Smart MoneyInsights

August 2012 Vol. No. 1 Investment Updates

Personal Note from Steve Stanganelli

My Core Values

I strive to run my practice and mylife on the core principles bestsummed up in Don Miguel Ruiz'sThe Four Agreements:

Be Impeccable with Your Word Don't Take Anything Personally Don't Make Assumptions Always Do Your Best

If you are like me and appreciatethis approach to life and business

and value having a reliablesecond opinion or need helpgetting on track, then I lookforward to being a part of yourteam.

I want to help you make sense ofyour money.

Please call me and we can set upa time for a no pressure chat toexplore the ways that we may beable to work together.

Let’s make a plan together toimprove your bottom line.

Find the Right Stock/Bond Mix forCollege Savings

When it comes to selecting specific investments for acollege portfolio, asset allocation is every bit as crucial,if not more so, than it is for retirement savers. Retireescan delay retirement or work part-time longer if theirretirement portfolios come up short. Most youngpeople, on the other hand, want to go to college rightafter high school, making the target date for a collegefund much more specific. (The target date is theapproximate date when investors plan to startwithdrawing their money for college.) As it takes moststudents only four to five years to get through college,a college fund's drop in value during high school orearly college years can be catastrophic. The principalvalue of such funds is not guaranteed at any time,including at the target date.

A healthy share of the assets flowing into 529 plans isnow directed toward age-based options. Much liketarget-date mutual funds, age-based options contain amix of stocks, bonds, and cash, and grow progressively

more conservative as your child nears college age. Butit's important to conduct due diligence on an age-based plan beforehand. And if your 529 plan's age-based options are dramatically out of whack withindustry averages, that's a red flag to look for another529 plan, create your own age-appropriate portfoliousing individual funds, or supplement the age-basedplan with individual stock, bond, or cash holdings.

Government bonds and Treasury bills are guaranteedby the full faith and credit of the U.S. government asto the timely payment of principal and interest, whilestocks are not guaranteed and have been more volatilethan bonds. Diversification does not eliminate the riskof experiencing investment losses. 529 plans are tax-deferred college savings vehicles. Any unqualifieddistribution of earnings will be subject to ordinaryincome tax and subject to a 10% federal penalty tax.

Steve Stanganelli, MSF, CFP®Fee Only Planner & Tax Coach

steve@clearviewwealthadvisors.com978-388-0020www.ClearViewWealthAdvisors.com

Clear View Wealth Advisors LLC Investment Updates August 2012 2

Keeping It Real

Inflation has averaged 3.1% over the last 30 years.This might not seem like much, but this reportedfigure only tracks total goods and services purchasedby the typical consumer. This is a good measure forthe economy at large, but it may not be representativefor individuals whose lifestyles and buying habits differfrom the typical consumer.

Goal-based investors may experience higher inflation.People who need to focus on savings for college ormedical care may be left short, as the cost for suchitems often tends to rise at a faster rate than theaverage cost of living. Those investors might not beable to keep pace with rising costs if they do not taketheir real inflation rate into account when planningtheir investment goals.

The image illustrates the effect of three types ofinflation on an investment of $1,000 in stocks andbonds: overall U.S. inflation, medical-care inflation,and college inflation. After 30 years, inflation hasconsiderably reduced the wealth of the originalinvestment. For example, the $1,000 invested in stocksand bonds only grew to $9,198 and $9,325,respectively, after adjusting for U.S. inflation. Alas,even more bad news for a family with children or ababy boomer nearing retirement.

Further, of the two asset classes considered, bondsprovided more growth after inflation, which isunusual. Investors wishing to keep pace with inflationwould typically consider a larger allocation to stocks orexplore other investments that protect againstinflation. However, due to the two major crises andassociated stock market declines experienced duringthe “lost decade,” stocks performed more weakly thanbonds.

Past performance is no guarantee of future results.This is for illustrative purposes only and not indicativeof any investment. An investment cannot be madedirectly in an index. Government bonds areguaranteed by the full faith and credit of the UnitedStates government as to the timely payment ofprincipal and interest, while stocks are not guaranteedand have been more volatile than bonds. Holding aportfolio of securities for the long term does not

ensure a profitable outcome and investing in securitiesalways involves risk of loss. The rates used in theanalysis and their corresponding compound annualgrowth rates are the consumer price index for: allurban consumers (CPI-U) (3.1%), medical care(5.4%), and college tuition and fees (7.4%).

Clear View Wealth Advisors LLC Investment Updates August 2012 3

Mixed Income

Fixed-income performance reversals are common: It isextremely difficult to predict which category of bondswill be the best or worst performer in any given year.The performance of any fixed-income investment canhave drastic periodic changes. Investors couldpotentially diminish their returns by attempting tofollow last year’s winner.

Furthermore, investors who have an asset allocationpolicy consisting of different asset classes such asstocks and bonds may still not be diversified.Therefore, branching out within each asset class mayfurther lessen overall portfolio risk.

Diversified bond funds might alleviate portfoliovolatility: The image illustrates the performance ofvarious fixed-income instruments in relation to oneanother from 2002 to 2011. The data shows it isimpossible to predict the winners for any given year.For example, high-yield corporate bonds were theworst performers in 2007 and 2008, but rose tobecome the best-performing investment in 2009 and2010. While aggregate bonds have never been the topperformer in any of the years examined, theirperformance has remained fairly consistent, withminimal swings when compared with other categoriessuch as long-term and international bonds.

