Ken Himmler.com » Economy and Stock Market http://kenhimmler.com Wealth Design and Management Thu, 29 Jul 2010 21:06:39 +0000 en hourly 1 http://wordpress.org/?v=3.0 © admin@kenhimmler.com () admin@kenhimmler.com() Retirement Strategies for Conservative Investors admin@kenhimmler.com No no http://kenhimmler.com/wp-content/plugins/podpress/images/powered_by_podpress.jpg Ken Himmler.com http://kenhimmler.com 144 144 Bonds, Interest Rates, and the Impact of Inflation http://kenhimmler.com/2010/07/29/bonds-interest-rates-and-the-impact-of-inflation/ http://kenhimmler.com/2010/07/29/bonds-interest-rates-and-the-impact-of-inflation/#comments Thu, 29 Jul 2010 17:56:29 +0000 Ken Himmler http://kenhimmler.com/?p=733

 


 

There are two fundamental ways that you can profit from owning bonds: from the interest that bonds pay, or from any increase in the bond’s price. Many people who invest in bonds because they want a steady stream of income are surprised to learn that bond prices can fluctuate, just as they do with any security traded in the secondary market. If you sell a bond before its maturity date, you may get more than its face value; you could also receive less if you must sell when bond prices are down. The closer the bond is to its maturity date, the closer to its face value the price is likely to be.

Though the ups and downs of the bond market are not usually as dramatic as the movements of the stock market, they can still have a significant impact on your overall return. If you’re considering investing in bonds, either directly or through a mutual fund or exchange-traded fund, it’s important to understand how bonds behave and what can affect your investment in them.
The price-yield seesaw and interest rates
Just as a bond’s price can fluctuate, so can its yield–its overall percentage rate of return on your investment at any given time. A typical bond’s coupon rate–the annual interest rate it pays–is fixed. However, the yield isn’t, because the yield percentage depends not only on a bond’s coupon rate but also on changes in its price.

Both bond prices and yields go up and down, but there’s an important rule to remember about the relationship between the two: They move in opposite directions, much like a seesaw. When a bond’s price goes up, its yield goes down, even though the coupon rate hasn’t changed. The opposite is true as well: When a bond’s price drops,its yield goes up.

That’s true not only for individual bonds but also the bond market as a whole. When bond prices rise, yields in general fall, and vice versa.
 
What moves the seesaw?
In some cases, a bond’s price is affected by something that is unique to its issuer–for example, a change in the bond’s rating. However, other factors have an impact on all bonds. The twin factors that affect a bond’s price are inflation and changing interest rates. A rise in either interest rates or the inflation rate will tend to cause bond prices to drop. Inflation and interest rates behave similarly to bond yields, moving in the opposite direction from bond prices.
If inflation means higher prices, why do bond prices drop?
The answer has to do with the relative value of the interest that a specific bond pays. Rising prices over time reduce the purchasing power of each interest payment a bond makes. Let’s say a five-year bond pays $400 every six months. Inflation means that $400 will buy less five years from now. When investors worry that a bond’s yield won’t keep up with the rising costs of inflation, the price of the bond drops because there is less investor demand for it.
Why watch the Fed?
Inflation also affects interest rates. If you’ve heard a news commentator talk about the Federal Reserve Board raising or lowering interest rates, you may not have paid much attention unless you were about to buy a house or take out a loan. However, the Fed’s decisions on interest rates can also have an impact on the market value of your bonds.
The Fed takes an active role in trying to prevent inflation from spiraling out of control. When the Fed gets concerned that the rate of inflation is rising, it may decide to raise interest rates. Why? To try to slow the economy by making it more expensive to borrow money. For example, when interest rates on mortgages go up, fewer people can afford to buy homes. That tends to dampen the housing market, which in turn can affect the economy.
When the Fed raises its target interest rate, other interest rates and bond yields typically rise as well. That’s because bond issuers must pay a competitive interest rate to get people to buy their bonds. New bonds paying higher interest rates mean existing bonds with lower rates are less valuable. Prices of existing bonds fall.
That’s why bond prices can drop even though the economy may be growing. An overheated economy can lead to inflation, and investors begin to worry that the Fed may have to raise interest rates, which would hurt bond prices even though yields are higher.
Falling interest rates: good news, bad news
Just the opposite happens when interest rates are falling. When rates are dropping, bonds issued today will typically pay a lower interest rate than similar bonds issued when rates were higher. Those older bonds with higher yields become more valuable to investors, who are willing to pay a higher price to get that greater income stream. As a result, prices for existing bonds with higher interest rates tend to rise.
Example: Jane buys a newly issued 10-year corporate bond that has a 4% coupon rate–that is, its annual payments equal 4% of the bond’s principal. Three years later, she wants to sell the bond. However, interest rates have risen; corporate bonds being issued now are paying interest rates of 6%. As a result, investors won’t pay Jane as much for her bond, since they could buy a newer bond that would pay them more interest. If interest rates later begin to fall, the value of Jane’s bond would rise again–especially if interest rates fall below 4%.
When interest rates begin to drop, it’s often because the Fed believes the economy has begun to slow. That may or may not be good for bonds. The good news: Bond prices may go up. However, a slowing economy also increases the chance that some borrowers may default on their bonds. Also, when interest rates fall, some bond issuers may redeem existing debt and issue new bonds at a lower interest rate, just as you might refinance a mortgage. If you plan to reinvest any of your bond income, it may be a challenge to generate the same amount of income without adjusting your investment strategy.
All bond investments are not alike
Inflation and interest rate changes don’t affect all bonds equally. Under normal conditions, short-term interest rates may feel the effects of any Fed action almost immediately, but longer-term bonds likely will see the greatest price changes.
Also, a bond mutual fund may be affected somewhat differently than an individual bond. For example, a bond fund’s manager may be able to alter the fund’s holdings to minimize the impact of rate changes. Your financial professional may do something similar if you hold individual bonds.

