Stock Market Commentary
For the week of February 16, 2009
With corporate earnings reports winding down, Wall Street will look to Washington this week for a series of developments and reports. Following the Presidents’ Day holiday on Monday, on Tuesday President Obama will sign the new $787 billion economic stimulus bill. On Wednesday, Federal Reserve Chairman Ben Bernanke will give a speech about the central bank’s lending programs and its balance sheet. The Commerce Department is scheduled to release its January report on housing starts on Wednesday, and the Fed will issue its industrial production report for January the same day. On Thursday, the Labor Department will issue weekly jobless claims figures. For the week, the Dow fell 5.09 percent to close at 7,850.41. The S&P lost 4.73 percent to finish the week at 826.84, and the NASDAQ dropped 3.6 percent to end the week at 1,534.36.
Forever Rising – The price of a 1-ounce, first-class postage stamp will increase from 42 cents to 44 cents on May 11, along with other mailing rates and services. Forever stamps purchased before the increase can still be used without adding postage. The U.S. Postal services has said mail prices will be adjusted each May. Shipping services like Express Mail and Priority Mail were increased in January and will not rise again in May.
Stocks And Bonds – In the past 25 years (i.e., 1984-2008), the S&P 500 stock index has produced a total return of at least 20 percent in nine different years, most recently in 2003 (a gain of 28.7 percent that year). Over the same period of time, long-term U.S. treasuries have produced a total return of at least 20 percent in five different years, most recently in 2008. The Lehman Brothers long-term Treasury index, calculated using U.S. Treasury publicly issued obligations with maturities of 10 years or greater, was used as the bond measurement (Source: BTN Research, Lehman Brothers).
College Costs – The parents of nearly two out of every three college students (62 percent) anticipate the need to rely upon loans to pay for their child’s college education (Source: Fidelity, USA Today, BTN Research).
Healthy – Annual health care expenditures of every American citizen ($7,026) are more than twice the level of the average British citizen ($3,361). One dollar out of every $6 of the U.S. economy is spent on health care (Source: Time, BTN Research).
WEEKLY FOCUS – Lay Offs Prompt 401(k) Decisions
Mass workforce reductions have become more frequent during the current economic downturn. If you, a family member or a friend become one of the thousands of Americans laid off, you will face the important decision of what to do with your solo 401k account.
Some employers require that employees who leave the company move the money in their 401k account out of the corporate plan. Others allow employees to leave the money in the plan, where it can continue to grow, but no new contributions can be made. In a lay-off situation, however, you may be uncomfortable leaving your savings with that company.
In this economy, taking a lump-sum cash distribution may be tempting. Keep in mind, however, that you will pay ordinary income tax on the proceeds plus a 10 percent penalty for early withdrawal if you are under age 59½. In addition, you will make a dent in your retirement savings that you may never replace, and you will lose the benefit of those assets compounding over the years.
Rolling the distribution directly into an Individual Retirement Account (IRA) lets you avoid paying taxes or penalties and keeps your savings available for your future retirement. Should you have a critical need for the money, you can take an early distribution and pay the penalty, or you may qualify for an exception to the penalty. According to Internal Revenue Service Publication 590, exceptions can include unreimbursed medical expenses, medical insurance premiums and higher education expenses. Each of the exceptions has specific requirements, and you should consult a tax advisor before taking a distribution.
In the event of a lay off, we can help you, your friends or your family members understand the options for your 401(k) account and the benefits of keeping that money earmarked for retirement. Call us for a review of your 401(k) situation. We are happy to include your tax advisor in our meetings with you.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Written by Securities America. SAI# 294160