It can be beneficial to hold a fund that is diversifiedacross several types of bonds. This might reduceportfolio risk while allowing for more consistentperformance over time.

Past performance is no guarantee of future results.This is for illustrative purposes only and not indicativeof any investment. Diversification does not eliminatethe risk of experiencing investment losses.Government bonds and Treasury bills are guaranteedby the full faith and credit of the United Statesgovernment as to the timely payment of principal andinterest. With corporate bonds, an investor is acreditor of the corporation and the bond is subject todefault risk. High-yield corporate bonds exhibitsignificantly more risk of default than investmentgrade corporate bonds. Municipal bonds may besubject to the alternative minimum tax (AMT) andstate and local taxes, and federal taxes would apply to

any capital gains distributions. International bonds arenot guaranteed. International investments involvespecial risks such as fluctuations in currency, foreigntaxation, economic and political risks, and differencesin accounting and financial standards.

Clear View Wealth Advisors LLC Investment Updates August 2012 4

Retirement Income Sources

Concerns about shortfalls in traditional retirementincome sources like Social Security and pension planshave caused people to expect to rely more heavily onpersonal savings to fund their retirement. The graphillustrates that while only 50% of current retireesutilize their personal savings for retirement income,65% of current workers anticipate personal savings toplay a role during retirement. Further, 73% of workersexpect to receive retirement income from an employer-sponsored retirement savings plan, while only 51% ofthose already retired actually receive income from sucha source.

It may be a good idea to plan for a diminished relianceon Social Security or a pension plan. Whatever extrafunds you save by taking this more conservative viewwill make retirement all the more enjoyable.

Stretching an IRA

Many retirees depend on their individual retirementaccounts to fund living expenses during their goldenyears. However, there are retirees who find themselvesin the enviable position of having no need to withdrawfrom their IRAs. If you are fortunate enough to be inthis camp, or if you are fairly confident that you willhave plenty of money left in your account when youleave this world (even after taking requireddistributions), you will want to make sure you preserveas much of your IRA assets as possible for futuregenerations. You can accomplish this by implementinga stretch strategy.

The first step in setting up a stretch IRA strategy is tosimply name one or more beneficiaries. If you aremarried, your spouse can serve as your primarybeneficiary while your children or even grandchildrencan serve as your secondary beneficiaries. You can alsoname others as beneficiaries, such as family membersor friends. You worked hard to accumulate the funds

in your IRA, be sure they are transferred properly.

When you pass on, providing certain conditions aremet, each beneficiary who elects to go with a stretchstrategy will have a range of options to choosefrom—depending upon your age at death (andwhether or not you have begun to take requiredminimum distributions from the IRA) and whether aspousal or non-spousal beneficiary is involved. If youhappen to be named a beneficiary and choose toimplement a stretch strategy, be sure you know whatcomes next. In some cases you may be able to keep theassets growing on a tax-deferred basis while in othercases distributions will need to be taken soon. Becauseof the many rules, it is highly advisable that you speakwith a financial advisor or tax professional when itcomes to stretch strategies.

Clear View Wealth Advisors LLC Investment Updates August 2012 5

The Asset Allocation Puzzle

Possessing a considerable amount of knowledge aboutstocks, bonds, and cash is only a small part of theinvestment planning process. Many investors areunder the false notion that the greatest determinant ofportfolio performance is the specific investmentchoices that they make. In reality, the biggest decisionyou will make is how much to allocate to differentinvestment categories. Asset allocation is all aboutfinding the mix of investments that is right for yoursituation. Goals, time horizon, and risk tolerance aresome of the key factors that should be taken intoconsideration when allocating assets.

Goals: Determining what asset allocation isappropriate depends largely on the goals you seek toachieve. Are you saving for retirement, collegeeducation for your children, or a vacation home? Eachgoal must be considered in creating the appropriateasset mix.

Time Horizon: Time horizon is the length of timeyour portfolio will remain invested before withdrawalsneed to be taken. If your average investment horizon isfairly short, you will most likely want a moreconservative portfolio—a portfolio with returns thatdo not fluctuate too much. If your investment timehorizon is longer, you can most likely invest moreaggressively.

Risk Tolerance: Everyone has a different emotionalreaction to sudden changes in their portfolio value.Some people have trouble sleeping at night becausethey are too busy worrying about how their portfolio isperforming. Other investors are unfazed byfluctuations in the market and can endure theuncertainty associated with more risky investments.

As you can see, the asset allocation decision is not aneasy one and it may be best to work with aninvestment advisor who can piece together a plan thatis right for you.

©2012 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or the content providers; (3) is notwarranted to be accurate, complete, or timely; and (4) does not constitute investment advice of any kind. Neither Morningstar nor the content providers are responsible for any damages or losses arisingfrom any use of this information. Past performance is no guarantee of future results. "Morningstar" and the Morningstar logo are registered trademarks of Morningstar, Inc. Morningstar MarketCommentary originally published by Robert Johnson, CFA, Director of Economic Analysis with Morningstar and has been modified for Morningstar Newsletter Builder.

Steve Stanganelli, MSF, CFP®Fee Only Planner & Tax Coach

Clear View Wealth Advisors LLC12 Amidon AvenueAmesbury, Massachusetts 01913

steve@clearviewwealthadvisors.comwww.ClearViewWealthAdvisors.com

Tel:978-388-0020