a Bonds, Interest Rates, and the Impact of Inflation]]>

 


 

There are two fundamental ways that you can profit from owning bonds: from the interest that bonds pay, or from any increase in the bond’s price. Many people who invest in bonds because they want a steady stream of income are surprised to learn that bond prices can fluctuate, just as they do with any security traded in the secondary market. If you sell a bond before its maturity date, you may get more than its face value; you could also receive less if you must sell when bond prices are down. The closer the bond is to its maturity date, the closer to its face value the price is likely to be.

Though the ups and downs of the bond market are not usually as dramatic as the movements of the stock market, they can still have a significant impact on your overall return. If you’re considering investing in bonds, either directly or through a mutual fund or exchange-traded fund, it’s important to understand how bonds behave and what can affect your investment in them.
The price-yield seesaw and interest rates
Just as a bond’s price can fluctuate, so can its yield–its overall percentage rate of return on your investment at any given time. A typical bond’s coupon rate–the annual interest rate it pays–is fixed. However, the yield isn’t, because the yield percentage depends not only on a bond’s coupon rate but also on changes in its price.

Both bond prices and yields go up and down, but there’s an important rule to remember about the relationship between the two: They move in opposite directions, much like a seesaw. When a bond’s price goes up, its yield goes down, even though the coupon rate hasn’t changed. The opposite is true as well: When a bond’s price drops,its yield goes up.

That’s true not only for individual bonds but also the bond market as a whole. When bond prices rise, yields in general fall, and vice versa.
 
What moves the seesaw?
In some cases, a bond’s price is affected by something that is unique to its issuer–for example, a change in the bond’s rating. However, other factors have an impact on all bonds. The twin factors that affect a bond’s price are inflation and changing interest rates. A rise in either interest rates or the inflation rate will tend to cause bond prices to drop. Inflation and interest rates behave similarly to bond yields, moving in the opposite direction from bond prices.
If inflation means higher prices, why do bond prices drop?
The answer has to do with the relative value of the interest that a specific bond pays. Rising prices over time reduce the purchasing power of each interest payment a bond makes. Let’s say a five-year bond pays $400 every six months. Inflation means that $400 will buy less five years from now. When investors worry that a bond’s yield won’t keep up with the rising costs of inflation, the price of the bond drops because there is less investor demand for it.
Why watch the Fed?
Inflation also affects interest rates. If you’ve heard a news commentator talk about the Federal Reserve Board raising or lowering interest rates, you may not have paid much attention unless you were about to buy a house or take out a loan. However, the Fed’s decisions on interest rates can also have an impact on the market value of your bonds.
The Fed takes an active role in trying to prevent inflation from spiraling out of control. When the Fed gets concerned that the rate of inflation is rising, it may decide to raise interest rates. Why? To try to slow the economy by making it more expensive to borrow money. For example, when interest rates on mortgages go up, fewer people can afford to buy homes. That tends to dampen the housing market, which in turn can affect the economy.
When the Fed raises its target interest rate, other interest rates and bond yields typically rise as well. That’s because bond issuers must pay a competitive interest rate to get people to buy their bonds. New bonds paying higher interest rates mean existing bonds with lower rates are less valuable. Prices of existing bonds fall.
That’s why bond prices can drop even though the economy may be growing. An overheated economy can lead to inflation, and investors begin to worry that the Fed may have to raise interest rates, which would hurt bond prices even though yields are higher.
Falling interest rates: good news, bad news
Just the opposite happens when interest rates are falling. When rates are dropping, bonds issued today will typically pay a lower interest rate than similar bonds issued when rates were higher. Those older bonds with higher yields become more valuable to investors, who are willing to pay a higher price to get that greater income stream. As a result, prices for existing bonds with higher interest rates tend to rise.
Example: Jane buys a newly issued 10-year corporate bond that has a 4% coupon rate–that is, its annual payments equal 4% of the bond’s principal. Three years later, she wants to sell the bond. However, interest rates have risen; corporate bonds being issued now are paying interest rates of 6%. As a result, investors won’t pay Jane as much for her bond, since they could buy a newer bond that would pay them more interest. If interest rates later begin to fall, the value of Jane’s bond would rise again–especially if interest rates fall below 4%.
When interest rates begin to drop, it’s often because the Fed believes the economy has begun to slow. That may or may not be good for bonds. The good news: Bond prices may go up. However, a slowing economy also increases the chance that some borrowers may default on their bonds. Also, when interest rates fall, some bond issuers may redeem existing debt and issue new bonds at a lower interest rate, just as you might refinance a mortgage. If you plan to reinvest any of your bond income, it may be a challenge to generate the same amount of income without adjusting your investment strategy.
All bond investments are not alike
Inflation and interest rate changes don’t affect all bonds equally. Under normal conditions, short-term interest rates may feel the effects of any Fed action almost immediately, but longer-term bonds likely will see the greatest price changes.
Also, a bond mutual fund may be affected somewhat differently than an individual bond. For example, a bond fund’s manager may be able to alter the fund’s holdings to minimize the impact of rate changes. Your financial professional may do something similar if you hold individual bonds.

