11/27/2008

Top 10 Ways to Keep Your Cool in a Crazy Market

Keeping your cool can be hard to do when the market goes on a periodic roller-coaster ride. It's useful to have strategies in place that prepare you both financially and psychologically to handle market volatility. Here are 10 tips to help you keep from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.

1. What’s your game plan? Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. Diversification can offset the risks of certain holdings with those of others. Exercising trading discipline helps too. For example, you might determine in advance that you will take profits when a security or index rises by a certain percentage, and buy when it has fallen by a set percentage.
2. Know what you own and why you own it: When the market goes crazy, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits in your portfolio can help, especially if you're considering replacing your current holding with another investment.
3. Remember, everything's relative: Variance in the returns of different portfolios can be attributed to their asset allocations. A well-diversified portfolio that includes multiple asset classes should be compared to relevant benchmarks for performance. If you find that your investments are performing in line with those benchmarks, this might help you feel better about your overall strategy.
4. Tell yourself that this too shall pass: The financial markets are cyclical. Even if you regret buying too early or selling too soon, you may well get another chance at some point. Stick out the tough times with your chin up.
5. Learn from your mistakes: Anyone can look good during bull markets, but even the best aren't right all the time. If an earlier choice now seems crazy, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions.
6. Play defense: Many investors reexamine their allocations during turbulent markets. Holdings that produce regular dividends can help cushion the impact of price swings.
7. Continue to save: Regularly adding to an account designed for a long-term goal may cushion the emotional impact of market swings. If you're using dollar-cost averaging--investing a specific amount regularly regardless of fluctuating price levels--you may be getting a bargain by buying when prices are down.
8. Cash can ease your mind: Cash can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to make thoughtful decisions instead of impulsive ones. Having a cash cushion coupled with a disciplined investing strategy can change your perspective on market volatility.
9. Stay on course: Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Drastic decisions could get you off track.
10. Look in the rear-view mirror: Sometimes it helps to take a look back and see how far you've come. Though past performance is no guarantee of future returns, the stock market's long-term direction has historically been up.

Consult your friendly home town banker for all of your investment needs. Together we’ll plan a strategy taking gradual steps to spread your risk over time, survive market volatility, and achieve your financial goals.

11/13/2008

Tax Changes in the Bailout Bill

The Emergency Economic Stabilization Act of 2008, or the "bailout bill," was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. There are tax law changes affecting individual taxpayers that are worthy of noting.

In 2007, the Mortgage Forgiveness Debt Relief Act provided an exclusion for the discharge of up to $2 million of Qualified Principal Residence Indebtedness that applies to debts discharged from January 1, 2007 through December 31, 2009. The bailout bill extends the end date to December 31, 2012. The exclusion applies to foreclosures, deed-in-lieu of foreclosures, or any loan modification.

The 2008 AMT exemption amount for individuals is raised to $46,200 for singles and $69,950 for married couples filing jointly. The AMT exemption amounts in 2009 will be $33,750 for single filers and $45,000 if you’re married filing jointly.

The Act creates a new tax credit of $2,500 to $7,500 for plug-in electric vehicles.

The Act provides a new tax break for bicyclists. Employers can provide a tax-free fringe benefit of up to $20 per month to cover "reasonable expenses incurred by the employee" for the purchase, improvement, repair, and storage of a bicycle that is regularly used to commute between the employee's home and office.

The Act extends the energy efficient property credit through 2016, and allows the credit to offset AMT liabilities. Two new types of equipment are added that would qualify for the credit: wind energy equipment will produce a tax credit worth 30% of the cost of the equipment, with a maximum credit of $4,000, and geothermal heat pumps would qualify for a credit worth 30% of the cost, with a maximum credit of $2,000.

The non-business energy property credit is extended for property placed in service during 2009. This provides a credit of up to $500 for purchasing energy-saving products, such as windows, insulation, and HVAC systems. The Act also adds two new types of improvements that qualify for the credit: biomass fuel stoves with a thermal efficiency rating of 75% or more, and
asphalt roofs with cooling granules.

