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IN THIS ISSUE . . .
Your Financial Affairs in Order
The Effects of Currency
Estate Planning in Extended
Stocks vs. Stock Mutual Funds
News and Announcements
FINANCIAL AFFAIRS IN ORDER
Are you making significant progress toward your financial goals? If not, is
it because you are guilty of making one or more of these common financial
PROCRASTINATION — Confused by the complicated process of financial
planning and the vast number of investment alternatives, many people react by
simply doing nothing. Unfortunately, years can go by with no progress made
toward your financial goals. You can always adjust your plan later – the
important thing is to get started now.
NOT SAVING ON A REGULAR BASIS — Don’t get trapped into believing
that you don’t make enough money or that you have too much debt to start
saving for your financial goals. Even if you start out by saving very small
amounts, it is important to make saving a habit. Over the years, you should be
able to find ways to increase your rate of saving.
NOT INVESTING YOUR SAVINGS — While saving is very important, so is
investing those savings. Many people avoid investing because they believe it
involves risk, only to find that inflation and taxes seriously erode the value
of their savings.
LOSING PATIENCE — Some people, seeing minimal progress in the
first couple of years, are tempted to abandon their plan. But it often takes
years to see significant results. Assume you place $1,000 in an investment
that earns 8% annually. After one year, you will have $1,080; after two years,
$1,166; and after three years, $1,260. Let the money compound for 25 years,
however, and you will find an investment worth $6,848. (This example is for
illustrate purposes only and is not intended to project the performance of any
specific investment.) Time and compound interest are powerful factors in
achieving your financial goals.
INVESTING IN LAST YEAR’S HOT INVESTMENT — Don’t simply invest
in last year’s star performer, be it a specific stock, mutual fund, or
investment category. In addition to past performance, it is important to
understand the fundamentals of an investment and to consider its prospects for
NOT DIVERSIFYING — Diversification can play an important role in
reducing the risks in your portfolio. Since different investments are affected
differently by economic events and market factors, owning different types of
investments reduces the chances that your entire portfolio will be adversely
affected by a particular type of risk. But diversify appropriately – don’t
accumulate investments without a specific asset allocation strategy in mind.
NOT MONITORING YOUR INVESTMENTS — Although buying and holding for
the long term is often a wise investment strategy, you must review your
investments on a periodic basis. Changes in the fundamentals of the investment
may necessitate selling.
INVESTING SOLELY FOR TAX REASONS — In their zeal to reduce taxes,
some people invest in vehicles that aren’t appropriate. Individual
retirement accounts and other pension vehicles are already tax-deferred, so
there is no reason to use these accounts for tax-free investments. Some
investors in lower tax brackets invest in municipal bonds even though they
would be better off on an after-tax basis by investing in taxable investments.
It is important to consider all factors before investing.
Don’t let fear of making mistakes prevent you from achieving your financial
goals. Resolve to get your financial affairs in order now. It is a complicated
process, so feel free to call us at (800) 878-4036 for help.
THE EFFECTS OF
Before making international investments, it is important to understand how
fluctuations in currency exchange rates affect total return. If you purchase
shares of a non-U.S. company, its sales and profits, balance sheet items, and
share price are all denominated in the local currency. The value of your
investments is calculated by applying the foreign exchange rate to those
amounts. When the U.S. dollar declines compared to the other currency, your
investment will increase in value since more dollars are now required to
purchase the investment. An increase in the U.S. dollar compared to the other
currency will mean that your investment will decrease in value. Currency gains
can overcome investment losses or magnify gains, while currency losses can
negate a gain or make a loss even larger.
Foreign exchange rates are determined by supply and demand, with shifts in
demand causing rates to change. These shifts are caused by a number of factors,
including inflation, interest rates, political and economic outlook,
speculation, etc. The dollar does not move uniformly against all currencies —
it can be rising against one currency while it is declining against another.
For most investors, trying to predict the movements of foreign currency
exchange rates and reacting to those predictions is too complex. It is generally
easier to find ways to reduce the risk of currency fluctuations:
Concentrate your holdings on foreign equities rather than foreign bonds,
since bond investments are subject to more currency risk than equity
Invest in parts of the world where the political and economic arena is
stable and the local currency is strong. Avoid areas where inflation rates are
While it is difficult for individual investors to hedge currency risks,
some mutual funds practice hedging.
