Wink Tax Services
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IN THIS ISSUE . . .
With thousands of stocks traded on the major stock exchanges, measuring daily
price movements for all stocks would be a monumental task. Thus, indicators
considered representative of the market have been designed to allow investors to
track the general trend and current status of the stock market. Two of the most
widely cited indicators are the Dow Jones Industrial Average (Dow) and the
Standard & Poor’s 500 (S&P 500).
The stocks of 30 companies traded on the New York Stock Exchange (NYSE) are
used in the average (see list of companies at end of this article). These
stocks account for less than 17% of the total market value of nationally
traded stock issues. All of the companies are billion-dollar giants — small
and medium sized firms are ignored by the index.
The Dow isn’t calculated as a straight average, which would involve
simply adding the prices of all the stocks and dividing by the number of
companies included. Instead, adjustments are made for splitting of shares and
distributions of stock dividends.
THE S&P 500
The S&P 500 tracks 500 companies traded on the New York Stock Exchange,
the American Stock Exchange, and the over-the-counter market. The index is
comprised of companies in broad industry groupings in an attempt to mirror the
composition of the New York Stock Exchange. In addition to the S&P 500
average, Standard & Poor’s also publishes the component averages that
make up the S&P 500 — the 400 industrials, 40 utilities, 20
transportation companies, and 40 financial stocks. The S&P 500 is one of
the twelve indicators used to calculate the U.S. Department of Commerce’s
index of leading indicators.
The S&P 500 is a market-weighted index, meaning that it factors in the
differences in size of the individual stocks by multiplying the price of each
by the number of shares outstanding. The resulting market-value figure is then
averaged and expressed as a percentage of a base figure.
In order to ensure that the index continues to represent the overall
market, changes are often made to the S&P 500, with as many as 25 to 30
changes in a year. These changes have little effect on the overall index,
however, since it requires a move of approximately $70 million of market
capitalization to move the S&P 500 by one basis point, or 0.01 point.
The S&P 500 is generally considered a broader measure of the stock
market because it tracks so many different segments. The Dow is heavily
comprised of industrial and cyclical industries. Also, since the Dow is an
arithmetic average rather than an index, higher-priced stocks have more of an
impact on the Dow than less expensive stocks do. Since only 30 stocks are
tracked, substantial movement in one stock can significantly impact the
average, which may not reflect the overall movement of the stock market.
Following both indicators will give investors some indication of
broad-based market moves. These indices can also be used as comparative
measures to judge portfolio or mutual fund performance, although the
limitations of the indices must be kept in mind. Please call us at
800-878-4036 if you’d like to discuss how to use the indices in more detail.
(Year in parentheses indicates the company’s first
appearance on the Dow.)
J.P. Morgan (1991)
Phillip Morris (1985)
Procter & Gamble(1932)
General Motors (1915)
Sears Roebuck (1924)
Union Carbide (1928)
THE NEED FOR A WILL
You’re not alone if you don’t have a will — you’re in the company of
over half of all adult Americans (Source: U.S. News & World Report, April
24, 1995). Yet the potential consequences to your estate if you die without a
will can be significant:
YOUR STATE DICTATES WHO RECEIVES YOUR ASSETS. In most states, that
means that your children will receive one-half to two-thirds of your estate
with your spouse receiving the balance. All children will be treated equally,
even if you would have preferred to give more to a minor child or to a child
with special needs. If you have no children, your assets will normally be
split between your spouse and your parents or brothers and sisters. Generally,
the way the state will distribute your estate won’t be the way you would
YOU ESTATE WON’T BE DISTRIBUTED IN THE MOST TAX-ADVANTAGED MANNER.
deciding who will receive what assets, you can sometimes control the ultimate
amount of estate taxes that will be paid.
THE COURT WILL NAME A GUARDIAN FOR MINOR CHILDREN. One of the most
significant advantages of a will for couples with minor children is the ability
to name guardians. Additionally, you can specify when your child should receive
assets or set up a trust for your children until they reach a certain age.
Without a will, they will inherit the assets when they turn 18 or 21 (depending
on your state of residence) and, until then, the court will appoint someone to
control the distribution of those assets.
THE COURT WILL NAME THE EXECUTOR OF YOUR ESTATE.
If you don’t
specify an executor in your will, the court will name one, usually a
professional who may charge a significant fee to your estate.
Even if you settle most of these issues by establishing a living trust or
other form of trust, you probably still need a will with a "pour-over"
clause requesting that all property not in your trust be put there after death.
