Q2/2010 Market Review ~ Advice from Ancient Texts of Classic Rock
July 15, 2010
Welcome
to the Kalorama Wealth Strategies Quarterly Market Review. These
quarterly briefs update the performance of the financial markets
and provide information on investment and financial planning topics.
Stocks
continued to gain ground in April, suffered their worst declines in
decades in May, and continued to sink further in June. Concerns that
European-country debt could spur another financial crisis, weak
employment, and a sluggish economy weighed heavily on equities. After
four consecutive quarterly advances, across-the-board losses for the
second quarter were in the high-single and low-double digits, leaving
all major indices in negative territory for the first half of 2010.
Investor
weariness about financial markets and fears regarding the prospects of
a double-dip recession sent investors to the relative safety of
Treasury securities. Prices surged while yields plummeted to levels not
seen in more than a year. In addition, the Federal Reserve maintained
its interest rate policy, indicating that, due to subdued economic
growth, it would keep rates at low levels for an "extended period." At
quarter end, the yield on the 10-year Treasury Note was 2.93%, down 90
and 91 basis points for the quarter and year-to-date, respectively (the
yield as of July 15th was 3.05%).
With investors seeking safe
havens for their assets, government securities rallied. Leaders for the
quarter were U.S. Treasury TIPs, swelling 3.8%, U.S. Aggregate, rising
3.5%, and Municipals, advancing 2.0%.
Below are rates of return
for selected market indices for the second quarter of 2010,
year-to-date 2010, and the three, five, and 10-year compound annual
returns as of December 31, 2009.
Investing Rocks! Advice from Ancient Texts of Classic Rock
In
the spirit of summer-time fun, and with thanks to the CFA Institute's
director of investor education, Thomas Collimore, below is a list of
inspirational and practical financial and investment advice from
classic rock n' roll.10. Hotel California - The Eagles (1977)
"We are programmed to receive
You can check out any time you like
But you can never leave."
The
liquidity of an investment is an important consideration, especially in
downward, volatile markets such as 2008 and the beginning of 2009. A
fund manager (typically in the hedge fund world) may have the power to
decline a redemption request.
9. Taxman - The Beatles (1966)
"(If you drive a car, car) I'll tax the street (If you try to sit, sit)
I'll tax your seat
(If you get too cold, cold)
I'll tax the heat
(If you take a walk, walk)
I'll tax your feet"
Understand
the tax implications of transactions and account types before making a
purchase, or contributing to or withdrawing from an account. It's the
after-tax rate of return that matters.
8. Lady Madonna - The Beatles (1968)
"Lady Madonna, children at your feet,
Wonder how you manage to make ends meet.
Who finds the money when you pay the rent?
Did you think that money was heaven sent?"
Most
people don't plan to fail, they fail to plan. Without a plan, you are a
rudderless ship! A realistic financial and investment plan should
consider your resources and obligations consistent with your current or
future desired lifestyle. The plan should be conservative to provide
for investment underperformance.
7. Stairway to Heaven - Led Zeppelin (1970)"There's a lady who's sure
All that glitters is gold
And she's buying a stairway to heaven."
Not
all that glitters may be gold! Make sure you understand the risks of an
investment by reading the prospectus or seeking help from an advisor.
6. Takin' Care of Business - Bachman Turner Overdrive (1973)
"If it were easy as fishin',
You could be a musician,
If you could make sounds loud or mellow
Get a second-hand guitar
Chances are you'll go far
If you get in with the right bunch of fellows"Making
money can sometimes be the easy part -- investing and managing it
successfully is entirely another challenge. With all the investment
options available today, many individuals use the services of a
financial advisor. See below for more on selecting a financial advisor.
5. Sympathy for the Devil - The Rolling Stones (1968)
"But what's puzzling you
Is the nature of my game, um mean it, get down
(woo woo, woo woo)"
Don't
make a deal with the devil. You can check the background of an advisor
on the Securities and Exchange Commission (SEC) web site (www.sec.gov/investor/brokers.htm).
4. When I'm Sixty-Four - The Beatles (1967)
"Will you still need me
Will you still feed me
When I'm 64."
Long-term
projections include many assumptions such as interest rates, rates of
return, inflation, and taxes. The degree of uncertainty normally
increases with the length of the future period covered. Your plan
should be reviewed periodically, particularly if there are changes in
family circumstances.
3. My Generation - The Who (1965)
"I hope I die before I get old (talkin' 'bout my generation)"With
life expectancy continuing to rise, longevity risk (i.e., outliving
your money) is a significant matter. Moreover, the older you are, the
longer you are likely to live. A girl born in the U.S. in 2005 was
expected to live an average of 80 years. At age 80, she can expect to
live, on average, an additional nine years.
2. Dream On - Aerosmith (1973)
"Everybody's got their dues in life to pay"
Portfolio
returns are affected by various costs, including transaction fees and
operating expenses. Studies have shown that average mutual fund
performance is inversely related to fund operating expenses. That is,
the lower the operating expenses, the higher the average annual total
return. You or your advisor should select investments with low
transaction costs and operating expenses.
1. Teach Your Children - Crosby, Stills, Nash and Young (1970)
"You who are on the road
Must have a code that you can live by"If
you plan to hire a financial advisor, retain someone who has a
fiduciary obligation to put your needs first. Credentials can be
misleading. The Financial Industry Regulatory Authority (FINRA) lists
more than 100 "professional" designations on their web site (www.finra.org >
Investors > Tools & Calculators > Understanding Investment
Professional Designations) and summarizes the experience, education,
and examination requirements required, if any, for each. And consider
the code of ethics with which the advisor is required to adhere.
I can't resist adding a couple of more favorite, and poignant, financial-related lyrics from Elton John:
Levon (1971)
"Levon, Levon likes his money
He makes a lot they say
Spends his days counting
In the garage by the motorway"
It's
not what you make, it's what you save that counts. Create a habit of
saving by paying yourself first. Set aside at least 10 to 15 percent of
gross pay for future goals.
And finally:Someone Saved My Life Tonight (1975)
"Clinging to your stocks and bonds..."
You can't take it with you, so make sure to enjoy it while you can, but also have a plan for distribution upon your demise.
x x x
If
you like to discuss your financial and investment matters with an
experienced, independent advisor who can provide you with the objective
guidance you need, please consider Kalorama Wealth Strategies. Our
investment advisory and financial planning services are structured on a
fee-only basis so that our interests are aligned with yours. We are
compensated solely by our clients and do not accept commissions or
compensation of any kind from any other source. Our focus is on
strategies, advice, and client service, not products and sales. You can
rest assured that any strategy we recommend is in your best interest.
For more information, please see our web site at www.kaloramawealth.com.
Thank
you for your continued business and referrals. Please feel free to
forward this email to friends and colleagues who can benefit from
information about investing and financial planning. If I can be of any
assistance to you or anyone you know, please do not hesitate to contact
me.Sincerely,
David
