Market Update through 6/15/12

as of June 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Russell 3000 6.78% 7.45% -4.80% 2.14%
S&P 500 8.49% 7.86% -4.20% 2.57%
DJ Industrial Average 10.30% 5.86% -2.73% 3.11%
Nasdaq Composite 10.42% 10.86% -6.82% 1.66%
Russell 2000 0.41% 4.75% -6.84% 1.33%
EAFE Index* -17.07% -2.62% -11.45% 3.20%
*EAFE index does not include dividends.        
Barclays US Aggregate 6.87% 2.38% n/a 0.05%
Barclays Intermediate US Gov/Credit 4.85% 2.08% n/a 0.06%
Barclays Municipal  9.71% 3.54% n/a -0.23%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $83.00    $83.80
Natural Gas    $2.65    $2.35
Gold    $1,625.70    $1,614.00
Euro    $1.25    $1.23

Mark A. Lewis

Director of Operations

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Tips for Investing Success

In the last ten full calendar years there have only been two negative years in the stock market. That’s hard to believe, but it’s true. The reason it does not feel like it’s true is that those two negative years were fairly bad. And even the positive years have been racked with volatility. The return of the S&P 500 during those 10 years was +2.9%. It’s been a tough time.

It’s natural to extrapolate what is happening now into a prediction for the future, and admittedly 10+ years is considered “long-term.” However, this abnormally bad time period for stocks does not need to be looked at as the new normal or as marking a new secular trend for stock returns. Rather, we think it should be looked at as a wild anomaly. It is something that should not be expected to persist.

In the meantime, what can you do? It’s well established that we cannot control the movements of the stock market. Not only that, we cannot predict the movements either. This means that any effort to ratchet up or down equity holdings based on the economic outlook is futile. In fact, study after study shows that it’s a good way to lose more money.

Here are my top five steps to long-term stock market success:

1. Know the difference in short-term needs and long-term needs. Any money needed in the next 5+ years should be kept in stable, liquid assets, such as cash, CD, money market, or potentially ultra-short term bond funds. If your investment nest egg is for retirement is for long-term purposes, realize that what happens in the market today is less important than saving for retirement. Don’t stop saving because the market is down. It is a buying opportunity; stocks are cheaper today than they were six months ago.

2. Pay down debt. If you are young, focus on variable and high-interest rate debt (over 7% or so), but don’t worry about paying down your low, fixed-rate mortgage or student loans outside of your regularly scheduled payments. If you are in or nearing retirement you can consider putting extra money toward all debt.

3. Save, save, save. You should be saving from the first day you earn a paycheck until the last day you earn a paycheck. Increase your savings every year.

4. Choose the right investment allocation that works for you in both up and down markets. Don’t get excited when the market goes up and decide you can handle more equities. Likewise, don’t get scared when the market is going down and decide you need more fixed income.

5. If you are retired and spending from your portfolio, make sure you understand you and your advisor’s plan for how you will manage portfolio spending during down markets. You may need to consider whether you can reduce spending after a particularly bad time period. Portfolio dividends and fixed income investments can also be used to weather these times.

We want success for all of our clients. If we could predict or control stock market returns, we would. But we see it as our job to help you choose the proper asset allocation, avoid life changing financial mistakes and develop an appropriate savings and spending plan. Once that is done we make modest changes to your portfolio to maintain the proper balance and stay invested through good and bad times. We are confident that these are the rights steps to take to help you secure your financial future.


Harli L. Palme, CFP®, CFA

Financial Advisor

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A Crisis of Confidence

Self-fulfilling prophesy. You hear that term a lot regarding the stock market. It was coined by sociologist Robert K. Merton, father of economist and Nobel laureate Robert C. Merton, known for his work on options pricing models (Black-Scholes-Merton, anyone? Anyone? Bueller?). Of course, the idea of the self-fulfilling prophesy has been around for ages and is a popular plot device, from Oedipus and Macbeth to Star Wars and Harry Potter.  It’s a fascinating concept, whereby a prediction influences the behavior that indirectly leads to the fulfillment of the prediction. I was talking with some colleagues about the phenomenon as it relates to testing. A person can end up failing a test, not necessarily because they were unprepared, but because they were so worried about failing that their lack of confidence caused them to freak out and freeze up on exam day.

