JUNE 2010 NEWSLETTER

Our current outlook is that employment and taxes are going up, and the economy will be trending downward. The fly in the ointment is that jobs growth will most likely be seen only in the short term, while tax increases and economic decline are probably more long-term issues. The Economic Cycle Research Institute (ECRI) is forecasting a slowdown in economic growth beginning as early as mid-year.

We anticipate a short term market rebound since the current environment continues to show the improvements from the depths of the recession. However there are still 8 million unemployed so ,even with strong job growth, it will take a long time to correct the damage caused by such a huge population of long term unemployed. Further working against improving job numbers is the fact that many people are being hired at ½ the wage they earned prior to being unemployed. There is also an increased demand for “temp” workers, hired by small businesses who are leery of the costs associated with providing full-time benefits. Lower wages and uncertain tenures are not likely to allow individuals to spend and consume as much into the future.

Jobs data is referred to as a “coincidental” indicator. It tells you what is happening now, and what happened last month. It does not look to the future, or forecast direction. The problem is there may not be enough time get 8 million people back to work before another downturn sets in. A slowing economy leads to lower profits which lead to lower stock prices. The good news is that your investments are positioned to be stable or even grow if there is an economic downturn as the leading indicators are signaling.

With regards to rising taxes and long-term tax strategies to minimize those taxes, Roth IRA conversions make imminent sense. The problem here is where to get the funds to pay the tax that will be due? Imagine paying a 25-40% tax on the value of your IRAs all in one year! Once the decision is made to convert, the worst place to get the money to pay the tax is from the actual retirement assets. The best place is using after-tax money or other investments. The next best place is borrowing against your home. These are difficult and important choices to weigh and we look forward to helping you develop an action plan. Most will pick an amount of tax they can afford and do a partial conversion this year while the Bush tax cuts are still in effect. If these tax cuts expire, your Federal income taxes are set to increase approximately 10% in 2011.

The day-to-day fluctuations of the investment markets are mostly noise. Weekly reports on coincident indicators only add to this noise. As risk managers, our job is to filter out the important data and provide direction moving forward. We hope this communication helps you prioritize your planning and we will continue to support your long-term financial security.

Until Next Month,

Your Advisors at Dominion Wealth