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Lauren's Blog

Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

2013: A Year in Review

For many, 2013 brought satisfying market returns, but upon reflection, and pondering what lies ahead, one would do well to recall a “tradition” among fortune cookie aficionados: To spice up your fortune add the words “… in the sack” to the end. Scintillating, perhaps, but really not such a bad idea as it reminds us to not take any prediction too seriously, especially one found inside a fortune cookie.

And if that can work for a fortune cookie, then how about a Wall Street pundit? Whenever one claims to “know” what is going to happen next, why don’t we append that prediction with “… or not” to remind us that nobody can read your investment fortune. For example:

  • The stock market is poised for a continued run in 2014 … or not.
  • Stocks are too hot. Brace yourself for an adjustment … or not.
  • Federal tapering will cause bond yields to fall … or not.
  • Home price growth is set to slow in the coming year … or not.

At any time, it is near impossible to predict whether or not it’s the right time to buy, sell or hold any investment. Rather than basing your decisions on pundits’ predictions which attempt to time the market, look to evidence from well-known economists and academicians such as Eugene F. Fama, a University of Chicago Professor and Dimensional Fund Advisors board member. Last year, Dr. Fama received the Nobel Prize in Economics for his groundbreaking work on the relationships between market risk and expected return. We apply those insights to cost-effectively expose your investments to market factors so expected long-term returns complement your financial goals. We also diversify your holdings – and stay diversified – to mitigate related market risks.

By devising a clear, evidence-based plan for achieving your personal goals, we eliminate the angst of trying to predict what 2014 has in store and focus instead on manageable factors. Yes, you may find our advice somewhat repetitive and not nearly as entertaining as “You will soon meet a tall, dark stranger,” but we believe that that advice still holds the most promise in helping achieve your own financial fortune.

The Year (and Quarter) in Review

It was a relatively quiet fourth quarter on Wall Street. Surprisingly, the day that many equities investors feared – the Federal Reserve’s announcement of tapering – turned out to be the quarter’s best trading day. Financial markets will be navigating unfamiliar terrain as the Fed begins to taper and considers still more…or not. The quarter’s biggest headlines came straight from the nation’s capital: “Federal Government Closed” and “Obamacare (fill in the blank).” Fears of another shutdown dissipated when the House and Senate arrived at a 2-year budget agreement in December.

Economic indicators show that the recovery continues to gain momentum.

  • The employment picture steadily improves and the unemployment rate remains at a 5-year low of 7%.
  • 4th quarter GDP growth beat expectations at 4.1% and the Purchasing Managers’ Index showed the 47th consecutive month of expansion.
  • At 1.2% inflation remained well below historical averages, allowing the Fed to begin QE tapering.
  • Despite some headwinds the housing market showed resilience; the Commerce Department said that November’s 23% jump in housing starts was almost 30% ahead of last year.
  • Retail sales showed a 2.6% improvement over last year despite heavy discounting and a shortened holiday shopping season.
  • Gold lost much of its luster, falling by nearly $500 an ounce over the course of the year.

On a Personal Note

The fourth quarter of 2013 has been very eventful and all in a good way. On December 21, 2013 Jamie married Jayson Martherus in a lovely ceremony at Little Corona Beach. Over the Christmas break, we spent a few days in Palm Desert with Jamie’s new family and Adam’s family. It was truly a special time. And, drum roll please, yours truly is a newly certified scuba diver (with a trip to Bali planned for October 2014). I’m looking forward to a wonderful 2014 and hope to help you plan something meaningful for you in the coming year.

Stay Optimistic and Stay the Course,

Lauren

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2013: A Year in Review

For many, 2013 brought satisfying market returns, but upon reflection, and pondering what lies ahead, one would do well to recall a “tradition” among fortune cookie aficionados: To spice up your fortune add the words “… in the sack” to the end. Scintillating, perhaps, but really not such a bad idea as it reminds us to not take any prediction too seriously, especially one found inside a fortune cookie.

And if that can work for a fortune cookie, then how about a Wall Street pundit? Whenever one claims to “know” what is going to happen next, why don’t we append that prediction with “… or not” to remind us that nobody can read your investment fortune. For example:

  • The stock market is poised for a continued run in 2014 … or not.
  • Stocks are too hot. Brace yourself for an adjustment … or not.
  • Federal tapering will cause bond yields to fall … or not.
  • Home price growth is set to slow in the coming year … or not.