a

Bonds, Interest Rates, and the Impact of Inflation

]]> http://kenhimmler.com/2010/07/29/bonds-interest-rates-and-the-impact-of-inflation/feed/ 0 TODAY GOVERNMENT DATA ON JOBS http://kenhimmler.com/2010/07/15/today-government-data-on-jobs/ http://kenhimmler.com/2010/07/15/today-government-data-on-jobs/#comments Thu, 15 Jul 2010 06:51:13 +0000 Ken Himmler http://kenhimmler.com/?p=726 I particularly like the way that the government stated their release on economic data today. Because of the stimulus the government has created OR saved at least three millions jobs. Yet another attempt at using words to try fool the American public. How can you say that with almost twenty percent unemployment that the stimulus saved three millions jobs? Facts facts facts please. Posted from WordPress for Android

a TODAY GOVERNMENT DATA ON JOBS]]> I particularly like the way that the government stated their release on economic data today. Because of the stimulus the government has created OR saved at least three millions jobs. Yet another attempt at using words to try fool the American public. How can you say that with almost twenty percent unemployment that the stimulus saved three millions jobs? Facts facts facts please. Posted from WordPress for Android

a

TODAY GOVERNMENT DATA ON JOBS

]]> http://kenhimmler.com/2010/07/15/today-government-data-on-jobs/feed/ 0 Are You Getting Enough Return on Your Investments? http://kenhimmler.com/2009/05/29/are-you-getting-enough-return-on-your-investments/ http://kenhimmler.com/2009/05/29/are-you-getting-enough-return-on-your-investments/#comments Fri, 29 May 2009 10:57:32 +0000 Ken Himmler http://kenhimmler.com/?p=505 It generally goes without saying that when setting aside money for retirement you want to get the most out of your investments.  Every type of investment carries with it a certain amount of risk.  This has a tendency to scare people into sticking with the safest investments possible because they are afraid of losing all of their money.  Unfortunately, the risks involved with investments are not always clear at the outset.

While it may sound like a good idea, the fact is letting your money sit in a standard savings account could cause you to effectively lose more money than you would be risking in other forms of investment.  It is very true that a little bit goes a long way, and over time a small investment could grow exponentially.  Unfortunately, there are a lot of other factors that are figured into the growth of your money.  One of these factors that is often overlooked is the ratio of interest to inflation.  If the level of interest is lower than the level of inflation, you will effectively lose money in your investment.

With any investment option the goal is always to get the highest interest rate possible.  This is especially important when we take the rate of inflation into account.  The value of the US Dollar changes over time.  Placing $1 in the bank now might result in $100 in 20 years but the value of that $100 will be different than it is today.  To avoid losing value in your investment it is important that your interest rate is the same as or (preferably) higher than the inflation rate.  For this reason the safest investment options for you may not be the best options for you.  Talk with your retirement planner if you are having trouble finding investment options that will give you the most return.

 

a Are You Getting Enough Return on Your Investments?]]> It generally goes without saying that when setting aside money for retirement you want to get the most out of your investments.  Every type of investment carries with it a certain amount of risk.  This has a tendency to scare people into sticking with the safest investments possible because they are afraid of losing all of their money.  Unfortunately, the risks involved with investments are not always clear at the outset.

While it may sound like a good idea, the fact is letting your money sit in a standard savings account could cause you to effectively lose more money than you would be risking in other forms of investment.  It is very true that a little bit goes a long way, and over time a small investment could grow exponentially.  Unfortunately, there are a lot of other factors that are figured into the growth of your money.  One of these factors that is often overlooked is the ratio of interest to inflation.  If the level of interest is lower than the level of inflation, you will effectively lose money in your investment.

With any investment option the goal is always to get the highest interest rate possible.  This is especially important when we take the rate of inflation into account.  The value of the US Dollar changes over time.  Placing $1 in the bank now might result in $100 in 20 years but the value of that $100 will be different than it is today.  To avoid losing value in your investment it is important that your interest rate is the same as or (preferably) higher than the inflation rate.  For this reason the safest investment options for you may not be the best options for you.  Talk with your retirement planner if you are having trouble finding investment options that will give you the most return.

 

a

Are You Getting Enough Return on Your Investments?

