Posts
In This Issue
Senior Bowl 2013
Monthly Market Commentary
Monthly Market Barometer
Risk, Not Volatility, Is the Real
Enemy
Going Social
Your Professional Sports
Career is Very Important
Major Stock Market Indexes
Understanding the U.S.
Unemployment Rate
Dump Your Banks High Fees
Money Market Fund Basics
Senior Bowl
Once again we will be attending this year. While we are down there we will be introducing ourselves to as many players as possible. Additionally, we are already scheduling meetings with families. These meeting are just meant as introductory meetings so we can interview you and your family to make sure you will meet our requirements and answer any questions you and your family may have.
Meeting times are already filling up fast, if you would like to schedule a meeting time for you and your family please contact us immediately at 248-248-0436 or 424-249-9290.
Monthly Market Commentary
The worst of the fiscal cliff crisis was averted as Congress managed to come to a deal at the eleventh hour. As part of the deal, tax rates will go up for high income earners, and the payroll tax holiday will expire, affecting income earners across the board. The new tax rates may slow the economy, but also decrease some of the uncertainty. Markets reacted positively, with the S&P 500 jumping more than 4% in the first week of January.
GDP: The third and final estimate for third quarter real GDP growth was revised sharply higher to 3.1%, from an initial estimate of 2.0% and also higher compared with the second quarter real GDP growth rate of 1.3%. This makes it the third-best quarter of the 13-quarter recovery. Consumption and import/export figures were revised upwards, while inventories were less of a contributor than previous estimates.
Employment: In December, 155,000 jobs were added, mainly from strong growth in the health-care and construction sectors. More importantly, hours worked and hourly wage rates were also up. Taking into consideration average hours, average wages, and employment, Morningstar economists believe that total private wages grew at a stunning 0.7% in December (8.4% annualized). Given that there was limited inflation in December, these gains may flow almost immediately to consumers. Going into January, with higher taxes, this large income growth will provide consumers with a substantial cushion. The unemployment rate in December inched up slightly to 7.8%.
Housing: Original housing market forecasts for 2012 ranged from more doom and gloom to minuscule improvements. Instead, the U.S. got a year of considerable advancement, with home inventories down significantly, which has led to higher prices across the board. With inventories so low, it is now difficult to buy a home in many markets, especially on the West Coast. Home builders are also constrained by raw material prices going up, as well as a shortage of construction workers. Morningstar economists believe that home price gains of 5% or more for all of 2012 are pretty much certain, but volume-related housing metrics will slow in 2013 given these supply constraints.
Auto: Auto sales in December were at about 15.4 million units, down slightly from the 15.6 million units sold in November, which benefited from required replacements associated with Hurricane Sandy. The auto industry has been a real plus for the U.S. economy. The durable goods sales category (mainly comprised of autos), has been the single largest contributor to the economic recovery so far. While much of Europe is struggling with declining auto sales, the U.S. managed to pull out another year of very impressive growth.
Retail: Holiday sales (essentially November and December) were up 3.1% from a year ago. Sales in December showed a sharp improvement compared with November, which reflected the impact of accounting for layaway sales, Hurricane Sandy, and the timing of Cyber Monday this year. Overall, the holiday season was good, but not great. Consumer headwinds were substantial, ranging from Hurricane Sandy at the beginning of the season to worries about the fiscal cliff at the end of it. Thankfully, improved consumer incomes, falling gasoline prices, cooler temperatures, and more discounting at the end of the season, all helped boost sales.
Year-end insights: Despite odd weather patterns, presidential election jitters, and fiscal cliff concerns, 2012 was filled with much positive news for the U.S. economy. This included higher oil production, an improved auto industry, decreased commodity prices, and a stabilizing housing market. Unfortunately, the same could not be said about Europe, which entered a recession, or China, whose growth slowed dramatically. The relative strength of the U.S. economy also translated into benefits for consumers, who experienced steady employment growth, stable inflation, rising financial assets, and a nicely improving real estate market.
Portfolio Notes
2012 ended the year on an uncertain note, due largely to the fact that the budget negotiations in Washington ended with higher taxes on those making over $400,000, but nothing as far as spending cuts. All three credit agencies have warned that they may lower the U.S. credit rating if the out of control spending is not addressed. Additionally, once again we have seen the government hit the debt limit with the White House asking congress to increase the debt limit.
