1. Volume 5, Number 2
Quarterly Newsletter April 2011
QUARTER IN REVIEW turmoil arising in North Africa and the
Middle East. The markets were further ASSET CLASS PERFORMANCE: Q1 2011
By: Jon P. Yankee, MBA, CFP ® &
tested by Japan’s most devastating
Thomas N. Saunders, Jr.
earthquake and the resulting tsunami
and nuclear crisis. Despite this mid-
Market Volatility Leads To Favorable
quarter stagger, the markets ultimately U.S. Fixed Income 0.42%
Returns (Barclay Capital Aggregate Bond Index)
proved they were tough enough to
Over the course of the past three
survive this “one-two punch.” International Fixed Income -0.77%
months, investors were forced to over-
come a number of major shocks, yet (JP Morgan GBI ex-US (Hedged) Index)
U.S. large companies, as measured
posted the best first quarter for U.S. U.s. Equities, Large 5.92%
by the S&P 500 index, were up 5.92%
equities since 1999. As global markets (S&P) 500 Index)
(including dividends) and U.S. small
continue to recover, we continue to
see growing optimism that the recov-
companies performed even better, U.S. Equities, Small 7.94%
returning 7.94%. International stocks (Russell 2000 Index)
ery from the 2008 financial crisis has
gained modestly as well, returning
become self-sustaining, albeit fragile.
2.67% for the quarter, while interna- International Equities, Large 2.67%
(MSCI EAFE Index)
tional small company stocks were up
Investors experienced positive returns
across almost the entire spectrum of
4.34%. Commercial real estate re- International Equities, Small 4.34%
turned a positive 7.5% and commodi- (S&P/Citigroup EPAC Ext. Mkt. Index)
asset classes for the first three months
ties, as measured by the Dow Jones
of the year. However, achieving these Real Estate Investment Trusts (REITs) 7.50%
UBS Commodities Index, were up (NAREIT Equity Index)
end results was anything but a smooth
4.45%. Bond rates continue at historic
ride. As sovereign debt issues con- Commodities/Natural Resources 4.45%
lows, yet owning high quality fixed
tinued to plague Europe, the markets (DJ UBS Commodities Index)
Continued Pg. 4
were thoroughly tested by the political
Congratulations CLINT AT A GLANCE wife, Sarah, who I married just this last May.
After finishing my degree, I worked at Tyler
By: Clint McCalla
Technologies as a Client Services Specialist
up until this last December. I entered the Mas-
LAURIE AND ZACH BELEW ON I met the FJY team through our Opportunity
ter of Science in Personal Financial Planning
Days event at Texas Tech University this last
THE SAFE ARRIVAL OF KATE program at Texas Tech University in January
February. I interviewed with Jon Yankee dur-
BELEW ON MARCH 26TH ing the career days portion of the activities 2010 Continued Pg. 3
after Josh Blair, a former Summer Associate at
FJY, had suggested I apply for their internship
position. I consider myself truly blessed to be
MARJORIE FOX AND given this opportunity to learn from some of
DAN JOSS the best in the industry and look forward to
meeting the rest of the team in May.
RECENTLY NAMED AS TOP
FINANCIAL PLANNERS IN THE I am originally from Greenville, Texas where
APRIL EDITION OF NORTHERN my parents still live. I moved to Lubbock,
Texas in August of 2005 to pursue a Bachelor
VIRGINIA MAGAZINE of Arts in Economics which I completed early
in May 2008. During this time I also met my
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2. GIFTS AND GIVING, PART 1 tax preparer about tax consequences of this
type of account. A custodial account can
could easily provide for college and a have a
generous gift ready for that new car or what-
By: Daniel D. Joss, MBA, CFP®, RLP®
contain various investments and proceeds ever that new college grad hopes for within
from these investments will be used for the the limits of the annual gift exclusion. Start
“Gifts and giving” is a very big topic and
benefit of the child. An advantage of this early, give often, and let time and investment
not likely to be covered well in 500 to 800
account is that the proceeds can be used returns work for you. We can help you man-
words. So, this quarter I’ll forgo the lecture
for any reason for the benefit of the child. age your gifts to the next generation.