]]> http://kenhimmler.com/2009/05/29/are-you-getting-enough-return-on-your-investments/feed/ 0 Avoid Investment Scams http://kenhimmler.com/2009/05/26/avoid-investment-scams/ http://kenhimmler.com/2009/05/26/avoid-investment-scams/#comments Tue, 26 May 2009 10:45:11 +0000 Ken Himmler http://kenhimmler.com/?p=502 In the light of the present recession, everyone is looking for ways to make safe investments.  Unlike in previous generations, today’s primary resource for conducting the much needed investment research is none other than the Internet.  Unfortunately, there are a lot of dishonest people who have caught on to the fact that everyone is looking for a way to make a easy, safe investments.  These dishonest individuals have set up several elaborate scams to swindle honest, hardworking individuals like you out of their hard earned money.  You will need to equip yourself with the information you need to avoid such scams when doing your own investment research.

One of the most common scams comes in the form of unqualified individuals who claim to be reputable investment advisors.  These are sometimes easy to spot because they make unrealistic claims about your money.  Unfortunately there are also many well thought out scams that are hard to spot.  Sometimes scammers assume the identities of actual, licensed investment planners with outstanding credentials.  If you are not careful you can lose a lot of money in a short amount of time.

The best way to avoid these types of scams is to double-check all of your references.  Never send anybody money for investment services until you are absolutely sure they are who they claim to be.  Most reputable investment planners have only a select few websites that they operate with, and these websites are usually well documented by services that specialize in this kind of research.  When in doubt, do a google search with the name of the individual or service in question followed by the word ‘scam’ to find complaints other people have had.  When in doubt, follow this golden rule of Internet investing:  If it sounds to good to be true it probably is.  There are many legitimate investment services out there just waiting for you to find them.
 

a Avoid Investment Scams]]> In the light of the present recession, everyone is looking for ways to make safe investments.  Unlike in previous generations, today’s primary resource for conducting the much needed investment research is none other than the Internet.  Unfortunately, there are a lot of dishonest people who have caught on to the fact that everyone is looking for a way to make a easy, safe investments.  These dishonest individuals have set up several elaborate scams to swindle honest, hardworking individuals like you out of their hard earned money.  You will need to equip yourself with the information you need to avoid such scams when doing your own investment research.

One of the most common scams comes in the form of unqualified individuals who claim to be reputable investment advisors.  These are sometimes easy to spot because they make unrealistic claims about your money.  Unfortunately there are also many well thought out scams that are hard to spot.  Sometimes scammers assume the identities of actual, licensed investment planners with outstanding credentials.  If you are not careful you can lose a lot of money in a short amount of time.

The best way to avoid these types of scams is to double-check all of your references.  Never send anybody money for investment services until you are absolutely sure they are who they claim to be.  Most reputable investment planners have only a select few websites that they operate with, and these websites are usually well documented by services that specialize in this kind of research.  When in doubt, do a google search with the name of the individual or service in question followed by the word ‘scam’ to find complaints other people have had.  When in doubt, follow this golden rule of Internet investing:  If it sounds to good to be true it probably is.  There are many legitimate investment services out there just waiting for you to find them.
 

a

Avoid Investment Scams

]]> http://kenhimmler.com/2009/05/26/avoid-investment-scams/feed/ 0 Is Your Plan Up To Date? http://kenhimmler.com/2009/05/22/is-your-plan-up-to-date/ http://kenhimmler.com/2009/05/22/is-your-plan-up-to-date/#comments Fri, 22 May 2009 02:27:26 +0000 Ken Himmler http://kenhimmler.com/?p=499 When an individual starts down the path toward financial independence, it is understood that he or she will have to make adjustments along the way.  Even the most well thought out plan cannot take into account every unforeseen situation that can interfere with your future plans.  For this reason, it is extremely important to stay on top of your financial situation so that you can make the appropriate adjustments to your savings and investments as necessary.

There is no substitute for being well informed about the laws that govern things such as taxes, investments, or anything that could affect your personal financial status.  State and tax laws have a tendency to change seemingly overnight, and adjustments to your financial retirement plan may have to be made so that you continue to get the most out of your hard earned money.  Failure to stay on top of your financial situation in this way could even have some potentially dire legal consequences.  Always check with your retirement planner when you hear about new laws that could concern your savings and investments.

Besides legal changes, there are many other situations that you should stay well informed about.  New financial opportunities become available every day for those who are actively looking for them.  Whether it is a new investment opportunity or a special holiday savings account with a particularly high interest rate, adapting your plan as necessary can make you a lot more money in the long run. 

If you get in the habit of doing investment research, watching the economic forecasts, and playing an active role in the investment process, you will be better equipped to deal with life’s uncertainties.  All it takes is a little bit of time, effort, and energy and you will be well on your way to true financial independence.
 

a Is Your Plan Up To Date?]]> When an individual starts down the path toward financial independence, it is understood that he or she will have to make adjustments along the way.  Even the most well thought out plan cannot take into account every unforeseen situation that can interfere with your future plans.  For this reason, it is extremely important to stay on top of your financial situation so that you can make the appropriate adjustments to your savings and investments as necessary.

