Tuesday, October 16, 2012

Jersey Benefits Advisors Investor's Newsletter Fall 2012

Market Watch

With the revised release of second quarter GDP, which was a paltry 1.3%, the Federal Reserve sprang into action and announced plans to buy $40 billion dollars worth of agency mortgage backed securities a month, until the economy begins to grow at a faster pace.  The plan has been dubbed Quantitative Easing 3, or QE3.  Keeping in line with the Fed’s dual mandate of maintaining stable prices and stable employment, Chairman Bernanke announced the latest round of easing because an economy growing at 1.3% can’t produce enough jobs to lower unemployment, which stands at 7.8% as of September 2012.  This move was greeted almost simultaneously with cheers and boos, but the market generally seemed to approve.

At the end of the third quarter, the Dow Jones Industrial Average (DJIA*) stood at 13,437.13.  This represented a 4.32% gain for the quarter and a 9.98% gain for the year.  The S&P 500* added 5.76% for the quarter to reach the 1,440.67  point level.  The index has increased by 14.56% year to date.  The NASDAQ* closed at 3,116.23, which gave the technology heavy index a 6.96% gain for the quarter and brought its year to date return to 19.62%.  These were attractive gains for the quarter, and these returns would be considered respectable for an entire year.  Let’s hope the final quarter manages to maintain or add to these levels.

As we have discussed for quite some time, the market has been climbing a wall of worry, due to concerns about recession in Europe, apprehension about the Fed’s loose monetary policy leading to inflation, unease about the effect of a slowdown in China and other emerging markets on the global economy and the looming fiscal cliff.  Bernanke has stated on more than one occasion that the Fed would not have to continue monetary easing if the Congress and Administration would act in a more responsible way to address fiscal policy.  Between now and the election, there will more than likely be no meaningful outcomes for fiscal policy, and so we will have to listen to the drama concerning the fiscal cliff right up to the end of the current quarter.

With that said, look for an eleventh hour agreement before the end of the year whereby Congress addresses fiscal matters and attempts to come up with a plan for handling the threatening consequences of sequestration, or the blunt, automatic across-the-board budget cuts enacted by law by the Budget Control Act of 2011, a consequence of Congress’s failure to agree on a bipartisan deficit reduction plan.

As a result, the first installment of cuts goes into effect January 1st of 2013, cutting $2.4 trillion from federal debt over ten years.  Over the same ten year period, $1.2 trillion is slated to be cut from discretionary spending, which doesn’t even address entitlement spending.  The sequestration in conjunction with the expiring Bush Era tax cuts threatens to undermine the current, lackluster expansion and shave anywhere from 2% - 3.6% from GDP, depending on whose forecasts you cite. 

With GDP currently growing at 1.3%, it is a very real possibility that without an agreement to mute the effects of the of the budget cuts and tax increases, we could be looking at a possible recession in 2013.

As I have stated before, this expansion is one of the weakest expansions this country has ever experienced, coming out of a recession.  With that said, it suffices to say the last recession was the worst since the Great Depression.  If an agreement can be reached on budget cuts and tax increases, the expansion may continue.

More Parents Are Saving For College

According to a survey conducted by the College Savings Foundation, the number of parents who have saved at least $5000 for their children’s college years has increased from 40% to 45% since 2009.  The number of families saving has steadily increased since the 2009 survey, when less than a third of all families had saved that much.  “Coming out of 2008 and early 2009, many families sat on the sidelines and said they wouldn’t make a decision about saving for college until things turned around,” said Roger Michaud, chairman of the College Savings Foundation and a senior vice president at Franklin Templeton Investments.  Considering the cost of a four year college education can run as high as $250,000, families need to save more.  Call me for information on 529 Plans.

Family & friends gathered for a Labor Day luau to celebrate my 60th birthday.  Thanks, Margie for the surprise of a lifetime.  $%!  %&  You really got me this time!

Have You Reviewed Your Life Insurance Lately?

 When was the last time you  took a serious look at your life insurance coverage.  Life insurance was created to provide cash for your family in the event of your death.  The goal being to provide your beneficiaries a means to ease the financial burden that results from the death of a parent or spouse.  The beneficiaries may choose to use the benefits of a life insurance policy in any way they desire, such as paying for funeral expenses, covering mortgage payments or investing the proceeds and taking systematic payments to augment income.  Generally, the death benefit from a life insurance policy is paid free of any federal tax. 

One of the most important questions to ask  when evaluating life insurance needs is the amount of coverage needed.  Many financial planners recommend an amount of five to seven times gross annual salary as a guideline when purchasing life insurance, but as with all things in life, each family's goals are different.  It is always best to take an inventory of your family's current financial situation and then try to evaluate future needs.  Listing current and anticipated future expenses, as well as income sources is a good place to start.  If there are children, you might want to consider the cost of their education.  The younger the children, the more of a need for coverage, due to the length of time they will be dependent on one parent, in the event of a death of a parent.  Of course, this is exactly the time when a family may have the least amount of income available for insurance!

This is why there are different types of policies available.  The two broad categories of life insurance are :
    ·   Term Life Insurance
    ·   Permanent Life Insurance

Term Life Insurance provides protection for the pure cost of insurance for periods of 5, 10, 15, 20 or 30 years and is usually less expensive than permanent insurance.  The death benefit is only paid if you die during the specific term of the policy.  At the end of the term, the policyholder may be able to convert to a permanent policy or begin a new term, at a higher cost.

Permanent Life Insurance provides protection as long as you continue to pay your premiums, which can be fixed or tailored to your specific needs.  Permanent policies include Whole Life, Universal Life and Variable Universal Life.  These policies have a "cash value" feature, which means part of the premiums go into an account which builds up monetary value over time.  This is why the cost of a permanent policy is higher than term. Many times  a combination of the two types of policies can provide coverage and savings in stages for a lifetime.  Feel free to contact me if you would like to review your insurance needs and discuss the options available to you.

* The S&P 500, the DJIA and the NASDAQ are unmanaged indexes that are widely used as indicators of Market Trends.  Past performance does not guarantee future results.  The performance of these indexes does not reflect fees and charges associated with investing.  It is not possible to invest directly in an index.
Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment.  Saving a portion of our pay each month is very important.  Company sponsored pension plans are one method to save and should be used for retirement.  Other systematic investment accounts, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES  can also be opened, and debited directly from your checking or savings account. For more information, just call to set up an appointment. REFERRALS ARE ALWAYS WELCOME. 
John H. Kaighn 

Company Information:

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
Email:  kaighn@jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL  33758-9053
Transamerica Financial Advisors, Inc. is
not affiliated with Jersey Benefits Advi-
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
Email: kaighn@jerseybenefits.com
All opinions expressed in this newsletter are
solely those of John Kaighn & Jersey Benefits

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