Topsy-Turvy August

The S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) and the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) spent the first seven trading days of August in the black for August, in the black for 2010 YTD, and out of correction territory, that is, less than 10% down from their April 23 bull market highs.

Since then, through August 18, the S&P 500 Index and the Nasdaq Composite Index both fell back into negative territory for August and for 2010 YTD. The S&P 500 Index moved back in and back out of correction territory, while the Nasdaq Composite Index moved back into correction territory and stayed there.

During the first seven trading days of August, Fundranker’s Top Eight Model Portfolio also rose into positive territory for both August and 2010 YTD, but it never quite emerged from correction territory. Since then, through August 18, it fell back into the red for August and 2010 YTD, along with the indexes, and further into correction territory.

Mid-day on Thursday, August 19, as this entry was posted, the S&P 500 and Nasdaq Composite Indexes were down about 2%, reversing three positive days that began the week.

Posted 8/19/10 12:44pm ET in Fundranker, Market | Permalink | Comments (0)

Environmental Name Change

As of July 1, 2010, the Select Environmental Portfolio was renamed the Select Environment & Alternative Energy Portfolio. The investment strategy of the fund changed somewhat, as well:

Before July 1, 2010, the fund’s investment strategy was normally to invest at least 80% of assets in securities of companies principally engaged in the research, development, manufacture, or distribution of products, processes, or services related to waste management, pollution control or reduction, conservation, improving the environment or other environmental concerns.

Effective July 1, 2010, the fund’s investment strategy now is normally to invest at least 80% of assets in securities of companies principally engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.

Posted 8/4/10 10:42pm ET in Fidelity Investments | Permalink | Comments (0)

Bullish July

After the market hit 2010 lows in early July, the fragile bull market began to assert itself. As of July 23, the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) emerged from correction territory, down 8.9% from its bull market high reached in April. The Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) and Fundranker’s Top Eight Model Portfolio, down 10.1% and 13.3%, respectively, from their bull market highs reached in April, don’t lack much to emerge from correction territory, as well.

Earnings season generally has been positive for the market so far in July, and more good results are expected from bellweathers such as Boeing, Chevron, and DuPont in the last week of July. The Federal Reserve’s Beige Book of economic conditions, new home sales, the Case-Schiller home price index, consumer confidence for July, durable goods orders, weekly initial jobless claims, and second-quarter GDP are all on tap to be reported during the last week of July, as well. Perhaps they will further relieve worries about a double dip recession, and the market will break definitively out of its summer doldrums.

Posted 7/24/10 6:59pm ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Multi-Month Downturns

Through June, 2008, the Fundranker system bucked the bear market that started in November, 2007, but in the frantic market downturn that occurred during the last half of 2008 and January and February of 2009, it gave back those gains and then some. Fundranker has had multiple-month downturns only 16 times since 1997, when historical tracking of the Top Eight Model Portfolio began, and it has had only one multiple-month downturn during the current bull market. Here are Fundranker’s losses during those downturns along with its returns during the next three months, six months, and 12 months:

The five-month downturn that began in July, 2008, was the first multiple-month downturn Fundranker had had for two years, and it is by far the worst and longest that Fundranker has suffered. As the Great Recession, the worst recession since the Great Depression, continued, Fundranker added another two-month downturn in January and February, 2009. As it did after many past multiple-month downturns, however, Fundranker was able to garner impressive returns over the following periods.

During May and June, 2010, for the first time in the current, 16-month bull market, Fundranker added another multiple-month downturn, but it bounced back significantly in the week that ended July 9.

Although past results are never an assurance of future performance, you still can benefit from knowing that Fundranker almost always has gone on to better performance in the months that follow a multiple-month downturn. Let this knowledge boost your confidence in Fundranker. Stay disciplined, and stick with the Fundranker system.

Posted 7/11/10 6:20pm ET in Fundranker | Permalink | Comments (0)

Bull vs. Bear

Through June 29, the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund), the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund), and Fundranker’s Top Eight Model Portfolio fell 14.1%, 15.5%, and 17.7%, respectively, from bull market highs they reached on April 23. That put them way into correction territory, generally defined as a 10% decline from bull market highs, and much closer to bear market territory, generally defined as a 20% decline from bull market highs, than any of us would like.

