Couples Lack Communication on Retirement Goals

Less than half of couples jointly handle retirement savings investment decisions, according to a new study by Fidelity Investments. The study found that just 41% of married couples make joint decisions on managing retirement savings.

This communication gap may explain why there is a lack of trust in the other spouse’s ability to take over financial matters. Just 17% of couples are confident that either spouse could assume responsibility of their joint retirement finances. Only 35% of wives say they are completely confident in their ability to assume full responsibility, versus 72% of husbands. A gender gap also exists in terms of who manages the finances, with 37% of husbands describing themselves as the primary retirement financial decision-maker versus 8% of wives.

The study also found disagreement on several related issues. Nearly two-thirds (62%) don’t see eye-to-eye on when to retire. Nearly half (47%) differ on whether to continue working in retirement. One-third (33%) disagree on where to retire, or simply don’t know.

Fidelity suggests discussing 10 questions to help resolve the communication gap:

1. At what age do you want to retire?
2. Do either of you want to work in retirement?
3. What type of lifestyle do you envision in retirement?
4. Where do you want to live?
5. What does your financial picture currently look like for retirement?
6. Have you created a retirement income plan?
7. Have you factored in future health care costs?
8. Do you know where all of your assets and important documents are?
9. Have you named beneficiaries?
10. Do you understand how your Social Security and Medicare benefits will work?

We think these are all good topics to talk about, especially since they can help with planning decisions.

We also encourage everyone to take note of question eight, which addresses the location of assets and documents. Make sure both your spouse and the future executor of your estate know where to find them. It may sound simple, but this information can be invaluable for making sure your finances are properly handled when you are unable to do so.

Source: “Fidelity Couples Study Finds Husbands and Wives Not Having Critical Conversations Needed to Achieve Retirement Goals” and “Top 10 Retirement Questions for Couples,” Fidelity.com, based on the 2011 Fidelity Investments Couples Retirement Study.

Investors Who Held On Since 2008 Made Right Move

Past performance is no guarantee of future results, as the saying goes. But a new Fidelity Investments analysis of what’s happened to retirement investors’ portfolios since the 2008-2009 market crash is worth considering if you’re tempted to pull money off the table during the market’s current volatility.

The big message: Investors who held on tight through the harrowing 2008-2009 crash have been richly rewarded since then.

Fidelity looked at the performance of 7.1 million 401(k) accounts, comparing returns for investors who made changes to their portfolios during the 2008-2009 market crash up through June 30 this year—a point when the market was on an upswing preceding the steep drops and volatility that began in late July.

The key findings:

• Participants who changed their equity allocations to zero percent between Oct. 1, 2008, and Mar. 31, 2009 and stayed out of stocks through June 30 this year saw an average increase in account balance of only 2 percent.
  
• Participants who exited stocks but then returned to some level of equity allocation after that market decline saw average account balance increases of 25 percent.
  
• Investors who stuck it out with a continuous asset allocation strategy that included stocks had an average account balance increase of 50 percent.

http://www.cnbc.com/id/44204393

Stocks Poised to Outperform

Thoughts from Jack Bogle founder of the Vanguard Group:

I would say given the dire outlook for the U.S. economy, unless our Congress can get its act together, that one might want to be a little more conservative than one usually is. If one wants to do anything at all it will be to lean to the conservative side. I am not recommending, you know, all of a sudden go out and do something very conservative. But if you are worried, just take a little bit less risk rather than a little bit more risk thinking there are some advantages here because there are lot of problems down the road that we have no idea whether they will be solved one way or the other.

But we do know that, for example, and this is a really important point, and that is if you look out for a decade, we know pretty much what the return on bonds is going to be. That's your first course in safety; when money market funds are yielding essentially zero, you go to bonds. And the 10-year Treasury is yielding around 2.3%. That means that’s what its return will be around 2%- 3% during the next 10 years.

And curiously enough, as I looked in the recent newspaper, the inflation-hedged version of that 10-year bond, the inflation bond, has a yield of zero. So, there are not a lot of great places to move. But over that decade, the way I look at it and nothing is certain in this world, is that stocks could give you a return significantly higher than that. Stocks also have a yield of around 2.3%, the same as the 10-year Treasury, but they have earnings that should grow even if the economy grows a little more slowly than say at 4% instead of 5% in nominal terms, that would be a 6% return on stocks. Maybe they can grow a little faster. That would be a 7% return on stocks for example.

