Ever watch a sporting event with the volume turned down? It may take away from some of the “drama”, but you also don’t have to listen to the idle chatter and biased views of the commentators. You can focus on the game. Exercising volume control can also be a good investing discipline. Tune out the chatter and focus on what’s really going on.

Let’s take a look at recent events. Just three months ago, many saw as surprisingly robust economy and there was talk of “inflation.” Well, in the blink of an eye, market consensus appeared to reverse course. Worries about a “double-dip recession” came to the head; “deflation” became the catchphrase. Have circumstances changed so much that the world has gone from imminent inflation to deflation in the span of three months?  We don’t think so. Our advice is to tune out the noise and focus on the fundamentals.

Transitioning Markets

Financial markets can be inconsistent during periods of transition, swinging from optimism to pessimism at the drop of a hat. We believe that the swings are a reflection of the market’s underlying unease regarding the following macroeconomic issues: 

• The uneven pace of economic growth

• Large public sector debt burdens & interest rates

• Global trade imbalances

The market can’t seem to decide which of these issues really matters or what consequences might follow. As long as these challenges are unresolved, worries are likely to continue to fluctuate.

(Our opinion is getting economic growth on a sustainable path is the primary challenge, the other two take a back seat for now – Government Debt is cyclical in nature and will be somewhat corrected as the economy recovers).

The good news is the Fed appears keenly aware and has signaled that it will do what it takes to help prevent the economy from slipping back into a recession. As such, we expect the Fed will be forced to maintain its zero interest rate policy until 2011 or possibly even 2012. Bottom line, we don’t see interest rates moving higher until the economy is more stable. That is likely to take time.

Outlook

Corporate profits have rebounded strongly. More importantly from an investor’s perspective, corporations have large cash reserves, with cash flows exceeding capital spending (that’s a good strategy for individuals too). In our view, favorable fundamentals are quite supportive of equity valuations going forward.

Base case: The economic recovery continues at a slow pace and the Fed remains accommodative for an extended period. The yields would likely remain low and within range bound levels; equities will remain volitile, drifting toward the upside.

Our portfolio strategy is designed to deal with a transition period in which economic growth is lackluster and interest rates remain low and range-bound for an extended period. This transition phase will eventually give way to a rising rate environment, but we don’t see that happening for some time. We practice dollar-cost-averaging Into & Out of positions (having a good Sell Discipline is key).  We’re also investing in “guard-rail” type strategies to preserve capital first, yet provide for some growth as well.

Are you on track? Click HERE to find out.

Sources: Loomis Sayles, WSJ, CNBC.com

So what’s really going on? After a terrible 2^nd quarter, the market posted its first Positive month in July (7%) since April. US Equities for the year are basically flat for the year. The truth is we’re in the Dog Days of summer for the markets. Volume on the Big Board remains light, as many are on summer vacations.  

One week we hear “double dip recession”; the following week “economy is doing fine.”  That’s what sells though, “Drama” – it doesn’t do much to help you make smart decisions about your money.

We continue to see mixed date – mixed, but favoring economic recovery, NOT a double dip.  The data confirms what we already know, that with housing weak and consumer confidence weak, key locomotives for economic growth are still missing (Job Growth).  That said, consumer spending LED the recovery, business is leading the NEXT phase.

Here are some excerpts from another Economist I like to read, Jerry Webman, PHD, CFA from Oppenheimer:

Double Dip Fears: second quarter GDP growth slowed to a 2.4% (from 3.7% in Q1)

Recovery: Business investment expanded 17% in the quarter, as investments in computers and business equipment continued to soar (23% since the April 2009 bottom)

Recovery: Corporate earnings continued to surprise to the upside with 82% of companies reporting thus far beating earnings expectations. 

Recovery: It is not uncommon for real GDP to slow to 2% during an economic recovery.  The recoveries following the 1991 and 2001 recessions also slowed to near-stall speed evoking fears at the time of a pending double-dip recession and raising concerns that policymakers were not doing enough.  In both instances, equity markets fell under pressure as investors ultimately underestimated the strength of the recoveries before recovering along with the economy.  The data so far are consistent with a reprise of this pattern.

Double Dip Fears: Weak Consumer Confidence numbers in June (after the market falling in May)

Recovery: Consumers apparently feel more confident at the stores than they do while answering survey questions.  U.S. chain store sales posted a 3.0% year-over-year comparable-store gain in June with luxury and department stores posting the strongest gains.

Recovery: New home sales bounce off all-time low (up 23.6% in June), marking the first good piece of housing data in months. 

