Fidelity Select Fundranker

Fundranker Blog—Page 4

Fundranker Upturns

The market upturn since March 9 lows prompts a look at how Fundranker has performed when it has risen for multiple, consecutive months. The table below shows Fundranker’s gains and compares them to returns of the Nasdaq Composite (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 (as measured by the Fidelity Spartan 500 Index Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite until October, 2003, its returns are shown starting in 2004:

      FSF Nasdaq S&P 500
     Period Months Return  Return   Return
Apr/Jul 1997     4 30.508    26.737 
Nov/Dec 1997     2 3.682    6.342 
Feb/Apr 1998     3 16.283    13.686 
Sep/Jan 1999     5 57.092    34.423 
Mar/Apr 1999     2 12.267    8.028 
Oct/Feb 2000     5 79.523    6.960 
Apr/May 2001     2 5.270    8.454 
Nov/May 2002     7 24.740    1.461 
Apr/Aug 2003     5 27.002    19.657 
Oct/Feb 2004     5 22.058  13.227  15.740 
May/Jun 2004     2 5.001  6.771  3.309 
Sep/Dec 2004     4 15.808  18.259  10.379 
May/Sep 2005     5 26.361  12.312  7.029 
Nov/Jan 2006     3 22.953  8.880  6.555 
Mar/Apr 2006     2 8.780  1.820  13.073 
Nov/Jan 2007     3 7.126  13.073  11.059 
Mar/Jun 2007     4 9.584  7.986  7.446 
Aug/Oct 2007     3 14.491  12.500  6.942 
Apr/Jun 2008     3 13.553  0.761  (2.739)
Mar/May 2009     3 18.245  28.986  25.876 

If you look at our recent post about Fundranker Downturns, you’ll notice that Fundranker has had significantly more multiple-month upturns than downturns and that the upturns tend to last longer than the downturns, as well. Over all the upturns, Fundranker had an average gain of 21.016%, while the S&P 500 gained only 10.997% on average. Over the 11 upturns during which we tracked the Nasdaq Composite, Fundranker had an average gain of 14.905%, while the Nasdaq Composite gained only 11.325% on average.

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 6/4/09 11:45am ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Downturns

Through June, 2008, the Fundranker system bucked the bear market trend that started 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. Here are Fundranker’s losses during those downturns along with its returns during the next 3 months, 6 months, and 12 months:

       Next 3  Next 6 Next 12
     Period Months    Loss Months Months Months
Feb/Mar 1997     2 (10.478) 17.993  37.309  49.620 
Jul/Aug 1998     2 (18.332) 24.203  46.650  83.587 
Mar/May 2000     3 (14.633) 20.863  7.140  9.806 
Sep/Nov 2000     3 (11.354) 0.224  2.488  (5.267)
Jan/Mar 2001     3 (9.739) 3.670  (7.140) 12.227 
Aug/Oct 2001     3 (12.200) 13.141  23.520  (1.727)
Jun/Jul 2002     2 (15.637) (6.615) (4.395) 7.475 
Sep/Oct 2002     2 (8.563) 2.377  (4.461) 33.218 
Dec/Mar 2003     4 (7.317) 15.114  23.719  45.021 
Mar/Apr 2004     2 (10.145) 1.538  8.246  16.784 
Jul/Aug 2004     2 (3.678) 14.696  24.092  40.048 
Mar/Apr 2005     2 (6.949) 17.081  20.887  50.482 
Jul/Aug 2006     2 (3.256) 4.659  5.865  16.990 
Jul/Nov 2008     5 (46.834) (9.347) 7.189 
Jan/Feb 2009     2 (16.832) 18.245 

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 worst recession since the Great Depression continued, Fundranker added another two-month downturn in January and February, 2009, and it was nearly as bad as the previous worst multiple-month downturn, July through August, 1998, when Fundranker fell over 18% but gained over 83% during the next 12 months. During the last big bear market, Fundranker had three multiple-month downturns over the ten-month period from June, 2002, through March, 2003, but it gained 45% in the next 12 months.

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 6/3/09 9:31pm ET in Fundranker | Permalink | Comments (0)

Fundranker Goes Positive

The first day of June was a good one for the markets and an even better one for Fundranker’s Top Eight Model Portfolio. As of June 1, Fundranker’s Top Eight Model Portfolio is in the black for 2009, with a YTD gain of 2.232%. It also finally surpassed its previous high, reached on January 6, by a fraction of a percent. Take a look at our daily chart for June.

Posted 6/2/09 9:08am ET in Fundranker | Permalink | Comments (0)

Rally Continues

The spring rally had nine straight weeks of new highs, fell during the week ended May 15, 2009, and rose (but not to a new high) for the week ended May 22. The Nasdaq Composite made a new rally high as of May 29, and the S&P 500 nearly did. Fundranker’s Top Eight Model Portfolio, the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund) have gained 26.17%, 36.63%, and 40.04%, respectively, since their recent March 9 lows. As of May 29, the Nasdaq Composite is nearly 8% higher than its January 6 high, the S&P 500 is within 1% percent of its January 6 high, and Fundranker is within 4% of its January 6 high.

