Take Advantage of the Blooming Economy

Scott J. Kleiman

Physician's Money Digest, February29 2004, Volume 11, Issue 4

Look around and it's hard not tofind good news about the economy.The year-end numbers for2003 are still coming in, but what informationwe have is positive. In the thirdquarter, the gross domestic product (GDP)hit a 20-year record pace, productivityreached 9.4%, inflation was near zero,and corporate profits were up sharply.Job creation is up; unemployment isfalling. The Dow crossed the psychologicallyimportant 10,000 mark. Looking forward,government and private economistsare predicting a 2004 GDP growth inthe 3.8% to 4.3% range.

How should you react? It depends onhow you reacted to the recession.Physician-investors who transferred assetsto money market funds or CDs may reactdifferently from those who decided toride out the bear market. Now may be anappropriate time to review your personalfinancial situation. The following aresome strategies to help gain perspective:

Take Tax Cuts

If you collect a paycheck, you mayhave already noticed that Uncle Sam iskeeping less in taxes. If you have children,you may have received a checkrefunding a portion of your child taxcredit. These are provisions of the Jobsand Growth Tax Relief Reconciliation Actof 2003 that require no action on thepart of taxpayers.

Act soon:

The 2003 tax law also contained someprovisions that require action before youcan benefit. For example, corporate dividendsare now taxed at a 15% rate formost people. To take advantage of thenew lower rate, you may want to consideradding stocks that have a solid historyof paying dividends. Likewise, if youhave assets that you were reluctant tosell because of tax consequences, thenew lower tax rate on capital gains—15% for most people—may persuadeyou to reconsider. These provisionsare scheduled to expire in 2008.

Boost Contributions

Contribution limits to 401(k), 403(b),and 457 plans have increased to $13,000.For workers ages 50 and older, the contributionlimit has increased to $16,000. Contributionsto other employer-sponsoredretirement plans have increased as well.

Remember:

Money contributed to a tax-deferredretirement plan is deducted from yourcurrent taxable income and not taxeduntil it is withdrawn. This can be especiallyuseful if you are in a highertax bracket now than you anticipatein retirement. Withdrawalsmade before age 59 1/2 may be subject toan additional 10% federal tax penalty.

Stick to Principles

Adhering to sound investment principlesmay help you take advantage offuture economic conditions. Pay attentionto your time horizon, risk tolerance,and investment objectives. These threefactors will play a critical role in most ofyour decision making.

Remember:

Diversify among various asset classes.This way, one poorly performing investmentwon't decimate your portfolio. Diversification won't guaranteegains or prevent losses; it's simplya method for helping to manage investmentrisk. Finally, understand what youown. A trained eye can help you spotcompanies with strong earnings, astrong potential for growth, and ahealthy cash flow.

The economic conditions are all pointingin an encouraging direction. Now isthe time to take advantage of the buildingmomentum.

Scott J. Kleiman is the presidentof Apollonia Financial Services inElkins Park, Pa. All securitiesoffered through Linsco/PrivateLedger, member SIPC. Past performanceis no guarantee of futureresults. The information presented is the opinionof Scott J. Kleiman and not Linsco/Private Ledger.Mr. Kleiman welcomes questions or comments at800-242-1760 or info@apolloniafs.com.