Hyre & Associates Quarterly Newsletter Summer 2011

SUMMER 2011

Hyre & AssociatesWealth Strategies - An Independent Firm

2074 Arlington Avenue, Upper Arlington, Ohio 43221877.228.9515 / 614.225.9400

Securities offered through Raymond James Financial Services, Member FINRA/SIPC

HYRE SENSEQUARTERLY NEWSLETTER

HYRE SENSE QUARTERLY NEWSLETTER SUMMER 2011

A Soft Patch!“When you damage a country’s

financial system, it takes longer to recover”

By Jim Hyre, CFP®Registered Principal, RJFS

Dear Friends,It seems like every six months or so the Wall Street media comes up with some annoying new term. Last time it was “green shoots.” Now it’s that the economy is hitting a “soft patch.”

Probably the biggest surprise for investors thus far Probably the biggest surprise for investors thus far in 2011 is the sluggish rate of economic growth. The economy (GDP) grew at an annual rate of 1.9% for the first quarter, and based upon most recent num-bers, the second quarter may even be slower than that - which truly represents a soft patch in activity. This recovery slowdown is evident in the recent employment statistics, which is a primary indicator employment statistics, which is a primary indicator that we simply have not been able to come out of this downturn with the same vibrancy as in the past.

The reason for this is very simple: this downturn was led by problems in the financial industry - and when you damage a country’s financial system, it takes longer to recover. We have consistently advised our clients that this is going to be a slow recovery with a lot of volatility in its midst. And since employment has been increasingly sluggish, we realize there is still a long road ahead.we realize there is still a long road ahead.

There are several candidates which have likely contributed to the recent slowdown. Heading the list is the impact of the earthquake and tsunami in Japan, which sent that country into a sharp reces-sion and caused a disruption in supply lines of Japanese components in the U.S. and elsewhere.

A second candidate is the ongoing political turmoil in several Arab countries, especially Libya, which caused a disruption in oil supplies. In addition, in the US, there were blizzards and an unusually cold weather in the first quarter, followed by tornadoes and floods in the second quarter.

These events were combined with an upward spike These events were combined with an upward spike in commodity prices, especially for energy and food, but also for industrial metals and minerals. This caused a surge in headline inflation around the world, which acted like a large tax increase for consumers and businesses, dampening the demand for goods and services. For example, crude oil prices recently ran up to a peak of $114 a crude oil prices recently ran up to a peak of $114 a barrel, causing the cost of gasoline at the pump to average over $4.00 a gallon in the U.S. The good news is that the commodity speculation has cooled off recently, with crude oil prices dropping back

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According to US News Travel, the best worldwide summer vacation spots are San Francisco, California, Mykonos, Greece and Nice, France. What is your favorite summer vacation spot?

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A Soft Patch!, cont’d

into the mid-90s.

Even though these factors are largely temporary, the economy is likely to remain stuck in a slow growth channel for the near future.

Inflection Point Ahead

We may now be approaching an inflection point in We may now be approaching an inflection point in the economy. The pattern of the recovery has been uneven across various areas of the economy. On one side, consumer spending was surprisingly strong during late fall and winter, until it was cooled by higher commodity prices. On another side, foreign trade has been substantial in spite of rapidly increasing exports. rapidly increasing exports.

Ultimately, housing remains the most depressed area of the economy, reflected by the large number of homes in which the mortgage debt is higher than the current value of the property. To have a full recovery in the housing sector, we’re going to need much stronger job growth and employment stability than we have seen in recent months.

I realize that you may be concerned about the I realize that you may be concerned about the possibility of going through a tumultuous economy again, and therefore, preservation of capital is number one on your agenda. Well, it’s number one on our agenda too. It’s often implicit, but it’s always there. Despite an uneven recovery pattern, we expect there will potentially be opportunities to make money in the markets over the next several make money in the markets over the next several years. We need to be mindful, however, that there are more embedded problems in the economy that still need to be addressed. Our health care system and other entitlement programs are unsustainable - we simply cannot continue to pay out the same benefits in today’s different economic reality.

Government Debt Remains a Big Problem

Financial markets are focused on both the short- term debt ceiling debate in Washington as well as the long- term trajectory of government obligations. While not assured, a deficit reduction obligations. While not assured, a deficit reduction package is likely to pass this month in conjunction with an increase in the debt ceiling. The long-term debt challenge is profound. More fundamental budget reform beyond this summer’s likely compromise will be necessary. Such reform is unlikely to be considered until after the 2012 election. And we’re not alone - while a short-term funding fix for Greece has been agreed to, a variety of sovereign debt problems in Europe will likely persist for years.