The stock market shot up in the last half hour on Friday, May 29, and, despite continuing financial turbulance, such as General Motors declaring bankruptcy this morning, June 1, stock market futures are indicating that surge may continue today. It seems that this rally has staying power. Maybe it truly is an advance indicator that the economy is beginning to recover. See our Spring Rally post for earlier information on this rally.

Posted 6/1/09 9:30am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Spring Rally

After nine straight weeks of new highs and after weathering the recent deluge of earnings reports, the spring market rally finally took a break during the week ended May 15, 2009. Fundranker’s Top Eight Model Portfolio, the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund) fell 5.65%, 4.87%, and 3.38%, respectively, for the week but still have gained 18.36%, 31.12%, and 32.48%, respectively, since their recent March 9 lows. As of May 15, the Nasdaq Composite is nearly 2% higher than its January 6 high, the S&P 500 is within 5% percent of its January 6 high, and Fundranker is within 10% of its January 6 high.

Despite this week’s setback, has the market turned the corner? The stock market generally begins a sustained recovery several months before it becomes apparent that the economy is recovering from a recession, although it also can stage bear market rallies and still hit new lows if true recovery doesn’t occur. Are tantalizing hints of economic recovery, such as improvements in bank-to-bank short-term lending, pending home sales, construction spending, existing home inventories, and consumer spending holding out real or false hope? Stay tuned to see if this spring rally regains its footing. See our March/April Rally and New Market Rally posts for earlier information on this rally.

Posted 5/17/09 11:59am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Roth IRA for a Child

There is plenty of controversy over the relative merits of traditional IRAs and Roth IRAs for worker-age individuals who qualify for both. In general, you get to deduct contributions to a traditional IRA up front, but you pay taxes when you withdraw money from it after age 59Ĺ on both your contributions and whatever gains accrue; you donít get to deduct contributions to a Roth IRA up front, but you donít have to pay taxes after age 59Ĺ when you withdraw money from it on your contributions or any gains that accrue. Many variables make the decision very difficult to quantify, and some of the questions that arise canít be answered without a crystal ball, such as what tax rates may be like in the future when you withdraw money from your IRA.

But what about that babysitting or lawn mowing money your child makes while she is in middle school or high school? What about that first part-time job she gets at the corner drugstore? Itís pretty likely that with her income level, she wonít even have to file an income tax return, and yet this income is considered after-tax income. You couldnít ask for a better situation for a Roth IRA to make sense. Your child wonít pay income taxes on the income, but she can take full advantage of a Roth IRA. Plus, that money will be in your childís Roth IRA for a long, long time; time during which it can grow and grow and grow.

Your childís Roth IRA contribution for 2009 (contribute by April 15, 2010) is limited to her earned income or $5,000, whichever is less. With the jobs weíre talking about, she is likely to earn less than $5,000. So do you ask her to give up her hard-earned money, which, since she made the effort to earn it, she must want for something else? Well, that depends on your situation. If you think getting your child set up with a life-long investment is important, and you have the means, you can spring for all or most of the money to put in it (you can give up to $12,000 per year to an individual without the gift being taxable). After all, it probably wonít be a large amount the first few years.

You are probably asking, what if my kid only makes $50 babysitting the first year she makes any money? Check with your bank or credit union to see what their minimum requirements are for opening a Roth IRA. Many have very low minimums, so you can start very small.

Because a Roth IRA is not considered for FAFSA (Free Application for Federal Student Aid), it is a great way to save in your childís name, shield those assets from financial aid considerations for college, and yet still have access to at least some of the money for college, as follows.

Your child can make certain withdrawals from her Roth IRA before age 59Ĺ without including the amounts as taxable income or having to pay a penalty: for example, she can withdraw any or all of the contributions she makes over the years, or she can withdraw up to $10,000 for qualified first-time homebuyer expenses, even if they exceed all of her contributions. Investment earnings that accrue in a Roth IRA are another story; if your child withdraws earnings (other than as qualified first-time homebuyer expenses) from her Roth IRA before age 59Ĺ, she will have to include those amounts as taxable income and will have to pay a 10% penalty, as well.

Setting up a Roth IRA is a great opportunity to teach your child the importance of saving for the future. Show her how her Roth IRA may grow over the years from her contributions as well as investment returns. Review various ways her Roth IRA can be invested and decide together which to use. If you want your child to feel more ownership of her Roth IRA, you and your child could agree on a “company matching” strategy, where you play the part of the company and do the matching (probably way more generously than your company matches your 401K), and your child puts in some part of her earnings.

Posted 5/12/09 11:57am ET in Investing, Tax Tips | Permalink | Comments (0)

March/April Rally

The current market rally, March 10, 2009, through May 8, 2009, now has outlasted the previous bear market rally, November 21, 2008, through January 6, 2009. The previous rally lasted 30 sessions, while the current rally has lasted 43 sessions. Fundranker’s Top Eight Model Portfolio, the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund) all reached new highs for this rally during the week that ended May 8 and have gained 25.44%, 37.83%, and 37.12%, respectively, since their recent March 9 lows.

For nine weeks in a row, the market has seen new rally highs, with the exception of the S&P 500's loss of just 0.35% for the week ended April 24. As of May 8, the Nasdaq Composite is nearly 6% higher than its January 6 high, the S&P 500 is a fraction of a percent above its January 6 high, and Fundranker is within 5% of its January 6 high.