At any time, it is near impossible to predict whether or not it’s the right time to buy, sell or hold any investment. Rather than basing your decisions on pundits’ predictions which attempt to time the market, look to evidence from well-known economists and academicians such as Eugene F. Fama, a University of Chicago Professor and Dimensional Fund Advisors board member. Last year, Dr. Fama received the Nobel Prize in Economics for his groundbreaking work on the relationships between market risk and expected return. We apply those insights to cost-effectively expose your investments to market factors so expected long-term returns complement your financial goals. We also diversify your holdings – and stay diversified – to mitigate related market risks.

By devising a clear, evidence-based plan for achieving your personal goals, we eliminate the angst of trying to predict what 2014 has in store and focus instead on manageable factors. Yes, you may find our advice somewhat repetitive and not nearly as entertaining as “You will soon meet a tall, dark stranger,” but we believe that that advice still holds the most promise in helping achieve your own financial fortune.

The Year (and Quarter) in Review

It was a relatively quiet fourth quarter on Wall Street. Surprisingly, the day that many equities investors feared – the Federal Reserve’s announcement of tapering – turned out to be the quarter’s best trading day. Financial markets will be navigating unfamiliar terrain as the Fed begins to taper and considers still more…or not. The quarter’s biggest headlines came straight from the nation’s capital: “Federal Government Closed” and “Obamacare (fill in the blank).” Fears of another shutdown dissipated when the House and Senate arrived at a 2-year budget agreement in December.

Economic indicators show that the recovery continues to gain momentum.

  • The employment picture steadily improves and the unemployment rate remains at a 5-year low of 7%.
  • 4th quarter GDP growth beat expectations at 4.1% and the Purchasing Managers’ Index showed the 47th consecutive month of expansion.
  • At 1.2% inflation remained well below historical averages, allowing the Fed to begin QE tapering.
  • Despite some headwinds the housing market showed resilience; the Commerce Department said that November’s 23% jump in housing starts was almost 30% ahead of last year.
  • Retail sales showed a 2.6% improvement over last year despite heavy discounting and a shortened holiday shopping season.
  • Gold lost much of its luster, falling by nearly $500 an ounce over the course of the year.

On a Personal Note

The fourth quarter of 2013 has been very eventful and all in a good way. On December 21, 2013 Jamie married Jayson Martherus in a lovely ceremony at Little Corona Beach. Over the Christmas break, we spent a few days in Palm Desert with Jamie’s new family and Adam’s family. It was truly a special time. And, drum roll please, yours truly is a newly certified scuba diver (with a trip to Bali planned for October 2014). I’m looking forward to a wonderful 2014 and hope to help you plan something meaningful for you in the coming year.

Stay Optimistic and Stay the Course,

Lauren

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Professor Fama’s Nobel Prize, Klein Financial Advisors and You

We are thrilled to share today’s news that University of Chicago Professor and Dimensional Fund Advisors board member Eugene F. Fama, has been named a co-recipient of the 2013 Nobel Prize in Economic Sciences, in recognition for his contributions to the “empirical analysis of asset prices.”

It’s about time we had some wonderful investment news to celebrate! It’s also about time that Professor Fama has been tapped to receive among the highest academic honors available. Dr. Fama’s groundbreaking work in capital market theory has unquestionably enhanced our ability to assist each of our clients in achieving their personal long-term investment goals – whether the contribution has been realized or unsung.

In short, much of our understanding on how to identify and practically harness the relationships between market risks and expected returns is grounded in Dr. Fama’s work, which began nearly a half-century ago in 1966, with the formation of the Efficient Market Hypothesis.

Dr. Fama has not rested there. You can see his ongoing contributions at Dimensional’s public Fama/French Forum. (We also recommend this fun, short video sharing Dr. Fama’s modest perspective on his life’s workto date. He compares his earliest work to “shooting fish in a barrel.” If only it were so easy!)

Nor has he worked in a vacuum. In his Nobel prize interview, Dr. Fama lauds his collaborators at the University of Chicago and elsewhere: “I couldn’t do what I did without the help of my professors at the time and colleagues since then and students since then.”

Which brings us to Dr. Fama’s co-recipients; fellow University of Chicago Professor Lars Peter Hansen and Yale University Professor Robert J. Shiller. For many on the inside of financial economic drama, the shared award comes with some bemusement, in that Dr. Shiller is often found at logger ends with Dr. Fama regarding the role that market efficiency plays in investors’ decisions. In a Bloomberg column, 1987 Nobel laureate Robert Solow said that naming professors Fama and Shiller as co-recipients is “like giving a prize to the Yankees and the Red Sox.”

