New Braunfels Herald Zeitung (Newspaper) - June 14, 1987, New Braunfels, Texas
Commerce & Industry
Herald-Zeitung New Braunfels Texas
Sunday. June 14 Uih/
Withdrawals from mutual funds
Foreign market participation, interest rates overemphasized
Foreign participation in tho I niter! States marketplace and high interest rates top the list of financial concerns of investors and individuals living on a fixed income, however, these con corns are being “overemphasized.” according to Robert J Christian, chief economist of the Provident Bank iii Philadelphia
Christian, one of the nation's leading economists, told a group of Kdward I) Jones & Co clients and associates recently. “Foreign owner ship of V S securities only amounts to It) percent, equities. :» percent, and corporate about 12 to Ct percent (liven the size of our marketplace, foreign ownership has been overplayed ”
The trade deficit also provides lit tie cause for concern. Christian add cd "One of the things we've been banking on in terms of keeping the
economy rolling in 87 and HK is a tor naroundin the trade balance
Fven though monthly statistics don't yet verify a substantial adjust meat, the trade balance does show improvement when adjusted for in flat ion and examined over the long term
Iii the past six months, the volume of C S. exports has increased at double digit rates, and the volume of imports into the t oited States has decreased just as heavily “As a result,” Christian said, “by bikh the trade deficit should tie half of what it was in IHM ”
High interest rates are due mainly to the federal deficit, but they shouldn't be viewed negatively either, he said “investors should use this opportunity to buy securities in stead of selling them "
Christian predicted that longterm
rates should bo ti percent this sum mer. while short term rates may go up a little in response to the rise so far (Retail, tie sail, interest rates will be a lot lower next year than most anticipate Christian also marie the following economic projection - tor the next 12 months
the dollar will not decline substantially in value, if any at all weaknesses in food and energy prices w ill stabilize
production cutbacks in the automative industry will likely ne cur
inflation will remain about J 5 percent to 4 percent
the economy will grow at a faster pace throughout the year To view Christian's address, visit Stan Cunningham, the local Fdward I) Jones Co representative, at loon N. Walnut, Suite F New Braunfels
Telephone co-op to refund money
By FDWARD D. JONES tOOO N Walnut, Sude F
Mutual funds offer many services one of these is systematic withdrawal This means that the fund, at your request, will mail you regular checks for a specified amount This can be a real benefit to one* who needs a set amount of cash cacti month to help meet living ex penscs
Here’s how systematic withdrawal winks Most mutual funds with a growth income objective pay dividends quarterly and a capital gain distribution annually Assume the long term history of a fund shows an average total return to 12 percent or more On closer study, you see the average annual dividend is 5 percent and tire average growth is about H percent a total return of 12 per cent It would make sense to assume on an investment of $10.(KH) an annual systematic withdrawal of lo percent $1,000. taken on a monthly basis. $8333, would leave your $10,(KH) un disturbed and actual!) add about 2 percent a year to its value
so, you ask the fund to send you a monthly check for SH I 33 The fund honors your request each month by liquidating enough shares to pay you When a regular quarterly dividend is due it s added to your account plus any capital gains If this amount is more than Sl.ooo a year, your invest meld is working as planned But, what if the stock market has an unusually trad year, which can and does happen1’
That year and possibly the next the fund is able to maintain its divi (lend, about 5 percent, but because of the declining market you recognize no gains In addition, the value of your shares drops Vet. you continue to withdraw monthly checks when the fund is actually earning half or less of that amount How will you be paid0 The fund, in order to meet your monthly request of $83 HH, will tie re
hor example, in January 1978 the Dow Jones Industrial Average was around I.(Kin, a new all time high By 1974, however, it had lost almost 40 percent of its value and was hovering in the OOO average
To illustrate systematic withdrawals in a declining market, let s look at an excellent growth and income mutual fund with more than 50 years of consistently superior results, averaging an annual total return in excess of 12 percent In the years 1973 and 1974. when the stock market was experiencing a severe correction, the fund likewise suffered losses of about 17 percent
lf you'd invested $10,ihk) on Jan I, 1973 and began a monthly w ithdrawal of SHJ 33. lo percent annually, because of the dramatic first and se cond year losses, tty the end of 1985 you'd have exhausted your funds During those 13 years, you’d have withdrawn $1,880 in dividends and $10 loo for a total withdrawal of $12,076. Had you waited one year and made your investment on Jan I, 1974. your IO percent annual
withdrawal wouldn’t have depleted your principal In fact, tty June JO, I OHO, your original $10.(hhi investment would be worth $14 406 and during that period you'd have systematical Iv withdrawn $12. ll?
