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THE MARKETS
Faith that the economy will get significantly better in the near future will soon need to be replaced by the proof that it is getting better or else we may end up with more market volatility.
Back on March 9, the S&P 500 index hit a bear market low and investors were very nervous. But, then the stock market turned on a dime and proceeded to rise about 38% as of last Friday. Analysts began to identify “green shoots” in the economy that suggested the recession was ebbing and that helped justify the swift market rise.
However, the green shoots are starting to lose their ability to propel the market higher as the S&P 500 is now back to where it traded in early May, according to data from Yahoo! Finance. To jumpstart the market, we may need to see additional evidence that the economy is on the mend.
Second quarter earnings announcements will start arriving over the next few weeks and they may provide a catalyst to shake us out of the current trading range. Companies can boost their short-term earnings by cutting costs – which many of them have already done – but, eventually, they have to start growing revenue to maintain momentum. The upcoming earnings might be our first sign of corporate America’s ability to show decent revenue growth after the depths of the recession. If the numbers fall short, then investors’ recent faith may have been premature and that could cause some market heartburn. If the numbers look good, then the faith may have been justified and that could be good news for stock prices.
So, let’s just say it’s show and tell time for the economy and corporate America!
| Data as of 06/12/09 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor's 500 (Domestic Stocks) |
-0.3% |
1.7% |
-28.1% |
-9.8% |
-4.1% |
-3.6% |
| DJ Global ex US (Foreign Stocks) |
0.4 |
13.7 |
-32.6 |
-6.6 |
1.8 |
0.7 |
| 10-year Treasury Note (Yield Only) |
3.5 |
N/A |
4.0 |
5.2 |
4.7 |
6.0 |
| Gold (per ounce) |
0.7 |
8.3 |
3.6 |
17.3 |
18.4 |
13.7 |
| DJ/AIG Commodity Index |
-1.9 |
5.7 |
-47.0 |
-9.6 |
-3.0 |
4.4 |
| DJ Equity All REIT TR Index |
-0.4 |
-12.5 |
-43.9 |
-17.1 |
-2.9 |
N/A |
Source: S&P 500, DJ Global ex US, Gold, DJ/AIG Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.
Merriam Webster’s dictionary says that patriotism is love or devotion to one’s country. Despite the simple definition, people often disagree about what is patriotic. Here are the thoughts of a few renowned Americans on the subject of patriotism:
"Americanism means the virtues of courage, honor, justice, truth, sincerity, and hardihood – the virtues that made America."
--Teddy Roosevelt
"Above all, we must realize that no arsenal, or no weapon in the arsenals of the world, is so formidable as the will and moral courage of free men and women."
--Ronald Reagan
"We must not confuse dissent with disloyalty. When the loyal opposition dies, I think the soul of America dies with it."
--Edward R. Murrow
"America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves."
--Abraham Lincoln
"The nation is divided, half patriots and half traitors, and no man can tell which from which."
--Mark Twain
We hope you will find ways to express your patriotism this Fourth of July and throughout the year.
The 2008/09 financial meltdown is a stern reminder that failing to plan for low probability events may lead to very detrimental consequences.
The large decline in the stock market coupled with crippling job losses was a double whammy that took many households by surprise. For the unprepared, it was a very rude shock from which it may take them years to recover.
The best way to avoid a similar fate in the future is to create a flexible and comprehensive plan today.
Most Americans lack a formal financial plan, according to the Certified Financial Planner Board of Standards' 2004 Consumer Survey. Yet the same survey finds those with a written financial plan are more satisfied with how their finances are managed, more confident about their financial decisions, and less worried about being financially secure at retirement.
Deciding where to invest your money is only one of many parts of a comprehensive financial plan. You also need to consider asset protection strategies, liability management, cash flow analysis, and tax minimization strategies.
A good plan will address questions such as:
- How much do I need to save so I can retire with my desired lifestyle?
- What percent of my portfolio can I withdraw each year?
- Which assets should I tap first in order to minimize my taxes?
- What is an appropriate investment mix based on my goals and tolerance for volatility?
- What insurance do I need to protect my assets?
- What strategies can I put in place to minimize my estate and income taxes?
- How can I ensure that my assets pass to my heirs in the way that I desire?
- How should I title my assets?
- What plans do I need to put in place now to help me realize my special dreams and goals?
And, don’t forget, this is not a static document. As your life changes so should your plan. Here are several examples of life changes that may cause a revision to your plan:
- The need to take care of an aging parent
- Divorce or death of a spouse
- A forced retirement or job loss
- An inheritance
- Starting or selling a business
Of course, there are many other transitions, both expected and unexpected, that could occur. The best way to deal with them is to have a plan that covers the expected while being flexible enough to deal with the unexpected.
Like a compass, your financial plan keeps you pointed in the right direction even as your life inevitably changes. What’s more, the comprehensive nature of financial planning should help you avoid major mistakes – from choosing a high-flying stock with no regard for its risk, to overestimating how much you can safely withdraw from your nest egg.
By presenting a broad view, your financial plan helps you understand how each financial decision affects other areas of your finances. For example, suppose you receive an inheritance and use it to pay off your mortgage. That frees up more of your earnings to put into your retirement plan. But, your taxes rise because you’ve lost your mortgage interest deduction, and your expanding net worth means estate taxes could become a problem.
Yes, developing a plan takes time, but the end result may help put you at ease and enhance your quality of life.
As Yogi Berra once said, “If you don’t know where you are going, chances are you will end up somewhere else.” Better to live your life by design, not default.
If you would like to learn more about how to make the most of a challenging market, please give us a call.
Thanks for your trust & confidence,
ken@fordwealth.com | 201-798-7992
P.S. DON'T KEEP US A SECRET! At Ford Wealth Management we know that referrals from your friends, family and colleagues are the sincerest form of flattery. We appreciate your business and hope that you will pass along our name and number to anyone who would benefit from our services.
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