Special Needs Planning and the McKay Scholarship

8 12 2013

Kristine d'Estarhazy, CFP®

Kristine d’Esterhazy, CFP®

Any parent, family member or friend of a family with a special needs child is aware of the struggle to find that child adequate educational resources.  On top of finding a facility that can provide quality education and services for the child’s unique needs, financing that cost can be a daunting challenge.  Did you know that there is a program available here in Florida that provides significant financial resources for just that purpose?  Ironically, it is probably one of the least understood, least publicized, and greatest planning tools for families with a special needs child.  It is The McKay Scholarship Program. [1]  It’s fairly simple for a child with special needs to qualify – the challenge is finding out what McKay is, how it works and what it can do for a child.

Does the name McKay sound familiar?  You may have received a notice from your child’s school.  Public schools are required to inform parents/guardians annually that their child ‘may be eligible’ for McKay.  As a parent of a special needs child, I received this notice.  I still have it.  Even as I read it now, knowing what the McKay Scholarship is, I struggle to grasp what the notice says.  For three years in a row, I filed it away with other notices we got that didn’t apply to us, like ‘your child may be eligible’ for free or reduced lunch.  It was only after speaking with other parents that I realized ‘your child may be eligible’ for McKay does not have the same meaning – it is not based on income, it is based on the child’s educational needs.

Here are the two key features of McKay that everyone should know:

  1. Eligibility in not need-based.
  2. Students in grades K-12 with an IEP (Individual Education Plan) or 504 Accommodation Plan can elect to direct their public school funding to a private school. [2]
  3. Funding is available to each student through the earlier of graduation or age 22.

Those three facts add up to real money to help educate a child.  Money that would otherwise be used within the public school system to provide education and services to the student can be redirected to a school selected by the parent/guardian.  WOW!!!  And that’s the struggle for public schools.  If all parents/guardians of eligible children were given enough information to understand the value of McKay, and if they exercised their child’s right to go to private school, how many students would be removed from the public schools’ funding count?  Not a terribly appealing program for public schools to promote.

So, how does McKay work?

  • How much funding might a student qualify for through McKay?

According to the Florida Department of Education’s School Choice website, McKay scholarships for IEP students ranged from $4,395 to $19,105, with an average amount of $7,019. The average amount for students with a 504 Plan was $3,977. [3]

  • How does the program determine the level of funding for each eligible student?

Children with an IEP have a ‘matrix score’ which determines the amount of public funding available each year for the student’s education and services.  The more support and services a child gets in the public school setting, the higher the matrix score.  Obviously, the higher the matrix score, the higher the funding amount through McKay.  The public school where a student is currently assigned can provide the matrix score to a parent/guardian.  It’s important to know that once a student goes on McKay, their matrix score does not change!  If you feel that your student should be getting more services through the public school, push for them to be added to the IEP (i.e. maximize the matrix score) BEFORE applying for McKay.

  • What is the process to apply?

A parent/guardian submits an ‘intent to participate’ for the student on the Florida Choice website.  Generally, the deadline to submit an intent for the next school year is at the beginning of July.[4]  The intent submission kicks off the public school system’s process of determining the student’s eligibility, matrix score and funding amount.  Once these factors are verified and calculated, the parent/guardian is notified that the child is eligible, and may proceed with selecting the school where the student will attend.

  • What schools are eligible to accept McKay?

Once a student goes on McKay, those funding dollars become available to pay for the student’s education at a participating private school.  The School Choice website lists all eligible schools by county, with an overview of each including disabilities serviced, religious affiliation, accreditation and contact information.    This is a good place to start, but it is well worth visiting schools of interest before selecting one.  In Duval County, there are currently 108 participating schools, with 9 in St. Johns, 17 in Clay and 6 in Nassau.  Many of the schools have a religious affiliation, which may be appealing to some parents who want to add that component to the student’s education.  A number of the schools cater exclusively to special needs students.