In fact, it’s lack of confidence in the economy that we’ve seen weighing on the stock market lately. Investors hear news of a possible Greek default and subsequent European financial crisis and they worry that it will cause a downturn in global markets. As a result, they sell their investments, which – guess what? – causes markets to go down! A self-fulfilling prophesy. Then, the news turns positive (a possible bailout of Spain) and markets rally as confidence improves and investors buy back in.

It’s interesting to watch the effect of human behavior on the markets, but it can make you downright seasick when you’re invested in the market and riding the waves of sociological phenomena.  I know we’ve said it a thousand times, but the best thing to do is sit tight. If you can resist the pull of the crowd, you can dampen its effect on markets in some infinitesimal way. More importantly, resisting the urge to time the markets has been shown to improve investment returns over the long run.


Sarah DerGarabedian, CFA

Director of Research

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Market Update through 5/31/12

as of May 31, 2012        
  Total Return
Index 12 months YTD QTD May
Russell 3000 -1.87% 5.20% -6.80% -6.18%
S&P 500 -0.41% 5.16% -6.60% -6.01%
DJ Industrial Average 1.36% 2.67% -5.67% -5.82%
Nasdaq Composite 0.85% 9.05% -8.34% -7.04%
Russell 2000 -8.88% 3.37% -8.06% -6.62%
EAFE Index* -23.08% -5.64% -14.20% -12.09%
*EAFE index does not include dividends.        
Barclays US Aggregate 7.12% 2.33% n/a 0.90%
Barclays Intermediate US Gov/Credit 5.17% 2.02% n/a 0.48%
Barclays Municipal  10.40% 3.78% n/a 0.83%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $83.80    $92.96
Natural Gas    $2.35    $2.58
Gold    $1,614.00    $1,542.00
Euro    $1.23    $1.27

Mark A. Lewis

Director of Operations

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Scared Money Don’t Make Money

Recently, I heard the above phrase in a rap song by Pitbull.  I was surprised to hear mention of investment risk/reward in a popular song.  He did not go on to discuss European economic instability or currency valuation.  That would have been truly shocking.

The statement provokes thought, though.  People who are willing to take the most risk have the potential for greater reward – and greater loss.  It is easy to have an asset allocation of 100 percent equities in an up market.  Can you keep that allocation when the market is significantly down?  Will you still sleep at night?

On the other hand, holding money in a money market fund earning near-zero interest is also a risky proposition.  You must find some vehicle in which to invest because you cannot afford to earn nothing for your money.  Inflation continues to rise, even when interest rates are not.  The dollar you stash in a mattress will not be worth the same 10 years from now as it is today.

Finding the right allocation is very tricky.  It requires a great deal of evaluation on your part.  What is your current age?  Do you have enough time to recover from a short-term loss?  What are your investment goals for the next 5, 10, 15 years?  When do you want to retire? 

This is just a sample of some of the questions you should ask yourself.  A thoughtful review of your situation with your investment advisor will help the two of you to determine the best asset allocation.  Being brutally honest with yourself and communicating your goals, thoughts, and concerns with your investment advisor will allow you to work as a team.  The two of you will be able to find the right allocation that can help you sleep a little better at night.

Cristy Freeman, AAMS
Senior Operations Associate

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Time to Refinance Your Home?

Yesterday the 10 year U.S. Treasury Note traded at a record low 1.70%.  This is a key interest rate that helps drive the pricing of mortgages.

Even if you are at a seemingly low 4-5% interest rate, it may make sense for you to take advantage of today’s extraordinarily low rates to refinance. This is particularly true if you believe, like many people including myself, that inflation and interest rates are likely to rise over time.  People think trends are going to continue as they are for a long time.  They take whatever is happening currently and project it out into the future.  People have become so accustomed to low interest rates; they can’t really picture them at higher levels. But, not too long ago, money market interest rates were 5% or more.  When I started my first job in 1990, the Prime rate was 10%.  My colleagues and I in the banking industry thought that was too high.  We agreed that  a “normal” level for Prime was somewhere around 8%.  We never would have imagined Prime falling to 3.25% and staying there for years.

One key question is how long will you be in the property?  This determines the amount of interest rate protection that you will need. As of this writing, the published 15-year mortgage rate from a major national lender is 2.875% with 1 point.  The 30-year mortgage rate is currently 3.625% with 1 point. 

How do you calculate the breakeven point?   Determine your closing costs excluding property taxes and insurance, which you would have to pay anyway.  Your lender can give you these figures. Calculate a new monthly principal and interest payment based on the remaining maturity of your old loan, and compare it with your current principal and interest payment.  This way you are comparing apples to apples in isolating the interest rate savings .  Then divide the total closing costs by your annual principal and interest savings.  The result is the number of years it will take for you to break even.  It may not be as long as you think.  If your breakeven period is relatively short, say 2-3 years, and you intend to stay in the property for a while, then there’s really no reason not to refinance.  It’s just a matter of going through some paperwork, most of which is done by the lender and your attorney.

If you have had a 30-year mortgage for a while you may want to consider moving to a 15-year.  For exampl e, say you have 20 years remaining on a 30 year mortgage at 4.9%.  Your payment will go up because of moving from 20 years to 15 years, but the lower interest rate will offset much of this increase.

If we can be of assistance in helping analyze your particular situation, please give your advisor a call.

Bill Hansen, CFA

Managing Partner

May 18, 2012

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Market Update through 5/15/12

as of May 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Russell 3000 0.49% 6.87% -5.31% -4.69%
S&P 500 1.68% 6.65% -5.27% -4.67%
DJ Industrial Average 3.07% 4.42% -4.06% -4.21%
Nasdaq Composite 3.48% 11.55% -6.24% -4.91%
Russell 2000 -5.63% 5.41% -6.25% -4.78%
EAFE Index* -18.36% -0.70% -9.70% -7.49%
*EAFE index does not include dividends.        
Barclays US Aggregate 7.36% 1.87% n/a 0.45%
Barclays Intermediate US Gov/Credit 5.59% 1.79% n/a 0.25%
Barclays Municipal  10.86% 3.81% n/a 0.86%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $92.96    $104.71
Natural Gas    $2.58    $2.35
Gold    $1,542.00    $1,665.40
Euro    $1.27    $1.32

Mark A. Lewis

Director of Operations

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The importance of Beneficiary Designations

A beneficiary designation states to whom your assets will pass after your death.  These types of designations are assigned to specific assets.  For example, your employer’s 401k plan will have a beneficiary designation, which is separate from your personal IRA.

Generally, you only have beneficiary designations for tax-deferred assets such as your IRA and your 401k.  Your home and general brokerage account most often do not have these designations.  When tax-deferred assets are inherited, there is typically a tax-beneficial payout schedule that applies to the beneficiaries.  In order for the beneficiaries to receive this favorable payout schedule, they need to be specifically named as the beneficiary.  An IRA that is just left to the account holder’s estate or Will may be deemed to not be inherited by a person, and therefore a less tax-advantageous payout schedule is employed.  This translates to less tax-savings.

You can assign a beneficiary to your brokerage account if you like.  This is often called a “Transfer on Death” assignment.  Account holders like to do this because the account transfers quickly at their death and avoids the probate process.  However, this type of designation on a non-tax-deferred account doesn’t garner any special tax considerations.  Because there is no tax benefit to naming beneficiaries on these types of accounts you may want your non-tax-deferred assets to flow to the estate so that your Will states clearly who is to receive the assets.

If you have any major life changes, you should consider updating your beneficiary designations.   This should include a review of your life insurance policies and beneficiaries.  A marriage, the birth of a child, or loss of a loved one is a reason to ensure that your assets as assigned to be inherited by the correct parties.  Even without a major life change, a review of beneficiaries is practical every 3 to 5 years.