Paul Krugman, Nobel Prize winning economist and NY Times columnist, wrote recently that he fears we are heading into a third depression, which he says primarily will be a failure of policy. Governments around the world seem overly concerned with inflation, when he says the real problem is deflation, and they are preaching the need for austerity when the real problem is inadequate spending to make sure we emerge completely from the Great Recession.

So what does our current situation mean for our economy and markets? Will the bull market that started in March, 2009, with the beginning of recovery from the Great Recession be able to overcome this correction, or will it turn into a bear market? Will private business be able to take over the spending necessary to keep the world economy expanding when governments begin curtailing their stimulus spending?

We’re convinced here at Fidelity Select Fundranker that our system of regularly moving into better performing Fidelity Select funds will stand us in good stead however the market reacts to future events. It’s unlikely that we’ll see markets react again like they did when world financial systems nearly collapsed in 2007 and 2008; there almost always will be at least a few sectors that perform well, and Fundranker will find them.

Posted 6/30/10 11:54am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Fundranker in the Black

Through June 11, 2010, Fundranker’s Top Eight Model Portfolio gained 1.1% YTD, while the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) and the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) remained in negative territory with losses of 0.8% and 1.3% YTD, respectively.

Posted 6/12/10 7:46pm ET in Fundranker, Market | Permalink | Comments (0)

Correction Lingers

The S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund), the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund), and Fundranker’s Top Eight Model Portfolio remained in correction as of June 9, with losses of 13.0%, 14.6%, and 15.0%, respectively, from their April 23 bull market highs. In the first seven trading days of June, they lost 3.0%, 4.3%, and 5.4%, respectively, to add to correction woes that began in the last week of April and continued through May.

Contrarians still call for a short-term rally, however, because investor sentiment has turned down so dramatically. Mark Hulbert pointed out in a recent article that, as of June 8, the market was at about the same place it was during the last correction in January and February. At that time, the Hulbert Stock Newsletter Sentiment Index stood at 20.3%, meaning that market-timing newsletters in the Index recommended that their subscribers put 20.3% of their portfolios in stocks, on average. As of June 8, however, the HSNSI stood at negative 8.8%, meaning that newsletters in the Index recommended that their subscribers short the market with 8.8% of their portfolios. That’s quite a change in sentiment.

Contrarians contend that bull markets like to climb a “wall of worry.” This morning, June 10, the market is up over 2%. Perhaps they are right.

Posted 6/10/10 11:49am ET in Fundranker, Market | Permalink | Comments (0)

Correction Recovery?

Fundranker’s Top Eight Model Portfolio, the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund), and the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) were still in correction as of May 28, with losses of 10.1%, 10.3%, and 10.7%, respectively, but in the six trading days between their May 20 correction lows and the end of May, they managed to gain 3.5%, 1.7%, and 2.4%, respectively, which is a good start in overcoming this recent setback.

The American Association of Individual Investors reported on May 27 that nearly 51% of investors were bearish about the market over the next six months in their latest weekly survey, a rise of 17% from the previous survey. Intuitively, this may seem like bad news for the market, but investor confidence traditionally has been a contrarian indicator, so this drop from dangerously high investor confidence is actually another good indicator for this bull market to continue its run.

Posted 5/29/10 9:45pm ET in Fundranker, Market | Permalink | Comments (0)

Correction Hits Market

With its plunge on May 20, the market finished wiping out its 2010 gains and sent major indexes into correction territory. As of May 20, the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) and the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) fell 11.8% and 12.8%, respectively, from their recent bull market highs on Apil 23. Fundranker’s Top Eight Model Portfolio fell 13.2% over the same time period.

Much of the volatility in the market during the last week of trading in April and all of May so far can be attributed to investor concern about the European debt crisis and the possibility it could derail world-wide economic recovery from the Great Recession. For an alternate viewpoint, however, check out Tim Duy’s article about how the European debt crisis could be a net positive for the U.S.