Is this rally the beginning of a new bull market? It hung on during the weeks ended April 24 and May 1 during a deluge of companies reporting their latest earnings, a true test of its staying power. See our Spring Rally post for newer information on this rally. See our New Market Rally post for earlier information on this rally.

Posted 5/10/09 11:10am ET in Fundranker, Market | Permalink | Comments (0)

New Market Rally

The market fell to new multi-year lows on Monday, March 9, 2009. From recent market highs reached on January 6, 2009, the peak of what turned out to be a bear market rally followed by new lows, through March 9, Fundranker’s Top Eight Model Portfolio fell 23.59%, while Fidelity’s Spartan 500 Index Fund (which tracks the S&P 500 Index) fell 27.19%, and Fidelity’s Nasdaq Composite Index Fund (which tracks the Nasdaq Composite Index) fell 23.03%.

Since the market lows on Monday, March 9, Fundranker, the S&P 500 Index, and the Nasdaq Composite Index have come roaring back with gains of 21.36%, 28.41%, and 33.61%, respectively. Is this just another bear market rally, similar to the one that peaked on January 6, with further new lows ahead, or is it the beginning of a real recovery? The Nasdaq Composite Index finally topped its January 6 high as of April 9, on a number of days since then, and again as of April 24. Notice it took a 30% gain to undo a 23% loss--that's because the gain was figured on the March 9 low, while the loss was figured on the January 6 high. The S&P 500 Index and Fundranker still have quite some way to go to remake their January 6 highs. What's next?

See our Spring Rally and March/April Rally posts for newer information on this rally.

Posted 4/26/09 6:05pm ET in Fundranker, Market | Permalink | Comments (0)

Nasdaq Composite vs S&P 500

Here at Fidelity Select Fundranker, we track the Nasdaq Composite and the S&P 500 Indexes so that we can compare their returns to Fundranker Top Eight Model Portfolio returns. We have tracked the S&P 500 Index since January, 1997, using Fidelity’s Spartan 500 Index Fund (FSMKX), and we have tracked the Nasdaq Composit Index since October, 2003, using Fidelity’s Nasdaq Composite Index Fund (FNCMX), which began operations in September, 2003. We began our Nasdaq Composite Index tracking portfolio on September 30, 2003, with the number of shares of FNCMX that gave it the same dollar balance as our S&P 500 tracking portfolio had on September 30, 2003.

As of April 22, for the first time since January, 2004, our Nasdaq Composite Index tracking portfolio’s value surpassed our S&P 500 tracking portfolio’s value. The Nasdaq Composite Index is heavily weighted toward technology stocks, which have been some of the best performers during the recent rally. This strength in technology stocks has propelled several Select technology funds into our Top Eight Model Portfolio, and at this point in April, it looks like another one or two Select technology funds may join the Top Eight Model Portfolio for May. Perhaps this strength in technology will provide the leadership needed to begin our recovery from recession as well as returning the Top Eight Model Portfolio to its customary role of outperforming the indexes.

Posted 4/23/09 1:04pm ET in Fundranker, Market | Permalink | Comments (0)

April 17 Dividends

Fidelity Investments paid dividends on April 17, 2009, the ex-dividend date, for three of the funds in Fundranker’s Top Eight Model Portfolio: Select Electronics, Select Pharmaceuticals, and Select Telecommunications. If you hold any of these funds in taxable accounts, here’s the scoop on how to determine whether your shares in these three funds meet the 61-day holding period test for qualified dividends. Of course, if you purchased or exchange any or all of your shares in these three funds on days other than Fundranker exchange dates, you will have to calculate your 61-day holding periods using those dates. See Select Fund Dividends for more information.

Fundranker’s Top Eight Model Portfolio purchased Select Electronics on April 3, so the underlying shares will not meet the 61-day holding period test until June 3, 2009. If Fidelity Investments reports it on your 2009 Form 1099-DIV as a qualified dividend and Fundranker holds it through June 3, you should report it as a qualified dividend on your 2009 Form 1040. If Fundranker exchanges the fund before June 3, you should not report it as a qualified dividend on your 2009 Form 1040.

Fundranker’s Top Eight Model Portfolio purchased Select Pharmaceuticals on October 2, 2008, so the underlying shares already easily meet the 61-day holding period test for qualified dividends. If Fidelity Investments reports Pharmaceutical’s April 17 dividend on your 2009 Form 1099-DIV as a qualified dividend, you should report it as a qualified dividend on your 2009 Form 1040.

Fundranker’s Top Eight Model Portfolio purchased Select Telecommunications on March 4, so the underlying shares will meet the 61-day holding period test for qualified dividends on May 4, Fundranker’s next exchange date. Even if Fundranker exchanges the fund that day, the underlying shares still will meet the 61-day holding period test for qualified dividends. If Fidelity Investments reports Telecommunications’ April 17 dividend as a qualified dividend, you should report it as a qualified dividend on your 2009 Form 1040.

