Warren Wealth Article Archive

2010 has been one strange year for the U.S. tax code.

We have a huge tax issue that is still not fully resolved, the usual annual array of tweaks and changes to the Internal Revenue Code … and a chance that some tax breaks from 2009 could yet be extended for 2010, if an abbreviated version of the American Jobs and Closing Tax Loopholes Act (H.R. 4213) becomes law. This bill was passed by the House of Representatives in late May, with a June vote expected in the Senate.1 Many analysts think it will be signed by President Obama this summer.

It’s the middle of the year, so let’s take a look at where things stand for TY 2010 in terms of changes, amendments, additions and question marks. If you see an asterisk, you are seeing an expired 2009 tax break that might come back for 2010. At the end of this document, you’ll see a summary of the tax breaks that could be extended into 2010 if H.R. 4213 passes.

And by the way, if you are a contractor, a real estate developer or a partner in an investment or venture capital firm, be sure to take a look at the very last item.

Here we go …

1 The estate tax and GSTT have been repealed for 2010, and they probably won’t be enforced retroactively.

Even though the Obama administration preferred having an estate tax in 2010, Congress was preoccupied with other matters as 2009 drew to a close. So no action was taken, and as EGGTRA stipulated in 2001, the estate tax is 0% in 2010.2

So far, anyway. The longer we go with no action taken, the harder it gets for Congress to take action and put a retroactive estate tax in place.

Of course, the estate tax and the generation-skipping transfer tax (GSTT) are scheduled to return in 2011. Most estate planners think that Congress will restore things to 2009 levels ($3.5 million exemption for estate tax and GSTT with 45% estate, GSTT, and gift tax rates). Alternately, estate taxes would reset to pre-EGGTRA levels in 2011 (the exemption level at just $1 million with 55% estate, GSTT, and gift tax rates).2

2 With no estate tax in place for 2010, the step-up basis rules have been replaced by carryover basis rules.

This year, assets in an estate are subject to capital gains taxes when sold based on the original price paid for the asset. This could mean some big problems for heirs if an asset was bought by Mom or Dad 20 or 30 years ago. Let’s say the asset is a stock. If Mom or Dad purchased shares off and on through the years, you’ll have quite an assignment to find that paper trail, and you may end up paying capital gains tax on the appreciation if the estate is really large. Fortunately, each estate can exempt $1.3 million of gains from the carryover basis rule, and another $3 million exemption applies to assets inherited from a spouse – so as much as $4.3 million of an estate can retain the step-up in 2010.3

3 The federal gift tax rate is 35% for 2010, not 45%.

Yes, there is still a gift tax in 2010 on gifts above the lifetime exemption amount of $1 million. However, the tax bite is just 35% for 2010. Of course, if you end up gifting less than $1 million during your lifetime, you won’t have to worry about the gift tax at all.4

For the record, IRS Publication 950 (issued 12/09) states: “In 2010, any transfer of money or property in trust is a taxable gift unless the trust is treated as wholly owned by the donor or the donor’s spouse.” 5

4 No income limits on Roth IRA conversions.

To recap, anyone can convert a traditional IRA to a Roth IRA in 2010 – the old income limits that were in the way have been repealed. Anyone who does this also has the option of paying the taxes resulting from the conversion over two tax years – 2011 and 2012.6

There are still income limits preventing certain taxpayers from actively contributing to a Roth IRA, but there is no stopping those taxpayers from contributing to their traditional IRAs one more time in 2010 and then converting them to Roth IRAs.7

5 You can no longer opt to deduct state and local sales taxes on your federal return (for the moment).*

Prior to 2010, you could choose to deduct state sales tax payments instead of state and local income taxes. Congress let this option expire at the start of this year. However, Sen. Maria Cantwell (D-WA) has been spearheading a provision to extend the state and local sales tax deduction – so we have a chance that this option may return for tax year 2010.7,8

6 Tax brackets have been (barely) adjusted for (minimal) inflation.

The adjustments are very minor (for single filers, for example, they are as little as $50 for the 25% bracket and $700 for the 35% bracket). Here are the ordinary taxable income brackets in TY 2010:

