Market Update and Strategy
An unusual report was issued last week; the credit-worthiness of the United States was put on ‘alert’ by Standard and Poor’s, a highly regarded rating agency. They issued a negative outlook, a downgrade from the ‘stable’ outlook then prevailing. The AAA rating was affirmed, but the longer term outlook change could result in losing that rank unless we get our fiscal house in order. Simple remedy here; spend less than you take in Uncle Sam.
Besides the immediate reaction down last Monday, the market shrugged it off and gained about 300 points on the Dow the last 3 days leading up to Good Friday, showing the resilience of the stock market in the face of even this type of bad news.
The stock market put another quarter of positive gains in the history column in March, rising about 6-7% or so in the popular averages in the three months; Dow, SP500 and Nasdaq. It was the third consecutive quarterly gain dating back to the September period last year, and the 7th rise in 8 quarters dating back to June 2009. As April will close later this week, equity prices are up another 1.5 to two percent or so. But the first quarter wasn’t all roses and a steady plodding up; the stock market sank 7% into mid-March before recovering that much. Wall Street is ignoring the pain we see on Main Street - for now.
During the quarter, we continued on the theme of resources and sector investing; Agricultural (grains-timber), metals (gold and silver), Internet, health care, and energy themes led our selections. The markets behind these investments did not all continue uninterrupted all three months. Oil and the precious metals sold off on one occasion, and we traded them once or more. Energy (oil, gasoline, and natural gas), Industrials (Cotton), and Coffee are offering up nice returns more so than the average stock index referenced above. Ditto silver which is ahead about 50% this year! Our premise is that the commodities will hold up better or offset the stock market averages in the next down market, so that should offer us some protection relative to the blue chip equities.
You’ve no doubt noticed grocery and gas prices rising, but you have to eat n drive. One idea: you can hedge some of that energy and commodity inflation you’re experiencing by owning exchange-traded funds that invest in gasoline, food, and even cotton, which has doubled since last August. They trade just like stocks on the exchanges from 9:30 am to 4:00 pm daily. Call me for details on how to get started.
We use a fairly simple approach to spread our money around in specific amounts to invest in what’s working, shunning individual stocks which are more volatile and subject to earnings and specific news risk day to day. Beating the USA market indexes mentioned above, the following had and continue to warrant our capital: Country funds such as Brazil, Canada and Australia, natural gas, and computer software. What worked in late 2010 isn’t working now. Some country funds have hit some air pockets, particularly in Asia and the South American bourses.
Often just one or two of your investments in 10 can really make a difference. I offer that observation from Pareto’s principle, stating that 80% of your outcomes will most likely be achieved by 20% of your selections. Vilfredo Pareto was a 19th century Italian economist who created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. Pareto's Principle or Pareto's Law as it is sometimes called can be an effective tool to help you manage your life effectively.
Interest rates are holding rather steady as the slower economic growth and the Federal Reserve are stubborn to raise them during this weak recovery. We do use the Income ETF’s when we hold sizable cash balances not invested in equity ETF’s. These funds pay 3-5% in interest per year, and pay dividends monthly. When we don’t own the bond funds, and sit in cash, our return is almost zero percent. We feel it’s safer to avoid bonds when they are falling in price. This will crimp or lessen your income however.
My next post will focus on income, how to achieve it and various options to consider when you enter retirement.
Until then, be well.
Barry Unterbrink
Chartered Retirement Planning Counselor
An unusual report was issued last week; the credit-worthiness of the United States was put on ‘alert’ by Standard and Poor’s, a highly regarded rating agency. They issued a negative outlook, a downgrade from the ‘stable’ outlook then prevailing. The AAA rating was affirmed, but the longer term outlook change could result in losing that rank unless we get our fiscal house in order. Simple remedy here; spend less than you take in Uncle Sam.
Besides the immediate reaction down last Monday, the market shrugged it off and gained about 300 points on the Dow the last 3 days leading up to Good Friday, showing the resilience of the stock market in the face of even this type of bad news.
The stock market put another quarter of positive gains in the history column in March, rising about 6-7% or so in the popular averages in the three months; