Global demand + lower dollar value = Higher oil prices

This is a rather simplistic explanation but it captures the big picture:

The dollar fell to a three-year low against major currencies on Thursday on the Federal Reserve's intention to keep interest rates near zero. As a result it takes more dollars to purchase imported goods. With domestic off-shore oil production still curtailed as a result of last year's Deepwater Horizon accident and a reduction of Alaskan oil exploration, the U.S. is more reliant on imported oil.

Add to that, increased energy demand as the global economic recovery gains traction, all of it results in higher oil prices for the U.S. consumer.

Self-Directed IRAs

At a recent business meeting someone mentioned Self-Directed IRAs as an alternative to more common Individual Retirement Accounts. A Self-Directed IRA offers the investor a wider range of investment opportunities beyond stocks and bonds. But with those opportunities comes significant IRA rules and regulations.

IRS regulations require that either a qualified trustee or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner. Unlike regular IRAs where most investment companies and brokerages can administer, only select trust and custodian companies are qualified to handle these accounts.

Some of the additional investment options permitted under the regulations include real estate, stocks, mortgages, franchises, partnerships, and private equity. Real estate may include residential and commercial properties (U.S. & Internationally), farmland, raw land, new construction, property renovation, development, and passive rental income. Real estate purchased in a self-directed IRA can have a mortgage placed against the property, thus lowering the amount of total cash needed for a purchase. Business investments may include partnerships, joint ventures, and private stock. This can be a platform to fund a start-up business or other for-profit venture that is managed by someone other than the account owner of the IRA. Other alternative investments include: commodities, hedge funds, commercial paper, foreign stock, royalty rights, equipment & leases, American depository receipts, and U.S. T-bills.

Own Gold shares? Prepare to pay steep taxes

With the price of gold continuing to more upward - today it remains over $1,500 an ounce, many investors are jumping on the gold band wagon. While there are numerous ways to invest in gold, the easiest is to own a gold Exchange Traded Fund like SPDR Gold Trust (GLD) or iShares Gold Trust (IAU). Other options include owning stocks in gold mining companies such as Barrick Gold (ABX) and Newmont Mining (NEM).

But the taxation laws with respect to gold are often very confusing, as the IRS considers gold a "collectible" - which renders it subject to a higher capital gains tax rate, generally speaking.

The IRS considers gold a “collectible” and will tax your capital gains at a 28% rate. This designation includes all forms of gold (other than jewelry), such as...

• All denominations of gold bullion coins and numismatic/rare coins, gold bars, and gold wafers
• ETFs like GLD, SLV, etc. (closed-end funds have different rules; see below)
• Any electronic form of gold like GoldMoney and Bullion Vault
• Any “paper” or certificate forms of gold, such as Perth Mint Certificates and EverBank accounts
• All forms of pool gold, rounds, and commemorative coins
• And the same designation and rules apply to silver, platinum, and palladium.

Gold stocks (Barrick and Newmont, for example...) are not designated as a collectible and are therefore subject to the standard long term capital gains tax rates (15%) like all other stocks.

So while many investors may be proud of themselves for buying gold when it was less than $1000 an ounce, they will feel a significant tax pinch once those shares are sold for profit.

You’re richer than you may realize

You may be a lot wealthier than you think. Most people look at their 401(k) or other retirement plan, add in the value of other assets — their home, other investments, savings, etc. — then subtract their debt to get their net worth. After the housing-market bust and the bear-market rout of recent years, that number may look painfully small.

But what’s the value of you? That is, how much are your future paychecks worth? That number is your “human capital” — and it should be a key part of your overall financial planning.

Human capital is anything that’s going to generate a cash flow that isn’t your investments.

It’s your ability to work, your ability to get a bonus, to get overtime. It’s a gold mine and an oil well, but you’re producing the gold and the oil. It’s millions of dollars when you’re in your 20s.

As you age, your financial assets increase and your human capital — the value of your future earnings — decreases, because you have fewer working years ahead. While your human capital is not cash in hand, it’s an asset that should be protected and managed just like other assets in your portfolio.

Important task: Protect your human capital with life insurance (if you have dependents) and disability insurance.

If we were as focused on human capital as we should be, [everyone] would have disability insurance.

That’s because, given the value of your paycheck, you need to insure against its loss. Just over one-fourth of today’s 20-year-olds will become disabled before age 67, according to the Social Security Administration.

Also, your human capital may help you decide whether to go back to school. Investing in your human capital may give you the option to work more years.

http://www.marketwatch.com/story/youre-richer-than-you-may-realize-2011-04-25?pagenumber=1

Social Security tips for singles

Figuring out when and how to take Social Security can be a complicated decision, and there are no one-size-fits-all answers. What’s more, much of the advice about Social Security assumes you are married—and married couples often have something of an advantage, since there are strategies that play off each spouse’s ability to claim or delay benefits.

But what if you’re on your own? Perhaps you’re widowed, or divorced, or simply never married. If so, you’re hardly alone: 44% of women aged 65 to 74 and 22% of men are single, and those proportions rise sharply as people age. If you’re in that camp, here are some strategies to consider to help make the most of your Social Security benefits.

The value of waiting

First, some basics: You can start taking Social Security, receiving reduced benefits, when you reach age 62, rather than waiting until your full retirement age (FRA). FRA ranges from 65 to 67, depending on when you were born.

If you take benefits before you reach FRA, Social Security will reduce your payments. If you delay collecting until after you reach FRA, the amount of your monthly benefit will increase until you reach age 70. Imagine, for example, a woman whose full retirement age is 66, and who is eligible to get $1,500 a month at age 62. If she waits until FRA to collect, she would get 33% more, or $2,000 a month. And if she waits until 70, her benefits will soar another 32%, to $2,640 a month. (Note: All figures are in today's dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.)

Generally, the longer you delay taking Social Security, the higher your lifetime total of benefits may be, and the gains from waiting can often be significant. In the above example, the woman’s lifetime benefits would be more than $36,000 greater—after taxes, and adjusting for inflation—if she waited until age 70 to collect benefits and then lived to age 89.

That’s a big difference, and millions of Americans could help ensure themselves brighter financial futures simply by hitting the pause button on Social Security for a few years. Of course, if you wait to collect, you may not live long enough to enjoy the added value of increased payments. Since no one knows when he or she will die, you need to make some reasonable assumptions about your lifespan, based on your health and family history.