So in terms of what will do a better job for you over the decade ahead, the odds are very, very much in favor of stocks. But that's not guaranteed. I will be very clear on that because of the problems I have discussed earlier. But if you want to shift around what you are doing, you’ve got to look at probable returns, however uncertain those probabilities are.

http://www.morningstar.com/cover/videocenter.aspx?id=391422

Your money in a AA-rated U.S.

By Paul Lim, Susie Poppick, and Angela Wu, Money Magazine

United States bonds are no longer officially rated Triple-A, at least in the eyes of Standard & Poor's.

And while Moody's and Fitch, the other leading rating agencies, have affirmed the top rating, they too have worried about the long-term prospects for the United States.

None of this necessarily means disaster for your money. The United States has not been downgraded to "junk" status, like say, Greece. The rating is still very high -- just not tops.

Still, there could be ripple effects. Here's where.

Your stocks

Bad news for the economy generally means tough times for stocks. But history shows that when a country loses its AAA credit rating, it's not necessarily terrible news for that nation's stock market.

When Canada lost its AAA rating in April 1993, for instance, the country's stocks gained more than 15% in the subsequent year. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.

At the very least, a downgrade could add more fear and uncertainty to an already sluggish economic recovery, market strategists say. As a result, they advise investors to dial down risk in their equity portfolios by gravitating toward shares of larger, stable companies -- but not just any large caps.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, favors "boring blue chip stocks with pristine balance sheets and that are globally diversified and therefore benefit from faster growth outside the U.S., especially in the emerging markets."

Why not just go directly to emerging market stocks? For starters, U.S.-based multinationals are a safer bet than volatile emerging market shares, especially in times of economic uncertainty. Long-forgotten U.S. multinationals are trading at much more attractive values than emerging market stocks, which have been on a tear for the past decade. And large-cap multinationals tend to pay big dividends, which come in handy during periods of slow growth.

Your bonds

In the year following Canada's downgrade in 1993, yields on 10-year Canadian bonds jumped from 7.6% to 8.1%. So the result could be an uptick in U.S. bond yields, but experts didn't think it would be big.

That's because Treasuries, unlike Canadian securities, are considered a default investment for global investors seeking safety.

There isn't a fund that owns Treasuries just because they're rated AAA. They own Treasuries because, well, they're Treasuries.

That said, a downgrade would likely force investors to look at bond issuers with balance sheets, unlike the U.S.'s, that are improving.

"If you're a bond holder, you want the most credit-worthy securities," says Anthony Valeri, fixed income strategist for LPL Financial. That would mean high-quality corporate bonds and emerging market debt, he says.

After deleveraging over the past three years, U.S. corporations are sitting on nearly $2 trillion in cash.

As for emerging market countries, their ratio of debt-to-GDP is falling as the same ratio rises in the U.S. and Europe.

Plus, Americans who buy emerging market debt could see their investments rise simply because emerging market currencies are strengthening against the U.S. dollar.

Your cash

The relative safety of the different vehicles in which you might stash your cash -- FDIC-insured accounts, money market funds or short-term Treasuries, for example -- wouldn't be so affected by a downgrade that you'd need to shift your money around, say experts.

Skittish investors who wouldn't want to park their cash in downgraded Treasuries might feel more secure by putting that money into an FDIC-backed bank account instead, since it would be protected by deposit insurance.

But the increased sense of security would be little more than psychological; after all, like Treasuries, FDIC-insured accounts are ultimately backed by the same entity: the U.S. government.

As for money market mutual funds, which are not insured, the effect of a downgrade is not expected to be dramatic, since those funds generally invest in short-term debt, and discussion of a downgrade has so far been limited to long-term U.S. bonds.

Despite a downgrade, U.S. debt would still be considered a safe haven. Double A will become the new triple A, because there simply isn't a viable competitor to Treasuries.

Your borrowing

The price of consumer credit would be pegged less to a Treasury downgrade than it would be to bond investors' overall confidence.

For now, investors seem optimistic about the future -- but more cautious about the next few months.

