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Market Update 11/22/13

So far, 2013 has been a good year for most portfolios, one exception being long maturity bonds. Forecasts now indicate that 2014 may be a year in which company profits, worldwide, will increase slightly over 2013. We believe this increase could be in the 3% - 4% range, which would equate to a 6% - 10% return, in theory.  Companies are becoming very nimble at factoring in uncertainty; witness expectations being lowered recently for 2013 Holiday retail sales. Political factors, in only the near term, tend to increase the level of uncertainty. With overall expectations on the low end, any growth above that is a welcome surprise and the market reacts positively. We believe volatility will decrease as 2014 progresses, as we expect uncertainty to decline to some extent.

In the chart below, you can see improvement in the Leading Economic Index. This was driven by positive contributions from the financial indicators, initial claims for unemployment and new orders. In the six-month period ending September 2013, the leading economic index increased 3.0 percent (about a 6.0 percent annual rate), much faster than the growth of 1.2 percent (about a 2.4 percent annual rate) during the previous six months.

As we head towards the end of the year, we recommend that you keep the following things in mind:

  1. Required Minimum IRA Distributions  IRA account owners who turned 70 1/2 prior to 2013 must take their annual RMD by December 31, 2013. IRA owners who turn 70 1/2 during 2013 have until April 1, 2014 to take their first minimum distribution.
  2. Gifting & Taxes
  3. Year end tax planning
    • Charitable gifting of appreciated securities or other assets to Donor Advised Funds must be completed prior to 12/31/2013.
    • So far, Congress has not extended beyond 2013 the ability to make a charitable contribution directly from your IRA. 2013 may be the last year to do so.
    • There is a new 3.8% surtax on investment income for those with total annual income of $250k or greater for 2013.
  4. IRA Contributions – Although you have until April 15th, 2014 to deposit your 2013 IRA contribution, it is important to note that the contribution limits for both IRA’s & Roth IRA’s has increased to $5,500. If you were born in 1963 or earlier, you can put in an extra $1,000.

Heading into Thanksgiving weekend, and with the Holidays right around the corner, I want to thank each of you for your continued support over the past year. It is known in our industry that the most sincere form of thanks is often shown through your referrals. As a direct result, we are proud to say that we have added many new clients this year and look forward to continuing to learn and grow with clients both new & old. We truly appreciate your trust, and look forward to a prosperous 2014.

Please note that our offices will be closed on November 28th & 29th in honor of the Thanksgiving Holiday. Please also view the enclosed reminder regarding our upcoming Holiday Celebration on Friday December 6th, from 3:00 p.m. to 6:00 p.m. , here at our office.

As always, please feel free to contact us at any time, with any questions.

Best wishes to you this Holiday Season!

Donald S. Loveless CFA™ CFP® EA

Sometimes Small Can Be Pretty Big

Despite a few high-profile market debacles – 1929, 1987, and 2008, October has historically been kind to stocks, according to that same batch of data. This year was no exception, as major indexes, measuring both large and small company stocks, set or nearly set new highs as the month headed to a close (Wall Street Journal).

Notably, smaller company stocks have easily outperformed their larger counterparts. According to data compiled by Bloomberg and the St. Louis Federal Reserve, the Russell 2000 Index has advanced 15.7% since June 24, while the Dow Jones Industrial Average is up 6.1%. Three of the last four times we’ve seen this type of outperformance by small-cap stocks, the economy has picked up speed in the following year (Investment News). One reason – smaller companies are more U.S.-focused, while larger firms have more of an international presence, which suggests the U.S. economy may continue to outperform. The Russell 2000 gets 84% of its sales from the U.S., versus the 30 companies in the Dow, which receive 55% of revenues domestically (Bloomberg, Investment News).

Smaller cap stocks do carry more risk, though.  In a down market or in a liquidity crunch, sellers can overwhelm buyers in thinly traded markets, resulting in steeper losses for those who invest heavily in smaller businesses...

Beat the Year-end Rush!

As we transition from October into November, getting that much closer to 2014, now is the perfect time to review your year-end financial goals!

Here are a few key items, you may want to review, prior to December 31st:

1. Insurance policies  It’s imperative that your coverage will correctly compensate you at the time of your loss; it’s important to review your policies with your insurance professional, on an annual basis, to maintain adequate coverage.

2. Beneficiary information  Over time, your beneficiary information may need to be refreshed due to a divorce, or the loss of a loved one. It’s important to review this information on your IRA or 401(k) to make sure you have correctly chosen your beneficiaries: you would never want to put your heirs in a position to be denied their inheritance! (It’s also suggested to review your beneficiary information on any Life Insurance policies you hold.)

3. Budgeting  With a new year, brings new hope that you can get your budget under control: start planning your budget NOW, for the coming year! Don’t try to throw together, in a day, what usually needs months of planning to prepare: allowing yourself a few months' time will enable you to make any necessary adjustments, to your budget, prior to the start of the year.

4. Charitable donations  Now is the perfect time to take a weekend and dedicate it to weeding out your personal inventory. Charitable organizations count on donations, more than ever, over the Holiday season. Making your donations, prior to December 31st will enable you to utilize them as tax deductions for 2013. Make sure to keep your receipts!

5. Required Minimum IRA Distributions  IRA account owners who turned 70 1/2 prior to 2013 must take their annual RMD by December 31, 2013. IRA owners who turn 70 1/2 during 2013 have until April 1, 2014 to take their first minimum distribution.

6. Gifting & Taxes  For 2013, it’s possible to gift up to $14,000 in cash or securities to another individual FREE of Federal gift tax. To qualify for the 2013 Tax year, make sure your gifting (deposit) is made by December 31st.

There are many other things a person can do to get their financial life back up to speed; hopefully these suggestions will help you transition into 2014 with the confidence you need to make it your best year ever!

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