• Single Taxpayers:
o 10% bracket has a ceiling of $8,375
o 15% bracket starts @ $8,376
o 25% bracket starts @ $34,001
o 28% bracket starts @ $82,401
o 33% bracket starts @ $171,851
o 35% bracket starts @ $373,651

• Married Filing Jointly or Qualifying Widow/Widower:
o 10% bracket has a ceiling of $16,750
o 15% bracket starts @ $16,751
o 25% bracket starts @ $68,001
o 28% bracket starts @ $137,301
o 33% bracket starts @ $209,251
o 35% bracket starts @ $373,651

• Married Filing Separately:
o 10% bracket has a ceiling of $8,375
o 15% bracket starts @ $8,376
o 25% bracket starts @ $34,001
o 28% bracket starts @ $68,651
o 33% bracket starts @ $104,626
o 35% bracket starts @ $186,826

• Head of Household:
o 10% bracket has a ceiling of $11,950
o 15% bracket starts @ $11,951
o 25% bracket starts @ $45,551
o 28% bracket starts @ $117,651
o 33% bracket starts @ $190,551
o 35% bracket starts @ $373,6519

This isn’t a change, but it is worth noting: for the first year in who knows when, there is no COLA adjustment to the personal exemption ($3,650) and the standard deduction for most taxpayers ($5,700/$11,400, except for a $50 increase for heads of household).10

7 AMT exemption amounts drop way below 2009 levels.

Last year’s levels were adjusted for the economic stimulus arranged by the Obama administration. In all probability, Congress will patch the tax before the end of 2010 and set AMT exemption amounts much higher. Currently, AMT amounts are set as follows for tax year 2010:

• Single/Head of Household: $33,750
• Married Filing Separately: $22,500
• Married Filing Jointly: $45,0006

8 Business mileage deduction rates have gone down.

If you are using a personal vehicle for business, the business mileage deduction is 50¢ a mile in 2010. That’s about 9% below the 2009 deduction of 55¢ per mile. You can chalk it up to reduced transportation costs. If you use a personal vehicle for medical reasons or to move in 2010, well that deduction is also reduced – it was 24¢ per mile in 2009, and it is just 16.5¢ a mile this year. If you use a personal vehicle for charitable purposes (driving it for the purpose of working for a charity), the deduction is 14¢ a mile – same as in 2009.11

9 The foreign earned income exclusion rises by $100.

The exclusion was $91,400 in 2009, now it is $91,500 for 2010.6

10 The domestic production activities deduction is now 9%.

That’s a notable leap from 6% in 2009, though it comes with one asterisk. What types of businesses can take advantage of this? Construction and architectural firms, film production companies, engineering firms, or businesses that rent, lease or sell equipment they build. The asterisk? The deduction is still 6% this year for oil and gas companies.6

11 The IRA distribution to charity option expired after December 31, 2009.*

Will it come back? Some tax analysts think it might. It was great while it lasted, and it was a real boon to universities and assorted non-profits. Yet Congress did not extend the provision allowing IRA distributions to charity into 2010. Here’s hoping they restore it.6

12 No additional standard deduction for property taxes.*

In 2010, you can’t boost a standard federal deduction by up to $1,000 of state or local property taxes you have paid. There is the possibility that Congress will get around to reinstating this perk designed to encourage home sales. But so far in 2010, you can’t increase your standard deduction in this way.6

13 No more excluding jobless benefits from your taxable income.

In 2009, you could exclude up to $2,400 of unemployment benefits. The way it is now, you get no such break for 2010.7

14 Changes to the Earned Income Credit (EIC).

This tax break is primarily designed for low- and middle-income families. In 2010, the maximum EIC for working families with three or more children was set at $5,666, subject to phase-outs when AGI surpasses $43,352 ($48,362 if married filing jointly). Total advance EIC payments for 2010 are limited to $1,880. By the way, you can earn $3,100 in investment income during 2010 and still claim the credit in 2010.12

15 Non-taxable combat pay can’t be used to figure earned income for the Earned Income Credit.
That was the case in 2009, but combat pay can’t be used in the calculation for 2010.6

