Leonesmoneymonitormonthly's Blog

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information:

edleonedds@gmail.com

With all of the digital account hacking activity which has taken place lately in the retail space, the CFP Board makes the following suggestions to consumers:
1. keep hard copies of financial information
2. be selective when using a debit card
3. don’t share your social security number unless necessary
4. create strong online passwords
5. avoid accessing personal information in the public wireless environment
6. review bank and credit card statements frequently
7. request your credit report at Annual Credit Report.com.

Another area of consumer awareness which is necessary for those who are approaching the age of 62 or have exceeded that status is the basics on social security benefits. When to begin taking these benefits given the individual’s status will make a great difference in the amount of benefit available. The opportunity for spousal benefits and dependent benefits also requires consideration in the effort to maximize benefit structure. Mercer has produced an excellent publication on this matter called Guide to Social Security 2014.

The recent down trend in equity markets has many people concerned. Let’s remind ourselves that this is nothing new. There have been 13 market corrections since World War II which were not followed by recessions.There is a disconnect between stock prices and the economy in many aspects. Much of equity market returns occurs as a result of dividend reinvesting. In a down market, this occurs at bargain prices and enhances equity returns over the long-term. So many investors create additional problems for themselves in times like this by following the herd, giving in to fear, not rebalancing the portfolio and failing to stick with their investment plan. It appears that current market trends are driven by a slump in the global economy along with the spreading of the virus EBOLA and a variety of military conflicts in the Middle East and the Ukraine. These are issues of concern;however, our U S economy is rebounding, but very slowly. It will be interesting to observe economic activity after election results are in. 2015 will also bring additional conditions regarding Obama Care which individuals and employers will have to navigate. Pew Research shows that Americans are still experiencing difficulty regarding the ability to function financially in the current economy. The Department of Commerce states that in the month of July, personal income increased by .2 percent while personal consumption decreased by .1 percent. Confidence in the economy is just not there yet.

For The Record:
DJIA 16,380.41
NASDAQ 4,258.44
S&P 500 1,886.76

Suggested Reading: “The Mindful Money Mentality” by Holly Thomas

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information: edleonedds@gmail.com

I must comment on a variety of global issues which are clearly having an impact on financial markets. Let’s start with the Middle East. It appears to me that we are observing a religious war involving the variety of Muslim disciplines existing globally just as we observed in history the conflict occurring in Christian religious considerations in the 16th century. As a society we have great concerns over the protection of innocent victims of military conflict. In this religious conflict as I see it, much of this will occur among Christian and Muslim followers. I have no answer as to how to prevent such tragedy. It is clear the Muslims must fight it out to determine the primary influence at the expense of many innocent people. As much as this is troublesome, we need to let it happen without significant intervention if we are going to prevent attack on the home land. This is disgusting!!!

International business has to do with individual government motives clearly and not necessarily what is beneficial to global financial markets. The Russian actions in neighboring countries is a matter of concern. It is my judgment that global economic actions by the US are the most influential actions which the US can take to message the Russian government on the concerns and potential positive and negative effects of their political initiatives. On more of a home front issue, I have great concern over the actions of the Federal Reserve and the impact on the US and global economic issues. We need a US dollar that has credibility in global markets as a measure of value and a local currency that does not further compromise those of other countries.

One additional issue before us which has an economic impact is immigration. Our history with this subject has been mostly positive for immigrants. It is my observation that existing immigration law is not being followed. Do we need some changes? Yes, but also we need disciplined enforcement.

As of January of 2015, holders of IRA accounts (no matter how many you have) will be restricted to one 60 day rollover in a twelve month period. This tax court decision is clearly designed to restrict the opportunity to use an IRA account for a short term interest free loan. One must also check with their accountant and attorney if they hold assets in a trust. Some types of trusts will be experiencing a decline in the amount and type of deductions allowed for their maintenance and operation. This IRS activity will increase the tax burden on revenues generated by trust assets.

T. Rowe Price and Northern Trust are both predicting modest fixed income returns into the near future. This is a result of maintained low interest rates by the Federal Reserve to further the recovery of the US economy. The challenge to those who are in or near retirement can be a problem regarding income preservation since defined benefit retirement plans are on a severe decline. Many are going to annuities to address this problem. This may be a strategy for a portion of retirement assets. However, we must keep in mind that annuities do not allow withdrawal of funds for emergencies usually, you give up ownership of your money, insurance companies must be profitable so fees are high and the insurance company may go bankrupt. There is some risk here!

For The Record:
DJIA 16,662.91
NASDAQ 4,464.93
S&P500 1,955.06

Suggested Reading: “Economics In One Lesson” By Henry Hazlitt

By Edward Leone Jr. CFP RFC DMD MBA
Contact Information: edleonedds@gmail.com

I must state that I am quite disturbed over the revision of GDP for quarter one of 2014. It is more than double the initial projection. Why bother with a projection if accuracy is going to be so poor. Let’s wait until the data is in to announce performance. I see the same problem with unemployment figures.We are celebrating a 6.1% when, depending on the population examined, it is as high as 12%. Inflation statistics are also misleading since they do not reflect the cost of living acceleration that many of us are experiencing.

Longevity insurance is coming up stronger on the scene since the U. S. Treasury has promulgated rules that will now allow the elderly to purchase these types of annuities with 401K or IRA funds. These products begin to pay a benefit at ages 80 to 85. If the beneficiary dies before that age, no benefit is available. This is another scare sale which may appeal to those who are afraid that they run out of money. An other bunch of rhetoric out there regarding fear of investing is the volatility in equity markets. Volatility is a benefit to investors since it allows the reinvestment of dividends in order to compound returns at bargain prices when markets are down. Studies show that this phenomenon can compose up to 53% of total equity return over a 30 year period with the remainder of the return coming from price appreciation.

The Heritage Foundation is promoting policy to end the Social Security Spousal benefit since this benefit has become outdated as a result of the benefit which both male and female spouses can get on their own accounts being adequate. Foundation representatives are also urging Congress to means test for Social Security benefits. Are these solutions which will help sustain the program into the future? Will the population go along with such changes? Will some payroll tax increases be also add to the mix? We cannot sustain the program as it currently operates since the disability reserve fund is depleted in 2016 and the old age and survivors reserve fund is projected to be depleted by 2033. These events are expected to produce a 25% reduction in benefits since the programs will be supported by payroll tax revenue only.

It appears that based on a study done by Bankrate, that the top 10 states in which to retire have low taxes, quality health care and lower costs of living. These states are as follows: South Dakota, Colorado, Utah, North Dakota, Wyoming, Nebraska, Montana, Idaho, Iowa and Virginia. Well so much for the warmer climate!!

In my previous blog, I talked about the 401K piggy bank and the penalties paid by those involved in early distributions. I should perhaps point out that there some exceptions to the early withdrawal penalties depending on the utility of the distribution from a 401K. They are as follows: health insurance premiums if unemployed, qualified higher education expenses, unreimbursed medical expenses in excess of 10% and the purchase of a first time home. Tough choices!!

For The Record:
DJIA 17,068.26
NASDAQ 4,485.93
S&P500 1,985.44

Suggested Reading: “Out of the Crisis” By W. Deming

By Edward Leone Jr. CFP RFC DMD MBA
Contact Information: edleonedds@gmail.com

I am being exposed to many issues regarding wealth building and retirement saving of late. It is becoming evident that due to our economy and its slow recovery, that many are looking to IRAs and 401Ks as their piggy bank. According to Bloomberg Business week, $5.7b was paid out in early withdrawal penalties in 2011. It appears that the Home Equity Loan strategy has been replaced since the attempt for many to borrow against the equity in their residence is not possible due to strict underwriting in the banking industry as a result of the economic event of 2008 related to home mortgage performance collapse.

This issue along with funding issues of which many who have a 401K are engaged do not work well in preparation for retirement. Please avoid to following do not’s:
1. Don’t defer just 3% of your compensation to your 401K because that allows you to take advantage of the usual employer match program. Adequate deferral to reach needed funding for retirement will require a 10 to 12% deferral.
2.There has been much investigation of the 4% rule of thumb draw down rate as safe. Do your home work in identifying life style expense in retirement and funding it adequately with consideration for the impact of inflation over the years.
3. The 120 minus your age in establishing a portfolio allocation for the bond equity mix may not be serviceable as the future unfolds. Seek the advice of a CFP on this issue.
4. Understand that brokers and many advisers who are not CFP holders, are not held to a fiduciary standard equal to the CFP designate. Many of the non CFP advisors are motivate by sales commissions and administrative fees rather than your best interests. We all experience the tactic of instilling fear in order to make a sale of products or services. Investments are no different!!

It is very interesting to observe the dynamic of what is know as Behavior Finance. Many of us are guilty of these behaviors which include loss aversion and herd mentality. Loss aversion, a bias which causes investors to avoid losses as to acquiring gains, can lead to a focus on the short term and less focus on the long term when making investment decisions. Herd mentality will cause individuals to come to similar conclusions based on sketchy or inaccurate information and act in a similar fashion promoting the same mistakes in regard to financial market volatility.

Another area which concerns me as I visit with people who own rental property and feel that this is the perfect investment under all conditions. It is easy to screw up as a land lord by under estimating your cost when setting rent levels, not understanding local land lord tenant legal issues, not vetting tenants adequately and not giving attention to renters insurance programs. Be careful of these issues and understand the tax impacts upon and income property sale regarding recapture of depreciation and capital gains taxes!

These are still trying times for many of us. The US and global economies are improving slowly. Be patient and on guard for challenges and opportunities.

For The Record:
DJIA 16,924.28
NASDAQ 4,321.40
S&P500 1,949.44

Suggested Reading: “Ethics and the Conduct of Business” By Boatright

By Edward Leone Jr. DMD MBA CFP RFC

Contact Information leonee@vzw.blackberry.net

I have discussed the unpredictable geopolitical events in the past that may influence financial markets. Is the issue in Crimea with Russian activity going to be added to the list? Is Putin posturing to just as Hitler did in the 1930s, do an extensive land grab to promote the Russian economy and impose Russian culture? Will the U S government and other allied governments sit by and do nothing as they did 75 years ago until conditions become so bad for Baltic States and Eastern Europe that we find ourselves in a global conflict? What do you think?

On a more regional issue, a Gallop Pole identifies the following states as ones from which citizens want to move due to poor job opportunities or high taxes and the high cost of living: Illinois, Connecticut, Maryland, Nevada, Rhode Island, New Jersey, Massachusetts, Louisiana, and Mississippi. It is interesting to note that the following cities had the highest influx of residence in 2013: Austin, Raleigh, San Antonio, Denver, Charlotte, Nashville, Oklahoma City, Houston and Dallas. HMM!!

Many of us are planning our retirement or beginning to engage in this status of life. It appears to me that the imposition of factors which are institutional whether from government or industry are having less influence on the when and how decisions. Defined benefit pension plans have been on the slide for quite some time while governments clearly cannot continue on the promises they have made due to lack of funding as discussed in previous blogs. Is retirement as we have know it up to now an artificial finish line? Successful aging is the focus rather than growing old while meaningful pursuits are more the focus for many than pursuing means. The Financial Advisor News in an article authored by Mitch Anthony, also points out that 60% of those who retire will have part time jobs. For some these are economic issues, but for many, social, intellectual and personal challenge factors are prime drivers. To get ready for retirement, an individual or couple must examine the following: define what retirement will look like, take inventory of assets, evaluate health issues, plan the timing on collecting Social Security benefits, build a social network, set up a retirement budget with the potential to continue some work if necessary and have a plan to deal with the unexpected! The unexpected may revolve around longevity, health and financial markets.

A risk which many have not fully examined is the affects of inflation. Since 1970 the median annual inflation rate has been 3.37% while the average inflation rate due to high inflation experiences in 74,79 and 80 is 4.27%. Considering the average inflation factor of 4.27%, if you had $100 in 1970, you would need $629 to have the same purchasing power today!! WOW! Another risk factor is the tax code. The new highest marginal rate is 39.6% along with capital gains rate increases to 20% and the new medicare tax of .9% along with the 3.8% investment income tax will hit some of us pretty hard. The Section 179 expensing for businesses has been reduced to $25,000 from $500,000. It is no wonder that our economic recovery is slow since people just do not have the discretionary dollars to spend and invest as in the past.

Prudential is telling us in their trade news letters, that many employers will be moving to a defined contribution health and benefits model where employees will get a fixed dollar benefit to buy coverages and other benefits they desire. We will have to see where that goes. It is important to note that HSA limits for contribution in 2015 are at $3,350 for an individual and $6,650 for a family.

Do your best to share all of this very important information as it will influence much of what all of us do in planning and execution of life and work.

For the Record:

DJIA 16583.34
NASDAQ 4071.87
S&P500 1878.48

Suggested Reading: “The Black Swan”by N N Taleb

By Edward Leone JR. DMD MBA CFP RFC

Contact Information: leonee@vzw.blackberry.net

It is very enjoyable to read a broad spectrum of available information and then share it with you. One of those interesting bits of information in the Bloomberg Business Week has to do with foreign students studying in US universities and colleges. It turns out that China is the leader with 235,597 of their citizens studying in the US. India is next with 96,754 followed by South Korea with 70,627. Next is Saudi Arabia with 44,566 followed by Canada with 27,357. Depending on your orientation on such issues, the positives are that these students stay in the US legally or in violation of visa requirements and take jobs that equally trained US student might have. They may also get preferred tuition rates if they attend a state supported university in a state where the legislature has set tuition for foreign students at the same level as US state residence. The down side is that they may go back to their home country after learning something about the American way!

Should you engage in value investing of equities or growth investing of equities? It depends on your time horizon and risk tolerance. Long term, value investing wins, but short term depending on market conditions, growth stocks may shine according to the Financial Advisers’ Journal. In the same publication, Bill Gross the manager of the world’s biggest bond fund, tells us that very low interest rates are preventing many from retiring since it is more of a challenge to establish a fixed income sector of a portfolio which produces adequate income. When will interest rate increase and will that event hurt the value of equity investments?

We have been in a rising equity market environment for several years now. Are equity investments over valued? I say not yet. The S&P 500 PE is at 17 which close to the historic average but 40% bellow the PE of the year 2000. We must also consider the effects of inflation over these past 14 years as a factor. Bull markets don’t usually end when valuations are average!!

Forbes magazine tells us that Bill Gates and Warren Buffett lead the pack of US billionaires. My, what a challenging problem to have as a member of such a club!

FA Journal tells us that most of those at retirement age have not saved enough to carry them through a full retirement period without running out of money. A significant number of retirees have a significant asset in their residence. As a result, reverse mortgages are becoming a favored strategy to generate retirement income. If you are considering such a move, be sure you understand all terms and fees involved.To build an adequate retirement fund, start saving early in life, retire at full retirement age for Social Security benefits, save at least 15% of your income in those preparation years in a qualified retirement vehicle, project the possibility that you may live to be 100 and make sure an adequate percent of you portfolio is invested in equities to insulate you from the effects of inflation and increases in the cost of living as the future unfolds!

For The Record:
DJIA 16,573
NASDAQ 4,276.46
S&P500 1,890.90

SUGGESTED READING: “Ethics and the Conduct of Business” by Boatright

FA

By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net

It is very apparent that in order to see expanded growth in the US economy, focus must be placed on facilitating industries which have a potential to grow in the current global economy. For the US, these industries revolve around energy, information technology, agriculture, tourism, natural resources and manufacturing. These industries must grow to expand the employment base, be competitive globally and promote consumer interest. This can only happen to a great extent if Government interference is reduced. It is amazing to me just what progress industry is making in spite of current barriers established as a result of government policies. Things will look much better when consumer confidence is increased, consumers have more discretionary dollars to spend and demand for housing, durable goods and other consumption items increases in the US and globally for that matter. Our most recent blog for February takes note that emerging economies appear to be struggling a little and it is developed economies that may lead the pack this year as far as expansion goes if tax burdens, trade imbalances, deficit issues and government spending patterns in developed economies can be contained. Engagement in a free market capitalism environment has been through out history, the key to prosperity for all. Current reporting from the US Senate Budget Committee states that 11 States now have more people on welfare than are employed with the average support for the US household bellow the poverty line at $168/ day from these programs which exceeds the average US household income of $137/ day by $30/ day. There is clearly a lack of incentive to seek work for some as a consequence of these perhaps too generous programs which appear to make people more comfortable in poverty.
We are in a sustained climate in which retirement saving is a challenge. The trend away from defined benefit retirement plans and toward defined contribution plans as a result of government regulation and current economic conditions create difficulty for many in the struggle to build wealth which will support those retirement years. 401K and other defined contribution plans in which the employer has flexibility regarding contributions or matching incentives are suffering due to employers’ cautious participation under current economic pressures to the disadvantage of the employees’ effort to grow retirement savings.
Retirement savers need to focus on a discipline dedicated to continued savings build up, the method by which plan administrators and financial advisors are compensated ( fee or commission based and the pros and cons ), rates charged, quality of recommendations and strategy employed as it is designed to meet the clients’ needs regarding time horizons and risk tolerance along with expected return over a reasonable period of time. Other issues regarding the sustainability of the Social Security System and its utility by beneficiaries must also be in consideration for future retirement planning. Such issues as when is the individual’s full retirement age, what will be the benefit to the recipient and perhaps the spouse, is early retirement a better strategy for benefit structure long term or is delayed retirement a better option, what survivor’s benefits are available a what are the income tax impacts on the Social Security benefit come into play. Get qualified professional help to navigate this journey!
On the subject of taxation, according to Milliman, an insurance industry consulting firm, it is a little know fact that one of the impacts of the affordable Care Act is the imposition of $150 billion in additional tax burdens on insurers, state governments and individuals will occur over a ten year period. We clearly need much more information on ACA before it unfolds and not as it unfolds!!

For The Record:
DJIA 16,321.71
NASDAQ 4,308.12
S&P 500 1,859.45

Suggested Reading: “Engage” by T. Elaine Gagne

By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net

We are one month into the year of 2014 and facing many uncertainties and challengers. Most of us took a bit of a beating in our equity portfolios for the month of January due to the very cold weather which suppressed consumption spending, issues of concern over slowing economies in some emerging markets and the Federal Reserve tapering strategy in the face of what appears to be very slight to nonexistent economic growth of the US economy. The Fed is in quite a predicament since there is not yet any positive activity regarding fiscal policy. There is much concern over international currency exchanges given the status of the Turkish economy, very very slow growth of the EU economy and high inflation rates in India, Brazil and Argentina along with unclear direction of the economic activity in China.
We are not learning from past experience regarding a variety of issues related to economic growth. A US government theme generated by the executive branch focuses on income inequality. What happened to the validity of former Presidents’ comments on this issue. Abraham Lincoln said in 1861 ” The prudent, penniless beginner in the world labors for wages awhile, saves a surplus with which to buy tools or land for himself, then labors on his own another while, and at length hires another new beginner to help him. This is the just and generous and prosperous system which opens the way to all, gives hope to all, and consequent energy and progress and improvement of condition to all.” Adams Smith and other economists historically have stated that the production of products and services is the economy while money and credit are symbols of economic activity. If you read Maynard Keynes, you would assume that money and credit are the drivers of the economy. His theories imply that money has value while I believe that money is a measure of value which facilitates trade and commerce. Unfortunately we find ourselves in an environment of the past many years, where our currency is being distorted as a measure of value. How would we get along if we kept changing the number of inches in a yard stick to measure length?
In the last several weeks we have been introduced to another retirement savings strategy known as MYRA. This is a minimal attempt at encouraging retirement savings. It is a start so to speak, but is funded with after tax dollars by the employee or saver with no fund matching by employers and is restricted to investment in government bonds only. As with the revelations involving ACA as we are experiencing the implementation of this legislation, we will learn much about the utility of MYRA as it unfolds.
Retirement savings strategies deserve many considerations by individuals before engaging in such an effort. Such issues as risk tolerance, tax efficiency, diversification, loan provisions, investment selections, employer contribution and facilitation, time horizons and distribution strategies are integral to a successful retirement journey. These matters should be engaged with the help and guidance of a qualified and adequately trained professional consultant such as a Certified Financial Planner.