There is no substitute for being well informed about the laws that govern things such as taxes, investments, or anything that could affect your personal financial status.  State and tax laws have a tendency to change seemingly overnight, and adjustments to your financial retirement plan may have to be made so that you continue to get the most out of your hard earned money.  Failure to stay on top of your financial situation in this way could even have some potentially dire legal consequences.  Always check with your retirement planner when you hear about new laws that could concern your savings and investments.

Besides legal changes, there are many other situations that you should stay well informed about.  New financial opportunities become available every day for those who are actively looking for them.  Whether it is a new investment opportunity or a special holiday savings account with a particularly high interest rate, adapting your plan as necessary can make you a lot more money in the long run. 

If you get in the habit of doing investment research, watching the economic forecasts, and playing an active role in the investment process, you will be better equipped to deal with life’s uncertainties.  All it takes is a little bit of time, effort, and energy and you will be well on your way to true financial independence.
 

a

Is Your Plan Up To Date?

]]> http://kenhimmler.com/2009/05/22/is-your-plan-up-to-date/feed/ 0 Taxes in The Time Of Obama. How Might Things Change? http://kenhimmler.com/2009/05/19/taxes-in-the-time-of-obama-how-might-things-change/ http://kenhimmler.com/2009/05/19/taxes-in-the-time-of-obama-how-might-things-change/#comments Tue, 19 May 2009 00:10:36 +0000 Ken Himmler http://kenhimmler.com/?p=449  

 In February, President Barack Obama rolled out his plan for the federal budget – a budget created with the vision of aiding the middle class and making health insurance available to more Americans. Since his campaign, he has also repeatedly vowed that taxes will not go up for families making less than $250,000 annually.1Given this mission and that pledge, the question becomes: how will the federal government fund the President’s sweeping social programs? If taxes won’t rise for the middle class and working class, where will the money come from? The all-but-certain answer: from businesses and about 3 million of the highest-earning Americans.  
 
Turning back the hands of time? In the President’s conception, the sun would set on tax cuts given to high-income earners during the Bush years. Families earning more than $250,000 and individuals earning more than $200,000 would contend with the tax rates they faced during the Clinton administration. The 2001 and 2003 tax cuts would expire in 2011. In 2011, the highest two tax brackets would return to 36% and 39.6%, and the capital gains tax rate would head back up to 20%. The Obama administration believes this could raise $637 billion over the coming decade.2
 
 
Will the estate tax stay the same? 2010 was to be the year of 0% estate tax – the great reprieve before estate taxes as high as 55% would hit in 2011. That was what was supposed to happen … but now it may not. President Obama wants the estate tax picture to remain as it is now, with estate tax rates of up to 45% kicking in above a $3.5 million exemption (which would be indexed to inflation for future years). In late April, a Senate proposal aimed to lower the estate tax rate and raise the exemption, but this fell by the wayside in budget negotiations with the House. So it appears the estate tax is here to stay, but it will apparently not reset to 2001 rates.3,4
 
How might things change for businesses? Among the ideas being considered: a requirement that investment partnerships pay regular income tax rates rather than capital gains tax rates; revoking methods of inventory accounting that can help to cut business taxes; and further restricting corporate options for automatic deferral of federal taxes on overseas income. Treasury Secretary Tim Geithner has claimed that planned tax increases would only affect only about 2% of filers with business profits; the nonpartisan Joint Committee on Taxation puts the figure at 3%.1
 
Legislators call for compromises. On April 29, the House and Senate approved a $3.5-trillion outline of the proposed federal budget, but it did not include all of what the President wanted. (No Congressional Republicans voted for the budget resolution, and among them, Sen. John McCain denounced it as “generational theft”.)4 An important tax-linked question wasn’t answered: how to pick up the cost of making quality healthcare accessible to more Americans. The President wants to leave more money for that mission by capping tax deductions at 28% for families earning more than $250,000 a year, as opposed to the current 33% value. Charities and homebuilders would hate that idea, and figure to lobby Congress if it advances.4
 
The Obama administration also wanted to remove subsidies to farms with annual sales of more than $500,000, and have the opportunity to bill insurance companies for treatment of injuries linked to military service. Neither idea survived budget negotiations in Congress.4 Under the budget blueprint that was approved, the $400/$800 “Making Work Pay” tax credit – which Obama wanted to make permanent – would disappear after 2010.4
 
Changes may call for conversation. If these proposed tax changes become law, would you be affected? This is an excellent time to consider what might happen to your financial picture as a result. A talk with your financial or tax advisor may help you to identify your options.
 
 
 
 
Citations.
1 washingtonpost.com/wp-dyn/content/article/2009/04/26/AR2009042602838_pf.html          [4/26/09]
2 money.cnn.com/2009/02/26/news/economy/obama_budget_outline/index.htm?postversion=2009022619                     [2/27/09]
3 sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/25/BUGE178HU6.DTL          [4/25/09]
4 latimes.com/news/la-na-budget30-2009apr30,0,5614049.story   [4/30/09]

 

a Taxes in The Time Of Obama. How Might Things Change?]]>  

 In February, President Barack Obama rolled out his plan for the federal budget – a budget created with the vision of aiding the middle class and making health insurance available to more Americans. Since his campaign, he has also repeatedly vowed that taxes will not go up for families making less than $250,000 annually.1Given this mission and that pledge, the question becomes: how will the federal government fund the President’s sweeping social programs? If taxes won’t rise for the middle class and working class, where will the money come from? The all-but-certain answer: from businesses and about 3 million of the highest-earning Americans.  
 