16 A cap on farm losses used to offset non-farm income.

In 2010, the limit on farm losses you can take is either a) $300,000 or b) your net farm income over the past five years, whichever is greater. And yes, this limit goes for S corporation owners and partners as well. However, it will only apply if you get federal farm payments or Commodity Credit Corporation (CCC) loans. You may take suspended losses in subsequent tax years.6

17 No sales tax breaks if you buy a new car.
You could deduct sales tax on a new car purchase from your 2009 federal return. You can’t get such a tax benefit in 2010, unless Congress gives you back the chance to deduct sales taxes instead of state income taxes (see #5 above).7

18 No higher education tuition deduction for 2010.*

In 2009, some qualifying taxpayers could take an above-the-line deduction for college tuition and expenses. If your AGI was $65,000 or less ($130,000 for joint filers), the limit of the deduction was $4,000. Taxpayers with AGI up to $80,000 ($160,000 for joint filers) could take a reduced deduction of as much as $2,000. But not in 2010 … not so far, anyway.13

19 No classroom supplies deduction for teachers.*

In 2009, K-12 teachers, principals, guidance counselors and other education professionals could take a $250 above-the-line deduction to offset out-of-pocket classroom expenses. That deduction expired at the end of 2009, but it may return if H.R. 4213 is made law.13


[*Now, if H.R. 4213 becomes law:

5a The state and local sales tax deduction option would be restored for 2010.

This would help you if you live in a state that doesn’t levy state income tax. Taxpayers would have the option of taking an itemized deduction for either state and local income taxes, or state and local general sales taxes.13

11a The IRA distribution to charity option would come back.

If it does, individuals age 70½ or older could once again distribute as much as $100,000 from their IRAs to charitable organizations through the end of 2010, and the money would not be characterized as income or be subject to itemization rules. (By the way, you would not be able to do this with an inherited IRA if you, the beneficiary, turn age 70 1/2 before such a charitable rollover. That was also true before 2010.)13,14

12a The additional standard deduction for property taxes would be extended through 2010.
The limit would be $500 for single filers and $1,000 for joint filers. This deduction would not lower your AGI; you would add it to the standard deduction.13

18a The higher education tuition deduction would return for 2010.
A reminder: this is for higher education tuition and expenses only, not elementary or secondary school costs. If your AGI is $65,000 or less ($130,000 for joint filers), the limit of the deduction would be $4,000. If it is between $65,000-80,000 ($135,000-160,000 for joint filers) you could be eligible for a deduction of as much as $2,000.13

19a The classroom expenses deduction would be restored.

The $250 above-the-line deduction to help K-12 teachers/educators would return for 2010.13

Additionally, if H.R. 4213 passes in its current form:

• Tax breaks for land donations would be extended.
That is, the special rules and provisions under the “4-H Act” (the Heartland, Habitat, Harvest, and Horticulture Act of 2008) would be extended through 2010 to help qualifying farmers and ranchers donate land to organizations such as the Nature Conservancy. The 2010 tax break could be as large as 100% of the excess of the taxpayer’s contribution base over the total of all other allowable charitable contributions.13,14

• All hybrid vehicle tax credits would be in place until the end of 2010.
Some of these credits expired in 2009, and others sunset this year and in 2014 (there are different credits for different classes of hybrids). H.R. 4213 would forward the expiration dates on all three classes of credits ahead by one year.13,14

• The provisions of the National Disaster Relief Act of 2008 would be extended.
Prior to this law, Congress and the IRS pretty much issued tax breaks for taxpayers affected by disasters on a case-by-case basis. H.R. 4213 would extend the Act through the end of 2010, allowing higher loss limits on personal casualty losses from natural disasters, a special depreciation allowance for property that rehabilitates or replaces qualified business property, and current deductions for disaster repair and clean-up expenses.13

• Tax credits for alternative fuels and energy-efficient windows would remain in place.
In 2009, the IRS offered a biodiesel credit, a biodiesel small producer credit and a biodiesel excise credit. H.R. 4213 would restore them for 2010. It would also revise the language concerning tax credits for energy-efficient windows to recognize different climate patterns in different regions of the country.13,14

• We would see a “carried interest” tax hike.
Real estate investors know the concept of “carried interest” well. Let’s say a real estate partnership buys a forlorn shopping center and hires a contractor to pretty it up. Those real estate investors may offer the contractor a 15% or 20% cut of their future net when they sell the center. That’s called “carried interest”, and this income is usually taxed as a capital gain.

But on January 1, 2011, that could change. In a phase-in provision included in the House version of H.R. 4213, 50% of the amounts paid on the carried interests of individual partners would initially be taxed as ordinary income. So would the gain on the sale or exchange of a carried interest.

So instead of carried interest being taxed as capital gains at rates up to 15% or 20%, carried interest would be taxed at ordinary income rates up to 35% or even 39.6% in 2011. (And if you are a real estate developer, venture capitalist or entrepreneur, you may find yourself in one of the two highest tax brackets.)

CCH, the tax research firm, projects this as the biggest revenue generator from H.R. 4213 over the next decade if the bill becomes law. Congress hopes that hiking taxes on carried interest would raise $1.7 billion for the federal government annually.13,15


Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464









---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities
Content provided by Peter Montoya, Inc.
While the concepts, issues and examples covered in this material have been checked with sources believed to be reliable, some material may be affected by change in the laws or in the interpretations of such laws since this material was prepared. The information is provided with the understanding that Woodbury, its representatives, and employees, are not engaged in rendering legal, accounting, or tax advice and it should not be relied upon as tax or legal advice.

This Special Report is an update of 2010 tax law changes, and is not intended as a guide for the preparation of tax returns. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Woodbury Financial Services, Inc. and Peter Montoya Inc. to recipients. No information herein was intended or written to be used by readers for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Readers are cautioned that this material may not be applicable to, or suitable for, their specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision, and Woodbury Financial Services, Inc. and Peter Montoya Inc. disclaim any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. Woodbury Financial Services, Inc. and Peter Montoya Inc. assume no obligation to inform readers of any changes in tax laws or other factors that could affect the information contained herein.


Citations.
1 investmentadvisor.com/News/2010/6/Pages/Tax-Extenders-Bill-Passes-House-Heads-for-Senate.aspx [6/1/10]
2 moneywatch.bnet.com/retirement-planning/article/estate-tax-what-you-need-to-know-for-2010/378294/ [1/5/10]
3 articles.moneycentral.msn.com/RetirementandWills/PlanYourEstate/5bigMythsAboutTheEstateTax.aspx [4/14/10]
4 moneywatch.bnet.com/retirement-planning/blog/financial-independence/why-is-everyone-afraid-of-the-gift-tax/843/ [4/14/10]
5 irs.gov/pub/irs-pdf/p950.pdf [12/09]
6 turbotax.intuit.com/tax-tools/tax-tips/irs-tax-return/5519.html#2010 [4/19/10]
7 boston.com/business/personalfinance/managingyourmoney/archives/2009/12/summary_of_tax.html [12/4/09]
8 cantwell.senate.gov/issues/sales_tax.cfm [4/19/09]
9 bankrate.com/finance/taxes/2010-tax-bracket-rates.aspx [1/5/10]
10 online.wsj.com/article/SB125322006352820593.html [9/17/09]
11 bloomberg.com/apps/news?pid=20603037&sid=aHY2qdL6oTsM [12/3/09]
12 irs.gov/formspubs/article/0,,id=180803,00.html [12/4/09]
13 tax.cchgroup.com/legislation/Tax-extenders-bill.pdf [6/1/10]
14 usnews.com/money/blogs/the-best-life/2010/05/24/10-tax-breaks-likely-to-be-extended [5/24/10]
15 lvrj.com/opinion/-carried-interest--95678939.html [6/5/10]
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A new perception has taken hold: “independent” is better.

Provided by Jacob Warren

Times have changed – and so have financial advisors. Today, people don’t want financial advice from a salesman. Instead, they want a relationship with a financial professional who is candid, trustworthy and thoroughly educated, who provides personalized financial consulting for each client.
That search often leads them to a fee-based or fee-only financial advisor or a Registered Investment Advisor.

A pleasant alternative to Wall Street. A paradigm shift is happening, and the traditional brokerage houses are lagging. While old-school “stock brokers” have gone the way of the wooly mammoth, you still have a sales-first mentality in place at big banks and Wall Street brokerages. If you’re employed by one of them, the mantra is simple: make a sale, earn a commission.