Once a school is selected, the parent/guardian will complete the paperwork with the school to enroll the student.  The school will notify the School Choice office that the student has enrolled.  McKay funding will then be directed to that school on behalf of the student.  It is important to note that any fees or tuition in excess of the McKay funding amount become the responsibility of parent/guardian.  For example, if a student is eligible for $5,000 in McKay funding, but the selected school’s tuition and fees is $10,000, the difference will be payable by the parent/guardian.

  • How does a McKay student change schools?

A McKay student may change schools at any time, but the key is to make sure the funding follows the student.  Timing is very specific so please contact the Florida Choice office for further guidance.

  • Can a McKay student return to public school?

A McKay student may return to public school at any time, with notice to the Florida Choice office and the local school district.  Please note that once a student returns to public school, they lose their McKay eligibility for the remainder of the school year and will need to recertify.  The student’s matrix score will also be reestablished with another filing of intent with McKay.

This article is designed to provide an overview of the McKay program.  For specific rules, deadlines and eligibility, please contact the Florida Department of Education School Choice office or visit www.floridaschoolchoice.org.

Kristine d’Esterhazy is a Certified Financial Planner® practitioner with PARAGON Wealth Strategies, LLC in Jacksonville, Florida.


[1] Title XLVIII, Chapter 1002, Section 39, Florida Statutes.  The program is named for John M. McKay, the Florida Senate President from 2000-2002.

[2] Students must satisfy certain public school funding reporting requirements during the prior school year.

[3] www.floridaschoolchoice.org – The official resource for McKay information, and where to file an intent to participate.

[4] The deadline for the 2013-2014 school year was July 3rd.  Intents filed at any other time during the year are processed quarterly.  There are a number of deadlines and payment dates to be aware of, which are available on the Florida Choice website.
This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 106, Jacksonville FL 32256 (904) 861-0093 http://www.WealthGuards.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements





Can I take Hardship Withdrawals from my 401k?

10 09 2013

Jonathan N. Castle, MSFS, CFP

Jonathan N. Castle, MSFS, CFP

We recently had a question from a client about taking hardship withdrawals from his retirement plan. Essentially, the question was – what are they, and how do I do it? So, here is the answer we gave:

First, if you are past age 55, and are NO LONGER working for your employer – AND you have not taken the 401k and rolled it into an IRA – then you can make withdrawals from that account without the normal 10% early withdrawal penalty that typically accompanies these accounts. This is a special rule for qualified retirement plans and does not apply to IRA’s. In fact, if you roll the money to an IRA, you lose this provision and have to wait until age 59 and 1/2.

First – you must know that employers are not REQUIRED to offer hardship withdrawals – but usually they do because the plans are often “turnkey” and this feature is built in to turnkey plans. So, if you are still employed and need money from your employer retirement plan – then the simplest answer is that each plan usually has a feature to accomplish this. In many plans, you go onto the plan website, and look for “loans or withdrawals” and merely follow the procedure. If your employer plan does not have a website, or the website does is not set up to facilitate these online, then you probably have to complete a form with your HR department and/or the plan sponsor. You must certify that the Hardship withdrawal is for a purpose that falls within the allowable rules:

To buy a primary residence
To prevent foreclosure of eviction from your home
To pay college tuition for yourself or for a dependent
To pay un-reimbursed medical expenses for yourself or a dependent

Now there are also “exceptions” that do not fall into the hardship withdrawal category. They are literally as they sound – “exceptions” to the 10% penalty:

Disability
Death
Medical debt for expenses that exceed 7.5% of your AGI
A court order for alimony or child support
You set up “substantially equal payments” for your life expectancy.

This last one – substantially equal payments – apply to IRA’s too, and are known as 72t distributions. Do not try to set this up yourself, consult with a CPA or a CFP because they are complex and the penalty for messing it up is quite harsh.

I hope this gets you onto the right path. Good luck with the obstacles you are facing!

Jon Castle
http://www.Wealthguards.com

This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256 (904) 861-0093 http://www.WealthGuards.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements





401k Loan?

