How the Markets Performed in 2013
Contrary to the pundits’ expectations, last year was a remarkable year for the market,despite many headwinds like the persistently high unemployment, Government shutdown,increased national debt limit ceiling and a sluggish economy.  The US stock market went up a stunning 33.4%, international stocks appreciated 14.6% and even with a slight uptick in bond yields, the bond market only lost 2.1%1.  Note these figures will probably differ from the numbers you see in the media, because they generally report a narrow index with dividends stripped out.  Most of you are not invested totally in the stock market, so your personal return was a blend of the numbers shown above.I am regularly asked, “What does 2014 hold for the market?” Those who know me, already have the answer – “I don’t know.  Invest in low-cost index funds and rebalance regularly”. This way you avoid the tendency of human nature to buy high and sell low!

What is the Secret to Financial Security?
Actually it is not a secret, but here are some time tested steps to take:

  1. Do not rack up unnecessary debt. Pay cash if possible (or pay your credit card balance off in full every month), and do not make large purchases that stretch your budget.
  2. Pay yourself first. Set up automated deposits into a savings account and once you have a sufficient emergency fund established, start making contributions to a 401K or IRA. If you feel you cannot afford to save, start small and increase the amount you are putting away at regular intervals. If you cannot max out your 401K and or IRA, try increasing the amount you save by 1%/year, and put raises (what are those?) into savings.
  3. If you are nearing retirement, seriously consider delaying collecting Social Security benefits. For every year you delay collecting benefits after your full retirement age (FRA), you get an 8% increase per year.  Where can you get a guaranteed return like that?
  4. Protect Yourself and Family.  The most important type of insurance is disability insurance – we are 3 to 10 times more likely to be disabled during our working lives than to die. The major earner in the family needs to have his or her life protected by life insurance too, especially if you have a stay at home spouse and or dependent children.  Get a will drawn up.  You do not want the State to decide how to divvy up your assets.  Also get Financial and Healthcare Powers of Attorney drawn up, so that a loved one can make financial and healthcare decisions on your behalf if you are unable to do so for yourself. This is especially relevant for non-traditional families or relationships.
  5. Live Below your Means.  Always think when you are about to make a major purchase. Do you “need it” or is it a “want”?  Will the purchase stretch your finances unnecessarily? Would delaying the purchase make more sense when you have saved up to pay cash for the item?  Would a cheaper item satisfy your needs just as well?  Remember, the salespersons job is to part you from your hard earned dollars –rarely is there a need to buy something now, “otherwise the great deal” will be gone.  Good deals come back regularly!

Affordable Care Act (Obama Care)
The ACA is now in operation.  It is still early to see how it all pans out.  Here in NM, if your insurance policy was cancelled, theoretically it should be reinstated, but there is no guarantee of that happening.   Before you panic, contact your insurer to see what they are willing to do for you.  My individual policy was not cancelled, but I was thrilled to keep my policy in exchange for a 15% rate increase.  Most people will not be affected by the changes if they are covered through an employer or a spouse’s policy.If you do not have coverage by March 31, 2014, you will be subject to a fine of$95/year or 1% of your income, whichever is greater.  Try not to think about these penalties – a decent health insurance policy should be on everyone’s priority list. A major health crisis or accident can put us in the poorhouse – so protect yourselves and your family!

Most Annual Contribution Limits stay the same for 2014
Contribution limits to employer sponsored retirement plans (401k, 403b & TSP) remain at$17,500/year and $23,000/year for those of us seasoned citizens over 50.  Maximum IRA contribution limits are also the same as last year at $5,500 and $6,500 respectively. However the income limits for Roth IRA contributions have gone up to $114,000 if you are single and $181,000 if married filing jointly.  If you have a high deductible health insurance policy, you can contribute to a Health Savings Account (HSA).  The contribution limits have gone up slightly as well as the maximum out-of-pocket medical expenses that you can be liable for.  Check out the details with your insurer or HSA provider.

Personal Notes
In October we spent a wonderful time in Maine and New Hampshire, just as the Federal shutdown occurred.  It did not stop us from enjoying the stunning Acadia National Park in Maine or the White Mountains of New Hampshire.  Portland, Maine was beautiful and new to us westerners.   Gorged ourselves on Maine lobster.  We have been enjoying periodic NM Philharmonic concerts (trying to get some culture into this tone-deaf guy), and we braved the Nutcracker Triathlon again in December.  It was a cold one, reminiscent of 2011’s freezer!  We are ramping up our tennis playing for the spring season.  We finally got to landscaping the front yard, getting rid of the tired juniper and ailing cacti!

Contact me for a review meeting if needed.  Please plan early for setting up an appointment.  Feel free to pass this newsletter on to whoever may be interested.