As they try to serve their clients, these “wirehouse” brokers regularly contend with sales quotas and the inherent potential for conflicts of interest. It wears on them: a 2010 survey revealed that only 15% were “very satisfied” at their firms, and another 20% wanted to leave within two years.1

Given the tarnished reputations of so many giant banks and brokerages, it isn’t surprising that consumers are turning elsewhere for financial advice. Here are three popular destinations.

A fee-based financial advisor has structured his or her practice to promote earning income from fees instead of commissions. The emphasis is on advice. An independent, fee-based financial advisor also has freedom – freedom to choose the most appropriate products and services for your risk tolerance and investment goals. (More about that in a moment.)

Fee-only financial advisors earn no commissions at all. They derive 100% of their income from client fees - annual management fees or hourly or per-project consulting fees. With this compensation arrangement, you know that a fee-only advisor is available to help you address myriad issues in your financial life, not simply those that could lead to a commission.

A Registered Investment Advisor (RIA) usually works to manage the assets of high net worth investors. An RIA receives management fees and does not receive commissions. The management fees usually represent a percentage of the assets a client has invested. RIAs have to register with the Securities and Exchange Commission and any states in which they operate.2 Individuals, couples, families and institutions with sizable wealth management concerns often turn toward RIAs.

Even as the market has struggled since the end of 2007, independent Registered Investment Advisors have gained a greater share of assets under management in the U.S.3

People need unbiased advice. That’s probably the #1 reason why people seek an independent financial advisor. They know that the advice they receive is not influenced by sales incentives or directives. There is often a candor to the discussion that may not always be present at a bank or a brokerage.

People want more investment choices. An independent financial advisor is free to offer investments from dozens, maybe hundreds of companies, rather the investments of a single company. In addition, that independent advisor can unhesitatingly tell you if an investment is or isn’t appropriate for your financial situation.

This is the age of independence. When it comes to the financial future, no one wants to be “sold” – just advised. That’s why we’ve seen the rise of a new kind of financial advisor who puts the client relationship first.

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464








---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.

Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.

Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC and Registered Investment Advisor. PO Box 64284, St Paul, MN 55164. (800)800-2638. [Your DBA/ company name Here] and Woodbury Financial Services, Inc. are not affiliated entities.


.com, www.montoyaregistry.com, www.marketinglibrary.net

Citations
1 – bankinvestmentconsultant.com/news/pirker-aite-wirehouse-advisors-2667209-1.html [6/1/10]
2 – investopedia.com/articles/financialcareers/06/whatisaRIA.asp [6/11/10]
3 – fa-mag.com/fa-news/5548-independents-make-headway-despite-downturn.html [5/10/10]



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Why are retirement plans often created assuming a 4% withdrawal rate?

Provided by Jacob Warren

When retirement planners try to estimate just how much money a couple or individual should take out of their savings annually, their model scenarios often assume a 4% annual withdrawal rate. Why is 4% used so frequently? Was that percentage plucked out of thin air? No, it actually became popular back in the 1990s.

The “Trinity Study” helped popularize the 4% guideline. In 1998, a trio of professors at San Antonio’s Trinity University analyzed historical market data between 1925 and 1995 in search of a “sustainable” withdrawal rate. They used five different portfolio compositions - 100% stocks, 100% bonds, and 25/75, 50/50 and 75/25 mixes. (For purposes of the study, “stocks” equaled the S&P 500 and “bonds” equaled long-term, high-grade domestic debt instruments.) They tried to see which withdrawal rates would leave these portfolios with positive values at the end of 15, 20, 25 and 30 years.1

Their conclusion? If you are retired and withdraw more than 5% annually, you increase the chances of depleting your portfolio during your lifetime.

Subsequently, another such study was conducted by RetireEarly.com using financial market data from 1871 to 1998 – and that report reached the same conclusion.1

However, that wasn’t all the study had to say. The “Trinity Study” made some other conclusions that were not entirely in agreement. The professors maintained that most retirees should have 50% or more of their portfolios in stocks. But they also noted that retirees withdrawing just 3-4% a year from stock-dominated portfolios may end up helping their heirs get rich while hurting their own standard of living.1

Perhaps most interestingly, the study concluded that an 8-9% withdrawal rate from a stock-heavy portfolio was sustainable for a period of 15 years or less – but not for longer periods.1 In other words, while our parents and grandparents could confidently withdraw 8-9%, we who might easily live to age 90 or 100 probably can’t.

