’re self-employed or you own a
business, you’ve got a lot to think about: attracting new customers,
maintaining cash flow, upgrading equipment and facilities — the list goes on
and on. Yet, as busy as you are today, you can’t forget about tomorrow — which
means you need to have a solid retirement plan in place.
All retirement plans offer some features in
common, such as tax-deferred growth of earnings. So how can you pick the plan
that’s right for you? You’ll need to consider your business’ annual income,
number of employees and other factors. Fortunately, you have some good plans
from which to choose. Here are a few to consider:
* Owner-only 401(k) — If you are
self-employed with no employees other than your spouse or a partner, the
Owner-only 401(k) may be an option for you.
Also known as an individual 401(k), an owner-only 401(k) offers you many
of the same advantages of a traditional 401(k): a range of investment options,
tax-deductible contributions and tax-deferred earnings growth. You may even be
able to choose a Roth option for your owner-only 401(k), which allows you to
make after-tax contributions that have the opportunity to grow tax-free. For
2010, you can contribute up to $16,500 as a deferral, and total contributions
cannot exceed $49,000 or $54,500 if you’re 50 or older. But you must plan ahead to take advantage of
this plan for 2010 because it will need to be set up prior to Dec. 31, 2010.
* SEP IRA — If you have just a few employees
or are self-employed with no employees, you may want to consider a SEP IRA. For
the 2010 tax year, you can put in the lesser of $49,000 or 25 percent of your
compensation, which is capped at a maximum of $245,000. You fund the plan with
tax-deductible contributions, and you must cover all eligible employees — at a
minimum, those who are at least 21 and have been with your company for three
out of the immediately preceding five years. (Employees themselves cannot
contribute.) Keep in mind, though, that the percentage of compensation
contributed to a SEP IRA must be the same for you and your employees. If you don't get a plan set up prior to
year-end, the SEP IRA is the only plan that you can set up and fund, up until
your tax filing deadline, to get a 2010 tax deduction.
* Solo defined benefit plan — Generally
speaking, this plan, which is similar to a traditional pension plan, may be
suitable for you if you have relatively high earnings and can afford to take
advantage of the high contribution limits, which are determined by an actuarial
calculation. Your contributions are tax deductible.
In choosing a retirement plan, you may want
to consult with your tax adviser. But don’t wait any longer to get started. The
future will be here soon enough — so you’ll want to be prepared for it.
____________________________________________________________
"Stress Busters"
for the
(written by Edward Jones for use by Edward Jones
Financial Advisor, Patrick C. Cruser)
You may be too busy to realize it, but April
is Stress Awareness Month. Sponsored by the Health Resource Network, a
nonprofit health education group, Stress Awareness Month is designed to promote
awareness about ways to reduce stress in our lives. And if you’re a member of
the so-called “Sandwich Generation,” you may well have plenty of stress to deal
with — especially financial stress. And that’s why you may want to look at this
month as an opportunity to explore ways of “de-stressing” yourself.
To understand the scope of the problem facing
people in your situation, consider this: One out of every eight Americans aged
40 to 60 is raising a child while caring for an aging parent, according to the
To help ease this burden, consider these
suggestions:
* Save. As a Sandwich Generation member,
you’re probably within shouting distance of your own retirement — so you need
to save for it. This may not be easy. You don’t know how much financial support
you may someday have to provide your elderly parents — and even after your
children are grown, they may need some help from you. Unfortunately, in helping
these “boomerang” children, many people disrupt their day-to-day cash flow and
raid their savings. That’s why it’s important to try to “pay yourself first” by
deferring part of each paycheck into a 401(k) and by automatically moving money
each month from your checking or savings account into an IRA.
* Talk. Many people in the “Greatest
Generation” (over age 80) have not even prepared a will. If your parents are in
that group, you may want to talk to them about taking action. Also, find out
who, if anyone, is handling their investments. And ask if your parents
understand how Medicare works and if they need to add supplemental health
insurance, such as Medigap. Plus, you need to find out if your parents have
created a power of attorney or health care directive. It’s best to have these
conversations sooner rather than later.
* Delegate. You eventually may have to take
some responsibility for your parents’ care — but you don’t have to do it alone.
You could, for example, work with a financial services provider that offers
trust services, which can be invaluable if your parents are incapacitated and
useful even if they aren’t. A professional trust officer can, among other
duties, help manage your parents’ investments, pay their bills, keep their
records and supervise distribution of their assets to beneficiaries. In short,
a qualified trust officer can make life a lot easier for you.
Stress Awareness Month lasts only 30 days,
but by taking the right steps, you can de-stress yourself for many years to
come. After all, just because you’re in the Sandwich Generation, it doesn’t
mean you have to be “squished.”
