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May 2013

I hope this educational resource proves helpful. I believe an educated investor is a better investor. Please call me if you have

questions. Robert Vettorel

Washington Financial Wealth Management Division Senior Vice-President 77 South Main Street Washington, PA 15301 724.206.1290 Fax: 724.222.2722 http://www.mywashingtonf

In This Issue

How Much Will That Little Bundle of Joy Cost You? Try


It certainly comes as no surprise to parents that raising a child can be expensive. But just how expensive?

Five Strategies for Tax-Efficient Investing

Find out are five ways to potentially lower your tax bill through tax-efficient investing strategies.

Target-Date Funds: Are They Right for You?

A target-date fund is a type of investment designed to provide investors with a convenient way to select and maintain a portfolio's long-term asset allocation. This article explains how target-date funds work and the role they can play in helping readers pursue important financial goals.

Near-Zero Interest Rates: Tradeoffs for Investors

The Federal Reserve's continued policy of low short-term interest rates presents potential plusses and minuses for investors.

Independent Investor | May 2013

In recent years, millions of American homeowners have taken advantage of historically low interest rates and refinanced their mortgages. While it's true that refinancing has the potential to significantly reduce the cost associated with borrowing money to buy a home, it is not necessarily a strategy that makes sense for everyone.


The average total child-rearing costs for a child born in 2010 and living at home through age 17 range from $163,440 to $377,040,

depending on the family's income level.

How Much Will That Little Bundle of Joy Cost You? Try $163,000

It certainly comes as no surprise to parents that raising a child can be expensive. But just how expensive? While many financial studies focus solely on college costs, research by the U.S. Department of Agriculture (USDA) provides parents and prospective parents with a general idea of the cumulative expenses for a child

college kicks in. before

The results are sobering. The average total child-rearing costs for a child born in 2010 and living at home through age 17 range from $163,440 to $377,040, depending on the family's income level. The USDA calculations include a wide variety of expenses, including housing, child care and education, health care, clothing, transportation, food, personal care, and entertainment.

Estimated Cumulative Child-Rearing Expenditures, 2010-2027 Lowest Income Group (<$57,600) $163,440

Middle Income Group (between

$57,600-$99,730) $226,920

Highest Income Group (>$99,730) $377,040

Source: USDA, Expenditures on Children by Families, 2010; June 2011. All figures are in 2010 dollars. Households in the lowest income group (those earning under $57,600 per year) are estimated to spend 25% of their before-tax income on a child, while those in the highest income group (earning more than $99,730 annually) are estimated to spend just 12%.

For a middle-income family with two children, the largest expenditures are: Housing, at an average of 31% of total expenses.

Child care/education, 17%. Food, 16%.

Transportation, 14%. Health care, 8%.

Total annual costs for that middle-income, two-child family range from $8,480 to $9,630 per child on average. For those couples with only one child, costs tend to be as much as 25% higher. Overall, costs for single parent households average about 7% less.

Not surprisingly, geography matters. Parents in the "Urban Northeast" had the highest average expenses, while those in "Rural" areas had the lowest. It also should come as no surprise to parents that it is generally more expensive to raise a child today than it was when they were children. Average child-rearing expenses for a middle-class family have climbed nearly 25% since 1960.

The USDA website has a free calculator that can help parents estimate their child care costs. The Cost of Raising a Child Calculator factors in geography, single or two-parent status, and the costs of additional children. The tool is available here:

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You may be able to use losses within your investment portfolio to help offset realized gains. If your losses exceed your gains, you can offset up to $3,000 per year of the difference against ordinary income.

Five Strategies for Tax-Efficient Investing

After factoring in federal income and capital gains taxes, the alternative minimum tax, and potential state and local taxes, your investments' returns in any given year may be reduced by 40% or more. Here are five ways to potentially lower your tax bill.1

Invest in Tax-Deferred and Tax-Free Accounts

Tax-deferred accounts include employer-sponsored retirement accounts such as traditional 401(k)s and 403(b) plans, individual retirement accounts (IRAs) and annuities. In some cases, contributions may be made on a pretax basis or may be tax deductible. More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs and Roth-style employer-sponsored savings plans are not deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you have had the account for at least five years and meet the requirements for a qualified distribution.

Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA or annuity may be subject to a 10% federal penalty. In addition, early withdrawals from annuities may be subject to additional penalties charged by the issuing insurance company.

Consider Government and Municipal Bonds

Interest on U.S. government issues is subject to federal taxes but is exempt from state taxes. Municipal bond income is generally exempt from federal taxes, and municipal bonds issued in-state may be free of state and local taxes as well. Sold prior to maturity, government and municipal bonds are subject to market fluctuations and may be worth less than the original cost upon redemption.

