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Volume 1 Spring 2014 Greetings and happy spring to you! Wow, it’s an understatement to say that old man winter had a grip on most of the country this year! Between the snow and ice everyone’s back must be feeling the pain. We hope this letter finds you and your back in good health and sprits. In reviewing the first quarter of 2014, equity markets, as measured by the S&P 500, once again rewarded those who stayed the course. What we learned in a nutshell is that the US economy is on the move, inflation remains low, the US government remains dysfunctional, corporate spending is picking up and the Federal Reserve Board (Fed) implemented another bond taper. Looking forward to the remaining three quarters of 2014, we see the US economy continuing to grow. In fact, the forecast consensus among notable sources like the FED, Bloomberg and World Bank is around 2.5%. Fed will maintain the tapering program and it appears that the financial markets are adjusting well. We view the tapering program as a positive for the financial markets as long as it is done in increments -tapering is a sign that the economy is improving. Interest rates are expected to rise but not dramatically and credit markets are healthy. Overseas, Europe appears to be on the path of recovery but special attention must be paid to the fluid situation between Russia and Ukraine. Overall, we expect the US equity markets to continue an upward trajectory with pockets of volatility. On another note, as 2014 began the financial markets experienced a short term stint of volatility in January. Although volatility is a natural occurrence with the markets, we witnessed bouts of financial pessimism brought on by what we call financial “noise”. Whether you listen to self-appointed investment gurus selling ideas on television and radio or read newspapers, magazines or blogs, the “noise” was overwhelming and confusing. One disturbing trend we are still seeing is the continued sale of annuities during times of volatility. The key word here is “sale”. Unfortunately our industry is full of opportunistic sales people who will “play” on people’s emotions especially during periods of volatility. Often times what we discover is that the annuities they are selling are high commission products with a very long surrender periods especially annuities being sold in retirement plans with no other retirement assets. Our firm is not averse to using annuities as part of your retirement plan strategy, however, careful consideration must be given to your situation since annuities are generally a long term commitment with little flexibility and can impact your long term investment picture. Situations in which annuities can add value to a portfolio are when you need guaranteed income in retirement, you’re looking to defer taxable income (income you don’t need) or when the annuity is one part of multiple assets in your retirement portfolio. Whatever the case maybe, if you find yourself succumbing to the “sales pitch” of an annuity, call our office immediately so that we can help you determine the viability of this product – we have extensive knowledge of annuities and how they can impact your investment portfolio. Moving on from annuities, how do you avoid getting caught up in the headline noise that is inundating the media? First, try to separate what is fact from fallacy. As an investor, understanding the difference between overgeneralizations and oversimplifications is critical. An example of overgeneralizing is when you fear that another Great Recession is around the corner and your keep all your money is cash. Oversimplifying is when you think the US economy is going to implode because of high deficits causing you to pull your money out of the markets. The problem with this kind of thinking is that it can thwart the power of long term investing and negatively impact your investment returns over time. Second, as an investor, you need to differentiate between risk and uncertainty. Basically, risk is mathematically measurable and uncertainly is not. When our firm constructs an investment portfolio for clients, we always measure risk tolerance – this is what an investor can control and we can measure mathematically. What you cannot control is the uncertainty of the markets – how and when the markets go up or down. Unfortunately, making decisions based on uncertain markets can cause an inventor to be overly conservative or lead to inaction. Viewing investments with uncertainty can be detrimental to the long term performance of your portfolio and should be avoided. Third, as an investor, you need to separate the things that are measurable from things that are immeasurable. It is easy to get caught up in the possibility of a doomsday scenario, though the probability of it happening is very small. When investing, it is important to consider all possibilities; however, it is not prudent to build your investment portfolio around possibilities. Rather, building an investment portfolio around what is probable and having the flexibility to maneuver around obstacles is a better plan for the long term. What can you do if you