Find your own strategy

But your goal shouldn’t simply be to maximize your Social Security benefits in isolation; you should strive to maximize your total retirement income. Social Security isn’t just a check that arrives once a month; it’s an income-producing, inflation-protected component of your overall portfolio. Delaying your benefits will boost your monthly payments and hopefully your total income stream later on. But if you wait to age 70, you may have one less way to replace your former income as you start retirement. And that means you need to carefully align your other sources of cash, such as pensions, annuities, and investment portfolio, with your expenses. Otherwise, going without Social Security could leave you withdrawing from your other assets more quickly than you should—an especially acute problem during times of poor market performance.

The higher your expenses, the sooner you may need Social Security as replacement income. But you need to chart your income and expenses across various scenarios to determine when it’s best to bring Social Security onto your personal ledger.

If you’re divorced

There are a few things to keep in mind if you have been married in the past, but aren’t today. If you are divorced or getting divorced, one key factor to keep in mind is the “10-year rule.” You are eligible to collect spousal benefits from Social Security based on your ex-spouse’s earnings history if you were married for at least 10 years and are unmarried today. These payments are equal to 50% of your spouse’s benefits if you start collecting at full retirement age, less if you take Social Security early. So just because you’re no longer married to a former spouse doesn’t mean his or her work record stops giving your retirement a boost.

Your benefits won’t have any impact on your former spouse; the fact that you collect Social Security will not affect payments to your ex, or to any new family he or she may have started.

If you are widowed

If you are a widow or widower, you are eligible to collect your former spouse’s Social Security payments as a survivor benefit. Again, if you wait until FRA to take them, you can get 100% of that benefit, less if you collect early. (The rules about how much less are different for survivor benefits than for regular Social Security; get the details.) And you can take whichever payment is larger: a monthly check based on your own work history, or the survivor’s benefit.

But you don’t have to make one permanent choice. There are two strategies worth considering. First, you can claim a survivor’s benefit now, let the amount of your own payments grow, and then switch to claiming your benefits later. This may work best if you’re under age 70 (since your own payments will only increase until you’re 70) and have a relatively high benefit at FRA compared with your former spouse.

Finally, you can claim survivor benefits if your ex-husband or ex-wife dies, as long as your marriage lasted 10 years or longer. These rules are complex, however, especially if there’s any possibility that you could marry again. So it’s always wise to consult the Social Security Administration (800-772-1213).

https://guidance.fidelity.com/viewpoints/social-security-tips-for-singles

Where to save now

1. Contribute up to the match to your 401(k) or other workplace savings plan.

If you have a 401(k), 403(b), or 457 plan and your employer offers a matching retirement contribution, take advantage of it. The matching contribution is like getting "free" money. And you get the added potential benefits of any tax-deferred growth and compounding returns.

The sooner you start, the more potential your money has to grow. Even if you are in your thirties or forties, it's not too late. If you're age 50 or older, you may be able to add extra "catch-up" contributions to your workplace savings plan.

One caveat: if your employer's matching contribution is low (less than 50%) and you have credit card debt with an interest rate of more than 25%, paying down the debt typically makes the most sense.

2. Pay down high-interest credit card debt.

If your interest rate is high on your credit card debt, more than 9% for example, use any extra savings to pay down the balance. If you have multiple accounts, you can work on the one with the highest interest rate first.

Continue to make the minimum required payments on the other cards (so you don't get hit with any penalties). When that first card is paid off, you move on to putting your extra money toward paying off the next. Each card gets easier to pay off, because you have more money to work with. You can do this until you're out from under all your high-interest debt.

3. Contribute the maximum to your to your 401(k) or other workplace savings plan.

It makes sense to contribute the maximum to a workplace savings plan or other retirement accounts before tackling low-interest or tax-advantaged debt. That's because the amount you need to save for even basic expenses in retirement can be hundreds of thousands of dollars, or more. Building tax-deferred savings early makes sense. You don't want to be borrowing money for living expenses later. You may be able to contribute up to $16,500 to your 401(k) or other workplace savings account for 2009. If you are age 50 or over, you might be able to contribute up to $22,000.

4. Fund an IRA.

When you've maxed out your 401(k), consider other investment choices such as an Roth IRA. If you don't qualify for one because of your income, a traditional IRA might be another option. The annual IRA contribution limit for 2011 is $5,000 ($6,000 if you are age 50 or older). To make it easy, set up your IRA contributions to be automatic, as they are for 401(k)s.

5. Start working on other key goals.

Automatic investing plans can also work for other saving goals. Have a set amount of money transferred each month into an investment account from your bank or paycheck.

When saving for a child's college expenses, consider tax-advantaged accounts like 529 college savings plans and Coverdell Education Saving Accounts. Again, set up automatic investments to make it easy.

Next steps

Taking steps to get rid of high-interest debt and set aside money for retirement and college is not only financially savvy, it's also good for you emotionally. Living under a burden of debt and financial uncertainty is stressful. Being prepared isn't.

https://guidance.fidelity.com/viewpoints/where-to-save-now

Avoiding Taxes on Disability Insurance

Long-term disability coverage protects you against lost earnings during any lengthy period out of work because of a disability. The catch? Most long-term disability, or LTD, policies limit benefits to 60% or 70% of earnings before income taxes.

That's generally OK as long as you don't have to pay income taxes. But if you do, you're probably going to lose 30% to 40% (or more) to federal and state taxes.

LTD benefits are generally income-tax-free when you, rather than your employer, pay the premiums. But if your employer pays the premiums as a tax-free fringe, LTD benefits will be fully taxable to you. The same is true if you set aside part of your salary pretax to pay the premiums.

If LTD benefits would be taxable because your employer is paying the premiums, the preferred solution is to arrange for the premiums to be paid with aftertax dollars through withholdings from your checks.

The other alternative is to buy a supplemental LTD policy. The idea is to buy enough extra coverage to cover the income-tax hit on the benefits that you would receive under the company-provided coverage.

Do You Need Disability Insurance?

Let's face it: Nobody likes to think about what life would look like should disability strike. But the reality is one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days. One in seven workers will be disabled for more than five years. And while many people think that disabilities are typically caused by freak accidents, the majority of long-term absences are actually due to illnesses, such as cancer and heart disease. The loss of income can be so devastating that it forces some people to foreclose on their home or even declare bankruptcy.

Disability insurance replaces a portion of your income if you become disabled and are no longer able to work. A typical group plan offered by an employer will replace up to 60% of your salary. Supplemental plans and individual policies will often cover up to 70% or 80%. Benefits typically last for a set number of years (say five years) or until you reach retirement age. Benefits typically stop around retirement age since once you retire, you would no longer be dependent on the income you generated by working, anyway. If you pay the premium out-of-pocket — meaning your employer doesn't cover the tab — benefits are tax free.

