OK, so I spoke to soon. I knew it was bad karma to comment on how well the market had performed since it's low in August. Oh well, so much for timing. For those of you not watching, the market retreated to it's August lows last week on renewed concerns of the credit markets. The past two days, we have rallied because of once again, the market's expectation that the Fed will lower rates. I do think the Fed will continue to lower rates and be the lender of last resort in the short term credit markets. You can't imagine what a huge market this is and how vital it is in companies' ability to do business. If you can't borrow in the commercial paper market, you may as well shut your doors--especially if you are a financial company.
Value stocks in general have come back to life somewhat--but for the year, the growth stocks still take the prize. Real estate and small cap value have negative returns year-to date. These two areas have performed phenomenally this decade--it was time for a breather.
It will be interesting to see how the market does into the end of the year, typically a good time for the bulls.
On an investment product note, more fund groups are coming out with products to help retirees spend down their nest-egg while keeping a solid portion of their portfolios invested for growth. Fidelity currently has a fund that pays out over the time period specified so that at the end , all of the assets have been paid to the investor. Vanguard has registered with the SEC for a similar type fund due out next year.
On a personal note, I will be beginning my term as President of the Financial Planning Association, Greater Hudson Valley chapter. I am really excited to be at the forefront of the financial planning community, one whose voice in politics legislative matters and education grows stronger every day.
I would love to hear your comments and questions!!
Wednesday, November 28, 2007
Thursday, October 11, 2007
The market bottom is in place
Well, it is quite apparent now that the August lows in the market marked a great buying opportunity. This is usually the case, when fear is rampant and no one wants to step up to the plate to buy. Kudos to those who did put money in the market at that time. September, usually a bleak month for the market, proved to be one of the best Septembers on record. The S&P gained 4.3%, the Nasdaq +5.4% and the DOW was up 4.6%. The "Growth" strategy continues to outperform it's "value" and "blend" brethren for the first time probably this decade. Remember, value tends to outperform growth over long periods but in short time frames, growth can really skyrocket (think 1999, 2000). The Fed's action of unanimously cutting the fed funds rate injected the market with an incredible sense of relief that the worst is behind us. This doesn't mean the housing market has bottomed--I don't think it has. The Fed's action gave investors a reason to once again embrace risk as they put liquidity back into the market. And so, it's back to the races. Seasonally, the October through January time frame is typically the best time to be invested. I don't think this year will be any different.
For all you soon to be retirees, Vanguard has filed with the SEC to market three new funds that have managed payout options of 3, 5 and 7% annually. I think these funds will be very popular because it will make the process of drawing down assets straight forward. I will write about it as I get more information. This is really the first investment product that offers annuity like features without the drawbacks of annuities (high costs and irrevocable).
For all you soon to be retirees, Vanguard has filed with the SEC to market three new funds that have managed payout options of 3, 5 and 7% annually. I think these funds will be very popular because it will make the process of drawing down assets straight forward. I will write about it as I get more information. This is really the first investment product that offers annuity like features without the drawbacks of annuities (high costs and irrevocable).
Tuesday, August 14, 2007
Market Turmoil
The market has had a rough ride the past few weeks--this is no longer news. Compared to previous mini corrections we've seen over the past four years, this downturn is actually based on something real--the subprime mortgage fiasco, which has for all purposes shut down the credit markets. Rather than get into details of what happened, let's focus on the present. The Federal Reserve as well as other central banks continue to pump liquidity in the markets--this is exactly their role: to stabilize a credit crunch situation, lend credibility to market participants and to basically be lender of last resort. This is a good thing. However, it is very difficult to determine how much this will permeate the rest of the economy. Certainly Wall Street has been shaken up--we will probably see far fewer hedge fund managers (this is a positive in my view). The real estate sector including home builders have gotten crushed. I don't know how long this will take to work itself out.
As far as investments, the small cap sector continues to underperform with a meager 1.8% year to date return. Specifically, small cap value, which has been a star over very long time periods, is showing a -5% return for the year. Large company stocks are up 3.9% for the year and the leader of the pack is the mid cap style with a 5.3% return. You can see the variability of returns among market capitalizations is support for having a diversified portfolio.