Posted 5/21/10 1:02pm ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Upturns May 2010 Update

Fundranker’s Top Eight Model Portfolio extended its latest multi-month gain in April, 2010. The table below shows Fundranker’s multi-month gains and compares them to returns of the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) and the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite Index until October, 2003, its returns are shown starting in 2004:

With its current three-month upturn, Fundranker has risen 12 of the last 14 months from its March 9, 2009, low. Through May 12, Fundranker was near to breaking even; perhaps it will extend its bull market run and this latest multi-month upturn still another month.

Over all the upturns, Fundranker now has an average gain of 21.562%; the S&P 500 Index gained only 11.771% on average. Over the 13 upturns during which we tracked the Nasdaq Composite Index, Fundranker now has an average gain of 16.769%; the Nasdaq Composite gained only 13.553% on average. See our Fundranker Upturns April 2010 Update post for earlier information.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 Indexes.

Posted 5/13/10 9:59am ET in Fundranker, Market | Permalink | Comments (0)

Greek and European Debt

Greek and European debt weighed heavily on world markets during the first trading week of May. Many financial observers feared that Greece's financial situation could spread to other European nations, possibly setting in motion an even more widely spread downturn in world economies.

European Union nations are tied together with their common currency, the euro, which limits individual members solutions to debt problems, such as Greece’s current situation. Normally, a country would be able to devalue its currency to ease debt problems, but Greece is unable to do that unilaterally.

Paul Krugman, New York Times columnist and winner of the Nobel prize for economics, has a great blog entry today about Greece’s situation and weekend announcments from European Union ministers and the European Central Bank.

World markets have reacted strongly and positively to those announcements in today’s trading. The Nasdaq Composite and the S&P 500 Indexes were up 100 and 45 points, respectively, at 10am today, May 10.

Posted 5/10/10 10:37am ET in Economy, Market | Permalink | Comments (0)

Economy Continues to Grow

The U.S. economy expanded for the third consecutive quarter in the first quarter of 2010. Gross domestic product grew 3.2%. In the third and fourth quarters of 2009, GDP grew 2.2% and 5.6%.

Consumer spending increased significantly, growing at an annual rate of 3.6%, the strongest growth in three years. Consumer spending grew at an annual rate of only 1.6% last quarter.

Businesses must be seeing a more rosy economic future, as well. Their purchases of capital goods increased 13.4% in the first quarter, adding to a 19% increase last quarter. Even more telling, for the first time in two years, businesses increased their goods inventories during the first quarter.

Jobless claims have fallen for two consecutive weeks. Although the recovery has been labeled as “jobless” so far, perhaps this situation is beginning to change.

Posted 5/4/10 9:32am ET in Economy | Permalink | Comments (0)

Stealth Nasdaq

Apparently, the Nasdaq Composite Index has slipped under the radar. Possibly because recovery from the Great Recession has been hard to see from Main Street, nobody seems to have noticed that, as of April 23, the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) gained 100% since its Great Recession low on March 9, 2009. Over the same time period, the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) gained 84%, and Fundranker’s Top Eight Model Portfolio gained 79%:

Posted 4/23/10 8:16pm ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Upturns April 2010 Update

Fundranker’s Top Eight Model Portfolio added another multi-month gain in February and March, 2010. The table below shows Fundranker’s multi-month gains and compares them to returns of the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) and the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite Index until October, 2003, its returns are shown starting in 2004:

With its current two-month upturn, Fundranker has risen 11 of the last 13 months from its March 9, 2009, low. Fundranker is up again through April 15; perhaps it will extend its bull market run and this latest multi-month upturn still another month.

Over all the upturns, Fundranker now has an average gain of 21.237%; the S&P 500 Index gained only 11.693% on average. Over the 13 upturns during which we tracked the Nasdaq Composite Index, Fundranker now has an average gain of 16.371%; the Nasdaq Composite gained only 13.326% on average. See our Fundranker Upturns January 2010 Update post for earlier information.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 Indexes.

Posted 4/15/10 9:14pm ET in Fundranker, Market | Permalink | Comments (0)

Gain on Technology Is Almost Long-Term

Fundranker has held Select Technology since 5/4/09, but it has fallen out of the Top Eight Model Portfolio for April and is due to be exchanged on April 5, just one month short of being considered long-term for federal income tax purposes.