Other tax changes include:

• Modifying the child tax credit for 2008 by lowering the income threshold for the refundability of the credit from $12,050 to $8,500.
• The deduction for up to $250 of personal expenditures by teachers, counselors, and principals in K-12 schools for materials and supplies is extended for 2008 and 2009.
• IRA owners who are 70½ and who must begin required mandatory distributions can contribute up to $100,000 directly to a qualified charity without having to include the distribution in income. This tax benefit is extended for 2008 and 2009, but is only available for individuals over age 70½ by the end of the year.
• The Housing and Economic Recovery Act of 2008 established a new real property tax standard deduction for non-itemizers. The maximum is $1,000 for married couples filing jointly and $500 for all others. This deduction can’t exceed the amount of state and local real property taxes that you actually pay during the year. This deduction is extended through 2009.
• The optional itemized deduction for state and local sales is extended for 2008 and 2009. You must claim itemized deductions on Schedule A of Form 1040 to take this deduction.
• The deduction for up to $4,000 of college tuition and related fees is extended for 2008 and 2009. As it is an "above-the line" deduction, if you qualify, you need not itemize to take it.

Consult your friendly home town banker for more information contained in The Act that could benefit you and your financial resources.

11/06/2008

What the Bailout Means to Mainstreet

The 2008 Emergency Economic Stabilization Act, a/k/a the "bailout bill," or the "rescue plan," was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. The Act allows the Treasury to buy defaulting mortgages and mortgage-backed securities from banks and financial institutions who own them. According to Treasury Secretary Henry M. Paulson, Jr., the federal government believes this "bad paper" is part of the root cause of the chaos both on Wall Street and on Main Street. The hope is that by relieving banks and financial institutions of the burden of carrying this "bad paper," money will begin to flow again. What the actual result of the bailout will be on Wall Street remains to be seen, and there is no telling what the future might hold, but here are some results the average American is likely to see.

The Act temporarily increases the FDIC and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000 through December 31, 2009. This will protect more of your money that is held in an FDIC-insured bank or savings association. Since accounts at different banks are insured separately, you could have $250,000 each at 500 different banks, and be insured for $125 million in total. You may also qualify for more than $250,000 in coverage at one insured bank if you own deposit accounts in different ownership categories. For more information on this, go to the FDIC website at www.fdic.gov, or contact your friendly home town banker.

Important: Did you know that through December 31, 2009, there is no FDIC coverage limit on non-interest bearing transaction deposit accounts? This means you can have unlimited balances in a single bank that is not paying interest on any portion of these balances. And, the insurance amount on certain retirement accounts remains fixed at $250,000 per depositor per bank, even after December 31, 2009.

Since many banks and financial institutions began putting the brakes on lending, many small businesses and consumers with lower credit scores have found it difficult to get mortgages, car loans, credit cards, or other financing. The federal government expects the infusion of capital into banks and financial institutions will ease the credit drought, making mortgages, loans, and credit more available to home buyers, employers, and other borrowers.

Understand, however, that the increased ability to borrow and purchase by itself won't reduce the excess housing inventory, put an end to foreclosures, increase the value of homes on the market, or put builders to work again. Nor will it help consumers with their credit card debt or delinquency. Many expect credit card companies to implement stricter standards, such as lowering credit limits and increasing fees. Borrowers with good credit and adequate collateral, though, should be able to continue borrowing with little problem.

Though the bailout itself will not create jobs, the government hopes that the fact that employers will have more credit available to them will help stem the tide of unemployment. However, the government warns that with consumer spending down, inflation knocking at our door, and other stresses on businesses, it's unlikely that the job market will improve in the short run, and may even get worse before it gets better.

Let me remind you that the turmoil in the U.S. economy has hit harder in some places than in others, and harder in some financial services sectors than in others. It’s my opinion that community banks have fared okay so far through this crisis. By and large, community banks didn’t participate in sub-prime lending or buy sub-prime securities.

As for Covenant Bank, we’re still growing and supporting our communities.