Posted 4/17/09 9:03pm ET in Fidelity Investments, Fundranker, Tax Tips | Permalink | Comments (0)

Select Fund Dividends

Many of Fidelity Investments’ Select funds will be paying dividends in April. On what is known as the ex-dividend date, the closing NAV of the dividend-paying fund will be adjusted downward by the amount of the dividend. The fund may gain or lose value on that trading day as well, of course, which also will affect that day’s NAV. Essentially, the fund distributes a set amount per share and reduces the closing NAV of each share by that same amount. You end up with the same value, partly as shares and partly as dividend.

If you automatically reinvest your dividends, the dividend amount is used to purchase new shares at the adusted NAV, so you end up with more shares, but with the same value you would have had without the dividend being paid. Fidelity Investments shows pending dividends for your holdings online at www.fidelity.com after 4pm ET on the ex-dividend date. The following morning, your accounts will reflect the new number of shares at the new NAV.

If your Select fund holdings are in a taxable account, Fidelity Investments will send you a Form 1099-DIV shortly after the end of the year that shows dividends distributed during the year. They will be classified as ordinary dividends, qualified dividends, and capital gain distributions. Qualified dividends are included in ordinary dividends, but they are broken out because they may be eligible to receive preferential tax treatment. That is, qualified dividends that fall within the 15% tax bracket are not taxed at all, and qualified dividends that fall in the 25% or higher tax brackets are taxed at only 15%.

Unfortunately, until you receive your Form 1099-DIV, you can’t tell how much of your ordinary dividends is eligible to be treated as qualified dividends. When you do receive your Form 1099-DIV, the qualified dividends it lists really are only potentially qualified dividends. You still have to determine if you held the fund shares which paid the dividends for the required periods. You must hold the dividend-paying fund shares for at least 61 days of the 121-day period beginning 60 days before the ex-dividend date and ending 60 days after the ex-dividend date. When you count the days, include the day you sold shares in a fund, but not the day you acquired them. For example, if you acquired shares 60 days before the ex-dividend date, you could sell them 61 days later on the trading day immediately following the ex-dividend date, or if you acquired shares one day before the ex-dividend date, you could sell them 61 days later, which would be 60 days after the ex-dividend date.

Fundranker held a number of funds in 2008 that paid dividends in April and December. Assuming you made exchanges on Fundranker exchange dates, you held all of the Top Eight Model Portfolio funds that paid dividends in April and December the required 61 days, except for two funds that paid dividends in December, 2008: Select Environmental and Select Utilities (then known as Select Utilities Growth). Qualified dividends reported on your Form 1099-DIV for all other Top Eight Model Portfolio funds can and should be reported as qualified dividends on your 2008 Form 1040, which means they qualify for the preferential tax treatment discussed above.

Posted 4/9/09 1:25pm ET in Fundranker, Investing, Tax Tips | Permalink | Comments (0)

FNINX, FSPFX Close to New Investors

Two of Fidelity Investments’ Select funds, Networking & Infrastructure (FNINX) and Paper & Forest Products (FSPFX), closed to new investors as of March 19, 2009. This means that current investors in the funds can add to their positions, but you cannot open a new position in either fund. This change caught us unaware at Fidelity Select Fundranker and affected the Fundranker system immediately, as it just so happened that Networking & Infrastructure (FNINX), had it still been open, would have made a dramatic move to number three in the Top Eight Model Portfolio for April. We apologize again for the late reissue of the April issue with a corrected listing of the Top Eight Model Portfolio and corrected exchanges for April 3.

The two funds were closed in March pending shareholder votes to merge Networking & Infrastructure (FNINX) into Communications Equipment (FSDCX) and to merge Paper & Forest Products (FSPFX) into Materials (FSDPX). The dates for the votes have not yet been set, and in the meantime, the funds will remain closed to new investors.

If the funds eventually are merged, Networking & Infrastructure and Paper & Forest Products would close permanently and their assets would be rolled into Communications Equipment and Materials. Shareholders of Communications Equipment or Materials would see no effect from the merger; that is, they would still own the same number of shares at the same NAV. Shareholders of Networking & Infrastructure or Paper & Forest Products, on the other hand, would get replacement shares of Communications Equipment or Materials that are equivalent in value to their original Networking & Infrastructure or Paper & Forest Products shares.

Posted 4/4/09 4:35pm ET in Fidelity Investments | Permalink | Comments (0)

Capital Losses

Even though Fundranker realized short-term capital gains on exchanges in the first half of 2008, the across-the-board selloff we experienced in the second half of the year way more than did in those gains. Fundranker realized sizeable short-term capital losses on exchanges later in the year.

If you realized these capital losses in taxable accounts, the tax code calls for applying these capital losses first against realized capital gains, and then against regular income. Capital losses applied against regular income are limited to $3,000, with the remainder being carried over to the following year. The $3,000 limit is applied regardless of your filing status. It seems unfair, but taxpayers who are married must share the $3,000, regardless of whether they file jointly or separately.

When you have sizeable capital losses, being able to use only $3,000 per year against regular income may make it seem like it will take many years to use them up, but when your investments begin to realize gains again, you can use those capital losses much faster. When you carryover your remaining capital losses to a following year, they again are applied first to capital gains and then to regular income. So when the economy and stock market finally recover, and Fundranker begins to realize capital gains on exchanges, the capital losses carried over from 2008 can be applied against them with no limit. If your capital losses carried over from 2008 exceed capital gains for 2009, then they again are limited to $3,000 that can be applied to regular income, with remaining capital losses carried over still again.