If you hold Select Technology in a taxable account, and since we have gained nearly 50% on it to this point, you may want to consider holding it one more month so the gain can become long-term. If you wait until 5/5/10 to exchange your shares, you will have held them more than one year, and you’ll be able to take advantage of the lower, long-term, capital gain tax rates for 2010: 0% for the 10% and 15% brackets and 15% for higher brackets. Take special note that you have to hold your shares more than one year, so if you bought them on Fundranker's 5/4/09 exchange date, you must hold them until at least 5/5/10 to qualify for long-term.

Although one of Fundranker’s basic premises is to move each month without fail into the new set of Top Eight Model Portfolio funds, Select Technology only fell to number 13 in the rankings at the end of March, so you would not be fudging the system by much, and your tax advantages could be considerable. Also, it wouldn’t be much of a stretch for Select Technology to move back into the Top Eight Model Portfolio in May.

If you do decide to wait until May to sell your shares of Select Technology, then you would have three exchanges for April 5 instead of four:

• Sell Communications Equipment (FSDCX), buy new number four ranked fund
• Sell Retailing (FSRPX), buy new number five ranked fund
• Sell Electronics (FSELX), buy new number seven ranked fund

With these exchanges, you would end up holding Select Technology at least another month, and you would not buy the new number eight ranked fund. For the names and symbols of these new top-ranked funds, see the April 2010 newsletter, which was emailed to subscribers on April 1.

Posted 4/2/10 12:15pm ET in Fundranker, Tax Tips | Permalink | Comments (0)

Making Work Pay Tax Credit for 2009 and 2010

The Making Work Pay tax credit for tax years 2009 and 2010 came about as part of the American Recovery and Reinvestment Act of 2009, which was signed into law by President Obama in February, 2009, to help stimulate the economy in the depths of the Great Recession.

Under the Making Work Pay tax credit, working people are supposed to receive up to $400 per year ($800 for married taxpayers filing jointly) of a refundable credit against their federal taxes. Refundable means that if any remains after it is applied against your tax, it will result in a tax refund. The Making Work Pay credit begins being phased out for single taxpayers at an AGI of $75,000 and for married taxpayers filing jointly at an AGI $150,000.

The whole idea of this tax credit was to get money in the hands of working people as soon as possible so they could spend it and stimulate the economy, so withholding tax tables were changed as of April 1, 2009, and workers started receiving a little bit more take home pay for the remainder of the year. Those little bits, over the last nine months of 2009, as well as over the entire 12 months of 2010, should add up to about $400 ($800 for married taxpayers filing jointly).

When you fill out your 2009 federal tax return, and you get down to the Payments section of your Form 1040, you’ll put down your withholding, which should be about $400 ($800 for married taxpayers filing jointly) less than it would have been had the tax credit not existed, and then you’ll also put down $400 ($800 for married taxpayers filing jointly) for the tax credit. So your tax payments should add up to about the same amount as they would have had the tax credit not existed, but Uncle Sam contributed $400 ($800 for married taxpayers filing jointly) of it for you. He just gave the credit to you a little at a time during the year instead of giving it to you all at once when you file your tax return.

A few taxpayers may find that their employers cut their withholding too much during 2009. If you have more than one job, or you and your spouse both work, remember that your different employers are unaware of your income from the others. They simply look up your payroll withholding according to the number of allowances on your W-4 form. It was up to you to make sure that you claimed the appropriate number of allowances on your 2009 Form W-4 so that your employers didn’t cut your withholding too much during the year. If you are unpleasantly surprised at how this works out on your 2009 tax return, make sure you update your 2010 Form W-4 right away.

Posted 4/1/10 7:20pm ET in Tax Tips | Permalink | Comments (0)

Method 1 Rebalancing

The Fundranker system is based on allocating your investments equally across all eight funds in the Top Eight Model Portfolio. We discuss three methods you can use to rebalance your portfolio on our FAQ page. In this post, we’ll discuss Method 1 further. See our posts on Method 2 and Method 3 for further examples.

It is important to note that Method 1 two-day rebalancing involves selling all of your funds, so consider tax consequences before you use it to balance your taxable accounts. You will realize whatever capital gains or losses your funds have made since you bought them. You may decide that leaving your taxable funds less balanced is better than realizing capital gains earlier than necessary.

