Many people have used annuities as part of their retirement planning, but few people have a detailed understanding of what an annuity is and when it is appropriate. And that can be a problem because sales of annuities, particularly variable annuities, are one of the most-abused areas of financial management. The victims are often retirees. There are two types of annuities: deferred and immediate. A deferred annuity accumulates assets over a relatively long period of time before the investor ever makes a withdrawal. This is the type most commonly-used in retirement planning. An immediate annuity begins paying out a stream of income as soon as the original upfront deposit is made. It can be useful in some cases for someone who is just about to retire and wants a guaranteed income stream. Either of the types of annuities can be variable, where the money is invested in equities (usually mutual funds), or fixed, where you get a set rate of return much like a certificate of deposit. We’ll focus on variable annuities, since they can be the most problematic, in part because the value of your holdings can go down. Variable annuities have three main features. They allow a person to receive regular payments for the rest of their life, which guards against the possibility of outliving your assets. They have a death benefit so that if you die before receiving any payments your beneficiary gets the amount you deposited, even if your account value has dropped. They are tax-deferred. So you pay no taxes until you withdraw, but then you are taxed at ordinary income rates, not the lower capital gains rates. So it should be clear how an annuity can be useful as part of a person’s retirement planning, especially if they are already making the maximum contributions to all other available retirement savings vehicles. But annuities are not without their problems. They are aggressively sold by some brokerage firms because they provide handsome commissions. Brokers who have watched investors embrace no-load mutual funds often see annuities as a big revenue producer, whether or not they are the best investment decision. And if the value of your annuity goes down because the market heads south, it might be expensive to get out of it. Annuities carry a deferred sales charge for selling them before several years have passed. So annuities can be an expensive investment. But that’s not the worst part. The biggest problem with annuities is that they are often heavily marketed to those who have already retired and senior citizens generally. There is very little reason for someone who is already retired to take assets out of other retirement accounts and put them into an annuity, particularly a deferred annuity, unless principal protection or estate planning is a motivating factor. But at free financial seminars and through individual brokers, these investments are being peddled to America’s seniors. It just doesn’t make sense. Annuities are best used as long-term retirement planning vehicles. If you are retired and considering an annuity, get a second opinion, preferably from a fee-only financial planner who would not stand to make a commission from the sale. If you would like more information on our unique proprietary rating system and the types of funds we include in our model portfolios, please call us at (800) 548-3797.

With the summer months now upon us, consumers around the globe will be anxiously awaiting the opportunity to replace their desk chairs with a couch or beach chair and enjoy some much-needed rest and relaxation. The Fidelity Select Multimedia Portfolio taps into the niche entertainment corner of the consumer sector, providing investors with exposure to household media names including Disney, Time Warner, and CBS. One thing we have learned from this three-year bull market is that the U.S. consumer is notoriously resilient. Even with conditions around the globe showing signs of deterioration, they have been unwilling to give up their buying ways. Rather than capitulating and hunkering down when clouds gather, many tend to simply readjust their purchases; while a cruise or international vacation may no longer seem feasible, a trip to the movies remains reasonable. A fund like FSHOX should benefit when small luxuries are in vogue. Fidelity notes that the Fidelity Select Multimedia Portfolio invests primarily in companies engaged in the development, production, sale and distribution of goods or services used in the broadcast and media industries. Fidelity Select Multimedia is currently listed in our Fidelity Independent Adviser’s Power Index as a “buy” fund with a Power Index number of 80.  If you would like more information on this unique proprietary rating system we employ in our newsletter, please call us at (800) 548-3797 and an adviser would be happy to speak with you. Historical Performance (as of 5/30/12)   YTD 1 year 3 years 5 years FBMPX 10.10% -1.66% 24.93% 2.60% +/- MSCI World NR USD 9.03% 8.00% 15.83% 6.51% +/- Category (SC) 9.87% 12.05% 15.29% 9.03% Past performance is no assurance of future results. Top 10 Holdings (as of 3/30/12) Represents 62.98% of total portfolio; 60 holdings total DISNEY (WALT) CO COMCAST CORP CL A TIME WARNER INC NEWS CORP LTD CL A DIRECTV CL A CBS CORP CL B TIME WARNER CABLE VIACOM INC CL B LIBERTY MEDIA CORP LIB CAP A MCGRAW-HILL COS INC Operations and Expenses Fidelity Select Multimedia has an annual holdings turnover of 85%. It has no load and an expense ratio of 0.90%. The minimum initial investment for this fund is $2,500. Management Fidelity Select Multimedia is managed by Kristina Salen. Salen received a BA from Vassar College and an MBA from Columbia University. She has managed FBMPX since September 2006. Fidelity Independent Adviser’s Power Rankings Power Index: 80 Power Trend: Positive Recommendation: Buy (Sources: Morningstar, www.fidelity.com)

The May 30, 2012 issue of the Sector Momentum Tracker Newsletter has been posted. If you have any questions, comments, or feedback, call us at (800) 548-3797, or Ask Us A Question The Sector Momentum Tracker utilizes relative strength indicators in order to provide readers with buy and sell recommendations for hundreds of top ETFs and mutual funds. Each weekly issue features three momentum portfolios and our Dynamic Global ETF Portfolio. Don’t miss out on another issue! 1 year (52 weekly issues) for $299! Subscribe Now!