2013 Fourth Quarter Client Commentary

-4th Quarter Overview-

“Happiness is not a matter of intensity but of balance, order, rhythm and harmony.”

-Thomas Merton (January 31, 1915 – December 10, 1968) 

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Balance = Personal Financial Success

In our last quarterly commentary we discussed the roller coaster ride borrowing costs have taken this year. While there is certainly more volatility ahead, these movements (and others) have slowed down and given us a chance to refocus on the “big picture” issues in personal financial planning that remain throughout the short-term economic fluctuations that often steal our attention.

One of the most significant challenges we are all faced with is finding the right balance in our financial lives. Each decision we make affects our options for future decisions and can impact the financial trajectory for our families in the future. When we retire, how much we spend vs. save, what we do in our careers to drive income and how we manage the efficiency of assets are just a few examples of the hundreds of decisions we encounter while living our financial lives.

Unfortunately, balance is not something Americans have traditionally been great at when it comes to personal finance. As an example, according to data published by the World Bank, Americans consume 72% of Gross Domestic Product (GDP), higher than any developed country except Greece! Further, we invest about 16% of our GDP which ties with the UK as the lowest savings level of any developed country. (To learn more, visit http://tinyurl.com/mpj4z5r.) As a whole, our country is very unbalanced in its approach to personal finance!

The key is finding your personal balance between planning for tomorrow and enjoying today. We all know this is easier said than done, and this balance will look differently for everyone depending upon upbringing, outlook on life, values and goals. While finding and maintaining balance is a difficult task, revisiting one’s wealth plan in context of short, intermediate and long-term goals reminds us of the trade-offs that must be considered. Weighing those trade-offs and being thoughtful about their impact will help each family avoid becoming the statistical average and instead find healthy financial balance.

Our Wealth Planning Team is more focused than ever on helping our clients identify these opportunities and act upon them in an appropriate way.

Balance Risk with Opportunity

Stock and Bond prices around the world posted solid gains in September after the Federal Reserve announced that they were not cutting back on their bond buying program (a.k.a. quantitative easing). By failing to taper or reduce quantitative easing, the Fed signaled to the markets that they still have lingering doubts as to the strength of the economic recovery. International stock investments, as represented by the two MSCI indices shown below, saw some of the biggest gains in September with the Fed’s decision.

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We believe that in today’s uncertain investment climate it is more important than ever to have a well-diversified portfolio that balances risk with opportunity. Given very low economic growth prospects in the US, Europe and Japan, we have positioned a higher percentage of portfolios into the stock and bond markets of emerging countries throughout Latin America, Asia and Eastern Europe. Although these markets have disappointed us by under-performing our U.S. investments over the past few years, we believe there are compelling reasons to stay the course and maintain our investment positions.

    • Higher projected economic growth prospects. For example, China’s economy is forecast to grow by roughly 8% this year, which is 4 times the expected growth rate of the U.S.
    • Better demographics to support economic growth. In general, emerging markets have a younger workforce that is experiencing an increase in wealth. On the other hand, most developed markets have a higher percentage of their population past the age of 65; thus, beyond their peak earning years and peak spending years.
    • Emerging market fundamentals have improved considerably since the late 1990’s. In general, when compared to 15 years ago many emerging countries have relatively low levels of debt, more robust financial sectors, increased access to capital markets and, in some cases, significant foreign currency reserves. These factors combined help to better insulate emerging economies from financial shocks.
    • Traditional valuation measures suggest that emerging market stocks are cheap relative to both their history and to developed markets. Using a price-to-earnings ratio, emerging market stocks were recently trading at close to a 35% discount to developed markets. It’s possible that there is more pessimism built into the pricing of this asset class than is warranted by the fundamentals. Historically, similar discounts have produced strong relative returns over the longer term.

On the home front, the budget debate and government shutdown has increased volatility in the markets over the past week. We don’t expect any significant economic impact from a temporary closure of non-essential government offices or programs. We are more concerned about the U.S. hitting its debt ceiling of $16.7 trillion – the statutory limit on the amount of debt our country is able to issue – in the latter part of October. If Congress and the President cannot come to an agreement to increase the debt ceiling, then the U.S. government would technically default on its debt. This has never happened before and could be very disruptive to the global financial system, our economic recovery and our nation’s financial reputation. Standard & Poor’s downgraded the credit rating of the U.S. in August 2011 as a similar debt ceiling debate deteriorated into partisan bickering. We are hopeful that does not occur again, but will be ever-watchful as we manage investment portfolios through this uncertain time period.

October 4, 2013


The information in this material is only as current as the date indicated, and may be superseded by subsequent market events or for other reasons. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements. The information does not attempt to examine all the facts and circumstances that may be relevant to an individual’s financial needs. Payne Wealth Partners, Inc. is not soliciting any action based on these statements.

Contact Our Offices

Payne Wealth Partners, Inc.
Keystone Financial Consulting
601 N Cross Pointe Blvd
Evansville, IN 47715
Phone: 812-477-6221
Toll Free: 888-477-6221
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