Smart MoneyInsights

July 2012 Vol. No. 1 Investment Updates

Personal Note from Steve Stanganelli

My Core Values

I strive to run my practice and mylife on the core principles bestsummed up in Don Miguel Ruiz'sThe Four Agreements:

Be Impeccable with Your Word Don't Take Anything Personally Don't Make Assumptions Always Do Your Best

If you are like me and appreciatethis approach to life and business

and value having a reliablesecond opinion or need helpgetting on track, then I lookforward to being a part of yourteam.

I want to help you make sense ofyour money.

Please call me and we can set upa time for a no pressure chat toexplore the ways that we may beable to work together.

Let’s make a plan together toimprove your bottom line.

Dividends and Inflation

As an investor, you may ask if an allocation todividend stocks in your retirement portfolio will helpkeep up with inflation. Examining stock returnsduring periods of high inflation may answer thisquestion. Dividend-paying stocks may offer benefitssuch as stability through income return and inflationprotection. While stock prices tend to be volatile,dividends may serve as a stable component of totalreturn and may provide better inflation protectioncompared with bonds. Between 1974 and 1980 (highinflation period), the average rate of inflation was9.3%, much higher than the historical rate of 3%.During this time, bonds yielded 7.9% from income,but prices declined by 2.7%, resulting in a total returnof 5.6%—way short of inflation. On the contrary,stocks returned a total of 10%: 5.0% from dividendincome and 4.8% from price return, outpacinginflation for this time period.

Steve Stanganelli, MSF, CFP®Fee Only Planner & Tax Coach

steve@clearviewwealthadvisors.com978-388-0020www.ClearViewWealthAdvisors.com

Clear View Wealth Advisors LLC Investment Updates July 2012 2

How to Cope with Financial Anxiety

No one likes uncertainty. We want to maintain at leastthe illusion of control. But that's almost impossible todo today, given the volatility of the stock market andemployers' belt-tightening. Even the steadiest hand isshaking just a little. It is imperative to avoid lettingyour emotions get in the way of making smartinvestment decisions. In times of doubt, it might be inyour best interest to follow these steps for re-examining your current financial strategy.

Reassess Your Risk Tolerance: Today's investor isliving those “hypothetical” questions that appear onrisk-tolerance questionnaires. If you haven't checkedyour risk tolerance (the degree of uncertainty that youcan handle in your investment portfolio) in more thana year, you're most likely due—especially if you'reuncomfortable right now. Maybe you've taken onmore risk than is prudent. If so, it might be in yourbest interest to change your asset mix. If you find thatyou're taking on the appropriate amount of risk foryour goals, just sit tight.

If You Have to Do Something, Review YourExpenses: When dealing with uncertainty, somepeople feel compelled to act. Instead of trying to timethe market (which even the professionals can't do withany consistency), focus on things you can control withcertainty: expenses. Identify where you can tightenyour belt. Try to identify unneeded or underusedservices. After such cuts, you’ll have some extra cash toinvest each month. Expenses also matter in investmentaccounts. Do you know what you’re paying in expenseratios, 12b-1 fees, front- or back-end loads? Burn upsome of your nervous energy by making sure thoseexpenses aren’t eating up what little positive returnsyou might have.

Create a Shopping List of Investments: Researchstocks or funds that would complement your portfolio,then see where they are currently trading. This couldbe a great opportunity to pick up some of your favoritepicks at rock-bottom prices. However, make sure theyare trading at historical lows because of investoroverreaction and not because they are no longerfinancially sound.

Win the Psychological Battle: Don't let the financial

media scare you into making poor investmentdecisions. Times of great uncertainty are usually badtimes to be making major decisions. What is healthy isknowing how the human mind works and factoringthat into your investment decision-making process.Researchers and academics in the field of behavioralfinance attempt to better understand and explain howemotions and perceptions influence investors and theirdecisions. If you are interested in learning more, thereare plenty of publications devoted to this relatively newfield.

Consider all of the complex financial decisions facedby investors today. Without experience in differentmarket environments or knowledge of market history,how might investors make such decisions? Potentiallythrough their perceptions or based on their emotions.Thus, it is imperative that investors understand andcombat the myriad of illusions to which they might beprone.