It’s really a question about what you want to do: It’s really a question about what you want to do: Do you want to raise taxes, cut spending to reduce the deficit, or let the economy grow its way out of the deficit over time? There is significant news coverage about austerity and its good intentions of living within one’s financial means. But in the short term, these are contradictory policies – either raising taxes or cutting government either raising taxes or cutting government spending – tends to be contradictory for the economy.

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Main Risks

The main risks, as we see it, to the world economy “muddling through” are as follows:

- The developed world lapses back into a crises from its weakest links; e.g. renewed weakness in the US housing market, Europe’s sovereign debt woes and debt reduction, and Japan’s demographics

- China, the primary engine of global growth, is unable to transition from government- directed investment growth to consumption-directed growth, causing a global slowdown. Growth and inflation news out of China, along with cleaning up the investment and lending mistakes of the past two years, will be critical for the global two years, will be critical for the global economy as a whole

- Progress on a bipartisan federal deficit/debt reduction plan loses momentum. It is critical that our policy leaders look past their political differences and work together to formulate a fiscal plan that can lead us forward.

Planning ahead for Tax Changes

Congress has done nothing with the estate tax Congress has done nothing with the estate tax situation so we will be dealing with it again in 2013. First and foremost, we want clients to understand how their individual financial plan affects their estate tax situation and their overall estate plan objectives. In terms of estate planning, if the exemption amount returns to $1 million, it will be quite impactful, most likely requiring an update of quite impactful, most likely requiring an update of one’s estate plan and supporting documents.

There will also be changes in the income tax area with our marginal rates adjusting upward to 39.6%, where they were before the Bush tax reductions. These changes may include a phase-out of miscellaneous itemized deductions, higher taxation of long-term capital gains and dividends, and the elimination of the marriage penalty relief and child credit increases.

To deal with these potential upcoming changes, we simply need to incorporate a good dose of “what if” planning. Ask the question: What if this change does occur? How will it impact my financial plan? For those nearing retirement, this is meaningful because you are now in the consolidation phase and are transitioning your consolidation phase and are transitioning your portfolio focus from predominantly growth to primarily income focus. There needs to be an emphasis on alignment with current market conditions as well to ensure the management of retirement assets is on par with retirement retirement assets is on par with retirement expenses, thus creating an awareness of what is potentially a sustainable draw rate over the retirement period. The low interest rate environment has made it challenging to keep individuals on track with their retirement plan.

Fixed Income in a Rising Rate Environment

With interest rates at historical low levels, fixed With interest rates at historical low levels, fixed

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income investors have become increasingly con-cerned about rising rates and how their portfolios might be affected. However, rising rates do not necessarily mean negative total returns. Many investors ask, “How can I best position my portfolio in a rising rate environment? The answer starts with understanding the relationship between interest rates and fixed-income returns.

Interest rates reflect the cost of borrowing over time. Interest rates reflect the cost of borrowing over time. One of the most visible market indicators of interest rates is the monetary decisions of the Federal Reserve. Typically, the Fed raises rates to temper inflation as the economy expands. Now that we have seen some improvement in the economy and increasing commodity prices, many investors worry increasing commodity prices, many investors worry about rising rates. Longer term interest rates on the other hand are fundamentally driven by inflation expectations. Traditional theory is that bond prices fall as interest rates rise. Yet a bond’s total return comprises not just price changes, but also income. This is important because, as rates rise, the income on the bond can help offset falling prices, potentially on the bond can help offset falling prices, potentially cushioning the overall return.

Asset Allocation Update

Many of you have noticed a notable increase in caution regarding the financial markets outlook. This sense of caution has been motivated by two factors: first, an acknowledgment of how far the recovery has come in the past two years; and second, some less favorable developments in the past few weeks. First quarter profits were strong but company guidance has become more cautious. It is clear that guidance has become more cautious. It is clear that investors are excited at the amount of ground that they have recovered thanks to extraordinary

government interventions. With regard to the future course of the market, we don’t get the luxury of certainty. The best we can do is estimate probable returns and the likely range of uncertainty.

With no shortage of things to worry about, why not With no shortage of things to worry about, why not reduce our exposure to more volatile asset classes? It is our logic that our existing allocations are already somewhat conservative. A trading range – featuring more volatility than direction – is a distinct possibility for the next few months. The past few possibility for the next few months. The past few years have been excruciating for investors. For buy and hold investors, there has often been major discomfort. None of us get a do over, so the real question is how well we are prepared to deal with the future market opportunities and uncertainties. I believe we are well equipped. The potential benefit of controlled risk and the avoidance of deep of controlled risk and the avoidance of deep drawdowns is that it is often possible to recover lost ground rapidly, particularly relative to a passive buy-and-hold approach. Benjamin Graham said that “the essence of investment management is the management of risk, not the management of returns.” All good portfolios start and end with this tenet.

