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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.

2012 A Third Quarter Review

 


As Election Day nears, we have been fielding more and more questions on whether, when and how to make related wealth management changes in preparation for 2013 and beyond. To review some of the common concerns:
 

 

  • Elections– Given the stark differences between Obama and Romney, as well as the impact that shifting congressional seats might have on the impending fiscal cliff, this year’s November 6 Election Day promises to be, in technical terms, a real doozy.

 

  • Fiscal Cliff – Following the elections, a lame-duck Congress may yet pass legislation to minimize taxes and spending cuts otherwise set to occur. Or not. Either way, the outcome has varying, potentially significant ramifications for your investment, tax and estate plans. We’ve been considering the impact of these with our clients will continue to do so.

 

  • Economic Tinkering– All of this is set against the backdrop of the Federal Reserve’s recent third quantitative easing. Dubbed “QE3,” the announcement has left even seasoned economists (let alone the public) debating the expected impact on the economy and inflation.

 

Suffice it to say, financial stakes seem especially high this fall. The theme we suggest for investors is two-toned; uncertainty countered by patience.
 

 

Uncertainty is nothing new in the world of investing. In fact, this is a good time to remind ourselves that uncertainty is a key component in capital market returns. If there were never any market risk, there would be no expected premium for investing in stocks and other risky investments. We recommend that you take appropriate risk based on your individual ability, willingness and need to seek additional returns.
 

 

But patience can temper uncertainty in two-part harmony. The combination is best played in the form of your long-term commitment to the globally diversified portfolio that we helped you plan and are helping you manage according to your personal goals.
 

 

Our Focus

 


Advisor-guided portfolio management is all well and good – and important. But your wealth is more than just your money. It’s the richness enjoyed in your life; your career, leisure time, education, retirement and legacy. It is here where we hope to be of particular value, especially where global events add to the already daunting tasks of risk, tax and estate planning. Among our key roles is to provide ongoing information, counsel and specialized expertise – detailed guidance based on a deep understanding of your unique opportunities and challenges – so you can accomplish your dreams and goals for reasons that are important to you. We’re in this together.
 

 

The Quarter in Brief

 


While fundamentals may not have supported a rally in Q3 2012, the policy decisions of central banks certainly did. The Federal Reserve launched its third round of easing in the past four years and the European Central Bank also embarked on a new stimulus effort. Wall Street seemed to put concerns about Europe and China and job growth on the back burner. The real estate market – already looking better – got a shot in the arm from the Fed’s pledge to keep mortgage rates low. While economic growth stills seems lethargic, the market indicated confidence in the economy.
 
  • In mid-September the Federal Reserve made a pivotal economic move. It announced a third round of bond buying, the long-awaited QE3. The Fed will continue to buy mortgages until real estate, the job market and consumer spending are sufficiently improved; risking inflation in favor of stimulating growth.

·The European Central Bank announced that it would make “unlimited” sovereign bond purchased to address the debt burdens of Spain, Italy and other beleaguered EU nations through the new Outright Monetary Transactions program.

 

Market Overview

 


Q3 2012 was the best third quarter for the S&P since Q3 2010. Global markets rallied in response to European Central Bank‘s vow to “do what it takes” to save the Euro and avoid a default by Spain or Italy. The MSCI Developed and Emerging Markets composites gained 6.1% and 7.0% respectively. Bond prices responded favorably to the Federal Reserve’s pledge to keep interest rates at 0% to .25% into mid-2015.

 

Market Statistics

 

Q3 2012

YTD

Last 12 Months

S&P 500 Index

5.8%

14.6%

27.3%

Russell 2000 Index

4.9%

13.0%

30.0%

US Aggregate Bond Index

1.8%

4.5%

6.1%

MSCI EAFE Developed Markets

6.1%

7.0%

10.0%

MSCI Emerging Markets

7.0%

9.4%

13.9%

 

 

 

On a Personal Note

 


Lake Tahoeis wonderful during Indian summer. My bridge group friends and I went there for a long weekend of hiking, biking, eating and even a little bridge. Being active and doing out-of-doors activities (with friends) reminded me how much I enjoy those things. So, I’m promising publically, to you, that I am committing to getting fit…I joined a gym, hired a trainer…and I am looking forward to you seeing less of me. Jamie is too…she just signed up for Cross Fit to prepare for her December trip to Costa Rica.
 