Turning back the hands of time? In the President’s conception, the sun would set on tax cuts given to high-income earners during the Bush years. Families earning more than $250,000 and individuals earning more than $200,000 would contend with the tax rates they faced during the Clinton administration. The 2001 and 2003 tax cuts would expire in 2011. In 2011, the highest two tax brackets would return to 36% and 39.6%, and the capital gains tax rate would head back up to 20%. The Obama administration believes this could raise $637 billion over the coming decade.2
 
 
Will the estate tax stay the same? 2010 was to be the year of 0% estate tax – the great reprieve before estate taxes as high as 55% would hit in 2011. That was what was supposed to happen … but now it may not. President Obama wants the estate tax picture to remain as it is now, with estate tax rates of up to 45% kicking in above a $3.5 million exemption (which would be indexed to inflation for future years). In late April, a Senate proposal aimed to lower the estate tax rate and raise the exemption, but this fell by the wayside in budget negotiations with the House. So it appears the estate tax is here to stay, but it will apparently not reset to 2001 rates.3,4
 
How might things change for businesses? Among the ideas being considered: a requirement that investment partnerships pay regular income tax rates rather than capital gains tax rates; revoking methods of inventory accounting that can help to cut business taxes; and further restricting corporate options for automatic deferral of federal taxes on overseas income. Treasury Secretary Tim Geithner has claimed that planned tax increases would only affect only about 2% of filers with business profits; the nonpartisan Joint Committee on Taxation puts the figure at 3%.1
 
Legislators call for compromises. On April 29, the House and Senate approved a $3.5-trillion outline of the proposed federal budget, but it did not include all of what the President wanted. (No Congressional Republicans voted for the budget resolution, and among them, Sen. John McCain denounced it as “generational theft”.)4 An important tax-linked question wasn’t answered: how to pick up the cost of making quality healthcare accessible to more Americans. The President wants to leave more money for that mission by capping tax deductions at 28% for families earning more than $250,000 a year, as opposed to the current 33% value. Charities and homebuilders would hate that idea, and figure to lobby Congress if it advances.4
 
The Obama administration also wanted to remove subsidies to farms with annual sales of more than $500,000, and have the opportunity to bill insurance companies for treatment of injuries linked to military service. Neither idea survived budget negotiations in Congress.4 Under the budget blueprint that was approved, the $400/$800 “Making Work Pay” tax credit – which Obama wanted to make permanent – would disappear after 2010.4
 
Changes may call for conversation. If these proposed tax changes become law, would you be affected? This is an excellent time to consider what might happen to your financial picture as a result. A talk with your financial or tax advisor may help you to identify your options.
 
 
 
 
Citations.
1 washingtonpost.com/wp-dyn/content/article/2009/04/26/AR2009042602838_pf.html          [4/26/09]
2 money.cnn.com/2009/02/26/news/economy/obama_budget_outline/index.htm?postversion=2009022619                     [2/27/09]
3 sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/25/BUGE178HU6.DTL          [4/25/09]
4 latimes.com/news/la-na-budget30-2009apr30,0,5614049.story   [4/30/09]

 

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Taxes in The Time Of Obama. How Might Things Change?

]]> http://kenhimmler.com/2009/05/19/taxes-in-the-time-of-obama-how-might-things-change/feed/ 0 Retirement And The Recession: What You Need To Know http://kenhimmler.com/2009/05/14/retirement-and-the-recession-what-you-need-to-know/ http://kenhimmler.com/2009/05/14/retirement-and-the-recession-what-you-need-to-know/#comments Thu, 14 May 2009 23:16:13 +0000 Ken Himmler http://kenhimmler.com/?p=447 The recession is on everyone’s minds these days. If you are retired or nearing retirement this adds to the concern and stress. I recently wrote an article about the key points you need to know about how the recession effects your retirement.

Eventhough this is a difficult time for everyone, there are tips and techniques on how to comfortably retire in the midst of a weak economy: View the article here   http://www.financialadvisormatch.com/community/articles/1115_retirement_and_the_recession_what_you_need_to_know.html

a Retirement And The Recession: What You Need To Know]]> The recession is on everyone’s minds these days. If you are retired or nearing retirement this adds to the concern and stress. I recently wrote an article about the key points you need to know about how the recession effects your retirement.