When the markets are doing well, people tend tothink the trend will continue indefinitely. During therecent crisis when the market was struggling, wewitnessed overreaction: Investors were running awayfrom the stock market. However, if you think U.S.companies are still fundamentally strong and willprofit in the next five to 10 years, then you should stillhave a stake in the stock market. Just make sure youset your asset allocation policy first, and then stay thecourse with an appropriate mix of stocks, bonds, andcash. Investing is a long-term proposition—don’t letyour emotions overpower your sense of reason.

Stocks are not guaranteed and have been more volatilethan bonds. Past performance is no guarantee of futureresults. Diversification does not eliminate the risk ofexperiencing investment losses.

Clear View Wealth Advisors LLC Investment Updates July 2012 3

Retirees: Non-Traditional InvestmentRisks

Volatile markets pose several challenges for retireeswho rely on receiving a livable income stream fromtheir investments. Interest rates are low and likely tostay low for the foreseeable future, making cash andhigh-quality bonds a safe parking place for now. Amidsuch a challenging environment, it's hard to blameretired investors for looking beyond traditionalinvestments like stocks, bonds, and cash, or the mutualfunds and exchange-traded funds that invest in thesesecurities.

Many investors have flocked to gold and otherprecious metals, while others have gravitated towardinvestment types like life settlements, distressed realestate investments, and private mortgage investments.Such non-traditional investments might hold thepromise of higher returns compared with traditionalasset classes, but there is often a trade-off of higherrisks and/or costs. Moreover, investors in non-traditional investments might not benefit from thesame liquidity, transparency, and regulatory oversightthat investors in traditional assets have. The followingthree asset types have picked up traction, but it isimportant to understand the risks before entrustingyour hard-earned cash to them.

Life Settlements: A life settlement originates when alife insurance policyholder, often an elderly orterminally ill person, sells his or her interest in thepolicy to a third party, usually at a level that is wellbelow the policy's stated death benefit. The third partythen resells, often by issuing securities, that interest toinvestors who in turn must keep the policy in effect bypaying its premiums. When the originally insuredperson dies, the owner of the security collects thedeath benefit. The rate of return on a life-settlementinvestment will hinge on when the originally insuredperson dies. If death occurs within his or her estimatedlife expectancy, the return will be relatively high. But ifthe original policy owner lives well beyond theexpected time frame, a life settlement can be a poorinvestment. Not only will it take a while to pay off, butthe investor will have to fork over premiums on aregular basis.

Distressed Real Estate: Distressed properties typicallysell at prices lower than what the owners paid and may

be under foreclosure; their prices may also be low inabsolute terms. As with investing in any other securitytype, seeking low valuations is a key way to bringdown your risk, but distressed real estate investing isfar from a low-risk endeavor. Distressed propertiesmay require substantial additional investment beforethey can be rented or resold, and there is no guaranteethat a seemingly low-priced property won't fall furtherstill. Finally, real estate can be illiquid, and for smallerinvestors can be cost-prohibitive to build a diversifiedportfolio of properties.

Private Mortgages: The troubled housing market hasgiven rise to another real estate-related investment, theprivate mortgage. In contrast to a loan extended by abank or financial institution, a private mortgage isfunded by individuals, groups of individuals, or acorporation that specializes in making such loans. Aprivate mortgage holder may be able to earn asubstantially higher interest rate than he or she canearn on cash or high-quality bond investment. At thesame time, the risks of a private mortgage loan are alsoa lot higher than cash or bonds, even though the loanis secured by the property. Individuals usually turn tothe private mortgage market because they can't securebank financing; thus, they might have poor credit orlimited down payments. Those risks can beexacerbated because it can be difficult to diversify inthe private mortgage market.

Retirees should exercise caution when investing in non-traditional assets. It is important to understand thatinvestors in these non-traditional assets might have togive up transparency, liquidity, and regulatoryoversight.

