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3rd Quarter 2015

October 16, 2015

Inside This Newsletter

  • MARKET CORRECTION
  • TO RENT OR TO BUY—THAT IS THE QUESTION
  • IN CASE OF DISASTER
  • PENDING INCREASE – PART B MEDICARE PREMIUMS
  • AMAZING TECHNOLOGY TRENDS

HAPPY ANNIVERSARY!

Jill and Brian have worked together for 15 years. To celebrate this anniversary they visited the Monterey Bay Aquarium and enjoyed a seafood lunch.

MARKET CORRECTION

China’s sluggish economy, plus a surprising (though modest) devaluation of the yuan currency, helped trigger a sharp drop in global equity markets in late August. The S&P 500 fell 12% from its high one month earlier.

It is the first 10+% correction for the U.S. market since 2011—an unusually long stretch, since corrections usually occur roughly once a year. (There have only been two longer stretches without a correction, in the early to mid-1990s and the mid-2000s.) The S&P 500 has had a 10+% correction 52 times since the end of World War II. Albeit difficult on the nerves, corrections are not unusual.

Bear markets (decline of at least 20%) occur on average once every five years. We have not had one for six-and-a-half years. The longest period without a bear market lasted 12+ years ending with the dot-com bust in 2000.

The S&P 500 was down 6.5% for the third quarter—the first down quarter since 2012; again, an unusually long span of positive quarters.

If you have not answered our risk questions to help us identify your tolerance to market fluctuations, please let us know and we’ll send you a link or meet in person. We would welcome the opportunity to review your portfolios or update your financial plan.

TO RENT OR TO BUY—THAT IS THE QUESTION

It used to be that the rule of thumb was housing costs should be 25% of your income. That number no longer seems realistic.

According to the Zillow Group, which tracks rental housing’s affordability, the typical renter making the median income in the U.S. spent 30.2% of income on a median-priced apartment. This is the highest rate since Zillow started tracking statistics in 1979. Factor in the Bay Area’s market, and even that would not be enough—San Francisco renters were paying 47% of their income on apartments!

Stricter lending requirements for mortgages force more people into the rental market, creating more demand than supply.

If you can qualify for a mortgage with today’s low interest rates, you may be better off owning than renting. According to Zillow, homeowners are paying an average of 15% of their income on their mortgage, well below the 21% average since 1979. Although Zillow didn’t offer a reason, we assume it is due to low interest rates. This is well below the recommended housing expense of 25% of income.

IN CASE OF DISASTER

The recent fires bring up the issue of how to identify what’s been lost. Insurance companies and the IRS alike require a detailed list.

It is much easier to inventory your property before a loss rather than try to piece it together once a disaster occurs. Or you may also value it before and after a loss.

United Policyholders (a nonprofit organization) offers a free app that can be used on your smartphone, tablet, or computer.

You can build your inventory of furniture, collections, artwork, jewelry, electronics, etc. Information is stored on a website that lacks personal information to be “hacked,” United says.

Download from iTunes or Play store: UP Help
https://itunes.apple.com/us/app/uphelp-home-inventory/id848877899?mt=8

https://play.google.com/store/apps/details?id=com.encircle.upinventory

For more information, you may view the video:
https://www.youtube.com/watch?v=Q53AbDMm7Q0

PENDING INCREASE - PART B MEDICARE PREMIUMS

According to law, Medicare requires that 25% of its expenses be covered by premiums. For those who are now collecting Social Security, a Medicare premium will increase only if Social Security benefits increase too. Since no cost of living increase for Social Security checks is scheduled for 2016, only people on Medicare but not collecting Social Security will face higher premiums.

According to most reports, the Medicare premium increase will be 52% next year! If you are new to Medicare, you may pay a higher standard premium of approximately $159.30 per month. If you are part of the group that also pays the surcharge (AGI for a married couple of more than $214,000), your 2016 premium may increase to $509.80 compared to $335.70 in 2015.

The Obama administration is reviewing options that might reduce this increase. The actual increase is scheduled to be announced sometime in October.

Social Security benefits increase 8% each year after Full Retirement Age (FRA). For clients of ours who are waiting until age 70 to collect Social Security and who called about the Medicare premium increase, we calculated that it is still beneficial for them to wait until age 70. An 8% risk-free increase of benefits is hard to beat.

If you would like to review your Social Security benefit options, please, give us a call.

AMAZING TECHNOLOGY TRENDS

How frequently do you buy the latest gadget or gizmo? The pace of “newer and better” seems to be picking up.

Did you know:

  • The microprocessor in today’s TomTom Go GPS system, which we take for granted, is 244 times faster than NASA’s Apollo Guidance computer, which navigated the first trip to the Moon?
  • The latest Sony PlayStation 4 has 150 times the computing power of Deep Blue, the 1997 computer that beat chess grandmasters?
  • If someone buys you a birthday card that sings when you open it, the music chip contains more computing power than what the entire Allied forces used in WW II
  • If the iPad 2 had been released in 1988 instead of 2015, it would have been the most powerful computer in the world

Some services are less costly:

  • A 2.7 megapixel Nikon D1 camera introduced in 1999 cost $5,580. The Samsung Galaxy S3 mobile phone costs about $300 (when it first came out) and included an 8 megapixel camera
  • A video editing suite cost $2 million in 1990. Today you can get Instagram Video for free
  • A 32 gigabyte iPod Touch holds the same amount of music as 1,500 vinyl records

It is hard to imagine what the next decade will offer!

Based on information from The Big Picture
http://www.ritholtz.com/blog/2015/09/a-supercomputer-in-your-pocket/?utm_content=buffer70d09&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

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