Understanding the Fees Associated With Your Retirement Plan

May 26, 2013 — Sam H. Fawaz

I hope you’re enjoying a safe and fun Memorial Day weekend as we remember those who sacrificed with their lives. We sincerely appreciate the service and sacrifices the women and men of the armed forces make every day to help keep us safe.

There’s a little secret associated with your workplace-sponsored retirement plan. Most participants think their plan is free — that it doesn’t cost them anything to join, contribute, and invest. Unfortunately, that’s not entirely true.

While employees typically aren’t charged any out-of-pocket costs to participate in their plans, participants do pay expenses, many of which are difficult to find and even more difficult to calculate. New regulations from the Department of Labor (DOL), which oversees qualified workplace retirement plans, should make it easier for participants to locate and comprehend how much they are paying for the services and benefits they receive.

Here’s a summary of the information you should receive.

1.     Investment-related information, including information on each investment’s performance, expense ratios, and fees charged directly to participant accounts. These fees and expenses are typically deducted from your investment returns before the returns (loss or gain) are posted to your account. Previously, they were not itemized on your statement.

2.     Plan administrative expenses, including an explanation of fees or expenses not included in the investment fees charged to the participant. These charges can include legal, recordkeeping, or consulting expenses.

3.     Individual participant expenses, which details fees charged for services such as loans and investment advice. The new disclosure would also alert participants to charges for any redemption or transfer fees.

4.     General plan information, including information regarding the investments in the plan and the participant’s ability to manage their investments. Most of this information is already included in a document called the Summary Plan Description (SPD). Your plan was required to send you an SPD once every five years, now they must send one annually.

These regulations have been hailed by many industry experts as a much-needed step toward helping participants better understand investing in their company-sponsored retirement plans. Why should you take the time to learn more about fees? One very important reason: Understanding expenses could save you thousands of dollars over the long term.

Calculating Fees and Their Impact on Your Account

While fees shouldn’t be your only determinant when selecting investments, costs should be a key consideration of any potential investment opportunity. For example, consider two similar mutual funds. Fund A has an expense ratio of 0.99%, while Fund B has an expense ratio of 1.34%. At first look, a difference of 0.35% doesn’t seem like a big deal. Over time, however, that small sum can add up, as the table below demonstrates.

Expense ratio Initial investment Annual return Balance after 20 years Expenses paid to the fund
Fund A 0.99% $100,000 7% $317,462 $37,244
Fund B 1.34% $100,000 7% $296,001 $48,405

Over this 20-year time period, Fund B was $11,161 more expensive than Fund A.1 You can perform actual fund-to-fund comparisons for your investments using the FINRA Fund Analyzer.

If you have questions about the fees charged by the investments available through your workplace retirement plan, speak to your plan administrator or human resources department.

When considering whether to roll over your former employer’s 401(k) or other qualified retirement plan to an IRA, keep all these plan fees in mind, in addition to the limited choice of investments in most employer plans. In most cases, the large selection of funds and lower fees at most discount brokerages should tilt the decision towards rolling over your plan when you leave an employer. A fee-only fiduciary advisor can help you evaluate your options and decide whether a rollover is the best choice for you.

If you have any questions about this or any other financial matter, please don’t hesitate to contact us. We are fee-only fiduciary advisers who put your interests first. Not all advisors adhere to this highest standard.

Source/Disclaimer:
1Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money. Past performance is no guarantee of future results. For more complete information about any mutual fund, including risk, charges, and expenses, please obtain a prospectus. Please read the prospectus carefully before you invest. Call the appropriate mutual fund company for the most recent month-end performance results. Current performance may be lower or higher than the hypothetical performance data quoted. The hypothetical data quoted is for illustrative purposes only and is not indicative of the performance of any actual investments. Investment return and principal value will fluctuate; and shares, when redeemed, may be worth more or less than their original cost.

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Bond Market Outlook: Points to Ponder

June 6, 2012 — Sam H. Fawaz

During the past decade, many long-term fundamentals of investing have been turned upside down and one example is the performance of U.S. stocks compared with bonds. Over longer time periods, such as 20 or 30 years, stocks exhibited higher average annual returns along with greater volatility.1 Bonds, in contrast, presented lower long-term returns along with fewer ups and downs.

But the 10-year period ending December 31, 2011, has shown the opposite, with the average annual return of investment-grade bonds exceeding stocks by a margin of 5.8% compared with 2.9%.1 No one knows for sure whether the recent outperformance of bonds will continue, but events currently present in the U.S. economy are causing observers to question the outlook in the years ahead.

Interest Rates The Federal Reserve has maintained the federal funds rate between 0.0% and 0.25% with the goal of stimulating the economy. Given how low short-term interest rates are, it is likely that they will turn upward at some point, which would present challenges for bondholders. Historically, higher interest rates have caused the prices of existing bonds to fall as investors have pursued newly issued bonds paying higher rates. This scenario presents the potential for losses for existing bondholders.