Posted 3/25/09 10:29am ET in Fundranker, Tax Tips | Permalink | Comments (0)

SE Health Insurance Deduction

The self-employed health insurance deduction is a valuable "above-the-line" deduction for self-employed individuals. It reduces your adjusted gross income, which cascades to your benefit on Schedule A itemized deductions as well as various tax credits and possibly on your state income tax return. For 2008, new rules make it easier than ever to claim this deduction if you are a partner with net earnings from self-employment or a more-than-2% shareholder in an S corporation. The rule change is retroactive, so partners and more-than-2% shareholders in S corporations may be able to amend past returns to take advantage of this deduction, as well.

For purposes of this deduction, a self-employed individual is a person who files Schedule C, Schedule C-EZ, or Schedule F with Form 1040, a partner with net earnings from self-employment, or a more-than-2% shareholder in an S corporation with wages reported on a Form W-2. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents.

The insurance plan must be established under your business. This is easiest for self-employed individuals who file Schedule C, C-EZ, or F as the insurance plan can be either in the name of the individual or in the name of the business. Essentially, for a self-employed individual, you are your business, so it is the same thing. For self-employed individuals, the deduction generally is limited to the net profit from your business less one-half of your self-employment tax and your self-employed SEP, SIMPLE, and qualified plans deduction.

If you are a partner with net earnings from self-employment or a more-than-2% shareholder in an S corporation, the insurance plan can be in the name of the business or, and this is what is new for 2008, in your name. Your partnership or S corporation must either pay the premiums or reimburse you for premiums you pay, and either way, the premium amounts must be reported as income on Schedule K-1 (partnership) or Form W-2 (S corporation). If your partnership or S corporation reimburses you for only part of the insurance premium amounts, then only that part of the premium amounts is reported as income and is deductible.

You cannot include in your self-employed health insurance deduction health insurance premiums for any month you were eligible to participate in any employer subsidized health plan at any time during that month, even your spouse’s employer, and even if you didn’t participate. This rule is applied separately to plans that do and do not provide long-term care insurance.

The Form 1040 instructions, for some reason, mention self-employed individuals only in passing, give details for S corporations but fail to explicitly mention that the insurance plan may be in the name of the individual, and leave the information out completely for partners with self-employment income. Publication 535, on the other hand, does a thorough job of describing all these situations, so you can find the information, but you have to dig for it.

The IRS doesn’t allow you to double up on deductions, so any deduction you take for self-employed health insurance premiums cannot also be deducted as an itemized deduction on Schedule A of Form 1040. If your self-employed health insurance deduction is less than the total amount of premiums you paid for health insurance, however, you can deduct the remaining premium amount on Schedule A, but it will be subject to the 7.5% AGI reduction of medical and dental expenses.

If you are self-employed, a partner with net earnings from self-employment, or a more-than-2% shareholder in an S corporation, don’t miss out on the new and improved self-employed health insurance deduction.

Posted 3/19/09 11:30am ET in Tax Tips | Permalink | Comments (0)

Real Estate Taxes Deduction

Until 2008, you had to itemize deductions to be able to deduct real estate taxes from your taxable income. If you took the standard deduction, you had to be satisfied that it included your real estate taxes. Now for 2008 returns, you can take an additional standard deduction up to $500 ($1,000 if married filing jointly) for real estate taxes you paid in 2008. The instructions for Forms 1040 and 1040A have a nifty little worksheet to help you figure your standard deduction. Essentially, it adds your real estate taxes, up to $500 ($1,000 if married filing jointly), to your standard deduction.

For taxpayers who usually itemize deductions, instead of comparing your itemized deductions to your standard deduction, you will need to compare them to your standard deduction plus up to $500 ($1,000 if married filing jointly) for your real estate taxes. When you itemize deductions, you can claim the entire amount of real estate taxes you paid in 2008. If your real estate taxes are considerably higher than the $500 or $1000 limits, it may seem counterintuitive to take the standard deduction plus the limited real estate taxes deduction, but you still need to consider it. For example, if your itemized deductions include, say, $2,500 of real estate taxes, but exceed your standard deduction by only $400, then your standard deduction plus $500 ($1,000 for married filing jointly) would be larger and would reduce your taxable income more than your itemized deductions would.

Posted 3/11/09 9:56am ET in Tax Tips | Permalink | Comments (0)

Nasdaq Composite Breaks Lower

On March 5, 2009, the Nasdaq Composite Index broke through its November 20, 2008, low to close at a level last seen in March, 2003, joining the Dow Jones Industrial Average and the S&P 500 Index, which broke through their November 20 lows about two weeks ago. The DJIA since has retreated to levels last seen in April, 1997, while the S&P 500 has fallen to levels last seen in September, 1996. As of the close on March 5, the Nasdaq Composite Index remains about 30 points over its March, 2003, low. The Nasdaq Composite Index, heavily weighted toward technology stocks and now set back six years, seems to be weathering the storm better than the DJIA, now set back 12 years, and the S&P 500, now set back 13 years. Perhaps the technology sector will lead us out of this recession.