Method 1 two-day rebalancing opportunities occur when a Fundranker exchange date falls such that it is at least 30 days after the previous exchange date and at least 31 days before the earliest possible exchange date for the next month, thus avoiding roundtrip transactions. This may happen in August, September, or December in 2010, depending on Fundranker’s exchange dates in July, August, and November. Here is an example of Method 1 two-day rebalancing:

Let’s assume that Fundranker exchanges on July 2, 2010. To rebalance using Method 1, on August 2, 2010, you would exchange all eight of your funds to Fidelity Select Money Market. Then on August 3, 2010, you would divide the amount you have in Fidelity Select Money Market by eight and exchange that amount into each of the funds in the Top Eight Model Portfolio for August. At Fidelity Investments, on your first seven exchanges, enter the dollar amount to exchange. On the eighth exchange, to exchange the last 1/8, select Sell all Shares, which, in this case, actually means the remaining shares after the first seven exchanges.

Although Method 1 two-day balancing opportunities only happen occasionally, note that you can rebalance your funds completely when you take advantage of this method.

Posted 3/30/10 5:40pm ET in Fundranker | Permalink | Comments (0)

Method 2 Rebalancing

The Fundranker system is based on allocating your investments equally across all eight funds in the Top Eight Model Portfolio. We discuss three methods you can use to rebalance your portfolio on our FAQ page. In this post, we’ll discuss Method 2 further. See our posts on Method 1 and Method 3 for further examples.

It is important to note that Method 2 rebalancing involves selling shares from some of your funds that you would not be exchanging otherwise, so consider tax consequences before you use it to balance your taxable accounts. You will realize whatever capital gains or losses those shares have made since you bought them. You may decide that leaving your taxable funds less balanced is better than realizing capital gains earlier than necessary.

Method 2 rebalancing opportunities occur when a Fundranker exchange date falls at least 30 days before the earliest possible exchange date for the next month. This will happen next on June 2, 2010. Here is an example of Method 2 rebalancing:

Let’s assume that, as of the close on June 1, 2010, you hold the following:

First, on June 2, 2010, calculate your goal amount to balance your funds: (3,500 + 2,700 + 3,200 + 3,800 + 4,100 + 2,900 + 4,000 + 3,000) / 8 = 3,400

Second, determine which funds you can exchange from. Funds 1, 2, 4, 6, and 7 will have been held at least 30 days as of June 2, thus avoiding roundtrip transactions. Of those, Funds 1, 4, and 7 are above your goal amount. Fidelity won’t let you exchange less than $250, which leaves only Funds 4 and 7 from which to exchange.

Third, determine which funds you can exchange to. Let’s assume that Funds 1, 3, 4, 6, 7, and 8 did not fall out of the Top Eight Model Portfolio and won’t be exchanged in June. Of those, Funds 3, 6, and 8 are below your goal amount. Fidelity won’t let you exchange less than $250, which leaves only Funds 6 and 8 to which to exchange.

Finally, enter your balancing exchanges at Fidelity Investments. Before 4pm ET on June 2, exchange $400 from Fund 4 to Fund 8 and $500 from Fund 7 to Fund 6.

Note that although you usually will rebalance only part of your funds using Method 2, it still helps bring your funds closer to being balanced, and you can repeat it frequently.

Posted 3/30/10 5:40pm ET in Fundranker | Permalink | Comments (0)

Method 3 Rebalancing

The Fundranker system is based on allocating your investments equally across all eight funds in the Top Eight Model Portfolio. We discuss three methods you can use to rebalance your portfolio on our FAQ page. In this post, we’ll discuss Method 3 further. See our posts on Method 1 and Method 2 for further examples.

It is important to note that Method 3 rebalancing involves selling shares from some of your funds that you may not be exchanging otherwise, so consider tax consequences before you use it to balance your taxable accounts. You will realize whatever capital gains or losses those shares have made since you bought them. You may decide that leaving your taxable funds less balanced is better than realizing capital gains earlier than necessary.

