Life is Full of Choices

March 26, 2013Integrated Wealth Planning, Wealth PlanningLeave a comment

Do you accept a risk or pay an insurance company to take the risk for you? We recommend you revisit annually your need for life insurance and whether whole life or term make the most sense for your specific situation, as well as review your need for disability insurance. Make sure you are aware of when any term policies will be lapsing or when the premiums will start increasing. Don’t get caught flatfooted. Also, review the adequacy of your property and casualty coverage and bid out the insurance at least every other year. You will be amazed at how competitive the insurance companies are getting to earn your business. Last, Long Term Care insurance is increasingly important in managing costs in the last years of your life. Please talk to us about your interest in getting a quote. We may not sell insurance but we have a distinct interest in you being adequately covered at the best rates.

Early education planning pays dividends over the longer term through the power of compounding, but how much to save? You’ll need clarity on your goals; whether to cover private or public colleges, in state or out of state, full or partial tuition. Let us help you walk through what works best for your family. We can also explore and explain the pros and cons of using tax advantaged options such as 529 Plans.

Mortgage rates are still at historically low levels. Personally, I have refinanced 2x already and still didn’t catch the bottom. Does it make sense for you to refinance at this juncture? At current rates does it make any sense to use a floating rate loan? Does a 15 or 30 year mortgage make more sense? That depends on several factors such as job security, cash flow, alternative uses of the cash, or length of time you expect to stay in the house. What about using a home equity line? How much household debt makes sense for your family situation? Leverage is a double edged sword. It cuts both ways. Proper Debt Management is integral to keeping on the right side of that leverage. Let us help you navigate the way.

There are numerous sources for educational workshops available for those that desire to learn more about any aspect of personal financial management, investments and financial planning. We plan to start holding workshops here at the office on various topics. You’ll hear more about these in the weeks and months ahead.

A Name For Every Dollar

March 19, 2013Asset Management, Integrated Wealth PlanningLeave a comment

Last week was an auspicious week with the Dow Jones Industrial Average and the Russell 2000 Small Cap Index hitting all time highs and the S&P 500 not far behind. A mere five and a half years after its previous peak and the beginning of the “great recession” and only four years from the market bottom in March of 2009. This juxtaposition of hope and despair, of the market recovering while most people I know are still wringing their hands with concern, is a prime example of why we manage your money the way we do.

At Envision Wealth Planning, we see markets as an ally, not an adversary. We believe competition quickly drives stock prices to “fair” value and that persistent differences in average portfolio returns are explained by differences in average risk. Rather than trying to take advantage of the ways markets are mistaken, we take advantage of the ways markets are right – the ways they compensate investors. Our mission is to deliver the performance of capital markets and increase returns through investing in funds that target higher expected return asset classes and deliver state-of-the-art portfolio design and trading.

However, while getting the best possible return for a given level of risk is absolutely necessary, it is not sufficient. We whole heartedly believe that accomplishing your goals is more important than beating an arbitrary investment benchmark. If you beat the benchmark, but fail to achieve your goals, what have you really accomplished? While we believe our investment strategies and models can stand toe to toe with the very best available in the marketplace, it is our goals based approach that really sets us apart.

That is why we focus so much on getting to know you. Our Discovery and Navigation processes will help you determine and articulate your goals and aspirations. Our vision is that you will live an inspired life with peace of mind about your money matters. Being comfortable that you are on track is a giant first step in the right direction.

Knowing your goals and timeline for achieving them is a necessary step in determining how much you need to be saving and investing. As well, this informs the appropriate investment strategy.

Shorter term goals are best met with lower risk, less volatile investments. Longer term goals can appropriately be met with longer term investment strategies that are expected to provide incrementally higher returns over time.

Balancing your longer term goals against your shorter term needs often causes friction. Without purpose, discipline, and knowledge of options, longer term goals may seem out of reach. Knowing how much and where your hard earned dollars are going is a starting place. Dave Ramsay says “Have a name for every dollar.” We agree.