Inflation During 2011, inflation averaged 3.2%, close to the historical average of 2.9%.2 But if inflation were to increase even higher, an investor would lose money on a bond with a yield lower than the rate of inflation. Some observers believe that if the U.S. economy begins generating stronger growth, inflation could once again spike upward.

Federal Spending Sizeable federal deficits are almost old news as the government looks for ways to stimulate the country’s economic engines. While economic growth is a laudable objective, outsized federal spending may impact the financial markets. If the federal government is forced to pay higher interest rates to entice investors to fund the debt, this action could lead to higher interest rates on other types of bonds as well in response to investor demand.

Bonds can help investors balance a portfolio weighted to stock funds or other assets. When making decisions about investments, it is important to weigh both the benefits and the risks associated with bonds and any other assets that you own.

Source/Disclaimer:

1Sources: Standard & Poor’s; Barclays Capital. Stocks are represented by the Standard & Poor’s 500 Index, bonds by the Barclays Aggregate Bond Index, volatility by standard deviation. Results are for the 30-year period ending December 31, 2011. You cannot invest directly in an index. Past performance does not guarantee future results. Investing in stocks involves risks, including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

2Source: U.S. Bureau of Labor Statistics. Inflation is represented by the Consumer Price Index. Historical average is for the period between 1926 and 2011.

June 2012 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by YDream Financial Services,a local member of FPA.

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What’s Going on With The Markets? 3rd Quarter 2011

October 1, 2011 — Sam H. Fawaz

The headline on today’s Wall Street Journal says it all: “Stocks Log Worst Quarter Since ’09”, referring of course to the first quarter of 2009 before the start of the (current?) bull market run. Even quarter-end “window dressing”, where fund managers buy up the best performing stocks to make their holdings look good to shareholders and boost their chances of quarterly performance bonuses didn’t help at all. September 30th ended the day, week, month and quarter-end at an ominous level.
 
The shocks to the markets continue to come from the Eurozone debt crisis, worries of another recession starting, the Chinese economy slowing, and now, corporate earnings results for the third quarter coming in below estimates. Forward guidance, that is, how companies estimate their upcoming earnings, are expected to be pulled down a bit. With economic data continuing to soften or come in worse than expected, evidence is mounting that the economy continues to slow down, but not contract. Contraction for two straight quarters is the textbook definition of the start of a recession.
 
My most reliable source for forecasting a recession comes from the Economic Cycle Research Institute (ECRI). In the past, they have been spot on in identifying the conditions that precede the onset of a recession.  This week, although not confirming the start of a recession, the ECRI did confirm that evidence of a recession is spreading like wildfire and one would be almost impossible to avoid given current conditions.  Consumer confidence is at or near an all-time low due partly because of the whole debt ceiling debacle and political gridlock. Without confidence, and without jobs, people are not spending to help the recovery. Without spending, there’s no demand. Without demand, there’s no production and therefore no hiring. And you can complete that circle yourself.
 
As I’ve mentioned before, if we are headed for a recession, then stock prices will likely have to fall further before they are fairly priced. This is because earnings fall during a recession, and institutions only buy stocks when they’re fairly priced according to forward earnings. If we’re not headed for a recession, then stock prices are cheap and out to be bought hand over fist right here, right now. 
 
What we’ve witnessed in the stock markets over the past 8-9 weeks is extreme volatility brought on by the battle between those in the recession camp and those not in the recession camp (along with Eurozone worries).  Since the August 9th low in the markets, the S&P 500 has traded in a 100 point range and has basically gone nowhere.  This bouncing around will not continue forever (but can continue for months), and will give way to a big move up or down in the near future. The action during the past week tends to point to a downward move, but every downward move in this range looked like it was going to break down until buyers stepped in.
 
What I Believe and What We’re DoingAs evidence that points to a recession mounts, I’m becoming less convinced that we can avoid a recession in the next 3-6 months. This is a change from my previous stance of no impending recession in previous months. It’s become increasingly clear that the Federal Reserve is less able to influence what happens in the economy, and in my opinion, the less they do the better.
 
As the odds of a recession have been increasing, and world economies also slow, I have been slowly reducing client exposure to equities over the past couple of months. Our exposure to small cap stocks is now very small, and I began to reduce exposure to mid-cap stocks by up to 1/3 as of last week.
 
On Friday of this week, I increased our exposure to hedges via leveraged inverse exchange traded funds because I believe that we will test the August 9th low on the S&P 500 index of 1101 (current level of support) and may even break below it. I also believe that even if the market did decline by another 10% (should we break support) we still have a year-end rally in the cards.  Even if I’m wrong about reducing equity exposure and increasing our hedges, and the markets reverse and fly to the upside (not likely), prudent risk management based on the facts and circumstances warrant caution. It never hurts to reduce equity exposure when uncertainty and volatility rule the markets.
 