Method 3 rebalancing opportunities occur every month on the Fundranker exchange date. Here is an example of Method 3 rebalancing for our upcoming April 5, 2010, exchange date:

Let’s assume that, as of the close on April 1, 2010, you hold the following:

First, on April 5, 2010, calculate your goal amount to balance your funds: (5,500 + 6,500 + 7,100 + 5,400 + 6,100 + 7,200 + 5,100 + 6,700) / 8 = 6,200

Second, determine which funds you can exchange from. All of your funds will have been held at least 30 days as of April 5, thus avoiding roundtrip transactions. For this example, let’s assume you are balancing funds in an IRA account (see the Fundranker blog post about Fidelity minimum initial investments). FSRFX, FSPTX, and FSELX are at least $500 above your goal amount.

Third, determine which funds you can exchange to. For this example, let’s assume that FSDCX, FSPTX, FSRPX, and FSELX fell out of the Top Eight Model Portfolio and will be exchanged to new funds on April 5. Only FSRPX is more than $500 below your goal amount.

Fourth, enter your balancing exchanges at Fidelity Investments. Before 4pm ET on April 5, exchange $1,000 from FSPTX to the new fund for FSRPX.

Finally, also enter your regular exchanges at Fidelity Investments before 4pm ET on April 5. When you enter your exchange from FSPTX to its replacement, Fidelity will warn you that you already have an outstanding exchange for FSPTX, which is okay—it’s your balancing exchange from step four. One of your regular exchanges will be from FSRPX to its replacement. Fidelity automatically will combine your balancing and regular exchanges to the replacement fund for FSRPX into one position.

Note that although you usually will rebalance only part of your funds using Method 3, it still helps bring your funds closer to being balanced, and you can repeat it frequently.

Posted 3/30/10 5:40pm ET in Fundranker | Permalink | Comments (0)

Fundranker Multiple-Month Downturns

Through June, 2008, the Fundranker system bucked the bear market that started in November, 2007, but in the frantic market downturn during the last half of 2008 and January and February of 2009, it gave back those gains and then some. Fundranker has had multiple-month downturns only 15 times since 1997, when historical tracking of the Top Eight Model Portfolio began, and it has not had any multiple-month downturns during the recent, year-long, bull market. Here are Fundranker’s losses during those downturns along with its returns during the next three months, six months, and 12 months:

The five-month downturn that began in July, 2008, was the first multiple-month downturn Fundranker had had for two years, and it is by far the worst and longest that Fundranker has suffered. As the Great Recession, the worst recession since the Great Depression, continued, Fundranker added another two-month downturn in January and February, 2009. As it did after many past multiple-month downturns, however, Fundranker was able to garner impressive returns over the following periods.

Although past results are never an assurance of future performance, you still can benefit from knowing that Fundranker almost always has gone on to better performance in the months that follow a multiple-month downturn. Let this knowledge boost your confidence in Fundranker. Stay disciplined, and stick with the Fundranker system.

Posted 3/25/10 10:19am ET in Fundranker | Permalink | Comments (0)

Education Tax Credits for 2009

If you, your spouse, or one or more dependents had qualifying postsecondary education expenses in 2009, don’t miss claiming your education tax credit on federal Form 8863. The American Opportunity credit is new for 2009, and the Hope and Lifetime Learning credits are still available, as well, although the Hope credit is useful now only if you need to claim qualifying educational expenses for a student who attended a school in a Midwestern disaster area. Instead of the above education credits, you also still can claim the tuition and fees deduction on federal Form 8917 for 2009. It is limited to $2,000 or $4,000 depending on your gross income less other deductions, is deducted from your gross income, and lowers your AGI. As such, it hardly ever lowers your federal tax as much as the above credits, and we won’t discuss it any further in this post. As an aside, you may be able to reduce your state income tax for 2009 by claiming qualifying education expenses, as well.

The American Opportunity education credit, new for 2009, allows you to claim a tax credit of 100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses for each student, for up to a maximum $2,500 tax credit per student, for the first four years of postsecondary education. Even better, if you are at least 24 years old (see Form 8863 instructions if you were younger than 24 at the end of 2009), 40% of each student’s tax credit is refundable, meaning it will increase your tax refund, even if you don’t owe that much tax. If you claim the American Opportunity credit for any student, you cannot claim the Hope credit for other students, but you can claim the Lifetime Learning credit for other students. The American Opportunity credit is phased out beginning at $80,000 AGI for single taxpayers and $160,000 AGI for married taxpayers who file jointly.

