Jobs Improve, Stocks Happy

Last week we received some good news. The unemployment rate was reduced significantly to 8.6% (the lowest in more than a year and a half) amid expectations that it would remain above 9.0% through the 2012 election year. While the government cut 20,000 jobs in November, private businesses added 140,000 jobs.

The job market opening up is all the more important to the nation’s young adults, considering that 16- to 24-year-old employment has dipped as low as 47%. However, nearly two-thirds of the rise in employment in the past three months is attributed to the hiring of young folks, albeit perhaps those with low-paying wages. The retail sector recently added 50,000 jobs and around 22,000 jobs were added to the restaurant industry. Job report numbers are adjusted to account for seasonal trends, so these new jobs are not considered primarily a result of holiday hiring. This growth in consumer-oriented industries could be a reflection of resurrected confidence and – something we all could really use – hope.

CLICK HERE to read the Bureau of Labor Statistics jobs reported released on December 2, 2011.

CLICK HERE to read “Young workers getting hired again” at, December 1, 2011.

The stock market, for one, appeared quite happy with the news. Blue chip stocks added close to 800 points by the end of last week and are now up by more than 3% for the year. The S&P 500 and NASDAQ have both narrowed year-to-date losses to 1%.

While it appears that the stock market has been keeping lockstep with breaking news concerning the European debt crisis, it’s possible that Europe’s woes may be just smoke and mirrors for stock market investors. LPL Financial recently published year-end research and commentary that – stepping back from the day-to-day and week-to-week trading – reveals a different, longer-term pattern of stock market performance. The report demonstrates that the U.S. stock market has closely tracked real-time economic data as measured by unemployment benefits reports.

CLICK HERE to read Outlook 2012 by LPL Financial Research, November 2011.

Perhaps because hope tends to accompany the holiday season, December has historically been a rewarding month for stock investors. In fact, 18 of the last 21 Decembers have produced a positive total return for the S&P 500. The average December performance since 1990 is a gain of +2.1% – the best of any month – according to BTN Research.

Recent signs are positive. We’re seeing real movement to reach a bipartisan budget agreement in Congress, despite the disappointing outcome of the Supercommittee’s efforts. Republican opposition may be ready to extend the payroll tax break by the end of the year in exchange for a compromise to reduce expenses.

The trends for the rest of the year are clear: Shop. Invest. Hope. Please feel free to contact me to discuss opportunities arising from the recent news.



Short on Patience; Long On Bonds

The failure of the bipartisan supercommittee to reach an agreement on ways to reduce the nation’s super debt probably came as a surprise to few. Regardless of the outcome, we already knew that the US may need to come under prohibitive austerity measures for the foreseeable future.

In Germany, the one country in the Eurozone that exhibited strength and outperformance while the rest of the region floundered, announced back in June of 2010 its four-year plan of cutbacks. Those plans included “trimming welfare allowances for jobless parents, eliminating 10,000 civil service jobs over four years, and reducing the military, among other measures.” Not surprisingly, many opposed the reductions at the time, calling them unjust and shortsighted.

However, in the first half of 2011, Germany proved to be one of the best performing markets in the world, and the country’s unemployment fell to a 20-year low. Perhaps, despite the tough times ahead of us, austerity could mean good news for investors.

CLICK HERE to read the June 7, 2010 article at entitled, Will German Austerity Help or Hurt the Global Recovery?

Given that the upcoming decade will likely be characterized by deleveraging* and slow growth, many investment analysts are indicating that corporate bonds could provide a better risk/return ratio than equities. In fact, fixed-income securities posted strong relative returns over the past decade, with Treasury bonds gaining 6.25% and corporate bonds gaining 6.96% annually from December 31, 1999 to December 31, 2010 (as measured by the Barclays Capital Aggregate Treasury Index and the Barclays Capital Aggregate Investment Grade Corporate Bond Index, respectively).

