The latest tax law change has reduced the long-term capital gains tax and the tax on qualifying dividends to 15%. However, interest income, nonqualified dividends, and short-term capital gains will still be considered ordinary income and therefore taxed as high as 35%. In light of these changes, you may want to reevaluate which of your investments should be in your IRA and which ones should be held in taxable accounts.

The IRS considers all distributions from your IRA as ordinary income and therefore taxed as high as 35%. On the other hand, withdrawals from a taxable account might be treated at the more favorable 15% rate if they are qualifying dividends or long-term capital gains. Based on these numbers, you could conclude that you would be better off putting bond funds in your IRA and stock funds into a taxable account. But the answer may not always be that simple. Suppose that you own a stock fund in a taxable account, and the manager trades frequently and creates short-term gains? The gains will be passed on to you and taxed at the ordinary income rate. Therefore, in this case, a stock fund held in a taxable account, was not tax efficient. Would you be better off holding it in an IRA? It’s possible; especially when you consider that the tax deferral within an IRA can enhance the compounding of the earnings.

But there is another point to consider. If the fund is held in a taxable account it will receive the step-up in basis when you die. This will eliminate any capital gains tax that your heirs would pay on your investment’s accumulated profit. In addition, you can deduct losses within a taxable account yet cannot for an IRA. Saving money on taxes is certainly important, but you need to take your full financial picture into consideration before making any decisions.

If you are not sure whether your investments are making the best of the recent tax changes, call me to schedule a review of your accounts, either on the phone or in person.

Part of human nature is to look back on the past as a simple, more fulfilling time.  We all have experienced this, me included.  Ten years ago when I was a sole practitioner it seemed like my business was both simpler and more fulfilling.

Over the past few years several investment representatives came to work for me. We also started Hepburn Capital Management to have a firm that specializes in active money management and then we created the Prescott Center for Adaptive Market Strategies so these services could be marketed nationally where the Hepburn name was unknown.  Each of these endeavors brought additional successes to my companies.  However, each complicated my life, too.  Lately it seems that I have spent more time managing employees and running the business, and less of what made me successful – working with you.  So I am going back to basics, and hopefully simpler, more fulfilling times.

Beginning this month, I will again be offering a full palette of financial products and services like I did 10 years ago.  I still do my active investment management that I have focused on the past 5 years or so, but now if you want any other financial product or service, such as a financial plan, education funding for a child, a retirement plan, annuities, long-term care insurance quotes or investments to buy-and-hold you can deal with me personally rather than be referred to another investment rep.  I’ll look forward to working with you even more in the future.  Call the office anytime to schedule a review of your accounts and a discussion of any financial concerns you might have.

As usual, market forecasters are out in force, predicting where the remainder of the year is likely to go. On the positive side, the Dow Jones Industrial Average has never had a down year ending in “5” in the last 100 years.

According to the Presidential Cycle, however, the US stock market is weak in the
first full calendar year after a Republican wins the presidency. It is a trend that has run since 1928. Adding to the gloom is the Patriots’ win in the Super Bowl.  According to the Super Bowl indicator, a championship by a team that played in the old American Football League normally results in a down market.  This is serious science, folks.

Forecasting the market is a lot of fun.  It’s a great way to get into the financial
news and if you turn out right, it gets you back in the news at the end of the year.  But it’s a lousy basis on which to invest.  For every forecast of a rising market, you are bound to find someone forecasting a decline. And, everyone will have their reasons why, many as shallow as the last number of the year.

Since the market can only go up, down or sideways, a great many of the forecasters will prove to be right at the end of the year. Not necessarily because their logic was flawless but because flipping a coin could have produced the same result.

Peter Eliades, editor Stockmarket Cycles market timing newsletter says with respect to market forecasts and market truisms. “What everyone knows in the stock market is usually not worth knowing.”  It’s not what everyone knows or expects that ultimately shapes market

performance, but what we don’t know.  That’s why betting on forecasts is seldom a good investment strategy. What matters more is where the market is going day by day.

This is the reason I analyze daily data on 70 different types of investments, so I know what actually is happening, and don’t have to rely on forecasters.  If you want to know what is really going on in the markets before you make a financial decision, call me at 778-4000.  Any of my staff can book an appointment for an in-office meeting or phone call.

In 2005 you can contribute $4,000 ($4,500 if over age 50) to your Roth or traditional IRA.  In 2006, the limits will be $5,000 (or $5,500).  If you have earned income (showing on a W2 or tax Schedule C)  IRAs are great tax beaters.  Call me to set up an IRA or add to your existing one.

A common problem I see is clients with too many accounts.  Often those multiple IRA, 403b or other retirement plan accounts can be rolled into a single account.  Not only do you save some trees, you can save some fees by eliminating unneeded accounts.  Our brokerage accounts can hold many different investments in a single account.  Call the office to set an appointment to consolidate your accounts and eliminate some unnecessary clutter in your life.

Cathy and I are finishing up a 4,000 foot addition to our home, and I want to publicly thank Bill Sileo for his skillful management of my construction project.
If you need a builder, I heartily recommend Bill.  His many years of experience, his reliability, integrity and follow through have proven invaluable in the process.
For a detailed recommendation, call, me at (928) 778-4000, or call Bill, directly,  at 636-0387.  He’s Great!