find yourself getting caught up in this noise? First, call us we act as your filter helping you discern fact from fallacy, risk from uncertainty and measurable from immeasurable. It is the goal of our firm to help you stay focused so that you can realize your goals. Secord, have a process in place. Our process helps you separate overreaction from planning and filters the possible from the probable. Third, have direction. Having a well-defined investment strategy (investment policy statement) can help you avoid the temptations of financial noise which can lead you to speculate with uncertainty and make poor investment decisions. With patience and self-discipline you can overcome short term market volatility and avoid financial “noise”. Stay Tuned! The Tenet Financial Group Corner: What’s new at The Tenet Financial Group? We’ve updated our web site to reflect our values, mission statement and provide you with additional financial resources. In particular, we added a tab called “Account Access”. If you’re tired of trying to remember several passwords / ID s to access your investment accounts, the “Account Access” was created for you. This Tab allows you to view all your investment accounts through one point of entry (one ID and password) thus eliminating the need to remember multiple account passwords. If you are interested in setting your accounts up for viewing on our Account Access tab, please contact our office and we will get you started. If you have not visited our web site recently, I encourage you to take a closer look. Go to: www.thetenetgroup.com and let us know what you think – We welcome all feedback. The Insurance Corner: Taking the bite out of Long Term care Insurance Premiums Tax-Qualified Long Term Care Insurance (LTCI) premiums are considered medical expenses. For an individual who itemizes income tax deduction, medical expenses can be tax deductible to the extent they exceed 10% of the individual’s adjusted gross income (AGI). For individuals 65 and older the threshold still remains 7.5% of AGI for 2013-2016. The amount of the LTCI premium treated as a medical expense is limited to the eligible LTCI premiums as defined by Internal Revenue code section 213(d) (10) based on the age of the insured individual. For example, the LTCI Eligible Premium for 2014 is $3720 for a 65 year old. A self- employed individual may be able to deduct 100% of their out-of-pocket LTCI premiums -up to the IRS age based eligible premium amounts. Another idea is gifting premiums. In addition to the annual Gift Tax Exclusion of $14,000 per donee, a donor has the ability to pay for medical expenses of the donee including tax-qualified LTCI premiums and possibly receive a tax deduction. This could be a parent paying an adult child’s premium or the adult child paying the parent’s premium. A third idea is to use a Health Savings Account (HSA) to pay for your premiums. These accounts can be used to reimburse for tax-qualified LTCI premiums, tax free, up to the eligible age based premium limits. As you can see, there are many possibilities to take the sting out of Long Term Care premiums. So if you are considering LTCI, it is worth consulting your tax advisor to see if you are eligible for a tax deduction. In ConclusionAs we mentioned in prior newsletters, remaining focused and not overacting to short term financial swings is critical to accomplishing your long term financial goals. We anticipate this year to be another good year for the financial markets as the economy continues to improve but expect bouts of short term volatility to continue throughout the year. As always, call our office if you have any questions or concerns – we are here for you. We appreciate your continued trust and look forward to working with you in 2014. Kevin F Bultman and Mary Burrows For more information on: The Tenet Financial Group Contact: Kevin F Bultman, CLU®, ChFC®, RHU®, CFP® Mary Burrows 410-494-4495 x109 410-494-4495 x 113 [email protected] [email protected] Our Address: 1301 York Road, Suite 400, Lutherville, MD 21093 Our Website: www.thetenetgroup.com Disclosure: This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. Diversification does not guarantee against loss. It is a method used to manage risk. The S&P 500 is an unmanaged index 0f 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note an investor cannot invest directly in an index. All guarantees are based on the financial strength and claims paying ability of the issuing insurance company. An annuity is a long-term, tax deferred investment vehicle designed for retirement. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59 1/2, may be subject to a 10%federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax-deferral feature offers no additional value. Not FDIC/NCUA insured. Not bank guaranteed. Not insured by any Federal Government Agency. There are charges and expenses associated with annuities, such as deferred sales charges for early withdrawals. Securities and Investment Advisory Services Offered Through H.Beck, Inc., Member FINRA, SIPC. 6600 Rockledge Drive, 6th Floor Bethesda, MD 20817 The Tenet Financial Group and H.Beck, Inc. are not affiliated