OI tier than handslght. what conclu sinus can tie drawn from this ’ There are several factors that contributed to ttit* depletion of principal In this example, the fund selected has an in
to return part of your pun
Guadalupe Valley Telephone Cooperative, Inc . headquartered at Smithson Valley, has announced to day that it will return more than
*■ 149 (KH) in prior years’ profits to its menthol on June JI at the annual membership meeting
The meeting will begin at 7 Jo p m at the New Braunfels Civic Center Door prizes will be given, and old fashioned ice cream social will be held following the meeting
This years profits distribution, when coupled with prior distribu dons. brings the co-op’s total refunds
to more than $2 million in tin* past nine years “The board of directors, after careful study of the co-op’s financial condition, has determined that member-owned GVTC will again be in a position to return a portion of its profits to its member owners,” said president Curtis W Bremer “As a cooperative, GVTC is dedicated to providing dependable areawide telephone service on the cooperative plan, at the lowest cost consistent with a sound economy and good management We are obligated to return to our members the difference
between our revenues and expenses as capital requirements allow “This is ttit* basis on which GVTC was organized We have proven that cooperatives do work, they can be People helping people.’ We know of no other cooperative in tin* nation that has refunded over $2 million ” Bremer said Checks not picked up during the an nual membership meeting will Ik* mailed during the remainder of the month
To illustrate what happens with a systematic withdrawal, look at your fund as a big bucket filled with water At the bottom is a faucet from which you regularly draw a cup of water As long as you replace this with as much or more water than you withdraw, there s no problem But if you continue to withdraw more than you replace, your bucket will even tually run dry The same happens when you systematical!) withdraw more than your fund is earning eventually it w ill go dry.
IRS head says tax reform will make system fairer
HOUSTON AP Tax reform laws enacted this year will spread the burden of taxation among Americans more fairly, the Internal Revenue Service commissioner says “Wealthy individuals and the businesses in this country, who have not been paying their fair share of * iv in the past under this new law will begin to pay their fair share. Law rence B Gibbs said Thursday Loopholes in old tax guidelines are being eliminated, reducing the amount companies are able to deduct, Gibbs said “Tax shelters are gone,” he said People are beginning to nvest for »untie purposes ”
Changes in the lax laws will take 6 million taxpayers off the tax rolls, while adding 2 million who were previously exempt, he said When drafting the new law, Congress predicted that about HO percent ' taxpayer1 we uM *-•> a decrease in
t,.cir .axe.' remain hie same or increase.
Gibbs said he has pushed for IRS
budget increases since becoming commissioner to increase the tax compliance rate and help ease confu sion over the changes “In budget deficit times, the Internal Revenue Service was the one place in government where we could make money by spending money," he told a new s conference before ad dressing a group of certified public accountants The IRS is planning to hire 26,OOO temporary service center employees, of which 16,000 will be first time workers, for the 1988 filing season. Gibbs said
the commissioner recommended that taxpayers not wail until the Oct. i deadline to refile new W-4 or VV 4A withholding forms. If a new form is not filed by then, employers are required to withhold taxes at the one or two allowance rates only.
T hat could mean higher withholding for those normally aiming more allowances. Gibbs said.
“If you haven’t been paying in See TAX, Page 7A
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755 Loop 337 Suite D New Braunfels. Tx. 78130
tit int soles charge of 8.5 percent but that wasn't the culprit
The real problem was that tfir* stock market had two successive years of terrible performance in 19.3 and 1974 The fund, along with hun dreds of similar funds, suffered Although this particular fund averag ed a long term annual total return of more than 12 percent, in these two years it lost about 17 percent each year Vet, the shareholders con tinued to withdraw $1,000 a year, (ak ing more out of the bucket than was going in
Does this mean systematic withdrawals are not recommended’’ Not at all It means that, as this col limn consistently recommends, the key is to be flexible Decrease your withdrawal when necessary In our example, even an aunnual 8 percent withdrawal. $800, would have preserved your capital By taking smaller withdrawals, you can monitor your investment until the principal begins to grow and builds a cushion Or, you can delay beginning withdrawals until the initial invest men! has grow n
Systematic withdrawals from carefully selected mutual funds have proven to be an excellent way to receive regular income and to allow your investments to grow But. like any other investment, it require-* understanding monitoring and the determination to act when economic changes require
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June it Vied. 6:JU p.m.
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M CCI. INC._
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