Long term disability policies vary greatly. While some are iron-clad and pay benefits when you need them, others have more holes than a pasta strainer. Folks trying to save some money with a leaner plan may find it ultimately worthless. Typically, the cheaper plans have very strict definitions of disability, making it difficult to claim benefits over many years. Sadly, this is also true of some group plans.

Group Plans

Unless you're self employed, the first thing you should do is figure out if your employer provides long-term disability insurance in the first place. About half of mid- to large-sized firms offer benefits that last for at least five years. But even if you're lucky enough to have coverage, the plan may not meet all of your needs. So be prepared to take a good, hard look at what you've got.

As mentioned above, the typical group plan covers up to 60% of one's income. (This is offset by any other benefits you may receive from social security or worker's comp.) But the amount may actually be far less than that. That's because most group plans have a benefit cap of, say, $5,000 a month or $60,000 a year. Another surprise for many is that bonuses don't usually make it into the equation. A group plan will only insure your regular salary.

Another shortcoming: Most group policies limit the amount of time it will pay benefits if you can't perform your job duties to just two years. After that, you'll need to prove you can't hold down any job. Not only does this keep costs down for your employer, but the idea is that you can get new job training during those initial two years that you receive benefits.

Individual Plans

If you are self-employed or not covered by your employer, it clearly makes sense to consider purchasing an individual plan. But even if you are covered at work you may want to consider supplementing what you've got: After all, you probably can't afford to live on just 60% of your salary. An individual plan will allow you to insure another 10% to 20% of your income. And in some cases, you may even be able to get individual coverage for a six-figure salary and a bonus — something you'll never get with a group plan.

If you can afford it, consider opting out of an employer plan and purchasing a more comprehensive individual policy on your own. Why spend the extra money? An individual policy stays with you when you switch jobs and you can sue if the insurance company denies or delays benefits. And unlike group policies, the amount that you receive is also not offset by any other benefits, such as Social Security, that you may receive.

Read more: Do You Need Disability Insurance? - Personal Finance - Insurance - SmartMoney.com http://www.smartmoney.com/personal-finance/insurance/do-you-need-disability-insurance-17318/#ixzz1KYY8FIPc

2011 Market Update

I recently attended a 2011 Stock Market Update, hosted by Fidelity Investments. Some great information that I will try to highlight for you...

Global markets withstood the deluge of headline events (Middle East turmoil, Japanese earthquake and after effects...). Both U.S. and global economies continued slow growth in January-March

U.S. stocks registered broad-based gains led by small and mid sized companies, energy companies and industrial companies

Foreign stocks also rose led by Europe

Some positives related to U.S. markets:

• Economic activity remains positive
• Loose monetary policy continues to keep borrowing costs low
• Corporate earnings remain strong

Negatives related to U.S. markets:

• Geopolitical strife in North Africa and the Middle East
• Concurrent rise in energy prices

80% of the Leading U.S. Economic Indicators are increasing. Despite the headlines, the U.S. post-recession recovery is intact

Corporation and Manufacturing profit levels are almost back to pre-recession levels. Consumer spending, however, remains weak. Jobs recovery also remains weak. Many jobs lost during the recession will not return.

Additionally, construction and real estate are not improving quickly. New home sales are at a 50 year low

Interestingly, while real estate values are down, consumer net worth has increased, due in part to strong results from investments

None of the Fidelity analysts expect oil to hit $150 a barrel anytime soon and only if oil hits and is sustained at $120 a barrel will it put downward pressure on the U.S. recovery. Today OPEC has 5% in spare production available

Leading sectors this past quarter were Energy and Industrials, followed by Healthcare, Telecom, and Consumer Discretionary. Ironically, Consumer Staples earned the least. Consumers skimped on staples but instead bought discretionary products.

Fidelity analysts suggest we are in year 2 of the post-recession recovery. As we move into this "mid-phase" of the economic cycle, expect Industrials, Technology, Materials, and Healthcare to lead. But near term market gains are also expected to be muted when compared to the past two years. "The easy money has already been made."

Presently, Large Cap companies are relatively inexpensive

High Yield Fixed Income continues to lead the Bond markets but expect those yield to drop to high "single digit" this year

Currently, corporate appreciation and dividends is outpacing yields from bonds

How to Avoid Taxes on Life Insurance

By Bill Bischoff

The main reason most people have life insurance is to replace income that would be lost if they die prematurely. Life insurance death benefit payments can generally be received by policy beneficiaries free of any federal income tax (and usually free of any state income tax too).

That's great, but what about the federal estate tax? If the tax rules treat you as the owner of a policy on your own life, the death benefit is included in your taxable estate -- unless the money goes to your surviving spouse, and he or she is a U.S. citizen. When death benefits go directly to a non-spouse policy beneficiary, such as a child or sibling (even without passing through your estate), the money is included in your taxable estate. If your estate exceeds $5 million (for 2011 or 2012), which it could if you have lots of life insurance coverage, your heirs will stand second in line behind the Internal Revenue Service (and possibly the state tax collector). Not good.

Here's the rub: The tax rules say you own a life insurance policy if you possess so-called "incidents of ownership." You have them if you retain the power to change policy beneficiaries, change coverage amounts, cancel the policy and so forth.

If having life insurance death benefits included in your taxable estate would cause an estate tax hit, the solution is to set up an irrevocable life insurance trust to own the policy. The trust then pays the premiums, and the death benefits go to whomever you name as the trust's beneficiaries. Your estate is out of the picture. With this arrangement, there's no federal estate tax on the death benefits, and there's no federal income tax either.

Naturally, there are a few complexities with this strategy. If you transfer an existing policy to the life insurance trust and die within three years, the death benefits are included in your taxable estate. To avoid this problem, the trust should purchase a new policy on your life. If that's not possible -- say because your health isn't so great -- you may have nothing to lose by transferring an existing policy and trying to outlive the three-year rule. But check with your estate planning pro first, because transferring existing policies with cash values in excess of $13,000 could trigger adverse gift tax consequences.

Finally, while setting up an irrevocable life insurance trust can be a great idea, it's not a do-it-yourself project because it's a fairly sophisticated legal procedure. Hire an experienced estate planning professional to get the job done right.

Read more: How to Avoid Taxes on Life and Disability Insurance - SmartMoney.com http://www.smartmoney.com/personal-finance/insurance/how-to-avoid-taxes-on-life-and-disability-insurance-1303243651375/#ixzz1K6dTGRDl

Retiring? How to figure out what you'll need

By Brett Arends, The Wall Street Journal — 03/23/11

1. Figure out how much income you'll need

This is the first step. This is where you need to start.

