Market Update through 6/15/2013

as of June 14, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 24.94% 15.31% 3.82% -0.21%
S&P 500 23.90% 15.21% 4.16% -0.15%
DJ Industrial Average 21.24% 16.42% 4.01% -0.20%
Nasdaq Composite 21.12% 14.05% 5.10% -0.87%
Russell 2000 29.74% 16.26% 3.43% -0.19%
EAFE Index 27.34% 7.65% 2.20% -0.64%
         
Bonds        
Barclays US Aggregate 0.94% -0.98% n/a -0.07%
Barclays Intermediate US Gov/Credit 1.66% -0.26% n/a -0.01%
Barclays Municipal  2.23% -0.93% n/a -1.07%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $97.85    $91.97
Natural Gas    $3.73    $3.98
Gold    $1,387.30    $1,392.60
Euro    $1.33    $1.29

Mark A. Lewis
Director of Operations

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Understanding Your Portfolio’s Investment Performance

In the days of 24/7 financial news networks it is easy to feel bombarded with market data and confused when it comes to knowing what data is related to your investments. Our “Market Update” posts (as seen below) summarize the most widely quoted market index returns and those we feel are most applicable when it comes to comparing your portfolio’s performance to the overall market.

However, you can’t just take your portfolio’s performance and bump it up next to one of the major index returns to judge how well your accounts are doing (and how well we are doing in managing your assets). This is because our client’s portfolios hold multiple asset classes, so if you compare your overall portfolio to one index you are potentially comparing a globally diversified portfolio to perhaps the S&P 500 (which only tracks performance of large U.S. based companies). Or, if you have a fixed income allocation then you are comparing a portfolio that contains a portion of bond returns to an index of all stock returns.

In your quarterly reports we provide a listing of your net of fees overall portfolio performance, and then we segregate your equity performance and your fixed income performance (if your portfolio holds bonds). Surprisingly enough we find that many firms in our industry do not readily provide this information to clients (along with a detailed fee invoice which we also provide each quarter). Beneath your returns we list the returns of several indices which I will explain below:

Russell 3000 Index: Tracks the returns on 3,000 of the largest publicly traded companies in the U.S.

MSCI EAFE Index:  MSCI is a firm that provides market data, and this index tracks returns of 22 developed nations across the globe, namely in the Europe, Australasia, and Far East (EAFE) regions

S&P 500 Index: Tracks the returns on 500 of the largest publicly traded companies in the U.S.

Barclays Intermediate Govt/Credit Index: Tracks the returns on intermediate-term US government bonds and investment grade corporate bonds

Barclays Muni Bond Index: Tracks the returns on long term bonds issued by U.S. municipal governments

For a client with a 100% equity allocation we feel the most comparable indices are the Russell 3000 and the MSCI EAFE. The Russell 3000 includes the performance of medium and small sized companies as well as large companies (a blend of which we allocate to all portfolios), whereas the S&P 500 only reflects the performance of the largest U.S. companies.

The MSCI EAFE Index is one of the most widely quoted international indices, and generally our portfolios allocate 15-25% of the equity allocation to international companies. The main goal behind this strategy is obtaining global diversification which over time should reduce portfolio risk since U.S. markets don’t always perform the same as international stock markets. You will see lately that international stocks have underperformed relative to U.S. stocks which makes comparing a globally diversified portfolio to a U.S. index look less favorable. However, we believe that over time that the benefits of decreased portfolio volatility outweighs short term performance gaps between U.S. and international stocks.

So, the performance of your overall stock portfolio is really best comparable to a blend of 2 indices, most heavily weighted to the Russell 3000 index but also including the MSCI EAFE index. For clients that hold bonds you should also account for that allocation in your overall return, so you might really be best comparable to a blend of 3 or even 4 of our quoted indices.

We encourage clients to place less importance on watching performance each quarter and to focus more on whether or not their portfolio is structured to meet their financial goals over the next 20, 30, or even 50+ years. But, we also feel it is important to fully disclose this information on a regular basis. If you have any questions about your portfolio performance please feel free to give us a call.

Travis Boyer, CFA
Financial Advisor

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Market Update through 5/31/2013

as of May 31, 2013        
  Total Return
Index 12 months YTD QTD May
Stocks        
Russell 3000 27.88% 15.55% 4.03% 2.36%
S&P 500 27.28% 15.37% 4.31% 2.34%
DJ Industrial Average 25.26% 16.65% 4.22% 2.24%
Nasdaq Composite 24.21% 15.05% 6.02% 4.01%
Russell 2000 31.07% 16.45% 3.61% 4.00%
EAFE Index 32.44% 8.35% 2.85% -2.27%
         
Bonds        
Barclays US Aggregate 0.91% -0.91% n/a -1.78%
Barclays Intermediate US Gov/Credit 1.57% -0.26% n/a -1.13%
Barclays Municipal  3.05% 0.15% n/a -1.22%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $91.97    $93.46
Natural Gas    $3.98    $4.34
Gold    $1,392.60    $1,472.10
Euro    $1.29    $1.31

Mark A. Lewis
Director of Operations

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Ikaria or Bust

Last fall I read a fascinating article in the New York Times Sunday Magazine entitled “The Island Where People Forget to Die.”  The article is about the nonagenarians and centenarians of Ikaria, a rugged and remote Greek island in the Northern Aegean.  It explores the possible factors that allow these people to lead longer, healthier lives.   

Dan Buettner, the article’s author, opens with the story of Stamatis Moraitis, a Greek war veteran who had settled in Port Jefferson, NY after the war.  Moraitis claimed that in 1976, he was diagnosed with lung cancer.  He considered going through chemotherapy, but elected instead to return to his homeland and spend his last days in the village of his childhood.  At first, he spent his days in bed being tended to by his elderly mother and his wife.  When childhood friends heard he was back, they paid daily visits, often bringing a bottle of wine to share.  Soon, he was working in the garden and making the walk up the hill to church.  He woke when he wanted, worked in the vineyard, had lunch, took a long nap.  Evenings were spent with family and friends.   Today, he is over 97 years old.  Is this all true?  I don’t know, but Moraitis is 97 and healthy and loving life!

Buettner spent five years studying the lives and habits of the people of Ikaria.  Working with his partner, a demographer from Belgium, they verified that Ikariotes reach the age of 90 at two and a half times the rate of Americans and they are often healthier.  More impressive is the fact that Ikariotes live 8 to 10 years longer than Americans before succumbing to cancer, heart disease, dementia and Alzheimer’s disease.

So, what did Buettner uncover in his study on the centenarians of Ikaria?  In addition to the Mediterranean diet focusing fresh vegetables and fruit, yogurt, olive oil and red wine, Ikariotes are very communal and they spend many hours a day socializing with their fellow villagers.     They don’t drive, so walking is their form of exercise.  They nap every day and attend church every Sunday.  And reportedly, a healthy sex life is enjoyed by more than 80% of Ikairote men over 65.

I just returned from a Retirement Income Summit where the overriding theme was how to prepare our clients for the cost of health care in their retirement.  In my last post http://parsecfinancial.wordpress.com/2013/04/10/remember-wear-sunscreen/, I touched on this topic.

What has become abundantly clear is that it is imperative that we focus as much attention on leading healthy, active and productive lives as we spend on saving for a comfortable retirement.

While I don’t expect I will pack up everything and move to Greece, I think I could certainly find a way to incorporate many of the Ikariote habits into my daily life…now, I just need to find a way to sneak in that nap!

Tracy Allen, CFP®
Financial Advisor

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What Price for Cheap Clothing?

I was listening to NPR on the way in to work today, as I do every morning. They were covering the tragic garment building collapse in Bangladesh, where the death toll has climbed above 500 and they estimate that hundreds more people are still missing. Apparently the owner knew the building was unsafe, after an engineer was called to inspect it following the development of cracks. The engineer advised the owner to evacuate the building, but the owner assured factory managers the building was safe and they told their workers to head inside. The building collapsed only hours later.

The engineer has actually been arrested for negligence, because he is accused of helping the owner add three additional illegal stories to the building. So, not only could the accident have been avoided right before it happened, but I imagine a collapse could have been avoided entirely if the building was constructed to code. 