Longer-term Treasuries, like the benchmark 10-year, are in greater demand, while many shorter-term bonds are seeing demand fall.

Because yields -- and corresponding interest rates -- move inversely to price, rates that track shorter-term Treasuries are more likely to see a bump.

Rates on car loans, which follow shorter-term rates like the two-year Treasury or LIBOR, the London Interbank Offered Rate, could go up -- but not enough to really hit consumers.

Most mortgage rates, however, track the 10-year Treasury yield, which continues to fall. Adjustable rate mortgage holders could be slightly more vulnerable, because ARMs are typically tied to shorter-term interest rate movements.

For students and parents who rely on private student loans, any jump in borrowing costs for lenders would be passed on to borrowers. Federal student loan rates would remain fixed.

Credit card rates are pegged to the prime rate, which moves with the federal funds rate. If the prime rate goes up, consumers could be hit with credit card rate hikes. Even if the rate doesn't go up, she says, card issuers spooked by a credit downgrade could raise your interest rates anywhere from 1% to 5% -- but only if you've had your card for more than a year.

Fund exodus could sting loyal investors

By Chuck Jaffe, MarketWatch

Panic selling affects investment returns, taxes

BOSTON (MarketWatch) — Watching a market that seems to be running away from everything but the safest investments, it’s hard to be a mutual fund shareholder and not worry that you’re being left holding the bag.

You’ve heard the talking heads saying that “traders” are the guys moving money around to capitalize on the news of the moment, while “investors” are sticking with their strategies for the long haul. You’ve lived through downturns before, and know that investors have a history of selling at the worst-possible times.

Still, it’s hard not to wonder how a mass exodus would affect you, and whether you should run with the herd.

If you’re lucky, any impact will be minimal, but since no one is feeling lucky about investing these days, you should at least understand what might be in store for you if you stick around while those around you are bailing out.

Faith and redemption

While the majority of stock funds have a mandate to be “fully invested,” just how much cash a fund keeps on the sidelines varies. Some funds make market calls or timing decisions where the manager keeps some or all assets on the sidelines when they can’t find anything to buy, but others try to keep as much money working as possible at all times.

There lies a big part of the concern when funds face panicky investors.

Say a fund has $100 million in assets, and invests all but $2.5 million of it. If nervous investors redeem $5 million in shares, the manager must sell something to pay those jumpers.

This is bad news for remaining shareholders in at least three ways.

First, the manager’s focus on generating returns might instead be diverted to raising cash. As a result, management strategies may be constrained; if the fund must sell securities to meet redemptions, those trades are made for reasons that have nothing to do with the value or potential of the underlying securities. Now shareholders are forcing the manager’s hand; that’s how they leave the folks who stick around holding the proverbial bag

Next, you pay the transaction costs when securities are sold to meet redemptions. Those actually come off the top; they’re not a part of the fund’s expense ratio, so you may not notice the dollars being siphoned off, but extra trading costs dampen performance.

Third, dumping those underlying holdings could create a taxable event. In the three years since the financial crisis of 2008, most mutual funds have worked off the tax-loss carryforwards that were created while they were getting hammered. The stocks they own now were purchased at discounted prices, and have since ridden up to where a sale today could lock in a gain, despite the recent market downturn.

If the fund recognizes that gain now and does not have losses to offset it by year’s end, it must distribute the gain to shareholders, who will have to pay taxes on that payout.

Given where the average fund stands today, that puts the rest of the year in an ugly light, as it’s entirely possible that investors will see their funds stay flat or lose money in 2011, but have a capital gains tax bill for their trouble. [This does not happen with exchange-traded funds because of the way those investments are structured.]

Matter of trust

And then there is the timing problem that if the fund has to sell into these pressures, it might be locking in the worst of the market, even though you were holding on for the rebound.

“If you run a small-cap equity and you had to sell [this week] into this market, you probably had your face ripped off,” said Mike Cagney, managing principal of ReFlow, a firm that works with funds to minimize the harmful effects of liquidity. “That’s a no-win spot for shareholders. They’re holding on, but the fund is forced to lock in losses, performance is suffering, and they will have to pay taxes on it anyway at the end of the year.”