Tax Planning Opportunities

December 7, 2012Integrated Wealth Planning, Wealth PlanningLeave a comment

I trust you had a wonderful Thanksgiving holiday, that you didn’t get trampled on Black Friday and that you worked on your cyber stocking on Cyber Monday. We enjoyed Thanksgiving Day with our nuclear family, including our daughter in from college, Saturday with my extended family and Sunday with my wife’s extended family. Time with family and the fellowship were awesome. At the office, we’ve bought some new furniture and wall art to give us a new look. We bought everything online, saving money and time. Isn’t technology great? Please come by and check out our new look when you get a chance.

As we round the corner towards the end of this “fiscal cliff” year, I wanted to remind you of the numerous tax planning opportunities available to you. The most obvious is contributing to your company retirement plan such as a 401k or 403b. Employee contributions limits of $17,000 (or $22,500 for those over age 50) are tax deductible so, depending on your tax bracket, upwards of 25% of every $1 contributed is a gift from Uncle Sam. Company matches make the deal all the sweeter. If you are self employed, a SEP or SIMPLE IRA works the same way. Contribution limits on a SEP are limited to 20% of adjusted gross income and $11,500 with a SIMPLE ($17,000 if over 50.) There are customizable retirement plans available to those willing and able to save more. Let us help you set something up and get the savings started.

Retirement plans are the best tax reduction tool available for the longer term and it will also set you up for a great retirement lifestyle. Regular contributions (dollar cost averaging) into a diversified portfolio of stock, bond and “alternative” funds, regardless of the current economic sentiment coupled with the miracle of compound interest, is the best way to grow the funds necessary to pay for the retirement of your dreams.

If you don’t have a company retirement plan or even if you do within certain income limits, contributions to a traditional IRA are tax deductible as well. You can contribute up to $5,000 ($6,000 if over age 50) and have until April 15, 2013 to make your 2012 contribution. Even if the IRA contribution is not tax deductible, growth in the account is tax deferred so is a great tool to grow your retirement nest egg. And if the IRA is not tax deductible, contribute to a ROTH IRA and the account will grow tax free forever. There are qualifications rules around ROTH contributions so give us a call if you are interested in getting this going.

For high income earners that don’t qualify to contribute to a Roth IRA, you can still contribute to a traditional IRA and then immediately convert it to a Roth and benefit from tax free growth. Even if your budget doesn’t allow for an IRA contribution this year, but you have savings from years past, you can contribute to your IRA out of savings. It doesn’t have to come from earnings directly.

Charitable gifts are another way to help in both reducing income taxes and possibly estate taxes. Within reason, gifts to charitable organizations are tax deductible against earned income. Gifts of property are deductible at stated value, but appraised value is recommended for gifts above $10,000.

By now, if you have a TV you are well aware of the looming “fiscal cliff”, the tax increases and government spending cuts set to go into effect on January 1. What is not being covered by the popular press is the strong growth that is likely to result from the fiscal restraint and smaller deficits. While these changes would indeed likely push the economy into a shallow recession next year, the independent Congressional Budget Office projects accelerating growth in 2014 and beyond along with dramatically reduced deficits. This is not the draconian situation the press has been peddling. Rather, it is a recipe for better days ahead.

If Congress fails to act, the federal estate tax exclusion is set to revert back to $1.0 million per person from the current $5.0 million. I do think Congress will ultimately come to an agreement, but who knows with all of the crazy year-end posturing going on. The lifetime gift exclusion this year is also $5 million, but on January 1 goes back to $1.0 million. So if you are in a position to make a sizable gift to loved ones, to charity or a trust and want to improve your taxable estate situation, time is of the essence. Annual gifts of $13,000 per individual or $26,000 for a married couple are an excellent tool to help out your loved ones and move money out of your estate.