Our best estimate at present is that nervous markets and uncertainty levels will keep market volatility higher over the summer months. However, the backdrop of strengthening corporate profits and a recovering economy should push equity prices higher, although it will take some patience to get there.

All this reminds of the real key to investment success – putting together a plan & sticking to it.  Are you on track? Click HERE to find out…

When should you start to discuss your estate plans with your children? There is no one right answer, but it's probably earlier than you think. Many people are hesitant to discuss their financial affairs with their children, irrespective of their children's ages, due to concerns about privacy and their children's motivation to make their own way in life. There might also be a reluctance to address out loud the inescapability of their own mortality. Or perhaps they plan to treat their children differently, for sufficient reason, and are reluctant to discuss this directly with them. In our experience, it is better to discuss your children's financial future with them sooner rather than later. It sets you at ease, as well as your children. Done well, age-appropriate discussions can benefit your children by helping to reinforce your family's financial values and making them better stewards of your family's financial legacy. We can help moderate those discussion, if you’d like.

Whether you're inheriting an IRA or trying to protect your own heirs, you've got to dance the IRS music.

1. First, do no harm. If you inherit a retirement account, don't do anything until you know exactly what rules apply. All movement of money must be from one IRA custodian to another–be sure to specify a "trustee-to-trustee" transfer. Moreover, unless you've inherited from a spouse, you must retitle the IRA, including the original owner's name and indicating it is inherited, e.g., "Daddy Warbucks, deceased, inherited IRA for the benefit of Little Orphan Annie, beneficiary."

If two or more people are named as beneficiaries, ask the custodian to split it into separate inherited IRAs. That avoids investment squabbles and allows a longer stretch-out for the younger heirs.

2. Beneficiary forms rule. The beneficiary form on file with the custodian of an IRA controls both who inherits it and its ability to be stretched out. If people other than a spouse are named as heirs, they must begin taking distributions from the account by Dec. 31 of the year after inheriting, but they can draw these out over their own expected life spans, enjoying decades of income-tax-deferred growth in a traditional IRA or tax-free growth in a Roth IRA. To give your heirs maximum flexibility, name both primary and alternate individual beneficiaries–say, your spouse as primary and kids as alternates or your kids as primary and grandkids as alternates. Your primary beneficiary then has the option of "disclaiming" or turning down the account, enabling it to pass to the younger alternate. You Need a proper beneficiary form on file!

3. Employer plans are different.   Money in a 401(k) goes to a spouse usually. It may be possible for a non-spouse to transfer the money into an inherited IRA, it depends. Another good reason to move money out of a 401k once you’ve retired / left the firm (investment flexibility another).

4. Spouses have more options. A spouse who inherits–let's assume it's the wife–has an option not available to other inheritors. She can roll the assets into her own IRA and postpone distributions from a traditional IRA until she turns 70 1/2.

5. Watch for distribution traps.  If the late IRA owner was 70 1/2 or older, beneficiaries must make sure the owner's mandatory distribution for the year of death is withdrawn before doing anything else. When nonspouse beneficiaries take their own payouts, they should be aware of two quirks. First, if the estate paid estate tax, they may be able to take an itemized deduction to offset some IRA income. Second, the minimum is calculated differently than for your own IRA.

A true Financial Roadmap includes all your “Mosaic Tiles” – investments & estate planning. As we know, the real key to success is putting together a plan & sticking to it.  Are you on track? Click HERE to find out…

Sources: Forbes.com

I love to read Bob Doll, of Blackrock. He’s got a good perspective on things. Here’s his latest commentary (Click Here), in summary: 

• Second quarter earnings off to a good start – 80% of reported companies are exceeding expectations.
• We are seeing a “V-shaped” recovery in manufacturing,
• While the consumer sector is looking more like a “U shape”
• The credit and housing markets, however, are still stuck in an “L shape.”

Stock prices have remained in a broad trading range for the past several weeks. Equity markets appear to be caught between a number of positive and negative forces.

Positives:

• continued strong corporate earnings
• reasonably cheap valuations
• lower bond yields that have been helpful to both consumers and businesses
• increasing share buybacks and dividend payments, and
• a still-accommodative Federal Reserve.

On the negative side:

• stocks are being hurt by an environment of slowing (but still positive) economic and profits growth,
• weak money and credit growth,
• ongoing uncertainty surrounding issues such as the sovereign debt crisis,
• the Gulf oil spill and
• the legislative agenda in Washington, DC.

Over time, we expect the positive forces to win out and stocks to grind higher, but we would not be surprised to see equity markets remain in their current trading range until there is more clarity around the severity of the current slowdown.

