Financial FOCUS
Guidance

By Gray Easterling

We have all been reading about the real estate crisis that is sweeping across parts of the country. As is usually the case, one man’s pain can be another man’s gain. There are bargains out there if you are looking for a new home, a second home or in investment home. The June 16th issue of Forbes magazine had some tips that might help you in your decision making process. The first suggestion was to avoid golf subdivisions because of the abundance of golf course developments. Instead, consider a property with access to biking and hiking trails. Look for sites that have the mountains, streams and/or green space but are also close to metropolitan areas offering various cultural amenities. Another option might be to opt for a college town that offers a variety of educational and “artsy” type activities without the crowds.

Watch out for taxes! States are shifting property tax burdens to part-year residents, especially in states that don’t impose income taxes. In Florida, a part-year resident might pay ten times as much in property taxes as a full time resident. How far do you want to travel to get to your second home? Gasoline prices and the hassles associated with airline travel may entice you to find something closer to home than you originally envisioned. If you do choose to purchase a home to which you must fly, an airport served by multiple carriers is an attractive selling point. In Louisiana, one thing we don’t have to worry about is water. However, on the East Coast, water levels are slowly rising and projects to protect the real estate may mean higher property taxes. In the West, there is not enough water. Check out the water rights before making an offer. A big down payment will help secure an attractive mortgage rate. Consult with your tax advisor and/or financial advisor for help with financing decisions. Also, you may be able to rent the property to help offset monthly expenses. Just make sure that the neighborhood association or condo governance allow for rentals prior to purchase. Again, review this idea with your tax advisor. One last caveat: if you are buying property in a new condominium development or new properties run by a homeowners’ association, be aware that defaults of others could affect the upkeep and maintenance of your property.

Here’s something I hadn’t thought of before. In the June 18th issue of Investment News, it was suggested that Congress is reluctant to pass legislation that would encourage more retirement savings because, while they account for the revenue loss due to the deductions associated with the savings, they do not factor in the future tax revenue generated when distributions are made from the retirement accounts. Hope they fix that.

How about a short parable. A father and son were in a vacant field that the son wanted to make into a baseball field. Right where home plate should be was a large rock. The son tries to move the rock but without success. His dad tells him to use all his strength. The son tries several more times and each time the father gives the same advice, “Use all your strength.” Finally in frustration the son says, “How can you tell me to use all my strength. I am pushing as hard as I can.” The father replies, “But you haven’t asked me for help.” Don’t forget the source of all your strength. God is waiting to be asked and He always will answer. If you have lost touch with Him, I promise that it wasn’t Him who moved.

Securities and Investment Advisory Services offered through FSC Securities Corporation, a registered broker/dealer. Member FINRA/SIPC & Member of AIG Advisor Group. AIG Advisor Group, Inc. is the marketing designation for the wholly owned subsidiary broker-dealer members of American International Group, Inc. 3416 North Blvd., Alexandria, LA 71301, (318) 448-3201. The views expressed are not necessarily the opinion of FSC Securities Corporation.

The Federal Reserve and the Economy

By Carol Kinder

You may have been hearing a lot lately about the Federal Reserve, better known the “Fed”, and its chairman, Ben Bernanke. You may also already know that the Fed has an influence on interest rates, which, in turn, influences the economy. But there is more to the Fed than meets the eye, and the reasons behind the interest rate changes may interest you as an investor.

The Fed was established in 1913 and consists of a seven-member board of governors, including the chairman. All are appointed by the President and approved by the senate. The nation is divided into 12 Federal Reserve districts represented by 12 Federal Reserve banks. Since its establishment, the Fed has become responsible for directing the nation’s monetary policy. The Fed also regulates the nation’s banks and other depository institutions, and supervises directly many commercial banks. The Fed also tries to support other financial markets by maintaining stable conditions for financial transactions.

