2009 has been quite the year with stocks bottoming during early March and then moving about 60% higher without a correction of more than 10%. Thank you to all of our clients and best wishes to all for a very Merry Christmas!
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Fagan Associates Archive for December, 2009
Merry Christmas!
Thursday, December 24th, 20092010 Ideas - Chris
Monday, December 21st, 2009The usual disclaimer- consult your investment advisor- these ideas might or might not make sense in your own portfolio.
1. Nike (NKE) - the sporting goods manufacturer is suffering from tiger-itis BUT is it that big a deal? Golf is less than 4.8% of 2008 revenues. This company is strong in the Far and Middle East - trades at a reasonable multiple and looking to grow. Nike may well be the biggest exporter of Americana since Coca Cola.
2. Vanguard Inflation Prtoected Securities (VIPSX)- this fund performs in line with the TIPS marketplace and should benefit from the fact that the US government has been spending and borrowing. A no-load fund it is availale through Charles Schwab but a transaction fee is assessed.
3. Intel- (INTC) narrowly edged out Honeywell for the last spot, Intel sports 50+% margins and a 3.4% dividend. It seems that the tech sector is bottoming (note the reports from both Oracle and RIMM) - Intel has risen from a low of 13 but is now some 7% from its 52 week high.
Our best wishes for a happy holiday and prosperous 2010.
2010 ideas - Dennis
Monday, December 21st, 2009As promised on our WGY radio show, our 2010 ideas. As we frequently say, consult your own investment advisors to see how these ideas might or might not work in your own portfolio. We are applying for that job by the way!
2010 Ideas - Dennis:
1. Loomis Sayles Bond Fund (LSBDX) - this strategic fixed income fund has consistently (with the exception of 2008) gotten it right. Dan Fuss, the fund manager, places bets on fixed income markets he views most undervalued. This fund (unlike many bond funds) has the ability to perform in a rising interest rate environment.
2. Exxon (XOM) - the oil behomth’s acquisition of XTO Energy makes sense to us given its nat gas exposure. With the pullback in the stock some 5-6% last week, investors are offerred a discounted entry point. A 2.4% dividend and a company that uses its financial wherewithal wisely, we beleive Exxon is well suited to benefit in a world likely to use more and more energy over the coming years.
3. MidCap Spiders ETF -(MDY)- this exchange traded fund purchases the S&P 500 minus the top 100 companies. This strategy might make sense with a dollar that has been strengthening. Midcaps have underperformed over the past two months and using an etf gives us a diversified position in the midcap market.
Year-End Tax Planning — Charitable Giving
Sunday, December 20th, 2009This article is the third of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays during December in “The Record” and include, in order, “Year-End Tax Planning for Shareholders of Individual Stocks and Bonds” which appeared December 3rd; “Year-End Tax Planning for Shareholders of Mutual Funds” which appeared last week; this article and finally “Investment Portfolio Re-Balancing for the New Year” which will appear next Sunday. Following this series, we will immediately provide readers with a Review of 2009 and our Investment Outlook for 2010.
Given the nature of our business, in our opinion the most obvious and effective way to give to a charitable organization is through a gift of appreciated stock. This is a win-win situation for both the taxpayer and the charity. The taxpayer can deduct the market value of the stock on the date of the gift and the charity gets the donation. Furthermore, by donating the appreciated stock rather than selling the stock and donating the cash proceeds, the taxpayer also avoids any capital gains tax. Please note that this only will work with appreciated securities within taxable accounts. Should you hold a stock that has depreciated in value, it is generally wise to sell the stock and donate the cash proceeds. Utilizing this method, the taxpayer can write off the capital loss up to current IRS limitations.
Readers will note that the above paragraph does not pertain only to appreciated stock, but rather to all appreciated assets, including bonds, mutual funds and real estate.
The Pension Protection Act of 2006 allowed taxpayers age 70 ½ to exclude from adjusted gross income qualified charitable contributions up to $100,000 per year from either a traditional or Roth IRA and despite the fact that required mandatory distributions were suspended for calendar year 2009, this legislation was extended through 2009. Prior to the passing of this legislation, a taxpayer would have to first withdraw the money from his IRA and then make the contribution. Many times this withdrawal resulted in the taxation of the Social Security Benefits of the taxpayer, reductions in property tax assistance and reductions in other government sponsored programs. This law allows the taxpayer to circumvent this step thereby eliminating the prior pitfalls noted in the preceding sentence. Additional benefits to rolling over the IRA distribution directly to a qualifying charity is that this donation qualifies toward the owner’s minimum required distribution, but does not count toward the IRA owner’s maximum 50% cash contribution limit as a percentage of their adjusted gross income.
One final way to get into the charitable giving mood this holiday season is through gifts of life insurance policies. To accomplish this transfer, the current owner must name the qualified charitable as either the new owner or the irrevocable beneficiary. If the owner does one of these then he/she is able to obtain a tax deduction on the present value of the insurance contract or his/her accumulated premium payments, whichever is higher.