All this reminds of the real key to investment success – putting together a plan & sticking to it.  Are you on track? Click HERE to find out…

We truly believe the value we bring to clients is “Saving Investors from Themselves.” While over the years, investors have become smarter, but knowledge is a dangerous thing.  Too many shareholders buy and sell at the wrong times, according to a Morningstar study – Many people are buying good funds, but they are using them badly,” they said (link to Article)

Despite investors’ increasing sophistication, millions of investors persist in buying the latest hot funds…not the best way to manage your finances. As example, in the late 1990s, shareholders dumped bond funds and put too much in stocks funds (all eggs in one basket). That proved an ill-timed choice, said Morningstar. During the decade that began in 2000, bond funds returned 7 percent annually, while stock funds stayed about flat. Many stock investors suffered poor results because they bought at the top of the market. After suffering through a downturn, they sold near a low.

Here We Go Again…During the past year, investors have been dumping stock funds and overweighting bond funds. As a result, some shareholders missed the rally that began in March 2009. Will this be a poster child for the mistake that investors continue to make?

To estimate the impact of poor timing, Morningstar calculates a figure that it calls “investor returns.” This represents how much the average dollar in a fund actually returns. If investors buy at the peak and sell at the trough, the investor return will be low. In contrast, total returns indicate how much you would have gotten if you invested at the beginning of a period and stayed put.

To appreciate the importance of investor returns, consider that CGM Mutual returned 4.1% annually during the decade ending in May. But individual shareholders did not fare so well. Because they bought at peaks and sold at lows, the investor return for the fund was only 2.6%.

Morningstar estimates that the average fund’s investor return is several percentage points lower than the total returns. Investors are losing more money because of poor timing than we are from expense ratios, making an advisor a good investment – there’s value in helping investors avoid these types of mistakes.

The industry is set up to promote bad investor behavior – by launching numerous funds in hot sectors, according to Morningstar. This induces investors to buy near peaks.

Are you “On Track”? How do you know? Get a FREE Roadmap and find out – HERE

Read more comments from Liz Anne Sonders, Schwab Economist (she predicted the turn around that began May 2009) HERE

According to a survey by TD Ameritrade, independent advisors increased their roster of clients over the last six months.

Why? The independent advisor continues to resonate with investors: 

• RIAs’ independent – no product of the month to sell
• Fee-based – vs hidden fees / commissions
• Fiduciary approach to wealth management – Client comes first

Dissatisfaction with full-commission brokerage firms continues to be the top reason independent advisors report gaining clients. Respondents also indicate their clients prefer the personalized service and competitive fee structure provided by independent advisors and that, as fiduciaries, RIAs are required to offer advice that is in the best interest of clients.

The quarterly survey of 500 registered investment advisors indicated that these advisors continue to win business from traditional full-commission firms and broker-dealers, with 61% of new business originating from these competitors.

Experience the difference with a FREE Road Map to find out if “You’re on Track”

As you’ve probably heard by now from the major media outlets, May was the worst May for US stocks since 1962.  Lets take a closer look at the two “May” months.

The same, but different: In the 1962 bear market, the S&P 500 fell nearly 30%. At the time, market attitude was dragged down by the botched Bay of Pigs invasion and the Cuban Missile Crisis, but the fundamental environment remained (solid GDP growth). To some extent, we believe the current environment is similar, given that stock prices are being driven much more by emotion than by fundamentals today.

The same but different too: In previous business cycles, the economy experiences brief slowdowns, but not recessions, on the way back up. If that is also the case today, then what we are looking at should be a brief slowdown in growth, but not a double-dip recession.

The Concerns: The uncertainty in Europe.

Can they solve the problem with a fiscal bail-out & belt-tightening?

Or will they be torn apart?

Investors are questioning whether Greece & the rest of Europe will be stern enough for the markets to regain confidence.

The Opportunities:

• US economy continues to show slow signs of improvement
• First-quarter GDP growth was 3.0%
• Consumer confidence readings rose in May
• The labor market also so signed of improvement in May
• Positive Earnings reports & expectations have risen

Scenarios: The main issue currently troubling investors is the degree to which fundamental uncertainty has inflicted damage on the economic recovery.

• The most “pessimistic” view is that we are witnessing the beginning of a movement that will lead to a global “double dip.”
• The most “optimistic” outlook is that what we are seeing is no more than unnecessary panic, which will be quickly overwhelmed by fundamental strength.

The truth probably lies some where in the middle; but we favor the “optimistic” outlook. 