The so-called Bush era tax cuts are set to expire at year end, raising marginal income tax rates across the board, increasing long term capital gains to 20% from 15%, eliminating favorable tax treatment of qualified dividends. As well, a host of other tax increases are pending including an increase in the Alternative Minimum Tax calculation and a 3.8% Medicare surtax on income above $250,000 to help fund so-called Obama Care. For perspective however, the top marginal tax bracket would rise from 35% to 39.6%, which still compares very favorably to the 50% top marginal tax rate in the early ‘80’s, 70% in the ‘70’s and fully 90% during the 1950’s.

If you have the ability to accelerate income into 2012 or defer business expenses into 2013, that might make sense at the margin. Or if you expect to sell some assets in 2013 to fund purchases, it can make sense to sell the holdings this year to lock in the 15% capital gains rate and avoid the 3.8% surtax. I’m not a fan of selling out of fear of taxes rising. The market does a remarkable job of discounting the full set of possible outlooks and it is hard to beat Mr. Market at its own game. But, if you expect to sell in 2013, then selling early should definitely be a consideration.

Last, but not least is taking any short and long term losses against gains, thus lowering the tax bite. We’ve had a good year in the market so losses are minimal, but we’ll review your portfolio, see what we can do and do what we can. Importantly, if we don’t have your 2011 tax return, please send it to us. If you have tax-loss carryovers on the books, those will inform our year end gain and loss harvesting strategies.

The Gift of Change

August 21, 2012Financial Transition Planning, Life | Wealth IntegrationLeave a comment

One of our mantras here at Bolen | Dodson & Associates is: Treat change as a gift. We talk about how “sudden money” is more about the change and transition than it is about the money. Everyone focuses on the money, whether the number went up or down. Meanwhile, the proverbial elephant in the room is that something happened. Whatever that something was, and whether it came before the change in finances or it was the change in finances, life is changing as a result. What that feels like and what it results in is, in most cases, wide open. And if you think about that for a moment, you realize change can be a real gift.

Culturally here in the West we’re uncomfortable with the idea of uncertainty. We want quick fixes, we want resolution. We want to see progress, forward movement and things getting better. We want positive news rather than negative. However, that’s precisely the attitude that can lead to hasty and inappropriate decisions, both on the money side and the personal side.

In addition to our cultural tendency to favor expediting change rather than experiencing it, our success during times of transition is typically hampered by stress. The more stress we experience, the more and greater cognitive disconnects we experience and the worse our memory becomes. We are cognitively impaired, with our ability to make good decisions at a low point. So there we are, not being able to think as clearly as we usually do, in addition to missing the opportunities that come with taking the time to actually experience change.

What does it mean to experience change? It means to let life open up as a consequence of the change. Review and renew your relationships, career, residence, hobbies and dreams. The gift of change is the gift of a built-in time out. You have been gifted with the opportunity to discover something new about yourself and your relationships and your choices. There’s a rich experience that comes with change, and if you embrace it and all of its possibilities and you work with it, wonderfully positive, transformative things can happen. Even circumstances that are unbearably painful can lead to something good. For example, the grief of Candace Lightner, whose daughter was killed by a drunk driver, led her to start what is now Mothers Against Drunk Driving. MADD has been supporting victims of drunk driving as well as promoting public policies against underage drinking and drunk driving for decades. Lightner turned her personal, unimaginable suffering into an organization that has saved hundreds of thousands of lives and made our nation a safer place for children. She didn’t let her horrifying loss define her future.

What we’re talking about here is change management. It’s not something we’re taught in school, and it isn’t even an area well known by most financial services professionals. In fact, most financial advisors appreciate the complexities of times of transition only when they themselves are thrust into them. A leader in the financial planning profession tells a story of when she faced two simultaneous events—the death of a parent and her divorce—and she says it took her two years to wake up and come out of the fog. During that two-year period of time, she hadn’t paid attention to her investments and she made financial commitments to family members that put her in a position that was far worse than she ever intended.