 

 

Lauren
 
 

 

P.S. Planning Ahead: The final quarter of 2012 is upon us. We will be contacting you with our “2012 Last Chance Financial Planning checklist.” Look for it in your email next week. 

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Outlook and Commentary - 2012: The Second Quarter

Imagine a world in which the laws of physics go topsy-turvy. What goes down…might go up.

 
Welcome to planet Earth, at least in terms of investing, where many of life’s truisms must be reconsidered, if not entirely ignored. Take Europe, for example. The news out of Greece continues to feel like an alternate reality version of Monty Hall’s “Let’s Make A Deal,” except behind Doors Number 1, 2 or 3 are various combinations of austerity, default and bailout, and regardless of choice the “winner” gets “zonked.”. There’s also the disquieting threat that potentially rampant inflation, private-sector losses, bank failures and similar repercussions may reverberate across Europe and beyond.
 
So it’s certainly no surprise if the current geopolitics kick our most basic fight-or-flight instinct into overdrive, tempting us to pile up in gold or cash – or arks – in a rising flood of doubt. As a recent Dimensional Fund Advisors paper observes, “Events in the Eurozone, particularly Greece…have been the overwhelming focus of investors worldwide in recent months.” This is not our focus, neither should it be yours.
 

Our Focus

Our focus is you: living the best life as you were meant to live it.


What should be your focus? We remain convinced that this is another of those times when relying on basic instincts is more likely to hurt than help a wisely managed personal wealth strategy. For those who have been with us for a while, this may sound repetitive. I hope so. Among our most important roles as your advisor is to remind you of these evidence-based truisms for steadfast investing. We deliberately sound the drumbeat that you should home in on, should you ever find the financial forest darkening around you.


The Quarter in Brief
The 2nd quarter of 2012 was filled with major news items – the European Union’s struggle to bail out banks and governments while trying to stave off a Greek exit from the euro, the U.S. Supreme Court’s approval of the substantive elements of the Affordable Care Act, the Facebook IPO, a drop in oil and retail gas prices and growing concerns about a softening of the U.S. recovery. Here’s a look into some of the quarter’s headlines:
 
· At the start of 2012, a dozen European nations had slipped into recession, including Great Britain, Spain, Italy, Ireland and the Netherlands. The E.U. jobless rate hit a Euro-era high of 11.1% following a slowdown in global manufacturing and government mandated austerity programs.
 
· In an effort to maintain the European Economic Union, Eurozone leaders agreed that the European Central Bank should oversee banks in all 17 Eurozone countries with details to be finalized by year-end.
 
· The U.S. Supreme Court, in a 5-4 vote, ruled the Patient Protection and Affordable Health Care Act to be constitutional under Congress’s power to tax and spend. The real win, according to observers, was for Chief Justice John Roberts who ruled with restraint.
 
· Good news in the all-important housing market; the National Association of Realtors said existing home sales were 9.6% better than a year ago, with prices up 7.9% and the inventory of unsold properties down to 6.6% - a decline of 20.4% versus a year ago.
 
· New car sales are up from a year ago; GM gained 16%, Ford was up 7%, Chrysler 42% and Nissan up 28%.
 
· Facebook’s IPO, after much too much hype, fizzled as both JP Morgan Chase (the lead underwriter) and NASDAQ fumbled the debut; it has yet to meet its IPO price of $38 per share.
 

 

Market Overview

A strong finish in June helped ease some of the difficulties earlier in the quarter. In the U.S., the S&P and Russell Index were down for the quarter but remained up for the year. Uncertainty over the Eurozone’s future has affected markets around the world. The MSCI Developed and Emerging Markets composites lost 8.4% and 10.4% respectively. Treasury yields hit a historic low in June, driving up bond prices again.
 

