It was a pretty bad week last week. The DJIA was down 4.2% last week and down 19.9% from the October high. Here are some year to date returns for various market caps: large cap stocks down -10.84%, mid cap stocks -6.5% and small cap -6.36%. Large cap growth did better than value but the opposite is true for small and mid caps with value outpacing growth stocks. International stocks are down -11.3%--equity income funds are down -12.5% and even balanced funds, which are meant to hold up well in declining market environments are down -6.42% year to date. The only thing that has held up in here are commodities. For example, oil as measured by the ETF USO is up 46% year to date.
Here is the big problem facing the Fed with what to do with interest rates: CPI (a widely used measure of inflation) is up 4.2% year over year--core inflation (which excludes food and energy prices for those of us that don't eat or use fuel) is up 2.3% year over year. These numbers, particularly the total CPI, is much higher than it has been in years. Slowing economic growth coupled with rising inflation is a real dilemma for the Fed.
I have started reading a very interesting book called Simple Wealth, Inevitable Wealth by Nick Murray available only at www.nickmurray.com. Murray is a consultant to financial advisors but wrote this book for clients. He has been in the financial services industry for 41 years and has seen a lot. I really like to read and hear the wisdom of people who have been involved in the markets for a long time--they seem to make so much sense and they don't get pulled into the over zealous media's negativity. What Murray says is when the markets are down is the time to buy more shares of your favorite stocks or funds or just index funds as part of your long term investing plan--Warren Buffet once said that the only thing Americans won't buy on sale is stocks! Well, they are 20% off now!! As investors, we all must invest with rationality not emotions. History has shown that the stock market has always gone up over the long term--don't believe anyone who says it is different this time--the details may be different, but the cycles remain the same.
Thanks for reading.
Monday, June 30, 2008
Wednesday, June 25, 2008
Financial Education
I often come across really interesting information I like to share. There is an organization called the National Endowment for Financial Education that puts out some great research and has developed age appropriate financial education programs to be used at all grade levels within the school environment. The website is http://www.nefe.org/. One article particularly useful addresses the topic of raising a money smart child.
Read here :http://www.smartaboutmoney.org/nefe/pages/popups/1770.asp?resource=227
There are other tons of articles available at http://www.smartaboutmoney.org/ especially for those friends who do not work with a financial planner who maybe should be considering it.
Another great resource is the Mature Market Institute at http://www.metlife.com/ under the "brokers & consultants" tab which addresses issues of retirement, longevity, long term care insurance, social security and medicare.
There is so much information available on the internet--it's nice to have a guidepost. If anyone else has found helpful websites, please post so we can all take a look.
Thanks for reading.
Read here :http://www.smartaboutmoney.org/nefe/pages/popups/1770.asp?resource=227
There are other tons of articles available at http://www.smartaboutmoney.org/ especially for those friends who do not work with a financial planner who maybe should be considering it.
Another great resource is the Mature Market Institute at http://www.metlife.com/ under the "brokers & consultants" tab which addresses issues of retirement, longevity, long term care insurance, social security and medicare.
There is so much information available on the internet--it's nice to have a guidepost. If anyone else has found helpful websites, please post so we can all take a look.
Thanks for reading.
Tuesday, April 15, 2008
April Update
WOW, thank heavens that quarter is over! One of the worst quarters ever in the the market's history. Let's recap what happened: S&P500 down 9.92%, NASDAQ down 14.07%, Large Cap Growth -10.18% and Value -8.72%. Small caps lag with Growth down 12.83% and small cap value -6.53%. International sector was down 8.82%. The only thing that was up were commodity funds and bonds.
The good news is for anyone with HELOCs, rates have come down. The Prime Rate is at 5.25% and LIBOR is 2.71%. Mortgage rates have not come down as much. The published rate for 30 year fixed mortgages is at 5.37% and for jumbo mortgages (amounts greater than $417,000) the published rate is 7.19%.