As always, we appreciate the confidence you’ve As always, we appreciate the confidence you’ve placed in our Wealth Strategies Team, and we always consider it a privilege to be of service to you. If you ever have questions, please don’t hesitate to contact any member of our team for assistance. Have a wonderful remainder of the summer!

Best regards,

Jim Hyre, CFP®Jim Hyre, CFP®Registered Principal, RJFS

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Jim Hyre and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Past

performance may not be indicative of future results. International investing involves additional risks such as currency fluctuations, differing financial and accounting performance may not be indicative of future results. International investing involves additional risks such as currency fluctuations, differing financial and accounting standards, and possible political and economic instability. Investing involves risk and investors may incur a profit or a loss, including the loss of all principal.

Commodities may be subject to greater volatility than investments in traditional securities. Investments in commodities may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes and international economic and political developments. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. Diversification does not assure a profit or protect against a loss. All securities offered through Raymond James Financial Services, Member SIPC/FINRA


Understanding Long-Term Care Seminar

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Considering planning for Long-Term Care but unsure of your options or what LTC really means

for you and your loved ones?

Our next educational workshop about Understanding Long-Term Care Insurance is scheduled for September 28th. We have sessions

available at 10 a.m., 1 p.m. and 3 p.m.

Please call our office to reserve your space – these Please call our office to reserve your space – these sessions fill up quickly!

Traditionally, people have regarded life insurance simply as protection for their loved ones, but times have changed. If you own life insurance – especially those policies which have built up cash values – it’s possible that the product you’ve purchased in the past might be dramatically improved upon, in terms of cost, coverage, investment alternatives, and

flexibility. Our Wealth Strategies team can provide flexibility. Our Wealth Strategies team can provide a complimentary analysis of your existing life insurance policies to make sure your contract is performing as you originally intended. If we find that a change may be warranted, we will review with

you the expenses of a new policy as well as discuss insurance underwriting criteria and how this discuss insurance underwriting criteria and how this

impacts the decision to make a change.

If you are interested in having us review your current policies, please drop off a copy of your most recent annual insurance statement(s), and we will contact you to schedule an appointment.

My name is Jia Ying Guo. My hometown is Wuhan, China, a big city in the middle part of China. I am a senior at the Ohio State

University studying Finance and Accounting with a minor in Statistics.

I have been working with Hyre & Associates as I have been working with Hyre & Associates as an intern for 5 months already. My job respon-sibility is to set up client profiles within our financial planning software, enter accurate information, and create financial plans according to the advisor’s requests.

Even though my ultimate goal is to obtain a PhD and become a professor, I would hope to work in the financial industry for several years before I go back to school, in order to be more

exposed to real-life scenarios.

I love participating in sports during my spare time. Besides that, I am always fond of

different cultures around the world. I have my different cultures around the world. I have my own organization on campus to teach others about Chinese culture and Chinese language. I love the saying “One is never too old to learn,” and I especially enjoy the process of learning new things. I’m sure my experience with Hyre & Associates will become my lifetime treasure.

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Life Insurance Review

FEATURED INTERN OF THE QUARTER

PLAY WITH A PRO: In case you missed it in June or are ready for some additional tips to improve your game, Hyre & Associates will be hosting another Play With a Pro golf clinic towards the end of the summer. We invite you and a friend to join us as a seasoned golf professional from one of the top golf clubs in Central Ohio will provide a hands-on learning experience that will hopefully leave you with more birdies and less bogeys the next time you hit the links.

AN EVENING OF FINE WINES: Calling all wine enthusiasts! Our next wine tasting event will be adelicious way to wrap up the summer. Please bring a friend and join us at for a lovely evening of sampling delicious way to wrap up the summer. Please bring a friend and join us at for a lovely evening of sampling regionally-focused wines and complimentary hors' oeuvres. A sommelier will be on-hand to share fascinating facts and stories about each wine and the wine industry as a whole.

To RSVP for one of our upcoming events, please call or email the office. We look forward to seeing you soon!


Highlights from our past events...

7Besides the United States, did you know that 13 other countries celebrate their independence

days during the month of July - including Argentina, the Bahamas and Belgium?

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CONTACT US


Your Hyre & Associates Wealth Strategies Team

Phil Jim Angie

Murphy’s Corner

“I hope you are enjoying the dog days of summer...I am!”

Jim Hyre, CFP®, [email protected]

Phil Constans, Wealth [email protected]

Angie Barhorst, Client Relations [email protected]

877.228.9515 / 614.225.9400877.228.9515 / 614.225.9400

www.HyreAndAssociates.com

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Economy & Finance

Hyre & Associates Quarterly Newsletter Summer 2011