on how we all should be giving more and
Uses are not limited to qualified educational
how charities are receiving less because
expenses. This account can be used to
of our recent economic issues. Instead, I’ll
focus a few words on non-charitable giving
teach an older child about investments, NEW RULE CHANGE TO
dividends, stock, mutual funds, etc… When
and give a few examples of how our clients
the child turns age 18 or 21, the account is SOCIAL SECURITY BENEFIT
express their love by giving to those in their
lives.
then retitled to the child as the “new owner”
giving him or her control of the asset. Some
OPTIONS
By: Tess Downing, MBA
clients plan to make the account balance
FJY often assists with the transactions of our
zero by age of majority. Other clients want a Your retirement decisions just became even
clients as they give or receive money or stock
balance left as a gift for them at graduation or more important with a new rule change
to or from family members. There are several
celebration of adulthood. They wish to send from the Social Security Administration. Due
ways to give, which may depend upon the
them on their way with an investment in their to the recent publicity surrounding social
amount of gift, the control the giver intends
future. security strategies, the current Administra-
the recipient to have over the gift, the age of
the recipient, and tax related issues. Types tion has decided that it will no longer allow
Retirement someone to collect benefits at a lower rate
of accounts include 529 plans, custodial
Several of our clients make contributions to and then payback those benefits to receive
accounts, Roth or traditional IRA accounts,
retirement plans for their grown children. an increase in their payments at a later date.
and individually owned accounts. Types of
This is a wonderful way of transferring wealth This strategy is often known as the “Do-Over”
assets include cash, EE Savings bonds, and
to the next generation. With it, the recipient or the “Payback Method.”
stocks, bonds, mutual funds and trusts.
is receiving a much larger future gift. If an
adult child earns $5,000 or more in a given For example, at age 62 you decide to start
Education
taxable year, yet is short on cash to set aside your social security benefits at the reduced
One common example of giving is parents or
for their retirement, a parent, relative, or rate of $750 a month. At age 64, you then
grandparents contributing money into a well
anyone else, could contribute $5,000 to that decide you would like to stop the payments.
managed 529 plan for future college ex-
recipient’s Roth or traditional IRA. The plan You then must payback all of the benefits
penses of a child or grandchild. A 529 plan
works best when the recipient lets the con- you received interest- and penalty-free.
allows gifts to be contributed and removed
tribution grow in a well diversified portfolio Then at age 66, you decide to start collecting
from the estate of the giver, yet allow the
for many years. In the case of a Roth IRA, the benefits at your full retirement age (FRA) at
giver control over the funds until they are
distributions will be tax-free. $1,000 a month. However, if you wait until
distributed for qualified education expenses.
The contributions grow tax free for years and, age 70, you could receive $1,320 a month.
Taxation (source: www.ssa.gov)
because it is an investment account, there is
In each of these cases, the giver must re-
potential for investment returns, not just inter-
member that the federal government does The “Do-Over” strategy has gained in popu-
est. Sometimes, the beneficiary of the 529
not want them to give their wealth to the larity in recent years. According to Kip-
plan doesn’t know they are the beneficiary of
next generation and avoid estate tax. So, the linger’s, in 2007, only 500 retirees chose to
the very valuable gift.
IRS has given us guidelines regarding how payback their benefits to start receiving a
much can be given without worrying about higher benefit. But by 2009, the number of
Custodial
taxes. In 2011, each giver can give up to retirees had doubled as they realized they
Another gift we help with is the management
$13,000 (annual gift tax exclusion amount) to could repay their benefits interest-free and
of custodial accounts for minor children.
each recipient without worries. This amount penalty-free. They were also able to claim a
Contributions are made to the account for
is not so limiting as a couple could each tax credit or deduction for any income taxes
the benefit of the child. Earnings in this ac-
give $13,000 to each of their children and paid on the benefits.
count are taxed annually so speak with your
grandchildren, each year. A generous family Continued Pg. 4

3. COULD IT BE TRUE, IS YOUR you would use the 50 year average annual
compounded housing appreciation rate of
not a factor.
DC METRO AREA HOME 4.5%, and you would see a 10 year return
of $226,797 in value growth on that home.