Market Statistics

 

 

Q2 2012

YTD

Last 12 Months

S&P 500 Index

-3.3%

8.3%

3.1%

Russell 2000 Index

-3.8%

7.8%

-3.5%

US Aggregate Bond Index

2.1%

2.6%

7.7%

MSCI EAFE Developed Markets

-8.4%

0.8%

-16.7%

MSCI Emerging Markets

-10.4%

2.3%

-18.2%

 

On a Personal Note

Things I Appreciate. (In a bit of a send-up to Nora Ephron who died late last month); The Fourth of July for the fireworks and hot dogs as much as for its historical significance. My son Adam and his family who just moved back to California and are now 72 miles down the 405 because I now have them in my life. Jamie because she works tirelessly with me and for you. The financial markets and the global economy for the riches they have and will continue to bestow upon all us who believe in freedom and capitalism. And I my valued clients for trusting me with your money (which is really more than just money) and sharing my optimism and confidence for continued prosperity.
 
 
 

Stay Optimistic and Stay the Course,


Lauren

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Perennial Market Lessons

If you’re feeling a touch of spring fever, I hope you’re using it to enjoy your favorite outdoor activities rather than focusing too much on the market’s ups and downs. That’s what I’m here for. Here are some of my favorite highlights from some recently blossomed analyses, so you can quickly reap what matters and return to your own interests.

Lessons From DALBAR’s 2012 QAIB

For 18 years, the independent financial rating company DALBAR, Inc. has published its annual “Quantitative Analysis of Investor Behavior” (QAIB), comparing equity fund returns with equity fund investors’ returns. Or, what investors could have earned versus what they actually did earn after engaging in counterproductive trades.

I say “counterproductive,” because if investors’ trading activities had been otherwise, we’d expect to see their returns beating those available from simply sitting tight in the markets of their choice. DALBAR’s 2012 QAIB reconfirms that’s not so, reporting (for yet another year): “Equity mutual fund investors gave up on the markets shortly before the year-end recovery and suffered a loss of 5.73%, compared to a 2.12% gain for the S&P 500.”

Lauren’s Lesson Learned: There’s still no point in trying to outsmart the market.

Lessons From Standard & Poor’s SPIVA Scorecard

Celebrating its 10th anniversary, the Standard & Poor’s “S&P Indices Versus Active Funds” (SPIVA) Scorecard bills itself as “the de facto scorekeeper of the active versus passive debate.” Its recent year-end data continues to sing in two-part harmony with the QAIB, revealing that most active funds in the U.S. and around the globe trailed their benchmarks (except international small-cap value in 2011). SPIVA and QAIB alike substantiate the wisdom of avoiding the temptation to chase market returns based on past performance.

Lauren’s Lesson Learned:Remain invested in low-cost funds that reliably implement the science of capital markets. It makes it easier to stick to your own, portfolio-wide plan.

Lessons From 2012 (So Far)

As touched on in my last blog, the first quarter represented largely good news for investors. Despite sleepy starting-gate predictions, nearly every corner of the market stepped lively. The Wall Street Journalreported that U.S. stocks had their strongest annual start in a decade; stock markets “from Tokyo to Mumbai and Frankfurt all posted their strongest quarterly gains in several years.”

Of course, we don’t know what the future holds. So, celebrate the upturn while it lasts. But do heed our final reminder …

Lauren’s Lesson Learned:Since you never can tell what the market is going to do next, take from it only the risk and expected reward you need to pursue your carefully constructed plan. Disregard the vast majority of the rest: the highs, the lows and the myriad “nobody knows.” Go outdoors and play.

Lauren

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Outlook and Commentary - 2012: The First Quarter

As an investor, are you encouraged by the markets’ recent rise? Is your willingness to take on riskier assets; i.e. stocks and high yielding bonds, increasing? Are you finally willing to get your money off the sidelines and “back into the market?” Are you wondering if I’ve gone off the deep end by even asking these questions?