How big a problem this becomes depends on money flows and strategies, which vary by fund. It will be less likely to happen in deep market categories like large-cap stocks, or in funds where shareholders stand fast together, though it’s hard to know what your friends and neighbors are doing in times like these.

Analysts at Lipper Inc. say the average fund won’t face “forced sales” until net outflows reach $75 billion industry-wide over a three-week period. Up through last week, flows were nowhere near that level; industry watchers think the final numbers from this week will be much worse, but not yet to the point where forced sales become the norm.

“Heavy redemptions at a time when a fund has a low cash position are a problem, but most fund investors won’t have any idea if it’s happening in their fund,” said Jeff Tjornehoj, senior research analyst for Lipper Inc.

“Basically,” he added, “you have to trust that your manager has positioned the portfolio in a way that anticipates what investors might do here and that minimizes the problem … and right now some investors are having a hard time trusting anything in this market.”

Markets Enter Correction Territory As Economic Concerns Escalate

By Bob Doll, Chief Equity Strategist for Fundamental Equities at BlackRock®

What is behind the sharp downturn in stocks?

While markets have been in an uncertain environment for much of 2011 based on weaker economic data, the current volatility seem to have escalated considerably with the debate and resolution over the debt ceiling issue.

Based on the amount of time spent on this debate and the intense focus that market participants had concerning debt and deficit issues, there was some sort of expectation that the deal that was reached would provide some sort of relief rally, but that did not really happen. When investors took a step back and looked at the deal, it became clear that the long-term debt issues have yet to be resolved and that some hard decisions still need to be made. Investors do not like uncertainty, and being faced with the continued uncertainty surrounding additional rounds of contentious debates over debt issues does not bode well for investor sentiment.

At the same time that these debates were going on, investors witnessed a rash of disappointing economic data. Last week’s second-quarter gross domestic product report was much worse than expected and showed that the United States economy has only expanded at around a paltry 1% rate in the first half of the year. That data was followed this week by a weak manufacturing report and disappointing consumer spending numbers, all of which prompted renewed fears of a recession.

All of this also occurred against the backdrop of escalating concerns over European debt problems. Europe is struggling over mounting debt pressures and continues to face significant structural problems in the form of being a region that essentially has a single monetary policy but many fiscal policies. The degree of uncertainty over potential resolution of the sovereign debt problems has been weighing on the markets as well.

What is likely to happen next?

In many ways, markets are in unchartered territory and are facing so many unknowns, which makes it difficult to forecast what will happen next. In our view, however, the key question is what will happen with the global and US economies.

At present, we do not believe that the economy is really facing significant fundamental weakness that would lead to a new recession; rather, the economy is being held back by ongoing credit issues and renewed deflation fears. This may sound like a technical point, but it is an important one, given that, in many ways, the economy is stronger than it was a year ago.

Unlike the market downturn that occurred last year around this time, there are some important differences in the macro backdrop that investors should be aware of. Unlike last year, the growth in the supply of money is positive as is the velocity of money growth. Jobs growth is still weak, but is significantly better than it was 12 months ago (as can be seen by the better-than-expected labor market report issued on August 5). Additionally, bank lending is expanding, a particularly important point for small businesses which conduct a great deal of the hiring in the United States. To this list we would also add the fact that gasoline prices have been falling, which should help provide a boost to consumer confidence and consumer spending. Finally, we would also point out that the supply chain disruptions that occurred due to the earthquake in Japan earlier this year have mostly eased, which should provide a boost to such sectors of the US economy as auto manufacturing.

For all of these reasons, we do not believe that the United States will be entering a recession any time soon. US growth in the second half of 2011 is unlikely to be strong, but we do not believe it will be as weak as the markets are currently predicting.

What should investors do?

There is a great deal of fear and risk present in the markets, and we are hardly suggesting that everything will be smooth sailing from here, but nothing that has happened over the last couple of weeks fundamentally alters our cautiously optimistic outlook for stocks.

Our summary view is that if investors believe (as we do) that the US will avoid recession, then continued overweights in risk assets makes sense. Cash is still yielding essentially zero percent, and Treasury yields have fallen sharply as well, so compared to alternatives, stocks continue to represent an attractive option.