Even seemingly wonderful events such as windfalls can end badly, as anyone who has watched reality television knows. However, though we understand that tragedy might lead one to make bad decisions, we tend to have less sympathy for those who receive financial windfalls. We tend to think: That wouldn’t happen to me; I’d handle things differently. But you don’t know that. The common myths about money leading to happiness, older people making better decisions, more educated people making better decisions, or men managing money better than women, are just that—myths. A sudden increase in money can lead to as many problems as it can solve, and a sudden decrease in money doesn’t necessarily spell disaster. And this is true for everyone.

We can’t control all life events, but we can control how we respond to them. The long-term impact of a sudden money event, whether it’s planned for or unexpected, celebrated or regretted, will ultimately be formed by your willingness to sit with the uncertainties and the unknowns, and your patience with moving through your transition in a meaningful way. Change is a gift because it allows you the space to pay attention and reflect on your sense of self and sense of purpose. The saddest events can lead to a stronger sense of meaning and new direction and passion. Meanwhile, the biggest windfalls can lead to the breakdown of an otherwise happy life. The only given is that there is change.

At Bolen | Dodson & Associates, we provide is a specific discipline for managing the qualitative, emotional and personal side of the process of change. When life changes there is a passage between what was and what will be. We will guide your through this powerful, life-altering time and prevent you from making costly and/or irrevocable mistakes.

In time of transition, everyone’s concerns are dominated by stuff of change: where to move, or where to put the money or what to buy. However, the starting point of change management isn’t the money. It’s the personal experience caused by the change. Our experience has demonstrated that the challenges of sudden money transcend age, education, gender and sophistication. Our planning model accounts for the unseen parts of transitions and integrates the technical side with the human side. We are thinking partners in addition to financial consultants. If you’re experiencing a major life event, do just that—experience it. Honor the gift of change.

Long term care: To insure or not to insure?

August 10, 2012Financial Transition Planning, Integrated Wealth Planning, Life | Wealth Integration, Wealth PlanningLeave a comment

Dear Clients, Friends and Associates,

People are living longer. In less than 100 years, life expectancy has gone from barely 50 years old to over 80. Not only are we living longer, we are literally dying more slowly. People used to pass on in days or months, from heart attacks, strokes, fast acting cancers and what not. These days, through medical advances, it often takes years of declining health before we meet our makers. In addition, the cost of healthcare seems to inexorably march higher. This combination of forces increases the need to analyze your potential need for long term care and how you might pay for it.

The need for long term care arises when an individual is not fully able to care for him or herself. That is, they are unable to perform the basic “Activities of Daily Living” without assistance.

Basic Activities of Daily Living include the following self-care tasks: personal hygiene and grooming, dressing and undressing, self feeding, functional transfers (getting into and out of bed or wheelchair, or getting onto or off the toilet, etc), bowel and bladder management and ambulation (the ability to get around without assistance, with or without crutches, cane or walker or using a wheelchair.)

In addition there are Instrumental Activities of Daily Living. These are not necessary for fundamental functioning, but they let an individual live independently within a community. They speak to quality of life. They include the ability to do housework, take medications as prescribed, manage money, shop for groceries or clothing, use of telephone or other form of communication, using technology (as applicable), and being able to drive within the community.

As we age many of us will be faced with the need for help with this kind of care; possibly for an extended period of time. In fact, Statistics show that around 70% of people over age 65 require some type of long-term care services during their lifetime. The average length of stay for those that go into an assisted living or nursing home is 2-3 years.

What does long term care cost? Unfortunately, this is not a cheap adventure. The average daily cost of a private room in a nursing home in Nashville is more than $200 per day. For those keepings score, that’s over $73,000 per year. Even in-home assisted living can run upwards of $100-$150 per day, depending on one’s needs. As you can imagine, this can quickly deplete the nest egg you’ve worked so hard to build, or at the least put a big dent in anything you might have otherwise left to the children.

What are your options? Fortunately, there are ways to prepare for the costs of long term care. For younger individuals, it could be wise to set aside a few extra dollars each pay period. Older, wealthier clients may find that they have sufficient assets to cover the costs without significantly harming the amount of money to be left to their heirs. For individuals without sufficient assets to pay for care and not enough time to save, a long term care insurance policy may be the best solution. Paying premiums can be a headache, but sleeping better at night knowing your nest egg is protected may be well worth it. Even if you can afford to self insure that may not be the best course of action if you are insurable. Would it irritate you more to pay a few thousand dollars each year for insurance that you may not use or upwards of $75,000-$100,000 per year for long term care that you may?

We do not sell insurance, but we absolutely can help you estimate the cost of acquiring LTC insurance and discuss the different policy options available. Many of the bells and whistles add to costs and are not necessary, but some, such as the inflation rider, are absolutely essential. The best time to begin discussions about acquiring LTC insurance is in your mid 50’s. Premiums go up sharply after age 60 and can get quite expensive as you approach 70. Most people don’t need help until into their 80’s so expect to pay premiums for 15 or 20 years before needing the insurance. But it only takes one year of care to pay for all those years of premiums.

Our vision is that people live inspired lives, free from worry about their money matters. If you are concerned about the effects of long term care on your wealth and standard of living, please give us a call and we’ll help you think through your options.

Best regards,

June 4, 2012Asset Management, Integrated Wealth Planning, Wealth PlanningLeave a comment

Dear Clients, Friends and Associates,

The market has really taken it on the chin this past month, giving back most of the hard won gains seen in the first quarter of the year.
Resurgent concerns about the so called “European debt crisis” and the
resulting ramifications to the rest of the world’s economies has caused
renewed fear and a “flight to quality.” More specifically, investors are
concerned about whether or not Greece would stay in the Euro zone and what impact this might have on other, weaker countries such as Spain, Portugual and Italy. Then, on Friday, the U.S. employment report was weaker than expected with employment growth of 69,000, well below expectations of 150,000. The results was quick 2%+ decline in market averages.

The questions that come to my mind are what can we infer from this new information and what might we expect next. A question on many investor’s minds is can they improve their situation by participating in the desirable market advances while avoiding these unfortunate market down drafts by “timing the market”?

Clearly the EU Central Bank and European governments are working hard at keeping Greece in the Eurozone Monetary Union and limiting the chaos that might ensue of they do exit. After a May election when the leading parties failed to form a coalition government, Greece is facing a vote on June 17th whereby all 300 Parliament members are up for election. This is widely considered a do or die referendum on whether or not Greece will remain in the Eurozone. I believe there is at least a 60%-70% probability Greece exits. This in itself is not a major issue, given that Greece is only 3% of the Eurozone’s Gross Domestic Product. The concern lies more with “contagion” and whether or not this would cause other weak countries begin to fail and/or leave the Eurozone as well. Of course no one knows for sure what will happen, but many leaders are working hard to prevent
further disruptions.

The important thing to understand is that everyone is talking about and analyzing the possibilities ad nauseum. As such, market prices fully and completely discount at any given moment the most likely outcomes. For example, Friday’s decline on the news of less than expected employment growth is the markets best guess of what prices should be given this new information. To achieve “abnormal” returns one must correctly discern if the economy is going to worsen beyond what the market already thinks it will. Things may get worse and prices fall further, or they may get better and rise. The point is, the market is always priced to rise by its average annual risk premium rate of return. That is the only way to incentivize investors to buy at current prices. Remember, for every seller on Friday there was a buyer.

One can observe that markets always recover. That is because the cause of the downturn dissipates and economies eventually heal. As long as capital can flow to where it is treated well and markets are allowed to heal, markets will recover.

To make money by selling on advances and buying on pullbacks requires being right twice, once when selling and again when buying. As well, one must do this consistently while overcoming the burden of transaction costs, fees and taxes. While this is an appealing concept and one talked about endlessly by the talking head shows, there is no evidence indicating it is possible beyond the occasional stroke of luck. None. The closest one can come is rebalancing portfolios back to a strategic allocation, which forces a buy low, sell high discipline. This is a tool we use to our and your advantage.