September 2011 was the 6th down month in a row in the stock markets, and bear markets typically last 6-18 months. If this is merely a correction and not a bear market, then 6 months is a good point in time to expect a bounce. My expectations, especially since this is the 3rd year of an election cycle, that somewhere along the lines of mid to late October, we begin to see the year-end bounce. 
 
As always, I offer my caveat: my crystal ball is in the shop and no one, including me, can forecast what the markets will do. I can only provide my best guess, and that’s what this is, a guess, based on all the information available to me and historical precedent, of what the markets may do. I could be totally wrong on both direction and timing, so no one should make any investment decisions based on my prognostications or forecast. Forewarned is forearmed.
 
I’m happy to answer any questions or comments you may have. If you already have a fee-only financial advisor (the only kind I recommend), then great. If you’re looking for an unbiased, fee-only financial advisor, don’t hesitate to contact us. Your first consultation is complimentary and comes with no pressure to act or sales tactics.  As fee-only fiduciary advisors, we act in your best interest and collect no commissions, trails or any hidden compensation.

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Stock Market and Economic Update August 21, 2011

August 21, 2011 — Sam H. Fawaz

The past week hasn’t been particularly kind in the stock markets as we saw little follow-through on the previous week’s rally. My upside target of 1230-1260 in the S&P 500 index was not even approached before selling resumed at around 1208.
 
A few economic reports from last week have me a bit more concerned about the possibility of a recession within the next twelve months.  Although the economic leading indicators that I’ve come to rely on from the Economic Cycle Research Institute turned up again this past week, the only components to rise were financial ones, namely the money supply (with the stock market selling being a contributing factor) and the steep yield curve (ultralow interest rates on short duration debt versus higher rates on longer duration debt made possible by the Federal Reserve’s low interest rate policy). Without these two components, the index would have been down 0.5%, which is down three of the last four months.  Weekly unemployment claims came in at 408,000 whereas they were starting to trend below 400,000 in the last few weeks.
 
So the volatility in the market right now is at least partially attributable to concerns about whether a recession is on the horizon or not. If one is not, then the market is undervalued. If one is, then the market is overvalued. So far, the weight of evidence of a recession is still inconclusive, but it appears that institutional buyers are starting to “discount” that possibility as they demonstrate through selling in the markets.  The research I read is split about 50/50 about whether a recession is coming, with convincing cases made on both sides.  My feeling is that we have a bit further to go on the downside if economic factors or confidence measures don’t start pointing up real soon.
 
Accordingly, I am becoming increasingly concerned about the behavior of the markets and the economic numbers coming out lately since they haven’t been particularly encouraging. Accordingly, this past week I increased my clients’ hedges and continued to slightly reduce exposure to equities just to be on the safe side. 
 
This week will be critical since the Federal Reserve Chairman (Ben Bernanke) will be speaking on Friday and will reveal any further measures they may take to ease recession concerns and restore confidence to the markets.  More information about how the Eurozone will handle its debt crisis should help calm the markets.  But based on the market action on Thursday and Friday, it seems that many institutional and retail investors are not waiting to hear what the Chairman has to say or what solution the Eurozone might propose to avoid a deepening debt crisis.  They have therefore been selling and may continue doing so into this week.
 
I will continue to monitor the markets day to day and make further adjustments to portfolios and increase hedges as conditions warrant. Since the market is heavily oversold, we should expect some level of a bounce this week, if only for folks to prepare for any surprise announcement the Federal Reserve Chairman might offer to help propel markets higher.

Bottom line, it’s too early to reach conclusions about whether or not the April high was an important top in the market. If it was, it was unlike any market top of the past 50 years, with both the LEI and market breadth still hitting new highs after the top. When panic selling spreads across the board – good quality companies go down along with the overvalued speculative stocks.  I can say that barring some type of financial Armageddon, I believe the downside valuation risk in this market is far less than in 2007-08. 

My major equity allocation decision is to give this market more time before making any major adjustments. What is needed –more than anything else– is stability and confidence. Only time and stability can calm the emotional extremes and fears, which still come out of the woodwork on a daily basis. But as I’ve said, if the retest (of the S&P 500 index lows of 1100) is able to hold above the lows of last week, then it could provide a strong market base if evidence of a recession does not increase in coming weeks.

Again, please do not take this message as advice to buy or sell any securities; please consult with your investment advisor (or us!) This message is not intended to forecast what will happen in the market since no one (including me) can do that. My objective is to share what I’ve been hearing, reading and researching, the end result of which is one of cautious optimism.
 
Please don’t hesitate to contact me if you need any help with your personal financial situation or investments.  I welcome your feedback and questions always.

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Why I Don’t Trust This Rally

August 15, 2011 — Sam H. Fawaz

We finally strung together three up days in a row in the stock markets today and that’s a good thing. Volatility is ratcheting down and folks are stepping in to scoop up bargains.  Unfortunately, for the first time since we bottomed back in March 2009, I don’t trust this rally and believe that we are headed back to test last week’s low of 1,101 on the S&P 500 index in the short term.  If the market doesn’t hold at that level, our next stop is likely 1060. Let me explain why this rally has a lot to prove before I believe that this correction is over:
 
1.  Other than relieving an oversold condition, not much has changed fundamentally between last week and today. Uncertainties are abound about the possibility of a recession starting or already started (which I don’t believe), how we’re going to deal with raging federal deficits, and the Eurozone debt crisis. A meeting between German and French officials tomorrow will shed some light on how they will deal with the debt crisis in Europe.
2.  The three day rally that began last Thursday has occurred on light volume, reflecting very little institutional participation.  Institutions often wait for retail investors to bid up the market after a severe selloff to set it up for more selling.  The selling has been coming in on very heavy volume while buying is coming in on light volume, a bearish sign.
3.  Consumer confidence, as measured by the University of Michigan survey released last Friday, was at a record low.  These levels have not been seen since the great recession (but do reflect the recent anxiety over the recent U.S. debt ceiling debacle and stock market sell-off last week).
4.  The main stock market sentiment indicators showed an increase in bullish sentiment last week. This is considered a “contra” indicator. After the recent stock market beating, there seems to be more complacency than fear in the markets. Folks are still in “buy the dip” mode. They might have buyer’s remorse if they’re short-term holders.
5.  The kind of technical damage to the markets caused by last week’s sell-off takes weeks, if not months, to repair.  After-shocks and re-tests of lows are the norm after such a severe sell-off.
The positives that point to a better economic environment and stock market include a better than expected weekly jobs report last week, improved July retail sales figures, good corporate insider buying, and more big corporate mergers announced today.
 
While I believe that the markets could bounce for a few more days, unfortunately, I feel that we are headed lower over the short-term. The S&P 500 index closed at 1204 today, and we may even climb as high as 1240-1260 before the markets “roll over”.  That is 3-4% from here, and it’s only an educated guess on my part since 1250 is approximately where the markets fell apart.  I’d like to take advantage of this short-term rise, but only if more volume confirms the move higher.  Otherwise, it’s easy to get whip-sawed in this low volume environment. 
 
This is why I continue to hold onto hedges and have refrained from putting available cash to work at this point.  I’ve continued to selectively cull positions and rebalance accounts to take advantage of the recent strength in the market. Nonetheless, we remain heavily weighted long in the equity and bond markets despite our cash and hedges.  If the S&P 500 index closes above 1290 convincingly, then I’ll re-evaluate my stance, consider pulling in my hedges and invest more cash.
 
But aren’t we investing for the long term? Why should short-term market dynamics control our investing decisions? While we do invest for the long term, it’s prudent to protect capital when the market is in a well-defined downtrend, especially when a near-term recession is a possibility, albeit a remote one.  Markets around the world are factoring in a global slowdown, and the U.S. won’t be immune.  Sure central banks may pull a rabbit out of their hat and stimulate the economy and markets once again, and I’ll be ready for that.  But for right now, unless I see some institutional “power” behind this rally, I just don’t trust it.  As I’ve mentioned before, I expect near-term market weakness until sometime in October.
 
No part of this message should be considered a recommendation to buy or sell any securities, and you should not act on this without consultation with your financial planner or money manager (better yet, talk to us!)  My position will change if the facts change, so I am not married to this position. That could be tomorrow, next week or next month. I don’t have a crystal ball, so my prognostication should not be taken as true fact (I could change my mind or worse, be wrong!)
 
Please let me know if you have any questions, concerns or feedback. I’d love to hear what you’re thinking.

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How to Choose a Financial Advisor

March 31, 2011 — Sam H. Fawaz

You know the importance of saving for retirement, but do you have the time and know-how to accomplish your financial goals? In an increasingly busy world, it’s possible that keeping close tabs on your investment accounts isn’t exactly realistic.

Seeking the help of financial professionals has become more important to investors according to a recent survey conducted by Harris Interactive on behalf of TD Ameritrade Holding Corporation, as nearly one quarter (22 percent) of investors report relying more on a professional investment advisor following the recession.

Even if you have a good handle on your investments, you may find that hiring a financial advisor — who can put the time and energy into making sure you and your family plan for a secure financial future — may be a worthwhile investment. By hiring an independent registered investment advisor — commonly referred to as an RIA — you can make sure your investments are managed on a full-time basis by a professional advisor, while still having control.

Of course deciding to put someone in charge of your hard-earned money is not a process to be taken lightly.  Our preferred custodian, TD Ameritrade,  and we offer these tips to consider as you choose an independent financial advisor or RIA:

* Just as it is wise to do research on the background of anyone who would take care of your children, you should investigate the person or company you enlist to handle your money. The Securities and Exchange Commission, Inc. (www.adviserinfo.sec.gov), Financial Industry Regulatory Authority (www.finra.org), Certified Financial Planner Board of Standards (www.cfp.net), National Association of Personal Financial Advisors (findanadvisor.napfa.org/Home.aspx), and Financial Planning Association (http://www.fpanet.org/PlannerSearch/PlannerSearch.aspx), as well as your own state securities agency all collect background information on financial professionals that can be accessed through their websites. Use these sites to make sure the advisors you are considering haven’t faced disciplinary action for dishonest practices and are in good standing with regulators.

* Know the difference between working with an independent RIA and a stock broker, or other financial services provider. Independent RIAs, for example, are bound by law to act in their clients’ best interest. Brokers, on the other hand, are held to a “suitability” standard, meaning the advice they give must be suitable to that client’s situation. If you are looking for objective, comprehensive money management, you might want to consider an RIA.

* While RIAs are required by law to act in your best interest, there are other ways that you can ensure they will do what is best for you. One is to ask how they are compensated. Fee-only compensation generally minimizes conflicts of interest and means that your advisor is paid only for the management services and advice he or she offers, and only by you, not by investment product providers. When an advisor is paid on commission, there’s a greater chance he or she will make choices with your money that serve not only your interests, but their own as well. That’s not to say that advisors do not work fairly under this model, but potential conflicts of interest are something to consider as you choose an advisor.

* When looking for referrals from friends or relatives, the most valuable referrals may come from those in similar situations. It’s also a good idea to ask potential advisors if they specialize in working with certain types of clients and choose one that fits your unique profile.

* A third party custodian should also handle all your deposits, to ensure checks and balances. An independent custodian like TD Ameritrade can help ensure the safety and security of your assets, and will provide you with a clear, concise statement every month. A duplicate monthly statement is also sent to your advisor. Make sure this is also a legitimate and upstanding business.

Working with a trusted independent fee-only RIA can help you realize your financial goals, while allowing you to spend less time worrying about and managing your investments. If you need help and would like to talk to a fee-only planner with no sales pressure, cost  or obligation, please visit our web site at http://www.ydfs.com or call YDream Financial Services, Inc. at (615) 395-2010 or (734) 447-5305.

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What’s Going on With the Markets-March 10, 2011

March 10, 2011 — Sam H. Fawaz

Since the beginning of last September, the stock markets have enjoyed a nearly uninterrupted bull uptrend which has been unprecedented in market history.  Fueled by improving economics and Federal Reserve actions, the uptrend has withstood many geopolitical, fiscal and news driven setbacks.  But today the political unrest in the Middle East, issues with Spanish debt repayment and a higher than expected weekly first-time unemployment claim number (497,000) were the 1-2-3 punch that the markets could not recover from and therefore we suffered a 1.5-2.5% setback.  Be it stocks, gold, silver or oil today, they were all down today.

Normally, up-trending bull markets such as the one we’re in take rest periods, or “corrections” as they’re called, every couple of months while individuals and institutions take profits on stock positions and reset stock prices back to normal levels. Corrections (usually 10-20% of an index value such as the S&P 500) are healthy for the market and while uncomfortable if you watch them unfold from day to day, allow the markets to set up for the next leg up.  Two years to the day yesterday into this bull run have seen us move up about 100% from the March 9, 2009 lows on the S&P 500 index. Without a doubt, this has been an incredible run and I hope you’ve been participating.

As I’ve discussed with clients and prospects recently, a correction in the market has been long overdue and anticipated.  While today was the first big down day where we really tested key levels in the indexes, there have been several signs of exhaustion in the market. Despite this, I cannot say with certainty whether we’ve definitively entered into a correction period (technically we have, but it needs to be confirmed with follow-through on Friday and next week.)  If the bulls get their act together tomorrow and “rescue” the market by pushing it back up through heavy volume buying, then this decline may be “all she wrote.”  If not, we could head down to test the 1275 level of the S&P 500 index (we closed at 1295 today).  A failure to hold the 1275 level means that large institutions have decided to continue selling and a drop to 1240 may need to exhaust sellers.

With the “Day of Rage” demonstrations scheduled for Friday in Saudi Arabia, rocketing oil prices and sovereign debt issues, the odds of avoiding a deeper correction are not very high.  Besides, this correction is long overdue and may occur regardless of how peacefully the Middle East situation is resolved or even if oil prices come back down to earth.

What do I think? As I’ve mentioned before, the Federal Reserve has made investing in anything but the stock market earn near zero returns. That is, the government wants us to buy equities, push the stock market (and IRA’s and 401(k)’s) higher, to make us feel richer and more confident and therefore spend more.  Spending more creates demand which in turn creates jobs and so on.  So I believe that the gentle (if somewhat invisible) hand will come in to help support the market and avoid a protracted decline that might scare off the latest entrants into the market. While my crystal ball is still in the shop, I believe that a decline beyond 1275 in the S&P 500 (another 1.5%) is a stretch.  While that would make it a very shallow correction, it may be enough to breathe new life into the stock market and help resume the uptrend.