23 08 2013

Jonathan N. Castle, MSFS, CFP®

Jonathan N. Castle, MSFS, CFP®

So what do to if you get in a cash crunch – you haven’t retired – and the majority of your assets are tied up in your 401(k)?  And to top it off – taking a hardship withdrawal is a hassle… your plan administrator is giving you the run-around… and you are under the age of 60?  That was the question that we recently got.

Question posed:

“I am in a real financial pickle, I do not own assets so getting a loan would be impossible.  I am dissatisfied with the lacking options my plan provides.  I am young enough to rebuild my 401k at a later date, but for now, I am willing to take the penalties so I can pay off several debts I have.  I am unwilling to file for bankruptcy at this point.  While I can get a hardship withdrawal, the amount isn’t enough, and I need too much documentation and would not be able to get it in the amount I need?”

Here was our answer:

I’m sorry to hear about your pickle; situations like this are always tough but I believe you are doing a good thing by thinking the options through so well. I will try to put my answer within the context of an overall retirement planning environment.

First, let’s look at what options exist with a 401k if you are under age 59 and 1/2. The reason age 59 and 1/2 is important is that is the age at which you can make withdrawals from your 401k with no 10% early withdrawal penalty (income taxes still apply) IF your plan allows it. Not all plans do, but many do. Since you indicate that you are under 60, I’ll assume that you are also under age 59 and 1/2.

At age 55, IF you are no longer employed by that employer – but you have left your 401k there (ie – you did NOT roll it to an IRA) then you can generally make withdrawals from that 401k with no 10% early withdrawal penalty. This is an important retirement planning and disability planning note, so if the investment platform is a good one, this feature becomes a good argument for NOT rolling a 401k to an IRA – since it allows an extra 4 and 1/2 years of retirement income flexibility. Many financial advisors either do not know this, or choose to ignore it when giving rollover advice. On the other hand, if the 401k investments are poor or are overly expensive, then it might make sense to perform a direct rollover to an IRA from the 4010k when you leave that job. You already said that the 401k hardship withdrawal that you can get is not enough and is a hassle, so I’ll skip that one.

That leaves the remaining option that may be available – a 401k loan. IF your plan allows it (most of them do) then you can take a LOAN directly from your 401k. You must pay YOURSELF a reasonable amount of interest and pay the loan back on a regular schedule. Usually this schedule is an automated schedule and deducted from your paycheck. Typically, if 401k loans are available, then the limit is the lesser of $50,000 or 1/2 of your 401k balance.

One of the benefits of the 401k loan is that it is NOT taxable income, unlike a 401k withdrawal, so you save the tax that you would otherwise have to pay. Additionally – if you are in a real cash flow crunch – you can suspend your 401k contributions and only make loan repayments – you do not have to continue elective contributions to your 401k. However, if you leave that employer, the loan is changed to a withdrawal, and the 10% early withdrawal penalty – as well as the income taxes – are due in that tax year.

Good luck with figuring out your pickle. But remember – once you have made it through this challenge, you will have a good bit of experience to fall back on to make you more financially savvy. Unfortunately, financial “savvy” usually is the result of “experience,” otherwise known as pain. But once those retirement planning challenges have been faced – then the result is usually a more disciplined and effective investor.

Jon Castle, MSFS, CFP

http://www.Wealthguards.com





Market’s Long Overdue Correction Seems to Be Starting

8 04 2013

Jonathan N. Castle, CFP®, ChFC®

Jonathan N. Castle, CFP®, ChFC®

I thought I would take just a moment to let everyone know that we have been watching the market closely. It looks like the long upward sprint the market has taken over the last 4 months might be coming to a pause.

This is not unusual at all; billions of dollars have been fed into the capital markets over the last 4 months as the veil of uncertainly about taxes and fiscal policy has been lifted. Pension funds and individual investors have flooded the stock markets and stock mutual funds with more dollars this past quarter than we’ve seen in a long, long time. Wall Street’s traders have seen their target prices for stocks met, exceeded, and exceeded again. In general, the economic data we’ve see reported has been mostly positive, with just enough bad news to remind us that the stock market still has its dangers, but not enough to get investors worried that another recession is around the corner.