Today, both the DOW and the S&P500 have corrected 10% from their highs. This is considered a normal market correction. No one likes when the market goes down and it very difficult to not be emotional and start selling. We have gotten so used to the market going up that we forget how volatile it can be. The media just perpetuates the feeling of fear.
As always, I take a long term view of the markets and look for opportunities to buy rather than sell during these tumultuous times. For those of you who don't watch Bloomberg TV everyday, when you receive your August statements, please don't panic. If anyone is sitting on uninvested cash, we should probably talk and find a place to invest that cash.
As far as investments, the small cap sector continues to underperform with a meager 1.8% year to date return. Specifically, small cap value, which has been a star over very long time periods, is showing a -5% return for the year. Large company stocks are up 3.9% for the year and the leader of the pack is the mid cap style with a 5.3% return. You can see the variability of returns among market capitalizations is support for having a diversified portfolio.
Today, both the DOW and the S&P500 have corrected 10% from their highs. This is considered a normal market correction. No one likes when the market goes down and it very difficult to not be emotional and start selling. We have gotten so used to the market going up that we forget how volatile it can be. The media just perpetuates the feeling of fear.
As always, I take a long term view of the markets and look for opportunities to buy rather than sell during these tumultuous times. For those of you who don't watch Bloomberg TV everyday, when you receive your August statements, please don't panic. If anyone is sitting on uninvested cash, we should probably talk and find a place to invest that cash.
Saturday, June 30, 2007
Another quarter is over.
Half the year is complete--markets continue to perform extremely well. Over the past twelve months, the S&P is up about 20%. Forward looking indicators of economic growth still look good. Inflation in the mid 2% is certainly not the end of the world but the trend is clearly higher which is the one factor quite worrisome to the Fed. Bernanke and Co. opted to keep rates unchanged this week--a move that makes perfect sense.
The markets have been very volatile lately--as evidenced by an increasing VIX. Markets can consolidate by going up and down for a period of time. Is this the pause that refreshes? or a short term top? International markets continue to turn in blockbuster returns. Keep a keen eye on those holdings--feels like a bubble could be brewing--particularly China where the retail brokerages resemble Off-Track-Betting establishments and everyone's grandmother views the market as a get rich quick vehicle. In comparison, domestic markets look cheap.
The mid-cap sector continues to steal the show with year-to-date performance in excess of 10%...the growth style in this sector is up about 13%. Small caps are up about 8% while large caps lag behind with about 6.5%. Interest rates are higher--the yield on the 10 year note is about 5.05% up from a low of about 4.6%--the bond market is still perturbed by players' exposure to syndicated sub prime loans. Bonds could also be signalling higher economic growth rates.
Thanks for reading.
The markets have been very volatile lately--as evidenced by an increasing VIX. Markets can consolidate by going up and down for a period of time. Is this the pause that refreshes? or a short term top? International markets continue to turn in blockbuster returns. Keep a keen eye on those holdings--feels like a bubble could be brewing--particularly China where the retail brokerages resemble Off-Track-Betting establishments and everyone's grandmother views the market as a get rich quick vehicle. In comparison, domestic markets look cheap.
The mid-cap sector continues to steal the show with year-to-date performance in excess of 10%...the growth style in this sector is up about 13%. Small caps are up about 8% while large caps lag behind with about 6.5%. Interest rates are higher--the yield on the 10 year note is about 5.05% up from a low of about 4.6%--the bond market is still perturbed by players' exposure to syndicated sub prime loans. Bonds could also be signalling higher economic growth rates.
Thanks for reading.
Friday, June 1, 2007
CFP Board announces new fiduciary standard
The CFP Board of Standards has revised its Code of Ethics. Now, all holders of the CFP(R) designation must act as a fiduciary in dealing with clients. This means that financial planners must put the best interests of clients first. "The revised standards require a CFP® professional to “at all times place the interest of the client ahead of his or her own.” The new language replaces the lower standard of “reasonable and prudent professional judgment” contained in CFP Board’s current Code of Ethics and Professional Responsibility". (excerpt from the CFP Board website). I have always held myself to this standard but I am happy to see that the investing public has gained an edge in dealing with financial advisors. This is an important accomplishment. To read more, go to http://www.cfpboard.org/media/release.asp?id=161.