One interesting article I read recently discussed the investment allocation of endowment funds. This topic is always one of fascination because many of the larger endowment funds have had excellent long term returns and so the managers investing these assets are usually held in high regard. The article pointed out that some endowment funds (Yale in particular) have reduced if not completely eliminated their exposure to fixed income securities arguing that historical bond returns can not be supported given the current low level of rates. How then, is one to diversify risk? The answer is in the long-short funds. A long-short fund essentially eliminates market risk buy being long some stocks and being short other stocks. One fund that has done well with this strategy is the Hussman Strategic Growth fund. Since 2001, the fund has had positive returns every year, including so far this year. While past performance is not guarantee of future results, this track record gives me a strong inclination that the manager, John Hussman, knows what he is doing.
On a non financial note--a recent University of Michigan study indicates that having a husband creates an extra seven hours of housework each week for women and that getting married saves a man about an hour a week in housework. It's nice to know there is an actual study that affirms what I have known to be true for a decade.
Thanks for reading.
The good news is for anyone with HELOCs, rates have come down. The Prime Rate is at 5.25% and LIBOR is 2.71%. Mortgage rates have not come down as much. The published rate for 30 year fixed mortgages is at 5.37% and for jumbo mortgages (amounts greater than $417,000) the published rate is 7.19%.
One interesting article I read recently discussed the investment allocation of endowment funds. This topic is always one of fascination because many of the larger endowment funds have had excellent long term returns and so the managers investing these assets are usually held in high regard. The article pointed out that some endowment funds (Yale in particular) have reduced if not completely eliminated their exposure to fixed income securities arguing that historical bond returns can not be supported given the current low level of rates. How then, is one to diversify risk? The answer is in the long-short funds. A long-short fund essentially eliminates market risk buy being long some stocks and being short other stocks. One fund that has done well with this strategy is the Hussman Strategic Growth fund. Since 2001, the fund has had positive returns every year, including so far this year. While past performance is not guarantee of future results, this track record gives me a strong inclination that the manager, John Hussman, knows what he is doing.
On a non financial note--a recent University of Michigan study indicates that having a husband creates an extra seven hours of housework each week for women and that getting married saves a man about an hour a week in housework. It's nice to know there is an actual study that affirms what I have known to be true for a decade.
Thanks for reading.
Thursday, March 20, 2008
Information about brokerage accounts
It's hard to believe we are nearing the end of the first quarter--not a fun first part of the year. It always amazes me to watch the market behave in completely irrational fashion. Bear Stearns worth $2 a share? OK so apparently, the firm was 30 times leveraged but c'mon....the building alone is worth way more than that!
Let's focus on what we have learned here, not a new lesson by the way. Shall we consider that once again, lifetimes of earnings and savings have basically disappeared. One third of Bear Stearns' stock is owned by employees. Granted, employees had their hands tied in so far as how much and when they could sell their shares. Please be careful to those of you who own company stock in your 401k, are awarded stock options, and stock grants in your bonuses and also own stock via ESPPs. You are probably quite over weighted in company stock. Where you have the ability to cut back, IE. those vehicles of ownership than are optional, look at paring your exposure.
Another interesting thing that has come up is what happens to client accounts should a brokerage firm go bankrupt? There have been a few articles lately in the WSJ addressing this very issue. Here, one can take solace in the fact that most large brokerage firms are covered by SIPC insurance (similar to FDIC) for up to $500,000. In addition, most firms have additional insurance to increase coverage amounts. However, it is important to know that brokerage firms must keep client accounts separate from the company's assets--as such, the accounts are held in custody. So in the case of bankruptcy, client accounts should be protected. The only real issue with brokerage accounts is if you have an account with a rinky dink little firm and there is embezzlement or other foul play. Even in the case of a criminal act, SIPC would pay, as long as the brokerage firm was covered under SIPC. So, in short, no real need to worry about brokerage accounts at a firm that is in trouble.
On the market, except for commodities, most of the equity market is down anywhere from 10-13% year-t0-date. Actually, Nasdaq is down about 27% from it's high and the S&P is down almost 18% from it's high--which leads me to believe, the worst may be over. This belief certainly doesn't mean we will turn around on a dime and start going straight up--it will take some time to develop a base. However, anyone sitting with a lot of cash should seriously consider putting some of it to work.