Harli L. Palme, CFP®, CFA

Financial Advisor

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Market Update through 4/30/12

as of April 30, 2012        
  Total Return
Index 12 months YTD QTD April
Russell 3000 3.40% 12.13% -0.66% -0.66%
S&P 500 4.76% 11.88% -0.63% -0.63%
DJ Industrial Average 5.98% 9.01% 0.16% 0.16%
Nasdaq Composite 7.18% 17.31% -1.40% -1.40%
Russell 2000 -4.25% 10.70% -1.54% -1.54%
EAFE Index* -15.65% 7.34% -2.40% -2.40%
*EAFE index does not include dividends.        
Barclays US Aggregate 7.54% 1.41% n/a 1.11%
Barclays Intermediate US Gov/Credit 5.86% 1.53% n/a 0.92%
Barclays Municipal  11.36% 2.92% n/a 1.15%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $104.71    $102.88
Natural Gas    $2.35    $2.02
Gold    $1,665.40    $1,652.30
Euro    $1.32    $1.30

Mark A. Lewis

Director of Operations

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Retirement Facts

If you were born between 1945 and 1964 you are labeled a “baby boomer” and there were 75.8 million babies born during that time period.  Those born in 1945 turned 65 in 2010 and entered the Medicare program and millions more will follow each year.  So if Medicare is running short of funds now, just think what will happen in the decades to come.   You must physically sign up for Medicare at the Social Security office three months before you turn 65.  If you fail to sign up, your premium is increased by 10% every year that you do not sign up.  You can decline Medicare if you have health care through your employer (and eliminate the 10% increase), but you have to remember to notify the Social Security Office after that fact.  If you have 40 quarters of work where you paid Medicare taxes, the Part A premium is free.  The Part B premium is deducted from your Social Security payment.  See the following table on Medicare premiums:

Type of Monthly Premium Amount of Monthly Premium

Part A monthly premium
(for people who pay a premium)


Part A Late Enrollment Penalty


Part B monthly premium

$99.90 Higher-income consumers may pay more.

Part B Late Enrollment Penalty

+10% for each full 12-month period that you could have had Part B, but didn’t sign up for it

Part C monthly premium

Varies by plan

Part D monthly premium

Varies by plan
Higher-income consumers may pay more

Part D Late Enrollment Penalty

Depends on how long you went without creditable prescription drug coverage

 For those born before 1954, the full retirement age to collect Social Security is 66.  This is when you can collect 100% of your benefits.   If you collect at age 62, your benefit is reduced to 75%.   After age 66, for every year that you wait to collect (up until age 70) your benefit is increased by 8%.  I believe the government will be forced to increase the retirement age at some point because most of us are living much longer.

Interestingly enough, most people start collecting their social security earlier than their full retirement age.  Should you wait or start early?   You have to give back some of your Social Security if you have some earned income (up to a threshold) before your full retirement age.  Consequently, you should be aware of those facts before collecting.   If you expect to live a long life, you should wait until age 70.

The following statistics from are quite alarming.    They indicate the average net worth of various age groups:

                Under 25                             $1,475

                25-34                                   $8,525

                35-44                                   $51,575

                45-54                                   $98,350

                55-64                                   $180,125

                65 and Over                        $232,000

 Net worth includes equity in a home, so the liquid assets are probably far lower than those statistics.  Social Security was meant to supplement retirement and not to actually be the only source of retirement funds, as I fear it will be for so many people.   I have had people tell me that they are just going to work all of their lives; they will never be able to retire.  However, life doesn’t actually work that way as health problems or job reductions force you to retire.  In reality you should be preparing for retirement all of your working life.   The earlier that you start, the less you have to save over the years.  If you wait until you are 50, you have some catching up to do.

 The recommended spending rate from retirement savings was 5% for a long time until the most recent recession resulted in a more conservative rate of 4%.  In an ideal retirement situation, you would have no debt and be able to adjust your withdrawals during times of market negativity.  It doesn’t take a math wizard to realize that spending from a portfolio valued at $1,000,000 would be $40,000 – $50,000 per year.    If you are 25 now and your goal is to have $1,000,000 by age 66, don’t forget that an inflation  rate of 3% reduces the spending power of that figure to $297,628.

 It seems like an impossible task to save enough money to retire.  Our recommendation is to establish an emergency fund so that you don’t have to use credit cards when your car needs new tires.    If you have a retirement plan through work it should be fully funded.  If you are self-employed you should fully fund a retirement plan on your own.  You should always live within your means and as difficult as that sounds, it can be done.    If you have waited to save you will need to accept the fact that you will have to work longer.   I find that it is helpful to establish a net worth statement (list all assets, subtract all liabilities = net worth) and update it every year.  As you see your net worth grow it is an incentive to save more!

Barbara Gray, CFP®


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