The Bulls won in 2012 with the market posting decent gains, we expect the trend to continue into the first part of 2013.
Conclusion: Overall our portfolios perform well in 2012 with many positions posting double digit gains. 2013 appear to be off to a good start and we are confident in the positions we currently hold. Overall volatility could lend to some buying opportunities as the debt limit gets debated.
Monthly Market Barometer
The Morningstar Market Barometer provides a visualization of the performance of various stock market indexes. The color scale (red for losses and green for gains) allows you to assess which areas of the market performed strongly and which areas showed weakness for the time period analyzed. The nine square grid represents stocks classified by size (vertical axis) and style (horizontal axis). There are three investment styles for each size category: small, mid and large. Two of the three style categories are “value” and “growth” while the central column represents the core style (neither value nor growth characteristics dominate). Large-caps account for the top 70% of the capitalization; mid-caps represent the next 20%; and small-caps represent the balance.
Risk, Not Volatility, Is the Real Enemy
What would you do if your investments lost 10% in a single day? A) Add more money to my account. B) Hold steady with what I've got. C) Yank my money; I wouldn't be able to stand any more losses.
If investors buy the right investments but sell them at the wrong time because they can’t handle the price fluctuations, they may have been better off avoiding those investments in the first place. Most investors are poor judges of their own risk tolerance, feeling more risk-resilient in up markets and more risk-averse after market losses. However, focusing on an investor's response to short-term losses inappropriately confuses risk and volatility. Understanding the difference between the two and focusing on the former is a potential way to make sure you reach your financial goals.
Volatility encompasses the changes in the price of a security, a portfolio, or a market segment, both on the upside and downside, during a short time period like a day, a month, or a year. Risk, by contrast, is the chance that you won't be able to meet your financial goals or that you'll have to recalibrate your goals because your investment comes up short. So how can investors focus on risk while putting volatility in its place? The first step is to know that volatility is inevitable, and if you have a long enough time horizon, you may be able to harness it for your own benefit. Diversifying your portfolio among different asset classes can also help mute the volatility. It helps to articulate your real risks: your financial goals and the possibility of falling short of them. Finally, plan to keep money you need for near-term expenses out of the volatility mix altogether.
Investing in securities always involves risk of loss. Diversification does not eliminate the risk of experiencing investment losses.
Going Social
We are pleased to announce that we are on several social media
sites. So whether you like Facebook, Google+, Twitter, Blogs, Pinterest or
LinkedIn we have you covered. “Like” or follow us and each morning you will
receive breaking pre-market news, analyst rating changes and earning reports. Additionally,
we will post breaking financial news and article that you can’t get anywhere
else.
Greater financial knowledge is just a click away.
Your Professional Sports Career is Very Important
Your investments are even more important, so shouldn’t you hire the best possible wealth manger to handle your investments?
At RL Paler Investment Advisors, LLC we have over 24 years of experience helping professional athletes just like you reach their financial goals. Call now for a free consultation. 248-623-6270 / 424-249-9290 / info@rlpaler.com
Major Stock Market Indexes
Dow Jones Industrial Average
The Dow Jones Industrial Average was first unveiled by Charles H. Dow on May 26, 1896, and consisted of 12 stocks. In 1916, the industrial average expanded to 20 stocks and in 1928 was subsequently bumped to 30, where it currently stands. The index constituents are 30 of the world’s largest, most influential and well known companies. Whenever you hear someone referring to what “the market” did in any given day, they are most likely referring to the Dow. Changes to the index are rare and usually take place, according to Dow Jones Indexes (www.djaverages.com), “when a current component is going through a major change, such as a shift in its main line of business, acquisition by another company, or bankruptcy. There is no review schedule.”
Standard & Poor's 500 Stock Index
When you hear that a portfolio has “beaten the market” it is most likely being compared with the S&P 500, which was first published in 1957. The index is composed of 500 leading companies in leading industries of the U.S. economy, focusing on the largecap segment of the market but also serving as a proxy for the total market—covering approximately 75% of the U.S. equities market. The S&P Index Committee follows a set of published guidelines for maintaining the index (complete details of these guidelines are available at www.indices.standardandpoors.com). Some of the criteria for addition include a market capitalization (share price multiplied by shares outstanding) in excess of $4 billion, adequate liquidity (how easy it is to buy and sell shares) and reasonable price and financial viability. Those that substantially violate the criteria are dropped.