Of course, as a client of the firm, you have plenty of cash to meet your short term needs and enough funds allocated to fixed income to cover an additional 4-7 years of net spending needs. The only funds you have allocated to equities are funds you won’t need for a minimum of 5 years on out to 20, 30 or even 40 years. So please don’t get too excited about a short term move in the market. This the price that is paid to get well above average returns over time.

Best regards,

“The Basic Choices for Investors and the One We Strongly Prefer.”

May 14, 2012Asset Management, Wealth PlanningLeave a comment

Dear Clients, Friends and Associates,

A few weeks ago I summarized the first part of a particularly useful section in Warren Buffett’s recently released annual letter to shareholders entitled “The Basic Choices for Investors and the One We Strongly Prefer.” The bottom line of that email is to properly define your risks when investing and the biggest risk to investors is loss of purchasing power over the anticipated time horizon of the investment. Short term volatility is not necessarily risky if your time frame is expressed in years or even decades.

Buffett goes on to describe three major categories of investments: 1) Investments denominated in a given currency, such as money markets, CDs, bonds, etc; 2) Non-producing investments, such as precious metals; and 3) investments in productive assets such as businesses, farms or real estate.

Investments denominated in a given currency, such as money markets, CDs or bonds are often thought of as “safe” because they are not very volatile, but Buffett warns us that “In truth they are among the most dangerous of assets.” He is notably concerned with negative impact of inflation on purchasing power over time. He notes that it “takes no less than $7 today to buy what $1 did in 1965.” For tax-paying investors, U.S. Treasury bills produced an average of 5.7% annually. Subtracting an average 25% tax burden leaves a 4.3% after-tax return, which according to Mr. Buffett, was evaporated by inflation over that time frame. So although investors still have their account balances in tact, they had no real return to show for 47 years of effort. At current interest rate levels, “real” returns (after inflation) are in some cases negative. This is a tax on savers as real as any tax. Buffett quotes Shelby Davis as saying “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.” Given that bonds are offering yields at 30 year lows, this is serious food for thought. Clearly, there is a place for fixed income investments for shorter term goals. The point is though, to be sensitive to other forms of risk besides volatility and understand what your real return expectations are over time.

The second major category of investments produces nothing. It is purchased in the buyer’s hope that someone else will pay more for them in the future. We are talking about precious metals, most notably gold. Gold neither has much use nor is it procreative. It relies on ever increasing demand by the ranks of the fearful. Buffett notes that “if you own one ounce of gold for an eternity, you will still own one ounce at its end.” While the self fulfilling nature of rising prices creating its own demand works for a while, it eventually succumbs to reality. Note the Internet and housings bubbles. According to Buffett, the market must absorb around $160 billion in annual production just to maintain equilibrium at present prices. Buffett suggests strongly that rather than buying gold, investors purchase a productive asset, such as businesses or farm land. Businesses and farm land throw off handsome cash flow, or wheat, corn, cotton or other crops year after year. Yet gold owners will still just own their ounce of gold. Buffett’s thoughts really put the current raging bull market for gold in perspective.

The first two investment categories enjoy maximum popularity at peaks of fear. Buffett’s own preference, widely expected, is the third category of investing in productive assets, whether businesses, farms or real estate. Buffett maintains that “Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment.” He points to farms, real estate and businesses such as Coca-Cola, IBM and See’s Candy as meeting that double-barreled test. Utilities require capital investment to grow earnings, but even so, “these investments are superior to nonproductive or currency-based assets.” The value of businesses, farms or real estate will be determined but by the medium of exchange, but rather by their capacity to deliver goods and services demanded by the masses. Buffett maintains appropriately that over any extended period of time, this category of investing will prove to be the runaway winner among the three alternatives he’s examined and more importantly, it will be by far the safest.

Thank you, Mr. Buffett for your insightful commentary. Well said.