As in any academic field, financial economists forever wrangle over points that may seem agonizingly granular to most of us, but that can still have significant impact on our daily lives – for good or for ill. In this case, the debate is approximately over whether overall market efficiency should lead us to patiently participate in the market throughout its volatile swings, or whether potentially predictable irrational investor behavior (bubbles) may justify trying to respond to shorter-term fluctuations.

In light of the collective evidence available from professors Fama, Shiller and others whose work we routinely track, we remain convinced that your best financial interests are served – and your carefully planned goals most likely achieved – by avoiding the friction involved in trying to profit from market irrationality. The practical hurdles continue to strike us as counterproductive in a long-term planning process.

Please let us know if we can explain our position further; we’re happy to do so at any time. In the meantime, as we celebrate Dr. Fama’s richly deserved reward for his contributions to our financial lives, we are delighted to be part of your life as well, helping you objectively sift through often-conflicting headlines related to financial economics, global news, and your own life transitions. We relish our role of helping you arrive at a disciplined strategy to carry you through toward your personal goals … come what may.

 

With your best interests at heart,

 

Lauren

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2013- A Third Quarter Review

 

A Hollywood blockbuster couldn’t have built up the suspense any better than Washington did in this past quarter. Will our government be back in business by the time you receive this letter (crafted in early October)? Will we raise the debt ceiling sufficiently to avoid a repeat of this shutdown showdown or will we merely scrape up against it? Where will interest rates go now that the Federal Reserve has reversed plans to wind down its bond buyback program and just how long will QE last now anyway?

 

As always, we don’t know how these plots will end. But as vexing as economic uncertainty is to our daily lives, there is ample historical evidence that richer, deeper events are driving your long-term wealth. For example, it is easy to overlook the fact that the S&P 500 Index remains up 17% for the year. Looking further back, this September marked the five-year anniversary of the start of the 2008 Great Recession. Morningstar’s recently published 2013 Third-Quarter Review noted how far we’ve come since: “(140% off March 2009 lows at the time of this writing, to be precise)” and “With the S&P 500 and the Dow once again eclipsing all-time highs and interest rates staying low for the longest stretch in 50 years …”

 

To widen our lens further, consider an article appearing in Forbes magazine by Dimensional Fund Advisors’ retired co-founder Rex Sinquefield, who observed another largely uncelebrated September milestone: the 40th anniversary of index-based (evidence-based/passive) investing. “When you think about it,” wrote Sinquefield, “the American dream of success is deeply rooted in the idea that free markets work. This is the underlying principal of the index fund.”

 

So, while widely publicized economic uncertainty may justifiably have you troubled, we encourage you to stick with our recommended approach to managing long-term wealth, as others have been doing before us for 40-plus years. Staying put may not garner as much media attention, but it may be the most patriotic “inaction” you can take.

 

The Quarter in Review

U.S.stocks rollercoastered in Q3, but the S&P ultimately gained 4.7% and celebrated another record close on September 18 (1,725.52). The Federal Reserve postponed tapering its stimulus efforts, a move cheered in financial markets worldwide. Global investors sighed with relief as diplomacy headed off a major geopolitical crisis in Syria and then sighed with frustration as bipartisan sparring threatened to shut down part of the U.S. government and threaten its ability to pay debt.

 

  • Contrary to speculation that the Federal Reserve would begin tapering its economic support, the Fed’s monetary policy committee postponed any reduction in its $85 million monthly bond purchases.
  • U.S.economic growth accelerated in the second quarter; the 2.5% annualized growth rate was more than double Q1’s 1.1%. Contributors were higher consumer spending, improved exports, larger business investments and more residential construction.
  • The unemployment rate fell to 7.3%, the lowest level since December 2008. This is not all good news; part of the decline was the result of roughly 1.4 million people leaving the labor force. (I wonder how much of the decline is due to the 10,000 baby boomers turning 65 each day?)
  • The housing market showed signs of being affected by higher mortgage rates.
  • After an 18-month recession – the longest in its 15-year history – the Eurozone’s economy finally saw some improvement. Angela Merkel’s reelection as the German Chancellor effectively reinforced continued support for weaker Eurozone members.

Market Overview

The S&P ended Q3 at 1681.55 and gained 4.7% for the quarter. The small-cap Russell 2000 reached all-time record levels in mid-September. As the Eurozone’s economy begins to rebound and China showed signs of manufacturing growth, developed and emerging markets gained. Bond markets suffered from Fed concerns and the 10-year U.S. Treasury yield neared 3%, but fell back slightly by quarter’s end, allowing bond prices to recover a bit. 