Posted 3/5/09 9:28pm ET in Market | Permalink | Comments (0)

Education Expenses

Education expenses can be reported in four different places on your tax return, which naturally creates some confusion on which place benefits you the most. You can take a Hope credit, a Lifetime Learning credit, or a Tuition and Fees deduction for you, your spouse, and your dependents, and you can take a student loan interest deduction, as well. See IRS Publication 970 for more details. First, let’s review how the credits and deductions work:

For 2008, the Hope credit is limited to $2,400 of qualified expenses ($4,800 if the student attended school in a Midwestern disaster area). The Hope credit equals 100% of the first $1,200 ($2,400) and 50% of the second $1,200 ($2,400), for a maximum of $1,800 ($3,600). For 2008, the Hope credit can be claimed for a student who had not completed the first two years of post-secondary education at the beginning of 2008, who was working toward a degree or certificate, who took at least one-half of a normal full-time workload for at least one academic period in 2008, who has never been convicted of a felony for a controlled substance, and for whom a Hope credit was not claimed in more than one prior tax year.

For 2008, the Lifetime Learning credit is limited to $10,000 of qualified expenses for all students together. The Lifetime Learning credit equals 20% (40% if the student attended school in a Midwestern disaster area) of qualified expenses, for a maximum of $2,000 ($4,000). The Lifetime Learning credit can be claimed for an unlimited number of years, and the student does not need to be pursuing a degree or certificate, can take one or more courses, and can have a felony drug conviction.

For 2008, the Tuition and Fees deduction is limited to $2,000 or $4,000 of qualified expenses for you, your spouse, and your dependents together, depending on your income level.

For 2008, the Student Loan Interest deduction is limited to $2,500 of student loan interest expense for you, your spouse, and your dependents together. Each student must have been enrolled at least half-time in a degree program. Student loan interest can be deducted until the loan is payed off. This deduction can be taken in addition to whichever of the Hope credit, the Lifetime Learning credit, or the Tuition and Fees deduction you take for a particular student, so you should always take this deduction.

Now, let’s consider which credit or deduction you should take. You only get to take one of the Hope or the Lifetime Learning credits for a particular student, so if a student meets the qualifications for both, which should you take for that student? If you have two or more students who qualify for the Hope credit, taking the Hope credit for those students maximizes your education credit. If only one student qualifies for the Hope credit, and that student has qualified expenses less than $9,000, take the Hope credit for that student; for qualified expenses of $9,000 to $10,000, take the Lifetime Learning Credit for that student. Of course, if a student does not qualify for the Hope credit, you should take the Lifetime Learning Credit for that student.

As for the Tuition and Fees deduction, it potentially can reduce your tax by a maximum of $1,000 for all students together, and if you take the deduction for a particular student, you can’t take either the Hope or the Lifetime Learning credits for that student. The only reason you should consider the Tuition and Fees deduction in lieu of either of the two credits is that it reduces your AGI, which in turn can affect your itemized deductions and a number of other tax credits for which you may qualify.

Posted 2/26/09 12:49pm ET in Tax Tips | Permalink | Comments (0)

Twelve-Year Lows

With the market close on February 23, the Dow Jones Industrial Average and the S&P 500 hit lows they haven’t seen since early 1997. Both indexes are about 50% lower than their October, 2007, highs. Fundranker bucked the trend when this bear market first started in November, 2007, and made new highs in May and June, 2008. It has fallen dramatically over the last eight months, but it has not been set back nearly as far as the DJIA and S&P 500. With the February 23 close, Fundranker hit lows it last saw in late 2004.

The markets are weighing in extremely negatively on the latest developments for fixing our financial system and stimulating our economy. Business, investor, and consumer confidence continue to fall to new lows. The picture couldn’t look much bleaker, and consensus on this by all the players couldn’t be much stronger. Contrarians believe that when everyone thinks alike, everyone is likely to be wrong. Let’s hope the contrarians are right. Also, remember that the stock market is an advance indicator for shifts in the economy. Perhaps this new low will be the turning point for the next bull market to begin.

Posted 2/24/09 11:21am ET in Economy, Fundranker, Market | Permalink | Comments (0)

First-Time Homebuyer Tax Credit

The Housing and Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009 both have provisions for a first-time homebuyer tax credit. For both of these tax credits, a first-time homebuyer is defined as a person who did not own any other main home during the three-year period ending on the date of purchase. So even if you have owned a home in the past, but not in the last three years, pay attention to these first-time homebuyer tax credits—they can be worth thousands of dollars to you.

The Housing and Economic Recovery Act of 2008 enacted a first-time homebuyer tax credit for homes purchased after April 8 in 2008, which essentially is an interest-free loan. It is a refundable tax credit (you get a tax refund for any amount of the credit that exceeds your tax liability) of 10% of the purchase price of the home up to $7,500, but it has to be repaid over a 15-year period starting in 2010. If you bought a home after April 8 in 2008, make sure you look at Form 5405 to see if you can claim this tax credit.

The American Recovery and Reinvestment Act of 2009, just signed into law by President Obama this month, goes a step farther. If you purchase a home in 2009 before December 1, you maybe able to claim 10% of its purchase price up to $8,000 as a refundable tax credit which does not have to be repaid at all as long as the home remains your main home for three years. If you are thinking of buying a home in 2009, this new tax credit is an excellent reason to get it done before December 1. You even can claim this new, refundable tax credit on your 2008 Form 5405, even though your new home was purchased in 2009. If you buy your home in 2009 after you have filed your 2008 income tax return, you can file an amended 2008 tax return to claim the credit or wait and claim it on your 2009 income tax return.

