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

No surprises from the Fed today.

First statement since recovery unfolded in which Fed had to dial back its language about recovery's pace.

The average estimate for the first rate hike has been pushed to the first quarter of 2011

The Fed remains data-driven, and if the data shows either significant improvement to labor conditions and/or significant deterioration in inflation conditions, the Fed could be quicker than expected to pull the rate trigger

Both equity and fixed income investors have something to cheer … for now anyway.

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 .

A continuing trend – Women feel concerned about their finances, according to a recent study sighted in “When Living Longer is a Risk for Women” by Ruthie Ackerman (click HERE for link to full article)

Highlights of the article include:

During their lifetimes, women tend to make less money than men and, in turn, save less for retirement. This leaves them more vulnerable in their later years and with fewer options.

The financial crisis only served to compound women’s concerns about not having enough money to last throughout their lifetimes.

Now a report released last week from LIMRA indicated that more than half of middle-income women surveyed felt unsatisfied with their current financial situation and uncertain about their future financial needs.

Almost a third of the women surveyed don’t know how to achieve their financial goals.

Women in the middle market expressed more concern about their financial well-being than men

The recession has been hard on middle-income Americans, with many indicating that they have not made any progress or fallen behind on their financial goals. 

Women we surveyed seemed to be more receptive to listening to financial advice for the tools and advice needed to achieve their financial goals.

54% of women feel like they are not saving enough. Part of the reason for women’s worries about retirement savings is that women tend to be more risk-adverse and less likely to invest in stocks and mutual funds, which cuts into their savings, according to LIMRA.  This could be an opportunity for financial advisors to speak to their female clients about appropriate investments, which could help them attain higher returns on their assets 

Only 4 in 10 women say they develop a budget and follow through with it, LIMRA found. Even something as simple as a budget could help.

Are you are more concerned about your financial future? Do you know if you’re on track? Click HERE for a FREE Roadmap to find out if you’re on Track!

After the market roller coaster of 2008 and 2009, the first quarter of 2010 has been blessedly uneventful by comparison. The US markets gained about 5% in the first quarter, the best start to the year since 1998 – today’s stock market is up about 60% from its lows of a year ago.  That said, there is still a cloud of uncertainty that is making many investors nervous.

 

Causes for concern … and for optimism

 Even with the stabilization of the global economy, there’s no shortage of short-term causes of concern:

… Endless questions on the direction and timing of the economic recovery and the timing of higher interest rates

… US housing prices that are staying stubbornly low and unemployment levels that are stubbornly high.

… Rising deficits and the cost of the Healthcare Reform

 

Here’s a New York Times article about the IMF’s views.

 

The good news is that there are offsetting positives, even if the media headlines that feature them aren’t quite as prominent:

… on Monday March 22, the Wall Street Journal ran a story about dividend hikes as a result of rising profits by US companies.

… The article also mentioned that cash on hand on US corporate balance sheets was at the highest level since 2007.

… the same day the Financial Times ran a similar story about dividend increases in Europe

 

Forecasting the future

Whether you choose to focus on the positives or the negatives, there’s broad agreement that the steps taken by governments were effective – fewer talks about what we were facing a year ago – and there is almost no talk today of a global depression.

 

So the issue is not whether the economy will recover, but when and at what rate…and whether there might be another stumble along the way.  If you look for investing advice in the newspaper or on television, the discussion tends to revolve around what stocks will do well in the immediate period ahead…this week, this month, this quarter.

 

We refuse to participate in that speculation – when it comes to short-term predictions, whether about the economy or the stock market, there’s one thing we can say with virtual certainty: Most of them will be wrong. Quite simply, no one has a consistent track record of successfully forecasting short-term movements in the economy and markets.

 

Which is why in uncertain times such as today, one guru TO listen to is Warren Buffett.

Advice from Warren Buffett

“I have no idea what the stock market will do next month or six months from now.

I do know that, over a period of time, the American economy will do very well and investors who own a piece of it will do well.”  Warren Buffet on CNBC on Friday, October 10, 2008

 

In one of his annual letters to shareholders, Warren Buffett wrote that it only takes two things to invest successfully – having a sound plan and sticking to it.

He went on to say that of these two, it’s the “sticking to it” part that investors struggle with the most. The quote above, made at the height of the financial crisis, speaks to Buffett’s discipline on this issue.

 

I try to apply that approach as well – putting a plan in place for each client that will meet their long-term needs and modifying it as circumstances warrant, without walking away from the plan itself.

 

Boom times such as we saw in the late 90’s and scary conditions such as we’ve seen in the past two years can make that difficult – but those conditions can also represent opportunity. Indeed, in his most recent letter to shareholders Buffett wrote that “a climate of fear is an investor’s best friend” or as I’ve always heard “the market climbs a Wall of Worry.”

 

Core principles that shape our approach

On balance, I share Warren Buffett’s mid-term positive outlook, not least because many of the positives that drove market optimism two years ago are still in place, among these the continued emergence of a global middle class in developing countries like Brazil, China, India and Turkey. This educated middle class will fuel global growth that will make us all better off.