I haven’t, and my point is this: Now, more than ever, is an excellent time to reinforce the value of a disciplined investment plan that avoids the cycle of human emotions. As our client, you know what we’ve been saying all along:

  • Forget about trying to forecast short term market moves.
  • Rely on our expertise in the science of capital markets to form a sensible investment plan aligned with your personal goals and the markets’ long-term risks and expected rewards.
  • We make and manage a well-structured portfolio to reflect yourplan.
  • And we help you stick with it.

So, enjoy the gravity defying quarters when they show up, but remember that in investing, as in life, the best path to success is a carefully constructed and executed plan.

 


The Quarter in Brief

In the first quarter of 2012 investors apparently remained optimistic despite lingering economic concerns; a rise in gas prices, relentless ambiguity in the real estate market, the recession in Europe and relatively uninspiring corporate earnings in the US. Here are a few of the more notable economic events of the 1stquarter:

  • Job growth in the U.S. continued to show marked improvement. The unemployment rate, which dipped to 8.3% in January, stayed at that level throughout the 1stquarter.
  • President Obama presented the 2013 budget to Congress. The proposal included a “Buffett Rule” that would set taxes at 30% for Americans making more that $1 million, taxing dividends as ordinary income and reintroducing limitations on itemized deductions. It also includes provisions to keep the estate exemption at $3.5 million but resetting the estate tax to 45%.
  • Eurozone finance ministers continued to work on arrangements for a second rescue package for Greece and two cash infusions from the European Central Bank helped provide much-needed liquidity for the EU’s commercial banks. These measures gave the global stock markets a reason to rally, despite the new-found consensus that much of Europe is now in a recession, or at least moving into one.
  • In Asia, the Chinese government lowered its target for GDP growth, projecting 7.5% in 2012 (versus 8.0% in 2011). Analysts expect that Beijing will quicken the pace of both monetary and fiscal policy measures to ensure that a “hard landing” is avoided.

 

 


Market Overview

The opening quarter of 2012 was the best 1stquarter for U.S. equities in nearly 14 years. Domestic stock indices advanced; 12.0% for the S&P 500 and +12.1% for the smaller company Russell 2000. Around the world, stock indexes recovered much of the declines from the previous years; developed markets rose 10.0% and Emerging Markets gained 13.6%. The Federal Reserve’s commitment to enduring ultra low interest rates helped to keep treasury yields low and bond prices steady.


Market Statistics
 

 

Q1

2012

LAST 12 MO

S&P 500 Index

12.0%

6.2%

Russell 2000 Index

12.1%

-1.6%

US Aggregate Bond Index

0.5%

7.9%

MSCI EAFE Developed Markets

10.0%

-8.8%

MSCI Emerging Markets

13.6%

-11.1%

 

 

 

 


Our Focus

There is no one-size-fits-all investment portfolio for everyone, but there is the right one for you. Understanding the basic tenets of investment success, our focus has been, and will continue to be, your lifetime financial plan and your personal financial success. 

If your personal circumstances have changed, please call us to schedule a meeting. Or if you feel very anxious, or even overconfident, about your investment strategy in the face of the current volatility, please be sure to discuss your concerns with us. There is no need to be hesitant or embarrassed about it – after all, it is your money and it is better to act now than to react at the next downdraft.

 


On A Personal Note

Ah, spring. Being mindfully aware that life is short, I visited my NY-based family for the holidays and enjoyed the beauty of spring in an area with realwinters. In Westchester County, I saw forsythias, cherry blossoms and daffodils. In NYC on Easter Sunday, I found myself, serendipitously, in front of St. Patrick’s Cathedral in the middle of the “Easter Parade” (and learned that it’s not a real parade!). I hope that you were able to celebrate this time of renewal and rebirth in a way that was special to you. 