So, with the information we have at present, it looks like we are in for a regular, run-of-the-mill correction of about 3 to 7%. This happens, on average, 3 times per year, and is the normal breathing of a healthy and functioning market.

It is important to keep in mind that large, painful, and excessively long bear markets typically occur only during times of great economic upset (Great Depression, Great Recession, Tech Bubble Burst, Oil Embargo). We are monitoring all of our indicators and have far better warning systems in place than existed in 2007 and 2008, and expect to be able to sidestep a great deal of the damage that those “Perfect Storms” tend to dish out. At this time, Recession Alert(TM) places the odds of the United States economy entering a recession within the next 6 months at only 6.4% – indicating that the stock market remains the best place to be for investors trying to stay ahead of taxes and beat inflation.

However, unexpected or “surprise” events can turn a normal 5% correction into an abrupt harsh 20% correction. This occurs every 3-4 years, on average. Good examples are the stock market “crash” of 1987, the breakout of Desert Storm, minor recessions, the downgrading of the US debt in 2011, and other geopolitical occurrences. Currently, we have two primary concerns that would fall into this category – the prospective bailout of Cyprus (and the EU issues that seem to never end), and the possibility of Kim Jong-Un actually engaging in real military conflict for no apparent reason other than to appear as a strong leader to his people.

The risk of military conflict does not lie in Korea’s ability to hurt the US; that risk is minimal from a military confrontation perspective. While the North enjoys a huge advantage over the South in artillery abilities, those abilities would likely be quickly eradicated by the overwhelming air superiority the US and the South enjoys. The real risk lies in the possibility of China, South Korea, or Japan entering any such the conflict and creating massive instability in the Far East. I believe that China would likely rather see peace in the region, but so far, they have taken a wait-and-see approach.

Whatever happens, we will remain vigilant and observe events as they develop. Ultimately, I believe that normal market functions will continue and am very optimistic about some of the developments we see occurring within our economy – especially in the areas of energy production, rail, manufacturing, home-building, and electronic medical records. I feel it is likely that the decade-long “Secular Bear Market” we have been mired in for the last several years is approaching an end, and that now is a great time to be a long-term investor! However, it remains important to make sure that investors are aware of their risk tolerances – and that portfolios are constructed properly in order to weather those occasional unexpected thunderstorm that can blow in rapidly and give us an uncomfortable bump now and then.

S&P500 1 Year Chart

S&P500 1 Year Chart

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256 (904) 861-0093 www.WealthGuards.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements





A Valuable Tip for the Business Owner

13 12 2012

Jon Castle, CFP, ChFC

Jon Castle, CFP, ChFC

As the end of the year approaches, it can be easy to become swamped with end of the year tasks. We look at that calendar almost daily, mentally ticking off that ever growing “to-do” list of things that we need to get done by the end of the year. I won’t even go into creating a list of examples; I’m sure that if you are a business-owner, that list has already popped into your head and you are populating it even as you are reading this article.

I would ask that, once things settle down a bit – maybe even after the New Year – that you take off your “employee” hat and put on your “owner hat” just for a little while. No – I mean really take off the “employee hat.” Learn to think of your business as a Chinese puzzle or a Rubik’s Cube that you can hold in your hand. You own your business. It is a widget, a device, a tool, a construct of your own making that you must tinker with, work on, improve, re-engineer and tweak until you get it right. Why bother? Because some day – maybe not today – but someday in the future – you will hand that widget to someone else. Maybe… just maybe… if you solve the puzzle… if you do it right… someone will hand you a size-able chunk of money for that widget as you move on with your life.

This perspective of ownership takes a while to develop – but is one of the distinguishing characteristics of those successful entrepreneurs who truly get rewarded and compensated for the time and effort that goes into building a business. A business owner who eventually retires and sells a splendidly crafted business can enjoy a retirement that most never even dream of. A young entrepreneur who creates or acquires a business, cultivates it to perfection to the degree that it is purchased for a handsome sum… creates a life for herself that few others can even imagine.

