· Last month, a Wells Fargo/Gallup survey of non-retired investors showed just how lingering the hangover is from the financial crisis five years ago. Much like the Great Depression financially scared their great grandparents and grandparents, the Great Recession is impacting investors’ expectations about the future. 41% indicated they were concerned about another global crisis during their retirement years, and 28% were convinced they would have a lower standard of living during retirement. A large majority (over 66%) saw a continuing slow growth economy throughout their lifetime. It didn't surprise us that 59% of retirees and 51% of non-retirees say they haven't seen an increase in their retirement accounts given the good stock market of the past couple of years. First, for both categories it is entirely possible that they became so scared of the financial markets that they fled to money market accounts, certificates of deposit, bonds etc., and thus would not have participated in the rise of the stock market. For those that are retired, many of them are using their retirement accounts for cash flow purposes, and of course this further depletes the value. For those that are not retired, many of them quit making contributions to their retirement accounts either because they were scared, or because they could no longer financially afford to make the contributions. As pessimistic as this report is, there are some silver linings as 60% are committed to laying out retirement plans, and 84% understand they need to save more.
· We are pleased to announce that for the third year in a row, ProVise was recognized by Barron’s as among their Top 1000 advisors in America. We want to acknowledge the contributions of all our advisors and staff who work tirelessly each day on behalf of our clients. Of course, if it wasn’t for the confidence that each of you have in our ability to assist with your financial planning and investment management needs, there would be no recognition at all. Thus, this is a total team award. Congratulations to everyone!
· One of the most revered Americans is Ben Franklin and he is getting a new makeover. On October 8th, the US Treasury placed a new $100 bill into circulation with Ben's face still adorning it. The new bill features an inkwell that changes color and a 3-D ribbon running North and South. It's quite different looking and may lead one to think it's counterfeit. It isn't, of course, but it is designed to prevent counterfeiting.
· There are many definitions for "Ultra High Net Worth". The number necessary to make this exclusive club worldwide is $30 million according to World Ultra Wealth Report 2013 by UBS AG and Wealth-X. This group grew 6.3% in the past year, topping out with 199,235 members worldwide. While the growth in numbers was impressive, rising by almost 12,000, the rise in assets was even better. Total wealth for this group rose from $25.8 trillion to $27.8 trillion for a 7.7% increase. Therefore, the average member has a net worth of $139.5 million.
· As good as the US markets were during the third quarter, they paled in comparison to many of the overseas markets which finally saw a rebound in many places. Europe saw an increase of about 13% with Greece, yes Greece, leading the way with a gain of almost 33%. Of course, they had fallen so dramatically, it had to turn sometime. China was up almost 11.5%, but India continued downward, losing 5.7%. While the US market is likely to increase next year, these foreign results might suggest strong prospects for them next year as well.
· The “sell in May” crowd has not had a good year so far. In the third quarter, the S&P 500 Index rose over 5%. This brought the index's return for the year to almost 20% with dividends reinvested. The fourth quarter has started on shaky ground with the Republicans and Democrats continuing their childish bickering and causing a partial government shutdown. While some may cheer less government, the reality is that each passing day of the shutdown hurts our slow growing economy. Amazingly, the markets have taken this somewhat in stride as the first two weeks have seen volatility, but the S&P 500 has increased fractionally. Third quarter earnings season is just beginning and the results will likely be okay, but expect companies to hedge their future expectations due to all the uncertainty. Add to this the continued guessing game of what the Fed will do with tapering at its next meeting and it could cause fear in investors’ hearts and minds. However, we take a long range view and as we look over the next 12-15 months, we anticipate a continued slow positive improvement in the economy.
· It seems that ProVise Management Group team members are on a roll. Tina Tenret was recently recognized by Business Observer as one of the 40 Under 40 in the Tampa Bay Area. Here is the link to the article and video interview: http://businessobserver4040.com/tina-tenret-3/. Congratulations Tina!
· When is the last time you reviewed the assets in your 401k and/or IRA? With the nice returns from equities the past 4 ½ years and especially the last two, you might find a bigger exposure to equities than you intended. Unfortunately, many people make an initial choice on how to invest this money and then tend to ignore it. If you are one of those people, don't wait too, too long. Procrastination is a choice. If you are not already using our professional money management services, give us a call to help with these important assets.
· In one of the worst kept secrets, and there are plenty in Washington DC, Janet Yellen was named by President Obama to replace Ben Bernanke as the new Chair of the Federal Reserve Board when Bernanke steps down January 31 next year. As the Vice Chair, Yellen has been a close confidant and ally of Bernanke for the past several years. Her appointment will lend some stability to the markets over the next couple of months at a time when it is probably going to be needed. Historically, as well as symbolically, her appointment represents the first time a woman has led the Fed since its inception over 100 years ago. She is a hardworking, no-nonsense individual who will likely maintain the current policies of the Fed.
· We are only a few hours before the United States potentially defaults on its debt and we go into unknown territory. While there is still hope that the politicians will do something to keep it from happening, as they did in August 2011, we wonder if the fringe elements of both political parties might take this game of chicken too far. Before reflecting on future events, let’s remember what happened the last time. The Republicans were looking for spending cuts, and the Democrats were looking for tax increases. Since they couldn't come to agreement they kicked the proverbial can down the road and passed the Budget Reconciliation Act which said that if Congress couldn't come up with a better plan, then there would be automatic tax increases and spending cuts. Well, they didn't come up with a better plan, so after a two month delay, the sequester took place.
The chicken littles of the world said the sky would fall if this happened, but in spite of it, the economy has continued to grow, albeit slower than it might have otherwise. Because of higher tax revenue AND lower spending, the deficit this year will be less than half its peak in 2009, and it is projected to continue declining for the next few years. Of course, this is just a projection and a lot can happen. Our debt to GDP ratio is estimated at 100% and in a healthy state it would be closer to 60%. Not all of this debt is owned by investors, both foreign and domestic. About 12% is owned by the Federal Reserve, so we sort of owe it to ourselves and thus, we might be closer to 88%.
So how do we get it to go lower? Two ways. First, the annual deficit as a percent of GDP needs to be lower than the growth of GDP. This generally takes a long time, but with discipline over time, it works. The faster way to do this is to have budget surpluses, just as we did in the mid 90's under President Clinton. We must find ways to control the growth of spending while finding ways to increase tax revenues through growth in the economy rather than through higher tax rates. We have done this in the past, and we are more than capable of doing it again, IF we had leadership. But, alas, it seems a pipe dream in Washington today.
Therefore, what might the politicians do? One way or the other they will kick the can down the road again. We might see a temporary increase in the debt ceiling for a short period of time while compromise is sought, but in the end, they will likely raise it to a level that gets us past the elections next year and into early 2015 where both parties hope to gain an upper hand. The fact is, however, no matter what happens in November next year; the Democrats will continue to hold the White House. Isn't it sad that all of us across the country actually put these people in a place of power where they appear to be putting their interests ahead of ours?
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 27 years.
RAY, KIM, ERIC, BRUCE, LOU, NANCY, TINA, JON, STEVE and DOROTHY
© 10/16/13 ProVise Management Group, LLC
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