There are several items you should consider before preparing your will.
Spouses should each have separate wills rather than a joint will, since a joint
will could prevent the surviving spouse from changing the distribution of
assets. It is usually best to leave percentages of your estate rather than
specific dollar amounts, since your estate may grow or shrink significantly over
the years. Jointly owned property, such as homes or bank accounts, and items
with specific beneficiaries, such as a pension plan or life insurance policy,
cannot be disposed of through a will.
Be sure to list contingent beneficiaries in case your selected beneficiaries
die or can’t be located. You may want to name a favorite charity as a
contingent beneficiary to ensure that your assets can be completely disposed of.
In most states, you cannot completely disinherit your spouse unless you have a
signed prenuptial or nuptial agreement. Although you can disinherit children, it
is usually best to specifically state in your will that you are making no
provision for them.
Once you prepare your will, be sure to review it periodically to make sure
you are satisfied with the provisions and to ensure that revisions are not
needed due to tax law changes. Also review your will if you move to another
state or if your financial situation changes.
LIVING ON YOUR NEST EGG
After retirement, you’ll probably need to start withdrawing money from your
nest egg to supplement your Social Security and pension benefits. Wondering how
much you can withdraw without depleting your savings? The following table shows,
for a balance of $100,000, how many years your money will last based on various
withdrawal amounts and rates of return. For example, if you want to withdraw
$10,000 a year and your funds are earning 8% per year, you’ll be able to make
withdrawals for 21 years. If you have more than $100,000, you can still use this
table. Simply multiply the annual withdrawal payment by how many times your
funds exceed $100,000 and your money will last the same number of years shown in
the chart. For example, if you have $250,000, you can multiply the $10,000
withdrawal amount by 2.5. If your funds earn 8% per year, you can make
withdrawals of $25,000 for 21 years.
Years $100,000 will last at following rates of return:
7% 8% 9%
10% 11% 12%
16 18 23
14 15 18
12 13 15
10 10 11
* — Will last indefinitely.
This chart is for illustrative purposes only and is not intended to project
the performance of any specific investment.
Few parents will argue that it is very expensive to raise a child. According
to the U.S. Department of Agriculture, the average amount spent on a child from
birth to age 18 is:
Total spent over 18 years
Child care &
Note: These figures assume two children in the family and are the amounts
spent on the younger child. To calculate the amount spent on the older child,
multiply by 1.26. If there are three or more children in the family, multiply by
While coping with these costs may seem like all you
can deal with, there are other financial decisions you should consider for your
NAME A GUARDIAN FOR YOUR CHILDREN IN A WILL.
Unless you do so, the
courts will appoint a guardian and will also supervise their property if you
die. Make sure to discuss this responsibility seriously with your candidate
and to select at least one alternative. You may want to consider two guardians
— one to take care of the children and one to take care of their property.
PURCHASE SUFFICIENT INSURANCE. Make sure you have enough life
insurance to provide for your children until they are adults. Also ensure that
you have adequate disability insurance.
START SAVING FOR COLLEGE. Even if you can only start out with small
amounts, it is important to start saving early for college.
TEACH YOUR CHILDREN ABOUT MONEY. One of the most valuable lessons
you can teach your children is how to save and how to responsibly manage
SAVE FOR YOUR RETIREMENT. To ensure that you don’t have to reply
on your children for support as you grow older, make sure that you finance an
independent retirement for yourself.
GIFTS ASSETS TO YOUR CHILDREN. If you are planning to leave your
assets to your children, you may want to start making annual gifts during your
lifetime. Not only does this reduce the value of your estate, but it allows
you to help your children use the money wisely and to share in the joy the
children receive from the gifts.
CALL FOR HELP WITH THESE DECISIONS. The financial responsibilities
of a child are often overwhelming. Call us at (800) 878-4036 if you’d like
assistance with these decisions.
NEWS AND ANNOUNCEMENTS
TAKE CONTROL OF YOUR FINANCIAL AFFAIRS
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 mistakes?
PROCRASTINATION — Confused by the complicated process of financial
planning and the vast number of investment alternatives, many people react
simply doing nothing. 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.
NOT INVESTING YOUR SAVINGS — While saving is very important, so is
investing those 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.
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.
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.
INVESTING SOLELY FOR TAX REASONS — In their zeal to reduce taxes,
some people invest in vehicles that aren’t appropriate.
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
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