We expect to see continued high levels of volatility in the weeks ahead given the lack of clarity around all of the issues we outlined earlier, but we do believe that conditions should improve. We are closely monitoring economic and sentiment signals, as well as the labor market, as new trends could be starting. This is not a time that investors should panic and overreact to short-term market swings. Maintaining a focus on long-term objectives is always critical during times of market stress.

Two weeks ago, we did not think that stocks were expensive. Now, with markets lower by 10%, stocks are pricing in a more negative scenario than we expect. To us, this suggests that the present market could represent an opportunity to accelerate moves out of cash and Treasuries and into risk assets.

U.S. Downgrade Heralds a New Financial Era

By: Dr. Mohamed El-Erian, CEO and co-Chief Investment Officer of PIMCO.

There will be endless debate on whether S&P, the rating agency, was justified in stripping America of its AAA rating and — adding insult to injury — even attaching a negative outlook to the new AA+ rating. But this historic action has now taken place, and the global system must adjust. There are consequences, uncertainties, and a silver lining.

Not so long ago, it was deemed unthinkable that America could lose its AAA. Indeed, “risk free” and “US Treasuries” were interchangeable terms — so much so that the global financial system was constructed, and has operated on the assumption that America’s AAA was a constant at the core, and not a variable.

Global financial markets will reopen on Monday to a changed reality. There are immediate operational consequences, from re-coding risk and trading systems to evaluating collateral and liquidity management. Key market segments will be closely watched, including the money market complex and the reaction of America’s largest foreign creditors.

Meanwhile, for the real economy, credit costs for virtually all American borrowers will be higher over time than they would have been otherwise. Animal spirits, already hobbled by the debt ceiling debacle, will again be dampened, constituting yet another headwind to the generation of investment and employment.

More worryingly, there will now be genuine uncertainties as to wider systemic impact of this change. With America occupying the core of the world’s financial system, Friday’s downgrade will erode over time the standing of the global public goods it supplies - from the dollar as the world’s reserve currency to its financial markets as the best place for other countries to outsource their hard-earned savings. This will weaken the effectiveness of the US as the global anchor, accelerating the unsteady migration to a multi polar system while increasing the risk of economic fragmentation.

These factors will play out over time, and will possibly do so in a non-linear fashion. Some of the immediate impact will be forestalled by the fact that no other country is able and willing to replace the US at the core of the global system. Other than a general increase in risk premia and volatility, it is therefore hard to predict with a high degree of conviction how the global system will react. Specifically, will it simply come to a new normality, with an AA+ at its core, or are further structural changes now inevitable?

All of that said, there a sliver of a silver lining — and an important one. America’s downgrade may serve as a wakeup call for its policymakers. It is an unambiguous and loud signal of the country’s eroding economic strength and global standing. It renders urgent the need to regain the initiative through better economic policymaking and more coherent governance.

There is a risk, of course, that different political factions will use S&P’s action as a vindication of their prior beliefs. Democrats would argue that it is recent Republican political sabotage that pushed S&P over the edge while Republicans would argue that we are here due to irresponsible government spending by the Democrats.

For the sake of their country and the wider global economy, both parties should resist the urge to begin bickering. Instead they should seize this potential “Sputnik Moment” — a visible shock to the national psyche that can unify Americans around a common vision and a renewed sense of purpose — that of halting gradual secular decline by putting the country back on the path of high growth, job creation and financial soundness.

Investor Update from AAII

From the American Association of Individual Investors (AAII)

"Last week, I said that Wall Street’s focus will be on the economy in the weeks to come. On cue, the economic data stunk badly enough to draw everyone’s attention. Second-quarter GDP growth was modest, and estimated first-quarter growth was revised down to a fraction of a percentage point. The Institute for Supply Management chimed in with a manufacturing survey that suggested that the third quarter is not off to a good start and that the short-term future may not be any better.

Republicans and Democrats agreed to budget cuts and a promise to pursue more deficit reduction actions in exchange for raising the debt ceiling. As you know, the legislation is universally disliked. What it does do, however, is make it harder for Congress and the president to do something about the economy. Additional tax cuts or spending will need to be offset in some manner, especially with the credit rating agencies (Standard & Poor's, Moody's and Fitch) breathing down Uncle Sam’s neck.

Legislation often has unintended consequences. The debt ceiling law has the potential to throw a wrench in to the presidential cycle for stocks. The third year of a presidential term has historically been good for investors, with the Dow Jones industrial average appreciating every time since 1939. Jeff Hirsch, author of “The Stock Trader’s Almanac,” says that this is because presidents seek to make voters happy ahead of forthcoming elections.

Often, presidents have pushed for some type of economic stimulus. Jeff told me yesterday that the markets have also historically reacted to a cooperative environment in Washington that puts the U.S. in a good place. This has included actions involving both domestic and foreign issues.

Given the conflicting personalities and ideologies in Washington, cooperation among politicians remains in short supply. At the same time, President Obama now has to balance potential future economic initiatives with long-term debt reduction desires. Any proposal, whether it involves spending (e.g., job training, infrastructure, extended unemployment benefits) or tax cuts and expenditures (e.g., extending the 2% payroll tax cut, allowing corporations to repatriate foreign profits) will impact the trajectory of our government’s debt.

This is not to say that the 72-year streak of positive third-year presidential term gains for the Dow will be broken. The economy could recover from its recent slump and/or President Obama and congressional Republicans could find more middle ground. There is also the potential for positive developments in Europe, Japan and the Middle East. (I know some of these are long shots.) Plus, valuations for large-cap stocks are cheap relative to projected earnings. .."

5 ways to protect what's yours

Have you been so focused on building assets that you haven't given much thought to protecting them? Naming beneficiaries, creating a will, and other estate-planning tasks can help preserve what you've accumulated and distribute it to the people and causes most important to you.

Yes, it's an uncomfortable topic, but think of it this way. Do you really want someone else making these decisions for you? Let’s take a look at some of the important documents you need to have in order should anything unexpected occur.

1. The most important tool: a will

A will is one of the most important legal documents you can create. It states who gets what after you're gone and names someone to make things happen the way you say they should. If you don't have a will, your assets will be dispersed according to state statutes—and who wants that?

"It's a mistake to think of a will as something you need only if you have millions or are over 60," says Chris McDermott, a CFP and senior vice president of retirement and financial planning at Fidelity. "A will isn't just about money."

Whether you have a will or not, your estate assets will generally be subject to a legal process known as probate. This process varies from state to state. When someone dies intestate (without a will), their assets can be tied up in the costly delay—and public display—of probate court. Without a clear estate plan, you may unintentionally trigger legal challenges among family members since it may be unclear how you really intended your assets to be passed on.

If you have minor children, it's critical that your will designates a guardian for them, and name a trustee to protect your children's inheritances. If you don't specify who is best suited to look after your child if both you and your spouse die prematurely, the state will.

2. Choose who'll act on your behalf

In addition to a will, it is important to consider a power of attorney. These legal documents allow someone you designate to step in and act on your behalf if you are incapacitated. It can take effect immediately (durable) or at the time of your incapacity (springing). It typically authorizes someone to act on your behalf with respect to your financial affairs, and is often executed by one spouse for another.

There are several considerations to keep in mind when setting up a power of attorney. Any competent adult can serve as your agent. It can be general or limited and apply only to particular assets or accounts that you own. Lastly, it can take effect immediately or at the time of your incapacitation.

A health care proxy (also called a “durable power of attorney for health care” in some states) authorizes someone to act on your behalf for your medical affairs. Unlike a durable power of attorney, before someone can act as your health care proxy, you must become incapacitated and unable to make informed decisions for yourself.

You’ll want to be specific about what decisions your health care proxy agent can and can’t make on your behalf. You may also want to draft an advanced medical directive, also known as a living will. This expresses your wishes to your agent and doctors when considering the use of life-sustaining procedures.

3. Name beneficiaries on financial accounts

Designating a beneficiary for investment accounts can be as important as writing a will. These decisions are critical but not complex. Assets in your retirement accounts pass directly to the beneficiaries you've designated with your account custodian, trustee, or plan administrator. Furthermore, your beneficiary designations can supersede any accommodation you have made in your will for your retirement account (see transfer-on death discussed below). Remember to name beneficiaries on all retirement accounts such as 401(k) plans, IRAs, Roth IRAs, and SEP and SIMPLE IRAs.