Conclusion:  By recent market activity, investors seem to be moving to a wait-and-see approach (up from “panic”), and while we do reason that fundamental strength will prevail, we recognize that it may take some time.

Our best estimate at present is that nervous markets and uncertainty levels will keep market volatility higher over the summer months. However, should the labor market recovery continue, as we expect it will, the backdrop of strengthening corporate profits and a recovering economy should push equity prices higher, although it will take some patience to get there. We appreciate your trust and are only a phone call away to discuss your situation in more detail.

In a recent survey, when it comes to retirement, 57% of Americans who say that they are either a little or far behind financially.  TD Ameritrade released the survey May 19^th which shows that more people feel they are "a little behind" (36%) vs. "far behind" (21%). (click HERE for the full article)

When asked the explanation for being behind in their retirement savings:

• No money left for savings after meeting their regular expenses (56%)
• Started saving for retirement later in life (56%)

Managing health-care expenses is a top concern for both men and women as they approach retirement. Both 38% of women and 38% of men acknowledged they were worried about it.

The survey also showed men and women had different levels of concern about these issues: 

• Behind in their retirement savings: 61% of women reported that raising children set them back, compared with 43% of men who reported the same.
• 47% of women cited "having to work longer to supplement Social Security income" as one of their top two concerns as they approach retirement, as compared to 35% of men.
• 42% of men cited "outliving savings" as one of their top two concerns as they approach retirement, as compared to 37% of women
• 10% of women reported "extreme stress" in regards to managing their retirement savings compared to 4% of men who reported the same.

If you want to know if you’re on track or when you can retire – Click HERE for a FREE Financial Roadmap

All may not be lost for those people who are well into their fifties and have not begun saving for retirement, but it is going to take some serious sacrifices for the next five to 10 years.  This according to a recent article in Financial Advisor Magazine (HERE). 

The article laid out ways a 55-year-old making $80,000 a year can still put aside $345,000 to $444,000 in tax-deferred savings for retirement. It is a realistic goal that can be accomplished. 

The example shows how, starting from zero dollars, a person can contribute to a 401(k) plan a maximum amount of $16,500 plus an additional $5,500 that is allowed as a “catch up” contribution each year. Based on an employer matching 3% of the of the employee’s first 6% of contribution, that saver would have $444,610 in tax-deferred savings at age 65. He will have been putting aside 27.5% of his salary for 10 years. 

In various other combinations of maximum contribution and/or maximum catch-up contribution for five or 10 years, with the standard 6% of salary matched by 3% from the employer, savers can accumulate $345,000 to $401,000, the article says.

The article talks about how people who have avoided saving until now are going to have to figure something out. Saving now still may not preclude needing a part-time job after retirement, but they won’t have to have a full time job.

Timing is everything…Some of these couples are just finishing paying for their children’s college, so that money can now go to retirement.

If you want to know if you’re on track or when you can retire – Click HERE for a FREE Financial Roadmap. You can run your own What-if scenarios.

Here’s an interesting perspective from Bob Doll, the head of Blackrock. He always has keen insights. Here’s a link to his full commentary.

Here are the highlights on his comments about the recent market activity:

Why the decline? markets moved into near-panic mode in the face of the escalating sovereign credit crisis and a lack of clear response on the part of European policymakers.

Over the weekend, European governments and the European Central Bank (ECB) put forth a series of measures designed to safeguard European financial stability.

These actions improve the situation, by there are issues outstanding.

Euro has declined noticeably in value, causing the US dollar to regain some ground.

Lost in the shuffle of the debt crisis was a surprisingly strong jobs report in the United States, which revealed that 290,000 jobs were created in the month of April. (There were also noticeable upward revisions for the months of February & March).

The overall data was much better than most observers expected, and we believe the economic recovery that has now been in place for some time is finally translating into meaningful improvements in the employment picture, a trend we expect will persist for some time.

Given the sharpness of recent trading swings, we expect many investors will continue to approach the markets with caution.

We would point out that since the market bottomed in March of 2009, we have seen three (3) selloffs of a magnitude of 7-10%. The first occurred last summer, the second in mid-January to mid-February and the third over the past couple of weeks.

Such market action are “normal” in the midst of bull markets, and, at least in the first two cases, markets subsequently recovered on the back of improving fundamentals, attractive valuations and continued improvements in economic activity.

Markets remain under pressure as a result of the sovereign debt issues in Europe, policy tightening in China and elsewhere, and uncertainty surrounding pending regulations for the financial services sector. 