Lastly, while I could write at length what has happened in the market these past six months, I will keep it brief and try not to lambaste the media too much. Let's be very clear about one thing: what is going on in the financial markets is not about the weakness in the real estate market. It is about the unwinding of excessive levels of leverage (borrowing) funded by very cheap money and lots of liquidity for years. I believe the Fed is doing everything right to bring normalcy back to the capital markets but it will take time to restore confidence. Whatever the problem is, the answer is always liquidity and accommodation on the part of the Fed, at least that is what history has shown us.
Thanks for reading....
Let's focus on what we have learned here, not a new lesson by the way. Shall we consider that once again, lifetimes of earnings and savings have basically disappeared. One third of Bear Stearns' stock is owned by employees. Granted, employees had their hands tied in so far as how much and when they could sell their shares. Please be careful to those of you who own company stock in your 401k, are awarded stock options, and stock grants in your bonuses and also own stock via ESPPs. You are probably quite over weighted in company stock. Where you have the ability to cut back, IE. those vehicles of ownership than are optional, look at paring your exposure.
Another interesting thing that has come up is what happens to client accounts should a brokerage firm go bankrupt? There have been a few articles lately in the WSJ addressing this very issue. Here, one can take solace in the fact that most large brokerage firms are covered by SIPC insurance (similar to FDIC) for up to $500,000. In addition, most firms have additional insurance to increase coverage amounts. However, it is important to know that brokerage firms must keep client accounts separate from the company's assets--as such, the accounts are held in custody. So in the case of bankruptcy, client accounts should be protected. The only real issue with brokerage accounts is if you have an account with a rinky dink little firm and there is embezzlement or other foul play. Even in the case of a criminal act, SIPC would pay, as long as the brokerage firm was covered under SIPC. So, in short, no real need to worry about brokerage accounts at a firm that is in trouble.
On the market, except for commodities, most of the equity market is down anywhere from 10-13% year-t0-date. Actually, Nasdaq is down about 27% from it's high and the S&P is down almost 18% from it's high--which leads me to believe, the worst may be over. This belief certainly doesn't mean we will turn around on a dime and start going straight up--it will take some time to develop a base. However, anyone sitting with a lot of cash should seriously consider putting some of it to work.
Lastly, while I could write at length what has happened in the market these past six months, I will keep it brief and try not to lambaste the media too much. Let's be very clear about one thing: what is going on in the financial markets is not about the weakness in the real estate market. It is about the unwinding of excessive levels of leverage (borrowing) funded by very cheap money and lots of liquidity for years. I believe the Fed is doing everything right to bring normalcy back to the capital markets but it will take time to restore confidence. Whatever the problem is, the answer is always liquidity and accommodation on the part of the Fed, at least that is what history has shown us.
Thanks for reading....
Tuesday, January 22, 2008
U-G-L-Y
The best way to describe this market. Year to date as of Friday Jan 18th, the market was down anywhere from 10 to 12% with small caps being the worst performers. The real problem with this kind of sharp downturn in the markets is that no one sector has been spared. The whole notion of portfolio diversification goes out the window because in times of crisis, everything goes down.
The Fed has reduced the Fed Funds rate by 3/4% to 3.5%. This will directly affect anyone with a HELOC and adjustable rate mortgages. However, the impetus for such a move by the Fed, which to lower rates outside of an FOMC meeting is unusual and significant, is to raise the level of confidence of market participants. As of right this minute, the market has been open for 4 minutes and it is down tremendously--Nasdaq is down 5%.
While it is difficult not to feel emotional about losing money--it is times like this that we need to maintain rationality. While no investment is making money right now, we must feel confident in the fact that portfolios are well balanced and have been constructed to achieve long term financial goals and thus we are all long term investors.
I always wonder during times of crisis where opportunities may exist. Is there anything in the portfolio that I would like to own that I should be buying? General valuations seemed reasonable when the market was 20% higher, it has to be even more reasonable now.
As for what I am doing today, I am going to call my mortgage lender to see if I could lock in my adjustable rate (4.5%) for another five years--wish me luck.
I am available if anyone wants to talk.
