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Fall Newsletter 2011
Fall Newsletter 2011
Fall Newsletter 2011
Fall Newsletter 2011
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Fall Newsletter 2011

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  • 1. Q uarterl y B E A C O N H I L L I N V E S T M E N T A D V I S O RY Fall 2011A Review of the MarketsIt was a roller-coaster quarter for to slump under the weight of $1,700 in September as the dollarequities, as weeks and even days concerns about the global impact strengthened against the euro. Afterwhen the Dow swung several of Eurozone debt problems. surpassing $100 a barrel, oil priceshundred points in both directions dropped back to around $80 on fearsseemed to become commonplace. The deficit/debt ceiling debacle of the potential for renewed globalBy the end, the volatility had cost was eventually overshadowed recession. Other commodities alsothe Dow almost 15% since its April by debt issues abroad. Despite were hit at quarter’s end.high. The small caps of the Russell Standard and Poor’s downgrade of2000 suffered the most; by the end the U.S. credit rating, demand fromof the quarter the index had lost nervous investors sent Treasuriesroughly a quarter of its value since soaring, pushing yields on the 10-April, putting it in bear-market year note below 2% to levels notterritory. The S&P 500 lost 17% seen in decades. Gold benefittedin the same time, while the Nasdaq from the anxiety for a while, hittinghas declined almost 16% since a new record just under $1,900 anApril. The Global Dow continued ounce before plummeting below Market/Index 2010 Close As of 3/31 End of Quarter Quarterly Change YTD Change DJIA 11577.51 12414.34 10913.38 -12.09% -5.74% NASDAQ 2652.87 2773.52 2415.40 -12.91% -8.95% S&P 500 1257.64 1320.64 1131.42 -14.33% -10.04% Russell 2000 783.65 827.43 644.16 -22.15% -17.880% Global Dow 2087.44 2134.29 1725.68 -19.15% -17.33% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.30% 3.18% 1.92% -126 bps -138 bps84 South Fourth Street, Columbus, OH 43215 • (614) 469-4685 • info@BHadvisory.com • www.beaconhilladvisory.com
  • 2. Quarterly Economic Perspective• The world continued to worry • The final estimate of U.S. • The last-minute resolution of about the possibility of global economic growth during the the debt ceiling debate couldn’t contagion from European debt second quarter was 1.3%. That’s prevent Standard & Poor’s problems. European leaders slightly higher than the Bureau of downgrade of the U.S. credit rating agreed to a second bailout Economic Analysis’s previous 1% (and ratings of various agencies for Greece, though individual estimate, and an improvement linked to the federal government) member nations must agree to from Q1’s 0.4%. from an impeccable AAA to participate. However, problems AA+. Two other ratings agencies began spreading to the larger • Unemployment remained stalled are watching to see what further economies of Spain and Italy, at 9.1%, according to the Bureau measures are taken to tackle the which saw their borrowing costs of Labor Statistics. deficit, including proposals from rise as investors feared that the a “supercommittee” charged with European Financial Stability • Citing concerns about “significant finding at least $1.2 trillion in Facility wouldn’t be able to bail downside risks to the economic additional deficit reduction. them out. Despite Greece’s outlook,” the Federal Reserve attempts to balance its budget, at announced it will sell $400 billion the end of the quarter it was still worth of short-term bonds in unclear whether the new measures its portfolio and buy an equal would enable the country to amount of longer maturities. qualify for its October round of The plan, which echoes a 1960s assistance. maneuver called Operation Twist, also will involve reinvesting principal payments on the Fed’s agency debt holdings in agency mortgage-backed securities. Source: Forefield Inc. Fall 2011
  • 3. Year-End Investment Planning: The Clock is TickingInvestment planning at the end of 2010 was complicated by uncertainty over whether existing tax rates would beextended. This year, it’s the congressional “supercommittee” charged with tackling the country’s deficit financingproblem that’s the source of uncertainty. Even though you may not be sure how the committee’s work mightultimately affect you, here are some factors to keep in mind as you plot your year-end strategy.Harvest tax losses if appropriate To claim the 100% exclusion, you must have acquiredIf you plan to harvest losses to offset capital gains, you the stock at original issue (with some exceptions for stockmay want to think about the cost basis of those shares. acquired as an inheritance or gift). Also, the businessTo maximize your losses for tax purposes, you would sell must satisfy certain requirements, and you must holdshares that have lost the most, which would enable you the stock for at least five years. There are limits on theto offset more gains. Unless you specify which shares of total amount of gain that is eligible for the exclusion.stock are to be sold, your broker will typically treat them There also may be special considerations if you roll overas sold based on the FIFO (first in, first out) method, the gain from the sale of your stock to another qualifiedmeaning that the first shares bought are considered small business stock, or if you receive qualified stock asto be the first shares sold. However, you can designate part of your deferred compensation plan. Don’t hesitatespecific shares as the ones sold or direct the broker to to get expert help with your specific situation.use a different method, such as LIFO (last in, first out)or highest in, first out. You can also use a standing order Consider theor instruction to specify that a particular method is to potential impact of higher interest ratesbe used. Interest rates have been at historic lows in recent years, but as the economy continues to heal, that won’t alwaysAs of this year, brokers must report to the Internal be the case. The Federal Reserve Board has said thatRevenue Service your cost basis for the sale of any shares raising interest rates won’t be its first step in reducing theof stock bought after January 1, 2011. That will make support it has given the monetary system. However, atit even more important to make sure when preparing some point, interest rates are likely to begin moving upyour tax returns that your cost basis records for such again. When that happens--and there’s no way to knowsales are accurate and agree with those of your broker. If for sure when that might be--bond prices will begin toyou decide to specify stock shares in order to determine feel the impact. As bond yields begin to rise, bond pricesyour cost basis, you must do so by the settlement date will begin to tumble, since prices move in the opposite(typically, three days after execution of the trade) in order direction from bond yields.for your broker’s records for the stock sale to be accurate.Mutual funds, dividend reinvestment plans, bonds, and Don’t letother securities eventually also will be subject to the payroll tax increase derail long-term planssame mandatory cost basis reporting requirement. If you’ve benefitted from the 2% reduction in workers’ Social Security taxes in 2011, congratulations! However,Don’t procrastinate on be aware that the provision is scheduled to expire at thetax break for small business stock end of this year. If you’ve been saving or investing thatIf you plan to invest in a qualifying small business, you money, your long-term plans will benefit if you canmay want to do so by December 31. That’s because figure out how to replace that source of funding for your100% of any capital gains on the sale of qualified small investment efforts.business stock issued after September 27, 2010, andbefore January 1, 2012, can be excluded from yourtaxable income. (The exclusion is scheduled to revert to50% next year.) w w w. b e a c o n h i l l a d v i s o r y. c o m
  • 4. Wealth Management Process TM This Quarter: Tax Efficiency Tax Efficiency This quarter’s topic, planning for tax efficiency, is both important and timely given a December 31st deadline to take action. In addition to the Tax Loss Harvesting items listed, we are analyzing Roth conversions initiated last year to see if recharacterizing (undoing) would be beneficial to our clients. Of course, Muni vs. Corporate Bonds we always take this time of year to optimize portfolio gains and losses to Strategic Tax decrease tax liabilities. We work best alongside your CPA. Asset Location Next Quarter: Cash Flow Planning Tax Deferred options 84 South Fourth Street Columbus, OH 43215Mark Fissel, CFP Clint Edgington, CFA w w w. b e a c o n h i l l a d v i s o r y. c o m

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