OK, What’s Next? SARS?
Investors have waited nervously for the past 6 months while the war build up was underway, using it for an excuse to not invest. Now that the war has been settled, terrorists aren’t attacking in waves, and germ warfare didn’t materialize, what’s next for us to worry about?
Some 'big picture' analysts are already beginning to paint a doomsday scenario around SARS (Severe Acute Respiratory Syndrome). Stephen Roach, analyst at Morgan Stanley, predicts SARS will play a big part in sending the world into a serious global recession. One real doom-and-gloomer is comparing the potential for SARS to the 1918 influenza epidemic that killed 18 million people. I cast that kind of stuff into the same round file I tossed the doomsday predictions in the days after 9-11.
Yes, SARS could develop into a full-fledged worldwide disaster. Researchers and medical institutions could fail to come up with an answer.
But for now let's deal with facts. As of this writing in mid April, there have been 2,800 people infected with SARS worldwide, (more than half of them in China, including Hong Kong), of which 103 have died. Canada is one of the countries hardest hit, with 226 people infected, of whom 10 died. Those cases have been traced to people flying from Asia. China admits it mad the problem worse by being slow to recognize what was happening and not allowing World Health Organization medical experts in to look at the early cases.
Cause for concern and heroic efforts to find a solution? Absolutely! But let’s put the situation into some kind of perspective regarding its current level of danger: Although considered cured, tuberculosis still causes 2 million deaths a year world-wide. Malaria kills another 2 million people per year. The flu still kills roughly 36,000 people in just the U.S. each year. HIV/AIDS, more than 42 million cases worldwide, millions of deaths.
Is 2,800 cases and 103 deaths so far worldwide from SARS a cause for panic and doomsday predictions? Not in my book. By the way, 103 deaths worldwide is also less than half the 277 deaths last year from West Nile disease, in the U.S. alone. Do you let West Nile virus affect your investment decisions? I don’t. And I wouldn’t get too carried away worrying about SARS.
Ever since I have been helping people make smart decisions with their money, there has been a long string of big, unprecedented things to rattle investors: The stock market crash of 1987, the 1989 S&L crisis threatened our banking system with cascading bank failures, the 1991 Gulf War, NAFTA passed in 1993 prompting Ross Perot’s “great sucking sound”, imminent war in Palestine (pick a year), impeachment, Russian defaults in 1998, Y2K, 9-11, you name it.
Sir John Templeton once said, the best time to invest is at the point of maximum pessimism. Many facts now point to an improving economy, smoother world politics and stronger corporate earnings. If you have been hesitating to invest just because of negative news, perhaps now is the time to invest. Call for an appointment to discuss risk reducing ways to invest that will be in tune with the times as well as your comfort level.
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Unintended Consequences
Part II
The Patriot Act, passed in the wake of 9-11, and especially it’s Anti Money Laundering (AML) provisions continue to change our industry.
In the next month or two, we will begin sending you letters to confirm all the data contained on your account forms with us when accounts are opened, any changes occur in objectives, finances, addresses etc., and periodically for no other reason. This is all to comply with the SEC’s books and records requirements spawned by the Patriot Act.
For those of you with multiple accounts, you will be getting multiple letters—so much for the paperwork reduction act.
As inconvenient this may be for you and as expensive as it will be for us to implement, I hope we catch at least one terrorist in the process.
College Savings Plans
A 529 plan is an investment plan operated by a state designed to help families save for future college costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant (see Section 529 of the Internal Revenue Code) that can make saving for college much easier than in years past.
First, you get unsurpassed income tax breaks. Your investment grows tax-free for as long as your money stays in the plan. And when the plan makes a distribution to pay for the beneficiary's qualified college costs, the distribution is federal tax-free as well. This treatment applies for distributions in the years 2002 through 2010. Unless Congress decides to extend this tax break, qualifying distributions made after 2010 will be taxable to the beneficiary (earnings portion only). Assuming that the student isn't earning hundreds of thousands of dollars running a dot-com company out of her dorm room, you should still save taxes with her lower income tax bracket.
Second, you the donor stay in control of the account. With few exceptions, the named beneficiary has no rights to the funds.
Finally, everyone is eligible to take advantage of a 529 plan, and the amounts you can put in are substantial (over $200,000 per beneficiary in many state plans). Generally, there are no income limitations or age restrictions.
Thinking about going back to college or graduate school in the future? Then set up a plan for yourself! There is no reason why you cannot be the beneficiary of your own account.
If the benefits of a college savings plan is something you’d like to explore, call the office at 778-4000 for an appointment to look at the 529 alternatives available to you.
