“Planning is bringing the future into the present so that you can do something about it now”
By Alan Lakein, well-known author on personal time management, including “How to Get Control of Your Time” and “Your Life” which has sold over 3 million copies.
In a 2007 survey of business owners performed by ROCG, an international research and consulting firm, it was determined that the average owner spends 80 hours preparing a business plan and only 6 hours preparing for their exit from the business. A similar study of retirees performed by AARP in 2010 showed that 43% of Americans spent more time planning their most recent vacation than they have spent, collectively, planning for retirement! So why do the statistics show such a lack in planning for some of the most important financial and emotional decisions people will make in their entire lives? Perhaps it is because individuals don’t know the best way to go about planning for these sometimes very difficult transitions. Options aren’t understood and life is busy for all of us so planning takes the back seat.
In many respects you as our client represent an “outlier” in these studies – you are someone that does not fit the average and is not following the pack. In fact, due to the proactive wealth planning you participate in you represent the opposite of the average individual represented in these studies. Because of the time you take each year to go through our planning process and try to “bring the future into the present” we can partner with you to develop steps to take today to improve that future and prepare for your goals.
This approach is certainly against the grain – more and more individuals chose (actively or by default) to put their fate in the hands of chance and hope for the best. Unfortunately hope is not an acceptable substitute for a plan! Because of continuing tax law changes, domestic budgetary issues, global economic changes and personal finance challenges, proactive planning will continue to be an important part of finding success for all of us.
We’ve continued to see a general pullback in equity markets around the world during the month of June. The correction in stocks that began in May is due to concerns about our economy, uncertainty over whether Congress will raise the debt ceiling, and fears about Greece defaulting on its debt. Bond indices have held up better and were flat to slightly positive for the month.
Provided below is a chart showing the performance of a variety of equity and bond indices.
Financial Market Indices
Year to Date
Last 12 Months
|S&P 500 (US stocks)||-1.7%||6.0%||30.7%|
|MSCI Developed EAFE (foreign stocks)||-1.2%||5.3%||30.9%|
|MSCI Emerging Mkt. Equities (emerging country stocks)||-1.9%||-0.4%||25.0%|
|Barclays Capital Aggregate Bond – Intermediate Term||-0.1%||2.7%||4.0%|
|Barclays Capital Municipal Bond Index||0.3%||4.4%||3.5%|
Discussions in our recent investment committee meeting centered on the following beliefs which weigh heavily in our asset allocation strategies:
- Although our economic recovery has softened, we think it is highly unlikely that we will experience a double-dip recession. This is due to the fact that the four most economically sensitive areas of our economy (auto sales, housing starts, inventories and real capital goods orders) are still near their recession lows. It would be hard for these areas to collapse again when they are still in the basement.
- US stock market valuations are attractive. The forward Price to Earnings Ratio of the S&P 500 is 12.3; whereas, the long-term average has been 16.5. The lower the number – the cheaper the market.
- At a yield of 3.1% on the 10 year US Treasury Note, government bonds are unattractive. We believe this is especially true given our government’s increased credit risk and likelihood that the next major move in interest rates will be up.
- The US dollar is likely to continue weakening over time versus the currencies of many emerging economies.
- Emerging market equities offer longer-term growth advantages when compared to the US or other developed markets. However, this is not a risk-less area and could still be subject to more volatility.
- Diversification is more important than ever as we are likely to see continued anemic economic growth from the US and Europe. The slower economic growth coupled with debt and budget problems could lead to increased volatility in the financial markets.
- Moderately higher inflation is now more of a risk than deflation. The US and Europe continue to follow easymoney fiscal policies and there is a supply/demand imbalance in many commodities being driven by emerging market growth.
We continue to advise following a disciplined and well-diversified investment strategy. Rest assured that we will continue to look for tactical investment opportunities as certain asset classes may reach extreme levels of overvaluation or undervaluation.
At Payne Wealth Partners we encourage our employees to academically challenge themselves and strive to obtain the highest levels of professional designations. With this principle in mind, Chad A. Sander, CFP® and Bethany Muensterman have enrolled as 2011 Level I Candidates in the Chartered Financial Analyst Program (CFA).
The CFA Program is a self-study, graduate-level program that requires candidates to learn and apply investment knowledge. It links theory and practice with real-world investment analysis, valuation, and portfolio management, and emphasizes the highest ethical and professional standards. The CFA designation is recognized globally as the gold standard investment credential. To earn the CFA designation, candidates must pass three rigorous exam levels (successful candidates report that they study at least 300 hours for each level), meet the work experience requirements of four years in the investment industry, sign a commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct, apply to a CFA Institute society, and become a member of CFA Institute. To give you a sense of the challenge Chad and Bethany have taken on, only one in five people who begin the program ultimately earn the right to use the designation.
We highly value the trust and confidence you have placed in our team. We’ll continue to work diligently to protect and plan your financial future in a constantly evolving world.