Another advantage for bonds is their low correlation with stocks. High-quality bonds – such as investment-grade corporates and Treasuries – can help diversify your portfolio with the potential for gains when stocks take a dive. You can further diversify your bond allocation at the “sub-asset-class” level with a mix of holdings that includes corporate, government, municipal, foreign, and high-yield securities.

Bonds also offer the concept of “tax alpha” – the difference between the return of an investment portfolio that pays capital gains taxes versus one that does not. An apt comparison is that of the amount of your year-end bonus: Your boss tells you you’ve earned one amount, but the check you receive (after taxes have been withheld) is a much different story.

Hence the appeal of municipal bonds, wherein yields are shielded from federal and state/local taxes of the issuer. One way to improve the tax efficiency of non-muni bonds is by holding them in a tax-sheltered account, such as a 401(k), or variable annuity.

The earnings rates for Series I Savings Bonds and Series EE Savings Bonds issued from November 2011 through April 2012 were recently published. The rate for I bonds bought from November 2011 through April 2012 is 3.06%, and Series EE bonds issued from November 2011 through April 2012 will earn 0.60%.

CLICK HERE to read Fidelity Investment’s viewpoint on Bonds for growth investors, November 23, 211.

CLICK HERE to read the savings bond announcement, Public Debt Announces New Savings Bonds Rates at, November 1, 2011.

It’s important to understand how each type of bond is impacted by various economic scenarios, so fee free to contact me if you’d like to discuss enhancing your bond allocation for the coming year.

*To increase financial stability by paying off debt



A World of Opportunity

Warren Buffet is quoted as once saying that when the tide goes out, you find out which investors are swimming naked.1 In reference to the global economy, an analyst recently annotated that remark by saying that when the tide went out in 2008 – the Chinese had on a full wet suit.2


In other words, if it had not been for China and other emerging market (EM) countries, the world economy might be vastly worse off than it is today. When you consider estimated outlooks for growth for 2012, analyst numbers average out at around 1.8% for the US and 1.2% for the European Union. However, total global growth is forecasted at 3.9% – boosted by the 6.2% growth anticipated by the EM economies.


Currently two-thirds of the world’s economic growth is coming from EMs – not from the US and not from Europe. However, according to studies by Merrill Lynch, the average US investor portfolio has only 3% exposure to EMs. This suggests that US investors – despite our pessimism for both the US and European financial markets – are vastly underinvested in the markets that are responsible for a majority of today’s economic growth.


CLICK HERE to view video of the interview with global analysts at Merrill Lynch Wealth Management; November 2011.


One thing to bear in mind is that in recent years, it’s become evident that emerging market equities are inversely correlated to the US dollar. In other words, when the dollar strengthens, EM equities tend to decline. This is because a rising dollar drains liquidity from EMs as investors shift to dollar-denominated assets.


Currently, the dollar is strengthening, so it’s reasonable to assume that EM equities will continue to weaken. While this means that these securities are vulnerable to short-term moves, you can actually “hedge” this weakness with a traditional buy-and-hold strategy. According to recent analysis by Morgan Stanley Smith Barney (MSSB), while short-term volatility based on dollar momentum may influence price movements, it has little to do with overall stock fundamentals.


The MSSB report asserts, “We still expect EM economies to outperform the developed economies in terms of economic growth. This should keep capital flowing to the emerging markets.” Furthermore, EM markets do not have the debt burdens of more developed nations, and have more options for fiscal policy flexibility.


CLICK HERE to read Morgan Stanley Smith Barney’s On the Markets report for November, 2011.

An emerging markets portfolio manager at Fidelity Investments recently commented that, despite short-term concerns, emerging markets are supported by long-term favorable demographics, rapid urbanization, and rising levels of wealth that will lead to increased consumer spending. Furthermore, several EMs had already engaged in deleveraging at the government, corporate and consumer levels over the last decade, so they are currently better positioned than the developed world to prevail in this environment of uncertainty.