With homeownership, you also get the
mortgage interest deduction on mortgage
REALLY ONE OF THE BEST Then, since the average homebuyer is financ- payments. This tax benefit brings the average
ing their purchase, we really need to be fair house payment down to a net monthly figure
PERFORMING INVESTMENTS IN in our comparison, and see what the rate of below the monthly market rent payment for
return has been on the actual cash invested. that same house. However, when you own
YOUR ENTIRE PORTFOLIO? a home, you do have maintenance costs
By: Thierry Roche, SFR, CDPE On a $400,000 home purchase, we will you need to spend money on, and that will
use an average down payment amount of generally even out the tax savings difference
Believe it or not, for many local residents, it $60,000 (15% down payment) plus closing from that mortgage interest deduction.
is true. Generally speaking [and from FJY’s costs of $10,000 for a total investment of
perspective] your primary residence should $70,000. Now we find that an investment of It’s also important to consider a minimum
not be considered an investment in the true $70,000 that grows to $226,797 in 10 years is break even time period. The average in the
sense of the word. However, the returns an 11.8% annual compounded rate of return. DC metro area has been 4-5 years of home-
on your initial down payment can be quite I challenge you to find any large market that ownership, until your value has increased
impressive. has shown an average compounded rate of enough to cover all selling expenses.
return of approximately 12% annually over
Unfortunately, many publications just don’t the past 50 years. You won’t, because you According to the National Association of
“get it”, when it comes down to analyzing don’t get the kind of leverage in other market Realtors and the Mortgage Bankers Associa-
the rate of return on a home. They generally vehicles that you get with Real Estate, due to tion, their analysis shows that there has not
write articles or cite statistics that state hous- low cost mortgage financing. been a better market for buying a house in
ing’s average appreciation rate roughly equal the past 50 years due to the convergence of
to the rate of inflation over the past 50 years – Even more exciting is if you use a 10% down low interest rates, and lowered prices. Just
about 3.7% annual housing appreciation rate. payment of $40,000 plus $10,000 in closing imagine what the yields could be over the
In some areas (like our area), they calculate costs, which totals $50,000 invested. Then next 10 years if you buy a home now.
housing as a bit better than inflation rates, but you get a whopping 15.22% annual com-
maybe only 4.5% average appreciation rate pounded rate of return. On the other end Thierry is host of the DC areas longest running Real Estate
per year. On the surface, that does not sound of the spectrum a 20% down payment of Radio Show, ‘Inside Real Estate”, and a 22 veteran Realtor
like a very exciting rate of return. Especially with Re/Max in Northern VA. He can be contacted at
$80,000 plus $10,000 in closing costs, results thierry@thierryroche.com
when comparing to historical mutual funds in $90,000 invested, which generate a 9.28%
averages in the 8%-10% annual range. return- not too shabby. Plus, don’t forget, CLINT AT A GLANCE FROM PAGE 1
since you put up a larger down payment
But this is where the novice analyst/reporter of 20%, you will also have lower monthly after speaking with a friend who was at the
drops the ball and unknowingly misguides mortgage payments, so there is more money time completing his undergraduate degree in
the general public. When comparing housing you get to keep. Don’t forget to evaluate that Personal Financial Planning.
to inflation, these unwitting article authors in the total return, which will take it up over I have found the course of study to be both
compare the total cost or total current value 10% compounded annually. challenging and enjoyable, with the level of
of a home ($400,000 in our area) and its aver-
instruction received unparalleled.
age annual appreciation rate, to the annual Of course dissenters to these obvious facts I enjoy spending time with family, hunting,
Inflation rate. This understanding is lacking will stand up and yell, “You didn’t calculate fencing, gardening and cooking. I attend
in a true comparison of apples to apples. the cost of the monthly payments. That will Lubbock Baptist Temple with my wife where
Very few home buyers ever buy a home with bring the yield down to a lower number”. we are involved in various church ministries.
‘all cash’. Most finance their home purchase But, if they would stop and think before Again, I am extraordinarily grateful for the
with a mortgage. The actual cash invested jumping to conclusions, they would real- opportunity provided by the FJY team to ac-
averages between 10%-20% down payment, ize it is irrelevant - simply because if you quire practical financial planning experience
plus closing costs. don’t own a house, then you have to rent. at the highest level in a region on the very
Therefore, you have to make monthly pay- edge of current events. See you in May!