On the markets, well not much to say. The fact that the DOW and the S&P keep setting new record highs is really not that big a deal to me--it's been seven years in the making! Actually compared to other segments of the overall market, like the international sector, the DOW and the S&P have lagged considerably and are probably undervalued. I noticed there is less talk of the Fed easing rates in the future, which seemed implausible to me, but certainly not to people like Bill Gross, portfolio manager of the largest bond fund in the world. I guess when you have a vested interest in lower interest rates, it tends to cloud your objectivity. This realization that rates are not going lower any time soon has not affected the stock market, not yet anyway--certainly has affected long term yields which have been rising of late.
May return numbers will be out soon--will write another post to see how the various market segments did this month. Thanks for reading.
On the markets, well not much to say. The fact that the DOW and the S&P keep setting new record highs is really not that big a deal to me--it's been seven years in the making! Actually compared to other segments of the overall market, like the international sector, the DOW and the S&P have lagged considerably and are probably undervalued. I noticed there is less talk of the Fed easing rates in the future, which seemed implausible to me, but certainly not to people like Bill Gross, portfolio manager of the largest bond fund in the world. I guess when you have a vested interest in lower interest rates, it tends to cloud your objectivity. This realization that rates are not going lower any time soon has not affected the stock market, not yet anyway--certainly has affected long term yields which have been rising of late.
May return numbers will be out soon--will write another post to see how the various market segments did this month. Thanks for reading.
Monday, May 14, 2007
Fed Ease?
Every time I hear some commentator on CNBC mention the idea that the market expects the Fed to ease rates at some point in the near future--I want to scream! I don't think the Fed has any intention of lowering rates--in fact, if inflation should become a greater concern, their next move may be to raise rates. Economic growth seems pretty good looking at forward indicators--not by looking in the rear view mirror at say GDP growth which came in pretty low.
The latest buzzword I hear about is the possibility of a "liquidity bubble". This seems plausible to me: there seems to be an awful lot of cash available for investment, mergers, takovers and the like, including the amount of leverage in the market. It's not just the U.S., it is global. A lot of liquidity chasing too few assets: that certainly raises asset prices above fair value. The thing about bubbles is, they can last quite a long time.
As far as the market goes, it does appear at least for now that the market could go higher before it goes lower. That downward "blip" we had in February was just that--a blip that had no lasting affect. At some point, we will have more of a real correction, down 8-10%, but as long as traders and managers are waiting for it and preparing for it--it probably won't happen.
Year-to-date returns as of May 11, 2007 are: the S&P500 up 6.2%, the Mid Cap 400 index is up 11.2% and the small cap index is up 7.6%. Looks pretty good so far...we'll see what comes next.
The latest buzzword I hear about is the possibility of a "liquidity bubble". This seems plausible to me: there seems to be an awful lot of cash available for investment, mergers, takovers and the like, including the amount of leverage in the market. It's not just the U.S., it is global. A lot of liquidity chasing too few assets: that certainly raises asset prices above fair value. The thing about bubbles is, they can last quite a long time.
As far as the market goes, it does appear at least for now that the market could go higher before it goes lower. That downward "blip" we had in February was just that--a blip that had no lasting affect. At some point, we will have more of a real correction, down 8-10%, but as long as traders and managers are waiting for it and preparing for it--it probably won't happen.
Year-to-date returns as of May 11, 2007 are: the S&P500 up 6.2%, the Mid Cap 400 index is up 11.2% and the small cap index is up 7.6%. Looks pretty good so far...we'll see what comes next.
Tuesday, April 10, 2007
The First Quarter is Over
Well, the first quarter of the year is over and the numbers are in. As of March 31 the S&P is up year-to-date .18%, the DOW is down .87% and the NAS is up a paltry .26%. Large cap value outperformed large cap growth--the reverse was true for small caps with growth outpacing value by about 1%. Overall, small caps did better than large caps. The international sector continues to outpace the domestic market. The energy sector did well, while real estate saw some weakness. According to the Stock Trader's Almanac, of which I am a big fan, April marks the end of the "best 6 months". Last year, they were right on cue--what will happen this year?
