Financial Things to Be Thankful For.... (Archived Blog)

Hello and happy holidays!  As we write this, we find that the holiday spirit has taken captive of the Lighthouse Financial Planning LLC team and we are feeling grateful, blessed and optimistic for many things highlighted below.

In September we noted what a rocky summer it had been and we touched on the “new normal volatility” in the various markets.  Our theme in this communication is much the same.  The US outlook is improving many areas and the many challenges in Europe as well as around the globe and our own political environment remain ready to rock the market.  What we are seeing is that the markets continue to be irrational and unpredictable in the short-term, yet the long-term trends are as expected.

To our point, the Dow Jones Industrial Average (a fine benchmark for overall market behavior) reached this year’s high on of 12,724 on July 21st, a low of 10,655 on October 3rd to 11,970 as we write this letter.  That is a 16.5% swing from high to low and we are currently floating smack dap in the middle. We believe this illustrates the irrational reaction to the news of the day.  Yet, year over year the benchmark is up over 5%.

While the general increase in the broader market benchmarks is due to many factors, here as some we think you may be interested in learning about:

1. Mortgage rates are at a “once in a lifetime” low. You’ll likely not see mortgage rates this low again anytime soon. Rates for a conventional, 30-year fixed-rate mortgage dropped below 4% for the first time ever in October, and have pretty much stayed there.
2. We’re paying down debt. Plenty of polls and studies throughout the year have indicated that Americans are doing their best to get out of debt. The aftershocks of the Great Recession may continue to linger, but so has this good habit that many of us relearned during the economic turmoil. We’re working toward paying down credit card and other types of revolving debt.
3. We’re saving more. Since 2007 there has been a steady rise in personal savings rates which has continued through today.
4. Americans are improving their credit scores. According to Experian’s second annual State of Credit list, which ranks major American cities by their average credit scores, five out of the 10 lowest-scoring cities improved their scores and decreased their debt since 2010.
5. Banks appear to be listening. After much public outcry, one of the nation’s largest banks announced it will not impose a $5 per month fee on account holders for using their debit cards. The move will save account-holders $60 a year and can be interpreted as a sign that the power of the consumer – to take your business elsewhere – is alive and well in America.
6. More jobs need to be filled. The U.S. Department of Labor reports that there were 3.35 million available jobs at the end of September, an increase of 220,000 jobs since August. Plus, hiring rose in September too.
7. Credit cards are getting fairer. And we’re all using them less. The federal Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 has made it harder for credit card companies to add on fees and change interest rates. Plus, we’re using less unsecured (revolving) credit and more of the “good” secured (non-revolving) type of credit, according to the Federal Reserve.
8. You're enjoying a tax cut this year -- and might get an even bigger one next year. Congress is expected to extend the Social Security payroll tax holiday that was put into effect this year through 2012 and possibly even expand it. For taxpayers earning $50,000 a year, the current 2% reduction in payroll taxes saves them $83.30 per month. If the payroll tax is trimmed by 3.1% and expanded to employers, as some have suggested, workers and businesses could save $129.16 per month in payroll taxes on a $50,000 salary next year.
9. The economy is sprouting in unlikely parts of the American countryside. While the Fed recently cut its projection for national gross domestic product growth and thinks the U.S. jobless rate will finish 2011 near 9%, U.S. farm and energy sectors are pumping strength into many rural areas. Rural unemployment has dropped from 10.2% in January 2011 to 8.5% in September, according to the Bureau of Labor Statistics. And overseas, nations that are top buyers of U.S. farm goods are hiring more workers. That’s good for U.S. farm exports.
10. New benefits from the 2010 health care reform law have started to kick in. Adult children up to age 26 are now eligible for dependent coverage under all individual and group policies. A young adult can qualify for this coverageeven if he or she is no longer living with a parent, is not a dependent on a parent’s tax return and is no longer a student. Both married and unmarried young adults can qualify. This provision has helped one million uninsured young adults get coverage. For seniors, drug manufacturers now must provide a 50% discount on brand-name prescription drugs filled in the Medicare Part D coverage gap, the so-called doughnut hole. At midyear, the feds announced that some 500,000 people had received a discount on their brand-name drugs, with an average savings of $545 per beneficiary. Also, Medicare beneficiaries now can receive preventive services, including an annual wellness visit to the doctor, without cost sharing.
11. Beleaguered airline passengers now have more rights, thanks to the Department of Transportation. Penalties for bumping passengers have increased. Those facing short delays will get double the price of their tickets, up to $650, while those subject to longer delays will get payments of four times the value of their tickets, up to $1,300. The ban on lengthy tarmac delays was expanded to foreign carriers and 303 smaller U.S. airports. Airlines must refund baggage fees if the baggage is lost.
12. The Internet. From online bill paying to easy money transfers, the Internet has simplified daily financial tasks. You can check your accounts, pay bills, and compare prices with a few clicks of the mouse.
13. Investment fees are significantly lower: The lower the fees and expenses we have to pay, obviously the more money we have in our pockets.  Years ago, before full disclosure, high fees were acceptable and the industry standard was an upfront fee (load) of 8.5% on all mutual fund purchases through a broker and everyone paid it.  In fact, investors paid hefty fees all around back then. In 1980, the average front load for a mutual fund was 7.9%, and the average annualized cost (including expense ratios) was 2.32% for stock funds and 2.05% for bond funds.  Today, there are a myriad of low fee choices for investors, including no-load and exchange traded funds.  Even though the average front load for a stock mutual fund today is 5.3%.  Investors today have a huge advantage over investors twenty years ago.
14. There is now the CERTIFIED FINANCIAL PLANNERTM. Now it’s easier to find a qualified professional. Before the Certified Financial Planner Board of Standards was officially launched in 1985, the main qualification for a financial representative was to pass a stockbroker’s exam, which was mainly memorization of trading and options. The Certified Financial Planner™ designation changed all that.  A college degree and successfully passing exams in six classes of study in various areas of finance, which included case studies, are required. Planners needed to have a minimum of three years of experience to earn their designation and then once they had it, there was continuing education and adherence to a code of ethics.  We believe that with a holistic financial plan, more solid financial decisions are made.
15. The National Association of Personal Financial Advisors (NAPFA).The nature of the advisor relationship has changed: The model for working with a professional financial advisor frankly needed to change. Historically, investors worked with a traditional stock broker who made commissions on trades when a client bought or sold. The incentive is obviously skewed toward moving money around so the investors never quite knew whose best interest the broker was working for.  Today, the financial planning industry has created a model where the advisor and client sit on the same side of the table with fee-based asset management rather than commissions for trades.A group of planners who wanted to serve the public without being concerned with commissions formed the National Association of Personal Financial Advisors in 1983.  Today, they provide support and education for 2,400 members who provide fee-only financial planning services to the public.  The industry has evolved to become more client focused and less commission focused.    Obviously greed was not eliminated, but we’ve come a long way.

During this holiday season, we can certainly be thankful for many things.  Another one is that we can also turn off the flow of information as we silence the smartphone and close the iPad to enjoy an evening with our family and close friends.