 

On a Personal Note

September 2013 marked the 10-year anniversary of Klein Financial Advisors, Inc. Serving as your wealth manager is both a vocation and an avocation. This profession has offered me so much; the privilege of serving clients I care deeply about, the gift of meaningful work, lifelong learning, deep understanding of the elements of financial success, being able to work side-by-side with Jamie… and so much more. Money means different things to different people, but simple money truths are universal; capital markets work, money grows exponentially, taxes and costs are friction, smart choices are in your control and what may be simple is not always easy.  We are honored to work with you.

 

 

With Your Best Interests at Heart,

 

Lauren

 

 

 

 

 

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2013 Quarter 2- A Quarter in Review

 

The second quarter’s numbers are finally in, and it’s abundantly clear from the data that the markets didn’t have quite the same sparkle as the first quarter figures had suggested. But given that the health of the U.S. economy is steadily improving, the disparity between the quarters tells us that the knee-jerk reaction of some investors continues to have more detrimental impact on portfolios than the inherent state of either the U.S. economy or its capital markets.  
 
Some analysts believe that Federal Reserve Chairman Ben Bernanke’s June 19thcommentary seemed to cause trading ripples far greater than the pebble-sized news we believe it represents. What Bernanke essentially said was if the U.S economy continues to recover, then the Fed may begin winding down its lowered-interest-rate support system, so that the economy can begin taking deeper breaths on its own. While a rate hike isn’t likely in the near future, many analysts do believe that the Fed is on the verge of reining in its existing asset purchase program sometime this quarter.  
 
In lieu of fixating on skittish market reactions to economic ambitions that might or might not be realized, did you catch Nik Wallenda of the Flying Wallendas recently becoming the first person to cross a branch of the Grand Canyon on a 1,500-foot high wire in a little more than 22 minutes? More than the market’s rash reactions to changeable (and even relatively predictable) economic indicators, Wallenda’s feat is an apt illustration of the personal goals you can achieve by facing external challenges with patient, practiced discipline.  
 
On that count, our role as your investment advisor is to help you apply global diversification to stabilize your portfolio against battering winds, use rebalancing strategies when warranted to keep you on course, and serve as your critical support team every step of the way. Just as Wallenda could not have made it without similar elements in place, we believe you stand the best chance of achieving your financial goals by having Klein Financial Advisors at your side, providing the evidence-based strategies, time-tested logistics and emotional stamina required to reach your destination. If you have any questions or new initiatives we can help you address this summer, please let us know.  
 

The Quarter in Review

 
Given the global growth slowdown, investors had held out hope that the continuation of the Federal Reserve’s ultra-loose monetary policy was pretty much a given, but they were in for a rude awakening. While slowing growth has resulted in many of the world’s key central banks now standing ready to flood their respective economies with more easy cash, the Fed isn’t one of them It seems that a little clarity (from the Fed) can go a long way toward undermining both market sentiment and speculation. 
  • The U.S. economy grew more slowly during the first quarter than previously thought, but the 1.8% increase in Q1 gross domestic products was substantially better than the previous quarter’s 0.4%.
  • In and landmark ruling that struck down the Defense of Marriage Act, the U.S. Supreme court paved the way for same sex couples to claim the same federal tax and other benefits as other married couples.
  • The housing market’s recovery accelerated in Q2 despite higher mortgage rates.
  • According the Bureau of Labor Statistics, annual consumer inflation was a moderate 1.4% as of May.
  • The European Union continued to be mired in recession. Eurozone unemployment hit a record 12.2% and the economy shrank 0.2% in the first quarter. China’s growth rate continued to show signs of slowing.

 

Market Overview

Ironically, good news for the economy translated into bad news for investors who had enjoyed the benefits that the Fed’s enduring QE had brought. Equities appeared to be unstoppable and the S&P powered to an all-time high. As investors began to anticipate a future with higher interest rates, equities and bonds struggled in June though U.S. stocks managed to eke out a positive quarter. Despite modest volatility, the dollar ended the quarter roughly where it began against a basket of six foreign currencies and that stronger dollar helped to prop up oil prices despite Middle East woes.

 

On a Personal Note

Were there really more Fourth of July fireworks displays this year? Or did the sky just appear brighter, seen through the lens of optimism I feel about the economy and the future? I know it’s officially been a bit more than a week, but so far I’m enjoying this summer.  I’ve joined Weight Watchers and am enjoying a sense of control and confidence about my health.  My 2013 vacation plans have scaled back to a long weekend in Idyllwild and a NY trip in the fall because my travel budget has been diverted to a home redecorating project. By the end of July, my home will fit for guests; family and friends are welcome!

 

Stay Optimistic and Stay the Course,

Lauren

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Disclosure

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >