Volume 5, Number 2Quarterly Newsletter                                                                                    ...
GIFTS AND GIVING, PART 1                            tax preparer about tax consequences of this                           ...
COULD IT BE TRUE, IS YOUR                            you would use the 50 year average annual                             ...
The ability of the markets to respond so favor-                     At FJY, we continue to do our due diligence           ...
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2011 Q2


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2011 Q2

  1. 1. Volume 5, Number 2Quarterly Newsletter April 2011QUARTER IN REVIEW turmoil arising in North Africa and the Middle East. The markets were further ASSET CLASS PERFORMANCE: Q1 2011By: Jon P. Yankee, MBA, CFP ® & tested by Japan’s most devastatingThomas N. Saunders, Jr. earthquake and the resulting tsunami and nuclear crisis. Despite this mid-Market Volatility Leads To Favorable quarter stagger, the markets ultimately U.S. Fixed Income 0.42%Returns (Barclay Capital Aggregate Bond Index) proved they were tough enough toOver the course of the past three survive this “one-two punch.” International Fixed Income -0.77%months, investors were forced to over-come a number of major shocks, yet (JP Morgan GBI ex-US (Hedged) Index) U.S. large companies, as measuredposted the best first quarter for U.S. U.s. Equities, Large 5.92% by the S&P 500 index, were up 5.92%equities since 1999. As global markets (S&P) 500 Index) (including dividends) and U.S. smallcontinue to recover, we continue tosee growing optimism that the recov- companies performed even better, U.S. Equities, Small 7.94% returning 7.94%. International stocks (Russell 2000 Index)ery from the 2008 financial crisis has gained modestly as well, returningbecome self-sustaining, albeit fragile. 2.67% for the quarter, while interna- International Equities, Large 2.67% (MSCI EAFE Index) tional small company stocks were upInvestors experienced positive returnsacross almost the entire spectrum of 4.34%. Commercial real estate re- International Equities, Small 4.34% turned a positive 7.5% and commodi- (S&P/Citigroup EPAC Ext. Mkt. Index)asset classes for the first three months ties, as measured by the Dow Jonesof the year. However, achieving these Real Estate Investment Trusts (REITs) 7.50% UBS Commodities Index, were up (NAREIT Equity Index)end results was anything but a smooth 4.45%. Bond rates continue at historicride. As sovereign debt issues con- Commodities/Natural Resources 4.45% lows, yet owning high quality fixedtinued to plague Europe, the markets (DJ UBS Commodities Index) Continued Pg. 4were thoroughly tested by the political Congratulations CLINT AT A GLANCE wife, Sarah, who I married just this last May. After finishing my degree, I worked at Tyler By: Clint McCalla Technologies as a Client Services Specialist up until this last December. I entered the Mas- LAURIE AND ZACH BELEW ON I met the FJY team through our Opportunity ter of Science in Personal Financial Planning Days event at Texas Tech University this last THE SAFE ARRIVAL OF KATE program at Texas Tech University in January February. I interviewed with Jon Yankee dur- BELEW ON MARCH 26TH ing the career days portion of the activities 2010 Continued Pg. 3 after Josh Blair, a former Summer Associate at FJY, had suggested I apply for their internship position. I consider myself truly blessed to be MARJORIE FOX AND given this opportunity to learn from some of DAN JOSS the best in the industry and look forward to meeting the rest of the team in May. RECENTLY NAMED AS TOP FINANCIAL PLANNERS IN THE I am originally from Greenville, Texas where APRIL EDITION OF NORTHERN my parents still live. I moved to Lubbock, Texas in August of 2005 to pursue a Bachelor VIRGINIA MAGAZINE of Arts in Economics which I completed early in May 2008. During this time I also met my QUICK PLANNING QUESTION: DO YOU NEED A SAFE DEPOSIT BOX? THE BUSINESS BANK HAS BOXES AVAILABLE AT ALL SEVEN LOCATIONS IN NORTHERN VIRGINIA. ON A THREE YEAR AGREEMENT, THE BUSINESS BANK IS OFFERING THE FIRST YEAR FREE FOR FJY CLIENTS. PLEASE CONTACT THE BUSINESS BANK FOR MORE DETAILS. WWW.BUSINESSBANKVA.COM
  2. 2. GIFTS AND GIVING, PART 1 tax preparer about tax consequences of this type of account. A custodial account can could easily provide for college and a have a generous gift ready for that new car or what-By: Daniel D. Joss, MBA, CFP®, RLP® contain various investments and proceeds ever that new college grad hopes for within from these investments will be used for the the limits of the annual gift exclusion. Start“Gifts and giving” is a very big topic and benefit of the child. An advantage of this early, give often, and let time and investmentnot likely to be covered well in 500 to 800 account is that the proceeds can be used returns work for you. We can help you man-words. So, this quarter I’ll forgo the lecture for any reason for the benefit of the child. age your gifts to the next generation.on how we all should be giving more and Uses are not limited to qualified educationalhow charities are receiving less because expenses. This account can be used toof our recent economic issues. Instead, I’llfocus a few words on non-charitable giving teach an older child about investments, NEW RULE CHANGE TO dividends, stock, mutual funds, etc… Whenand give a few examples of how our clients the child turns age 18 or 21, the account is SOCIAL SECURITY BENEFITexpress their love by giving to those in theirlives. then retitled to the child as the “new owner” giving him or her control of the asset. Some OPTIONS By: Tess Downing, MBA clients plan to make the account balanceFJY often assists with the transactions of our zero by age of majority. Other clients want a Your retirement decisions just became evenclients as they give or receive money or stock balance left as a gift for them at graduation or more important with a new rule changeto or from family members. There are several celebration of adulthood. They wish to send from the Social Security Administration. Dueways to give, which may depend upon the them on their way with an investment in their to the recent publicity surrounding socialamount of gift, the control the giver intends future. security strategies, the current Administra-the recipient to have over the gift, the age ofthe recipient, and tax related issues. Types tion has decided that it will no longer allow Retirement someone to collect benefits at a lower rateof accounts include 529 plans, custodial Several of our clients make contributions to and then payback those benefits to receiveaccounts, Roth or traditional IRA accounts, retirement plans for their grown children. an increase in their payments at a later date.and individually owned accounts. Types of This is a wonderful way of transferring wealth This strategy is often known as the “Do-Over”assets include cash, EE Savings bonds, and to the next generation. With it, the recipient or the “Payback Method.”stocks, bonds, mutual funds and trusts. is receiving a much larger future gift. If an adult child earns $5,000 or more in a given For example, at age 62 you decide to startEducation taxable year, yet is short on cash to set aside your social security benefits at the reducedOne common example of giving is parents or for their retirement, a parent, relative, or rate of $750 a month. At age 64, you thengrandparents contributing money into a well anyone else, could contribute $5,000 to that decide you would like to stop the payments.managed 529 plan for future college ex- recipient’s Roth or traditional IRA. The plan You then must payback all of the benefitspenses of a child or grandchild. A 529 plan works best when the recipient lets the con- you received interest- and penalty-free.allows gifts to be contributed and removed tribution grow in a well diversified portfolio Then at age 66, you decide to start collectingfrom the estate of the giver, yet allow the for many years. In the case of a Roth IRA, the benefits at your full retirement age (FRA) atgiver control over the funds until they are distributions will be tax-free. $1,000 a month. However, if you wait untildistributed for qualified education expenses.The contributions grow tax free for years and, age 70, you could receive $1,320 a month. Taxation (source: www.ssa.gov)because it is an investment account, there is In each of these cases, the giver must re-potential for investment returns, not just inter- member that the federal government does The “Do-Over” strategy has gained in popu-est. Sometimes, the beneficiary of the 529 not want them to give their wealth to the larity in recent years. According to Kip-plan doesn’t know they are the beneficiary of next generation and avoid estate tax. So, the linger’s, in 2007, only 500 retirees chose tothe very valuable gift. IRS has given us guidelines regarding how payback their benefits to start receiving a much can be given without worrying about higher benefit. But by 2009, the number ofCustodial taxes. In 2011, each giver can give up to retirees had doubled as they realized theyAnother gift we help with is the management $13,000 (annual gift tax exclusion amount) to could repay their benefits interest-free andof custodial accounts for minor children. each recipient without worries. This amount penalty-free. They were also able to claim aContributions are made to the account for is not so limiting as a couple could each tax credit or deduction for any income taxesthe benefit of the child. Earnings in this ac- give $13,000 to each of their children and paid on the benefits.count are taxed annually so speak with your grandchildren, each year. A generous family Continued Pg. 4
  3. 3. COULD IT BE TRUE, IS YOUR you would use the 50 year average annual compounded housing appreciation rate of not a factor.DC METRO AREA HOME 4.5%, and you would see a 10 year return of $226,797 in value growth on that home. With homeownership, you also get the mortgage interest deduction on mortgageREALLY ONE OF THE BEST Then, since the average homebuyer is financ- payments. This tax benefit brings the average ing their purchase, we really need to be fair house payment down to a net monthly figurePERFORMING INVESTMENTS IN in our comparison, and see what the rate of below the monthly market rent payment for return has been on the actual cash invested. that same house. However, when you ownYOUR ENTIRE PORTFOLIO? a home, you do have maintenance costsBy: Thierry Roche, SFR, CDPE On a $400,000 home purchase, we will you need to spend money on, and that will use an average down payment amount of generally even out the tax savings differenceBelieve it or not, for many local residents, it $60,000 (15% down payment) plus closing from that mortgage interest deduction.is true. Generally speaking [and from FJY’s costs of $10,000 for a total investment ofperspective] your primary residence should $70,000. Now we find that an investment of It’s also important to consider a minimumnot be considered an investment in the true $70,000 that grows to $226,797 in 10 years is break even time period. The average in thesense of the word. However, the returns an 11.8% annual compounded rate of return. DC metro area has been 4-5 years of home-on your initial down payment can be quite I challenge you to find any large market that ownership, until your value has increasedimpressive. has shown an average compounded rate of enough to cover all selling expenses. return of approximately 12% annually overUnfortunately, many publications just don’t the past 50 years. You won’t, because you According to the National Association of“get it”, when it comes down to analyzing don’t get the kind of leverage in other market Realtors and the Mortgage Bankers Associa-the rate of return on a home. They generally vehicles that you get with Real Estate, due to tion, their analysis shows that there has notwrite articles or cite statistics that state hous- low cost mortgage financing. been a better market for buying a house ining’s average appreciation rate roughly equal the past 50 years due to the convergence ofto the rate of inflation over the past 50 years – Even more exciting is if you use a 10% down low interest rates, and lowered prices. Justabout 3.7% annual housing appreciation rate. payment of $40,000 plus $10,000 in closing imagine what the yields could be over theIn some areas (like our area), they calculate costs, which totals $50,000 invested. Then next 10 years if you buy a home now.housing as a bit better than inflation rates, but you get a whopping 15.22% annual com-maybe only 4.5% average appreciation rate pounded rate of return. On the other end Thierry is host of the DC areas longest running Real Estateper year. On the surface, that does not sound of the spectrum a 20% down payment of Radio Show, ‘Inside Real Estate”, and a 22 veteran Realtorlike a very exciting rate of return. Especially with Re/Max in Northern VA. He can be contacted at $80,000 plus $10,000 in closing costs, results thierry@thierryroche.comwhen comparing to historical mutual funds in $90,000 invested, which generate a 9.28%averages in the 8%-10% annual range. return- not too shabby. Plus, don’t forget, CLINT AT A GLANCE FROM PAGE 1 since you put up a larger down paymentBut this is where the novice analyst/reporter of 20%, you will also have lower monthly after speaking with a friend who was at thedrops the ball and unknowingly misguides mortgage payments, so there is more money time completing his undergraduate degree inthe general public. When comparing housing you get to keep. Don’t forget to evaluate that Personal Financial Planning.to inflation, these unwitting article authors in the total return, which will take it up over I have found the course of study to be bothcompare the total cost or total current value 10% compounded annually. challenging and enjoyable, with the level ofof a home ($400,000 in our area) and its aver- instruction received unparalleled.age annual appreciation rate, to the annual Of course dissenters to these obvious facts I enjoy spending time with family, hunting,Inflation rate. This understanding is lacking will stand up and yell, “You didn’t calculate fencing, gardening and cooking. I attendin a true comparison of apples to apples. the cost of the monthly payments. That will Lubbock Baptist Temple with my wife whereVery few home buyers ever buy a home with bring the yield down to a lower number”. we are involved in various church ministries.‘all cash’. Most finance their home purchase But, if they would stop and think before Again, I am extraordinarily grateful for thewith a mortgage. The actual cash invested jumping to conclusions, they would real- opportunity provided by the FJY team to ac-averages between 10%-20% down payment, ize it is irrelevant - simply because if you quire practical financial planning experienceplus closing costs. don’t own a house, then you have to rent. at the highest level in a region on the very Therefore, you have to make monthly pay- edge of current events. See you in May!In order to properly break down the num- ments wherever you live, whether you makebers on an average home price of $400,000, mortgage payments, or rent payments, so it is
  4. 4. The ability of the markets to respond so favor- At FJY, we continue to do our due diligence ably can be partially attributed to central bank on your behalf in a number of different areas. policies acting as shock absorbers during the During the first quarter, Dan and Tess attended first quarter’s turmoil. The markets were con- the T-3 Technology Conference in Miami, FL – tinuously flooded with money, from sources where Dan participated on one of the tech- 1925 Isaac Newton Square such as the U.S. Federal Reserve Bank, the nology experts panels. In addition, Marjorie Suite 400 European Central Bank, and the Bank of Japan, attended the PIMCO Institute for Wealth Manag- Reston, Virginia 20190 as we experienced a surge in oil prices and ers, in Newport Beach, CA, where she was able witnessed the turmoil in Japan, the world’s to listen and participate in several discussions 1.703.889.1111 phone third largest economy. In addition, nerves were regarding the PIMCO’s investment strategy 1.877.395.7795 toll free soothed as a result of actions taken to stabilize and their outlook of the current economic and 1.866.366.9233 fax currency markets after the earthquake. “In the market environments. We attend these types of end, the market was able to get its head around conferences in order to continue to learn how the idea that these events were unlikely to be to achieve better diversification in our managedwww.fjyfinancial.com major, macro-economic events,” says the head portfolios, which asset classes tend to zig when of Global Research at RBC Capital Markets, others zag, and what new investment oppor- Marc Harris. In addition to central bank mon- tunities exist that we should be explored. Stay etary policies, U.S. private employers added tuned! 216,000 jobs in March, and a revised 194,000 in February, reflecting a reasonably-paced labor recovery. Katelyn ElizabethNEW RULE CHANGE TO SOCIAL Meanwhile, the U.S. stock market recovery has Belew bornSECURITY BENEFIT OPTIONS FROM PG. 2 highlighted one of the peculiarities of invest- March 26th, ment math. Prior to March of 2009, the S&P 500 had fallen about 54% since its 2007 peak. The 7lbs 1.5ozEssentially, individuals would take theearly benefit, invest the funds, and keep recovery since then has achieved a remarkablethe interest/capital gains earned and then 100% gain since that March 9 low point. Yet the market has not yet fully recovered to its for- FJY ADVISORSpayback the government with the initialamount. mer heights. The reason is that investment math tends to understate losses and overstate gains.Under the new rule, retirees are stillallowed the option to withdraw their ap- After a 20% decline in your investment portfo- lio, you need a 25% gain before the portfolio & STAFF is made whole again – and as the declines getplication for benefits, but, only once during bigger, the disparity grows dramatically, as we MARJORIE L. FOXtheir lifetime and that must happen within SR. FINANCIAL ADVISORthe first 12 months of receiving benefits. have seen.The new rule for the payback method DANIEL D. JOSSmakes the decision about when to start While investors’ nerves were tested by the SR. FINANCIAL ADVISORreceiving social security benefits that more volatility of the first quarter, those who stayed JON P YANKEE .significant. If you do have questions about the course were rewarded for their paitence, SR. FINANCIAL ADVISORyour specific situation, please contact FJY proving to the point that timing the market is stillto discuss the strategy that will be best for a fool’s errand. Achieving diversification, and LAURIE A. BELEW living with the volatility of many different asset FINANCIAL ADVISORyou and your family. classes, is not always easy. We experienced TESS L. DOWNING this especially during the Great Recession of ASSOCIATE FINANCIAL ADVISORQUARTER IN REVIEW FROM PG 1. 2008-09, when virtually every equity asset class THOMAS N. SAUNDERS, JR. fell in lock-step. We were fortunate in the first quarter of this year that nearly every one of the CLIENT RELATIONSHIP ASSOCIATEincome securities continues to providestability to investor portfolios, despite the traditional asset classes offered positive returns; LISA J. CRAFFORD“headline risk” about which many investors but we do not anticipate that being the case OFFICE MANAGER forever. Your investment eggs are in many bas-continue to read. SALLY M. YANKEE kets as a precaution against choppier markets, ADMINISTRATIVE ASSISTANT whenever they may rear their ugly heads.Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the futureperformance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicatedhistorical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinionsor positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investmentadvice from Fox, Joss & Yankee, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available forreview upon request.Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transactionand/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performanceresults. It should not be assumed that your account holdings correspond directly to any comparative indices.