By Edward Leone Jr. DMD MBA RFC
Contact Information leonee@vzw.blackberry.net
We are very much interested in learning election results and what those results may mean for our economic future. The vote count will be available early in the month, but it is likely to be a little time before we have some idea of what steps may be taken to advance the improvement of our US economy.
I spent some time in the October blog discussing issues involving the Chinese economy. Let’s take a little time to examine another emerging economy. India is expecting a growth rate of 8.5% of GDP for 2010. Last year the Indian Central Bank embraced a strategy of lose money. The liquidity approach has certainly improved economic conditions since the 2009 growth rate was 6.5% of GDP. The result has been a serious dose of inflation. The whole sale price index in this country is up 10.5% June to June and has not yet abated. Other challenges to a growing economy in India have to do with the competition for water between the steel industry and agricultural interest. India with its large population, is challenged to feed the masses and must maintain an adequate agribusiness. This requires large amounts of water. The steel industry in India, which is gaining prominence globally due to the vast stores of iron ore as a natural resource in India also requires a great committment from the water supply. How does India balance these interests and continue economic growth?
In our own back yard, there has been significant debate over whether or not we have turned the corner in our own economic health. The major signs to look out for according to the Financial Edge by investopedia are as follows:
- Employment–The statistics come in many forms here. The rate of unemployment (not very accurate due to the way it is measured to included only those seeking work), non-farm payroll (gives perhaps a better sense of company hiring practices) and the ASA Staffing Index (much less know, it measures activity in the temporary staffing industry) are statistics to watch.
- Consumer Spending–In an economic recovery, demand is a part of the formula that creates the need for greater production and therefore more hiring by fabricators.
- Business Indicators–Such indicators as the Purchasing Managers’ Index (surveys the amount of new order experience) and inventory levels demonstrate the need for new fabrication.
- Bank Lending–Growth and new expansion require a source of credit.
- Shipping Activity–Economic activity has much to do with the movement of goods across the country and globally.
These factors represent some trends to watch in making judgements on where the economy is headed and when and where to invest.
While on the subject of investing, there are several factors which financial planners can help you identify in making investment decisions which many individuals fail to consider. Once again, the Financial Edge provides an excellent list of factors:
- Risk–This is a very complex subject in that many people perceive and define risk in several ways. Along with that, there are a variety of different forms that risk may take depending on the investment vehicle under consideration. A full examination of risk factors is essential before engaging an investment. There is NO 100% safe risk free investment which will perform under any and all market conditions and for all individual needs and circumstances.
- Fees–The type and size of fees definitely effects net return on investment and should receive detailed consideration.
- Power of Compounding–This is the key element in asset growth when the discipline of reinvesting returns is engaged.
- Taxes–Taxes will reduce the net return on investment. Consideration of the type of investment vehicle and how the investment should be held (tax deferred environment or taxable environment) are considerations in protecting investment returns.
- Market Factors–We cannot control the business cycle, but need to identify the phase in the business cycle during which we chose to invest since this issue may guide us in the type of investment chosen.
- Diversification–This long-standing investment discipline is helpful in designing a portfolio which meets the investors risk tolerance levels under a variety of market conditions while also lending to the meeting of investor expectations over the longer time horizon.
As we draw closer to the end of the 2010 tax year, there are many IRS and ERISA rules which individuals and small business owners must consider in being effective tax filers.
- The wage cap on Social Security payroll tax withholding is $106,800.
- Salary deferral for qualified retirement savings plans in 2010 are limited at–401k (elective deferral) $16,500; 403b (tax deferred annuities) $16,500; 457b (deferred compensation) $16,500; over age 50 catch up $5,500; Simple plans $11,500.
The above retirement savings limits are important in that many are not close to the potential for retirement savings in a tax deferred environment. The center for Retirement Research at Boston College says there is an income gap of $6.6trillion for the retired population. This will certainly create another societal challenge for us as the future unfolds.
For the Recrod:
DJIA 11,193.60
NASDQ 2,529.59
S&P 500 1,193.22
Suggested Reading: “Guide to High Performance Investing” by Wesley F. Mann
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