CLICK HERE to read Fidelity Viewpoints “Is the emerging markets ride over?” November 8, 2011.

This is not to say that pessimism about America’s future should overly influence your investment decisions. All foreign securities are subject to interest-rate, currency-exchange-rate, economic, and political risks, and these characteristics are all the more magnified in emerging markets.

Remember, too, that the US is still the biggest and safest bet in the world, and our markets have actually outperformed in 2011 relative to other contenders. Some of our most successful companies have healthier balance sheets now than ever and hold market share lead positions – offering tremendous investment opportunities for investors who have fled to cash and safety over the past couple of years.


However, if you’re wondering how to invest in the current economic environment, it may behoove you to embrace a more global perspective going forward. Seek out investment opportunities for growth, income and value where they currently exist – and many of them exist outside of the US. The following are a few guidelines to help you with this mindset:


  • Strike an appropriate balance between equities and debt in both emerging and developed markets
  • Evolve a buy and hold strategy to review your asset allocation more frequently, gear it toward a very specific goal and time horizon, and be vigilant regarding the transparency and reliability of your plan
  • Rebalance more often and use new cash (if possible) to shore up underweight allocations to avoid tax consequences
  • Broaden your mindset for different global asset classes, such as commodities, currencies, real estate, etc.

Please contact us if you are interested in discussing the broader world of opportunities you can invest in for your future.

1 Accessed 11/21/2011.
2 “The Great Global Shift: New World, New Rules.” October 18, 2011.




Speculating vs. Investing: We Have a Choice

It’s hard to remember a time when the securities markets fluctuated so rapidly and so reactively to headline news throughout the day. First of all, ten years ago we may have been able to receive news via 24-hour news channels and the internet throughout the day, but today’s media is far more omniscient and detailed. Our world is smaller now, more connected – so things that happen in lands far away that we may never have visited nor will ever visit sometimes have the capacity to rock our world, our investments, and the very security of our future.

How can news about Greece and Italy have so much impact on our 401(k)s, stock portfolios, and even short-term CDs we hold at a local bank? It does. We worked towards a global economy for so long, stringing together real-time wireless communications that span the earth in mere seconds, and now we’re left wondering if that was the right direction for our future. Is that progress?

The fact is, the potential for sovereign default in European countries can reverberate globally with a freeze on credit and short-term lending while stock market prices drop all over the world – and such financial woes will continue to create serious implications for the economy here in the US.

CLICK HERE to read the CNN article “Stocks Tied to Europe Hopes” and view video of Federal Reserve Chairman Ben Bernanke explaining the impact of Euro Zone default on US stocks (“We are not insulated from Europe”); November 11, 2011.

CLICK HERE to read “Week That Began With A Bang Ends with A Whimper” at; November 11, 2011.

The good news, of course, is that last week the Italian Senate passed austerity measures and Greece named its new Prime Minister. CNNMoney has a stunning graphic (see link below) on just how well the Dow reacted to this news last Friday.

CLICK HERE to view the CNN graphic and article “Stocks jump 2% on progress in Greece and Italy;” November 11, 2011.

It’s truly amazing just how much impact the global economy, European politics, and this generation of modern-day technology has on stock market prices and the earning potential of our investment portfolios. In some ways, a stock’s price movement may have no relationship at all to the company’s health or prospects.

Jack Bogle, the founder and former CEO of the Vanguard Group and a long-time proponent of indexed mutual fund investing, has recently sounded off on this phenomenon, saying that investing these days more resembles speculation. In fact, he recently spoke with Morningstar about the enormous volume of daily activity in today’s markets.

Says Bogle: “This is short-term speculation and all its follies, and long-term investment with all its wisdom is kind of back in the rumble seat there somewhere forgotten. So my advice to an investor would be, first decide whether you’re an investor or speculator, and if you are an investor, I’d try to ignore all this noise.”

CLICK HERE to view the Morningstar video report (and transcript): “Bogle: Speculation is in the Driver’s Seat;” August 12, 2011.

Perhaps it is time to get back to the basics of being an investor – not a speculator. Indeed, if you’ve been trying to roll with the punches lately, attempting to benefit – or flee – from short-term activity, it may behoove you to take a more long-term look at your current holdings. Depending on the time you still have in the “growth” phase of your financial life, and the longer you have until retirement, the more you can hold on to that long-term perspective for the future. If so, please contact me to schedule a comprehensive evaluation of your portfolio and help you create an asset allocation strategy designed to meet your long-term personal goals.



Yesteryear’s Retirement Strategies May Not Stand the Test of Time

According to findings from a pre-retiree study this year,1 one-third of Americans age 55+ say their financial assets have not yet recovered to pre-recession levels. If that isn’t bad enough, many tried-and-true retirement income planning strategies employed by the last generation of seniors no longer appear viable.

Until interest rates start moving back up, the age-old income strategy of laddering fixed rate bonds or CDs is taking a back seat. As an article at recently pointed out, “retirees planning on using that strategy going forward may be sorely disappointed if five-year CD rates stay around 2%.”2

1 (CLICK HERE to read highlights from the SunAmerica Retirement Re-Set Study, July, 2011)

2 (CLICK HERE to read “Five Retirement Strategies that No Longer Work” at, September 1, 2011)

Other retirement income strategies of yesteryear have fallen by the wayside as well, thanks to national economic  problems during the first decade of the new millennium. For example, living off the equity in your home via a home equity loan or line of credit, or even a reverse mortgage, may no longer be feasible. Even for retirees who have paid off their mortgage, you may not get as much return on the investment in your home as you were counting on.

The same goes for selling your home for retirement income – assuming you can find a buyer. The good news is that properties in popular retiree states like Florida and Arizona are selling for a song right now. One option to consider is renting your pre-retirement home and fleeing south for retirement. If you rent your property now and sell it up to three years later, you can still benefit from the $250,000 capital gains tax exclusion if you lived in the home two of the previous five years (up to $500,000 if married filing jointly).

In light of today’s economic hardships, new strategies have gained popularity to help today’s pre-retirees and retirees subsidize their future income. According to an article in The Wall Street Journal Online3 recently, some of those strategies include annuities and “payout funds” – which are basically mutual funds that automatically distribute a level percentage of your account’s market value (4% tends to be a common distribution) on a regular basis, allowing the balance to remain invested in stock and bond markets.

Everyone’s situation is different, but the general garden variety wisdom today tends to advise utilizing a combination of different strategies that include annuities, investments and real estate. And don’t rule out bonds by any means. In fact, long-term government bonds have actually performed better than the S&P 500 over the last 30 years: 11.5% versus 10.8% a year, on average. 4

3 (CLICK HERE to read “Funding the Post Pension Retirement” at The Wall Street Journal Online, October 22, 2011)

4 (CLICK HERE to read “Say what? In 30-Year Race, Bonds Beat Stocks” at, October 31, 2011)

If you’d like to learn more about today’s retirement income planning strategies, please contact us today!.



The Psychology of Planning & the Ostrich Generation

The Wall Street Journal recently published an article dubbing many of today’s preretirees the “Ostrich Generation” – observing that folks are sticking their heads in the sand instead of proactively working on a retirement plan. In fact, according to the Employee Benefit Research Institute (EBRI), only 42% of Americans report that they’ve tried to calculate how much money they will need to save for retirement. It’s no wonder, of course, given the volatility in the stock market, low interest rates in the bond market, and the general state of the economy.

However, it does seem that now is a good time for folks to at least figure out how much money they’ll need to live on in retirement, and perhaps take a close look at all the retirement income strategies currently available. The current state won’t last forever – but similar situations may come around again before you retire – so it’s a good idea to take today’s lessons and apply them to help protect yourself from another financial retreat in the future. Like during retirement.

