Schwartz Financial Weekly Commentary 5/29/12

The Markets

Judging by what’s happening in the bond market, it appears that some investors are more concerned about the return of their money than the return on their money.

When investors get nervous about the stock market, you often see money flow into the government securities of perceived safe haven countries such as Germany, Japan, U.K., and the U.S. This increased demand helps drive down the yield on their bonds. In fact, take a look at the following chart to see some amazingly low government securities yields:

Country	Maturity	Annual Yield
Germany	2 Years	0.07%
Japan	10 Years	0.89
Germany	10 Years	1.41
Finland	10 Years	1.73
U.S.	10 Years	1.74
U.K.	10 Years	1.79
Netherlands	10 Years	1.89

Sources: The Wall Street Journal, May 23, 2012; and The Wall Street Journal, May 25, 2012

By contrast, yields on government securities in perceived “risky” countries such as Italy (10-year yield of 5.76 percent) and Spain (10-year yield of 6.10 percent) are much higher, according to The Wall Street Journal.

Unfortunately, even the government securities of the “safe” countries may experience a loss in “purchasing power.” For example, with inflation running at 2.3 percent in the U.S. for the 12 months ending in April, investors in 10-year U.S. government securities may lose purchasing power since the yield is less than the inflation rate, according to the Bureau of Labor Statistics. On top of that, if interest rates rise over time, the bonds could experience a capital loss as the price of the bond adjusts to reflect current interest rates, according to FINRA.

So, what should an investor do to try and stay ahead of inflation and grow their portfolio without taking inappropriate risk? Here are three things:

1.   Know your comfort level. We work with you to figure out what level of market fluctuation is acceptable to you.

2.   Diversify your portfolio. We try to diversify by asset class and time horizon based on your acceptable level of fluctuation. While this does not guarantee against a loss, it may help smooth out the ride.

3.   Monitor your portfolio. We keep tabs on what’s happening in the economy and in your portfolio so we can be proactive in making changes when necessary.

Our goal is to help you receive “a return of and a return on” your money. 

Data as of 5/25/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.7%	4.8%	-1.0%	13.1%	-2.8%	2.1%
DJ Global ex US (Foreign Stocks)	-0.3	-3.1	-19.2	3.6	-7.4	3.7
10-year Treasury Note (Yield Only)	1.8	N/A	3.1	3.5	4.9	5.1
Gold (per ounce)	-1.3	-0.3	2.8	18.4	19.1	17.2
DJ-UBS Commodity Index	-2.5	-5.7	-19.0	3.0	-5.1	3.1
DJ Equity All REIT TR Index	2.6	8.7	6.5	31.0	0.7	10.0

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

IF THE WORLD WAS A LAUNDROMAT, the U.S. might be the “cleanest dirty shirt” in the store. As new signs point to a global slowdown, we’re on the lookout for countries that might hold up better in the rinse cycle and the U.S. could be that country, according to U.S. News & World Report.

The “cleanest dirty shirt” analogy comes from Mohamed El-Arian of PIMCO who says, “When you're on a business trip that gets extended and you don't have any more clean shirts, you wear the one that's least dirty.” In our case, you invest in the country that’s “least bad.”

“Least bad” may not sound like a great way to invest, but consider this. With the U.S. fiscal situation in horrible shape, you might expect investors to shun the U.S. dollar on fear the government will print dollars and reduce its value. Well, recently, investors have been clamoring to buy dollars. For example, last week, “The ICE dollar index, which measures the U.S. unit against a basket of major currencies, rose to 82.416 – its highest level since 2010,” according to MarketWatch.

In the dollar’s case, nobody is suggesting that, in isolation, it looks great. Rather, when you compare it to another currency such as the euro – which represents 17 countries in Europe – it looks relatively better because Europe’s problems seem more pressing than ours.

Just like taking a dirty shirt to the Laundromat to get it cleaned, investments over time may turn from “dirty” to “clean” as problems get worked out and situations improve. There’s money to be made during this cleansing cycle and we’re doing our best to “clean up.”

Weekly Focus – Did You Know…

The average life expectancy at birth in the United States for the population in general is 78.37 years. For males, the average life expectancy is 75.92 years and for females it’s 80.93 years (2011 estimate). This places the U.S. at #50 in the world and well behind #1 Monaco at 89.73 years.

Sources:

https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2102rank.html

Value vs. Growth Investing (5/25/12)

Name			1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market			2.00	5.89	-5.10	-3.38	1.29	17.22	-0.09
Large Cap			1.58	5.97	-4.99	-2.59	3.12	15.79	-0.52
Large Core			1.27	5.89	-4.78	-2.36	3.65	15.29	1.03
Large Growth			2.75	10.52	-5.51	-1.90	8.69	18.92	2.06
Large Value			0.79	1.91	-4.71	-3.52	-2.89	13.28	-4.81
Mid Cap			3.25	5.98	-5.44	-5.33	-3.34	20.76	0.65
Mid Core			3.56	7.21	-4.60	-4.21	0.88	22.67	1.72
Mid Growth			3.50	6.89	-5.65	-6.30	-5.22	20.81	1.61
Mid Value			2.70	3.89	-6.12	-5.57	-5.76	18.67	-1.68
Small Cap			2.93	4.83	-5.31	-6.05	-4.29	21.20	1.30
Small Core			2.97	5.19	-5.59	-6.35	-6.27	20.07	0.15
Small Growth			3.05	4.63	-5.35	-6.49	-4.57	20.65	1.85
Small Value			2.79	4.61	-4.99	-5.32	-1.95	22.84	1.60
US Core			1.81	6.09	-4.80	-2.99	2.44	17.16	1.27
US Growth			2.92	9.37	-5.53	-3.12	4.80	19.52	2.02
US Value			1.32	2.51	-5.02	-4.07	-3.42	15.00	-3.72

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Notes:

For those attending our shredding event this Saturday the 2^nd.  Our offices are between Washington Lane and Summit Ave on York Road on the southbound side of the road.

Best regards,     

Michael L. Schwartz, RFC®, CWS®, CFS

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This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

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