Under IRS rules, required distributions from an inherited IRA are generally based on the age of the beneficiary, not the age of the original IRA owner. So if your beneficiary is younger than you, the new rules can minimize the taxable amount that must be withdrawn each year after your death.

Employer-sponsored retirement plans. If you are married, keep in mind that most employer-sponsored retirement plans automatically designate your spouse as the beneficiary unless you name another beneficiary(ies) and your spouse has consented in writing. Remember also that your beneficiary designations will supersede any accommodation you have made in your will for your retirement account.

Non-retirement accounts. Designating a beneficiary, or beneficiaries, on a non-retirement account, such as a brokerage account, may establish a "transfer-ondeath" (TOD) registration for the account. For an individual account, a TOD registration allows ownership of the account to be transferred to a designated beneficiary upon your death. Perhaps most importantly, and in many instances, a TOD registration allows an account to pass outside probate, enabling your beneficiaries to avoid the time and expense of the probate process. As with all accounts, estate taxes may still apply. Be sure to consult your tax advisor.

4. Keep everything up to date

"Even the best plan isn't effective if it doesn't keep pace with your life," notes McDermott. He recommends setting aside a special time each year—around tax time, for example—to review not only your paperwork, but any life events that have occurred. Births and deaths obviously have a big impact.

5. Ask for help

It's important to know the difference between what you can do on your own and when you need professional help in preparing for the unexpected. Do-it-yourself estate planning is risky, so it makes sense to ask an attorney to draw up legal documents such as your will, power of attorney, and health care proxy. An experienced professional can actually save you money and spare you headaches.

Flight to High-Quality Corporate Bonds

By Dave Sekera, CFA, Morningstar

Despite the shenanigans in Washington (or more likely because of them), buyers snapped up investment grade corporate bonds last week. Investors sought after the highest-rated issuers, such as Walmart, Microsoft, and Johnson & Johnson. Early in the week, there was market chatter that Chinese investors were out buying the most highly rated bonds, and the speculation was that those accounts were reallocating from other asset classes such as agencies and Treasuries. Insurance companies were also out in force, searching along the entire yield curve for highly rated issuers.

High-quality corporate bonds are providing a port in the storm, as investors are comfortable owning the debt of companies that have transparent financial reporting and significant cash reserves on the balance sheet. It's hard to argue against owning Microsoft bonds at a spread over Treasuries. The company has nearly $53 billion of cash and short-term investments on the balance sheet against $12 billion of debt and provides much greater financial transparency.

U.S. Stocks Fall Hard As Economy Weighs

NEW YORK (MarketWatch) -- U.S. stocks thudded lower on Thursday, pushing the Standard & Poor's 500 into correction territory, as Wall Street retreated down a wall of economic worry.

One market strategist said both the Main Street and Wall Street are suffering from crisis fatigue after "two weeks of Washington putting us over the edge" before reaching a deal to hike the federal debt limit.

"We're just worrying ourselves to death," said Bruce McCain, chief investment strategist at Key Private Bank. "How do you get out of this roller coaster of the relentless onslaught of bad news? Look at the data, it's not that bad, it's showing the economy is still growing, that this is a soft patch with expectation that things will improve in the third quarter."

Ahead of the opening bell, the Labor Department said initial claims for jobless benefits fell by 1,000 to a seasonally adjusted 400,000; initial claims from two weeks ago were revised up to 401,000.

Markets Will Look Past Debt Issues, But Not Yet

By Bob Doll, Chief Equity Strategist for Fundamental Equities at BlackRock^®

Over the past several months, stocks have been stuck in a fairly narrow trading range, with strong earnings pushing prices higher and macro risks and the growth slowdown acting as counterweights. Once the debt and deficit pictures become more clear and once investors are able to price in the effects of the final deals, markets may be able to again focus on fundamentals. From an economic perspective, the US economy remains vulnerable, which is not a comfortable backdrop for risk assets, but we continue to believe that the probability of recession remains low and that economic data should improve in the coming months. To us, all of this suggests that the positive forces for the markets should win out, but for that to happen additional clarity is key.

Shifting Focus

By Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co, Inc.