If you have a student who attended school in a Midwestern disaster area, the Hope education credit allows you to claim a tax credit of 100% of the first $2,400 and 50% of the next $2,400 of qualified education expenses for each student, for up to a maximum $3,600 tax credit per student, for the first two years of postsecondary education. If you have other students who did not attend school in a Midwestern disaster area, the Hope education credit allows you to claim a tax credit of 100% of the first $1,200 and 50% of the next $1,200 of qualified education expenses for each student, for up to a maximum $1,800 tax credit per student, for the first two years of postsecondary education. If you claim the Hope credit for any student, you cannot claim the American Opportunity credit for other students, but you can claim the Lifetime Learning credit for other students. None of the Hope credit is refundable, and it is phased out beginning at $60,000 AGI for single taxpayers and $120,000 AGI for married taxpayers who file jointly.

The Lifetime Learning education credit allows you to claim a tax credit of 20% (or 40%, if your student attended school in a Midwestern disaster area) of the first $10,000 of qualified education expenses for all students together, for up to a maximum $2,000 (or $4,000) tax credit. This credit can be used for any number of years of postsecondary education. None of it is refundable, and it is phased out beginning at $60,000 AGI for single taxpayers and $120,000 AGI for married taxpayers who file jointly.

Check various combinations of the three credits to see which is best for you. For example, if you have only one student, she attended school in a Midwestern disaster area, and she had $10,000 of qualifying expenses, you could claim a $2,500 American Opportunity credit, a $3,600 Hope credit, or a $4,000 Lifetime Learning credit. If you have two students, neither attended school in a Midwestern disaster area, and they each had $5,000 of qualifying expenses, you could claim a $5,000 American Opportunity credit, a $2,500 American Opportunity credit along with a $1,000 Lifetime Learning credit, or a $2,000 Lifetime Learning credit. If you have two students, one attended school in a Midwestern disaster area and had $10,000 of qualifying expenses, and the other had $4,000 of qualifying expenses, you could claim a $5,000 American Opportunity credit for both students, a $5,400 Hope credit for both students, a $4,000 Lifetime Learning Credit for both students, or a $4,000 Lifetime Learning credit for the student who attended school in a Midwestern disaster area along with a $2,500 American Opportunity credit for the student who didn’t.

When you are figuring out which option is best for your situation, remember that, if the nonrefundable portion of your education credit is limited by the amount of your income tax, it’s possible a smaller American Opportunity credit, which is partly refundable, may be better than a larger Hope or Lifetime Learning credit.

Posted 3/16/10 10:35am ET in Tax Tips | Permalink | Comments (0)

One Year

At the depths of the Great Recession, when the market reached 12-year lows on March 9, 2009, despair seemed to be overwhelming. Then a market rally started, and hope returned, or maybe it was the other way around. Despite many calls for the market to test new lows, it never really did. You can see from the chart below that the market did turn down significantly three times over the last year, but always recovered.

As of March 9, 2010, the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund) reached a new high for the year-long bull market, while the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) and Fundranker’s Top Eight Model Portfolio were tantalizingly close to highs they reached in January.

After Fundranker, the S&P 500, and the Nasdaq Composite fell 54.1%, 54.9%, and 55.1%, respectively, during the bear market that lasted from November 1, 2007, through March 9, 2009, they gained 61.5%, 72.8%, and 85.7%, respectively, during the year which ended March 9, 2010:

Posted 3/10/10 10:02am ET in Fundranker, Market | Permalink | Comments (0)

Unrelated Dependent

Are you working long hours, possibly more than one job, and supporting your significant other while she’s out of work? Is your unemployed college buddy mooching off you during a long and unsuccessful job hunt? Have you taken in your daughter’s soccer team buddy because her home life wasn’t working? It’s not obvious, and it may surprise you, but you may be able to claim an unrelated person as a dependent on your 2009 federal tax return.