What sort of income will you need each year in retirement? What will be comfortable? What will mean real hardship?

Some people will tell you to sit down and draw up an elaborate budget. And maybe that's the perfect solution.

But you could take a shortcut instead. Every experienced financial planner I've spoken to, when pressed, has given the same answer. At a pinch, for most people, the best guess for the income you'll need to live on in retirement comfortably is: about the same as the income you need now.

Simple. Easy to remember.

Obviously, a few things will be different in retirement. You'll no longer have to set aside money to save for retirement, for starters. If you expect to pay off your mortgage by then, you'll no longer have to set aside money for that. The same goes for putting kids through college. But once you've eliminated those costs, the best way to calculate the disposable income you'll need in retirement is to look at the disposable income you have now.

Sure, you can make adjustments. You may find you're comfortable with less. (Or you may want more.) But when you are dealing with the unknown, it helps to start with something familiar. In this case, try your current disposable income.

2. Figure out how much you will get from outside sources

That means how much you will get from Social Security. It may also mean how much you will get from any other pension plan, if you are among the diminishing few who has one.

Social Security is central to most Americans' retirement plans. It is an inflation-protected annuity that will last your lifetime and where the insurer, Uncle Sam, won't run out of cash.

This is why it's such a political hot potato.

What does Social Security mean for you? The Social Security Administration posts an online calculator that will help you work out what to expect in benefits. As of 2011, the average retired single worker gets $14,000 a year. The average couple: $23,000.

If you are among the shrinking group of people eligible for a pension, you should work out how much you are going to get from that as well. Add that to your expected Social Security benefits.

3. Figure out how much income you will need from your investments

Once you know how much income you'll need (step one) and how much you can expect from Social Security and any private pension plan (step two), it's easy to work out how much you're going to need from your own investments.

At the risk of stating the blindingly obvious, it's what's left over. For those who have been using computers for too long, subtract item two from item one.

Call it the Cat Food Calculation—the amount of money you are going to need each year so you won't have to share dinner with your pet.

That means a married couple that, say, lives on $40,000 a year in disposable income, has no pension and expects Social Security benefits of $23,000 a year is going to need to provide $17,000 a year from its own resources. And so on.

4. Understand how long your investments will have to last

In other words, how long you're likely to live in retirement.

There's a very good chance it's longer than you think. That's great news, of course. But it doesn't help your math.

The average life expectancy in the U.S. these days is about 75 for a man and 80 for a woman. Those data are from the U.S. Census. And they're completely useless for retirement math.

Why? Because you are unlikely to be exactly average. And your fears are asymmetric. From a purely financial standpoint, you don't want to outlive your savings, even by a couple of years.

Furthermore, those life-expectancy figures are measured from birth, not from age 65.

Much more useful are the cohort survivorship figures calculated by the U.S. Department of Health. Of those who make it to 65, 25% will go on to live to 90, they show. Among women it's 30%. And of women who make it to 65, 12%, or one in eight, will live to 95. Quite a few, about 3%, will live to 100.

I have a couple of friends going very strong indeed in their 80s. Fortunately, they are financially secure. You do not want to find yourself there with your money running out.

In other words, to save enough for your retirement you're going to have to set aside enough money to provide you with a suitable income for several decades. Think 25 years, maybe even 30.

5. And here's your answer

You now have all the data to make some estimates.

Let's say you plan to retire at 65 and will need an income of $10,000 a year from your investments. (We'll take that as it's a simple place from which to start the calculations.) And you want to make sure the money will last up to 30 years.

How much will you need to save?

Some people will direct you to the annuities market for some answers. An immediate fixed annuity is a product from an insurance company that will provide you with a guaranteed income for life.

A 65-year-old man who wants an income of $10,000 a year for life could buy an annuity for $130,000. A 65-year old woman would pay a little more, $140,000, because the insurance company figures she'll live longer.

So that's it, right? You'll need to save about 13 or 14 times the extra income you need?

Not so fast.

Those annuities won't protect you from inflation. And that's a very big deal. Over 20 or more years, even modest rates of inflation will hurt you. An inflation rate of 3% will nearly halve your purchasing power.

There are, alas, very few annuities which offer inflation protection.

A reasonably conservative investment portfolio, suitable for someone in retirement, can do better.

Think of a portfolio of inflation-protected Treasury bonds, known as TIPS, and high-quality blue-chip stocks. Although both offer lower returns than usual at the moment, most of the time you would expect a portfolio like this to earn an average return of inflation plus about 3% over the course of an economic cycle.

Based on those numbers, you probably need to set aside about 20 times your required annual income by the time you retire.

If you need your portfolio to generate $10,000 a year and last up to 30 years, for example, you'd want to start with about $200,000. If you need your portfolio to generate $50,000 a year, you'd want to start with $1 million.

6. And how to stop panicking

It's no wonder so few people want to do the math. They haven't saved anywhere near enough.

The most depressing data are the numbers showing what people have actually saved.

Fewer than one worker in two has even managed to set aside $25,000. Fewer than one in four has reached $100,000—itself only enough to generate $5,000 a year.

Yes, the numbers are slightly better for those who are older and nearer retirement. They've had longer to save. But even among them the picture is dismal. Among workers over 45, just 54% have even managed to save $25,000 or more.

Remember, this is after three decades of supernormal investment returns. Stocks boomed through the 1980s and '90s. Bonds have boomed for 30 years. Future returns from here are highly unlikely to be so favorable.

Those falling short will need to save, save and save even more. The sooner they start, the more likely they are to make it.

The one cheerful caveat: The numbers do not include the value of people's homes. If you have a lot of equity in your home, you can convert that into extra savings if you need to, either by selling or by using a cash-out reverse mortgage, which allows you to convert some of your equity into cash. (The financial planners I've spoken to on the subject point out that these mortgages typically involve high fees. But they are, at least, an option.)

For those facing a retirement-savings crisis, the strategies for adapting are well known but worth reviewing. They include scaling back, moving somewhere much cheaper and delaying retirement as long as possible, which works multiple levers. It gives you longer to save, it gives your savings longer to grow, it reduces the length of time you will need to live off your savings, and it boosts your Social Security income. Even staying in part-time work can help.

There are no easy answers. But the real problem is that most people still don't even understand the questions.

Roth IRA remains first choice for young saver

Roth IRAs were introduced in 1997. A Roth IRA is a retirement account that grows tax free and to which an individual (as a single filer on a tax return) whose modified adjusted gross income is up to $107,000 can contribute up to $5,000 a year ($6,000 if you are 50 or older).