As always, please be sure to check with your tax advisor prior to making any sizable charitable contributions.
3 Ideas for 2010
Friday, December 18th, 2009On our show this coming Sunday, we will both give 3 investment ideas for the coming year and then post them to the website.
Yesterday the market sold off (Dow down 130 points) as the dollar got stronger. It was the biggest selloff in a month or so and woke many traders and investors out of their eggnog induced holiday stupor.
This is the time of year for investors to be assessing tax liability, reviewing asset allocation and finalizing charitible contributions.
Washington seems locked in cross currents of activity and inertia. Health care debate rages on - change is needed but will we get improvement with that change? The Copenhagen climate change conference is concluding as 12-24 inches of snow is slated for DC this weekend. Environmental issues need to be addressed without the hysterical push that sometimes accompanies this debate. Gas prices have once again pushed against $3 per gallon with rhetoric for reducing foreign oil dependance outweighing the action. Paralysis in Washington is generally good for the markets BUT at what point will it be bad - then worse for the country.
We feel the market has reached an inflection point and is caught in inertia like Washington, Copenhagen and our energy policy. It doesn’t have the commitment to go higher (at this point) nor is there any reason to go lower in the face of interest rates at such low levels.
We believe that the resolution will be to the upside in 2010 but not without more anxious moments like we experienced yesterday.
Merry Christmas, Happy Holidays and New Year. However, you choose to celebrate this time of year- enjoy your family and friends.
Year-End Tax Planning For Shareholders of Mutual Funds
Sunday, December 13th, 2009This article is the second of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays over the next four weeks in “The Record” and include, in order, “Year-End Tax Planning for Shareholders of Individual Stocks and Bonds” which appeared last week, this article, “Year-End Charitable Bequest Planning; and “Investment Portfolio Re-Balancing for the New Year.” Following this series, we will immediately provide readers with a Review of 2009 and our Investment Outlook for 2010.
Prior to identifying those areas that can help you reduce your taxes regarding your mutual fund holdings, it is prudent to briefly review the IRS rules surrounding capital gains and losses, in general. If when comparing your realized (those securities sold or where the company has been purchased for cash by another company) gain with your realized loss, the net result is a loss, only up to $3,000 can be deducted from ordinary income. The balance can be carried forward, indefinitely. An additional component to consider prior to realizing a capital gain or loss in your portfolio is whether the transaction would trigger a long-term versus short-term capital gain/loss. Long-term transactions are defined as those in which the underlying security has been held for one year or longer and are taxed at either zero percent for those taxpayers that are in the 10% to 15% marginal tax brackets or at 15% for those in the twenty-eight percent bracket. Short-term transactions, those which the security has been held for less than one year are taxed as ordinary income and subject to the same tax rate as your wages or dividend income. For most taxpayers, the rate is twenty-eight percent for the Federal Government. In both instances, for taxpayers in New York State, long-term and short-term capital gains are taxed as ordinary income.
Number one, call your mutual fund and ask them if they are planning any year-end distributions. Keep in mind that capital gains declared by mutual funds are taxable regardless of whether you receive them in cash or reinvest in additional shares. Furthermore, there is no economic benefit to the distribution. It is the same as getting four taxable quarters in return for your non-taxable one dollar bill. Upon calling, should you learn that your mutual fund is intending to declare a capital gain, find out how much it will be on a per share basis and on what date it will be declared. This information will help you determine what steps, if any, need to be taken in order to minimize the impact of this declared gain.
Second, swap the mutual fund in which you have a taxable loss for a similar fund. Please note that your adjusted tax basis consists of your initial contribution to the fund plus any subsequent out-of-pocket contributions as well as any reinvested dividends or capital gains declared during prior calendar years less any withdrawals. Regardless of what others might say to the contrary, given the fact that there are over eight thousand mutual funds to choose from, there is always an appropriate alternative to your current fund. Do not think that your fund is “the best” or “one of a kind.”
Be certain to check with your tax advisor prior to making any year-end portfolio transactions.
Good luck, pruning your portfolio for tax savings makes dollars and cents!
Commentary for December 11, 2009
Friday, December 11th, 2009The stock market continued to works its way slowly higher, this despite the fact that the U.S. Treasury auction completed yesterday was weakly bid at the long end. We believe that there will be enough positive economic data over the foreseeable future to provide hope that the economic slowdown is easing. That may or may not be the case. However, given the amount of stimulus coming into the economy, again, there will be enough positive economic and corporate data to support stocks.
Please read our “Newspaper Columns” Section of the website for some timely year-end tax planning ideas.
Paint Drying
Tuesday, December 8th, 2009The markets this month have been especially boring- that’s not necessarily a bad thing. Remember that the market as measured by the S&P 500 has rallied more than 50% since March lows.