 

In the meantime, here are some fundamental principles that drive the portfolios that we believe will serve clients well in the period ahead.

 

Remain Diversified

The record bounce in stock prices over the past year was led by companies with the weakest credit ratings. That’s unlikely to continue – that’s why I’m focusing my portfolios on only the highest quality asset classes, those best able to withstand the inevitable ups and downs in the economy.

 

Focus on the Long Term

Having a strong price discipline on buying and selling is paramount to success – history shows that the key to a successful investment is being invested and avoiding the large drawdown’s.  We continue to focus on asset classes (US, International, Global Bonds) that will be there long-term for us.

 

Build in a buffer

Given that we have to expect continued volatility, we identify cash-flow needs for the next 2-3 years for every client and ensure these are set aside in safe investments. That buffer protects clients from short-term volatility and reduces stress along the way.

 

Stick to your plan

In the face of economic and market uncertainty, another key to success is having a diversified plan appropriate to your risk tolerance – and then sticking to it. It can be hard to ignore the short-term distractions, but ultimately that’s the only way to achieve your long-term goals with a manageable amount of stress along the way.

 

In closing, let me express my thanks for the continued opportunity to work together. Should you ever have any questions or if there’s anything you’d like to talk about, my team and I are always pleased to take your call.

 

P.S. If you’re interested, here’s a link to Warren Buffett’s 2010 letter to investors

Here’s an interesting article on Bloomberg yesterday. The headline reads:

 

"Americans Say They Missed 73% Rise in S&P 500 as Economy Surged"

 

The article sites a recent survey where only 3 of 10 people say the value of their portfolio has gone up during the last year. This is where things get ambiguous …since the S&P 500 is up considerably from the low hit on March 9, 2009, it’s clear that anyone that stayed invested at all is up from last year.

 

There are at least a few things to think about:

 

A. Did only 3 out of 10 people surveyed actual stayed invested?  In fact, according to the fund flow data, investors pulled over $254 billion during that time period, and since March 2009, only a fraction of that has gone back into Equity mutual funds (most stayed in cash or went into Bond mutual funds).

 

Once again, the investment public sells at the bottom & buys at the top – don’t “wait” for “things to get better”…the market tends to “climb a wall of worry.”

 

B. People measure from their previous high, not from the low in March. The survey asked if your portfolio had gone up in value in the last 12 months, but it’s possible that people were still thinking in terms of their all-time High?

 

Large losses hurt more than gains feel good; but the broader point is we often anchor to a value that is now gone and that will impact how we behave and might have impacted how people responded to this survey.

 

C. "Feel is not real." People’s portfolios really are up, but they just don’t feel like they are. This seems to be the conclusion of the article. This is a odd time; even people who stayed the course and are up for the last 12 months don’t seem to feel better.

 

Lessons – Investors natural behavior has shown itself again (selling at the bottom; missing a large up-swing in the market) – investing emotionally leads to poor decision making.  Investing, psychology, and behavior is a potent mix. We’ve weathered the storm well given we had a Plan in place. Tell your friends to be careful out there.

 

Strategic asset allocation is alive and well! Despite the return for investing in the S&P 500, a large cap index, over the last ten years was -2.7%; some other asset classes, equity styles and foreign markets performed quite well. 

 

Several U.S. equity categories did considerably well. 

Russell Midcap Value Index +7.9%,

Russell 2000 Index of small cap stocks +8.3%

Dow Jones Indexes U.S. Real Estate +9.2%

Dow Jones Indexes WORLD (EX: US) Real Estate + 6.8%

 

The last decade was lost by those who still believe that the S&P 500 alone is a diversified portfolio. 

 

The average return over the decade for a 20 asset classes, equity styles, and foreign markets was 5.5%.  Admittedly, this is not a stellar performance, but is far better than 0%.  Each dollar invested in an equally-weighted portfolio would have grown to $1.70. 

 

Several lessons emerge from this simple analysis.  First, a portfolio is not broadly diversified if it’s all U.S. large cap stocks, as is the S&P 500. 

 

Second, the S&P 500 is a good representation of the large cap market, but not a good representation of the investment universe.  Improvements in return are possible by including more asset categories. 

 

Third, enough people are talking about the lost decade to motivate writing this article – it has not been a total loss for those who diversified broadly. 

 

One diligent researcher with the proper tools and insights is often more reliable than a hundred professional pundits paid for being entertaining – not to keep your retirement safe. Beware catchy, entertaining factoids conveniently repeated on CNBC.  Much of the time, their entertainment value far outweighs their informational value.  Remember, they get paid when people watch advertisements – not when people's investments do well, and as we all know – incentives matter.

 

Our counsel for portfolios is simple and clear.  Invest and rest with a broadly-diversified portfolio.  Do not try to time the market and definitely do not head the temptation to imitate your neighbors.  The key to a successful investment experience: establish a Plan and stick to it during the times emotions tempt you to abandon it.