Unlike contributions to a traditional IRA, your contributions to a Roth IRA are nondeductible, meaning they are made with after-tax dollars. As a result, when it comes time to take money out of a Roth IRA, all of the distributions, including the earnings, are potentially tax free.

Roth IRAs follow the "first in, first out" or FIFO rule to determine whether the portion taken out of the account will be taxed. Under this rule, distributions from Roth IRAs are considered to come out contributions first; followed by conversion contributions; and lastly, earnings on your contributions.

What's important to note is that your contributions to a Roth IRA are never subject to either income tax or the early withdrawal penalty tax when you take a distribution. This makes it easier to make the decision to start contributing to a Roth at an early age. With a Roth IRA, you continue to have access to the amount you contribute without fear of being penalized from a tax standpoint. This is especially important in your 20s and 30s, when you are unsure whether you may need to tap into that money down the road.

Say, for example, that you contribute $5,000 to a Roth IRA when you are 25. Three years later, the account grows to $6,000, with contributions making up the first $5,000 and earnings from that investment making up the rest. Using the FIFO rule, in this example, you can take up to $5,000 out of the account without any income or early withdrawal tax.

For the earnings to be tax free as well, the distribution would need to be "qualified." This means you would have to wait at least five calendar years before withdrawing money. In addition, the distribution would have to be one of the following: taken out after age 59.5; taken out after one is disabled; used toward the purchase of one's first home; or for a beneficiary or the estate of the account owner.

While there are many rules surrounding the Roth IRA, the potential for savings is profound. Contribute $5,000 to a Roth IRA at the beginning of every year from age 25 to 45 and, at a 5% annual rate of return, the account would grow to approximately $173,596. And, if the distributions are qualified as described above, the money could be withdrawn without tax or penalties. That alone is enough reason to start saving in a Roth as early as possible.

Disney for $42

If you were to take the family to Orlando's Disney World, it would cost you $87.33 per adult and children over 10 years old and $78.81 for children 3-9 years old. Plus tax.

So for a family of four it would cost well in excess of $400 when you add taxes, food and drinks.

Did you know you can own Disney for around $42 a share? So for $420 you could own 10 shares of the company that owns perhaps the most known cartoon characters in the world. Not to mention worldwide theme parks and media outlets. Here is a snapshot:

Disney owns a collection of valuable assets, but its media networks, which generate more than half of the company's operating profit, are the backbone of this conglomerate.

Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh. These characters and others are featured in several theme parks Disney owns or licenses around the world. Disney makes live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks. The company generates about 25% of its sales from outside the United States.

Disclosure: I do not own Disney

Shipmates: Where to Turn if Shutdown Happens

News of a DoD doc­u­ment out­lin­ing plans to deal with the pos­si­ble gov­ern­ment shut­down hit the web caus­ing con­cern for mil­i­tary ser­vice­mem­bers and their fam­i­lies. The spe­cific con­cern is the DoD plan to deal with mil­i­tary pay.

The 13-page draft plan pre­pared for the ser­vices and defense agen­cies says “All mil­i­tary per­son­nel will con­tinue in nor­mal duty sta­tus regard­less of their affil­i­a­tion with exempt or non-exempt activ­i­ties. Mil­i­tary per­son­nel will serve with­out pay until such time as Con­gress makes appro­pri­ated funds avail­able to com­pen­sate them for this period of ser­vice.”

There are two things to keep in mind if the gov­ern­ment shut­down occurs.

First, the longest gov­ern­ment shut down in the last 20 years occurred in late 1995 and lasted 21 days. In the worst case sce­nario a shut­down would result in a delay in mil­i­tary pay, but ser­vice­mem­bers will even­tu­ally get paid.

Sec­ond, if the Fed does shut­down there are branch spe­cific finan­cial relief resources mil­i­tary ser­vice­mem­bers can turn to for tem­po­rary finan­cial assis­tance.

• Sailors and Marines can turn to the Navy Marine Corps Relief Soci­ety.
• Sol­diers can get help through the Army Emer­gency Relief pro­gram.
• Air­man can reach out to the Air Force Aid Soci­ety
• Coast Guards­man can find help through Coast Guard Mutual Assis­tance.

Under no cir­cum­stances should ser­vice­mem­bers turn to com­mer­cial sources for finan­cial assis­tance with deal­ing with any pay issues. This is the kind of sit­u­a­tion where ser­vice­mem­bers can get eas­ily sucked into a pay­day loan and get them­selves in finan­cial quick­sand. If the Fed shuts down, your first steps should be to con­tact your land­lord, cred­i­tors, and util­ity com­pa­nies to explain the sit­u­a­tion and then con­tact your ser­vice branch’s relief orga­ni­za­tion. They can offer short-term loans to help bridge the gap with­out caus­ing more finan­cial hard­ship.

http://militaryadvantage.military.com/2011/03/where-to-turn-if-shutdown-happens/?wh=wh

Saving for the self-employed

By Sarah Max, Fidelity Interactive Content Services — 03/24/11

Run your own business? Here’s help choosing the right retirement saving strategy for you.

Whether out of choice or necessity, the ranks of the self-employed are growing.

No matter what you call them—independent consultants, contract employees, entrepreneurs or just plain freelancers—self-employed people account for more than a quarter of those working in the U.S., according to a 2010 survey by Kelly Services, a human resources consulting firm, up from 19% three years earlier. While the trend was fueled by the recession, workplace experts say it's here to stay.

Working for yourself can mean more flexibility, greater job satisfaction and the potential for a bigger paycheck. What it doesn't offer is a neatly packaged bundle of benefits. That means the burden for saving for retirement falls solely on you.

There are plenty of options

The good news: There are ample opportunities for self-employed savers to sock away tax-deferred money. In fact, you have the potential to save even more on your own than you would working for someone else, says Brian Hogan, director of retirement product management for Fidelity Investments.

Before you dive headfirst into choosing a retirement account, though, make sure you've addressed such things as lining up health insurance and building your cash reserves. “You don't want to lock money in a retirement plan only to have to pull it out,” says Bill Losey, a certified financial planner in Wilton, N.Y.

Next, give some thought to your business. Do you have employees? Will you have some next year? And what sort of retirement benefits, if any, do you plan to offer? Some plans put the burden of saving for your employees’ retirement on you, the business owner, says Hogan.