Through last night, the Dow was ahead .42%, the Nasdaq .80% and the S&P 500 better by .82%. Given the futures indicating a modestly lower opening in about an hour, its possible that by the end of the day these market measures could be flat.
We have seen a move to health care and consumer non-durables this month. Johnson & Johnson (+2.4%), Pepsi (3.2%), Diageo (2.9%), Baxter (2.6%) and Verizon (5.7%) all have outperformed the market. We see this as a gentle shifting away from the more economically sensitive companies mainly because those have been the best performers from the market bottom.
Our advice is to remain diversified both in the stock market as well as by adding some fixed income to your portfolio.
Year-End Tax Planning for Shareholders Of Individual Stocks and Bonds
Sunday, December 6th, 2009This article is the first of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays over the next four weeks in “The Record” and include, in order, this article, “Year-End Tax Planning for Shareholders of Mutual Funds; “Year-End Charitable Bequest Planning” and “Investment Portfolio Re-Balancing for the New Year.” Following this series, we will provide readers with a Review of 2009 and our Investment Outlook for 2010.
One of the least time consuming and most profitable tasks one can assume during December as it pertains to their investment portfolio is to attempt to offset realized capital gains with capital losses in your portfolio. Calendar year came in like a bear and went out like a bull. In fact, through early March the major indices were down more than twenty percent. Couple this with the fact that 2008 was a horrible year for stocks and there is a good chance that investors some securities that have declined in market value relative to their purchase price. Assuming that the shares of the depreciated security are held in a non-qualified taxable account (not an IRA or pension plan), one might sell these shares and claim the loss on Schedule D of Federal Filing Form 1040.
Please note the following important IRS regulation that pertains to Capital Gains and Losses. If when comparing your realized (those securities sold or where the company has been purchased for cash by another company) gain with your realized loss, the net result is a loss, only up to $3,000 can be deducted from ordinary income. The balance can be carried forward, indefinitely.
An additional component to consider prior to realizing a capital gain or loss in your portfolio is whether the transaction would trigger a long-term versus short-term capital gain/loss. Long-term transactions are defined as those in which the underlying security has been held for one year or longer and are generally taxed at either zero percent for those taxpayers that are in the 10% to 15% marginal tax brackets or at 15% for those in the twenty-eight percent bracket. Short-term transactions, those which the security has been held for less than one year are taxed as ordinary income and subject to the same tax rate as your wages or dividend income. For most taxpayers, the rate is twenty-eight percent for the Federal Government. In both instances, for taxpayers in New York State, long-term and short-term capital gains are taxed as ordinary income.
One final consideration prior to executing a stock or bond trade for tax purposes would be to determine if, by executing this trade, a wash sale would result. A wash sale exists when the transaction results in a loss and a “substantially identical security” is purchased within thirty days. If this should occur, the tax loss created by the sale would not be deductible. Please note that should the wash sale result in a gain, the gain is taxable.
As an aside, never forget that it is always prudent to consider the impact of selling a stock upon your portfolio. Simply put, it is seldom wise to make a transaction solely for the purpose of saving money on your tax return!
A sale or sales of appreciating and/or depreciated securities represent only one tactic an investor can deploy when tax planning at year end. Furthermore, please note that this decision must be made in conjunction with and in full knowledge of the resulting impact on your other investments, such as mutual funds. Be certain to check with your tax advisor prior to making any year-end portfolio transactions!
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Any specific stocks named in this presentation may not be representative of current or future investments in the portfolio to which they belong. You should not assume that investments in the securities identified were or will be profitable. We will furnish, upon your request, a list of all securities purchased, sold, or held in the portfolio during the twelve months preceding the date of this presentation.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio.
©2013 Fagan Associates, Inc. All rights reserved.
2010 wishes
Wednesday, December 30th, 2009Some of the things that I would like to see in 2010. These are not predictions rather wishes and wishful thinking.
1. Peace and quiet in the investment world (and why not for the world in general?). All right 2009 was a good year for stock and risk oriented bond investors. It did, however exact a proverbial pound of flesh. Nothing goes up in a straight line but wouldn’t it be nice to have a good year without the rocket ride that was 2009.
2. Higher interest rates. “Be careful what you wish for” but some movement higher in rates would be appreciated as it would give CD investors some rate relief but also would indicate that the economy is continuing to improve. Significantly higher rates would hurt the stock and bond market but a modest move higher would be a good thing.
3. A housing recovery. Things were out of control as many “younger” homeowners used their house as an ATM machine and siphoned equity out and purchased the newest of toys. We don’t want a return to the go-go days of spec housing buys but stability gets the job done.
4. Health insurance reform - radical surgery is not needed but some provision for afforable health care and insurance. We naturally do not favor a “Robin Hood” health care reform but something must be done to contain spiraling higher health care costs. People complain more about the price of gas increasing (modestly at best over time) than they do the price of a surgery or prescription.
To all a healthy, happy and prosperous 2010. That would seem the order of importance as well.
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