(CLICK HERE to read “Don’t Join the Ostrich Generation” at The Wall Street Journal, September 17, 2011)

(CLICK HERE for highlights of the EBRI’s 2011 Retirement Confidence Survey, March, 2011)

Experience shows that the more we learn about something, the more confident we grow about that area. Even though figuring out how much you will need may feel like an insurmountable number, the empowerment of the exercise may encourage you to become proactive. For instance, there are several strategies you can employ right now that don’t require that you invest for future growth. Many of these are outlined in the referenced Wall Street Journal article, such as:

  • Planning to work part-time during retirement – which can also help you stay active and engaged
  • Purchasing a long-term care policy – premiums are cheaper the earlier you buy a policy
  • Delaying Social Security – if you will soon be eligible for benefits, wait until age 70 and you’ll receive 132% of the full retirement age monthly benefit
  • Social Security selectivity – live on one spouse’s benefit and let the other’s kick in later at the higher percentage to help out with the rising cost of living and later-in-life health care costs

The point is, there is something you can do now: Make a plan. Granted, you’ll need to continue tweaking that financial plan for the rest of your life because things change – as we all well know. But the mere process of creating a financial plan is empowering in and of itself. It can help you feel more positive about the future – and your ability to have an impact on even unforeseen events. Creating a plan can also be more motivating than you might expect – finding areas to cut back in current living expenses and redirecting those funds towards your retirement.

Please contact me if you feel that you, too, might have had your head in the sand too long. I’d be happy to help you review your current strategy and create a sound approach for your future retirement.



Let’s Celebrate Inflation

Last week, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% in September; the 12-month increase equals 3.9%. The agency cited increases in energy and food prices as the main cause for the increase.  

As we’ve been wavering between threats of double-dip recession and higher inflation, this news may be the more positive direction for the economy. For the record, inflation usually exists even in a healthy economy. In fact, The Federal Reserve considers an annual inflation rate of around 2% as optimal. For a point of perspective, inflation averaged 2.8% during the growth years of the 1990s.1  

(CLICK HERE to read the full Bureau of Labor Statistics announcement, October 19, 2011) 

So, amidst all the current economic news, both good and bad, perhaps there are a few nuggets that are specifically relevant and actionable for consumers. As for inflation, prices typically rise because there is a sudden shortage of supply or because demand goes up. Given today’s current stagnant economy, increased demand is good news. This generally means consumers are spending more money; therefore companies can increase prices and, as revenues go up, payrolls increase and so does company growth and expansion – yielding more new jobs.

In related news that further demonstrates the positive side of higher inflation, the Social Security Administration recently announced a 3.6% cost of living (COLA) increase in Social Security benefits for 2012, following a two-year hiatus. Unfortunately for folks not retired yet, the agency also increased the limit on the amount of earned income that will be subject to Social Security taxes – from the current $106,800 to $110,100 starting in 2012.

The IRS also published new, increased contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. Plan limits are increasing from $16,500 to $17,000, starting next year.

(CLICK HERE to read the full Social Security announcement, October 19, 2011)
(CLICK HERE to read the full IRS announcement, October 20, 2011)

If these inflation adjustments are a sign of the times, it may be a good idea to consider options now for inflation-proofing your portfolio in the future. Common hedge strategies include commodities, REITs, currency strategies and inflation-linked securities such as TIPS (Treasury Inflation-Protected Securities). Also, investing in targeted asset classes such as commodities or TIPS through ETFs can be advantageous because they are low cost, transparent, and allow you to get in and out quickly.

If you’d like to discuss ways to protect your portfolio from the impact of rising inflation, please contact us today!

1 U.S. Inflation Calculator. Accessed October 26, 2011.



The Great Misconception?

Perhaps we’re missing something. Economists have called our recent hard times the Great Recession, and many call for a double dip on the horizon. But many of the numbers, particularly the ones released just last week, tell a different story.

