YOUR FINANCIAL LIFE – IN PERSPECTIVE
For years, continued medical advancements and heightened awareness of personal health have led to increases in longevity. Looking at this phenomenon over the past 100 years puts this in more perspective:
- A typical baby born in 1900 was expected to live to age 45; today, life expectancy at birth is roughly 82!
- The average 65 year old retiree is expected to live to age 86.
- There is a 25% chance at least one member of a 65 year old couple will reach age 97!
Perhaps a more subtle point is that while this qualifies as progress and achievement in the medical industry, it equates to a significant, and growing, challenge when planning for your financial future. This is a real threat to financial security that will likely find its way more to the forefront of financial planning as guaranteed sources of lifetime income (example company pensions) are cut and longevity continues to increase.
Many questions that can be troublesome come to mind. Am I bothered by the possibility of running out of money? If I am still healthy, will I need as much income at 75 or 80 as I do now? Am I willing to make sacrifices today to ensure I have enough later in life? You should not view your outlook about these issues as only affecting future decisions. In fact, the way you answer these questions must play a substantial role in financial decisions you make this year if you are to effectively deal with the puzzle these matters present.
MARKET COMMENTS AND OBSERVATIONS
How quickly the markets can change. We always preach that “time in the market” is more important than “timing the market.” Due to a resilient U.S. economy and some progress towards stabilizing Europe’s debt crisis, we’ve seen upward progress in the equity markets for January and now over the past 3 months. As we write these comments the S&P 500 index is up 4.5% for the month and we’re on track for one of the better January’s on record. You may remember that we increased our exposure to stocks during the month of August and that tactical adjustment has been rewarding to portfolios. The emerging stock markets have also shown a strong January (up 9.8%), and they have erased almost one-half of their 2011 losses.
Financial Market Indices as of January 30, 2012
Last 3 Months
Last 12 Months
|S&P 500 Total Return (US stocks)||4.5%||5.4%||4.5%||4.3%|
|MSCI Developed EAFE (foreign stocks)||4.9%||-1.1%||4.9%||-9.5%|
|MSCI Emerging Mkt. Equities (emerging country stocks)||9.8%||1.1%||9.8%||-10.1%|
|Barclays Capital Aggregate Bond – Intermediate Term||0.7%||1.4%||0.7%||6.4%|
|Barclays Capital Municipal Bond Index||2.2%||4.7%||2.2%||14.0%|
Last month we wrote how European debt problems continued to cast a net of uncertainty on the rest of the world. As we entered 2012 we were optimistic that improved solutions would emerge. A December move by the European Central Bank to offer 3-year low cost loans to Europe’s banks offered some promise to better position those banks for future purchase of sovereign debt issues. This past Monday leaders of 25 European countries agreed on a tighter fiscal pact, and they signed off on the details of a permanent bailout fund for the Eurozone ($660 billion in US dollars). This new fiscal treaty shows progress towards ending overspending in the Eurozone and putting an end to the debt crisis crippling the region. It includes strict debt limits and the imposition of fines against those euro countries running excessive deficits. Even though the euro members share a central bank and monetary policy, the absence of formal budget coordination has been one of the weaknesses that led to the crisis. European leaders still need to restructure Greece’s debt and implement policies that will stimulate growth and create jobs throughout the region. But, progress is being made and we remain optimistic.