Morningstar Advisor - Fall 2008 - (Page 13)

“We are looking to take some tax losses while rebalancing and positioning our portfolios for the coming upturn in the markets. Quick Poll (872 responses; poll taken between Sept. 29 and Oct. 2) 1 The most fiscally responsible way for the new president and Congress to solve the government’s economic mess is to 4 Are you taking action now to better position clients’ portfolios for higher tax rates? We are not predicting when the upturn will occur, but we believe things will return to the mean, and when they do, we want to be well positioned.” Jim Roach PlanFirst, Greenville, SC “It’s not that taxes might go up. No. They will go up. Social Security and Medicare costs continue to soar, and national infrastructure is in serious need of repair. Now, the banking crisis is heaped on top of an already perilous federal money mismanagement program. Increase revenues Cut spending Both 3.7% 44.8% 51.5% Yes No 57.9% 42.1% Tax strategy is a key component of any financial plan. I continue to promote full funding of Roth IRA and Roth 401k contributions as a way to diversify investment holdings from a tax perspective. We are also using life insurance to create tax-free estate-planning solutions and annuities to get money out of taxable CDs and into deferred interest programs. Not to be forgotten, but much in need—529 plans.” Craig Adamson Adamson Financial Planning, Marion, IA 2 Where are taxes headed? 5 It’s October 2008, but by the look of things, it could be Up Down Same 88.9% 2.2% 8.9% October 1929 1 October 1973 2 August 1982 3 February 1989 4 March 2000 5 15.4% 19.6% 8.2% 48.5% 8.3% “We are very tax aware and harvest tax losses annually. As a general rule, we have been exiting out of low-basis stocks for new clients for the past four tax years on the assumption that current tax laws will sunset in 2010.” Donald C. DeWees, Jr. DeWees Investment Consulting Group of Wachovia Securities, Greenville, DE 3 Which tax increase would have the greatest effect on your clients? 1. Stock market crashes Oct. 24, 28, and 29, and the Great Depression begins soon after. Market doesn’t return to pre-crash levels until after World War II. 2. OPEC imposes oil embargo against the U.S. and other countries in retaliation for supporting Israel in the Yom Kippur War. In the U.S., an era of stagflation ensues. 3. Bull market begins. The Dow and S&P 500 average double-digit annual returns through 1999. 4. President George Bush announces savings and loan bailout plan. Later that year, federal government creates the Resolution Trust Corp. to deal with insolvent S&Ls. 5. Dot-com stock market bubble bursts, ending bull market. Qualified dividends Marginal rate Capital gains Social Security wages Corporate 10.3% 44.2% 30.6% 11.3% 3.6% MorningstarAdvisor.com 13 http://www.MorningstarAdvisor.com

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Morningstar Advisor - Fall 2008 Contents New on MorningstarAdvisor.com Letter from the Editor Contributors Inbox Are You Preparing for Higher Taxes? State of Financials Oracles of Alabama Investment Briefs Managers’ Investment Secrets Revealed Conformity Becomes a Growing Concern at American Gimme Shelter Location, Location, Location Rooted in Buffett, Going for Growth Keeping Little Company Away from the Numbers Consumer Confidence What about Natural Gas? TIPS to Beat Back Inflation Investing in Hidden Assets Funds That Have an Edge Come Tax Time Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar One for You, 19 for Me

Morningstar Advisor - Fall 2008

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