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Saturday, February 25, 2012 | VISIONS - Family, Health & Wealth | Page 2

Try, Try AGAIN

LOOK FOR SPECIFIC TIPS ON PAGE 8.


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A market crescendo in 2012 anticipate the year to proceed with a steady beat, building up to a crescendo by third quarter 2012. The consensus rarely triumphs in the equity markets. To most, it seems incomprehensible, particularly given multiple headwinds in the U.S. and in Europe, that market valuations can expand this year — and, as I have submitted, that the S&P 500 can approach its March 2000 high of around 1550 this year and even exceed its previous all-time high reached on October

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2007 of around 1576 by early 2013. Domestic and non-U.S. concerns are known, will not likely be discounted again and, importantly, will likely diminish in consequence. Markets typically fall or rise (sharply) on the unexpected. Our fiscal imbalances and those of our counterparts are more appreciated than they were a year ago, when there was almost universal agreement (by the Fed, Wall Street strategists, etc.) of a normal duration (to history) and selfsustaining economic

cycle. That optimism was incorporated in a consensus 15 percent to 20 percent gain for the U.S. stock market and proved incorrect. Good times (late 2010) morphed into worsening times last year, as economic growth expectations failed to be realized and were marked down. With the benefit of hindsight this provided a strong headwind to stock prices in 2011. Negatives have been sufficiently discounted. The S&P 500 now trades at only 12.2 times estimated 2012 earnings consen-

Doug Kass Hedge fund manager Doug Kass is the marquee contributor to TheStreet’s RealMoney Pro subscription investing service.

sus, 3 multiple points below the last 50 years' average (when the yield on the 10-year U.S. note approached 6.70 percent) and nearly 7 multiple points below times in history when interest rates and inflationary expectations were similar. The consensus, upbeat 12 months ago, is now downbeat. A market crescendo

will build throughout 2012. I expect that U.S. share prices will slowly climb the wall of worry in the first half of the year as the European crisis stabilizes, owing to a growing commitment by European leaders and central bankers to do whatever is necessary to avoid the unimaginable. At the same time,

high-frequency domestic economic statistics will likely continue to gradually improve, led by surprising strength in housing and automobile industry sales. In summary, investors were nonplussed in 2011, but the outlook for 2012 is likely to turn positive by the second half.


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Pros and cons of 401(k)s

By Don Martin,

The Street

Maximum contributions are not always good Someone asked why a friend of theirs who is a 401(k) participant has stayed auto-enrolled at 3 per cent instead of maxing out their contributions. The stereotype is that everyone should max out their 401(k) contributions, and they certainly have benefits: • Asset protection from lawsuits, depending on complex rules. • Encouragement to avoid spending savings. • Encouragement to save for retirement. • Shifting income into future years, when retirees are likely in a lower tax bracket. But hear the other side of the story. There are reasons against 401(k) contributions: ✘ Retirement accounts create problems, including double taxation at

up to 85 percent for people wealthy enough to have to pay estate tax. ✘ People who want to start a business or buy a home — for which large down payments may be required — need access to their funds. ✘ If long-term capital gains or U.S. Treasury income (U.S. Treasury interest is free of state income tax) is generated in a tax-deferred retirement account, they lose their special tax status and, when withdrawn from the account, are taxed as ordinary income. ✘ Capital gains taxes are waived by using basis step-up at death for assets in a taxable account, but not in a retirement account. Of course, if someone can get an employer match, they should participate and get it. Probably the sim-

plest explanation why someone contributed 3 percent is that they were too poor to save; for a person in a 15 percent tax bracket, the tax savings is not that appealing as simply getting enough current spendable income to buy the basic necessities. Generally, the reasons against a 401(k) are applicable only to people wealthy

enough to pay estate tax. But with inflation and a need to raise taxes, it is possible that in a few decades, people in the middle class will come close to paying estate taxes. That would depend on how long they live and what excessive medical costs they encounter, assuming Medicare in the distant future has huge "means testing" fees.


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Eye on the Market hen it comes to the Dow Jones Industrial Average, time and technology stocks make fools of us all. So, dear reader, if you're approaching this article with a healthy dose of skepticism: good. Nobody can tell the future, certainly not this author — rather, the following stock picks are modeled using a combination of arithmetic and historical precedent. If you're interested in seeing how my past Dow picks have fared, skip to the end of this article. I hold my feet to the fire. In attempting to identify the best Dow dividend stocks for 2012, here are the criteria I've used: 1.) Each stock must have a liability-adjusted cash flow yield* 1.5 times greater than the yield of a 10year U.S. Treasury note.