How does one do this? Ultimately the key is working on the business instead of just in the business. We’ve all heard the same old mantra about creating business plans, setting goals, creating milestones, etc., etc., etc. This is not what I’m talking about. What I’m suggesting that you do is spend the time figuring out how to make you, the business owner,– and your most valuable and experienced employees, expendable within the business.

“What?” you may initially scream? “Me expendable?” Yes, that’s exactly what I mean. If your business relies upon your experience… your relationships… the collective knowledge that only you and your most experienced employees have… then you do not have a business. You have a job. You have a gang, a group, a team of people working together to get things done. This is not bad; quite the opposite. However, you do not have a Rubik’s Cube that you can perfect and then turn to someone else and have them buy that product. Essentially, you have a job.

Ideally, business are the most sell-able (and the most valuable) when they run themselves and the owner is not critical to the successful functioning of the business. When an owner can hire someone off the street, with only a little training, to fill the human needs of the business, and have the business continue to function at a high level of efficiency – then the business has inherent, proprietary value and can itself be sold as a product. When procedures are documented, and automated workflows exist within the business, so each task necessary is performed, tracked, and documented, in the proper order, by the right person, at the right time… so the service or product the business produces gets done. Ideally… without the owner being critical to that cycle.

Is this possible within your business? If not… how can it get that way? Set as a New Year’s resolution to deeply think about the way your business would operate… if you weren’t there. Impossible? Maybe. But maybe not. Or maybe you could get halfway there. Set a New Year’s resolution to start thinking that way. You might be surprised at what your business looks like by the end of next year!

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256 (904) 861-0093 www.WealthGuards.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements





Calm Before the Storm?

8 10 2012

Jonathan N. Castle, CFP®, ChFC®

The financial markets – both stocks and bonds – have been relatively calm for the last 4 months, nicely rewarding investors who avoided the urge to “Sell in May and Go Away,” and instead remained invested with a sound and prudent investment policy. Since the short but abrupt 10% correction that ended on June 2, the global stock markets have steadily advanced, packing on about 15% of value in the US markets and almost 18% in overseas trading. Our strategy of skewing portfolios heavily toward large stocks and high-yield bonds has generally paid off, allowing our investors to capture most of the market’s gains, commensurate with each individual’s risk tolerance.

However, based upon our own observations of financial news, as well as multiple discussions with clients, there is a nagging feeling of unease that persists in the financial markets. Nearly every client we meet with displays at least some level of concern about the economy and the financial markets going forward, despite having reaped solid returns from investments so far this year.

The financial markets are merely a reflection of the perceptions of hundreds of millions of investors, some of whom are highly sophisticated and understand the implication of governmental policies and economic data, and others who invest more by feel or intuition. Recently, there has been lukewarm (but not upsetting) economic news on the domestic front, a continuation of monetary easing by the Fed, and some positive developments in Europe that have led to a generally positive experience in the capital markets. Despite the calm, past experience has taught us that investors behave like lemmings and the stock market typically sets itself up to hurt the most people at any given time. I am reminded of Murphy’s Laws of Combat. There are several that presently come to mind:

• Murphy’s Law Number 26: The easy way is always mined.
• Murphy’s Law Number 38: If your attack is going really well, it’s an ambush.
• Murphy’s Law Number 32: In a crisis that forces people to choose among alternative courses of action, most people will choose the worst one possible (this one in particular may apply to Congress and the upcoming election)
• Murphy’s Law Number 44: After things have gone from bad to worse, the cycle will repeat itself.
• Murphy’s Law Number 145: Opportunity always knocks at the least opportune moment. (which takes courage to exploit…)

There are several very good reasons for unease – but it appears that there may also be a chance for opportunity to knock as well. Let’s take a look at the major issues that will be impactful on the economy and the financial markets over the next year or so.

Opportunities

Europe: The European Union seems to be finally getting its act together. The European Central Bank appears to be putting forth believable policies that may just keep the Union together and allow a “soft landing” for a number of the countries that are in deep fiscal trouble.