Clear View Wealth Advisors LLC Investment Updates July 2012 4

Planning for the New 3.8% MedicareSurtax

If you are a business owner, real estate investor, or aninvestor with potential adjusted gross income above$250,000 in 2012, then you need to consider planningfor the new Medicare surtax.

This surtax is a new provision contained in the HealthCare and Reconciliation Act of 2010 that amendedthe Patient Protection and Affordable Care Act of2010. Now that the US Supreme Court has ruled thatthe health care law is constitutional, this new provisiontakes effect in 2013.

Officially, the surtax is known as the UnearnedIncome Medicare Contributions Tax ["UIMCT"].

The UIMCT broadens the Medicare tax base forhigher-income taxpayers by imposing a 3.8% surtax onthe lesser of: (1) “net investment income”; or (2) theexcess of adjusted gross income [AGI], increased byany foreign earned income otherwise excluded fromAGI, over the taxpayer’s threshold amount. Netinvestment income does not include income from atrade or business, distributions from IRAs or qualifiedplans or tax-exempt municipal bond interest.

While it is difficult to provide specificrecommendations to investors without knowing thetotal composition of their income, there are certainplanning tips to consider when speaking with your taxor financial planning professional. Based on thedefinitions of this new law, it appears that anythingthat can be done to reduce your AGI will be helpful.

So, avoid foreign earned income that is not otherwiseexempted. Consider municipal bond income. You mayconsider contributing more to your qualified plans atwork (maximum $17,000 in employee contributionsplus any applicable catch-up if you are over age 50).

You may consider annuities and cash-value lifeinsurance as other places to put cash. If you have theopportunity to defer bonus income into another taxyear, consider that as well. If you can operate or start aside-business (schedule C-type income), you may beable to use the start-up costs to reduce your net profitand subsequently your AGI.

Remember, the act only applies the surtax toinvestment gains when the total adjusted gross incomeon a return exceeds $250,000 for couples and$200,000 for single taxpayers. If your adjusted grossincome is less than those amounts, the surtax will notapply. If you’re above those thresholds, then it appliesonly to the lesser of the net investment income or AGIabove the mark.

Here are some examples to consider.

If you had zero investment income but had salaryincome above $250,000, then you would expect to payzero additional tax. (So capital losses from previousyears or passive activity losses are valuable and can beused to reduce your investment income).

A married couple with combined salaries of $200,000and net investment income of $150,000 would pay thesurtax on $100,000 of income since it is the lesser of$150,000 of net investment income or the excess overthe MAGI threshold of $250,000.

IRS Guidance

Without additional guidance from the IRS, it appearsthat the surtax applies to dividends, royalties, short-and long-term capital gains,passive income frompartnerships, the taxable portion of annuity paymentsreceived and gains on home sales above the exclusionlimits.

While a lot in personal investing is not controllable,you certainly can find ways to reduce the impact ofthese external factors. With some proper tax planningahead of time, you can minimize your tax bill and keepmore in your pocket.

By Steve Stanganelli, CFP(R), CRPC(R)

Clear View Wealth Advisors LLC Investment Updates July 2012 5

College Funding Corner

Financial Aid Question of the Month:

Q. When is the best time to start preparing for thefinancial aid forms?

A. This is a great question and one that is easy toanswer AND that answer is right now. Imagine youwere doing tax planning. You wouldn't wait untilApril 15th. You'd start earlier than that. Strategiesmust be created, tactics executed. Completing your taxreturn is merely a step in the process. The same is trueof the financial aid planning process. Your planning isreflected in the financial aid forms.

Doing everything possible to present a favorablefinancial aid picture requires planning, familiarity withthe rules, regulations, proper completion of thefinancial aid forms and of course, meeting deadlines.These days, applying for financial aid is a minefielddesigned to lessen your chances of getting money. Theonly way to make it safely through a minefield is tofollow someone with the map...and we have themap.______________________________

Graduation Rates Interpreted

You may or not be aware that based on U.S.Department of Education data, only 53% of collegestudents graduate in six years. Can you afford for yourstudent to have a 53% chance of success in six years.Don't you want your son or daughter to have a 100%chance of success in four years?