Growth prospects for the economy remain healthy, which would indicate the Fed will probably not lower rates as the market had previously anticipated. I think the Fed is on hold for the near future. But a healthy economy is good for the stock market as earnings can be expected to remain robust. On the technical side, as an avid chart-watcher for years, the charts appear a little "tired"--the slight correction we experienced in February really did not have a lasting effect and so I think we could see another correction at some point--which would indicate a nice buying opportunity. In terms of specific sectors, I still like Japan specifically and the energy sector. I always like the small and mid caps--I like them more as the "talking heads" continue to insist that their future performance will be less than stellar as compared to the large cap sector. I think the real estate sector will be interesting to watch--lots of money still flowing into that sector supported by a healthy economy and stable interest rates--but WOW those valuations sure are high!
As far as all the talk of home foreclosures and sub prime lending issues--I think the media has overblown the effect of these problems on the overall economy. Just more "noise" through which we must wade.
On the financial planning forefront, an interesting piece of research has come out indicating what a huge difference it makes at what age one starts to save for retirement. The study concluded that by age 35-40, if you haven't already started saving for retirement, that your ability to do so is greatly diminished because of the high percentage you would need to save to get "caught up". The take away here is if you know anyone just starting his/her career--tell them to start saving now! Or if you have teenage children who work summers--have them or you invest some money in a ROTH IRA. The sooner saving begins, the smaller the percentage of income needs to be saved for those Golden Years. If you would like more information on this study, let me know.
If you have anyone you would like to refer to me, please send them to my website http://www.mcdadvisors.com/. As always, thanks for reading.
Growth prospects for the economy remain healthy, which would indicate the Fed will probably not lower rates as the market had previously anticipated. I think the Fed is on hold for the near future. But a healthy economy is good for the stock market as earnings can be expected to remain robust. On the technical side, as an avid chart-watcher for years, the charts appear a little "tired"--the slight correction we experienced in February really did not have a lasting effect and so I think we could see another correction at some point--which would indicate a nice buying opportunity. In terms of specific sectors, I still like Japan specifically and the energy sector. I always like the small and mid caps--I like them more as the "talking heads" continue to insist that their future performance will be less than stellar as compared to the large cap sector. I think the real estate sector will be interesting to watch--lots of money still flowing into that sector supported by a healthy economy and stable interest rates--but WOW those valuations sure are high!
As far as all the talk of home foreclosures and sub prime lending issues--I think the media has overblown the effect of these problems on the overall economy. Just more "noise" through which we must wade.
On the financial planning forefront, an interesting piece of research has come out indicating what a huge difference it makes at what age one starts to save for retirement. The study concluded that by age 35-40, if you haven't already started saving for retirement, that your ability to do so is greatly diminished because of the high percentage you would need to save to get "caught up". The take away here is if you know anyone just starting his/her career--tell them to start saving now! Or if you have teenage children who work summers--have them or you invest some money in a ROTH IRA. The sooner saving begins, the smaller the percentage of income needs to be saved for those Golden Years. If you would like more information on this study, let me know.
If you have anyone you would like to refer to me, please send them to my website http://www.mcdadvisors.com/. As always, thanks for reading.
Monday, March 19, 2007
Markets and More
A couple of interesting things to talk about today. In looking at what type of stocks have done well so far this year, it looks like the Mid cap sector takes the lead. According to today's Wall Street Journal, the mid-caps are up about 2% year to date, the small-cap growth and core styles are up slightly and the small-cap value style is down .1%. The worst hit is large-cap value at -2.6% while large-cap growth is down .7%: which is quite counter intuitive because typically it's the value sector that holds up better in declining markets. The total index is down 1.4% year to date. The return numbers are based on the Dow Jones Wilshire U.S. indexes and does not include any international markets. I just like to point out how important it is to have a weighting in all size market capitalization and how if you just owned a Wilshire 5000 index fund, you would be at a disadvantage.
In the news last week are the results of a study done by Fidelity Research Institute that concluded Americans have only saved enough to replace 58% of pre-retirement income in retirement. This is starkly below the 80% benchmark most financial planners use. My rule of thumb in figuring out how much someone will be spending in retirement is to assume that all debts will be paid off by then and that spending will really be related to living expenses, travel etc and then later on, health care expenses. Not everyone is in the situation of being debt free by retirement--those people may need to work part-time in their Golden Years.