Back to President's Articles

11/27/2008

Top 10 Ways to Keep Your Cool in a Crazy Market

Keeping your cool can be hard to do when the market goes on a periodic roller-coaster ride. It's useful to have strategies in place that prepare you both financially and psychologically to handle market volatility. Here are 10 tips to help you keep from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.

1. What’s your game plan? Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. Diversification can offset the risks of certain holdings with those of others. Exercising trading discipline helps too. For example, you might determine in advance that you will take profits when a security or index rises by a certain percentage, and buy when it has fallen by a set percentage.
2. Know what you own and why you own it: When the market goes crazy, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits in your portfolio can help, especially if you're considering replacing your current holding with another investment.
3. Remember, everything's relative: Variance in the returns of different portfolios can be attributed to their asset allocations. A well-diversified portfolio that includes multiple asset classes should be compared to relevant benchmarks for performance. If you find that your investments are performing in line with those benchmarks, this might help you feel better about your overall strategy.
4. Tell yourself that this too shall pass: The financial markets are cyclical. Even if you regret buying too early or selling too soon, you may well get another chance at some point. Stick out the tough times with your chin up.
5. Learn from your mistakes: Anyone can look good during bull markets, but even the best aren't right all the time. If an earlier choice now seems crazy, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions.
6. Play defense: Many investors reexamine their allocations during turbulent markets. Holdings that produce regular dividends can help cushion the impact of price swings.
7. Continue to save: Regularly adding to an account designed for a long-term goal may cushion the emotional impact of market swings. If you're using dollar-cost averaging--investing a specific amount regularly regardless of fluctuating price levels--you may be getting a bargain by buying when prices are down.
8. Cash can ease your mind: Cash can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to make thoughtful decisions instead of impulsive ones. Having a cash cushion coupled with a disciplined investing strategy can change your perspective on market volatility.
9. Stay on course: Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Drastic decisions could get you off track.
10. Look in the rear-view mirror: Sometimes it helps to take a look back and see how far you've come. Though past performance is no guarantee of future returns, the stock market's long-term direction has historically been up.

Consult your friendly home town banker for all of your investment needs. Together we’ll plan a strategy taking gradual steps to spread your risk over time, survive market volatility, and achieve your financial goals.

11/13/2008

Tax Changes in the Bailout Bill

The Emergency Economic Stabilization Act of 2008, or the "bailout bill," was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. There are tax law changes affecting individual taxpayers that are worthy of noting.

In 2007, the Mortgage Forgiveness Debt Relief Act provided an exclusion for the discharge of up to $2 million of Qualified Principal Residence Indebtedness that applies to debts discharged from January 1, 2007 through December 31, 2009. The bailout bill extends the end date to December 31, 2012. The exclusion applies to foreclosures, deed-in-lieu of foreclosures, or any loan modification.

The 2008 AMT exemption amount for individuals is raised to $46,200 for singles and $69,950 for married couples filing jointly. The AMT exemption amounts in 2009 will be $33,750 for single filers and $45,000 if you’re married filing jointly.

The Act creates a new tax credit of $2,500 to $7,500 for plug-in electric vehicles.

The Act provides a new tax break for bicyclists. Employers can provide a tax-free fringe benefit of up to $20 per month to cover "reasonable expenses incurred by the employee" for the purchase, improvement, repair, and storage of a bicycle that is regularly used to commute between the employee's home and office.

The Act extends the energy efficient property credit through 2016, and allows the credit to offset AMT liabilities. Two new types of equipment are added that would qualify for the credit: wind energy equipment will produce a tax credit worth 30% of the cost of the equipment, with a maximum credit of $4,000, and geothermal heat pumps would qualify for a credit worth 30% of the cost, with a maximum credit of $2,000.

The non-business energy property credit is extended for property placed in service during 2009. This provides a credit of up to $500 for purchasing energy-saving products, such as windows, insulation, and HVAC systems. The Act also adds two new types of improvements that qualify for the credit: biomass fuel stoves with a thermal efficiency rating of 75% or more, and
asphalt roofs with cooling granules.

Other tax changes include:

• Modifying the child tax credit for 2008 by lowering the income threshold for the refundability of the credit from $12,050 to $8,500.
• The deduction for up to $250 of personal expenditures by teachers, counselors, and principals in K-12 schools for materials and supplies is extended for 2008 and 2009.
• IRA owners who are 70½ and who must begin required mandatory distributions can contribute up to $100,000 directly to a qualified charity without having to include the distribution in income. This tax benefit is extended for 2008 and 2009, but is only available for individuals over age 70½ by the end of the year.
• The Housing and Economic Recovery Act of 2008 established a new real property tax standard deduction for non-itemizers. The maximum is $1,000 for married couples filing jointly and $500 for all others. This deduction can’t exceed the amount of state and local real property taxes that you actually pay during the year. This deduction is extended through 2009.
• The optional itemized deduction for state and local sales is extended for 2008 and 2009. You must claim itemized deductions on Schedule A of Form 1040 to take this deduction.
• The deduction for up to $4,000 of college tuition and related fees is extended for 2008 and 2009. As it is an "above-the line" deduction, if you qualify, you need not itemize to take it.

Consult your friendly home town banker for more information contained in The Act that could benefit you and your financial resources.

11/06/2008

What the Bailout Means to Mainstreet

The 2008 Emergency Economic Stabilization Act, a/k/a the "bailout bill," or the "rescue plan," was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. The Act allows the Treasury to buy defaulting mortgages and mortgage-backed securities from banks and financial institutions who own them. According to Treasury Secretary Henry M. Paulson, Jr., the federal government believes this "bad paper" is part of the root cause of the chaos both on Wall Street and on Main Street. The hope is that by relieving banks and financial institutions of the burden of carrying this "bad paper," money will begin to flow again. What the actual result of the bailout will be on Wall Street remains to be seen, and there is no telling what the future might hold, but here are some results the average American is likely to see.

The Act temporarily increases the FDIC and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000 through December 31, 2009. This will protect more of your money that is held in an FDIC-insured bank or savings association. Since accounts at different banks are insured separately, you could have $250,000 each at 500 different banks, and be insured for $125 million in total. You may also qualify for more than $250,000 in coverage at one insured bank if you own deposit accounts in different ownership categories. For more information on this, go to the FDIC website at www.fdic.gov, or contact your friendly home town banker.

Important: Did you know that through December 31, 2009, there is no FDIC coverage limit on non-interest bearing transaction deposit accounts? This means you can have unlimited balances in a single bank that is not paying interest on any portion of these balances. And, the insurance amount on certain retirement accounts remains fixed at $250,000 per depositor per bank, even after December 31, 2009.

Since many banks and financial institutions began putting the brakes on lending, many small businesses and consumers with lower credit scores have found it difficult to get mortgages, car loans, credit cards, or other financing. The federal government expects the infusion of capital into banks and financial institutions will ease the credit drought, making mortgages, loans, and credit more available to home buyers, employers, and other borrowers.

Understand, however, that the increased ability to borrow and purchase by itself won't reduce the excess housing inventory, put an end to foreclosures, increase the value of homes on the market, or put builders to work again. Nor will it help consumers with their credit card debt or delinquency. Many expect credit card companies to implement stricter standards, such as lowering credit limits and increasing fees. Borrowers with good credit and adequate collateral, though, should be able to continue borrowing with little problem.

Though the bailout itself will not create jobs, the government hopes that the fact that employers will have more credit available to them will help stem the tide of unemployment. However, the government warns that with consumer spending down, inflation knocking at our door, and other stresses on businesses, it's unlikely that the job market will improve in the short run, and may even get worse before it gets better.

Let me remind you that the turmoil in the U.S. economy has hit harder in some places than in others, and harder in some financial services sectors than in others. It’s my opinion that community banks have fared okay so far through this crisis. By and large, community banks didn’t participate in sub-prime lending or buy sub-prime securities.

As for Covenant Bank, we’re still growing and supporting our communities.

Back to President's Articles