Diversify your investments by country and by region in order to reduce the
effects of overall currency risk.
Please call us at (800) 878-4036 if you’d like to discuss how fluctuations
in currency exchange rates can affect your international investments.
IN EXTENDED FAMILIES
By far the most common estate plan is to leave everything to your spouse, who
then leaves everything to your children after his/her death. But if this is a
second marriage with children from a prior marriage, that plan often doesn’t
work. In order to ensure that "your, mine, and our" children are
properly protected, more complex estate planning is required. Some suggestions
Use a premarital agreement if you intend to leave all your assets to your
children. A spouse can challenge a will if they are excluded.
Consider the use of a qualified terminable interest property trust (QTIP
trust). Your property is placed in a trust for the use of your spouse during
his/her lifetime, but the proceeds go to beneficiaries you designate after the
Inform your children of your estate plans so they realize that these are
your wishes, not the wishes of your spouse.
Be careful of how you title property during a second marriage. If you use
joint tenancy, the asset will automatically pass to your survivor and cannot
be changed by the provisions of a will.
Engage the help of a qualified estate planner. Wills and trusts are complex
legal documents. If they are not properly drafted, the intended outcome may
STOCKS VS. STOCK
When investing in the stock market, you can purchase either individual stocks
or invest in a stock mutual fund. There are several differences between the two
INDIVIDUAL STOCKS STOCK MUTUAL FUNDS
You have to take an active role in managing individual
Full-time professional managers watch the fund’s
portfolio, making all buy, sell, and hold decisions.
Liquidity will depend on how widely traded the stock is
and the market demand for the stock.
Open-end mutual funds must buy back your shares when you
want to sell them. The redemption price equals the current net asset
value, which may be more or less than your original cost.
You may need up to $25,000 to build a portfolio with
With a minimum initial investment of $1,000 to $3,000, you
obtain a share in a diversified portfolio of stocks.
REINVESTMENT OF DIVIDENDS
You must generally find investment alternatives for your
You can generally reinvest any dividend payments in the
When you purchase and sell stocks, you pay commissions but
have no on-going operating expense fees.
Some funds have sales charges while others are no-load
funds, meaning there is no initial or contingent sales charge and any
12b-1 fees equal no more than .25%. Almost all mutual funds charge a fee
for on-going operating expenses.
You must first sell the stock, receive the proceeds, and
then invest in another investment.
If your mutual fund is part of a family of funds, you can
switch money from one fund to another within the family.
There are advantages and
disadvantages to either option. The right choice will depend on your
personal situation, including the size of your portfolio, your investment
objectives, the types of stocks in which you’re interested, and how much
time you want to spend making investment decisions. Please call us at
(800) 878-4036 if you’d like to discuss your individual situation.
NEWS AND ANNOUNCEMENTS
WHAT ARE DRIPs?
Dividend reinvestment plans (DRIPs) are a shareholder service offered by over
1000 companies. Instead of sending cash dividends to shareholder participants,
the dividends are used to purchase additional shares of the company stock. In
order to participate, you must own shares registered in your name. Shares
purchased through the DRIP are held in common account by the company; you
receive statements but no stock certificates unless requested. Some of the
advantages of DRIPs include:
Many programs don’t charge commissions for these shares, but be sure to
check carefully since some companies are changing their policies. More companies
are charging at least a nominal fee to prevent all shareholders from paying for
a service that only some shareholders utilize.
Fractional shares can be purchased, so that your entire dividend can be
Many DRIPs allow you to make additional investments through the plan,
although limits are normally set on the minimum and the maximum amount that can
be purchased in a given year. Before sending any money, find out when the
company will invest the payment and time your accordingly.
When you want to sell your shares, many companies will purchase them
directly. However, some plans will only redeem shares at certain times and most
take several weeks to complete your transaction.
Although you should not select a stock just because it has a DRIP, this could
be a valuable benefit if you are already interested in a specific stock. Before
participating, read the plan prospectus carefully to determine eligibility
requirements, plan options, costs, when purchases can be made, and how to
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