QE3 and Bernanke’s Printing Press:  The Fed’s announcement of QE3 is, in the short term, positive for the stock market and for the economy. Fortunately (for now) it does not appear that all of the ingredients for hyperinflation are present. QE3 does not cause the US to directly incur any more debt – but it does cause the Fed to print more money which can eventually lead to a weak dollar and inflation. Since other Central Banks are printing money as well, the Fed’s act of printing more money does not necessarily mean that the dollar will weaken against other currencies. So – for the short term, this is positive. For the long term – once the economy does truly begin to recover – this open-ended quantitative easing could be a catalyst for extreme inflation if fiscal tightening measures are implemented too slowly at some point in the future.

China:  It appears that China may have engineered a “soft landing.” If this is the case, it will have a positive impact upon our economy, as China is a significant trade partner with the US.

Dangers/Concerns

Fiscal Cliff:  The most dangerous upcoming challenge that we have to watch centers around the expiration of the Bush Era Tax Cuts. Originally scheduled to sunset in 2010, these tax cuts represent an aggregate economic impact of over $500 Billion dollars and are currently scheduled to expire at the end of 2012. If these tax cuts are allowed to expire abruptly, it would shock the economy and immediately push the US economy back into a harsh recession. It is likely that unemployment would rise quickly, every household in America would feel the impact, and the stock market would sharply pull back.

2012 Presidential Election:  Despite Romney’s good performance in the first debate, the markets currently still appear to be factoring an Obama victory. If Obama is reelected, then we believe that the markets will perhaps move sharply in one direction or another – but only for a very short period of time and for less than several percentage points, as amateur investors knee-jerk to the news. The impacts of governmental policy on industry sectors are some of the most widely studied economic subjects, and “bets” are placed months in advance. In fact, a number of studies have shown that the markets have a greater impact on presidential elections than presidential elections do on the markets. However – that being said, the consensus is that a Romney election will likely be better for the markets in the short term than would an Obama second term. Romney is a fiscal conservative, disagreeing with the Keynesian approach that the Obama administration is following. Historically, a Keynesian approach has not been particularly successful in creating economic prosperity, but has proven very effective at creating government debt and citizen’s dependency upon the government. Unfortunately, at some point, “production” must occur – which only occurs in the private sector and the free markets.

2012 Congressional Election:  It is likely that the Congressional and Senate elections will be more impactful to the economy than the Presidential election. If either side wins a mandate and can actually move forward with the responsible governance of the country, then we may see some of the more troublesome issues resolve themselves. It is our hope that Congress feels it has a mandate, and is empowered enough to move forward with “smoothing out” the expiration of the Bush Tax Cuts to the point where the US economy can avoid the upcoming fiscal cliff. If that is the case, then we may avoid recession and reap significant profits from the capital markets over the next several years.

So – in short – what do we see and what do we plan to do?

1. We are watchful. If we actually do hit the Fiscal Cliff, we will likely have time to react before everything goes to heck in a handbasket. In the event that the Bush Tax Cuts do expire, AND we begin to see the effects in the markets and on the economy, we will shift to Defensive Portfolios where appropriate. The Defensive Portfolios are designed to perform quite well under extreme market stress. However, if the stock market ends up providing a strong return, the Defensive Portfolio will miss out on most of it. Consequently, we do not want to shift to the Defensive Portfolio unless we feel that the odds of a serious market correction are high. Unfortunately, one cannot have it both ways. Safety and high returns rarely go together. Additionally, changing portfolio structure will have significant tax consequences on non-IRA type accounts.

2. In the event that we avoid the Fiscal Cliff, we expect several opportunities to arise if the situation in Europe continues to improve. Having reduced our exposure to international and emerging markets nearly 2 years ago, their impending recovery will likely present us with significant opportunity for profit. Currently the consensus from most analysts is that it is too early to buy into these markets – but perhaps soon.