In our view, however, the positive forces of improving economic growth, an absence of inflation, low interest rates and stronger corporate earnings should continue to move markets higher.

We continue to evaluate the current situation. We’re only a phone call away if you’d like to discuss anything in more detail.

America is Back! Newsweek declares last month. Cover-story author Daniel Gross says the economy is making a strong comeback, defying the odds and surprising the naysayers. "The turnaround we've had since [Lehman Brothers' bankruptcy], while not completely satisfying, has been pretty remarkable," he tells Henry Blodget in the accompanying clip (see the Video HERE). 

His summary points:  

• The economy is growing.
• The Dow Jones Industrial Average has rebounded 60% off the bottom
• Job creation. 162,000 jobs were created in March. That's a long way from losing 800,000 per month at the height of the panic. Job growth "is going to be slower than many people would like it to be but I think it's going to be faster than many of the professional forecasters are expecting it to be," he says.
• Productivity. From the fourth quarter of 2008 to the fourth quarter of 2009, productivity rose 5.8 percent.

Magazines don't have a great track record with their predictions. Business Week's "The Death of Equities" cover story in August of 1979 ushered in the greatest stock market bull run in history.
If you want to know if “You’re Back!” or “When can I retire” – Click HERE for a FREE Financial Roadmap.

As I reflected upon yesterday's trading, I have been in the business for a long time, over 19 years. I have seen assorted crashes, mini-crashes, Asian contagions, S&L crises, Mexican bond problems, Latin American defaults, the dot-com crash, Long Term Capital Management, and the housing-related selling.

Yesterday was one for the record books. It was without specific precedent. But it had a familiar ring for veterans. The Dow Jones Industrial Average, which finished the day down 347 points, was briefly down 1,000 points at during the late afternoon.

Press reports now indicate the extreme market dip may now have been triggered by a technical error. Reportedly, a trader accidently put in a sell order for a billion shares — rather than a million — of Procter & Gamble. The reaction by investors was over exaggerated, but the market was down Before the “error”.

Perhaps this was a long awaited pullback that was exacerbated by the debt issues in Greece. There was no news that could have triggered this and we don't think the market should have traded off as much as it did.

In any case, the market was headed lower yesterday on concerns the Greek issue might spread & become the next liquidity issue & cause a slow down in the global economic recovery. This I believe is mostly a European problem. The US and Asia are relatively decoupled. There'll be shock and chaos, but nothing devastating. In either case, it is an “uncertainty”, and the market dislikes “uncertainty.”

Some positives to continue to keep in mind:

•           The market is still up 1% for the year (may be up 1% today too).

•           US recovery seems to be well on its way as earnings are now coming from modest top line growth, not just cost cutting.

•           Job growth is coming. Today’s job growth number is up 200k (exceeding the 180k estimate)

That all said, as we’ve discussed before 5-10% corrections are “normal” – they happen 3-4 times each year; (We had a 7% correction in January; this correction is 5% so far)

We’ll monitor in case it becomes “more than normal” – in which case, we’ll look to take some money out of equities.

Conclusions:

As a long-term investor we have made nice gains in the last year. Corrections are inevitable and the specific timing is unpredictable. Keep focused on the long-term record.

One of the most difficult things to do — and the thing that distinguishes people like Warren Buffett — is the ability to remain calm in the face of non-stop media coverage of riots and the like.  The key point is there is always one side of a discussion that is easy to explain, and it gets a lot of buzz from the media.

Thank you for your trust & I am only a phone call away if you’d like to discuss your situation in more detail.

Mosaic Wealth Management in the media once again. We're quoted in a MSN article about Lessons learned during the recent economic downturn (Click HERE to read the article). 

The writer contacted me and asked about our blog – why we started it & how we use it.  We started this blog last year during the rough times as a way to stay in closer contact with our clients.  

I read a lot about the markets, business, retirement, investments, etc. I read so much; sometimes I forget where / when I read something – it truly becomes imbedded in my psyche. I want to share the articles I find interesting with our clients. I want to share topics our clients are concerned with – if you’re concerned about it, chances are other are concerned too – you are not alone.  

This forum is a two-way vehicle that allows us to communicate our thoughts more easily and address clients’ concerns more quickly. If it’s a topic of interest, you can read more about it, research it further yourself, call me to talk about it. If it isn’t, perhaps the next article or thought will pique your interest. That’s the beauty of technology – a more dynamic dialog! 

I hope you continue to find this “blog” of value; I hope you continue the dialog – if you’re interested in a topic, others are too.  Thanks again for your trust .