So what should you do now in light of a possible correction?  Basically, you shouldn’t do much if anything since nothing is confirmed.  If you’re investing on your own, trying to time your “in’s and out’s” of the markets is nearly impossible and not recommended unless you’re an experienced trader.  If you have a profitable position and worry about it turning into a loss, you may decide to sell a portion or all of it.  More savvy investors may be able to hedge their positions with options or inverse ETF’s if the decline proves to be protracted.  From our end for our clients, I’m watching the market technical levels on a daily basis like a hawk and already have begun to harvest some profits and protect some positions. If a protracted downturn does materialize, I may also hedge portfolios with inverse ETF’s and selectively liquidate partial positions.  But we’re not there yet and I’m not making any recommendations.  And by no means do I think we’re entering another bear market (by definition, a bear market begins when we decline 20% from the last peak in a major index).  Non-clients should consult their current advisor (or me) if you’re unsure what to do in the event of a protracted decline and should not treat this as a recommendation to buy or sell anything (see disclaimer below).

Last year we declined nearly 15% from May through August amid sovereign debt worries and economic uncertainty and then proceeded to push up nearly 25% over the next six months. I still believe that we will end 2011 with double-digit gains in the markets as this economy matures from recovery to expansion.  All economic indicators point positively and last month we even added nearly 200,000 new jobs.  We may even see housing perk up a bit later this year.  Without a doubt, sustained oil prices above $125 per barrel and $4 gasoline for an extended period (6 months or more), will put a crimp into the expansion, but I don’t believe we’re heading for a long term spike in oil prices.  Let’s just say that the oil producing countries learned what supply constraints and speculation did to oil demand the last time oil spiked to $145 a barrel. More electric and hybrid cars is just one example of how we are learning to live with less demand for foreign oil.

I hope this message helps alleviate any anxiety over the recent down days in the market.  Remember that the media loves good negative stories to help sell newspapers and advertising. Avoid the noise and try to keep your sanity during the days when it seems like there’s always something bad going on in the world.  Middle Eastern concerns have been a worry for decades, if not centuries now, and likely won’t be resolved during our lifetimes.  Like every other world incident, the markets get back to normal and we get through them.

Enjoy the upcoming weekend and don’t hesitate to contact me if I can be of any help.  If you’re not a client, your consultation with me is complimentary, no-pressure and with no obligation.  I’d love to talk to you whether or not you’re considering hiring a financial planner or money manager.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

My no-nonsense no-spam policy: If you’d prefer not to receive future updates, just reply and let me know by typing “unsubscribe” in the subject (please don’t hit the spam button-it just puts me on a universal spammer’s list which is tough to get off of.)I’ll take you off my list immediately and permanently.  I will never sell, share, rent or give away your e-mail address to anyone.  Period.

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Happy Thanksgiving and a Quick Market Update

November 26, 2010 — Sam H. Fawaz

I just wanted to post a quick note to wish you and yours a very Happy Thanksgiving Holiday.  Here’s hoping that you are celebrating it in good health surrounded by family and friends.  Without both, life would be such a drag.

I am thankful for my family and friends, good health and the best clients and readers in the world.  I can’t imagine myself doing anything else that I would enjoy more in life than what I’m doing now.  I hope that you feel the same way about what you do, and if not, I hope you’ll take steps in your life to move closer to the activities that bring you joy and happiness.  It’s really about getting what you need and want out of the day rather than getting through the day.

A Quick Stock Market Update

The last few weeks have been quite volatile in the stock markets, and to be honest with you, it was really all my fault.  Right after I sent out my last newsletter update about the Federal Reserve pumping up the markets, we entered into a long overdue correction (a decline in prices).  As I had mentioned, the markets had gone straight up during September, October and early November, so it was no surprise that a correction was coming. We have swung up and down and sideways without much upside and thankfully without much downside either.

In some cases, I took advantage of this correction to “prune” (sell) certain client positions to lock in profits or avoid losses.  This past Tuesday, a day when everything was trending downward and things looked like they were about to fall apart (a day where about 90% of all asset classes were down) due to the events in Europe and South Korea, I took 95% of our available cash and invested it at the lows of the recent market range.  We were immediately rewarded yesterday as all the markets were up “big” to kick off what I hope to be a great year-end Santa Claus rally.  Seasonally, this period of the year tends to be the strongest for gains in the markets.  While we are technically still in a correction phase, I expect the uptrend to resume soon (but my crystal ball is still in the shop).  Recent economic news has been very positive, some much better than expected, and first time unemployment claims this week surprised nicely to the downside.