In order to properly break down the num- ments wherever you live, whether you make
bers on an average home price of $400,000, mortgage payments, or rent payments, so it is

4. The ability of the markets to respond so favor- At FJY, we continue to do our due diligence
ably can be partially attributed to central bank on your behalf in a number of different areas.
policies acting as shock absorbers during the During the first quarter, Dan and Tess attended
first quarter’s turmoil. The markets were con- the T-3 Technology Conference in Miami, FL –
tinuously flooded with money, from sources where Dan participated on one of the tech-
1925 Isaac Newton Square such as the U.S. Federal Reserve Bank, the nology experts panels. In addition, Marjorie
Suite 400 European Central Bank, and the Bank of Japan, attended the PIMCO Institute for Wealth Manag-
Reston, Virginia 20190 as we experienced a surge in oil prices and ers, in Newport Beach, CA, where she was able
witnessed the turmoil in Japan, the world’s to listen and participate in several discussions
1.703.889.1111 phone
third largest economy. In addition, nerves were regarding the PIMCO’s investment strategy
1.877.395.7795 toll free soothed as a result of actions taken to stabilize and their outlook of the current economic and
1.866.366.9233 fax currency markets after the earthquake. “In the market environments. We attend these types of
end, the market was able to get its head around conferences in order to continue to learn how
the idea that these events were unlikely to be to achieve better diversification in our managed
www.fjyfinancial.com major, macro-economic events,” says the head portfolios, which asset classes tend to zig when
of Global Research at RBC Capital Markets, others zag, and what new investment oppor-
Marc Harris. In addition to central bank mon- tunities exist that we should be explored. Stay
etary policies, U.S. private employers added tuned!
216,000 jobs in March, and a revised 194,000
in February, reflecting a reasonably-paced labor
recovery. Katelyn
Elizabeth
NEW RULE CHANGE TO SOCIAL Meanwhile, the U.S. stock market recovery has Belew
born
SECURITY BENEFIT OPTIONS FROM PG. 2 highlighted one of the peculiarities of invest-
March 26th,
ment math. Prior to March of 2009, the S&P 500
had fallen about 54% since its 2007 peak. The 7lbs 1.5oz
Essentially, individuals would take the
early benefit, invest the funds, and keep recovery since then has achieved a remarkable
the interest/capital gains earned and then 100% gain since that March 9 low point. Yet
the market has not yet fully recovered to its for-
FJY ADVISORS
payback the government with the initial
amount. mer heights. The reason is that investment math
tends to understate losses and overstate gains.
Under the new rule, retirees are still
allowed the option to withdraw their ap-
After a 20% decline in your investment portfo-
lio, you need a 25% gain before the portfolio & STAFF
is made whole again – and as the declines get
plication for benefits, but, only once during
bigger, the disparity grows dramatically, as we
MARJORIE L. FOX
their lifetime and that must happen within SR. FINANCIAL ADVISOR
the first 12 months of receiving benefits. have seen.
The new rule for the payback method DANIEL D. JOSS
makes the decision about when to start While investors’ nerves were tested by the SR. FINANCIAL ADVISOR
receiving social security benefits that more volatility of the first quarter, those who stayed JON P YANKEE
.
significant. If you do have questions about the course were rewarded for their paitence, SR. FINANCIAL ADVISOR
your specific situation, please contact FJY proving to the point that timing the market is still
to discuss the strategy that will be best for a fool’s errand. Achieving diversification, and LAURIE A. BELEW
living with the volatility of many different asset FINANCIAL ADVISOR
you and your family.
classes, is not always easy. We experienced TESS L. DOWNING
this especially during the Great Recession of ASSOCIATE FINANCIAL ADVISOR
QUARTER IN REVIEW FROM PG 1. 2008-09, when virtually every equity asset class
THOMAS N. SAUNDERS, JR.
fell in lock-step. We were fortunate in the first
quarter of this year that nearly every one of the
CLIENT RELATIONSHIP ASSOCIATE
income securities continues to provide
stability to investor portfolios, despite the traditional asset classes offered positive returns; LISA J. CRAFFORD
“headline risk” about which many investors but we do not anticipate that being the case OFFICE MANAGER
forever. Your investment eggs are in many bas-
continue to read. SALLY M. YANKEE
kets as a precaution against choppier markets, ADMINISTRATIVE ASSISTANT
whenever they may rear their ugly heads.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future
performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicated
historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions
or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment
advice from Fox, Joss & Yankee, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/
she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for
review upon request.
Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction
and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance
results. It should not be assumed that your account holdings correspond directly to any comparative indices.