Many of you may not realize that a source of great irritation for me is the whole 401k industry. It angers me that while the pressure for preparing for retirement is clearly being pushed from the employer to the employee , yet most of us are stuck with plans that include high cost, mediocre-at-best mutual funds. Additionally, plans do not disclose what the costs are--which get passed directly to employees. The Department of Labor has apparently made it their priority to force 401k plan sponsors to disclose all fees including indirect compensation. It's a start at least. One easy remedy is for a plan sponsor to include a brokerage option within the plan which would allow employees to funnel their 401k contributions to a brokerage account where they, with the help of a financial advisor, could choose their own investments.
Thanks for reading.
In the news last week are the results of a study done by Fidelity Research Institute that concluded Americans have only saved enough to replace 58% of pre-retirement income in retirement. This is starkly below the 80% benchmark most financial planners use. My rule of thumb in figuring out how much someone will be spending in retirement is to assume that all debts will be paid off by then and that spending will really be related to living expenses, travel etc and then later on, health care expenses. Not everyone is in the situation of being debt free by retirement--those people may need to work part-time in their Golden Years.
Many of you may not realize that a source of great irritation for me is the whole 401k industry. It angers me that while the pressure for preparing for retirement is clearly being pushed from the employer to the employee , yet most of us are stuck with plans that include high cost, mediocre-at-best mutual funds. Additionally, plans do not disclose what the costs are--which get passed directly to employees. The Department of Labor has apparently made it their priority to force 401k plan sponsors to disclose all fees including indirect compensation. It's a start at least. One easy remedy is for a plan sponsor to include a brokerage option within the plan which would allow employees to funnel their 401k contributions to a brokerage account where they, with the help of a financial advisor, could choose their own investments.
Thanks for reading.
Sunday, March 11, 2007
First posting
Well, I have finanlly decided to join the many who have decided to write for all the world to see. I decided this would be a great forum to keep in touch with current, past and prospective clients in a timely way. I find that when the market declines sharply, folks want to know what I am thinking--despite the fact that I take a long term view of the market.
So here's what I think now: the past two weeks have been extremely volatile. This is I believe largely due to the presence of hedge funds. I heard on CNBC the other day that hedge fund trading makes up about 30% of all trading on the NYSE. Many hedge funds make very short term trades: they are in, next day, they are out--makes for much anxiety for the rest of us. I think especially in the emerging markets arena: like China which was up 80% in 2006, we could continue to see much volatility. In addition, in looking at the charts, it appears that although damage has been done, there could still be more on the way. Also consider that the spring and summer are typically not a good time for the market--the old adage, "Sell in May and go away", certainly held true last year. I don't advocate trying to time the market--and since all my clients have diversified investment portfolios, I share these thoughts with you to alter your expectations that we may be in for some more downside. For anyone who has some cash to invest, this means an opportunity to buy at better prices.
What is happening in the market is not nearly important as what is happening in your life. While market returns are an important component in developing financial planning models, the amount of assets you have and how much you spend are equally as important. I plan on using this space to discuss ideas regarding all of these things and refer you to resources for more information.
So here's what I think now: the past two weeks have been extremely volatile. This is I believe largely due to the presence of hedge funds. I heard on CNBC the other day that hedge fund trading makes up about 30% of all trading on the NYSE. Many hedge funds make very short term trades: they are in, next day, they are out--makes for much anxiety for the rest of us. I think especially in the emerging markets arena: like China which was up 80% in 2006, we could continue to see much volatility. In addition, in looking at the charts, it appears that although damage has been done, there could still be more on the way. Also consider that the spring and summer are typically not a good time for the market--the old adage, "Sell in May and go away", certainly held true last year. I don't advocate trying to time the market--and since all my clients have diversified investment portfolios, I share these thoughts with you to alter your expectations that we may be in for some more downside. For anyone who has some cash to invest, this means an opportunity to buy at better prices.
What is happening in the market is not nearly important as what is happening in your life. While market returns are an important component in developing financial planning models, the amount of assets you have and how much you spend are equally as important. I plan on using this space to discuss ideas regarding all of these things and refer you to resources for more information.
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