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2.) Each stock must have a return on invested capital greater than 10 percent (using five-year historical cash flows). 3.) Each stock must show a positive total return (including dividends) over the past 10 years. 4.) The dividend yield of the stock must be less than the liabilityadjusted cash flow yield. In other words, cash flow must support the dividend. Remember, this list is constructed using only quantitative criteria (in other words, strictly by the numbers). That said, a little color has been added to each of the companies mentioned, which are ordered from most expensive to least. As always, model portfolios should not be treated as gospel; rather, use them as a starting point for your own research. Similarly, all investors should apply their own-

By John DeFeo, valuation and qualitative criteria to determine what constitutes a "good buy." *5-Year Average Free Cash Flow / ((Outstanding Shares x Per Share Price) + (Liabilities - Cash)) — Free cash flow data is sourced from each respective company's annual filing. Outstanding shares and asset/liability data is sourced from each respective company's most recent quarterly filing.Flow /((Outstanding Shares x Per Share Price) +(Liabilities Cash)) — Free cash flow datais sourced from each respective company'sannual filing. Outstanding shares andasset/liability data is sourced from eachrespective company's most recent quar-terly filing.

Four good Dow dividend stocks for 2012...

The Street


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Saturday, February 25, 2012 | VISIONS - Family, Health & Wealth | Page 8 TRY, TRY AGAIN... Continued from page 2.


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Take some credit

Paying on time guarantees a good score

8 common credit score myths debunked By Jeanine Skowronski MainStreet (part of The Street Network)

Credit may be a big part of most consumers' lives, but that doesn't mean everyone fully understands the industry. "For many people, credit is a weird thing," says Todd Albery, CEO of credit education site Quizzle.com. He believes many consumers are intimidated by the notion that there is a "secret system used to generate a score that follows you all over the place." In an attempt to help you become morecredit savvy, we spoke to experts to clear up some common misconceptions about credit cards and credit scores.

MYTH 1

Paying your bills on time is an important component to your credit score, but it's not a surefire way to a perfect score, especially if you're rone to bumping up against your credit limits before making a payment. In addition to payment history, "credit bureaus see the balance on your last statement," says Adrian Nazari, CEO of Credit Sesame. If this balance is extremely high, it can negatively affect your credit utilization ratio — the amount of credit you are using versus the amount of credit you have available to you — and can cost you some points in that category. This is why it's a good idea to "pay (your issuer) a few days ahead of your credit card statement date," Nazari says, which will ensure a low balance gets reported to the bureaus each month.

You should cut up the cards MYTH 2 you don't use

Continued on page 12.

Those who have accumulated significant debt may be inclined to close credit card accounts as they pay them down, but doing so may hurt your score — in a few ways. "You risk lowering your credit utilization ratio," Nazari says. Instead of cutting up unused cards if customers consistently bump up against their credit limits, Nazari adds, it is better to keep your cards open and restrict use to one or two small payments a year to keep your utilization ratio intact and your payment history stellar.


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Saturday, February 25, 2012 | VISIONS - Family, Health & Wealth | Page 12 MYTH 3

All credit scores are the same

Most consumers are probably familiar with the FICO scoring model, which calculates your score on a scale of 300 to 850, but the truth is there are many other credit score models available to consumers and the lenders who service them. Pulling one or another isn't going to guarantee that you're going to see the same score that the lender does. "Many of the scores calculated for and used by lenders are not available to consumers," says Susan Papp, a spokeswoman for credit card comparison site Credit Donkey. "Consumers unaware of the variety of scores may purchase a score believing it is their 'true' score and when in reality the score that lenders are seeing is quite different." This is why it is important to pay more attention to the information on your credit report (as opposed to its accompanying score) and the risk level that the service you are using to view the information assigns you.

MYTH 4

Paying off debt will instantly change your score

Getting up to date on delinquent accounts is certainly a good idea, but a score of 580 isn't going to turn into a 700 overnight no matter what you do. "Negative information on your credit report that is accurate can only be removed over time," Papp says. "For example, credit delinquencies will stay on your credit report for seven years and bankruptcy information will stay on your credit report for 10 years."

MYTH 5

Your income affects your score

People tend to assume that the more money they make, the higher their credit score will be,but that's not the case. While it's true your income may affect your ability to pay your bills on time, it has no bearing on your credit score, Albary says. Your income can, however, influence a lender's decision to approve you for a loan. This is because lenders often compare the income you've listed on your application to the debts listed on your credit report in an attempt to judge your ability to make monthly payments.

MYTH 7

If you're looking to build credit, you're better off adding a card backed by a major credit card issuer than a store card being advertised at the point of purchase. While credit bureaus don't award extra points for taking out a line of credit from a big bank, store cards typically have lower limits than traditional credit cards, Nazari says. This can lead to a higher utilization ratio if it's among one of the only cards you have in your arsenal.