The issue is complex, and can add a layer of administrative headaches. So it’s a good idea to talk with your tax adviser. The primer below outlines the key advantages and caveats of the various options for self-employed savers. Don't drag your feet though. Just because you don't punch in doesn't mean the retirement clock has stopped ticking.

SEP IRA

Available to self-employed workers and small businesses, the Simplified Employee Pension plan, or SEP, is essentially an IRA with bigger contribution limits. How big? For the 2010 and 2011 tax years, you can contribute up to 25% of your compensation up to a maximum of $49,000.

That limit is significantly higher than the $16,500 you could sock away in a company 401(k). “For ease of use, this is my favorite plan,” says Losey. “It's easy to open, there are no annual reporting requirements and you can adjust your contributions as you see fit.”

Advantage: You have until your tax-filing deadline to establish the account and make contributions, and you aren't obligated to make regular contributions to your account or your employees' accounts. For 2010, that means you can still set up a plan and make a deductible contribution by April 18; if you file an extension you may have until Oct. 15.

Caveat: If employees are in the picture, they can't make contributions to the plan, but you can contribute money on their behalf.

Solo 401(k)

A relative newcomer, the solo or self-employed 401(k) became available in 2002 and resembles the employer 401(k) plans most people know and love.

“Because of its familiarity, more people are leaning toward these plans,” says Cheryl Costa, a certified financial planner with AFW Advisors in Natick, Mass. You can contribute 100% of your compensation up to $16,500 ($22,000 if you're over 50) plus 25% of your compensation through profit-sharing for a maximum grand total of $49,000 a year.

Moreover, some plans allow participants to opt for Roth contributions, in which case they pay taxes now for the potential to save taxes later. Whether or not you go this route depends on many factors but it's worth a look. “Chances are you already have plenty of deductions as a self-employed person or business owner,” says Jerry Cannizzaro with Retirement Planning Services Inc. in Oakton, Va.

Advantage: The maximum allowed is the same as a SEP. But if your adjusted earned income is $82,500 or less, you'll be able to save more in a solo 401(k) than in a SEP, where contribution limits are tied to income and don't include profit-sharing. “If you have excess cash flow a solo 401(k) may be the way to go,” says Losey.

Caveat: If you have full-time employees you need not apply; plans are only available to self-employed individuals or companies with no employees other than spouses. Unlike the SEP, the plans do have annual reporting requirements.

Simple IRA

Available to self-employed workers and businesses with 100 employees or fewer, the plans are as easy to set up as the name suggests. The differences between a SEP and Simple IRA show up if you have employees. Unlike a SEP, where only employers can make contributions on behalf of their employees, these plans let employees save up to $11,500 ($14,000 if 50 and older) toward their retirement.

They also allow employers to make matching contributions of up to 3% of compensation or contribute up to 2% of each employee's salary, up to $4,900. If you are a self-employed individual or owner of the company you can effectively match your own savings. But if you match your own savings you'll be required to do the same for your employees. And once you start making contributions, says Costa, you may be required by law to continue with that match.

Advantage: If you have employees, a Simple IRA allows them to make their own contributions to the plan.

Caveat: Contribution limits are significantly lower than those for the SEP or the solo 401(k).

Keogh

Introduced in the 1960s as the original self-employed retirement plan, Keoghs went out of vogue with the introduction of the three plans mentioned earlier. These days the term Keogh generally is used to describe two other types of individual retirement plans, profit-sharing plans and defined-benefit plans. Both can be a hassle to set up and to maintain, requiring a plan document and annual report.

With profit-sharing plans, which are based on a percentage of income and capped at $49,000, it's probably not worth it. But if you're looking to play catch-up for retirement and have the cash to invest, a defined-benefit plan may be worth checking out, says Costa. The reason: You can put up to $195,000 a year in a defined-benefit plan — but your actual contribution is based on an annual actuarial calculation that takes into account things like your income, years to retirement and projected returns.

Advantage: Potentially huge — up to $195,000 — in contribution limits.

Caveat: They're expensive and present an administrative headache.

Start with $10,000 and retire a millionaire

By Jonathan Burton, MarketWatch — 03/25/11

The 7% solution: Let money and time work for you, no matter your age.

SAN FRANCISCO (MarketWatch) -- The millionaire next door could be you.

All it takes is money and time; it always does. But what this really means is you have to save money over time, and that's where so many of us struggle.

Reaching age 65 with $1 million saved requires strong discipline and sustained effort. You need to recognize the importance of starting early and putting money away regularly. But even if you don't have as much time, you still have options other than a last-ditch Hail Mary pass.

It can be done -- even if you start with just $10,000.

"Whether you're 25 or 45 or even 55, you've got to start somewhere," said Nathan Dungan, founder of financial education firm Share Save Spend.

Call it a 7% solution. Assume a 7% inflation-adjusted return from a portfolio of U.S. and international stocks, bonds and cash -- not overly aggressive, but an expected return that requires taking some risk -- and living well within your means.

"In order to save, you have to understand your spending," said Eric Kies, a financial adviser with The Planning Center, an investment manager in Moline, Ill. "Build some awareness of where you are now, where do you want to be, and what are you willing to do to get there."

Of course there will be bumps along the road -- potholes, even, that challenge your resolve. The financial markets love to shake and stir individual investors; don't give up, because it may be hard to get back in.

"It's less about where the money is invested and more about your ability to be disciplined," Dungan said. "Ask yourself, What is realistic? What can I achieve? The best savers don't have magical thinking about money. They're honest with themselves."

25 years old: Starting out

Forty years is a long time. So long, in fact, that it's easy to put off saving for the future. There are bills to deal with, college debt to pay, stuff to buy, vacations to take, a career to build.

Savings -- sure, but who has money for that? Indeed, one of every three Americans between the ages of 18 and 33 have no personal savings, according to a recent Harris Poll survey. What's more, 53% of this age group has zero in the way of retirement savings.

They're missing out, big time. If a 25-year old with $10,000 invested $320 a month at a 7% annual compound rate of return until they turned 65, they would wind up with $1 million.

"There's a reason why Albert Einstein called compounding the most powerful force in the universe," said Jonathan Guyton, a principal at investment manager Cornerstone Wealth Advisors in Minneapolis.

Whether or not Einstein really said this, the math speaks for itself. At 7%, your money doubles every 10 years.

If saving a few hundred bucks a month seems daunting, rest assured it only gets worse. One way to make the job easier is to rely on your job -- specifically investing in your company's 401(k) plan and enjoy whatever contribution match your employer offers. Think of it as free money.

Don't have a 401(k)? Open a Roth IRA if you qualify, and automatically deposit money into it from your bank account to get tax-free growth.

