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How Does the Stimulus Plan Affect You?
By the Financial Planning Association |
The biggest benefit from the $787.2 billion federal stimulus package will hopefully be a noticeable improvement in the nation’s economy. But on an individual level, it’s wise to check if you might be eligible for benefits in health care, education, various tax credits and housing.
Receiving the advice from your tax professional and your Capital Advantage, Inc. financial advisor will help you determine the best ways to use the following provisions that may affect you. It’s also a good idea to get a financial checkup in an uncertain economy for the following reasons:
• As much as it might hurt to look at the performance of your current retirement accounts and other investments, the economy will recover. When an upturn comes, it’s wise to position your holdings to take full advantage of the recovery.
• Your future plans with regard to spending for your home, your family and your education come into sharp focus under the stimulus plan, and making these provisions work for you in the short-term should be part of a long-term plan.
• If you fear your job might be in danger in the coming months or you might be facing pay or benefit cuts, it’s good to talk through your personal finances before your employer makes a move. The best time to prepare for a job loss is while you’re still making a salary. Not only is it a good opportunity to build an emergency fund, but it’s generally easier to look for new opportunities while you still have your current one.
Here’s a quick summary of the stimulus plan provisions that could affect your finances.
Educational provisions
College student aid:
The package awards $15.6 billion to increase maximum individual student Pell grants by $500.
American Opportunity Tax Credit:
This credit temporarily provides taxpayers with a new tax credit of up to $2,500 of the cost of tuition and related expenses, though it phases out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the available credit is refundable.
529 Plans:
The scope of allowable education expenses expands to include computers and computer technology.
Tax credit provisions
One more cap for the Alternative Minimum Tax (AMT):
Lawmakers put one more patch on the AMT to protect a wider number of people from getting hit. This latest break for potential AMT targets increases the exemption amounts to $46,700 ($70,950 for married couples). The bill would also exclude interest on all private activity bonds issued in 2009 and 2010 from the AMT.
“Making Work Pay” Tax Credits:
This is the refundable tax credit of up to $400 for individuals and $800 for families for 2009 and 2010 that would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples). This isn’t a lump sum payment, but instead is reflected in reduced payroll taxes.
Car Buyers Tax Credit:
This allows a deduction for state and local sales and excise taxes paid on the purchase of a new vehicle through 2009. This deduction is phased out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).
Expanded Child Credit:
This increases the eligibility for the refundable child tax credit in 2009 and 2010 by reducing the minimum income for eligibility to $3,000.
Earned Income Tax Credit:
This provision will create a temporary tax credit increase for working families with three or more children.
Housing provisions
Refundable First-Time Homebuyer Credit:
First-time buyers can claim a credit worth $8,000 - or 10 percent of the home's value, whichever is less - on their 2008 or 2009 taxes. The added bonus is that the credit is refundable, which means that filers will see a refund of the full $8,000 even if their total tax bill was less than that amount.
Unemployment and healthcare-related benefits:
Extension of Unemployment Benefits: The package provides 33 weeks of extended benefits through Dec. 31, 2009.
Unemployment Compensation:
The first $2,400 a person receives in unemployment compensation benefits in 2009 won’t be taxed.
Short-Term COBRA Subsidy for Involuntarily Terminated Workers: This provides a 65 percent subsidy for COBRA premiums for up to 9 months, which will put a dent in the considerable cost of COBRA health benefits for the unemployed.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations.
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Health Insurance in Troubled Times
By the Financial Planning Association |
Whether you buy your health care coverage through your employer or independently, you need to look at your coverage the same way cost-cutting entrepreneurs do. Buying coverage in the future won’t stop at finding the best price – what you pay increasingly will involve how well you personally manage your health.
According to a report last year by benefits consultant Watson Wyatt, nearly half (47 percent) of the 453 large U.S. employers currently offer a consumer - directed health plan (CDHP), a high-deductible plan offered with a personal account that can be used to pay a portion of medical expenses not covered under the plan. In the world of independently purchased health insurance, it’s the same concept as the pairing of a high deductible health plan (HDHP) with a health savings account (HSA).
Also, don’t be surprised if your employer or insurer is going to get tougher about you losing weight, quitting smoking or taking part in a monitored exercise plans.