What is the driving force behind such an avoidable tragedy? There are many layers, but money is at the heart of it. Bangladesh is hungry to capitalize on the globalization of the garment industry by offering a very low-cost product. With labor costs rising in China, companies are looking to countries like Bangladesh to help them maintain healthy profit margins. Workers in China make an average of $200 per month, compared to $37 per month in Bangladesh. Due to the incredibly low cost of labor, a shirt that would cost $13.22 to make in the U.S. costs only $3.72 in Bangladesh (these figures are taken from a CNN infographic). According to Elizabeth Cline, author of Overdressed: The Shockingly High Cost of Cheap Fashion, this has made it possible for consumers to buy cheap fashion, but with hidden costs to human rights and the environment.

While you can’t fault a company for trying to maintain healthy margins and deliver on promises to shareholders, the companies do bear some responsibility for ensuring that systems are in place to protect human rights in the factories where their products are produced. Retailers whose garments are made by some of the factories in the building have responded in various ways, some by trying to distance themselves from the factories, others by admitting a connection and pledging support for the victims. While the latter is commendable, more needs to happen on the front end to encourage safe conditions for workers in all countries. Author Elizabeth Cline thinks that the tragedy in Bangladesh will serve as a turning point in the responsible consumption of fashion, much like the locavore movement has encouraged more responsible consumption of food. I hope she is right. 

Sarah DerGarabedian, CFA
Director of Research

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Market Update through 4/30/13

as of April 30, 2013        
  Total Return
Index 12 months YTD QTD April
Stocks        
Russell 3000 17.21% 12.89% 1.64% 1.64%
S&P 500 16.89% 12.74% 1.93% 1.93%
DJ Industrial Average 15.39% 14.10% 1.94% 1.94%
Nasdaq Composite 11.02% 10.61% 1.93% 1.93%
Russell 2000 17.69% 11.98% -0.37% -0.37%
EAFE Index 19.99% 10.84% 5.26% 5.26%
         
Bonds        
Barclays US Aggregate 3.68% 0.89% n/a 1.01%
Barclays Intermediate US Gov/Credit 3.23% 0.89% n/a 0.63%
Barclays Municipal  5.19% 1.39% n/a 1.10%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $93.46    $88.71
Natural Gas    $4.34    $4.14
Gold    $1,472.10    $1,360.60
Euro    $1.31    $1.30

Mark A. Lewis

Director of Operations

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There Is Risk Everywhere

We join the rest of the nation as shocked and saddened by last week’s events in Boston and West, Texas and we offer our deepest condolences to anyone who was impacted. The events of this past week should serve as good reminder to all of us that no matter what you do every day we face risks beyond our control. However small the risk may be there is no way to ensure that you avoid falling victim to these type of events. Also unavoidable are situations that are more likely to be faced by the broader populous like a car accident, or contracting a debilitating disease, or any number of things that can bring an unexpected early death or long term disability. Not that we should live our lives in constant fear – we should just prepare for the worst and then feel very fortunate should we end up living long and healthy lives.

Preparing for the worst doesn’t just mean acknowledging that life is fragile and then living life to its fullest. You need to prepare for such risks financially. This means assessing your exposure to risks beyond your control and then getting protection if you need it. If anyone relies on your life and/or your income stream then you need to have insurance policies to replace that income if you suddenly die or face a long term disability that prevents you from working. You need cash reserves that you can draw from immediately in an emergency. You need proper homeowners insurance. You need an estate plan that allows your finances to pass to your heirs smoothly and at a low cost.

This preparation won’t prevent you from being in the wrong place at the wrong time (and none such preparation exists), but it will help prevent financial risks from being created for your family and heirs should something happen to you.

Recent volatility in financial markets also serves as reminder that risk is also everywhere in the investment world. Gold futures prices saw their largest 2 day selloff in the history of trading on the Chicago Mercantile Exchange with a drop of almost 13% for April 12th and April 15th. Other commodities like copper, silver, and oil have also seen significant declines in the last few weeks which put them well into negative territory for the year. Stock markets saw their largest weekly decline of the year with the S&P 500 dropping 2.11%, though the index still remains up about 9.0% for the year.

We believe the best way to protect yourself from investment risk is to construct a diversified portfolio with an asset allocation that fits you, and then stick with it. Go about your daily life knowing that your investment assets can decline at any point due to reasons beyond your control, but know that your investment allocation fits you and over time it will help you meet your financial goals. The same goes for health risks – go about your daily life knowing that your health may fail or your life end short, but know that you have made preparations that will help care for your family in your absence.

