Sherri’s Sidebar

2nd Quarter June 2012

The Markets

The markets are positive, year-to- date, though to most it doesn't seem like it and many aren't comfortable it will last. This feels much like last summer where markets were strong from January through the end of July and then swooned until November. News from Europe is the concern on a day-to-day basis and will likely continue for a long time. If Germany finds a way to work with the other countries and all agree on a central decision making authority (a big if), the markets would likely react in a positive way. Like in the U.S., debt overhang won't be resolved quickly and it is a painful process with political challenges. Asia is also slowing and commodity prices have decreased in reaction to the slowing demand.

There is no way to predict the outcome or resolution strategy in Europe. It seems reasonable though, that working something out to avoid a total collapse would be to their benefit. The dollar is holding steady as the Euro declines and Europe is in recession. We have growth in the U.S., albeit very slow, record profits are projected to slow as well. I am not negative on great businesses with good balance sheets that remain profitable. Low interest rates prevail, which makes savings very difficult. I still get the question, "where can I make 3 – 4% risk free?" The answer: nowhere. Every investment has risk associated with it, even those things we thought were guaranteed, like social security and pensions, both private and public. Taking some risk may be prudent. We are focusing a lot of our analysis and discussion around these topics. Which risks are more important: principal fluctuation or running out of money? Longevity, taxes and inflation can take a toll on "guaranteed" returns.

Financial Market Update* Year-to-date change as of June 30, 2012
S&P 500 Index 9.49%
NASDAQ Composite 13.31%
Russell 2000 8.53%
MSCI EAFE US$ (International) 3.38%
Barclay's Capital (Lehman) US Aggregate 2.37%
*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.
Source: Morningstar

Obama Care

The Supreme Court recently ruled the law constitutional; we won't know what it all means until we get through the election. There is a tax increase for individuals and a Medicare Surtax, scheduled for 2013. If the Bush tax cuts expire at the end of this year, there may be much more. This is the proverbial "fiscal cliff" that we are all hearing about. Will Congress postpone the tax cuts or will they let them expire, let taxes increase and haggle it out after the election? We are unable to plan ahead with any certainty until then. I do think it is reasonable to assume that tax rates will rise down the road, especially for higher income earners. This year may be an opportunity to recognize income, including capital gains, as well as looking at Roth conversions, selling businesses, taking deductions, and making gifts to heirs.

I attend a conference once a month to share with my peers on strategy and learn from money managers and economists on some of these potential outcomes. I recently spent a week in Orlando with my colleagues, reviewing current regulation, the political landscape, the economy and the markets. I met with money managers and insurance companies. We reviewed annuity contracts and investment strategies in low interest rate environments. There is always opportunity, and we want to help our clients balance opportunity with risk.

We have been very busy assisting GM retirees evaluate their pension lump sum payout options, a trend that I think may spread to other companies and their retirees, as corporations opt out of the pension business. Underfunded pensions, both private and public, are a significant issue of concern. Increasing health care costs, rising taxes and fewer guarantees, means saving more is an important factor in retirement planning.

With the summer well under way, we hope you are able to spend time with your families and enjoy the very warm summer season that we are all having.

Let us know how we can help.

All the Best,

Sherri

Dow Jones Industrial Average: Covers 30 major NYSE industrial companies. S&P 500: An unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. NASDAQ Composite: An unmanaged index of securities traded on the NASDAQ system. Russell 2000: An unmanaged index of small cap securities which generally involve greater risks. MSCI EAFE: An unmanaged index that is generally considered representative of the international stock market. Barclay’s Capital: The U.S. Aggregate Index covers the USD-denominated, investmentgrade, fixed-rate, taxable bond market of SEC-registered securities. Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Mgt Group is independent of RJFS. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investors should consult a tax advisor before deciding to do a Roth conversion. You should discuss any tax or legal matters with the appropriate professional.

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