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Investment Management & Trust Update
Provided by Kathy Thompson and
Gordon Maynard Happy 2010 to everyone! With the new year, we look to the future and reflect on the past. For the future, we hope the financial markets and economy will continue to improve. For the past, we look back at the beginning - our founding, 106 years ago. It's funny how some things never change.
We thought you might find it interesting to see our Grand Opening announcement from 1904. (see below) Since that letter was mailed, our name hasn't changed and our main office is still located at the corner of Main and Johnson Streets! How many other financial institutions can make that claim? We would venture to say not many!
Some things, however, do change - we continue to offer sound banking services to our clients, but we're no longer just an "East-End local enterprise." We now have 28 branches, including offices in Indianapolis and Cincinnati.
For those of you who are clients, we thank you for your business and look forward to the opportunity to work with you for many years to come. If you aren't a client, we would welcome the opportunity to work with you and show you why we have remained successful since 1904.
Economic & Market Outlook: Winter 2010
Provided by Mark HollowayThe stock market rally continued in the fourth quarter indicating that the fragile economic recovery is gaining traction. The market, as a leading indicator, appears to be telling us that future economic growth will be sufficient to produce significant increases in corporate profits.It is our tradition at the beginning of each year to provide a list of positive and negative factors that will impact economic growth in the upcoming twelve months. These factors are generally considered by economists to be economic "truisms" in that they almost never surprise with their effect on economic activity. While unanimous in their opinion regarding "truisms", economists seldom agree on predictions for economic growth, inflation, and the capital markets. This year, views are even more divergent than most. We see predictions ranging from a normal recovery and slingshot-like growth of over six percent to predictions of a double dip recession.What do we know that is decidedly positive and negative about the economy? On the positive side of the equation are the stimulus package, low interest rates, and the very accommodative policy practices of the Federal Reserve. All of these things helped avert a financial catastrophe in the economy and the financial markets last year and are now helping to fuel economic growth and increased business activity.On the negative side, high debt levels at the federal, state, and individual levels, international threats from terrorism and war, re-regulation of business and the subsequent loss of productivity, and the general anti-business climate are all factors that could mute the recovery.There are also a number of wild cards - that is unresolved unknowns that could add to or subtract from economic activity depending on how they play out. These include (1) the record federal budget deficit which undermines the value of the dollar against other currencies; (2) the 'cap and trade' and healthcare legislation which add an aura of uncertainty to business activity; (3) tax increases associated with these bills and unwinding the Bush Administration tax cuts at the end of 2010 that could negatively impact future growth as businesses put off making expansion decisions until the true costs are known; (4) the need for careful unwinding of the stimulus package in order not to disrupt the fragile recovery; (5) high unemployment which continues to be a problem and will reduce consumption, confidence, and tax revenue; and finally, (6) the specter of higher interest rates and inflation that could limit the Federal Reserve response to any slowdown in growth.All of this uncertainty makes it difficult to predict what the near term future holds for the capital markets. We already have in place portfolio policies that have proven to work during periods of challenging and uncertain economic times. During past periods of economic uncertainty it has been important to emphasize high quality investments over lower quality issues on both equity and fixed income purchases. Diversification becomes increasingly important to protect portfolios from market volatility, possible increases in inflation and interest rates, and to provide real investment returns. Dividends generally become a more important part of the total return of stocks. Finally, patience and price sensitivity regarding new purchases and sales is merited in an attempt not to time the market but rather to increase the chances of a positive outcome from portfolio management decisions.
Focus on Taxes Provided by Jim Worthington with contributionsfrom Jackie Hamm and Ben Hoehler New Year 2010 brought a number of tax law changes. Two of the articles in this issue of Investment Insights focus on two of the most prominent ones- more flexible Roth IRA conversion rules and the repeal of the Federal Estate Tax.ROTH IRAsTo Roth, or not to Roth. That is the question. At least, that is the question we frequently get asked when discussing planning strategies and retirement analysis.Two big changes happened in 2010. First, there is no income limitation on who can make a Roth conversion. It used to be limited to people with Modified AGIs below $100,000. The other big change in 2010 is the ability to make the conversion and report half of the income on your 2011 tax return and the other half on your 2012 tax return. That's not a typo; you actually get to wait a whole year before even having to report the income, much less pay the tax.But, you're probably wondering why you would want to pay a tax, even one that's not due until April 15, 2013. In other words, what advantages does the Roth offer? There are two main ones: first, qualified distributions from a Roth IRA are tax-free and second, Roth IRAs do not have Required Minimum Distributions to the account owner, as is the case for Traditional IRAs. The tax-free nature of the distributions makes sense if you think that your tax rate will be higher when you are retired than it is now. This could happen if Congress increases the tax rates across the board or if, in your particular situation, you expect to have considerable retirement income. The attached table compares Traditional IRAs (where the contribution is tax-free but the distributions are taxed) to Roth IRAs (where the contribution comes from after-tax dollars but the distributions to the account owners are tax-free):   ESTATE TAX: CONGRESS GIVETH BUT ALSO TAKETH AWAYIf the law stays the way it is now-and that is a gigantic if, there will be no federal estate tax for persons passing away in 2010. The tradeoff, however, is that their heirs may have to pay higher capital gains taxes than in previous years. That's because Congress did away with the automatic step-up in basis for inherited assets. So, if Dad owned stock for 50 years and paid literally pennies for it, the kids may have to pay capital gains tax on all the appreciation. (There is some limited relief for appreciation of up to $1.3 million for assets passing to anyone and of up to $3.0 million for assets passing to spouses.)Like any tax law, whole books could be written about the subject. But, the real question is whether this new law will stick. There is already talk that Congress will pass a new law reinstating the automatic basis step-up and making the estate tax retroactive to January 1st. The law scholars are already debating the finer points of whether retroactivity is constitutional, but the general consensus is that courts uphold most retroactive tax laws.While you wait for Congress to sort through all of this, it's important to look at your own will and trust. Many of them were designed to have different shares for different beneficiaries and the amount going to each share is determined by a formula that depends on the existence of an estate tax. It's possible that the recent changes in the law will make those formulas behave in unintended ways. If you would like to know more or would like some help trying to figure out your own will and trust, please don't hesitate to call on one of our wealth advisors.You're Invited!!
Please join the officers and directors of
Stock Yards Bank and Trust Company for the
2010 Spring Economic Seminar
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"Capital Markets Outlook"
Presented by Mark R. Holloway, C.F.A.
Senior Vice President and Chief Investment Officer
Stock Yards Bank & Trust Company
"Estate Tax Update"
Presented by James C. Worthington, J.D.
Wealth Advisor, Stock Yards Bank & Trust Company
"Recession and Recovery in the Louisville Area Economy"
Presented by Paul Coomes, Ph.D.,
College of Business, University of Louisville
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The Olmsted 3701 Frankfort Avenue
Thursday, March 4, 2010
Morning Session: 8:30-10:30 am
-Or-
Afternoon Session 4:00-6:00 pm
RSVP by Wednesday, February 24, 2010
Terri Moore at (502) 625-2527 or by email, events@syb.com
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