MYTH 8 MYTH 6

Using only cash will help your score

Sorry to break it to you, but consumers have to use credit to build credit. Credit scores are a way for lenders to predict whether you will pay back money you've borrowed, and one of the best ways to demonstrate your credit worthy-ness is to show you've paid off some type of debt before. Sticking to cash only may seem like the responsible thing to do, but it won't help you establish a payment history with lenders. This can be problematic when you need to buy a big-ticket item such as a car or house. "If you don't have or use credit, you may have no credit history at all, and if you do, your credit score won't be as good as someone who consistently demonstrates responsible use of credit over time,"Albary says.

A store card will boost your score

Carrying a balance helps build credit

The credit bureaus are privy to your payment history and the balance on your monthly credit card bill, "but they don't know if you're paying interest or not," Nazari says. This means deciding to pay the minimum each month isn't going to do much more than cost you money,especially if you're carrying a particularly high annual percentage rate. The lesson? Don't forgo payments just to carry a balance month to month.


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Your 401(k) match got axed— now what? By Philip Van Doorn,

Reasons to keep investing, and when to stop hat should an employee do if a 401(k) match is eliminated? Is it still worth making a taxdeferred contribution into the 401(k)? Is it worth avoiding the taxes? For starters, a matching contribution to a 401(k) is a wonderful thing. If, for example, your employer is willing to match half your contribution up to 3 percent, and your gross salary is $50,000 a year, and you contribute 6 percent of your salary in a year, you contribute $3,000 to the 401(k) and the

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employer contributes $1,500. That's a fat 50 percent immediate return on your investment for that year. Not bad. But if the match is taken away, how much in taxes does the employee avoid if he or she continues to contribute 6 percent to the 401(k)? Even if we leave state income taxes aside, it's still worth making the contribution if you can swing it. Sticking with your scenario of an employee making $50,000 a year, if the employee is single, and leaving aside any tax deductions or tax credits, their first $8,500 in salary is taxed at a rate of 10 percent, their earnings from $8,500 to $34,500 are taxed at a rate of 15 percent, and their earnings from $34,500 to $50,000 are taxed at a rate of 25 percent, based on IRS tax tables.

The Street

So the federal income taxes would come to $8,625. While the employee is in the 25 percent tax bracket, the federal income tax burden is really 17 percent, which is still a significant burden. So on the surface, it is still worth making the 401(k) contribution, and when you factor in state income tax rates, the advantage is clear. Of course, you might wish to temporarily reduce your 401(k) contribution in order to meet some other financial goal, such as paying down consumer debt. If you are carrying a credit card balance, you could easily be looking at a rate of 25 percent or more, and — depending on your spending needs and habits — be facing a multi-year stranglehold.


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Steady as they gain

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f the past is indeed prologue, now is the time to get conservative and consider these less-than-barn-burning stocks, which have outperformed lots of high-fliers. This is an especially important consideration if you're looking at

your retirement years, and you can't stomach another decade of volatile and negligible returns as we've seen over the past decade. For the most part, they're boring companies. But so what? The hard chargers at the mutual fund companies turned in a total return, includ-

10 top dividend stocks to own until retirement


Saturday, February 25, 2012 | VISIONS - Family, Health & Wealth | Page 19 ing dividends, of a loss of 0.5 percent in 2011, according to Morningstar. These stocks did better. In most cases, they posted a shareprice return in the high single-digits, and that, coupled with big dividends, will serve as a sea-anchor to your portfolio, especially if you're older than 50 and looking at your retirement years with trepidation. In the 20-20 hindsight we all crave, the odds are you could have done better with a portfolio made up of high-paying dividends stocks, and a modicum of these shares with a share-price gain. So you could say a hail Mary for your portfolio, or better yet, bet on old reliables like these. Yes, they can be boring or even lugubrious as corporations, but these companies churn out steady cash flow year after year and haveheld their value like no other stocks. That's because they're into something we can't live without, such as telecommunications and gasoline. For example, AT&T (T), created

out of the "Ma Bell" bust-up, returned over $10 billion to shareholders in the past decade — it's now at a current yield of 5.9 percent — and on top of that had a 10-year average annual return of 1.7 percent. But there's a wrinkle in the numbers, as cigarette maker Altria Group (MO), perhaps one of the leaders in the "sin" stocks category, is barely off the top-10 queue at a payer of $3.7 billion in dividends during the past decade. It now has one of the highest current yields, at 5.6 percent, and couple that with its 10year, 10.5 percent share-price appreciation, you have a pretty heavenly investment. The 10 highest dividend-payers of the past decade are show to the left, per Standard & Poor's senior analyst Howard Silverblatt, and ranked in terms of total payouts. Keep in mind that the yield will change constantly with the underlying share price.


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Visions, February 25, 2012