Posted 2/22/09 7:43pm ET in Tax Tips | Permalink | Comments (0)

Details Lacking

Treasury Secretary Tim Geithner’s new plan to rescue our ailing financial system, announced February 10, had some good points and some bad points. On the good side, it seems that the Obama administration and the Treasury Department really get the magnitude of the problem and are willing to put a ton of money to work solving it. He outlined a plan to inject as much as $2.5 trillion into our financial system. Part of that amount, $350 billion, comes from the remaining half of the Troubled Asset Relief Program, enacted by Congress and signed into law last year by President Bush. Geithner's plan stretches that money with funds from the Federal Reserve, using its ability to print money, but it also relies heavily on enticing private investors to step in with their money.

On the bad side, the Dow Jones Industrial Average fell nearly 400 points on February 10, making it clear that Wall Street received Geithner’s plan poorly, to say the least. Although Geithner strongly criticized the Bush administration for not acting boldly and quickly enough, he did not specify the details of his plan that would differentiate it from the plan implemented by President Bush and Treasury Secretary Henry Paulson last year. Leaving those details for another day negated Geithner's emphasis on bold and quick action, and the markets suffered dramatically. We can only hope that those details will come forth soon and that the program will be successful.

Posted 2/11/09 9:40am ET in Economy | Permalink | Comments (0)

Smart Debt

Sounds like an oxymoron, doesn’t it? We all know some really good examples of dumb debt, such as high-interest credit card debt, high-interest car loans, and high-interest home equity loans. The common denominator of dumb debt is high interest rates. So smart debt has to be just the opposite--low interest rate loans.

Did you and your parents save up some money for your college expenses? Good for you. You still may qualify for low or no interest (at least while you are in school) loans to pay college expenses. Invest the money you and your parents saved where it can make a better return than the interest you pay on your college loans, which is pretty easy if you don't pay interest while you are in school. If your student loan interest rate resets higher when you graduate, be sure to rethink your situation.

Have you taken advantage of today’s low mortgage rates? Don't be in a hurry to pay off that loan. If you have extra money, don’t make extra principal payments. Instead, invest that extra money where it can make a better return than the interest you pay on your loan. Another bonus of drawing out your low-interest mortgage loan to the last drop is that you get to deduct the interest on your income taxes.

So how can you invest your extra money to make a better return than the interest you pay on your low-interest, smart debt loans? One great, sure-fire, easy idea is to pay down a high-interest, dumb debt loan. The difference in interest rates ends up in your pocket. If you are not averse to more risk and more effort, buy stocks or mutual funds. You could use your extra money for education to prepare yourself for a better job. Put it in a Roth IRA, where it will grow tax free for as long as you have it there and even when you take it out. Any kind of investment will do; it just needs a realistic, potential return that is greater than the cost of your low-interest, smart debt loan.

Here’s an incredible, probably once-in-a-lifetime, smart debt deal of which I took full advantage. We all complain about credit card offers that keep showing up in our mailboxes, but in mid-2006, I received an offer from Discover which included the option to transfer a balance and pay 0% interest on the transferred balance until it was paid off--that’s right, no time limit. The only catch was to make two purchases per month. Since the minimum monthly payments I make go first toward the transferred balance, the purchases have mounted up, and I do have to pay interest on them. I finesse this by making minimal purchases of a few cents at the self-checkout counter in the grocery store or at the gas pump. Two and a half years later, I’m still paying Discover’s minimum finance charge of $0.50 per month on my purchases balance and 0% interest on my remaining transferred balances. My wife and I and my adult daughter applied for three separate Discover accounts with this deal, and we transferred the entire balances of two second mortgages to the three accounts, about $25,000 total. So we have to make six minimal transactions each month (two each on three cards), but for that minimal effort, we have saved thousands of dollars in interest we would have paid on the second mortgages.

Posted 1/21/09 10:18pm ET in Investing | Permalink | Comments (0)

QRSC Credit

What is the Qualified Retirement Savings Contribution Credit? To put it simply, under certain conditions, the IRS is willing to reduce your taxes if you contribute to one or more qualified retirement savings plans, which include traditional and Roth IRAs among others (see the instructions for Form 8880). What’s more, you can take this tax credit even if you also take an IRA deduction for your contribution.

Unfortunately, this tax bonanza is not available to all of us. It is phased out when your AGI reaches certain levels. First, only $2,000 of contributions is considered per individual. Second, for 2008, married taxpayers filing jointly with AGI of $32,000 or less, head-of-household taxpayers with AGI of $24,000 or less, and other taxpayers with AGI of $16,500 or less potentially can claim one-half of their contributions as a tax credit; married taxpayers filing jointly with AGI of $34,500 or less, head-of-household taxpayers with AGI of $25,875 or less, and other taxpayers with AGI of $17,250 or less potentially can claim one-fifth of their contributions as a tax credit; married taxpayers filing jointly with AGI of $53,000 or less, head-of-household taxpayers with AGI of $39,750 or less, and other taxpayers with AGI of $26,500 or less potentially can claim one-tenth of their contributions as a tax credit; above these limits, the tax credit is completely phased out. For 2009, for married taxpayers filing jointly, these limits are raised to $33,000, $36,000, and $55,500; for head-of-household taxpayers, they are raised to $24,750, $27,000, and $41,625; for other taxpayers, they are raised to $16,500, $18,000, and $27,750. Third, the potential tax credit also is limited by your tax liability. In other words, this tax credit is not refundable; you cannot get a tax refund because of this credit.