Ideas to help you take the first step in monitoring these costs:
Change your negative health care behavior:
Lowering the number on your bathroom scale will not only have immediate health benefits, it will also make your health insurance options and potential out-of-pocket costs more affordable over time. A Stanford University and Rand Corporation study reported that lifetime medical costs related to diabetes, heart disease, high cholesterol, hypertension and stroke among the obese are $10,000 higher than among the non-obese. It added that lifetime medical costs could be reduced by $2,200 to $5,300 following a 10 percent reduction in body weight.
Know what you’re buying:
Whether you buy health insurance through an agent or your employer, insist that they explain exactly what you’re getting for your premium, and where deductibles do and don’t apply. That way, you’ll have a baseline when you buy your own coverage. If you’re purchasing your own insurance policy, compare the premium savings from a higher deductible plan with your usage pattern of health services. What you save can often cover your high deductible. The California Medical Association offers a plan comparison checklist on its Web site, www.cmanet.org.
Always research and discuss the potential cost of a diagnosis:
If your physician diagnoses a condition that requires tests, prescription drugs, a hospital stay or ongoing therapy, ask polite but detailed questions about what you’ll be charged, from the doctor’s bills to ongoing ancillary costs associated with treatment. Ask the doctor or his office manager if discounts can be negotiated through cash payments or other means. You also need to be careful that you’re not being charged a rate for uninsured patients when you are simply going to paying for all or part of the bill to get to your deductible. Last, consider asking doctors for generic options and samples of prescription drugs to extend your savings.
Make sure your exact spending is reducing your deductible:
Keep a binder or a filing system to monitor how this year’s out-of-pocket spending is reducing your insurance deductible. Your insurer’s total may not always be accurate or up-to-date. Also, make sure you understand which procedures are offered through your plan that will be paid even though you haven’t paid up your deductible.
Check local pricing resources:
In non-emergency situations, you should always compare prices on treatments. Check with local medical boards and state health officials to see if they have online databases on costs for various medical procedures. Also, if there is a support group for your condition, talk to members about what they paid locally for care.
Be smart about emergency and non-emergency health visits: Emergency-room visits tend to cost $300 to $1,000 compared with $150 at an urgent- care center and $35 to $45 at a convenience-care clinic in a drug store or some other location. First, make sure the alternatives to hospital emergency room care are acceptable for your illness. Write yourself a note at some point to check out these options in your community so you understand what they offer, what their hours of business are, and under what conditions you’d choose them. In particular, make sure the facility and the provider are in your health plan's network so whatever you pay out-of-pocket counts toward your deductible. Also rely on your insurer's 24-hour advice hotline for guidance on where to go for care. Either tape that call or keep a written record of it in case you have a claim denied.
Talk to a financial advisor about planning for long-term care:
If you or a loved one are diagnosed with a chronic illness, that’s a financial issue that requires a plan. As tough as it may be to focus on money issues at a stressful time, make an appointment with a tax professional or your Capital Advantage, Inc. financial advisor to discuss options that will safeguard your assets, including Medical Spending Accounts that can backstop out-of-pocket costs on high-deductible policies.
Take advantage of your company’s flexible spending account:
A flexible spending account is a separate, tax-advantaged account where you deposit funds to pay for medical expenses not paid by your insurance. You need to check what your particular company’s FSA allows you to stockpile funds for, and you will need to estimate carefully because you’ll have to spend out these funds by a particular annual date or lose the remainder. It’s also good to discuss how you’re allocating those expenses with a financial advisor. |
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First Quarter 2009
Investment
Management Report
By Capital Advantage, Inc. |
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During the first quarter of 2009, markets globally continued to be volatile from one day to the next. While investors had hoped this ever changing cycle would end with the year 2008, January and February disappointed. While March’s rally gave investors a glimmer of hope that the worse may be behind us, its gains were not enough to stop the Dow Jones Industrial Average from posting its worst first-quarter return since 1939, losing about 13%.