Eventhough this is a difficult time for everyone, there are tips and techniques on how to comfortably retire in the midst of a weak economy: View the article here   http://www.financialadvisormatch.com/community/articles/1115_retirement_and_the_recession_what_you_need_to_know.html

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Retirement And The Recession: What You Need To Know

]]> http://kenhimmler.com/2009/05/14/retirement-and-the-recession-what-you-need-to-know/feed/ 0 Annuities Update http://kenhimmler.com/2009/04/16/annuities-update/ http://kenhimmler.com/2009/04/16/annuities-update/#comments Thu, 16 Apr 2009 20:35:53 +0000 Ken Himmler http://kenhimmler.com/?p=431 We have seen quite a bit of financial destruction and deception from the banks and the large financial institutions. Many people are starting to questions will we have the same fallout with insurance companies. Many of you know that I attended a conference in the beginning of January to learn more about the state of the insurance industry. At that time I listened to the insurance company executives talk about the problems they were going to have. Their problems were not so much centered on losing business but more of too much business. Many of these executives were worried with the crash of the stock market and the low yields on CDs and bonds people would flock to annuities in unprecedented numbers.

They were concerned with not only how they would handle the investment of all the influx but how would they handle the necessary staff needed for all the additional business. It seemed as though the general contention was to put a limit of the amount of business that they would accept. They also talked about reducing some of the benefits to reduce the amount of inflow. In the last two weeks we have now seen quite a lot of change from the insurance companies. Here is a small list of some of the changes some of the big players are making;

1) Reduction of maximum issue age they are willing to accept.
2) Reduction in the amount of maximum investment by any one person or family.
3) Reduction of the upfront bonus. Example: A certain company reduced their upfront bonus from 10% to 8%
4) Reduction in the cap on the annual earnings.
5) Reduction in the rider benefits. Example is: A certain company was giving a 8% guaranteed income rider for 10 years. They have now reduced this to 5%
6) A limit on the total amount of the business they will accept: Example: A certain company had set a limit on the amount of new money they would take in 2009 to nine billion. They hit six billion in the first three months of 2009. They are now setting monthly maximum limits. The problem with this is we just wait in line and send in the money and they may send it back because they have hit their maximum.
7) Only new money accepted. One of the costs of the annuity company is when they will facilitate the moving of money from brokerage accounts, Bank CDs, or other annuities. Some of the larger companies are now putting this task on the client and will only accept an annuity application with a physical check.

I felt it important to update everyone on this recent development. My opinion is that in today’s environment of low CD rates, volatile markets and unknown economic horizons annuities still play in important part of a pre-retirement or retirement plan.

In your lifespan you will encounter three phases. The accumulation phase, the pre-retirement phase and the retirement or distribution phase. Annuities play an important part in the pre-retirement and the distribution phase. I am still a big believer that only under certain circumstances should annuities be used for younger people – ie in the accumulation phase.
 

a Annuities Update]]> We have seen quite a bit of financial destruction and deception from the banks and the large financial institutions. Many people are starting to questions will we have the same fallout with insurance companies. Many of you know that I attended a conference in the beginning of January to learn more about the state of the insurance industry. At that time I listened to the insurance company executives talk about the problems they were going to have. Their problems were not so much centered on losing business but more of too much business. Many of these executives were worried with the crash of the stock market and the low yields on CDs and bonds people would flock to annuities in unprecedented numbers.

They were concerned with not only how they would handle the investment of all the influx but how would they handle the necessary staff needed for all the additional business. It seemed as though the general contention was to put a limit of the amount of business that they would accept. They also talked about reducing some of the benefits to reduce the amount of inflow. In the last two weeks we have now seen quite a lot of change from the insurance companies. Here is a small list of some of the changes some of the big players are making;

1) Reduction of maximum issue age they are willing to accept.
2) Reduction in the amount of maximum investment by any one person or family.
3) Reduction of the upfront bonus. Example: A certain company reduced their upfront bonus from 10% to 8%
4) Reduction in the cap on the annual earnings.
5) Reduction in the rider benefits. Example is: A certain company was giving a 8% guaranteed income rider for 10 years. They have now reduced this to 5%
6) A limit on the total amount of the business they will accept: Example: A certain company had set a limit on the amount of new money they would take in 2009 to nine billion. They hit six billion in the first three months of 2009. They are now setting monthly maximum limits. The problem with this is we just wait in line and send in the money and they may send it back because they have hit their maximum.
7) Only new money accepted. One of the costs of the annuity company is when they will facilitate the moving of money from brokerage accounts, Bank CDs, or other annuities. Some of the larger companies are now putting this task on the client and will only accept an annuity application with a physical check.

I felt it important to update everyone on this recent development. My opinion is that in today’s environment of low CD rates, volatile markets and unknown economic horizons annuities still play in important part of a pre-retirement or retirement plan.

In your lifespan you will encounter three phases. The accumulation phase, the pre-retirement phase and the retirement or distribution phase. Annuities play an important part in the pre-retirement and the distribution phase. I am still a big believer that only under certain circumstances should annuities be used for younger people – ie in the accumulation phase.
 