Although the Fed has many responsibilities, most investors only think of the Fed as having control over the interest rates that affect the U.S. financial markets. There are many different interest rates, but the Fed has direct control over only one of those interest rates, the “discount rate.” The discount rate is the interest rate the Fed charges its member banks on money borrowed for certain short-term loans.

The Fed also has influence over the federal funds rate. The fed funds rate is the rate for one bank to borrow from another. Banks keep money deposited with the Fed to meet the Fed’s reserve requirement. During a normal business day, a bank may end up with more or less in its reserve account than the required amount. If it has too little, it may borrow from other banks. If reserves are above the minimum, the bank can loan the excess to a bank that is below minimum. The market for federal funds determines the federal funds rate.

By controlling the discount rate, the Fed can influence the nation’s economic cycles, to some extent. Let’s look at some scenarios:

If the nation’s economy expands rapidly, historically the threat of inflation becomes a worry for consumers. Inflation — the general increase in the price of services and goods — lowers consumers’ purchasing power. The Fed fights inflation by increasing these key interest rates.

By raising the fed funds rate, the Fed decreases the amount of money available to the national banking system. Banks tend to base the rates charged for business and consumer loans on their own cost of funds. So an increase in the discount rate and fed funds rates will usually lead to banks increasing their lending rates. This makes borrowed money more expensive for businesses and consumers. By making borrowed money more expensive, the Fed hopes to slow inflation by slowing down the rate at which money is spent.

When the economy is dragging and needs an extra monetary boost, the Fed “loosens” the nation’s money supply by decreasing the discount and fed funds rates. By lowering these rates, the Fed makes more money available to the nation’s banks. This leads to borrowed money becoming cheaper for consumers and businesses. The extra money helps stimulate consumer spending and promote economic growth.

So, as you can see, you may want to pay close attention to the actions of the Federal Reserve, especially if you have interest-sensitive investments. As always, it is best to meet with your qualified financial advisor before beginning or altering any investment strategy.

Tips on Saving Fuel This Summer

By Esther Coco Boe

Everyone’s feeling the pinch of the high prices of fuel these days. Pulling away from the pump is painful, and it’s predicted that it will become more painful by summer’s end. There are a few things that we consumers can do to save on fuel. Try these tips out and share them with your friends. Every penny counts, so begin to implement these tips today to save the gas you have in your gas tank.

Tip #1: Car pools are the best way to reduce gas expenses. Up to half, if you find someone in your neighborhood that can split the driving every week. Everyone either can chip in to pay for fuel or can take turns driving in individual vehicles.

Think about other effects; less environmental pollution, less overall traffic and speedier trips with someone to visit with to break the monotony. Note: it’s also wise to distribute the weight evenly around the vehicle.

Tip #2: Tires are an important key to saving gas. They should be inflated to the maximum limit and all the same inflation. Each tire needs to be balanced and checked to make sure that it is in good working condition. This has a dramatic effect on gas expense.

Always check manufacturer’s specifications for maximum tire pressures.

Tip #3: If extra weight is being carried in the vehicle, then gas is being wasted. Remove any and all excess weight such as; extra tires, back seats, heavy loads from your vehicle. This extra baggage reduces the vehicles mileage and will help save money at the pump.

Tip #4: If you’re looking at buying a new car, consider not investing in a vehicle with a sunroof or a vinyl top. Sorry. Both of these features will cost more in fuel because they cause more air drag and prevent otherwise smooth air flow around a moving vehicle.

Tip #5: Use the cruise control feature in the vehicle. This feature can save fuel because it is consistent, while our feet have a tendency to fluctuate pressure on the accelerator. The pressure we place on the gas pedal will ebb and flow with the roughness of the road, traffic, and other stimuli. Better to reduce speed and use the cruise control.

These tips will save fuel if used singularly or all together. Try to group multiple errands into a single trip, and keep joy riding to a minimum. Keep daily lists running so that when out on errands, you can make the most of each trip. Be the most efficient with the time and the fuel that you have. They can work together for the best benefit for you!