Stocks posted their sixth consecutive quarter of losses in the first quarter, and the S&P 500 rose 8.9% in March to conclude the quarter down only 11.9%. U.S. stocks surged from March 9th lows to enjoy their quickest and steepest rally since 1938. The technology heavy NASDAQ posted its best March in history, gaining 11% to bring its first quarter losses to only 3.1%. It only took thirteen trading days for us to witness the NASDAQ jump 25%, and both the Dow Jones and the S&P 500 rose more than 20% (the traditional definition of a bull market). While this short-term rising tide in the U.S. markets did indeed lift all ships (value oriented and small capitalization stocks performed the best during this historical rally), it was growth and large capitalization stocks that outperformed all equity styles for the quarter. Surprisingly, even emerging markets bounced back with returns entering positive territory year to date. The bond market showed stability as short and intermediate corporate bonds ended the quarter with positive returns, while riskier high yield bonds outperformed both. Additionally, both commodities and TIPS (Treasury Inflation-Protected Securities) rallied, but REITs (Real Estate Investment Trusts) continued to slide and lost 30%. As the market continues to experience high levels of volatility, upward price movements have helped to calm investor nerves. While March may have performed slightly above prior months, overall, the first quarter of 2009 was definitely not worthy of any celebration, and our economy continues to experience negativity.
We normally attempt to gain market perspective from history, but unlike prior bear markets that more or less track the business cycle, this one began with a broken financial system, and the only time period even remotely similar to this one is the Great Depression (and the years 1929-1932). History has shown that markets have clearly visible cycles; secular bull markets (a 20% rise) represent a long term upward trend in prices, and secular bear markets (a 20% decline) represent a long term downward market price trend. While both of these trends usually last from 5-20 years, they each average 17 years in length.
We believe the year 2000 was the beginning of the current secular bear market. This evidences a common occurrence in which a cyclic bull market rally exists within a longer downward trend of a secular bear market. Looking at the history of the S&P 500, we find that from 1929-1932, there were nine rallies of 15% and greater, and from 1937-1942 (the second leg of the Great Depression secular bear market), there were nine additional rallies. In the great bear market of the 1970s, there were seven large rallies, including three returning over 40%. From 2000-2002, we experienced three rallies of 15% and greater, bringing us to the current leg of the bear market, where since October 2007, we have had another three rallies topping 15%. This evidences that large and powerful rallies are fairly common in bear markets, and while they may provide short term relief, they fail to indicate to us that now is the time to increase equity positions. As we have stated in past communications, problems in both the housing and credit markets that precipitated the correction need to stabilize before we believe that we will see a sustainable new bull market.
Our current strategy continues to reward us in the short run, as bonds continue to perform well. Despite the most recent stock rally, bonds have still outperformed stocks on a year to date basis while providing safety and yield as we continue to wait out this market storm. We remain steadfast in focusing on the elements in the investment process that we can control - asset allocation and fund selection - while waiting for additional positive signals from the fourteen investment triggers we track and analyze (more on this in our next letter).
In the first week of March, many clients contacted us and were ready to ‘throw in the towel’. Now, twenty trading days later and after a historic rally in equities, clients are asking us if now is the right time to get back into stocks. While the economy may be showing some shimmering glimmers of hope of improvement, make no mistake – the economy is still in BAD shape and we do not think it is time to return to stocks quite yet. Small signs of positive news may be coming out (a slight up tick in durable goods orders, a few better than expected corporate profits, and slowing rises in unemployment) but overall, we are still in a bad economy. If the stock market continues to advance from its March 9th lows, a historic precedent of the shortest bear market (17 months) would establish itself in history.
Forecasting is dangerous business, but currently our monitored investment triggers indicate we may see a potential equity entry point before year end. In the interim, we would not be surprised if the stock market dropped 20% over the next few months. Once we determine an ideal entry point, we will dollar cost average into equity holdings, purchasing positions successively over a few quarters time. Our research has formed our investment direction, which will most likely focus on high yield bonds, dividend yielding equity funds, large capitalization growth funds, and commodities. We continue to research countries that have little or no debt (such as specific Asian countries), which may eventually lead us back to considering investment in emerging market funds. While we continue preparation for the inevitable shift back into equities, we will keep you updated on our thought process along the way.
We appreciate your business and the confidence in us to manage your investment portfolio. If you have any questions or concerns, please contact us.
Sincerely,
Your Capital Advantage, Inc. Team
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Contact Us
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John Hayman, CFP
Founder and President
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Donna Zinman
Senior Financial Advisor
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Gary Clarke
Senior Financial Advisor
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Rick McNamara, CFMC
Director of Investments
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Dawnalizabeth Henke
Chief Compliance Officer
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Catherine Norris
Manager of Client Service
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Aimee Schwartze
Director of Client Service
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Amy Montano
Office Manager
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