Look for Tax-Efficient Investments

Tax-managed or tax-efficient investment accounts are managed in ways that can help reduce their taxable distributions. Investment managers can potentially minimize portfolio turnover, invest in stocks that do not pay dividends and selectively sell stocks at a loss to counterbalance taxable gains elsewhere in the portfolio. Put Losses to Work

You may be able to use losses within your investment portfolio to help offset realized gains. If your losses exceed your gains, you can offset up to $3,000 per year of the difference against ordinary income. Any remainder can be carried forward to offset capital gains or income in future years.

Keep Good Records

Maintain records of purchases, sales, distributions, and dividend reinvestments so that you can properly calculate how much you paid for the shares you own and choose the most preferential tax treatment for shares you sell.

Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time.

This information is general in nature and is not meant as tax advice. Always consult a qualified tax advisor


for information as to how taxes may affect your particular situation.

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investments provide investors with instant diversification into different asset classes.

Target-Date Funds: Are They Right for You?

Target-date funds provide investors with the ability to simplify their financial and investment lives. With1 target-date funds, your portfolio's asset allocation is automatically rebalanced on your behalf over the years by professional investment managers, generally growing more conservative as the identified target date


Unlike lifestyle funds, target-date funds do not require investors to reassess their priorities and transfer money to a different fund as goals approach and priorities change. Generally speaking, the name of each target-date fund includes a specific year, such as "2030" or "2045." All you need to do is choose a fund named for the year closest to the year of your projected retirement. From that point on, professional investment managers make all the investment decisions.

Understanding the Investment Strategy

Target-date investments follow what is known as a "glide path." The glide path maps out the investment's asset allocation over time -- the way it is divided between the principal asset classes of stocks, bonds, and cash. How your assets are allocated among these investments is a major factor in determining portfolio volatility and risk.

As you approach retirement, a target-date investment typically reduces its holdings of stocks, while


increasing its exposure to less risky bonds and cash. Target-date investments provide investors with instant diversification into different asset classes.2

Target-Date Glide Path Hypothetical Chart3

The illustration above shows you the glide path of a hypothetical 2045 target-date investment. Note how it begins investing primarily in stocks, then, over time, gradually decreases its stock component and increases its bond and cash components.

A target-date investment's goal is to make the investing process simple. This "set it and forget it" style also makes investors less likely to allow short-term market fluctuations to adversely affect their investment decisions.

A "New Generation" of Target-Date Investments

The principal value of many target-date investments cannot be guaranteed at any time, including the target date, and may decline at any time. However, there are newer models that offer a way to protect all or some of your portfolio from market declines. These newer options are often tied to a feature that offers a lifetime income guarantee upon retirement.

Target-date options may be ideal investments for those participants who have a long time horizon and for those who don't feel comfortable investing on their own. Be sure to review the glide paths of the target-date investments offered through your plan. If you have any questions, ask your plan administrator or financial professional.

The principal value of target-date funds is not guaranteed at any time, and you may experience losses,


including losses near, at, or after the target date, which is the approximate date when investors reach age 65. The funds emphasize potential capital appreciation during the early phases of retirement asset

accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus more on income and principal stability during retirement. There is no guarantee that the funds will provide adequate income at and through your retirement.

Target-date funds invest in a broad range of underlying mutual funds that include stocks and bonds and are subject to the risks of different areas of the market. Target-date funds maintain a substantial allocation to stocks both prior to and after the target date, which can result in greater volatility. The more a target-date fund allocates to stock funds, the greater the expected risk. For further details on the risks associated with investment in a target-date fund, please refer to the fund's prospectus.

Asset allocation and diversification do not ensure a profit or protect against a loss.


Source: S&P Capital IQ Financial Communications. Example is hypothetical and does not represent any


specific target-date investment.

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Maintaining interest rates at a historically low level, which has been the Federal Reserve's policy since December 2008, is a tool for stimulating economic growth.

Near-Zero Interest Rates: Tradeoffs for Investors

The Federal Reserve's continued affirmation to maintain the federal funds rate in a range between 0.00% and 0.25% through December 2014 has generated the usual analysis about whether Chairman Bernanke and his colleagues are doing the right thing. But the Federal Reserve's policy may be less about right versus wrong than about the tradeoffs for investors and consumers.

When the Federal Reserve makes a determination about movements in interest rates, it bases its decision on prospects for economic growth and whether existing growth can be sustained. The Federal Reserve considers the outlook for inflation, the federal budget, consumer finances, corporate earnings, and a variety of other factors. Maintaining interest rates at a historically low level, which has been the Federal Reserve's policy since December 2008, is a tool for stimulating economic growth.

A Domino Effect

The fallout from the Federal Reserve's actions can be significant. The federal funds rate influences the prime rate, which in turn has a bearing on rates that lenders charge for consumer and corporate borrowing. When the prime rate is relatively low, lenders may offer lower rates for mortgages, credit cards, and other forms of credit than they otherwise would. It is important to remember that consumer demand and a household's creditworthiness are also significant factors in interest rates assessed by lenders.

There are other plusses associated with low short-term rates. Borrowing costs are relatively low for

corporations, which can impact earnings and escalate stock market returns. In addition, with banks offering1 marginal returns on savings products, investors have a strong incentive to add to equity allocations with the goal of earning higher returns.

A Flip Side

Just as low short-term interest rates bring certain benefits, there may be drawbacks for investors and also for the broader economy. When short-term rates eventually go up, the situation is likely to be a negative for bondholders because of the inverse relation between interest rates and bond prices. Historically, rising2 interest rates have caused the prices of existing bonds to decline because newly issued bonds carry higher rates, which push down the value of previously issued securities. Holding a bond until maturity, when an investor can recoup principal, can lessen interest rate risk.

Low interest rates also are a potential negative for savers; in particular, for retirees who depend on savings products to finance living expenses. In addition, there remains the question of whether low short-term interest rates encourage certain investors to gravitate to assets that are relatively risky given the investor's time horizon and tolerance for volatility.

Economic policy frequently presents both plusses and minuses, and low short-term interest rates are no exception. You may want to evaluate your exposure to interest rates risk and think about how you will cope with the situation when Federal Reserve policy changes.

Investing in stocks involves risks, including loss of principal.


Bonds are subject to market and interest rate risk if sold prior to maturity. Bonds are subject to availability


and change in price.

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Independent Investor | May 2013

Home Refinancing Basics

In recent years, Americans seeking to capitalize on low interest rates have lined up to refinance their mortgages--often resulting in significantly lower monthly payments. While it's true that refinancing has the potential to help reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for every individual in every situation. So before you make a commitment to

refinance your mortgage, take some time to do your homework and determine whether such a move is the right one for you.

To Refinance or Not

The old and arbitrary rule of thumb said that refinancing only makes sense if you can lower your interest rate by at least two percentage points (e.g., from 7% to 5%). But what really matters is how long it will take you to break even and whether you plan to stay in your home that long. In other words, make sure you

understand--and are comfortable with--the amount of time it will take for your overall savings to compensate for the cost of the refinancing.

Consider this: If you had a $200,000, 30-year mortgage with a 7.5% interest rate, your monthly payment would be $1,398. If you refinanced at 4.5%, your new monthly payment would be $1,013, a savings of $385 per month. Assuming that your new closing costs amounted to $2,000, it would take a little over five months to break even ($385 x 5.2 = $2,002). If you planned to stay in your home for at least five more months, then refinancing may make sense. If you planned to sell the house before then, you might not want to bother refinancing. (See table below for additional examples.)

All Mortgages Are Not Created Equal

Try to avoid the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are many other variables to consider, such as:

-- This is the amount of time (e.g., 15, 20, 30 years) it will take you to pay off the The term of the mortgage

loan's principal and interest. Although shorter-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time.

The variability of the interest rate -- There are two basic types of mortgages: those with "fixed" (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed, such as one year or five years. While an adjustable-rate mortgage (ARM) usually offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM's rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it may make sense to opt for the predictability and security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up. Also, keep in mind that interest rates have hovered near historical lows in recent years and are more likely to increase than decrease over time.

-- Points (also known as "origination fees" or "discount fees") are fees that you pay to a lender or Points

broker when you close the deal. While a "no cost" or "zero points" mortgage does not carry this up-front cost, it could prove to be more expensive if the lender charges a higher interest rate instead. So you'll need to

determine whether the savings from a lower rate justify the added costs of paying points. (One point is equal to one percent of the loan's value.)

How Much Would You Save?

A homeowner with a 30-year, $200,000 mortgage charging 7.5% interest would pay $1,398 each month. The table below illustrates the potential monthly savings and the various break-even periods that would result from refinancing at different rates.

Rate After Refinancing New Monthly Payment Monthly Savings Months to Break Even* 7.0% $1,331 $67 30 6.5% $1,264 $134 15 6.0% $1,199 $199 10


5.5% $1,136 $262 8

5.0% $1,074 $324 6

4.5% $1,013 $385 5

*Assumes $2,000 closing costs. Rounded up to the next month. Stick With What You Know?

Finally, keep in mind that your current lender may make it easier and cheaper to refinance than another lender would. That's because your current lender is likely to have all of your important financial information on hand already, which reduces the time and resources necessary to process your application. But don't let that be your only consideration. To make a well-informed, confident decision you'll need to shop around, crunch the numbers and ask plenty of questions.

This article was prepared by S&P Capital IQ Financial Communications and is not intended to provide specific investment advice or recommendations for any individual. Please consult me if you have any


questions LPL Financial Registered Representatives do not provide mortgage or lending services.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness, or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special, or consequential damages in connection with subscribers' or others' use of the content.


guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Robert Vettorel is a Registered Representative with and Securities are offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Washington Financial Wealth Management Division is not a registered Broker/Dealer and is not affiliated with LPL Financial

Not FDIC/NCUA Insured Not Bank/Credit UnionGuaranteed May Lose Value Not Insured by any Federal Government Agency Not a Bank Deposit

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