ProVise Bullets

  • · Six years ago, in 2007, the trustees of Social Security projected that Social Security would run out of money, i.e., have a negative balance, in the year 2041. At the end of last month the trustees updated this projection and indicated that the trust fund backing the payment of Social Security would be zero by 2033. A zero trust fund does not mean the payment of Social Security benefits would also go to zero, but would drop to 77% of their originally promised levels through 2087. Is any of this getting Congress’s attention? (Source: Social Security Trustees)

  • While many assets have not recovered from the financial meltdown, one area that has is 401(k)’s. According to Fidelity Investments, 401(k) balances are up 75% since the first quarter of 2009, reaching a record average high of $80,900. There seems to be something to employment longevity because employees who are age 55 and above and have been with the same firm for 10 years or more saw their account balances jump from an average of $130,700 in 2009, to $255,000 in the first quarter of 2013. For those who continued to invest in their 401(k) plans throughout the meltdown, they did a nice job of dollar cost averaging and are now reaping the gains.

    · How well has the stock market done for the first five months of this year? Probably better than most people realize. Through May 31, the S&P 500 was up 15.37%, which is the second best performance since 1997 when the market was up 15.44% from January to May. In 1997 the index did very well during the remaining seven months as the year ended up 33.4%. Last year during the same time period, the S&P 500 only gained 5.2%, but it still finished up 16% for 2012. As we approach the dog days of summer, keep in mind that we’re not investing for the next few months, but for the long run. In the long run, we are still reasonably comfortable with the market. (Source: BTN Research)

    · Just as President Obama was riding the wave of his re-election and looking forward to perhaps gaining more seats in both the House and the Senate in 2014, it looks as if the administration can’t take a step in the right direction. Questions regarding Benghazi, the IRS, as well as the Justice Department investigating several reporters, have given his opponents a lot of fodder and the Republicans clearly intend to use it. In just the past few days there have been revelations about snooping at the National Security Agency. All you have to do is listen to the Sunday morning shows over the last couple of weeks to hear how each of these areas is being attacked. If there is one issue that will cause the President significant media problems, it will be the investigation of the reporters. Even the Tampa Bay Times has run several editorial cartoons that you would not expect to see in a liberal leaning paper. Only time will tell. At the end of the day, one thing is for sure; it will increase (if that’s possible) the gridlock in Washington.

    · With the cost of college climbing dramatically, leaving many families poorer than they intended and many students with huge loans, some people are questioning the wisdom of going to college. Recently surveyed 1,058 colleges, representing over 85% of all the colleges with 5,000 students or more to find which graduates had the highest starting salaries. When you look at the top ten universities with the highest starting salaries, you won’t find Princeton and Stanford, although both are in the top 25. Number 10 is Rose-Hulman Institute of Technology, located in Terre Haute, Indiana, with a starting salary of $62,300, followed by Philadelphia’s Thomas Jefferson University which has a starting salary of $63,350. Loma Linda College in California starts at $63,400 and Colorado School of Mines (Golden, Colorado) in the seventh position with a starting salary of $64,500. Graduates of the U.S. Air Force Academy in Colorado Springs, started at $65,400, but this only included the civilian jobs and not the military jobs. This may partly be as a result of the fact they don’t start in the public workspace for 5-7 years after getting out of school. Starting the top five, we begin with Harvey Mudd College in Clairmont, California with a starting salary of $66,800. Number four is the California Institute of Technology; while the Massachusetts Institute of Technology is number three. In the number two position, not to be one upped by the Air Force Academy, we find the U.S. Naval Academy in Annapolis, Maryland with a starting salary of $72,200. And although Army has not been able to win many football games against Navy, it does have the number one position with a starting salary of $76,000.

    · One of our readers questioned our math skills. In the last Bullets, we talked about there being 66 “billion” Medicare recipients, when of course we meant 66 million. He wrote, “If there are only 9 billion people in the world how can there be 66 billion Medicare recipients?” Thanks for bringing the mistake to our attention.

    · Last week the announcement that 175,000 non-farm payroll jobs were created was seen as the guidepost that the economy was still growing and, in fact, might be strengthening. We agree that it is growing, but we need to put some of these employment numbers into perspective. When the Great Recession hit, there were 8.7 million jobs that were lost from January 2008 to the bottom a little over two years later in February 2010. Since that time America has added 6.4 million jobs. That’s a great start, but it obviously leaves us about 2.3 million jobs short. As part of the jobs report last week, it was announced that the April numbers were revised downward by 17,000 jobs, making what was already a lower than expected report even lower still. One can’t forget that over the past five years that in addition to the 8.7 million jobs lost, America’s working population has grown. Thus, the numbers are even more exacerbated than they appear on the surface. Do we sound like the glass is half full? Perhaps, but not really. It is important to continue to add jobs at a minimum of 175,000 plus per month. We won’t be satisfied, however, until job growth gets to 250,000 per month for a sustained period of time. That will represent significant growth to the economy. Expect lower job numbers through the summer, but with a pickup to occur later this year and into next year. That’s the real message that we’re trying to send. Not only is the American consumer spending money after adjusting to higher tax rates, but they seem to be spending it on everything from clothing, to going out to eat, to buying a new home. This summer is liable to be bumpy from an investor’s point of view, but those who are patient will most likely be rewarded.

    · Back in August 2011, in the midst of Congress bickering over the debt ceiling, Standard & Poor’s famously downgraded US government debt from AAA to AA and placed a negative outlook on the U.S. government’s debt. This led to a huge selloff in the equity markets for several months as it spread fear that the Great Recession would return. Since that time, interest rates have declined, keeping the 30 year rally in bonds going. The stock market not only recovered, but has gone on to set record after record. Many people accused Standard & Poor’s of making the downgrade to show how “Tough” they were after missing badly on bond ratings during the mid-2000’s. Now S&P has changed their outlook from negative to stable on U.S. government debt. The markets seemed to yawn at this change, recognizing that none of this probably should have occurred in the first place. It’s a shame that a company like S&P has lost so much of its luster (along with many other companies of lesser reputations) over the past five years.

    As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 26 years.


    © 6/14/13 ProVise Management Group, LLC

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