And then enjoy the ride every bit along the way while we still can!

Travis Boyer, CFA
Financial Advisor

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Housing Market

I’ve been obsessively searching for a new home ever since my third child was born last summer.  I can’t stop looking at the listings in my neighborhood (we won’t leave it).  The tough thing is, the listings almost never change.  There are about three houses in my price range that have been on the market ever since I’ve been looking that won’t sell for one reason or another.  Every other time a reasonable house gets listed, it gets bought right away.  Just last week my husband and I were outbid on a house that had been on the market for 12 hours.  Now I know why.

 

According to Bloomberg.com’s Economic Calendar, the supply of existing homes sold in March reported lower than analysts expected.  The report, released today, showed that sales were at a 4.92 million rate, down slightly from the previous month.  The reason for the lower sales data is that the supply of homes on the market is very low.  The supply of existing homes for sale in March was 4.7 months worth, which is down considerably from the supply in March of 2012, which was 6.2 months worth.  During the housing crisis the supply was closer to 10 months worth, as evidenced by the “for sale” signs in every other person’s yard.  At that time the fear was that housing would continue to spiral out of control and never return to normal.

 

The good news is that the lower volume is expected to do very good things for prices.  When the supply is low, but the demand is high, prices will rise.  Hopefully that will help my current house when we sell it.

 

There are a number of  very hot housing markets right now.  Bidding wars on houses are the norm in these areas.  It appears that the forces of supply and demand are at work here.  It’s hard to believe that just a few years after the depths of the housing crisis, there could be bidding wars, too low of a supply, and rising prices.  Markets change quickly, which is a reminder that investments that are either volatile or ill-liquid should have longer time frames.  For houses, a reasonable expected holding period is five years.

 

Harli Palme, CFA, CFP(r)

Partner

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Market Update through 4/15/13

as of April 15, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 16.02% 9.42% -1.49% -1.49%
S&P 500 15.88% 9.51% -0.99% -0.99%
DJ Industrial Average 16.73% 12.19% 0.23% 0.23%
Nasdaq Composite 8.52% 6.86% -1.53% -1.53%
Russell 2000 15.60% 7.19% -4.63% -4.63%
EAFE Index 18.72% 7.19% 1.80% 1.80%
         
Bonds        
Barclays US Aggregate 3.81% 0.72% n/a 0.85%
Barclays Intermediate US Gov/Credit 3.37% 0.71% n/a 0.45%
Barclays Municipal  5.32% 1.00% n/a 0.71%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $88.71    $96.36
Natural Gas    $4.14    $3.99
Gold    $1,360.60    $1,597.70
Euro    $1.30    $1.28

Mark A. Lewis

Director of Operations

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Remember, Wear Sunscreen

My husband and I spend many an evening discussing world affairs and social issues. The health care crisis is a popular subject. While I will not profess to have the solution to all of our country’s woes, I have come to one important conclusion. Preparing for a financially secure and comfortable retirement is not just about saving and investing wisely; it is about taking care of your physical well being as well.

In a 2010 study, the Bureau of Labor Statistics estimated that the a 65-year-old couple with median drug expenses would need $271,000 to have a 90% chance of having enough money to cover health expenses in retirement (82 for men and 85 for women). This amount includes the Part B premium for physician services and Part D for prescription drugs. Couples with a high level of prescription drug spending could see that number jump to a whopping $371,000!

Medicare currently covers just over 50% of health care expenses. The program does not cover vision, dental or hearing aids, nor does it cover long term care expenses. In addition, health care costs have historically grown at a rate far exceeding overall inflation rate. Some experts suggest you assume a 6% inflation rate when calculating health care expense.

For those of you who are still working, take the right steps to secure a healthy retirement. If your company offers a Qualified High Deductible health insurance plan, you would be eligible to establish a Health Savings Account to start saving for future medical expenses. And think twice before retiring early. Private insurance is expensive, sometimes costing more than $1000 per month for an individual.

If you are already retired, be a prudent shopper for your Medigap policies. Make sure all of your prescriptions are covered, and if they are not, talk to your doctor about an alternative that is covered. And price policies annually, as the prices tend to change yearly.

Lastly, remember that you need to act fiscally and you need to act physically. Eat right, exercise and of course, wear sunscreen.

Tracy Allen, CFP®
Financial Advisor

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