Check this tax credit out when you do your 2008 taxes this year. Form 8880, Credit for Qualified Retirement Savings Contributions, is an uncomplicated form and could save you hundreds of dollars off your federal taxes for 2008.

Posted 1/19/09 8:22pm ET in Tax Tips | Permalink | Comments (0)

Market Perspective

Let’s review what happened in the market from its high in October, 2007, through the end of 2008 and try to put it in perspective. This isn’t just a run of the mill bear market and recession. We are in the midst of the worst downturn since the Great Depression. In general, nearly $7 trillion of shareholders’ wealth disappeared, setting them back nearly five and a half years. For Fundranker investors, however, this downturn set us back three and a half years, which is bad, but not nearly as bad as the general market.

Fidelity Investments’ Select funds, taken as a group, reflect the market as a whole and were hit hard and across the board in 2008. All 41 funds had losses for the year, ranging from 11.35% to 63.16% and averaging 40.98%, so it’s not surprising that the S&P 500 tracking portfolio, the Top Eight Model Portfolio, and the Nasdaq Composite tracking portfolio lost 40.104%, 41.132%, and 44.306%, respectively, from November, 2007, through December, 2008. For comparison, in the previous downturn, September, 2000, through March, 2003, a much longer period, the Top Eight Model Portfolio lost 24.465% and the S&P 500 tracking portfolio lost 42.129%. Fundranker was able to withstand that previous downturn much better than the market. We all thought it was bad when the Internet bubble burst, but this current crisis has done nearly as much damage to the S&P 500 in much less time and may have farther to go.

The Fundranker system works by positioning an investor in the best performing Select funds. Most times, there are at least a few Select funds that are performing well, and the Fundranker system is able to pick them out, hence its long-term, market beating results. In the first half of 2008, when oil peaked above $147/barrel, energy and natural resource funds performed amazingly well and allowed Fundranker to buck the general downtrend. In the second half of the year, however, the downturn spread to all sectors of the market, none of the Select funds were performing well, and the Fundranker system was reduced to selecting the least worst performing Select funds.

Finally, in December, over three-fourths of the Select funds came out of their funk and turned in some nice returns, which will give the Fundranker system some better grist for the mill, so to speak, but it remains to be seen if this is the beginning of a sustained market recovery. The incoming presidential administration seems to be taking the situation very seriously and has proposed a massive stimulus program, so perhaps 2009 will be brighter.

Posted 1/1/09 10:38pm ET in Fundranker, Market | Permalink | Comments (0)

Is it time to reinvest?

The Fundranker system does not try to predict what may happen in the short term; using past performance, it attempts to position you advantageously for whatever may happen. Using the Fundranker system, you don’t have to make emotional decisions each month on whether to stay in the market or not, or get back in or not. More often than not, emotional investment decisions lead to worse results than sticking with a sound system like Fundranker.

Be that as it may, did you move some or all of your investments to cash recently because of the recent downturn, the worst since the 1930’s Depression? If you did, you weren’t alone, by any means. The question now is when should you reinvest your cash in Top Eight Model Portfolio funds?

December is looking good for the market and even better for Fundranker so far, and we all hope that recovery will continue in 2009, but should you reinvest in January? Unfortunately, if you moved to cash, that is a decision only you can make. Perhaps you should think of your reinvestment decision the same as if you were investing in Top Eight Model Portfolio funds for the first time. No matter which month you decide to reinvest, just as when you first invested using the Fundranker system, Fundranker will begin to position you advantageously for whatever happens.

One thing we can and do say here at Fidelity Select Fundranker is that despite the recent downturn, our Top Eight Model Portfolio still has better long term performance than the S&P 500 and the Nasdaq Composite indices, and we have confidence in future long term results for the Fundranker system.

Posted 12/21/08 12:28pm ET in Fundranker | Permalink | Comments (0)

December Rally

The market has finally turned somewhat positive in December. After the Top Eight Model Portfolio, the S&P 500 tracking portfolio, and the Nasdaq Composite tracking portfolio suffered sharp losses of 8.1%, 8.9%, 9.0%, respectively, on December 1, they have come roaring back with gains of 10.1%, 6.6%, and 8.1%, respectively, through December 15. The Top Eight Model Portfolio clearly has outperformed the market indices during this 10 trading day period. In fact, one of the new funds Fundranker bought on December 3 gained 23.4% through December 15. Is this the beginning of a bull market or just a bear market rally? The stock market is usually an advance indicator for the economy, but who knows how long and deep our recession will be? Only time will tell, but in the meantime, let Fundranker position you advantageously for whatever rallies do occur.

Posted 12/16/08 1:12pm ET in Market | Permalink | Comments (0)