There are several tests to determine whether an unrelated person is your dependent. If you and your potential dependent pass all of these tests, get ready to save a bundle on your taxes:

• Is your potential dependent a qualifying relative? It’s easy to jump to the conclusion that she isn’t a qualifying relative, because, well, she’s not related to you in any form or fashion. Take a close look at the IRA definition of a qualifying relative, however, and you’ll see that it includes, in addition to various real relatives, any other person who lived with you all year as a member of your household if your relationship did not violate local law. Note that the 2009 Form 1040 instructions list some exceptions that still count as living with you, such as going to school or on vacation. So if your potential dependent lived with you for all of 2009, and your relationship did not violate local law, you pass this test.
  
  
• Is your potential dependent a qualifying child of any taxpayer for 2009? Because she is not related to you, she’s not your qualifying child, and if she lived with you the entire year, then she can’t be a qualifying child of anybody else, either. You easily pass this test.
  
  
• Did your potential dependent have gross income of less than $3,650 in 2009? If so, you pass this test.
  
  
• Did you provide over half of your potential dependent’s support in 2009? Well, does she have some other means of support? Is the support you provide more than her other means of support? If so, you pass this test.
  
  
• Was your potential dependent a U.S. citizen, a U.S. national, a U.S. resident alien, or a resident of Canada or Mexico? If so, you pass this test.
  
  
• Was your potential dependent married? If not, you pass this test.
  
  
• Can you yourself be claimed as a dependent on someone else’s 2009 tax return? If you are providing have of your potential dependent’s support, it’s unlikely someone else is providing half of your support. You should pass this test easily.

So if you pass the above tests, just how much can you save on your taxes? An additional dependent allows you an extra exemption, which, for 2009, shaves $3,650 off your taxable income. If you are in the 25% tax bracket, that amounts to tax savings of over $900. If you also are paying education expenses for your unrelated dependent, you can save big with an education tax credit. To top it off, you probably will save money on your state income tax, as well.

Posted 3/7/10 11:21am ET in Tax Tips | Permalink | Comments (0)

2009 Qualified Dividends

Fidelity shows qualified dividends paid on funds in a taxable account at www.fidelity.com and on 2009 Form 1099-DIV. These dividends are from companies the funds held for the required holding periods to qualify as qualified dividends. In addition to meeting the holding period within the fund, however, you also have to hold your fund shares for the required holding period for your dividends to be qualified. To pass the qualified dividend holding period test, you must hold your fund shares for a period of at least 61 days, which can precede, straddle, or follow the ex-date of the dividend.

Fidelity paid dividends on several funds in Fundranker’s Top Eight Model Portfolio in April and December, 2009. Here is a list of those dividends, ex-dates, days Fundranker held shares in the funds, and whether those days pass the qualified dividends holding test:

Assuming you bought and sold the above funds on Fundranker exchange dates, the bottom line here is that you should claim dividends that Fidelity reports as qualified for Gold, Materials, Pharmaceuticals, and Telecommunications as qualified dividends, but not those that Fidelity reports as qualified for Chemicals, Electronics, or Multimedia.

If you bought and sold the above funds on dates other than Fundranker exchange dates, or if you held, in a taxable account, other Fidelity funds which paid qualified dividends, you’ll need to calculate your own holding periods to determine whether the dividends Fidelity reports as qualified are truly qualified.

Posted 3/03/10 11:20am ET in Fidelity Investments, Fundranker, Tax Tips | Permalink | Comments (0)

S&P 500 Tracking Portfolio Change

For comparison purposes, Fidelity Select Fundranker tracks the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index - Investor Class Fund) with a theoretical portfolio which we started on January 2, 1997, with a value of $24,000. We recently made a change to this theoretical portfolio because of a change at Fidelity Investments.

As of the close of trading on January 22, 2010, Fidelity Investments merged its Spartan 500 Index - Investor Class Fund (FSMKX) into its Spartan US Equity Fund (FUSEX). Beginning January 25, 2010, the newly merged fund retains the name Spartan 500 Index - Investor Class Fund but uses the FUSEX trading symbol. Because of this merger and use of the FUSEX symbol, as of January 22, 2010, we adjusted the number of shares we list for our S&P 500 Index theoretical tracking portfolio from 582.597 (of FSMKX, NAV $75.29 on 1/22/10) to 1,135.190 (equivalent shares of FUSEX, NAV $38.64 on 1/22/10). See our December 2009 and January 2010 results pages to review these changes.

Posted 2/19/10 8:59pm ET in Fundranker | Permalink | Comments (0)