And about a quarter of freshmen don't return for theirsophomore year. So half the problem occurs by theend of the first year.

What the data actually says is that of first-time collegestudents, only 53% graduate from the institutionwhere they begin their studies within six years. Manywill graduate from other institutions.

A good college fit goes a long way toward reducing the25% failure rate between the freshman and sophomoreyear. So choosing the right college for the student isimportant - not just the school with the right brand or

name cache.

The factors that seem to conspire to keep youngpeople in college - and debt - forever are:

* Parents let them * Students don't go to classeveryday * Students change their majors too muchand too late * Students go to too many schools, orthey transfer and lose credits * A lack of adequatefunds or a family crisis may keep a student away for asemester or more * Working during college also candelay the process of getting out as can postponingrequired courses for one's major because a class isoversubscribed * Schools make it difficult to getrequired classes

This has become such a concern that the Dept. of Ed.requires colleges to at least report their six-yeargraduation rates. Another factor that drives downgraduation rates are the number of Pell Grantrecipients who are right out of high school and eitheraren't prepared for the rigors of independent study orthey just can't receive enough money to finish.

NOTE: The older the Pell Grant recipient (non-traditional student) the more likely they are tograduate than their younger counterparts.

My suggestion is to have a head-to-head talk withyour student about what you're willing to do and whatthey're willing to do. Having a game plan to besuccessful in college is just as important as applying tocollege.

______________________________

More College Funding Strategies atwww.CollegeCashPro.com.

Clear View Wealth Advisors LLC Investment Updates July 2012 6

Annuities: Beware of ExcessWithdrawals

It’s extremely important to understand the impact ofwithdrawals on a living benefit attached to an annuitycontract. The most widely used living benefit today isthe lifetime guaranteed minimum withdrawal benefit(Lifetime GMWB). These usually allow you to makewithdrawals from your account up to an annual limit(usually 4–6% of your investment). If you withdrawmore than that percentage, future payments may bereduced. Sometimes, an excess withdrawal triggers areset of the base on which your guaranteed amount iscalculated. These withdrawals can also negativelyimpact the account value and death benefit. Example:You purchase an annuity for $100,000 that allows youa guaranteed 5% annual withdrawal until you startreceiving your monthly payments for life. You maywithdraw $5,000 every year. If you take out more than$5,000, your annual guaranteed withdrawal amountmay decrease, and you won’t be able to take out asmuch the following year. An excess withdrawal of, say,$5,500 will trigger a reset of your benefit base to equal

your current account value. If the current value of yourinvestment sub-accounts is, say, $80,000, you now get5% of $80,000: only $4,000. The examples presentedherein are for informational purposes only. They arenot representative of any specific annuity and do notconstitute investment advice. Annuities are suitable forlong-term investing, particularly retirement savings.Withdrawal of earnings will be subject to ordinaryincome tax and, if taken prior to age 59½, may besubject to a 10% federal tax penalty. Additional feesapply for living-benefit options. Investmentrestrictions may also apply for all living-benefitoptions. Violating the terms and conditions of theannuity contract may void guarantees. Read yourprospectus carefully for all the fees and expenses thatmay apply to your variable annuity contract. It is alsorecommended that you consult with a financial advisorand tax advisor before purchasing an annuity.

©2012 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or the content providers; (3) is notwarranted to be accurate, complete, or timely; and (4) does not constitute investment advice of any kind. Neither Morningstar nor the content providers are responsible for any damages or losses arisingfrom any use of this information. Past performance is no guarantee of future results. "Morningstar" and the Morningstar logo are registered trademarks of Morningstar, Inc. Morningstar MarketCommentary originally published by Robert Johnson, CFA, Director of Economic Analysis with Morningstar and has been modified for Morningstar Newsletter Builder.

Steve Stanganelli, MSF, CFP®Fee Only Planner & Tax Coach

Clear View Wealth Advisors LLC12 Amidon AvenueAmesbury, Massachusetts 01913

steve@clearviewwealthadvisors.comwww.ClearViewWealthAdvisors.com

Tel:978-388-0020