Warren Buffett’s Shareholder Letter holds Investor Gold

March 27, 2012Asset Management, Wealth PlanningLeave a comment

Warren Buffett’s annual letter to Berkshire Hathaway’s shareholders is well known for its pithy and often poignant commentary and this year’s letter is no exception. Tucked between detailed commentary of his many businesses and important information for attendees of the upcoming May 5 annual meeting in Omaha are three pages of analysis that all investors would find beneficial. The title of this section is “The Basic Choices for Investors and the One We Strongly Prefer.”

Mr. Buffett starts this section with the generally accepted definition of investing as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire, they take a more demanding approach, defining investing as “forgoing consumption now in order to have the ability to consume more at a later date, net of taxes and inflation.” Notice the emphasis on consumption is in terms of purchasing power rather than money per se, because inflation is important element in the equation.

He goes on to state the “riskiness of an investment in not measured by market volatility (beta), but by the reasoned probability of an investment causing its owner a loss of purchasing-power over the contemplated holding period.” His point is that assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period.

This emphasis on expected holding period is a key to investing well and is the basis of Bolen Dodson & Associates “Goals-based Investing” approach. You need cash for spending. Fixed income is best used for spending over the next few years. Bonds are not very volatile, but they do not produce returns net of taxes much if at all in excess of inflation either.

Equities are meant for longer term goals of 5-7+ years and beyond. Equity investments are volatile over the shorter term, but are quite predictable over the longer term. Knowing when you plan on using the funds is an important element to successfully investing in equities. Being afraid of short term volatility is a recipe for failure.

In a subsequent blog, I’ll summarize Buffett’s investment choices and his preference. One guess on what he prefers.

Day to Day

October 27, 2011Asset ManagementLeave a comment

Markets around the world pronounced a sigh of relief today as European leaders agreed on a deal with Greek bond holders to further write-down Greek bonds, increase the region’s “rescue fund” to $1.4 trillion and to recapitalize European financial institutions. Broad U.S. markets finished up around 3% while several European markets rose 4%+. Riskier assets that had fallen more in the selloff also rebounded more today. Smaller cap stocks, rose close to 6% today. Financials, both domestic and abroad, have responded the most, rising 8-12% across the board.

Since October 3, the market has unwound much of the damage done in July through September as markets have recognized Europe’s progress on stemming systemic default risk and the improving likelihood that the U.S. will avoid a double dip recession. Markets lead expectations. When most market participants woke up to negative trends, the market was already down and when most of us wake up to better news, the market is already up. That is the definition of a leading indicator.

We encourage long term investing for long term goals. Only have money in the stock market you don’t plan to spend in the next 5-7 years or more. While we don’t know what will necessarily happen in the shorter term, we know that stocks provide the best returns available over the longer term. We rebalance opportunistically, buying the dips and selling the rally’s, when individual positions get out of balance by more than 10-20%.This forces a buy low, sell high process which ads value over time.

Please call the office with your questions or concerns.

Market Update – Darkest Before Dawn

September 27, 2011Asset Management, Wealth PlanningLeave a comment

Last week’s market action was downright ugly. I’ve reviewed my basic impressions of market fundamentals and technicals and observe the following:

Economic and corporate indicators continue to point to modest economic growth. Leading economic indicators rose again in August. Prices are undervalued.
Markets discount a Greece default on its debt obligations. Concern of “contagion” is a major cause of U.S. equity declines. However, Greece appears dedicated to not letting this happen. If it does, markets will be chaotic for a spell and likely create a further buying opportunity.
Consumer sentiment is very poor. While this could induce the first ever confidence led recession, odds are it is setting the stage for capitulation and a rebound.
A recession is priced into the equity markets yet the odds of a renewed recession are only 25%-30%. This is bullish.
Market trends are decidedly down, but selling during a market decline has not proven to be a winning strategy. Markets always eventually rebound and they can turn very fast, often when things look bleakest.
The best course of action is to maintain liquidity for spending purposes and rebalance portfolios, buying equities to take advantage of the market pullback.