Clear View Wealth Advisors, LLC is an independent Registered In-vestment Advisor providing finan-cial planning, tax consulting, and investment advisory services to individuals and couples throughout Massachusetts.

Clear View works on a FEE ONLY/FEE-for-SERVICE basis.

www.ClearViewWealthAdvisors.com

Free Rollover Helpline

978-388-0020

Call for Your Free Guide

“Six Best & Worst IRA Rollover Decisions”

V IEWPOINT

July 2010

Volume 1 Issue 1

WHEN INVESTING PAYS DIVIDENDS

About Clear View

Typically, stocks that pay a portion of earnings to shareholders in the form of dividends are not considered to be superstars of the stock market. They typically do not offer the growth or price appreciation potential of small-cap companies, but tend to be more stable. Dividends may not only help provide income but could also point the way toward possi-ble investment opportunities. Aside from the potential for steady payments, dividends can be a good way to assess a company’s health, quality of earnings, and future pros-pects. In fact, research shows that companies that have started or consistently increased dividend payouts since 1972 have outperformed the broader market.1 Companies that pay dividends tend to be large and well established, and their stock may be appropriate in a conservatively allocated portfolio. Companies may elect to pay a divi-dend because they consider it to be a better option for distributing profits than reinvesting in the business. Even though income stocks are theoretically less risky than growth stocks, the return and principal value of all stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The Uncertainty of Taxes Under current law, qualified dividends are taxed at a maximum rate of 15%. For taxpay-ers in the two lowest federal income tax brackets (10% and 15%), the tax rate on divi-dends is zero. However, these low tax rates are set to expire on December 31, 2010, unless Congress

The Great Inflation-Deflation

Debate

We’re all used to worrying about

inflation. It ranks among the

greatest threats to long-term fi-

nancial security. But inflation has

been so low that, in some quar-

ters, deflation is being whispered

about as the concern du jour.

Deflation occurs so rarely that even the

experts have to discuss it in theoretical

terms because there is very little data for

them to study. The last bout occurred dur-

ing the Great Depression.1 Nonetheless,

given that the current inflation rate is quite

low (core inflation grew just 0.9% during

the 12 months ending in April, the mildest

increase since January 1966), there’s a pos-

sibility that the U.S. economy could fall

into a deflationary period.2 For this reason,

it’s a good idea to understand the risks and

the potential benefits of deflation.

If you understand inflation, then you al-

ready have the background to understand

deflation. Inflation is a sustained increase

in prices. The root cause is frequently

monetary policy, but it can also be caused

when one or more core commodities

(Continued on Page 2)

(Continued on Page 2)

Steve Stanganelli, CFP®, CRPC®

Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not

act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View

Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com

Volume 1, I ssue 1 Page 2

needed to produce essential goods and services, such as

food and energy, become expensive due to scarcity and drive

up other prices.

Deflation is nearly the opposite. It is a sustained decrease in

prices, usually during a period of slow or negative economic

growth. Sellers lower their prices in response to weak demand,

which causes their profits to fall. Eventually, the sellers need to

find ways to offset their lost earnings, so they cut back on their

own spending on goods, services, and wages, which may lead

to job losses, factory closures, and falling incomes. This further

depresses demand, causing sellers to lower their prices, and so

on. This cycle can worsen if it persists because consumers who

still have money to spend may grow fearful and rein in their

own spending.

Deflation can be caused by a central bank’s (i.e., the U.S. Fed-

eral Reserve’s) monetary policy, especially through reductions

in the availability of money or credit. It can also occur when

spending falls dramatically in one sector of the economy. For

example, if the government curtails spending, then the busi-

nesses, workers, and consumers who depended on that spending

for their own incomes would no longer be able to maintain their

own spending habits, thus creating hardships for the businesses

and workers their incomes supported. If this loss of demand

becomes widespread, a deflationary condition can occur.

Theoretically, the cure for deflation would be for the central

bank to create inflation through a loosening of its monetary

policy, by lowering interest rates and expanding the money

supply. However, because of the Fed’s response to the 2008

financial crisis, monetary policy has seldom been looser,

meaning the Federal Reserve may have limited means to battle

a potential battle with deflation.

Maybe Not

Although some experts believe that deflation is on the horizon,

there are several conditions that have economists and policy-

makers worried about the potential for higher inflation in the

coming years.

•The ramp-up in government spending resulting from economic

stimulus and emergency measures.

•Longer-term structural deficits caused by the government’s

growing financial obligations associated with Social Security

and Medicare, and the immense national debt that could result

if these challenges are not addressed.

•The Federal Reserve’s injection of nearly $1 trillion into the

banking system during the financial crisis. Although banks have

kept much of it in reserve, many worry that prices will rise

when credit eases and that money begins circulating.3

Nobody knows for certain the direction that prices will take in

the near term. Ultimately, inflation and deflation are variables

that you can’t control; therefore it is wise to adhere to a long-

term investment plan that has been crafted to fit your personal

situation and is positioned to withstand fluctuations in market

conditions.

1) Thomson Reuters, 2010 (consumer price index for the period 3/31/1913 to

12/31/2010) 2) U.S. Bureau of Labor Statistics, 2010

3) Federal Reserve Bank of Minneapolis, 2008

acts to extend them. If the special tax treatment is allowed to expire, dividend income taxation will revert to the rules that were in effect prior to 2003. Under these rules, divi-dend income is taxed at the same rates as ordinary income, which could be as high as 39.6%. The possibility of higher dividend tax rates in 2011 is a fac-tor to consider when investing in dividend-paying stocks. It would be wise to consult with a tax professional before tak-ing any specific action. Income stocks can offer a steady payout as well as the pos-sibility of solid returns. Call today to discuss the role that income stocks can play in your portfolio. 1) CNNMoney, November 9, 2009

WHEN INVESTING PAYS DIVIDENDS (from page 1)

The Great Inflation-Deflation Debate from page 1

Clear View Wealth Advisors, LLC 978-388-0020