Let Us Help You Develop a Digital Estate Plan

A New York Times story, “Leaving Behind the Digital Keys to Financial Lives,” raises some important issues regarding a major change in the way most of us access our various financial accounts.

It used to be that when an aging parent passed away, there would be a paper trail for survivors to follow to bank, retirement and insurance accounts. Now, with the shift toward online transactions, it’s possible for account access – or even knowledge of an account or accounts – to follow a person into the grave.

Indeed, nearly half of high-net-worth people surveyed recently said that they had not organized passwords and account information and put them where heirs or the executors of their wills could find them. 

We keep records of your account credentials, so you’re covered. However, that may still leave other generations unprotected. Your parents or other aging relatives, for example, should be encouraged to share information about their online financial accounts in the event that you will need to access them if the relative dies or becomes incapacitated and you need to begin handling their financial affairs.

While the Times story focused on a disadvantage of having fewer records kept on paper, it ignored an obvious benefit of online account access. If you’re involved in the care of an elderly parent – or expect to be in the future – you no longer have to sit at their kitchen table, bills and checkbook in hand. Instead, thanks to online access you can manage a loved one’s finances from thousands of miles away.

If you need help setting up online access to a relative’s financial accounts or would like assistance developing a digital estate plan that involves other generations of your family, please contact us. We’ll be happy to help.

Oakmark Manager Optimistic About Fund's Holdings

The Oakmark Equity & Income Fund generated a 9 percent return in 2012, trailing its benchmark, the Lipper Balanced Fund Index, by 3 percentage points. Since the fund's inception in 1995, the annualized compound rate of return is 11 percent vs. the index's 7 percent return.

In his quarterly letter to shareholders, fund manager Clyde McGregor said the fund lagged in 2012 for several reasons:

• Bonds and high-yield dividend stocks became overpriced.
• The managers failed to predict that energy exploration and production company stocks would follow the price movements of natural gas, despite their attractive valuations.
• The fund did not invest in financial stocks, which enjoyed a banner year.

"We are optimistic about the fund's holdings," McGregor wrote. "We believe our equities remain attractively priced (especially relative to bonds) and we continue to find promising investment opportunities."

The fund has a record-high 74 percent allocation to stocks, which reflects the managers' belief that bonds are overpriced and will likely generate minimal returns in the years to come.

Oakmark Equity & Income is a component of the Bradway Strategic Portfolio, which consists primarily of investments with top money managers.

Fiscal Cliff Averted: Tax Picture Is Now Clear

Congress and the White House reached a deal yesterday to avert the so-called fiscal cliff, the combination of automatic tax increases and spending cuts that likely would have pushed the economy back into recession.

From a tax perspective, the deal is good news because it provides certainty. We now know what to expect for taxes in 2013. Few households with incomes of less than $500,000 will face an income tax increase. In fact, less than 5 percent of households earning between $200,000 and $500,000 will pay more, according to the Tax Policy Center. But nearly everyone will pay more payroll tax, as the 2 percent payroll tax reduction was allowed to expire.

Among the important provisions of the bill:

• The Bush-era tax cuts will expire for households earning more than $450,000. The top income tax rate will rise to 39.5 percent from 35 percent. But the higher rate will apply only to income above $450,000. All income below $450,000 still will be taxed at the lower 35 percent rate.
• The tax rate on capital gains and dividend income was set at 20 percent for households making more than $450,000 and at 15 percent for those below that level.
• The alternative minimum tax exemption was extended, protecting 30 million Americans who would have been hit by the levy this year. 
• The payroll tax will go up by 2 percentage points, reverting to 6.2 percent from 4.2 percent on all earned income up to $113,700. This means most households will pay higher payroll taxes because the deal did not extend this two-year-old tax break. A household earning $100,000, for example, will pay $2,000 more in payroll tax.
• The estate tax rate was set at 40 percent with a $5 million individual exemption. That's far better than the 55 percent rate and $1 million exemption that would have gone into effect if the Bush tax cuts had expired as scheduled.

While the deal provides certainty on taxes, it did nothing to address serious federal budget issues.

First, Congress did not tackle the debt ceiling. The federal government will bump up against the debt ceiling by March. Raising the debt ceiling requires congressional approval.

Second, Congress did not make tough decisions regarding budget cuts and long-term deficit reduction. It merely pushed off these decisions until March. If no agreement is reached by then, automatic spending cuts will go into effect - bringing us right back to the fiscal cliff. So we can expect another political showdown when Congress takes up these issues in March.

Barron's Spotlights First Eagle Fund

Barron's praised the the First Eagle Global fund and its managers in this article over the weekend, which noted that the conservatively managed fund has produced returns that beat 99 percent of its peers over the past 15 years.

The fund, a component of the Bradway Strategic Portfolio, is notable for avoiding market sectors that turn into bubbles that eventually burst. It stayed out of the technology sector in the late 1990s, for example, and the financial sector in the 2000s – decisions that protected investors' capital.

Instead, the fund takes a patient approach that fits well with our long-term investment horizon. "It can be lonely, but we are not followers. We plant seeds and watch the plant grow," fund manager Matthew McLennan told Barron's. 

Hurricane Alert: Our Offices Are Closed, But We're Still Working

The Bradway Financial offices will be closed today as Hurricane Sandy makes her presence felt. We are working from home, however, and can take your phone calls and emails if you need to contact us.

We are as prepared as we can be for the storm. Our web-based telephone system is able to find us wherever we are, so please feel free to call our regular office number, 800-725-1622. Also, our client data is held on a server in New Hampshire that is constantly backed up and is powered by generators during power failures.

We hope you and your loved ones fare well during the storm. Stay safe!

Wells Fargo Advantage Growth Fund Continues to Perform Well

Although many American companies have lowered their earnings expectations, the managers of the Wells Fargo Advantage Growth Fund believe the companies in their portfolio have the growth drivers required for success in an uncertain economy.

"The U.S. equity market enjoyed a relief rally, supported by better-than-feared earnings reports and stimulus measures," the managers, Joseph Eberhardy, Thomas Ognar and Bruse Olson, wrote in their third-quarter commentary. "Policy initiatives from the U.S., Europe and China helped ease investor fears about global economic instability, particularly in regard to Europe. U.S. corporations delivered moderate earnings-per-share growth despite economic challenges and political uncertainties."

To read their full report, click here.

For the quarter, the fund gained 7.41 percent, beating the Russell 3000 Growth Index return of 6.01 percent. For the year to date through Sept. 30, the fund is up 19.77 percent, again topping the index return of 16.59 percent.

The Wells Fargo Advantage Growth Fund is a component of the Bradway Strategic Portfolio, which consists primarily of investments with top money managers.

Increased Confidence in Europe Helps Boost Emerging Market Stocks

Emerging market stocks were buoyed in the third quarter by increased investor confidence as Europe took positive steps toward ending its fiscal crisis, Justin Leverenz, manager of the Oppenheimer Developing Markets Fund, noted in his third-quarter commentary.

This produced uneven performance among various sectors in the emerging markets: technology stocks rose and utility stocks lagged while the materials sector – which usually would rise in this climate – notched only lukewarm gains amid continued concern over a slowdown in China.

"Against this backdrop, the Developing Markets Fund slightly underperformed its benchmark," Leverenz wrote. "This was in contrast to the strong outperformance posted during the second quarter. The fund can often lag in sharp rallies....when investors focus on the short-term gain potential of companies whose prospects are heavily levered to the business cycle." In contrast, the fund's investments are selected to perform well in difficult markets as well as over the long term.

For the quarter, the fund was up 7.1 percent, slightly behind the MSCI EM index return of 7.7 percent. Over the past year, the fund has gained 20.2 percent vs. the benchmark return of 16.9 percent.

To read Leverenz's full commentary, click here.

Oppenheimer Developing Markets is a component of the Bradway Strategic Portfolio, which consists primarily of investments with top money managers.