____________________________________________________________
401(k) Review and Rollover
Can Be Rewarding
(written by Edward Jones for use by Edward Jones
Financial Advisor, Patrick C. Cruser)
Your 401(k) offers tax-deductible
contributions, tax-deferred growth of earnings potential and a variety of
investment options — so it’s a great tool for building retirement savings. Yet
like all tools, your 401(k) must be used properly to get the best results.
That’s why you should review your 401(k) at least annually and make whatever
adjustments are needed.
Depending on where you work, you may get
some 401(k) review help from your plan provider. But if that assistance isn’t
available, you might want to consult with a financial professional to make sure
you’re getting the maximum benefit from your plan.
As you begin to review your 401(k), your
first question should probably be this: “How much should I contribute?” At the
very least, try to put in enough to receive your employer’s matching
contribution, if one is offered. If you don’t earn this match, you are
essentially walking away from “free money.” Beyond this, though, the amount you
put into your 401(k) might depend on what other retirement savings vehicles you
have available. For instance, if you’re eligible, you may also want to
contribute to a Roth IRA, which offers tax-free growth potential, provided
you’ve had your account for five years and don’t start taking withdrawals until
you’re 59½.
Of course, it’s not only how much you put
into your 401(k) that determines its success — it’s also how you choose to
allocate your investment dollars. (Keep in mind that asset allocation does not
guarantee a profit or protect against loss.) Your 401(k) may have a dozen or
more investment choices, such as stock funds, bond funds and money market
funds. To choose the right investment mix, you’ll need to consider a variety of
factors, including these:
* Your age — Generally speaking, the younger
you are, the more aggressive you can afford to be with your 401(k) investments,
because you’ll have decades in which to potentially overcome the inevitable
down periods of the market. As you get older, you may wish to invest somewhat
more conservatively, but you’ll still need some growth potential in your 401(k)
portfolio.
* Your goals — Everyone has different goals
for retirement. You might want to retire early and travel the world, while your
co-worker desires to work as long as possible and then, upon retirement, stay
close to home and pursue hobbies. Because you each have different goals, with
different income needs, you also may need to follow different investment
strategies within your 401(k).
* Your other retirement income sources — If
you have a variety of retirement income sources — a pension from another job,
an IRA, a spouse with generous retirement benefits — you may need to invest
differently, perhaps less aggressively, than if you had fewer options for
retirement income.
Apart from putting away as much as you can
into your 401(k) and choosing the right investment mix, what else can you do to
get the most out of your plan? Here’s a suggestion: If you have worked at
various jobs and acquired multiple 401(k)s, consider rolling them over into one
account. You might save money on fees and reduce paperwork, but more
importantly, you’ll be able to concentrate your resources and pursue a unified
investment approach, with your investment dollars working together toward your
ultimate retirement goals.
As you can see, a 401(k) review and rollover
can reward you in many ways — so do whatever it takes to maximize your 401(k)’s
performance.
____________________________________________________________
To Retire Comfortably, Know Which Moves
to Make — and When to Make Them
(written by Edward Jones for use by Edward Jones
Financial Advisor, Patrick C. Cruser)
We all want to enjoy a comfortable
retirement. But to do so, we need to make different moves, and consider
different issues, at different times of our lives.
To help illustrate this point, let’s look at
three individuals: Alice, who is just starting her career; Bob, who is nearing
retirement; and Charlie, who has recently retired.
Let’s start with
Now let’s turn our attention to Bob. Since
he is within a few years of retirement, he has some key decisions to make. For
one thing, he must decide if it’s time to change the investment mix in his IRA,
401(k) and other accounts. Because Bob doesn’t have much time to overcome
market volatility, and since he’d like to maintain the gains he has already
achieved, he may decide to become more conservative with his investments.
Consequently, he may choose to move some of his investment dollars from stocks
to bonds and other fixed-income securities. Realizing, however, that he may
spend two or three decades in retirement, and knowing that he will need to stay
ahead of inflation, he doesn’t abandon all his growth-oriented investments.
Furthermore, Bob decides that he may need to bolster his retirement income, so
he considers whether an annuity, which is designed to provide him with an
income stream he can’t outlive, is appropriate for his situation.
Our final “life stages” investor is Charlie.
He has recently retired, so his biggest concern is making sure he doesn’t
outlive his financial resources. Therefore, he may need to consider a variety
of moves. For starters, he should determine when to start taking Social
Security and when to begin taking withdrawals from his IRA and 401(k) plans.
[For a traditional IRA and a 401(k) or other employer-sponsored plan, Charlie,
like all investors, must start taking withdrawals no later than age 70½.] After
deciding when to start taking withdrawals from his retirement plans, he’ll also
need to calculate how much he can afford to take each year without emptying the
accounts. Finally, he might need to rebalance his overall investment portfolio
to provide himself with more income.
For help in making the types of choices
described above, you may want to work with a financial professional, but in any
case, you need to be prepared to take the right steps, at the right times, to
enjoy the retirement lifestyle you’ve envisioned.