I still remain optimistic about a positive finish to the year and the rally continuing into 2011 as the economy recovers.  I believe that this is the best time to be invested in the markets as Uncle Sam has told us that he wants the markets higher. Consider taking advantage of this recent market correction to dip your toes into the market.  I like that most are pessimistic about the markets since that tends to propel them higher.  Yes, we have economic worries, future inflation, high unemployment and a moribund housing market, but those problems didn’t develop overnight, so they won’t be solved overnight either.  We are making progress, and that’s what really counts.

Later in December, I will send out my 2011 market and economic outlook newsletter.  In the meantime, year-end tax planning is in full swing and hopefully you’ve benefitted from my year-end tax planning newsletter and tips.  Remember, if you’re thinking about an IRA to Roth conversion in 2010, you only have about five weeks to complete it.  Don’t hesitate to contact us to discuss whether this option is appropriate for you. I am also available to help with your year-end financial or tax planning.

Enjoy your holiday weekend and please let me know if I can be of any help.  And remember: 50%+ off sales are great, but the best sales are those that save you more than 100% (that is, when you save and invest the money instead..sorry I couldn’t resist).  By the way, I was recently quoted in another online financial story-see the link below about Six Ways to Gift Money to Family.

New: 6 Ways To Gift Money to Family http://bit.ly/aDG90W

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

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What’s Going On With The Markets?

June 29, 2010 — Sam H. Fawaz

Well that was quick!

I’m referring of course to the short uptrend from the stock market correction that had seen a bottom on June 8. As of today, the S&P 500 index undercut the lows of the last correction and has put us back into another market correction. With all the overhang from worldwide events and mounting evidence of a slowing recovery, investor, consumer and institutional sentiment are at their lows.

In last week’s statement from the Federal Reserve, where it continued to hold interest rates at 0-0.25% for an extended period, the “Fed” acknowledged a softening recovery and lackluster employment growth. Hints of another fiscal stimulus or monetary easing emanated from Washington to help avoid a possible double-dip recession. Now you may have heard about the G-20 Summit meeting this past weekend in Toronto where the United States was the lone voice in encouraging a coordinated effort of more fiscal stimulus to heed off a global recession; instead, most European nations were insistent that austerity measures and tax increases were the way to go to bring their fiscal houses in order. While I’m totally in favor of balanced budgets and fiscal conservatism, simultaneously cutting spending and raising taxes are the surest way to plunge your country into recession or worse, depression (history has demonstrated this time and time again.) At a time when the recovery is so fragile, doing one of the two is risky; doing both is simply economic suicide.

The Conference Board reported a sharp drop in Consumer Confidence today which caught Wall Street completely off guard. However, today’s figures are in sharp contrast to last Friday when the University of Michigan reported its Consumer Sentiment gauge at the highest level in two years. Although the 9.8 point drop in the Conference Board numbers was higher than expected, keep in mind that Consumer Confidence fell over 10 points in February just before the last stock market rally. These numbers really don’t mean a whole lot to the markets, so I’d caution against reading too much into today’s report or market reaction.

As I’ve written before, the stock markets hate uncertainty. With the BP Gulf disaster getting worse, the European Union is still arguing who should pay for whom and how much, financial regulation passage still uncertain, new job creation largely absent, and slowing growth in China, we have the makings of a “bad news salad.” Even though yields on money markets and Treasuries are at their lows, it seems that there is no appetite for risk or conviction in the markets by both the bulls and the bears. With poor May retail sales, jobs, and housing numbers, the bulls haven’t had much to hang their hat on lately. But keep in mind that one month does not make a trend.

So we find ourselves once again at a critical level in the markets today. At a closing level of 1,041 in the S&P 500, the bulls must come in and rescue this uptrend or risk dropping another 6% from here to about 980. I must admit that I believe that our only short-term hope of averting this drop is a very favorable June jobs number on Friday (on the order of 100,000 new jobs created.) Tomorrow (Wednesday), ADP will release their preliminary estimate of the jobs number (of mostly private employment; it does not include government jobs) and it is widely expected to show 60,000 new jobs created. The ADP report is widely anticipated as an indicator of the main jobs report, but it has been known to be way off. However, many institutions and traders treat it as a preview of Friday’s number. Let’s hope that the Labor Department has a nice 4th of July weekend send-off for us.

So much bad news, negative sentiment and consecutive down days are built into the market that a bounce is overdue and may come tomorrow (Wednesday) if the ADP jobs report is favorable. For our portfolios, I will be closely watching the 1,041 level on the S&P 500 index for support. If that support line is definitively broken, I will look to reinstate the portfolio hedges that have served us well in the past. Even at these market levels, we are still considered to be in a correction, not another bear market. By technical definition, a bear market is a 20% decline from a market high, which was 1,220 in the S&P 500 index. That gives us running room to 976 to avoid descending into another bear market.

