Payne Wealth Partners Blog

What Neighbors Do You Want?

2012-02-01T09:53:00.000-06:00

According to the Tax Foundation’s most recent study, “2012 State Business Tax Climate Index,” Indiana ranks 11^th in the country for tax system attractiveness. The study is intended to help business leaders, policymakers and taxpayers understand how hard their state is working to attract profitable businesses and successful individual taxpayers. The least attractive state may surprise you…

New Jersey ranks 50^th on the list due to its significant corporate and individual tax rates. Of course this policy will tend to scare away business investment, jobs and economic development. On the other hand, a state that has received a lot of positive publicity of late because of its job-creating success is Texas- the state ranks 9^th in this study.

Don’t we all want successful businesses and individuals, as neighbors, that will help drive regional economic growth? If so, Indiana seems to be doing all the right things to attract them. To see more information about this index, visit http://tinyurl.com/y8823cu.

Policy Uncertainty Index

2012-01-24T16:49:00.002-06:00

The Policy Uncertainty Index, developed by a team of professors from Stanford and the University of Chicago, illustrates how uncertainty about the direction of future government policy can weigh on our economy. The index takes into consideration:

The frequency of news stories on the issue of government policy uncertainty

Expiring federal tax provisions (there happen to be 41 in 2012)

Disagreement among forecasters over inflation and federal government purchases

The professors estimate that the significant increase in policy uncertainty over the past five years (which has increased overall economic uncertainty) has cost our economy 2.5 million jobs.

We would agree that a strong implication of their research is that clarity on future tax and spending policies may lead to acceleration in economic growth. Today, many businesses are unwilling to invest for growth or hire new employees because of the uncertainty of future tax rates. Another key issue that continues to burden us is our federal deficit and growing debt level.

The United States and the rest of the developedworld need to focus on policies that will support economic growth. As U.S. citizens we should demand candidatesfor 2012 election (presidential, congressional, and gubernatorial) put forththeir vision for restoring growth and be judged accordingly

Worst Retirement Destinations

2012-01-19T09:06:00.000-06:00

There are dozens of lists available for the “best retirement spots,” but where can you find information about the retirement destinations you should avoid like the plague? TopRetirements.com has released results of their most recent study of the worst states to retire to and the conclusions may be surprising.

The study, based mainly on objective data such as tax rates, weather and cost of living, ranked ten states as the worst in the union to retire to. Seven of these worst ten states earned the same honor last year! Here is the first half of their list and a short explanation of why each state earned it's spot:

1. Connecticut: high taxes and cost of living

2. Illinois: state is in severe fiscal trouble

3. Rhode Island: high property taxes

4. Vermont: high property and income taxes

5. Massachusetts: high taxes, although social security income is exempt

What is less surprising about the list is that most of the top ten worst states for retirees are positioned in the northeast, partly because of the unfavorable climate and generally high property taxes, two key factors in the study.

To find more information on this topic and use a tool that allows you to customize the ranking specific to your tastes, visit http://tinyurl.com/7qlcj4b.

Volatility in the Dow Index

2012-01-10T16:02:00.002-06:00

Since the Dow Jones Industrial Average (DJIA) is an index many pay attention to, we’d like to share some interesting facts. These speak to the amount of volatility we’ve experienced in the stock market over the past several years.

Ø The DJIA crossed from below the 12,000 level to close above it 14 times in 2011. The 12,000 level was first crossed on October 19, 2006 and then the index went below 12,000 on June 20, 2008. It would not reach 12,000 again until February 1, 2011.

Ø The 11,000 level was first reached on May 3, 1999. The index fell below 11,000 on September 26, 2008 and did not to reach 11,000 again until April 12, 2010. We started 2011 above the 11,000 level but crossed it from below that level to close above 11,000 five times during the year.

Please note all numbers are reported on a closing basis.

Gallup Poll Defining “Rich” Americans

2011-12-16T12:49:00.000-06:00

As our nation’s elected officials debate over future taxation,much discussion has occurred regarding higher taxes for the rich. A recent Gallup poll from Nov. 28 to Dec. 1reveals an interesting mixed opinion of Americans as to who is “rich.” The results, as seen here indicate Americans’ perception that a median annual income of $150,000 isconsidered rich. These perceptions arenotably different from the publicized discussions to increase taxes for [rich]taxpayers earning more than $250,000. Asimilar Gallup poll from 2003 revealed Americans’ opinion that a median of only$120,000 would define someone as rich.

This recent poll also concluded that someone with a median networth of $1 million (no change from the 2003 poll results) is considered rich.

Do you wonder how your household income and/or wealth compareswith other taxpayers? A fun calculator canbe found on the Wall Street Journal’s website. Click here.

November 2011 Market and Planning Update

2011-12-15T16:32:00.003-06:00

"Better three hours too soonthan a minute too late”

William Shakespeare (birthdate unknown – April23, 1616 - Famed English poet and playwright

We selected this quote for our last 2011commentary because of the temptation everyone has to wait until the perfecttime to act, which is invariably too late. Whether it is in planningsteps or investment decisions, our belief is that acting sooner than the crowd willprovide long-term benefits.

PLANNING COMMENTARY

As we approach the end of the year there arecertain planning strategies that should be implemented or evaluated. While many of the items below may have beencrossed off your list earlier in the year, some may still remain. While this may be the busiest time of yearfor many, taking some time out of your schedule to cross some of these year-endplanning items off the list will surely provide lasting benefits.

If you have any questions or want to discuss howone of these items may apply to you, please call us!

Fund your Indiana CollegeChoice 529 plan to obtain the 20% state tax credit. Remember that your first $5,000 of contributions qualify for the credit.
Make a contribution to your favorite charity. If it will be a particularly bad tax year you may consider making some of your planned 2012 donations by the end of this year to reap the benefit of the deduction a year earlier when it is especially needed.
Consider a tactical contribution to your Donor Advised Fund or Family Foundation. You should be sure this makes sense from a tax perspective and fits in your intermediate and long-term charitable giving plans.
As you set your 2012 company-sponsored retirement plan contribution rate, consider other retirement funding strategies you will use in conjunction with your contributions to this plan.
Start a budget. If you have been considering a new household budget and want to better understand how you use your cash, start the year fresh and use a tool like mint.com to help you dissect your spending habits.
Make a Roth IRA, Traditional IRA and/or Health Savings Account contribution if you are eligible. Note the deadline for contributions to IRAs and HSAs is generally your tax-filing deadline.
Use the remainder of your Flexible Spending Account. If you have residual balances available they will be forfeited if not used prior to year-end.
Take your Required Minimum Distribution from your IRA (if older than 70.5) or Inherited IRA.
Make a family gift. If you planned on taking advantage of the annual gift exclusion of $13,000 this gift must occur by year-end to utilize the 2011 exclusion.

INVESTMENT COMMENTARY

With world events continually evolving and the news changing fromday to day, we thought it would be important to highlight recent action takenby the central banks of developed nations on Wednesday. TheU.S. Federal Reserve, the Bank of Canada, the Bank of England, the Bank ofJapan, the European Central Bank and the Swiss National Bank agreed to lowerthe interest rate charged on existing temporary U.S. dollar liquidity swaparrangements by one-half of one percent (50 basis points). This joint action provides cheap, emergency U.S.dollar loans to banks in Europe and elsewhere. The coordinated action doesn't directly address Europe's government debtand budget woes. Instead, it is aimed atalleviating the impact of those troubles on global markets. In another move,the Bank of China lowered its reserve requirement after three years of a tighteningmonetary policy. Stock prices worldwidesurged upward on this news and the euro also strengthened.

How will this impact the markets going forward? We believe fixed investments could suffer and the growth potential of equities, from depressed valuation levels, is even more compelling. There is an old saying "don’t fight the Fed." We think it is even tougher trying to fight seven different central banks. The coordinated printing of money will eventually result in long-term inflation. The US government has recently reported that inflation is running at close to 4%. This shows that most fixed income investments could lose wealth to inflation going forward. In our client portfolios we have greatly reduced the average maturity of our fixed income holdings to protect against rising interest rates and inflationary pressures. Given historically low equity valuation levels, we are slightly overweight stocks.

Financial Market Indices as of November 30, 2011	November 2011	Last 3 Months	Year to Date	Last 12 Months
S&P 500 Total Return (US Stocks)	- 0.2%	2.9%	1.1%	7.8%
MSCI Developed EAFE (foreign stocks)	- 4.8%	- 5.6%	- 10.9%	- 3.7%
MSCI Emerging Mkt. Equities (emerging country stocks)	- 6.8%	- 10.1%	- 19.4%	- 13.7%
Barclays Capital Aggregate Bond – Intermediate Term	- 0.1%	0.1%	5.2%	4.2%
Barclays Capital Municipal Bond Index	0.6%	1.3%	8.6%	6.5%

EMPLOYEE ANNOUNCEMENTS

During November Taylor attended Schwab’s annual IMPACT conferencein San Francisco, CA. This event washeld over three days and attended by approximately 2,000 advisors and anadditional 3,000 vendors and Schwab employees. He spent much of his time learning more about Schwab’s efforts to helpindependent advisory firms integrate their various software technologies tobest serve clients. The highlight of the conference was a general sessionwith Tony Blair, former UK Prime Minister, who gave tremendous insights toglobal issues, particularly the challenges Europe is facing.

Perry, Terry and Ann attended the 22^nd AnnualEvansville Bar Association Estate and Business Planning Institute on November18. Topics covered included, businessowner succession and estate planning, IRA Trust planning, business valuationtechniques and recent developments of interest to estate planners.

OTHER ANNOUNCEMENTS

Payne Wealth Partners believes in giving back to the community. Please enjoy the short story and pictures ofthe Big Brothers/Big Sisters bike rodeo that Ann Pendley coordinated onNovember 5^thon our website at paynewealthpartners.com

We recognize there are many in need during this holidayseason. In lieu of sending baskets or other holiday gifts to clients, we aresending donations to the following charities:

Boys & Girls Club of Evansville

Evansville Rescue Mission

Evansville Ronald McDonald House

Gilda's Club Evansville

Santa Clothes Club

You can see more about some of the charities we support on ourwebsite at paynewealthpartners.com

A New D-Day for Europe

2011-12-02T10:38:00.001-06:00

On Friday, December 9^th the leaders of the EuropeanUnion (EU) meet in Brussels, Belgium. Guidance from these leaders has set market expectations of progresstowards achieving agreement in principle of significant revisions to the EUTreaty, bringing about greater fiscal union that enforces fiscaldiscipline. The absence of sufficientagreement over fiscal controls has been the core problem within the 17countries that share the Euro as their currency.

There will be many challenges to reaching agreement overgreater fiscal union, but the core challenge is that of political courage. Will the European leaders recognize that someof their sovereign autonomy, possible even their political jobs, must besacrificed in order to preserve the Euro Zone?

If the leaders cansummon sufficient courage and begin to work towards true fiscal union, then theEuropean Central Bank might reasonably be expected to act as the lender of lastresort and begin to purchase bonds of the various countries in large enoughquantities to stabilize the markets. They may also move towards issuing Euro bonds backed by all of thecountries. All of this would begin tolessen the huge cloud of Euro concerns that has rocked markets. This would be no quick fix, but would choosethe path that would preserve the Euro Zone.

If the Dec 9th summit proves a bust, it may wellbe followed with a disorderly process of European common currency implosion andaccompanying market volatility.

Private Sector Jobs

2011-12-01T10:29:00.001-06:00

Employment in the private sector showed its largest increase since December 2010 this past month according to the payroll processor ADP. The report shows that private sector employment rose by 206,000 jobs in November, which may also have led to a reported increase in consumer confidence over the past month. These numbers are a good indication to investors that the economy is stabilizing and provides more reassurance that we will avoid a “double-dip” recession. Having said that, the job market must show strong, consistent growth that reduces the unemployment rate before it will have a significant influence on the equities markets, something unfortunately we have yet to see.

Note that the unemployment rate is expected to remain at 9% for the month.

Housing Improvement

2011-11-25T11:32:00.001-06:00

Residential real estate is very important to the health of our economy. It is one of the largest assets on a family’s balance sheet and it comprises about 2.2% of our nation’s annual gross domestic product (GDP). Stabilizing prices and increasing new housing construction are critical to economic recovery. Another critical component is keeping people in their homes. As can be seen from the numbers below, we are gradually seeing improvement in the percentage of homeowners who are past due on their payments or in foreclosure. This bodes well for our future.

Time Period	One Payment Past Due	In Foreclosure
Dec. 31, 2009	10%	5%
Dec. 31, 2010	9%	5%
Sept. 30, 2011	8%	4%

Sources: Mortgage Bankers Association and JP Morgan Asset Management

Just a Game

2011-11-16T16:53:00.000-06:00

The U.S. budget super committee is still struggling to agree on a plan for budget cuts. While the super committee has been debating this issue, American Public Media has been creating an online “game” so that the American public can attempt to balance the national budget based on what they believe to be most important in terms of spending and taxes. The game is called “Budget Hero” and it is even being used by university classrooms to help teach students about how the government really operates financially. http://budgethero.publicradio.org/widget/widget.php

However, this super committee is not playing an online game and they are working under pressure at this point to meet the November 23 deadline. So the question that many are now asking- “what if they do not reach an agreement by the deadline?” If the super committee cannot come to agreement in the next few days there is an automatic cost-cutting plan that would go into effect. This automatic plan would simply cut funding to programs, equally split between defense and non-defense spending, for the fiscal years 2013 through 2021 to help balance the budget. The more “favored” programs such as Social Security, Medicaid, food stamps and the Children’s Health Insurance Program would be protected under this plan. The biggest concern to most in this automatic plan is the 2% cut it would make to Medicare as this would cut over one billion dollars from the program, although this is still a very small portion of this programs budget.

While we can play online and create our own budget, the real questions about the national budget are being left up to twelve Congressmen and Congresswomen who will either find agreement on a common plan or argue until time expires thus allowing the “automatic” plan to take place.

October 2011 Market and Planning Update

2011-11-15T11:48:00.024-06:00

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies”- Groucho Marx (October 2, 1890 – August 19, 1977) American comedian and filmed star famed as a master of wit

We selected the quote above for this month’s commentary because much of the recent market volatility can be attributed to world political leaders creating an environment of confusion and uncertainty. The financial markets don’t like uncertainty, especially when it relates to budget deficits, debt levels, credit ratings and future tax policy.

PLANNING COMMENTARY

Amongst all of the recent excitement surrounding Europe, it has nearly been forgotten that the U.S. budget super committee, designated by the President and Congress, will face their deadline this month for issuing certain budget cuts. By law, the committee has until November 23^rd to recommend $1.5 trillion in deficit reduction that can be spread over the next 10 years (unless they pass a resolution to extend their deadline). How to do this, not whether to do it, will likely continue to be the center of contention. The options to create the reductions are simple – raise taxes, cut spending or use a combination of the two. However, finding agreement about those options won’t be easy.

The very fact that a law was enacted that formed a committee (made up of six Democrat members and six Republican members) to decide on budget cuts is somewhat amazing in and of itself. To ensure progress would be made, the legislation even mandated an initial meeting be held by September 16. Ten, five, even two years ago, getting tough with overspending and fiscal recklessness was unheard of. Now the discussion is finally taking place and there is plenty of trouble to be found in our fiscal house.

Our hope and belief that cooler political heads will eventually prevail leads us to believe that retirees of a certain age will continue to receive the majority of their promised Social Security benefits throughout their retirement. Likewise, if our leaders make appropriate and timely decisions, Medicare could also remain largely intact for current retirees and those who are very close to retirement (which we typically think of as those currently age 55 and older). Diagnosing the problems correctly and applying the correct remedies will be painful. Future generations may have a much harder set of economics than generations of the past. Yet, by dealing with these issues now we can avert much greater challenges (we can learn from the struggles in Greece and avoid a similar fate). We’re hoping that those in Washington can prove Groucho wrong this time around by being leaders – not politicians.

INVESTMENT COMMENTARY

Well, the S&P 500’s streak of five consecutive down months ended in October. This broad stock index lost 16.3% of its value from May through September. The last time it fell for six consecutive months or longer was 37 years ago in 1974. On October 3^rd the S&P 500 turned on a dime and finished the final 20 trading days of the month up 14%. Stronger than expected economic reports during October coupled with the announcement that 3^rd quarter GDP came in at 2.5% fueled the rise in stock prices. Adding to the rally was news that European leaders had agreed on a deal that they believed would be a turning point in their two-year debt crisis. Banks had agreed to take bigger losses on Greek debt and to boost their capital levels, while the European Union increased the size of its bailout fund. Global stock markets surged after the plan was unveiled. Now, those gains seem to be fleeting.

Financial Market Indices as of October 31, 2011	October 2011	Last 3 Months	Year to Date	Last 12 Months
S&P 500 Total Return (US Stocks)	10.9%	- 2.5%	1.3%	8.1%
MSCI Developed EAFE (foreign stocks)	9.6%	- 9.7%	- 6.4%	- 3.6%
MSCI Emerging Mkt. Equities (emerging country stocks)	13.1%	- 12.5%	- 13.5%	- 9.6%
Barclays Capital Aggregate Bond – Intermediate Term	0.2%	1.3%	5.2%	3.7%
Barclays Capital Municipal Bond Index	- 0.4%	2.4%	8.0%	3.8%

The Greek Prime Minister, George Papandreou, announced unexpectedly Monday that he would put the European rescue plan to a popular vote. This took the world financial markets by complete surprise – not to mention the Eurozone nations that worked very hard last week to craft a bailout plan for Greece. It essentially brings all the concerns about European debt back to the front burner. International creditors have demanded that Greece enact painful tax increases and drastic cuts in public welfare programs, and Greeks have shown their hostility to those measures in violent protests and strikes. If the European rescue plan falls through and Greece defaults on its debt, the ripple effect could be global. It would likely push the rest of Europe into recession, hurting a major market for U.S. and emerging country exports, and banks could sharply restrict lending. Once again the stock market is expressing disgust with Greek politics – telling Papandreou this is the wrong remedy.

EMPLOYEE ANNOUNCEMENTS

We are pleased to announce that Katie Schnur has joined our wealth planning team as a Paraplanner. Katie is originally from Newburgh, IN and is a graduate of Memorial High School. In 2010 she received her Bachelor of Science degree in Financial Counseling and Planning from Purdue University. Her studies included retirement planning, insurance, tax law, estate planning and investments. In her free time Katie enjoys scrapbooking, sewing, watching movies, and spending time with friends and family. Katie is a huge Purdue sports fan and still tries to attend football and basketball games every year.

Perry Moore attended Pinnacle Equity Solutions Annual Conference for Business Exit Planners from October 5^th to 7^th. The conference provided a networking opportunity with industry leading experts and further advanced Perry’s knowledge and skills in helping business owners strategically plan for the succession of their business.

What will the European Central Bank Do?

2011-11-09T15:42:00.000-06:00

Investors are quickly losing faith in one of the world’s largest sovereign-bond markets, driving the yield on the benchmark 10 year Italian bond up to 7.45%. Rates are at their highest level since the inception of the euro. Italian Prime Minister Silvio Berlusconi pledged Tuesday to step down after Parliament approves austerity measures intended to reassure investors and ensure that Italy remains able to borrow.

The new President of the European Central Bank (ECB), Mario Draghi may have to aggressively print Euros to buy Italian government debt. The primary objective of the ECB is to maintain price stability within the Eurozone, which is the same as keeping inflation low. The ECB Governing Council defines price stability as inflation of around 2%. Mr. Draghi cut short-term interest rates in his first meeting. Certainly he doesn't want to aggressively expand the Euro, but given the recent interest rate spike, it appears he will have no choice but to buy Italian bonds to support their prices (and bring their interest rate down). It is somewhat notable that Mr. Draghi is Italian, so he is likely feeling extra pressure.

Growth Rate Cuts

2011-11-02T14:32:00.000-05:00

Today, the Federal Reserve cut its growth forecast and raised estimates it publishes for future expected unemployment rates. Partly because of these revisions the Fed has decided to hold steady its key borrowing interest rate, the Federal Funds rate, at the existing range of 0% to 0.25%. While inflation has continued to increase (most recent estimates were 3.9% annually) the Fed has been reluctant to tighten because of persistently high unemployment rates and sluggish growth.

Fed Chairman Ben Bernanke reaffirmed the intent to hold rates close to zero until the middle of 2013- a type of public promise that is historically very unusual for the Federal Reserve. Bernanke also reiterated the decision to continue its operation “Twist” that is designed to flatten the interest rate curve by lowering rates affected by long-term treasuries and mortgage-backed securities, thus maintaining a borrowing environment that is very accommodative to consumers.

This message from the Fed should make everyone think more about their growth outlook for investment portfolios, employment income, and other wealth creation mechanisms. What can we count on in the future with a continually slowing recovery and tireless challenges worldwide?

Two Front Relief Rally

2011-10-27T17:15:00.002-05:00

Acting with unity, purpose and decisiveness, European leaders announced a plan to address their debt problems. This positive news came at the same time as the announcement that U.S. 3^rd quarter GDP grew at a 2.5% annualized rate. Clearly, GDP growth at this level dispels the fear that we are in recession or quickly heading for recession.

So what type of deal did the European leaders strike?

· Bank Recapitalization to the tune of about $106 billion. European banks have until June 2012 to raise their Tier 1 capital ratio to 9%.

· Creditors will take a 50% haircut on Greek debt. The restructured debt will be guaranteed by a $130 billion combined European Union / International Monetary Fund / Member State bailout fund.

· The European Financial Stability Fund will be leveraged 4 to 5 times to support approximately $1 trillion in debt.

Markets surged on Thursday with the Dow Industrials rising 339 points, the S&P 500 index gaining 42 points and the NASDAQ increasing 88 points. Since September 30, we have seen a 13.5% rise in the S&P 500 index. We wouldn’t be surprised to see a pullback from current levels over the near term, as is common with rapid advances in the market. But, the good news on two fronts, Europe and the U.S. economy, removes a dark cloud that had been hanging over the markets.

Rate Stubbornness

2011-10-20T10:21:00.000-05:00

Despite continued Fed policy to lower consumer borrowing costs and spur the economy, mortgage rates have remained at levels higher than economic officials would like. In fact, since the beginning of October the national average 30 year mortgage rate has climbed roughly 0.5% and Evansville rates generally followed this trend. For example, banks were offering between 3.75% and 3.875% for 30-year mortgages just two weeks ago- as of today the same figures were between 4.25% and 4.375%.

Rates are persistently high when compared to similar maturity treasury instruments which historically have rates 0.5% lower than mortgages. This spread is over 1% now. When consumers are evaluating whether they should refinance a home mortgage or buy a larger property (to capitalize on weak real estate market pricing) it’s important to gain historical perspective to inform those decisions.

For those who are concerned rates could fall back down and provide an even better opportunity to finance or refinance, two things should be considered: 1) seizing attractive, historically-low rates generally makes sense, even if it’s not perfect timing and 2) if rates fall back down in the future, refinancing costs could be considered an insurance policy that protected you from something worse—waiting too long and missing this opportunity entirely.

September 2011 Market and Planning Update

2011-10-17T10:41:00.004-05:00

Take calculated risks. That is quite different from being rash.”

General George S. Patton (American General in World War I and World War II)

We selected the quote above for this month’s commentary because in our economy, in the investment markets and in planning for our clients’ financial future we are continually faced with various types of risk. Understanding these risks, pointing them out and then developing strategies to try to mitigate them is part of the value we deliver.

PLANNING COMMENTARY

There are risks inherent in retiring, saving for college education, allocating funds toward a major purchase or any other significant financial decision in life. For example, making the decision to retire at a given point in your career is filled with risks—primarily whether you have enough funds set aside to afford the retirement lifestyle you want. This risk could cause other risks to emerge as well. For example, if you retire too early and run out of money there is a risk that you may not be able to return to the workforce and earn your same pre-retirement income. Examples of other retirement planning risks include the likelihood of healthcare cost increases and changes to income tax rates.

Making financial decisions blindly could be considered rash, particularly when you consider how important they are to your future. A deliberate, repeatable process that aids in your decision making process and ensures the quality of your decisions is a key tool used to reduce or eliminate the certain risks. Additionally, it is important to recognize that there are generally two types of risk one must deal with in their financial plans for the future. First, there are risks created by outside forces that must be acknowledged yet cannot be planned for or controlled. The second type of risk can be reduced or eliminated by a thoughtful process (and the appropriate calculations) we describe above. Control this second type of risk and you will be much closer to reaching your financial goals.

One issue that continues to present itself is that of debt management during a historically low interest rate environment. While interest rates are low it is tempting to maximize debt and increase investment portfolio holdings assuming they will outperform the interest rate paid on the debt. There are risks with this strategy as well as risks created by the opposite approach—paying down debt with investment holdings. This issue is highly sensitive to your financial plan particulars, goals, circumstances and risk capacity.

INVESTMENT COMMENTARY

The past three months have certainly been very rough on investors. It was a quarter marked by the U.S. debt limit debate, a downgrade to the U.S. debt rating, the sounding of double-dip recession alarms, and concerns about if and when Europe will come together to resolve their debt crisis. As is typical in uncertain times, bonds have been a safe-haven and have helped to reduce volatility in diversified portfolios. This relationship can be seen clearly in the chart below.

Financial Market Indices as of September 30	September 2011	Last 3 Months	Year to Date	Last 12 Months
S&P 500 TR (US Stocks)	-7.0%	-13.9%	-8.7%	1.1%
MSCI Developed EAFE (foreign stocks)	-9.5%	-19.0%	-14.6%	-8.9%
MSCI Emerging Mkt. Equities (emerging country stocks)	-14.8%	-23.2%	-23.5%	-18.0%
Barclays Capital Aggregate Bond – Intermediate Term	0.0%	2.3%	5.0%	4.2%
Barclays Capital Municipal Bond Index	1.0%	3.8%	8.4%	3.9%

Uncertainty Abounds – Opportunities Exist:

Risks to the US and global economy have risen and although the outlook is uncertain, it is important to take a step back from today’s headlines to make rational judgments and calculated decisions about how to balance out a long-term investment portfolio. Below are some of our thoughts on today’s risks and the opportunities we see:

The US economy has slowed, but has yet to reverse course and slide back into recession. Consumer confidence polls are down, but the hard data indicates that the business cycle is still moving forward. Compared to one year ago, retail sales and car purchases are stronger. Last week’s Chicago Purchasing Manager Index showed an uptick and we also saw the release of much better-than-expected durable goods orders and jobless claims data.

Recent fiscal and monetary policy mistakes have scared everyone. The political dysfunction exhibited from Washington in July with the budget negotiations and debt ceiling vote is one example. Secondly, European leaders have failed to give any confidence to the markets that they have the will and fortitude to bring their debt crisis under control. And thirdly, when the U.S. Federal Reserve announced in August that they planned to keep interest rates low until 2013, it sent a very negative signal to investors. We are keeping a close eye on future policy decisions to see if politicians start to get it right.

We think European leaders well-remember the 2008 Lehman Brothers disorderly bankruptcy and will not allow that situation to be repeated with Greece. Ultimately, it is in the best interest of all of Europe to help Greece with its debt and economic problems. Last week the German parliament approved the expansion of the European Financial Stability Facility which should be seen as a positive step forward.

While economic uncertainty is hitting an extreme point, valuation levels for many investments are hitting extremes too. The S&P 500 index is trading at 11x future earnings while the 10 year US Treasury is only yielding 1.8%. The last time that the S&P 500 traded at such a low multiple to earnings was over 20 years ago and the 10 year US Treasury Note was yielding 8%, not roughly 2%.

Another measure we like to look at is the earnings yield on stocks (earnings divided by price) relative to bond interest rates. When comparing today’s 9% earnings yield on the S&P 500 index to the 1.8% yield on 10 year Treasuries, U.S. stocks are at their cheapest level in the past 50 years. We recognize that we cannot predict the short-term direction of stock prices, but we are confident that the wide gap between price and value will eventually close resulting in stronger returns. So in August, we used stock price weakness as an opportunity to tactically shift an additional 5% of our client portfolios into global growth companies and emerging market stocks. Many of the fund managers we invest with are confident in the values of the businesses they own, the free cash flow they generate and the ability the companies have to increase dividends paid to shareholders.

We continue to believe that a bubble is developing in the value of U.S. Treasury bonds. Thus, we have gradually shortened the average maturity of our fixed income investments this year. Given the recent decline in Treasury interest rates, we have admittedly been early, but believe in the long run this is the right move. If interest rates rise just 1%, holders of 10 year Treasuries will see an 8% decline in the value of their “safe” investment. Buyers of 30 year Treasuries would see a decline of about 16% in the value of their holdings with a 1% increase in interest rates.

In this sort of environment, we believe it is more important than ever to focus on your long-term investment objectives, and stick with the basic principles of asset allocation and broad portfolio diversification. It is also important to consistently rebalance portfolios to control risk and take advantage of opportunities from declining asset classes.

For more than a decade now, we have invested money with Chris Davis, who is Co-Manager of the Selected American Shares mutual fund. As a third generation money manager, we find that Chris often has insightful comments about the markets and investor behavior. We share below an excerpt from his recently released semi-annual report:

“Investor returns come from both the performance of the underlying asset they own as well as the timing of their decision to buy or sell that asset. In most cases, this timing decision is costly because of the persistent tendency of investors to want to do today what they wish they had done yesterday. As a result, investors buy what has already gone up and lose interest in what has already gone down. The fundamental laws of economics and the basic tenets of common sense are timeless, we hope to make an indirect contribution to returns by reminding our shareholders to stay the course when times are uncertain and resist the tendency to get caught up in the fads and manias being pushed by promoters and pundits.”

EMPLOYEE ANNOUNCEMENTS

September was a busy month for gaining knowledge at our firm. We had five employees out of town at different times during the month to attend different industry-related conferences.

Terry Prather and Perry Moore attended the Notre Dame Tax and Estate Planning Institute on September 15^th and 16^th to listen to the industries’ leading experts discuss income and estate tax law changes, strategies for managing the tax impact on financial plans and new developments in various planning areas.

Taylor Payne attended the Black Diamond Users Conference in Boston, MA on September 12^th and 13^th. Black Diamond is a leader in web-based client portfolio performance reporting and is now backed by the financial resources of their new parent, Advent Inc. The conference discussed their strategy for future reporting enhancements, and provided training for maximizing their current platform.

Chad Sander and Bethany Muensterman attended the Tamarac Users Conference in Seattle, WA on September 15^th and 16^th. Tamarac Inc. is the industry leading provider of sophisticated portfolio management, asset allocation and trading software for independent investment management firms. Their annual conference provides hands-on training, information on future technology enhancements, and an opportunity to provide feedback to their product design team.

Terry Prather also attended Ed Slott’s exclusive two day IRA Workshop in Phoenix, AZ on September 23^rd and 24^th. This was an extensive program for advisors to dive deep into the complexities of planning with retirement accounts. IRAs present unique planning opportunities for both retirement and legacy purposes. We believe continuing education in the IRA area is very important to our wealth planning division, especially as tax laws continue to change and new tax court rulings develop.

How You Prevent Your Team from Being Productive (and what to do about it)

2011-09-23T08:06:00.000-05:00

Taylor Payne interviewed by Nancy Mandell of RIA Central:

If you’re the founder and CEO of an investment advisory firm that has expanded from a one-person shop to a business staffed by multi-professionals, you may well be your firm’s own worst enemy.

And recognizing that possibility can be the key to increased productivity.

So says T. Taylor Payne, CPA/PFS, CFP® and President and Investment Manager of Payne Wealth Partners, Inc. in Evansville, Indiana. In Payne’s opinion, “The most unproductive member of the team is usually the founder because he can’t keep his hands off, and everybody else is reluctant to call him on his unproductive habits.”

Payne, whose office manages $300 million in assets for some 215 households, came to this conclusion at the beginning of his 22^nd year in the business.

“I recognized that the answer to increasing productivity is delegation, so at the beginning of the year, we changed from a silo practice to a more holistic model where everyone on the staff gets to work with all the clients,” Payne explains. Older practitioners—he turned 58 a few weeks ago—who grew up in the silo environment “need to understand the importance of this and to change!” he adds.

The firm’s three major client areas are small business owners, corporate executives and divorcees or surviving spouses (see 101 Tasks to Tackle in the Aftermath of Death) —usually but not always female. The Baby Boomers are aging, Payne points out, and perhaps in part because they led such good lives, he finds the men tend to die at earlier ages, making surviving spouse a category of its own.

Payne Wealth Partners currently comprises nine employees, six of whom are professionals and five of them, CFPs. The Planning side of the business consists of two professionals and a para-professional; the Investment side of three CFPs. While the director of investments heads all decisions, for reasons of availability, the investments themselves may be executed by any of the firm’s other qualified investment professionals. Payne Wealth Partners also has staffers who handle business development and client services.

The new business model, Payne explains, revolves around having the most appropriate person doing the work and encouraging callouts so that when one staff member sees another taking on an inappropriate task, they don’t hesitate to say so. “In this respect,” Payne asserts, “the chief is always the worst offender!

As an example, Payne cites a recent phone conversation with a client that was overheard by the colleague sitting next to him. Payne was explaining how a fixed annuity would create an income stream for the client’s wife, and said he would call the annuity company for figures. Payne’s co-worker pointed out that someone else could better handle what was bound to be a back-and-forth dialogue, “and that I could be making better use of my time. When you started out as a solo practitioner, it’s hard to break the habit of trying to do everything yourself,” Payne notes.

If you’re wondering how the firm president’s conversation could be overheard, the reason relates to another innovation Payne introduced four years ago. After expanding three times—and seeing how a local real estate firm was set up—Payne decided to create an open office.

“It felt weird to us at first,” he admits. “It was a huge change. But now we love working that way.” At first, having your own office feels like a perk, but after a while, it may make you feel isolated. “What we found is that we had been so separated from each other that we were getting physically and mentally too far apart from each other.”

The bonus is that the firm’s physical layout contributes to the callouts he finds so necessary to successful delegation of responsibilities.

Paying for Your Hobby

2011-09-21T13:49:00.000-05:00

Have you ever considered the costs of paying for your hobby during retirement? We recently came across some interesting numbers to help put this question into perspective for our readers.

A 60 year old retiree, who plays three (3) rounds of golf per week, would need to set aside a lump sum amount today of $138,000 to cover their green fees over the next 22 ½ years. This assumes that he or she pays an average fee of $36 per round, incurs a 4% inflation rate, experiences a 3% annual rate of return on the money saved and never loses any balls or replaces any equipment.

These statistics are not only fun to see but interesting in their magnitude…..$138,000 for golf! When you are seeking financial security in retirement, diligent planning is critical to your success. Just think about how big the number would be if you lost a few balls along the way!

Source: Center for Disease Control and BTN Research

August 2011 Market and Planning Update (Posted to our blog two weeks after sending to clients.)

2011-09-16T10:08:00.000-05:00

"So what do we do? Anything. Something. So long as we just don't sit there. If we screw it up, start over. Try something else. If we wait until we've satisfied all the uncertainties, it may be too late.”

Lee Iacocca, Business Leader (former Chairman of Chrysler) and Author

We selected the quote above for this month’s commentary because in our economy, in the investment markets and in planning for our clients’ financial future we are constantly faced with uncertainty. Our goal is to overcome the fear that uncertainty often creates, and then seize the opportunities it presents.

PLANNING COMMENTARY

Uncertainty has always (and will always) be present for each of us when planning for the future. What makes the difference is how you approach that uncertainty in the decisions you make today and how that changes the results you see long-term.

While it’s not easy to do, identifying opportunities that present themselves in these difficult times is the first step to prospering from this environment. The second step is finding the courage to take action, as Lee Iacocca comments upon above, and take the steps needed to implement strategies that make good sense. The decision of whether or not to refinance real estate related debt is one very simple example of this process. Many individuals wait for the interest rate “bottom” to show itself so that they can refinance their mortgage or other real estate debt at the perfect time, when rates are at their absolute low. As with many other strategies, the ideal time to pull the trigger won’t announce itself, and those that wait for the uncertainties about the economy, housing market and Fed action to be worked out will likely miss the opportunity altogether!

We have been performing tactical Roth IRA conversions for a number of clients when their particular circumstances call for it. What makes this opportunity so appealing is that lower market pricing allows for conversion of securities at a lower tax cost; any prospective appreciation in these securities enjoys tax-free treatment in the Roth IRA. Action is what allows this to occur. Without action, the best you can do is look back at opportunities missed.

INVESTMENT COMMENTARY

Uncertainty about the direction of our economy (and fear of another recession), uncertainty over whether Congress would raise the debt ceiling and begin to seriously address our budget deficits, and uncertainty hanging over Europe in regards to their debt problems have led to increased nervousness in the financial markets. As is typical in uncertain times, bonds have been a safe-haven and have helped to reduce volatility in diversified portfolios. This relationship can be seen in the chart below.

Financial Market Indices	August 2011	Last 3 Months	Year to Date	Last 12 Months
S&P 500 TR (US Stocks)	-5.4%	-8.9%	-1.8%	18.5%
MSCI Developed EAFE (foreign stocks)	-9.0%	-11.5%	-5.7%	10.5%
MSCI Emerging Mkt. Equities (emerging country stocks)	-9.2%	-11.5%	-10.3%	6.6%
Barclays Capital Aggregate Bond – Intermediate Term	1.1%	2.2%	5.0%	4.4%
Barclays Capital Municipal Bond Index	1.7%	3.1%	7.3%	2.7%

We believe the recent weakness in stock markets around the world created an opportunity for long term investors. Thus, in early August we made a tactical adjustment by moving 5% of portfolios into a combination of large cap growth stocks and emerging market stocks. Money to fund these purchases came from the complete sale of a long/short fund and the partial sale of an emerging market bond fund. We have also been busy over the past few weeks rebalancing portfolios back to their asset allocation targets. With the recent sell-off in the equity markets, stocks had become slightly underweight and bonds slightly overweight in portfolios versus their strategic target levels.

We would never try to call a market a market bottom, but we do believe that high quality growth companies are fairly priced when looking at various valuation ratios. The S&P 500 index is trading at a Price/Earnings (P/E) ratio of about 10 times forward earnings estimates and at close to 12 times trailing earnings. Both these valuation measures show that US stocks are very cheap relative to their long-term historical averages. For example, the 15 year average P/E ratio is 17 times earnings. (Note: the lower the P/E ratio, the cheaper stock prices). We see similarly attractive valuation opportunities in emerging market stocks too.

EMPLOYEE ANNOUNCEMENTS

At Payne Wealth Partners we encourage our employees to academically challenge themselves and strive to obtain the highest levels of professional designations. With this principle in mind, Terry Prather has recently earned the CERTIFIED FINANCIAL PLANNER^TM certification which signifies his completion of extensive education, examination, experience and ethics requirements in the financial planning profession. Often referenced as the gold standard in the industry, the CFP® certification exam is a rigorous, 10 hour comprehensive test in the areas of retirement planning, estate planning, investments, income tax planning and insurance.

Terry is the fifth professional at Payne Wealth Partners to achieve the certification. Team members Taylor Payne, Chad Sander, Ann Pendley and Perry Moore are also CFP® certificants.

Shaping How Clients Share the Wealth

2011-09-12T09:22:00.003-05:00

Click here to read the full Dow Jones Newswire article "Shaping How Clients Share the Weatlh" quoting Perry Moore, Director of Wealth Planning at Payne Wealth Partners.

An Estate Plan Designed for Reversal

2011-08-31T11:51:00.000-05:00

Click here to read the full Dow Jones Newswire article "An Estate Plan Designed for Reversal" quoting Perry Moore, Director of Wealth Planning at Payne Wealth Partners.

Your Last Act

2011-08-25T09:52:00.000-05:00

When Steve Jobs announced his departure as Apple’s CEO, the majority of shareholders, members of the press and Apple enthusiasts were taken aback. When such an iconic figure steps away from the helm of a company like Apple, many ask questions like “what’s next for Apple?” and “will the company survive?” This prompts another question that we should all be prepared to answer- “when the time comes to declare your last act, how will your company, family, or small business fare in your stead?”

While Steve Jobs is not entirely out of the picture at Apple, his role will become something entirely different as Chairman of Apple’s Board of Directors. We all have a responsibility to the companies for which we work, small businesses we own, and families we love to have our “succession plans” firmly in place and understood by each stakeholder.

It seems we have two options to deal with succession in whatever form it may apply to our situation:

1. Refuse to plan and wait for outside events to force you or others to react. This is a poor choice because your options may be severely limited and there is typically little time to make decisions.

2. Plan and implement your succession before you are forced to, on your own time and in a way that works best for all stakeholders.

If you are not sure about your business or family succession plans, ask us how we can help.

Stock It to Me | Evansville Business Magazine

2011-08-17T16:15:00.000-05:00

Article quoting Chad Sander, Director of Investments & Vice President of Payne Wealth Partners.

Stock It to Me Evansville Business Magazine