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6-17-2009 Tax Updates

6-13-2009 Feb/Mar FourBits Newsletter

4-13-2009 Financial Commentary

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2009 3rd qtr tax estimates due 9-15-2009

2009 Roth & Trad. IRA max is: $5,000 p/yr
                                          $6,000 p/yr (50+)
                (Can contribute to 2009 up till April 15th, 2010)

2009 401(k) max:          $16,500 p/yr                                   $22,000p/yr (50+)

2009 Simple IRA max:     $11,500 p/yr                                   $14,000 p/yr (50+) 

LEARNING FROM THE PAST

It can be easy to forget that the economy is cyclical, good times follow bad times and vice versa.  Planning for the future with this knowledge has been helpful when positioning for today as well as the future.  For some, it might be the realization that historically, recessions have hit our economy about two to three years out of every ten years.  If that person’s circumstances allow for it, he or she should stay the course through thick and thin in order to reach long term goals.  For others, it may be the realization that a current level of volatility is just too much.  After waiting through a pending recovery in the economy and markets, they may wish to reallocate from more aggressive holdings to more moderate or conservative holdings.  As for right now, we all ask, what next?

Historic Pace of Recovery After Previous Bear Markets

History is not a guarantee of future performance, but it may offer a potential framework for setting expectations. The table below shows each decline in the S&P 500 of greater than 20% since 1950, with the subsequent market performance 1 year and 2 years afterwards:  

After each bear market, the market showed a robust rebound, often earning back the bear market’s losses by the end of the first twelve month period. One lesson to consider is that investors who suffered the decline, then retreated to the sidelines “waiting for the market to turn around” probably missed the potential benefit from some or all of the gain.

Is the bear market over? Are we in a recovery period? That remains to be seen, but there are positive signs. A number of commentators are suggesting that late 2009 may be a pivotal time for the beginnings of a recovery.  In reality, no one really knows, but history has sometimes suggested that when things start going well, they can go up (just as quickly as they can go down).  One example of this in recent history is that from November 20, 2008 through December 31, 2008, the S&P 500 returned a brisk 20.47%.  The market has gone down since the beginning of 2009, reaching new lows in the current bear market, but has once again bounced back in a similar fashion as what we saw at the end of 2008.  There are clearly challenges ahead.

No Where to Hide?

The second possible trend requires some explanation. In portfolio management, the degree to which asset classes track each other’s returns is called correlation. Highly correlated classes rise and fall together, while highly uncorrelated classes tend to perform independently, with one class rising as the other falls.           

One of the arts of portfolio management is piecing together asset classes that perform differently in a given environment, so that we can attempt to control risk and gain return opportunities. Unfortunately, one of the challenges of 2008 and 2009 is that many equity asset classes have become very closely correlated. In other words, the financial storm was strong enough to knock everything down, leaving few places to provide shelter.

This high degree of correlation is very unusual. Over the next few months, however, we expect to see correlations spreading as some asset classes, industries, sectors or regions may begin to recover more quickly than others, while others may slump further.  What this means for you is that while the real economy is expected to face continued difficulties in the coming year, the capital markets also can be expected to rise, fall and drift as well.  Spreading correlations help create space for portfolio strategists and investment management firms to find potential opportunities on your behalf.

What now?

2008 and 2009 have been tough years.  We are confident the economy will come through this recent downturn, as it has in the past.  We want to thank you for the trust you have placed in us and reaffirm our commitment to working hard on your behalf in the coming year.  Certainly the past few months may have raised questions or concerns. Separately, your objectives or circumstances may have changed. Please do not hesitate to contact us; we will be happy to review your investment plan in more detail.  We believe that by working together, we will be able to help you achieve your financial goals.  

Please take a look at the financial commentary section of our Website or attend one of our Education Seminars this spring and summer for more insight on the economy and markets.  Please remember that historical performance does not guarantee future results and try not to let fear direct your execution of long term goals.  I request that you share this letter with your co-workers, friends and family who may be worried about their investments.  We have the capacity to service more valuable clients like you and would appreciate your referral. 

Sincerely,                               

Mark W. Feucht, CFP, EA   Jeremy Feucht, Partner    Jeff Nielsen     Chad Muehlbauer       Jake Harmsen

Principal, NPC                   Principal, NPC                           Investment / Tax Consultant(s)

*Returns reflect the performance of the S&P 500 Index (a registered trademark of the McGraw Hill Companies), an unmanaged basket of 500 stocks that are considered to be widely held and thus believed to be an indicator of overall market performance. This index of common stocks is weighted by market value. Returns for the S&P 500 Index are calculated on a price-only basis without dividends and capital gains distributions, reinvested.  Investors cannot invest directly into the S&P 500.