Stock Market Commentary
For the week of March 23, 2009
Despite slight declines on Thursday and Friday, the major markets managed gains for the week, with the Dow showing its first two-week gain in almost a year, rising 14 percent over seven trading days. The Federal Reserve, following a two-day meeting that ended Wednesday, announced plans to buy hundreds of billions of dollars in debt securities, with the hope of reviving lending. This week, the National Association of Realtors will report on February existing home sales, and the Commerce Department releases durable goods figures for February as well as final gross domestic product (GDP) for fourth quarter 2008. The Dow ended last week up 0.75 percent to 7,278.38. The S&P gained 1.59 percent to end the week at 768.54, and the NASDAQ rose 1.80 percent to finish the week at 1,457.27.
During The Last Five Months – During the worst bear market ever for the S&P 500, the stock index fell 86.2 percent over a 33-month period (i.e., Sept. 6, 1929, to June 1, 1932). More than half of the 86.2 percent decline occurred during the last five months of the 33-month period. From Dec. 31, 1931, to June 1, 1932, the S&P 500 fell 45.8 percent. From its all-time high set on Oct. 9, 2007, the S&P 500 has fallen 51.7 percent over the past 17 months to the March 13 close. In the past five months, the S&P 500 has fallen 24.6 percent. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market (Source: BTN Research).
A Factor? – The “uptick rule” requires a stock that is being “sold short” must be sold at a price above the last sales price of the stock. Some, but not all, market watchers believe the elimination of the “uptick rule” on July 6, 2007, has contributed to the stock bear market that began in October 2007. The “uptick rule” was first adopted by the Securities and Exchange Commission in 1938 (Source: Wall Street Journal, BTN Research).
Judge’s Decision – Bankruptcy judges have had the authority since 1978 to reduce the principal balance on loans secured by second homes, boats and cars, but not by the debtor’s primary residence. The House passed legislation on March 6, 2009, that would allow judges to rewrite a home mortgage loan and reduce the principal amount owed. The bill will now be debated and voted on in the Senate (Source: Los Angeles Times, BTN Research).
WEEKLY FOCUS – Retiring With A Mortgage
While paying off your mortgage before retiring may seem like a logical plan, a growing number of Americans are counting a monthly house payment among their retirement expenses. The Federal Reserve reports that in 2004, more than 32 percent of households headed by a person age 65 to 74 had a mortgage on their primary home, a dramatic increase from the fewer than 19 percent in that situation in 1992.
If your mortgage won’t be retired before you are, the planning question becomes whether to pay off the loan and eliminate that expense in retirement or try to reduce your monthly payments to free cash in your budget?
That depends on the form of your retirement assets. If you have the cash in savings or low-paying interest-bearing accounts, you might consider paying off the mortgage, as the interest you pay will likely be more than the interest you earn.
If the bulk of your assets are in IRAs or 401(k)s, it may be best to resist the urge to withdraw a large amount and relieve yourself of your biggest piece of debt. Early withdrawals from a qualified account – meaning before age 59½ – may require payment of an IRS penalty, and you’ll face a huge income-tax bill on the proceeds at any age. Using systematic withdrawals from IRAs or 401(k)s to make monthly house payments can spread out the tax burden and keep you eligible for the mortgage-interest tax deduction.
Refinancing your mortgage at a lower interest rate can reduce payments, as can extending its length to spread the balance over more years, although that will cause you to pay more overall in interest. Selling your home and purchasing a smaller one may also be an option, and depending on equity, you may have money left over to invest for your retirement years.
Entering retirement with a mortgage may not be ideal, but it can be done, especially as part of a comprehensive retirement plan. Call our office to discuss your residential plans and how your options can impact your overall retirement finances.
* 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# 295767