Another 4% advocate: Bill Bengen. In 1994, CERTIFIED FINANCIAL PLANNER™ practitioner William P. Bengen published a landmark article in the Journal of Financial Planning presenting his own research findings on withdrawal rates from retirement savings. While Bengen published this article in the middle of a long bull market, he factored in the possibility of extended bear markets, minimal annual stock market gains and sustained high inflation.2

Looking at 75 years worth of stock market returns and retirement scenarios, Bengen concluded that a retiree who was 50-75% invested in stocks should draw down a portfolio by 4% or less per year. He felt that retirees who did this had a great chance of making their retirement money last a lifetime. In contrast, he felt that retirees taking 5% annual withdrawals had about a 30% possibility of eventually outliving their money. He put that risk at better than 50% for retirees withdrawing 6-7% per year.3

Over time, people began to call Bengen’s dictum the “4% drawdown rule”. The model 4% income distribution could be inflation-adjusted – in year one, 4% of a portfolio could be withdrawn, in year two that 4% withdrawal amount could be sweetened by .03% for 3% inflation, and so on.3

A dissenting view. In 2009, William Sharpe (one of the Nobel Prize-winning principals of Modern Portfolio Theory) published an article in the Journal of Investment Management contending that “it is time to replace the 4% rule with approaches better grounded in fundamental economic analysis.” Sharpe thinks that “the 4% rule's approach to spending and investing wastes a significant portion of a retiree's savings and is thus prima facie inefficient.” If a portfolio underperforms, he notes, you have a spending shortfall; and if it surpasses performance expectations, you end up with a “wasted surplus”.4

So in Sharpe’s view, by adhering to a 4% rule, you either risk living too large or short-changing yourself. Therefore, it would be better to constantly fine-tune a withdrawal rate according to time horizon and market conditions.

While not necessarily a rule, 4% is a frequent recommendation. There is some compelling research to support the “4% rule”, and that is why financial advisers often cite it and tell retirees not to withdraw too much.

Would withdrawing 4% of your portfolio annually (with adjustments for inflation) allow you to live well? For some of us, the answer will be yes; others will need to address an income shortfall. As we retire, most of us will want to practice some degree of growth investing. Now may be the right time to talk about it.

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464








---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities

Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

Citations
1 – newyorklife.com/nyl/v/index.jsp?vgnextoid=60d547bb939d2210a2b3019d221024301cacRCRD [6/21/10]
2 –spwfe.fpanet.org:10005/public/Unclassified%20Records/FPA%20Journal%20March%202004%20-%20The%20Best%20of%2025%20Years_%20Determining%20Withdrawal%20Rates%20Using%20Histo.pdf [3/04]
3 – money.cnn.com/2002/06/28/retirement/q_drawdown/index.htm [6/28/02]
4 –pittsburghlive.com/x/pittsburghtrib/business/s_682587.html [5/24/10]



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Don’t let the headlines get you down.
Look at how the markets have rebounded.

presented by Jacob Warren

The stock market is amazingly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. Yes, oil prices are incredibly high. Yes, June was a really lousy month for stocks. We can’t change all this. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns.

2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points (the biggest single-day drop ever) to 8920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.1

There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.1

As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.2

1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.3 (That would be akin to a 2,300-point one-day drop today.) The S&P 500 lost 20.4%.4 By comparison, the initial “Black Monday”, the stock market crash of 1929, represented a 12.8% market loss.5

Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year.6 By January 1990, the DJIA was at 2,800.7

If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later.3 If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.6

1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October.8 In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.1

I hope these examples give you some encouragement and confidence when it comes to the market right now. The Dow, S&P and NASDAQ have been through some rough periods, but the important thing is to look at how they have climbed across the decades.

On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. That’s a 1,500% gain in 17½ years.9 This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.

What should you do now? That’s a good question. If you would like to talk about how to invest in light of this recent market, and what financial moves you might make that could help you manage risk and take advantage of a rebound, then talk with a qualified financial professional today.