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Annuities Update

]]> http://kenhimmler.com/2009/04/16/annuities-update/feed/ 0 Insurance Companies Go For The Gold http://kenhimmler.com/2009/04/16/insurance-companies-go-for-the-gold/ http://kenhimmler.com/2009/04/16/insurance-companies-go-for-the-gold/#comments Thu, 16 Apr 2009 00:25:03 +0000 Ken Himmler http://kenhimmler.com/?p=429 The government’s bailout money is not up for grabs. Large insurance companies that qualify for the government’s bailout money have made applications. So far Hartford life, Prudential and Metropolitan are some of the ones that have made the application. They may be eligible for billions that may help bolster their corporate bond positions. Most insurance companies make money on the spreads that they get from buying corporate bonds and government bonds. Just like a bank makes a spread on the money they payout on Cds and savings accounts versus the amount they charge on loans. Insurance companies make money the same way – on their portfolios.

The problem was when the recession – depression hit many companies either stopped their interest payments on their bonds or outright defaulted. This has put a crunch on some insurance companies that may have been leveraged to highly. This new seed of investment help from the government should help these companies buy up more corporate and government bonds. While it still makes sense to have insurance companies as a part of an overall investment plan it also makes sense to diversify between different companies and different insurance products. You also want to check your state to find out what the actual coverage is in case an insurance company does go into receivership. As an example in Florida the amount each person is covered for is $100,000 for an annuity contract. 

a Insurance Companies Go For The Gold]]> The government’s bailout money is not up for grabs. Large insurance companies that qualify for the government’s bailout money have made applications. So far Hartford life, Prudential and Metropolitan are some of the ones that have made the application. They may be eligible for billions that may help bolster their corporate bond positions. Most insurance companies make money on the spreads that they get from buying corporate bonds and government bonds. Just like a bank makes a spread on the money they payout on Cds and savings accounts versus the amount they charge on loans. Insurance companies make money the same way – on their portfolios.

The problem was when the recession – depression hit many companies either stopped their interest payments on their bonds or outright defaulted. This has put a crunch on some insurance companies that may have been leveraged to highly. This new seed of investment help from the government should help these companies buy up more corporate and government bonds. While it still makes sense to have insurance companies as a part of an overall investment plan it also makes sense to diversify between different companies and different insurance products. You also want to check your state to find out what the actual coverage is in case an insurance company does go into receivership. As an example in Florida the amount each person is covered for is $100,000 for an annuity contract. 

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Insurance Companies Go For The Gold

]]> http://kenhimmler.com/2009/04/16/insurance-companies-go-for-the-gold/feed/ 0 Enlightened Investments http://kenhimmler.com/2009/03/23/enlightened-investments/ http://kenhimmler.com/2009/03/23/enlightened-investments/#comments Mon, 23 Mar 2009 22:32:38 +0000 Ken Himmler http://kenhimmler.com/?p=413 In the ancient past, people all over the world used to seek religious freedom from tyranny and oppression.  They employed numerous methods to attain their spiritual independence and achieve a state that we often call ‘Enlightenment.’  The situation is very much the same for investors today as they struggle to climb the investment ladder and attain their own financial independence. 

Investment strategies are a lot like the various religious paths of days gone by in that all of them are undoubtedly similar while employing different methods to achieve the desired effect.  Every investment strategy requires dedication and a degree of faith, which comes in the form of confidence in your own financial decisions.  Investors are like spiritual brothers and sisters who share advice with each other while walking parallel paths to the much-desired financial independence that everyone seeks.

While there is a degree of competition that exists on the stock market, investing for retirement is not a solitary path that you have to travel by yourself.  There are numerous opportunities that you can take to achieve your goal and have a comfortable retirement.  There are online internet communities that offer free investment advice, there are financial planners and financial advisors that can act as teachers and show you the way.  The investment journey of a lifetime begins with the first step, and the most important step is always the next.

As with any devotion, be it religious or secular, investing is a journey that is never truly over.  There is always a new plateau to reach.  One can never truly be at the top of the investment mountain.  There can be much satisfaction to be had when looking at all that you have accomplished and looking at what you can still accomplish in the future.  Your investment journey is never complete.
 

a Enlightened Investments]]> In the ancient past, people all over the world used to seek religious freedom from tyranny and oppression.  They employed numerous methods to attain their spiritual independence and achieve a state that we often call ‘Enlightenment.’  The situation is very much the same for investors today as they struggle to climb the investment ladder and attain their own financial independence. 

Investment strategies are a lot like the various religious paths of days gone by in that all of them are undoubtedly similar while employing different methods to achieve the desired effect.  Every investment strategy requires dedication and a degree of faith, which comes in the form of confidence in your own financial decisions.  Investors are like spiritual brothers and sisters who share advice with each other while walking parallel paths to the much-desired financial independence that everyone seeks.

While there is a degree of competition that exists on the stock market, investing for retirement is not a solitary path that you have to travel by yourself.  There are numerous opportunities that you can take to achieve your goal and have a comfortable retirement.  There are online internet communities that offer free investment advice, there are financial planners and financial advisors that can act as teachers and show you the way.  The investment journey of a lifetime begins with the first step, and the most important step is always the next.

As with any devotion, be it religious or secular, investing is a journey that is never truly over.  There is always a new plateau to reach.  One can never truly be at the top of the investment mountain.  There can be much satisfaction to be had when looking at all that you have accomplished and looking at what you can still accomplish in the future.  Your investment journey is never complete.
 

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Enlightened Investments

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