NASDAQ Composite Index
Launched in 1971, the NASDAQ Composite Index measures all NASDAQ domestic- and international based common type stocks listed on the NASDAQ Stock Market. The index includes roughly 2,700 securities. While it is best known for its large portion of technology stocks, it also contains stocks in other industries. To be eligible for inclusion in this index, securities must be listed on the NASDAQ Stock Market and they need to be of a specific type. For more information, visit www.nasdaq.com.
Please keep in mind that a company can be a member of more than one of the three indexes described above. Microsoft is an example of a company that has a place in all three.
Understanding the U.S. Unemployment Rate
The unemployment rate, as shown in the image, is typically higher during a recession. Over the past 65 years, the U.S. economy has experienced 11 recessions and has seen unemployment rates skyrocket 11 times, peaking at 10.8% back in November 1982. The unemployment rate, a lagging indicator, typically peaks towards the end of a recession and gradually declines as the economy recovers.
The unemployment rate is published by the U.S. Bureau of Labor Statistics once a month through an extensive survey of select households. People are classified as unemployed if they do not have a job, are currently available for work, and have actively looked/are looking for work. The unemployment rate is the number of unemployed people as a percentage of the labor force, with the labor force defined as the total number of employed and unemployed people. The labor force automatically excludes young people (anyone under the age of 16), people in the military, and institutionalized individuals (in prisons, mental institutions, and nursing homes). However, there are other groups of people that voluntarily choose to be excluded from the labor force, including homemakers, students, retirees, and discouraged workers who have stopped seeking employment.
When interpreting the monthly unemployment numbers and how they have changed since the last month, it is important to see if the variation was brought about because of a change in the number of unemployed people, a change in the size of the labor force, or both. For example, if the unemployment rate dropped because the number of unemployed people decreased, that’s a good sign and indicates that the economy improved. If the unemployment rate dropped because a sizable number of discouraged workers stopped actively looking for work and simply dropped out of the labor force, that’s a bad sign. The lower unemployment rate in the latter case gives the illusion of an improving economy, when in actuality the economy hasn’t improved.
Investors should stay informed on current market conditions as they may help explain why portfolio values have changed (for better or for worse) and how they can continue to stay the course. A worsening unemployment trend means more individuals are looking for work and people may have less disposable income to spend, which will negatively affect sales. Poor sales result in lower company profits, putting downward selling pressure on the company’s stock price.
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Money Market Fund Basics
Money market funds typically pay a percentage point more than money market accounts from banks. You'd get even less interest if you put your cash in a checking or savings account. Keep in mind, though, that unlike consumer bank accounts, money market funds are not insured by the Federal Deposit Insurance Corporation (FDIC). However, they are regulated by the United States Securities and Exchange Commission (SEC), which enforces strict limits on the types of investments these funds can make. Consequently, it is unusual for a fund to take a hit to its principal, but, like with any other investment vehicle, it is still possible to lose money. When choosing a money market fund, be sure to bargain hunt: Low-expense funds have an edge that's hard to beat. Also, be sure to find a package that works for you. In general, money market funds have low minimum investment requirements and may offer limited check-writing privileges, but these characteristics vary widely from fund to fund.
©2012 Morningstar, Inc. 2012 RL Paler Investment Advisors,
LLC All Rights Reserved. The information contained herein (1) is intended
solely for informational purposes; (2) is proprietary to Morningstar, RL Paler
Investment Advisors, LLC and/or the content providers; (3) is
not warranted to be accurate, complete, or timely; and (4) does not
constitute investment advice of any kind. Neither Morningstar, RL Paler Investment
Advisors, LLC nor the content providers are responsible for any damages or
losses arising from any use of this information. Past performance is no
guarantee of future results. "Morningstar" and the Morningstar logo
are registered trademarks of Morningstar, Inc. Morningstar
Market Commentary originally published by Robert Johnson, CFA, Director of
Economic Analysis with Morningstar and has been modified for Morningstar
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