35 years old: Early innings

Ten years later, the price of waiting has been high. Not as costly as it will be, but tough enough. Instead of $320 a month, you're looking at saving $775 a month to turn that $10,000 into seven figures at a 7% annualized return.

Don't beat yourself. Just save. Funnel money into your 401(k) so you're not dipping into your own pocket for the full amount. Take the Roth IRA route if you can. By now you may have a young family -- so do it for the kids. Show them you not only can make money, but also know how to handle it.

"Children can be extremely good motivators to good financial habits," said Eleanor Blayney, consumer advocate for the CFP Board and a wealth adviser in McLean, Va. who specializes in financial planning for women.

Teach the kids sound money habits, and teach yourself at the same time. Said Blayney: "It induces you to be financially smart."

45 years old: Halfway home

At 45, you're likely established in your career, with a decent salary. You may own a home, and the kids are thinking about college.

It's good you're making money, because you'll need to add $1,850 every month to that $10,000 base in order to reach $1 million in 20 years.

"There's a greater sense of urgency; your window for taking advantage of time is starting to close," Dungan said.

Yet one in four Americans between the ages of 46 and 64 have no retirement savings, the Harris Poll found. Another 22% have retirement savings mostly in bonds and savings accounts.

With so little saved at this point, you would do well to reevaluate your expectations for retirement. Are you saving and investing accordingly? You may have to weigh the purchases you make today versus a stable retirement.

"Now's your chance," Blayney said. "Don't blow it."

55 years old: Winding down

At 55, the amount needed to reach $1 million with a $10,000 bankroll is both comical and sad: $5,700 a month for 10 years.

Maybe you've been living paycheck to paycheck, and life has been good. You've got a nice house, a fancy car -- but no savings.

In short, you have a big hat, but no cattle. The millionaire is next door, and he isn't knocking.

This is your moment of truth. You may not become a millionaire, but you can live like someone who is on the way to being one.

Here's how: Cut expenses, save what you can, and work longer.

"If a client is in their mid-50s and hugely behind, we start to focus on lowering expenses by paying off debt, restructuring debt, or lowering housing costs," said Guyton, the Minneapolis financial adviser.

"If that change lowers their expenses by $1,000 a month, that's more beneficial than helping them accumulate an extra $100,000," Guyton said. Indeed, cutting $12,000 a year from expenses equates to what roughly $175,000 in assets would produce at a 7% yield.

And take care of your health, Guyton added. You're going to need it in order to show up at work.

"It's a whole different matter when you have to stay on the treadmill," Guyton said. "We don't mince words. We try to make it manageable and realistic, but there are some options that aren't on the table anymore."

Not Just Kid Stuff: Why Mom Might Want a 529 Plan, Too

By Jaime Levy Pessin, Wall Street Journal

Funding a child's higher education isn't the only thing parents can do with a 529 college-savings plan: They also can use it to pay for their own schooling.

While parents and grandparents typically set up these tax-advantaged investment vehicles for the benefit of college-bound kids, 529 plans can be set up in an adult's name, too. If a parent or other adult is considering a career change, or just wants to take some continuing-education courses at a local college, it may make sense to set aside money that could grow tax-free and perhaps provide a state income-tax deduction.

Still, 529 plans don't have to be used for career-specific education, according to college-savings experts. As long as a school offers postsecondary education and its students can apply for federal financial aid, money from 529 plans can be used to offset qualifying tuition and fees. So if Dad wants to perfect his coq au vin at the French Cuisine Boot Camp offered by the Culinary Institute of America—an institution that meets the criteria—it may be worth consulting with a tax adviser to see if the $2,095 tuition could be pulled out of a 529 fund.

To be sure, 529s intended for later-in-life education aren't that common. More common, are young adults who start 529s for themselves because they plan to go to graduate school in a few years.

Funds that go unused in a 529 plan set up for a child can be redirected for use by a parent. The reverse also is true: A fund set up for an adult can be redirected to another family member.

http://online.wsj.com/article/SB10001424052748703818204576206970450531078.html?mod=WSJ_FamilyFinance_MoreHeadlines

Financial First Steps After Having a Baby

By: Esther Pak, Morningstar

The arrival of a baby is an exciting time for a family. Not only does the birth of a child bring many of exciting firsts--baby's first smile and baby's first trip to the park, among many others--it also involves a radical lifestyle change for most households. In addition, the birth of a new baby brings additional financial challenges and decisions for the whole family. Below, we've outlined four key financial considerations to help new parents prepare for many of life's unknowns.

Prepare for the Unexpected

Baby-proofing your home may be on your to-do list, but electric sockets and mini-blind cords aren't the only risks you need to guard against once a new baby comes into your life.

Start by checking your individual health insurance policy for specific guidelines on adding coverage for your newborn. Most plans give parents 30 days after the birth of their child to add him to their health insurance plan. Missing this deadline may require waiting until the next annual enrollment period to add your baby to your plan.

And now that you have one or more who depend on you to provide for them financially, it's important that both you and your spouse purchase life insurance as part of your lifetime financial plan. For new parents, financial planners often recommend a term life insurance policy. With such policies, you can purchase coverage for a fixed term--as little as one year or as long as 30 years. You can choose a term that will provide coverage from the time your child is born until he has finished college and is no longer in need of financial support. Some term life policies allow you the option of converting to a whole life universal or variable life policy after term coverage ends, but keep in mind that transitioning to a permanent type of policy will typically result in higher costs.

On the other hand, skip insurance that you don't need. Insurers may try to persuade parents to purchase insurance for their children. Unless you depend on your children for financial help, insuring young children is usually unnecessary.

Kick-Start Your College Savings Plan

College may seem like a distant speck on the horizon, but funding your child's education is one of the most significant financial responsibilities parents ace. Thus, it's best to start saving as early as possible rather than fretting about scraping together tuition costs when your kids are in high school. Investing in a plan regularly--and as early as possible--will allow the money to compound over a longer period of time, which means less borrowing down the road.

There are numerous college-savings vehicles, but the most compelling ones offer attractive tax advantages. State-sponsored 529 plans have built-in tax incentives, and the age-based all-in-one 529 options allow you to invest money in a portfolio of stocks and bonds that gradually become more conservative as your child nears college age.

Don't Forget Basic Estate Planning

If you're a new parent, another key step is to designate a legal guardian for your child in case something should happen to you or your spouse prematurely. Also make sure that your guardian understands, and is comfortable with, the implications and responsibilities involved in being named your child's potential legal guardian. As you name your guardians, it's a good time to tackle the other key components of your estate plan, including drafting a will and living will.

