Stock Market Commentary
For the week of June 1, 2009
The Market
Wall Street extended its spring rally to a third straight month. The Dow ended May up 4.1 percent, the S&P gained 5.3 percent last month and the NASDAQ closed May up 3.3 percent. The S&P is up 35.9 percent since reaching a 12-year low in March, marking its longest monthly winning streak since fall 2007. The Commerce Department this week revised the first-quarter gross domestic product (GDP) to a loss of 5.7 percent from the 6.1 percent estimate reported last month, still slightly larger than the 5.5 percent analysts expected. The Commerce Department also reported a 1.1 percent increase in first quarter after-tax profits. The University of Michigan consumer confidence index showed a larger increase than expected in May. For the week, the Dow gained 2.69 percent to end at 8,500.38, the S&P gained 3.66 percent to close the week at 919.14, and the NASDAQ rose 4.87 percent to finish the week at 1.774.33.
Selling More – Existing home sales rose 2.9 percent to an annualized rate of 4.68 million in April, according to the National Association of Realtors report released last week. Economists had expected a slightly lower rate of 4.66 million homes. Average home prices were down 15.4 percent in April from a year ago.
Why Isn’t Everyone Doing It? – Seventy-five percent of American workers have saved funds as of today for their future retirement. Fifteen years ago (1994), only 57 percent of workers had saved any money for retirement (Source: Employee Benefit Research Institute, BTN Research).
They Don’t Realize – Even though the average U.S. employer pays $777 per month on behalf of an employee for supplemental health insurance (assuming a family of four is covered), only 9 percent of employees think their employer is paying $500 or more per month for health insurance per employee (Source: Kaiser Foundation, Kelton Research, USA Today, BTN Research).
No Pay Hike? – Social Security benefits have received a formula-driven cost of living adjustment (COLA) since 1975 (before that date annual increases were set by legislation). The COLA for benefits in 2010 will be based upon the change of the consumer price index from the third quarter of 2008 to the third quarter of 2009. Unless inflation increases over the next five months, it is possible there will not be any COLA adjustment for 2010 benefit payments. The COLA increase for 2009 Social Security benefits benefits table was 5.8 percent (Source: Social Security Administration, BTN Research).
WEEKLY FOCUS – How to Receive an Inheritance
A survey by Putnam Investments found that most people who inherit money or property had no previous indication they would receive anything from a relative or friend’s estate, and less than 20 percent knew what to do with it when they did receive it.
The World War II generation, parents of the baby boomers, saw saving as a way of life, and many accumulated assets that lasted beyond their lifetime. Estate planning has become a bigger issue as Baby Boomers attempts to transfer that accumulated wealth to their heirs as tax efficiently as possible with the goal of making life easier for their children and grandchildren.
With more people bequeathing wealth, more people are receiving it – often without the benefit of the education and planning that helped build and distribute it. They fall squarely in what Ann Perry, author of The Wise Inheritor: A Guide to Managing, Investing and Enjoying Your Inheritance, calls the triple taboo of money, death and close family relationships. Parents, especially those with more than one child, may feel uncomfortable discussing who gets what for fear of causing rifts. Children feel guilty asking questions about what they will inherit for fear of looking greedy.
That leaves heirs ill-prepared to receive their inheritance. Some respond with a spending spree, while others become paralyzed by fear they will make a mistake and disappoint or dishonor the parent who worked so hard to leave them a cushion. Even if the heir manages to find a middle ground, an unexpected inheritance can push him into a higher tax bracket or trigger the alternative minimum tax.
Communication may be key, but that doesn’t make it easier for parents and children to talk about how wealth will be transferred at the parent’s death. An intergenerational estate plan that looks at the parent’s need to mitigate taxes and distribute wealth and at the impact that wealth will have on the recipient can help families work through the taboo issues. Whether you are the parent or the child, we can help initiate those conversations that will help ensure that both generations are ready for the inevitable.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all
dividends. Written by Securities America. SAI# 297858
