2011 Review and Economic Overview
What an interesting year! You may need to take a deep breath from the wild ride we had in 2010! We started the year full of expectation although cautious at best.
The results are as follows:
2010: A Year in Review
Dow 12.46% Gold 29.89%
S&P 500 12.97% U.S. Dollar 2.29% MSCI EAFE 4.62%
Barclays 4.19%
As of this review, the S&P is up 8% for the year. But along the way, the stock market plunged 16% from April to July…then rebounded 9% in September. These extreme swings have scared off many investors from moving to stocks.
The fact is you have reason to be concerned. Depending on which barometer you use, the market may be overvalued. Yet the 12 month ratio of risk for the S&P 500 (price to earnings or P/E) is a modest 15 or an 11% discount to historical averages. These same concerns about the economy have driven bond yields to extremely low levels. Despite all, the 10 year Treasury yield has recently risen. We see an attitude on Wall Street and Economists to “fight the Fed”*.
Capital Markets
We think similar to our Fixed Income Analysts and Portfolio Managers that the 30 year bull market in bonds is over. Interest rates are at an all time low. The Fed is primed to raise rates and we will see inflation begin to rise. The Equity Markets have stabilized and will continue to strengthen as we see Corporate America and the Global Equity Markets continue to heal. While inflation may knock the steam out of emerging markets, the overall longer-term outlook for emerging markets economies is strong.
Economy
While the U.S. economy has stabilized, we are still in a fragile state. In fact, it may appear a bit scary. While we do not think there is a “double dip” or a serious threat of deflation, the fear of Euro Zone problems and U.S. Debt levels does create forecast anxiety (look to your states budget crisis dilemma).
It is our expectation that 2011 will continue along the same pattern we saw in 2010: Slow progressive growth depending on how interest rates react. We may see double digit equity returns! As noted in our economic outlook, nothing exciting but certainly better than the outlook at the beginning of 2010.
Targeted Assets
- Large company dividend paying stocks
- Commodities as the global economy improves
- Real Estate with the expectation of longer term improvement in 5 to 7 years. Both hard asset and debt structured real estate
- Emerging Markets both in Asia and Latin America
- Alternative Fixed Income investments
Deduction Chart
Description Tax Status Pre-Tax After-Tax
Interest Paid Interest Rate Interest Rate*
Home mortgage Deductible 6% 3.6%
Home equity line of credit Deductible 7% 4.2%
Office building mortgage Deductible 7% 4.2%
Practice equipment loan Deductible 8% 4.8%
Personal auto loan Nondeductible 8% 8%
Personal credit card Nondeductible 14% 14%
* Based on a 40% combined federal and state marginal income tax rate
2011 Tax Rates
|
2011 Contribution Limits
Type of Limitation |
2010 |
2011 |
401(k), 403(b) Plan Elective Deferral Limit (402(g)) (Calendar Year) |
$ 16,500 |
$ 16,500 |
457(b)(2) and 457(c)(1) Plan Contribution Limit (Calendar Year) |
$ 16,500 |
$ 16,500 |
Age 50 Catch-up Deferral Amount (414(v)) (Calendar Year) |
$ 5,500 |
$ 5,500 |
Simple Plan Deferral Limit (408(p)(2)) (Calendar Year) |
$ 11,500 |
$11,500 |
Simple Plan Age-50 Catch-up Deferral Amount (Calendar Year) |
$ 2,500 |
$ 2,500 |
Defined Contribution Plan Annual Additions Limit (415 limit) (Limitation Year) |
$ 49,000 |
$ 49,000 |
Defined Benefit Plan Annual Additions Limit (415 limit) (Limitation Year) |
$195,000 |
$195,000 |
Annual Compensation Limit (401(a)(17)) |
$245,000 |
$245,000 |
Highly Compensated Employee Determination Threshold (414(q) (look –back to prior PY |
$110,000 |
$110,000 |
Key Employee Office Determination Threshold for Top Heavy Plans (416) |
$160,000 |
$160,000 |
Income Subject to Social Security Tax (Taxable Wage Base/OASDI) |
$106,800 |
$106,800 |
Tax Credit ESOP Threshold Balance |
$985,000 |
$985,000 |
Amount for Lengthening of 5-Year ESOP Period |
$195,000 |
$195,000 |
SEP Employee Coverage Compensation Threshold (408(k) (Calendar Year) |
$ 550 |
$ 550 |
SEP Annual Compensation Limit |
$245,000 |
$245,000 |
IRA Contribution Limit (including ROTH IRAs) (Calendar Year) |
$ 5,000 |
$ 5,000 |
IRA Catch-up Amount (Calendar Year) |
$ 1,000 |
$ 1,000 |
Financial Planner: What Impacts Our Business Which Impacts You
The Top Stories of 2010
What’s Next for Diversity
Financial planners often hear how the industry is aging. In October, we offered a different look at the future of the business, wherein the client base is more culturally and ethnically diverse and the ranks of independent advisors are changing to reflect it.
The iPad’s Cool Factor
Who says Macs don’t stack up for business computing? Advisors have taken a liking to the computing tablet, so custodians and broker-dealers are figuring out ways to accommodate them.
Waiting for "Intelligent Integration"
In our August issue, Schwab Advisor Services, a division of Charles Schwab, discussed “Project C” its new work platform for independent advisors. Getting a financial-services giant to talk new ventures is one thing but including polite skepticism from competitors gave advisors real insight they could use.
Retirement NOW
Baby boomers are facing a double threat as the leading edge of that generation enters retirement. Their accumulated dollars have taken a hit from the market, and they have bigger expenses coming off of their peak earning years.
What’s happening to Regulation?
As lawmakers crafted the landmark Dodd-Frank Wall Street Reform Act, a panel of industry experts convened to discuss what to expect. Concerns about “the Madoff effect,” and the compliance implications of social media loomed over discussions.
Healthcare on the Critical List
Healthcare reform legislation put a lot of clients and advisors on edge, almost as much as the direct costs of medical services. Financial planner Rick Kahler put together an informative feature on what advisors could expect and how to prepare.
Who’s Wealthy Now?
Wealthy families are feeling the pinch from the financial downturn, too, even if they are positioned better than most to ride out the storm. The September cover story explained what has their wealth managers concerned, and how they are tackling those issues.
Where the Wealthy Live: The Top 11 States for 2011*
11.New Jersey: Finance tycoons work in New York and commute from their primary
residence
10.Connecticut: Hedge Funds and insurance
9. Wisconsin: Manufacturing and retail
8. Ohio: Retail and banking
7. Pennsylvania: Investments and real estate; inheritance from large steel and
banking fortunes from the 1900’s
6. Michigan: Manufacturing, real estate, automobile and retail
5. Florida: Real estate and finance. Many affluent investors from New York and
California enjoy time in Florida for the tax benefits
4. Illinois: Commodities and real estate
3. Texas: Energy and real estate development
2. New York: Finance and real estate
1. California: Media, entertainment and high-tech
* Financial Planning Daily, December 26, 2010 edition
Please note: If you would like a copy of our ADV Part II explaining our Advisory Services, please call (508) 839-4465, email Jill Metzmaker at jmetzmaker@wbsmithcompanies.com or visit our website at www.wbsmithcompanies.com. |
Securities offered through Triad Advisors.
Member FINRA/SIPC