Many assets such as IRAs, life insurance policies, and 401(k)s can be transferred to a beneficiary at death. But assigning minors as beneficiaries presents several potential pitfalls. For example, minors cannot legally own any assets. So if you want to name a child under 18 as your beneficiary, he would need a court-appointed guardian, which can be costly.

For additional information:
http://news.morningstar.com/articlenet/article.aspx?id=375172&part=1

Domestic Equities - Focusing on Large Companies

By Jonathon Coleman - Co-Chief Investment Officer, Janus

Certain financial news shows tell you what to freak out about in the next five minutes. But I think investors need to think about the next five years. Right now, I believe that the broad backdrop for equities is favorable, particularly relative to other asset classes. We have recently seen dividend yields on stocks that are roughly equivalent to intermediate-term corporate bonds. That seems to be a rare mismatch, which I think heavily favors equities. Stocks can provide not only a return of capital, in the form of a dividend, but you get the potential of a rise in the stock price as well.

I also believe that U.S. large- and mega-cap equities are uniquely attractive right now. In my estimation, they have been trading at one of the widest disparities to small caps that I have seen in the last 25 years. They’re able to benefit from global growth because they typically generate between 25% to 50% of earnings outside the United States, including meaningful exposure to emerging markets. Plus, corporate balance sheets look rock solid, with a little over a trillion dollars of cash. In fact, one could make the argument that corporate balance sheets are the strongest they’ve ever been.

The simple truth is, we have an incredibly dynamic economy in America. The last decade has been a difficult environment, but companies have become lean and mean. We have operating margins at all-time highs relative to where we are in the economic cycle. U.S. companies have also become more productive, which is one of the reasons that unemployment is frustratingly slow to improve. We’d all like to see unemployment significantly lower, but the high level of productivity is one of the reasons domestic companies are doing well and equities are so attractive.

Inflation is certainly a risk, but equities can do well in a moderate inflation scenario. In fact, history will tell you that equities have done well in periods when inflation is picking up, but isn’t running out of control. With this in mind, I focus on companies that I believe have the power to raise prices and protect margins when inflation-driven costs go up.

I believe in the value of content from media companies. As recently as a year ago, there was a prevalent belief that the fragmentation of audience via the Internet was really going to be a challenge to owners of content. But we’ve seen just the opposite. People are spending more time with valued content. This year’s Super Bowl, for example, broke the viewership record set by the final M.A.S.H. episode, way back in 1983.

We’re also interested in how cost containment within health care will play out. The fund I co-manage has owned a number of generic pharmaceutical manufacturers, as well as pharmacy benefit managers that may benefit from the pressure to lower costs. We have also found some interesting opportunities in big pharma, at least among companies willing to cut costs meaningfully.

And we’re looking at companies that have a steady history of increasing dividends over time. If you look over the long term, dividends account for 50% or more of the total return. When companies pay a dividend and increase it steadily, they’re saying, “Hey, we have confidence in the future of our business.” And that’s usually well founded because company managers often see things that individual investors just can’t foresee.

Our Take on the First Quarter - A Morningstar report

By Jeremy Glaser ~ Markets Editor for Morningstar.com

Markets were remarkably resilient at the start of 2011 as investors held their nerve despite a series of geopolitical and economic crises. The broad-based Morningstar U.S. Index was up 4.86% during the last 13 weeks ended March 29. The index has tacked on 16.09% during the last 12 months and is even up 3.00% during the last five years.

The world was rocked in January when Tunisian president Zine El Abidine Ben Ali resigned in January after widespread protests broke out in the North African country. The unrest spread across the region eventually forcing out Egyptian leader Hosni Mubarak, igniting a rebellion in Libya and destabilizing several other regimes. The growing uncertainty in the region and continued demand from emerging economies sent the price of oil higher.

In Europe, the sovereign debt fear that dominated the headlines last summer reared its head again. Credit spreads steadily rose throughout the quarter as worries increased that the EU framework for bailing out struggling countries would not be robust enough to stave off a crisis. Portugal's failure to pass austerity measures and the subsequent resignation of the country's prime minister in March highlighted the challenge of balancing budgets.

Japan was hit by a devastating earthquake and Tsunami March 11, causing extensive damage in the northeastern portion of the country. The earthquake damaged the cooling systems at the Fukushima Nuclear Power Plant leading to a nuclear crisis and the evacuation of the areas immediately surrounding the plant.

On top of all of this, food and energy inflation picked up in the quarter. Rising prices could force the Federal Reserve to tighten monetary policy sooner than it had hoped and short-circuit the recovery.

But not all is bleak on the economic front. Morningstar's Bob Johnson believes that gross domestic product can still increase by 3.50% to 4.00% in 2011 as long as inflation doesn't get completely out of control. Employment data has also looked better, with initial unemployment claims steadily dropping and the unemployment rate falling to 9.00% in February.

Mid-cap stocks led the charge in the first quarter, rising 6.59% during the last 13 weeks. Small-cap stocks were up 5.69%, while large-cap continued to bring up the rear, rising 4.29% in the quarter, according to Morningstar indexes. Value stocks (up 6.04%) outpaced growth (up 3.83%) and core (up 4.72%) stocks during the time period.

All sectors posted a positive return for quarter with energy leading the way with a 14.78% return. Media, hardware, and financial services were next rising 9.92%, 7.77%, and 4.58% respectively. Consumer services, consumer goods, and software were the laggards in the first-quarter, rising 0.69%, 1.21%, and 2.07% respectively.

Our analysts believe that stocks are slightly (3%) overvalued at the moment, and Morningstar vice president of global equity and credit research Heather Brilliant doesn't see stocks as a screaming buy at the moment.

In the mutual fund world, the best-performing domestic-equity category was equity energy which gained 13.00% in the quarter. Natural resources and small growth were next, each gaining more than 6.00%. Consumer discretionary (up 1.20%), consumer staples (up 1.30%), and financials (up 2.10%) were the weakest performers in the quarter.

The fixed-income market stabilized after the sell-off toward the end of 2010. The Morningstar Government Bond Index rose 0.80% during the last quarter with the Long-Term Index gaining 1.60%. Corporate bonds fared better with the Morningstar Corporate Bond Index rising 2.00% during the last 13 weeks. The Morningstar TIPS Index was up 3.00% for the quarter.

The first quarter of 2011 was notable not only for the unexpected string of global crises but for resilience of the markets through them. With stocks looking fully valued, the real question now is how much longer investors will be willing to brush off potential concerns and continue to look to the upside.