Stay Confident and Stay the Course,

Lauren

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Soul-Searching on Wall Street

Soul-Searching on Wall Street
March 28, 2012

When the trappings of Wall Street tempt even our most venerable financial institutions to stray from their roots (as covered in my last blog posting),is there anything that you and I can do about it? At least as far as your personal investments are involved, I believe the answer is yes.

It starts with an understanding that is at once both basic and far-reaching. Perhaps Yale University’s Chief Investment Officer David Swensen encapsulated it well when reflecting on his own earlier career: “I had a great time on Wall Street, but it didn’t satisfy my soul.”[1]

This simple statement says a lot about how to go about achieving our own, soul-satisfying investment experiences. We -- you and I alike -- must bridge that disconnect between our money and what we’re actually trying to do with it.

The end goal isn’t (or at least shouldn’t be) merely to amass piles of money. It’s to form and adhere to a plan that offers you the best chance for achieving what you most want out of your life, while avoiding too many painful setbacks along the way. If you look at investing through this lens, it clarifies how we can view your wealth management in the same, best light:

Begin at the beginning: build a plan

I guide my clients’ investment activities first and foremost by a mutually formed plan that defines their unique financial goals and describes a sensible process for achieving them. Otherwise, what else can you rely on besides blind luck to find your way (and how reliable is that)?

Ensure that your goals drive the process

Our plan is in the form of a written Investment Policy Statement that the client and I both have signed, and that we revisit periodically, to ensure it continues to reflect their evolving circumstances. By sticking with this approach, you’re investing according to your own goals, rather than the whims of an ever-fickle market.

Find a fiduciary

As described in my last blog “What the World Needs Now,” about Goldman Sachs’ dirty laundry, a non-fiduciary relationship allows transactional-focused financial intermediaries such as brokers to engage in acts that conflict with your best interests … and yet are still perfectly legal. In contrast, our Registered Investment Advisor firm is legally obligated to form a fiduciary relationship with you, which means we can only act in your highest financial interests in managing your wealth.

Again, if someone is resolved to break the law, then a written agreement won’t stop them. But it’s beyond me why anyone would open themselves to the potential for being legallyripped off (in the form of unnecessarily higher costs or less-appropriate investments), when it’s is so readily prevented by ensuring your advisor is a fiduciary.

Talk the talk

A plan is a great start, but, ultimately, it’s only as good as your ability to stick with it. That’s why one of my key roles as a fiduciary advisor, is not only to help people form their plans, but also to serve as their constant ally in adherence along the way. The goal is to consistently encourage sensible investment activities and warn against the temptations to stray (such as panic-selling when the markets turn bearish, or chasing hot streaks when the market’s on a tear).

Walk the walk

Last but certainly not least, I’ve established my business and service offerings to complement rather than conflict with all of the above. Some of the characteristics to look for here include:

  • Transparent, fee-only arrangements.Greg Smith’s Goldman Sachs article illustrated all too clearly the conflicts of interest that can arise when your “advisor” is operating in an environment in which portions of his or her income are in the form of often undisclosed commissions and similar incentives coming from outside sources.
  • Arm’s length custody. We hold clients’ assets with a separate custodian, who sends regular, independent reports directly to them. That way, they can objectively substantiate our advisor activities on their behalf.
  • Passive management. Easily a topic for another blog, but the recommended investment solutions within your portfolio should be optimized to help you achieve your personal goals. Briefly, this translates to our using funds that are “passively” managed to capture available, long-term market risk factor premiums as effectively and efficiently as possible. A passive strategy helps you avoid the costs and inconsistencies found in attempting to outfox the market through “active” predictions. The market as a collective, highly informed entity is pretty tough (and expensive) to trick.

So, take heart. While we can’t necessarily account for the denizens of Wall Street, there’s a lot we can do to account for our own assets, without having to sell our souls to anyone.

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Index

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Newport Beach, CA 92660
Phone: 949-477-4990
Fax: 714-464-4481
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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 >