Month: March 2015

We’ve seen a lot of situations affecting the markets lately. Oil prices declined by nearly 40%. There were fears of an economic slowdown in Europe. And the Bank of Japan (BOJ) eased its monetary policy. All of this impacted a variety of securities. But do events such as these affect your portfolio? Not necessarily.

Oil prices

As an example, let’s look at oil prices. They tumbled because growth in oil supply has been high, especially from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC), partly the result of new extraction technologies such as “fracking.” At the same time, demand has been depressed, in part by the slowing of the Chinese economy.

Bank of Japan

As another example, consider the BOJ’s actions in October 2014. When economic growth and inflation didn’t pick up as much as expected, the BOJ expanded its massive stimulus program. The move stunned financial markets, in part because BOJ recognized that there was deflation in the country’s economy, and this move was intended to counter it. It had a major impact on global markets.

Regardless of whether you hold oil stocks or Japanese securities, you could be affected by situations such as these; fear is contagious, and what happens in one market may affect another.

But it’s important to put such situations in perspective. For example, there are many segments of the energy sector, such as utilities, that are not directly impacted by volatility in oil prices; even companies that are, such as those in exploration and production, are used to fluctuations in the price of oil and manage most prudently to stay afloat when prices are down.

If you are concerned about the impact on your portfolio of market fluctuations, contact your advisor. He or she understands events such as those described above and will put them in perspective for you.

It appears likely that the U.S. Congress will pass a bill allowing investors to change the holdings in their 529 plans twice a year, making the plans much more appealing in the face of volatile market environments.

A 529 plan is a tax-advantaged savings plan designed to encourage saving for higher-education expenses. These plans allow you to save money before it’s taxed. Any earnings within the plan will be free from taxes.

The funds must be used to pay for “qualified education” expenses, which include tuition, books, fees, room, and board at any accredited school.

Under current tax rules, 529 plan holders are allowed to make changes to the investments in their accounts once a calendar year. However, many investors have turned away from 529 plans, as they want to change their 529 investments more often to respond to market changes.

Now, thanks to the Achieving a Better Life Experience (ABLE) Act, that rule may change; ABLE contains a provision that would allow 529 plan investors to make changes to their investment holdings twice a year.

However, 529 plans can be confusing. For example, they are offered by states, but you don’t have to choose a plan offered by the state in which you live. And establishing a plan in another state may have tax consequences. As always, it’s important to scrutinize the fine print.

Currently, only 3% of the population has a 529 savings plan, according to the Government Accountability Office. If you’re interested, your advisor will help you understand the complexities.