I personally believe that with an undoubtedly positive 2nd quarter earnings season coming up and a good jobs report, we can avert the drop to bear market levels. I am not in the camp that believes that a double-dip recession or depression is in our near-term future. Short-term, a negative jobs report and poor earnings guidance combined with severe austerity measures around Europe will likely mean bad news for stocks. My broken crystal ball predicts however that we will pull out of this malaise and that the recovery, albeit tepid, will carry the markets upward through the rest of the year. However, if the markets insist on going lower into bear market territory, I will look to liquidate a portion of equity portfolios and increase our hedges. Recall that earlier in the spring I mentioned that the summer months would be both volatile and bumpy…and here we are.

I am working on my 2nd half 2010 market and economic outlook and will send it out to everyone later this week. I wish I had better news for you right now. Nonetheless, I hope this update helps you understand a little more of what’s going on with the markets. Please feel free to forward this message to anyone who might benefit from reading it. If you have any questions or comments, please don’t hesitate to contact me. If you or someone in your family or circle of friends is considering hiring a financial planner, please visit our website or consider a complimentary financial roadmap via the link below. Your first consultation with us is complimentary and there is no pressure to make any decisions.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.
All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.
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Feel Like Un-Retiring? Here’s How to Prepare

June 8, 2010 — Sam H. Fawaz

Last October, the MetLife Mature Market Institute released a study that said the over-55 workforce will account for almost 93 percent of the net increase in the U.S. civilian labor force between 2006 and 2016.  At the same time, MetLife reported that many American workers plan to stay on the job at least until age 69.

The Pew Research Center’s Social & Demographic Trends Project echoed those findings in May 2009, saying that just over half of all working adults aged 50-65 plan to delay their retirement, with 16 percent saying they never plan to stop working.   The issue, says the Pew study, is not about what these Americans earn, but how much they lost during the investment meltdown and the worst economic downturn in more than 70 years.

Add all these factors together and you have one of the most interesting labor situations for older Americans ever.  That’s why that for every retiree or potential retiree who feels they need to return or stay on the job, it’s particularly important to review investment, insurance and tax issues.  It therefore makes sense to meet to discuss these areas with a financial advisor such as a fee-only Certified Financial Planner™ professional.

Here are some critical points to address:

How are your skills? This is a valid point for current and potential retirees. The best job candidates are those with current skills in technology and procedures specific to an industry, so staying in the workforce may mean retraining.  If there’s a way to get an employer to pay, then you should take advantage of it.  But if you have to pay for your own education, then you really need to weigh whether your earnings will justify it unless you enjoy the area of education or going back to school.

Be realistic about your demographic in the workplace: While age discrimination is illegal, there are some workplace cultures where older workers frankly seem out of place.  You have to ask whether you are going to be happy staying in a field that’s populated by younger workers with different interests or whether you might try another line of work.

Consider how a return to the workplace will affect you personally and socially: If you’re 40, 50 or 60, working right now probably feels like breathing – when have you not worked?  But it may not be the best option after a year or two out of the workplace.

Consider health insurance issues: If a retiree returning to the workforce is already receiving Medicare or is covered by a “Medigap” policy, they may be able to lower their costs or improve their coverage by accepting group coverage as primary underwriter of their medical expenses.  Since people over age 55 are generally the greatest users of the health care system, coverage issues are particularly important to run by a financial planner.

Know your tax picture: Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider the impact full or part-time income will have on your finances.  Most retirees realize that it doesn’t take much income to knock them into a higher bracket.  Look for ways to control the taxes you’ll ultimately pay, including continued participation in qualified plans, IRAs, and other tax-favored accumulation vehicles and using annuity income to fill the gap between the beginning of the “post-retirement” period and the age when full Social Security benefits can be drawn without an offset for employment income.  Additional work income may affect the amount of taxable social security income you’re receiving, so be sure to take that into account.

Consider what earnings will do to all your retirement payments: If you are planning to continue working or returning to work, consider not only the tax impact, but also how that might change the way you plan to draw on your retirement savings and investments as well as Social Security.  If you are planning to work, it’s important you consider suspending or delaying receipt of those benefits for as long as you can.

Look for work-related incentives: Particularly for public sector workers, there are opportunities to return to state employment and actually augment existing pensions.  Keep an eye out for these programs and see if they work for you.

Keep saving: If you return to the workplace, see what you can do to take advantage of your new employer’s 401(k) plan or any other tax-advantaged retirement savings benefit, particularly if an employer matches your contribution.  Don’t miss a chance to enhance your retirement savings.

Returning to the workforce after retiring can be immensely rewarding both professionally and personally.  If you’ve un-retired yourself, please feel free to post your comments or additional insights about your experience.

This article was produced by the Financial Planning Association (FPA), the membership organization for the financial planning community, and is provided by Sam H. Fawaz and YDream Financial Services, a local member of FPA and a fee-only member of the National Association of Personal Financial Advisors.
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