Let’s start with the bad news. Consumers are still reeling from the credit, market, and political low notes we hit in August. Perhaps that’s why our poor outlook remains. On Friday, the Thomson Reuters/University of Michigan survey  results of consumer outlook fell from 59.4 last month to 57.5 – way off the more positive expectation of 60.2, and the lowest level in 30 years. 

Consumers reported that the biggest reason their finances have recently worsened was due to decreased household income, and 65% do not expect their income to increase in the year ahead.

 (CLICK HERE for CNBC coverage of the consumer sentiment survey, October 14, 2011.)

Then again, perception is about how we feel. In reality, the numbers aren’t all that bad. Last Friday, the US Department of Commerce announced that U.S. retail sales for September increased by 1.1% over August, and 8.1% over September 2010. Car sales also increased, up 0.6% in September and rising at the fastest pace since March 2010.

(CLICK HERE for the US Department of Commerce report, October 14, 2011.)

In job news, hiring was stronger than expected in September, with employers adding 103,000 jobs for the month. That number was bolstered by 45,000 striking Verizon workers who returned to work, as well as jobs added in the construction, retail, and professional/business services sectors. The picture may have looked rosier had it not been for Bank of America’s loss of 30,000 jobs in September, not to mention the ongoing woes of the public sector. As a result of state budget cuts, public schools lost 24,400 jobs across the country and local governments eliminated 35,000 jobs. Furthermore, the United States Army eliminated 50,000 troops as part of its five-year reduction plan.

(CLICK HERE and HERE for CNN’s coverage of jobs reports, October 7, 2011.)

(CLICK HERE for an employment update from Challenger, Grey & Christmas, October 5, 2011.)

To date, this year has experienced a teeter-totter between the languishing public sector (with a net loss of 267,000 jobs) and a well-capitalized private sector (with a net gain of 1.3 million positions). 

America’s corporations may be a bit stingy on job growth, but not on balance sheets. Economists estimate $2 trillion in cash reserves among the nation’s companies. In the first six months of this year, profits of the Standard & Poor’s 500® companies increased nearly 16% more than during the same timeframe last year. The 52-week S&P 500 consensus forward earnings forecast has increased from $96 at the start of the year to $108 (a 12% increase). 

These numbers clearly indicate that corporate profit is climbing much faster than economic growth. However, stock valuations remain priced for low expectations. Equity investors with nerves of steel who are willing to ride out the current volatility may eventually be rewarded. As the Global Investment Committee at Morgan Stanley Smith Barney points out, historically, years that start out with low levels of consumer confidence have witnessed higher than average equity one-year returns.

(CLICK HERE to read at Morgan Stanley Smith Barney’s market commentary, October 2011)

If you would like to discuss the equity allocation of your investment portfolio, please contact us today!




Today’s economic environment is more complex than ever before, and achieving financial success can be an incredibly confusing process to even the most experienced individuals. That’s exactly why we’ve created this blog – to provide a forum for discussion, a portal for helpful information and resources and an ongoing stream of expert insights to help you make informed decisions about your financial future.

What are your biggest financial concerns? If you’re like many individuals preparing for or actively enjoying retirement, you may be wrestling with any number of pressing issues that keep you up at night.  Many find themselves asking questions such as:

Have we really saved enough?
How do we make up what we’ve lost over the past 2-3 years
What are the right moves to make in today’s uncertain economy?
What should we be doing with our IRA and 401(K)?
Are there ways to reduce what we’re paying in taxes each year?
How do we create the most meaningful legacy possible for our children and grandchildren?
Will we outlive our retirement savings?

We’ll use this blog to provide valuable insights into each of these areas and more, so take a look around, check out the most recent posts and be sure to offer feedback or post a question if there are topics you’d like to see addressed!

Prefer to have your particular situation reviewed in person? We’d love to meet you!  Simply call (623) 544-3424 to schedule a complimentary consultation today!