The Fed has reduced the Fed Funds rate by 3/4% to 3.5%. This will directly affect anyone with a HELOC and adjustable rate mortgages. However, the impetus for such a move by the Fed, which to lower rates outside of an FOMC meeting is unusual and significant, is to raise the level of confidence of market participants. As of right this minute, the market has been open for 4 minutes and it is down tremendously--Nasdaq is down 5%.
While it is difficult not to feel emotional about losing money--it is times like this that we need to maintain rationality. While no investment is making money right now, we must feel confident in the fact that portfolios are well balanced and have been constructed to achieve long term financial goals and thus we are all long term investors.
I always wonder during times of crisis where opportunities may exist. Is there anything in the portfolio that I would like to own that I should be buying? General valuations seemed reasonable when the market was 20% higher, it has to be even more reasonable now.
As for what I am doing today, I am going to call my mortgage lender to see if I could lock in my adjustable rate (4.5%) for another five years--wish me luck.
I am available if anyone wants to talk.
Tuesday, January 15, 2008
A New Year
2007 may have marked the end of the bull run that began mid 2003. For the year, the DJIA was +8.9% but the S&P500 was only up 5.5%. The growth style of investing finally came back to life after years of under-performing. Large cap growth was up 14.2%, mid cap growth up 16.5% and small cap growth was up 8.8%. Small caps were the under-performer of the year with a "core" strategy posting loses of 1% and small cap value losing 5.5%. This is unusual since over long periods of time, small cap value has actually outperformed other size and style classes. As you know in investing, not every year is the same.
The great winner for 2007, once again, was international equity investing, up 12.4% and emerging markets up a whopping 36.4%--WOW.
I like to look at what the market is doing right now, rather than try to guess what the market could do in the future--most people don't guess very well, and it remains just that, a guess. Right now, the market is in a correction phase. Volatility has been rising which indicates fear and uncertainty in the market. The ECRI index of leading indicators has reached a six year low indicating real economic weakness ahead. However, bear in mind, the Fed has already injected quite a bit of liquidity into the markets via lower rates and availability of funds to corporate borrowers. They are also clearly committed to continuing in this way as economic growth (rather than inflation) has become their primary concern.
An interesting article in the Wall Street Journal makes a valid point about the market being a discounting mechanism and compares the current economic environment with the last recession in 1990-1991. At that time, the Fed was also very diligent about lowering rates and stocks went down early on, but the equity market actually turned around once it was apparent the recession would be quick and mild. The article didn't say that would be the case this time, nor am I, but a diligent Fed can make the difference in mitigating the severity of slowing economic growth.
The most important thing to remember is to be a long term investor. A proper and well balanced asset allocation which produces a long term average expected return that will allow you to achieve your financial goals is really all we are concerned about. But the market sure is fun to talk about!
Please let me know if you have any questions or concerns.
The great winner for 2007, once again, was international equity investing, up 12.4% and emerging markets up a whopping 36.4%--WOW.
I like to look at what the market is doing right now, rather than try to guess what the market could do in the future--most people don't guess very well, and it remains just that, a guess. Right now, the market is in a correction phase. Volatility has been rising which indicates fear and uncertainty in the market. The ECRI index of leading indicators has reached a six year low indicating real economic weakness ahead. However, bear in mind, the Fed has already injected quite a bit of liquidity into the markets via lower rates and availability of funds to corporate borrowers. They are also clearly committed to continuing in this way as economic growth (rather than inflation) has become their primary concern.
An interesting article in the Wall Street Journal makes a valid point about the market being a discounting mechanism and compares the current economic environment with the last recession in 1990-1991. At that time, the Fed was also very diligent about lowering rates and stocks went down early on, but the equity market actually turned around once it was apparent the recession would be quick and mild. The article didn't say that would be the case this time, nor am I, but a diligent Fed can make the difference in mitigating the severity of slowing economic growth.
The most important thing to remember is to be a long term investor. A proper and well balanced asset allocation which produces a long term average expected return that will allow you to achieve your financial goals is really all we are concerned about. But the market sure is fun to talk about!
Please let me know if you have any questions or concerns.
Wednesday, November 28, 2007
Two Bottoms in place?
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!!
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!!
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