For The Record:
DJIA 15,440.23
NASDAQ 4,011.55
S&P500 1,761.64

Suggested Reading: “The Great Depression Ahead” By Harry Dent

By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net

It is January 1st, 2014. Happy New Year to all readers. So what can we expect for this new year? I predict that we will see continued, but very slow improvement in the US economy and the global economy along with a slow recovery continuing with the current business cycle. These trends will likely be due to continued very modest monetary policy easing, slightly improved economic status as measured by GDP increases, moderating energy costs and continued advances lending to business efficiencies with information technology tools. I do not see significant positive fiscal policy adjustments in 2014. Although it is likely that interest rates will increase slowly and inflation will advance while not being reported accurately, equity markets will continue to advance since fixed income markets will not show significant yield improvement. Equity market advances are likely to be some what modest when compared to 2013 performance. Look forward to continued miss reporting of unemployment and other statistics. If we assume that the labor participation rate is a long term average, we are at 11.5% unemployment rather than 7%. The percentage of Americans working has maintained between 58 and 59% over the last 51 months as compared to the standard 65.8% expected. In November of 2007 121.9 million were working full time. Today it is 116.9 million while the population has increased by 16 million. One out of every 10 jobs is filled by a temp agency. Is ACA a factor? The duration of unemployment benefit draw was at 19.8 weeks in 2008. It is 37.2 weeks today. The number of self employed today is at an all time low. Regarding inflation, a gallon of gasoline was priced at $1.85 in 2008. Today it is at $3.26. This is not reflected in the CPI. The Medicaid budget was at $338 billion in 2008, for 2012 it is at $417 billion. The cost of welfare programs over the last 5 years is at $3.7 trillion. The US debt ratio was 70% in 2008 and is at 101% today. These factors create significant head winds against rapid economic recovery and are due, in my opinion, to less than adequate monetary and fiscal policy adopted by government. It is incredible just how durable the economy has been in spite of these issues.
Implementation of legislation such as ACA and Dodd Frank sponsored legislation along with the associated Volker rule ( a substitute for the repealed Glass-Steagall Act) will create a further drag on economic recovery. It is clear that the banking industry’s conduct regarding expansion of acquisition of risky assets with government encouragement must be curbed. In order to further regulate potential abuses by commission based broker dealers, FINRA is proposing the use of a Comprehensive Automated Risk Data System to monitor activity in personal investment accounts against abuses such as churning. Is the government interested in the potential for sales practice misconduct by broker dealers or more information about the investment activity in which you engage?
It is a fact that the number of defined benefit pension plans has declined by 18% in 2012. It is incumbent upon those who are engaged in the work force to plan on their own a savings strategy for retirement since retirement benefit programs are now more that ever, based on defined contribution opportunities.
We will continue to take responsibility on our own for the well being of our families, communities and our country as time goes on. This is as it should be if we will get back on the track of prosperity, safety and social gains.

For The Record:
DJIA 16,576.66
NASDAQ 4,176.59
S&P 500 1848.36

Suggested Reading: “Value Investing in Growth Companies” by Ang andChun