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464









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Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities

Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.





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Congress agrees on a bill. How would it change the financial landscape?

Provided by Jacob Warren

Next month, President Obama will likely sign a bill into law ordering changes in the ways banks, credit card issuers and mortgage lenders interface with consumers. Here are the key features of the financial reform agreement that the Senate and House of Representatives came to on June 24, with a vote pending.

#1: The Bureau of Consumer Financial Protection. This new consumer agency answering to the Federal Reserve would supervise mortgages, credit cards, student loans and the banks, credit unions and private lenders that issue them. Institutions holding less than $10 million in assets wouldn’t be regulated by the BCFP – but they would have to follow its rules. The BCFP would aim to make these products easier to comprehend for consumers and crack down on any possible deceptive practices.1,2

#2: See your credit score for free. If you are turned down for a mortgage or a loan, the new reforms would give you the power to see the credit score supplied to your lender. Right now, you can request three free credit reports each year but you can’t see your actual score.1,2

#3: Tougher rules for mortgage lenders. Mortgage lenders would need to verify the assets and income of borrowers, thwarting any surreptitious comeback for “liar loans”. Loan officers and mortgage brokers would not be able to receive bonuses for guiding you into this or that loan. Borrowers with ARMs and other types of complex home loans could not be hit with prepayment penalties should they want or need to pay off a mortgage before the end of its term.1,2

#4: Retail minimums for the use of credit cards. Score one for retailers, who don’t want to see people make $2 credit card purchases when the swipe fee alone cancels out the revenue. Under the new legislation, stores could set minimums for credit card use. The minimum transaction level could be as high as $10 if a store chooses; the Federal Reserve could raise that $10 limit on the minimum with time.1,2

Alternately, stores could offer consumers discounts if they pay for items with cash or debit cards. (They wouldn’t be able to vary the discounts for different debit cards.)2

Additionally, the proposed reforms could allow colleges and universities and the U.S. government to set maximums for credit card transactions.2

#5: Brokers could be held to a fiduciary standard. Under the new reforms, the Securities and Exchange Commission now has the chance to hold brokers to the same fiduciary standard common to financial advisers – that is, investment brokers would have to put a client’s best interest first and not simply recommend a “suitable” investment to a client. That new standard may or may not come into play, however; the SEC is undertaking a six-month study to see if such a rule would amount to regulatory overlap or not.3

#6: The “Volcker Rule” would be put into play. This is the rule that would prevent banks from trading with their own money. It would kick in with small concessions. While the reforms would halt most proprietary trading by banks, some limited investment would be permitted – they could provide up to 3% of a fund’s equity, and invest up to 3% of Tier 1 capital in hedge or private equity funds.4

The big banks got another key concession from Congress: they don’t have to get rid of their swaps-trading desks (some legislators had contended that this decision would drive such trading to foreign markets). They can still be involved in foreign-exchange and interest-rate swaps dealing.5

#7: An Office of Credit Ratings would appear. It would oversee the actions of Moody's, Standard and Poor's and other big names, and one of its objectives would be to flag potential conflicts of interest that could influence ratings judgements.1

#8: The SEC would no longer regulate equity-indexed annuities. The promotion and sale of these annuity contracts has generated much flak in recent years. Interestingly, they would be overseen by state insurance regulators if the reform bill passes, and treated strictly as insurance products.2

Now, what about Fannie Mae and Freddie Mac? Good question. Nothing made it into the final reform bill to address that dilemma. Some analysts expect another bill will emerge in 2011 to propose their restructuring or elimination.5

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464








---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities

Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative nor Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.

Citations
1 –abcnews.go.com/Business/financial-reform-bill-means-big-consumers/story?id=11012343 [6/25/10]
2 – cnbc.com/id/37921188 [6/25/10]
3 – nytimes.com/2010/06/26/your-money/26money.html?pagewanted=2 [6/26/10]
4 – businessweek.com/news/2010-06-25/banks-dodged-a-bullet-as-congress-dilutes-rules.html [6/25/10]
5 - cnbc.com/id/37927853 [6/25/10]
6 - reuters.com/article/idUSTRE65O1BK20100625 [6/25/10]



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