3. High Yield Bonds and Large Growth Stocks continue to appear more attractive than usual. We intend to keep these in the portfolios in percentages well above what we would hold normally. So far, this has played out well for portfolio performance.

4. Interest rates: Rising interest rates are the least of our concerns right now. Yes, rising interest rates do cause the price of existing bonds to fall – but interest rates will only rise if the Fed does a complete 180 degree turn from its present policy of quantitative easing. Likely, we will have plenty of warning – and a very robust stock market – long before we need to adjust portfolios to protect against rising interest rates. Once that occurs, however, we will make the necessary adjustments to insulate portfolios against falling bond prices.

As always, we appreciate the faith that you have placed in us by allowing us to advise you during these most “interesting” times in our lives. It is our hope that our watchfulness and our attempts at distilling complex and often confusing information adds value to your overall financial situation.

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256 (904) 861-0093 www.WealthGuards.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements





Stock Market at a 4-year High… Again…

23 08 2012

While it has been an unusually long pause between market updates this time, I can assure you that we were not asleep at the wheel. In this instance, no news was good news, as the stock market has maintained its generally upward trend for the past several months with only moderate volatility for us to endure.

As of this writing, the United States stock market is approaching the high of 13279 on the DOW and 1419 on the S&P500 that it had previously reached on May 1st of this year, before the 10% correction that we went through during June and July. Since then, we have had generally uninteresting economic news on the domestic front, no real political unrest that has given us pause, and the Europeans continue to struggle through massive debt issues and one of the worst recessions that region of the world has had to face in several decades.

It can be easy to fall into the trap of thinking that “something good” must actually happen for the stock markets to go up. This is actually not the case. Given the fact that bond markets have gone up continually over the last several years, the current prices of bonds are so high, that most investors have begun to realize that future returns of the bond market are likely to be disappointing. We are beginning to see a shift of capital from what is historically an asset of moderate risk and return (bonds) to an asset class that historically has been riskier – but is currently acknowledged to be undervalued (stocks – especially blue chips).

As a result – nothing spectacular is happening in the economy to move us measurably forward, but as money shifts from bonds to stocks (or from sideline cash to stocks) – the price of stocks will tend to move up simply as a result of supply and demand. In other words – beause more and more investors are dissatisfied with the expected returns from bonds in the forseeable future – stocks seem like a more attractive alternative, especially for long-term investors. The current owners of the stocks must be convinced to sell them – and this “convincing” is done by investors paying higher and higher prices for the stocks over time.

Approaching a new or previous high is not without danger, however. Those who have invested for a while also understand that when the market approaches a previous high mark, it may fail to break through – almost as if an invisible lid has been placed upon the market itself. Sometimes, even in bull markets, the market must pull back and “take a new run” at the “lid” to break through. Currently the market does not have a great deal of momentum; while investors are buying stocks, they are not doing so with enough gusto or wild abandon for us to be convinced that a breakthrough will occur. So… a potential correction may be in store for us.

As we have mentioned before, we are of the belief that the stock market will likely remain in a “trading range” for several years – with a slight slant to the upside (just enough to make investing worthwhile, I suspect) but not a roaring bull market that we enjoyed after the last recession. Instead, we are likely to enjoy several months of upmarkets, followed by several months of downmarkets… squeaking out 7 to 8% returns on an annualized basis, and paying for it with a good bit of volatility and lack of market direction. Dividends will likely play a significant role in creating portfolio growth. We have adjusted portfolios to try to maximize investor returns (within risk tolerance) for this scenario, and continue to admonish patience.

Most experts believe that we are unlikely to see any real economic or fiscal news between now and the election. While it is possible that world events may cause unrest, or that some good news may come out of Europe that bolsters markets for a while, in general it seems that most institutional investors are in a “wait and see” mood. Market movements, however, can give some insight into likely election results. A strong stock market during an election year has historically increased Presidential approval ratings and would likely increase the chance of the current President being reelected. If, on the other hand, the market should falter between now and November, incumbent approval ratings are likely to decline, thus increasing the odds of the Romney/Ryan ticket being successful on election day.

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

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