Wednesday, October 21, 2009



What a difference a year makes! Heading into October 2008 we were watching in horror as the banking system teetered on the abyss. Portfolios withered in ways no Monte Carlo projection could depict. Panic was gripping the markets, and our leaders allowed politics to drive them to devastating lows.

Fast forward to October 2009, and while there are the usual remarks about this being a bad month for the markets, the recovery to date has been stellar. The Dow Jones Industrial Average gained 15% to close the quarter at 9,712.28 and posted its best quarter since 1998, as well as its best third quarter since 1939. While the actual lows for this cycle in the Dow were attained on March 9, 2009, it has roared back since then, sensing economic rebound, and recovered 48%. Although the Dow is still 31% lower than the all time high it reached in October 2007, it has posted an 11% gain year to date.

The overall market turned in strong gains, as evidenced by the 15% jump in the Standard and Poor’s 500 index for the third quarter. The S&P 500 is up 17% year to date and has recovered 56% from the March lows. It still remains 32% lower than its October 2007 high.

Interestingly and not unexpectedly, the markets have retrenched a bit early in October, and will probably provide some unpleasant experiences going forward. Markets never provide straight line growth, especially after such a tumultuous period. Look for volatility to increase as the forces of recovery battle the forces of an economic backslide. Eventually the inevitable recovery will manifest itself, and the indices will be within striking distance of their all time highs once again. In order to take advantage of this fact, investors should be committing assets to their portfolios now.

There are many factors to be considered as we head into the final quarter of this year. Interest rates, taxes, health care, foreclosures, inflation, deflation, regulation, Social Security and energy are all issues commanding our attention. How they are handled in the next few years is paramount to our well being. The markets will react accordingly.


On September 30, the Bureau of Economic Analysis released its third revision of the estimate of Gross Domestic Product for the second quarter. The estimate of - 0.7% indicates the economy remained in recession at least through June 30, 2009. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. The current recession is officially 19 months and the longest since the depression. The third quarter has shown signs of economic recovery, and it is possible we may see a return to growth when the BEA releases statistics on the current period.

Many economists and Fed Chairman Bernanke echo the belief that the economy has turned positive in the third quarter, and the stock markets certainly have ratified it. There are arguments supporting this belief, as well as one’s dismissing the projections of the beginning of a new economic cycle. As I have mentioned before, the introduction of a trillion dollars of stimulus into the economy will definitely return us to growth, and will more than likely have some very positive consequences, as well as some unintended negative consequences. Our economy is changing and when this happens old industries falter as new ones develop. Creative destruction can’t be stopped.


Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax-advantaged savings for college is the 529 plan. A 529 plan is a tax advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

Changes in the tax code were made in 2006 making permanent the provision that earnings in a 529 plan are tax free upon withdrawal when used for education expenses. This has resulted in eliminating any change in status for earnings for the 529 plan and made it the premier savings vehicle for college savers.

There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan. There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs.

Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.

College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.

If you are a parent or grand parent and wish to learn more about this option as a means to save for college, please don’t hesitate to contact me for more information. As with any type of investment, the longer time frame you have to invest, the better chance you have to achieve your goals. There is no time like the present to get started!


The successful merger of Transamerica Financial Advisors and Intersecurities resulted in only a few technical difficulties for me. Some clients received confirmations with Intersecurities as the B/D, and some accounts were charged a fee for systematic investments, which will be reimbursed. Overall, I have to offer kudos to our back office for the meticulous completion of the merger. I look forward to providing enhanced services to you and your family through our state of the art broker/dealer. If the advisor of any of your friends or relatives has left the business, or if any of your other investment representatives have been absent during the recent market turmoil, please feel free to make a referral. Your confidence in me is greatly appreciated, as I monitor and protect your assets.


Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257

Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL 33758-9053

Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257

All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.