The world will go on after this crisis fades and investors may be missing some important developments. A story that is not being told is that of the positive corporate picture that developed during earnings reporting season. Nearly 75% of S&P 500 companies beat estimates, which is well above the historical average. Some of that has to be taken with a grain of salt as companies guided estimates down going into earnings season, but companies continue to tightly control costs and we have heard many companies comment on the solid demand picture they are seeing.

Additionally, companies are heading into the latter half of the year with solid balance sheets. Debt levels are reasonable, cash levels are high, and interest rates remain low. This should enable companies whose confidence could grow following the end of the debt debate to increase their investment in capital and labor. This more micro story has been slow to be recognized by investors as it has largely been overshadowed by more macro issues.

Economy still sluggish, but improving

After a summer slump that we believe was largely caused by temporary factors, including the Japanese disaster and a dip in confidence due in large part to events unfolding in Washington, we are starting to see some nascent signs of a stabilizing economy, which we believe will improve through the balance of the year. This acceleration would likely help to further boost consumer and corporate confidence, which we believe continues to be the key to ramping up growth. As confidence grows, spending decisions get made at both the business and personal levels, which helps faith in the recovery to solidify, which leads to more investment and spending, and so on—improving the velocity of money that needs to increase to really kick the economic expansion into higher gear. However, there is a growing risk to our view as policy mistakes in Washington could hinder confidence for some time to come, potentially holding economic growth below potential.

How to avoid an inheritance battle

By Toddi Gutner, Reuters

We’ve all read about huge family fortunes squandered in legal battles between siblings after the patriarch or matriarch dies. While most of us wouldn’t make national headlines regarding our estate planning matters, the pain and destruction of inheritance feuds can be minimized if not totally avoided.

Interestingly, most of these fights aren’t about money. “What causes inheritance feuds are a few other things — lack of communication mostly by the parents — and [other emotional] stuff,” says Theresa Malmstrom, vice president and senior wealth planner at PNC Wealth Management.

That other emotional stuff includes longstanding sibling rivalry. Indeed, “if parents can somehow eliminate jealousy among and between siblings, disputes could disappear,” says Michael Dribin, an estate planning attorney at Harper Meyer Perez Hagen O’Connor Albert & Dribin LLP. “These disputes are often the result of deep-seated issues that go back many years and only reach their climax when mom and dad are no longer around.”

While establishing a sense of family harmony that is stronger than a need for financial gain, many families fall short of it. Still, there are steps to take that can at least facilitate a more harmonious transfer of assets between family members. Note the foundation of this entire process is ongoing communication — both verbal and written.

Create a plan

Sit down with a trusted professional adviser who can help you plan your estate. Identify and document all your assets and then get down in the weeds and talk about all the family dynamics. Are there issues and circumstances that would lead you to leave more of your assets to one child? Does one child out-earn another or have special needs? Ask yourself the hard questions. Aside from a seasoned estate planning attorney and financial adviser, you may want to consider a family psychologist if necessary.

Engage in family discussions

A lot of inheritance feuds can be avoided if parents communicate their desires with the beneficiaries while the parents are still alive. Tell them what you are doing and then “explain to them what you are trying to accomplish in your will and estate planning, says Allison Shipley, a principal at PWC. Unfortunately, the “why” of asset distribution is often not communicated and that is where problems often arise.

Notarize a Letter of Instruction

In addition to the will, consider writing a Letter of Instruction to the family that outlines, in your own words and without the legalese, how you want your estate divided. Think of it as an operating manual. “You have all-in-one book who will run the company, the trusts, what goes to charity, to the grandchildren, what happens at the first death, second death, etc.,” says Rebecca Pavese, the manager of Palisades Hudson Financial Group’s national tax practice. This letter will be read along with the will after your death.

Record your decision

If you have significant concerns that your kids will challenge you for being mentally incompetent, you can protect yourself by making a video. “You can have it videoed with a doctor present showing no one is forcing you,” says Pavese. The video can prove that you were competent when you signed the will, she says.

Before starting any kind of litigation, ask yourself, no matter how angry you are, whether the potential (but not certain) benefits to be gained outweigh the harm. “Realize that litigation of this nature is not only financially destructive, but emotionally draining and, no matter how it might get resolved, will result in the destruction of important family relationships, not only among the siblings who have fought, but among their children,” says Dribin. “Once this litigation starts, there is no way to put the genie back in the bottle,” he says.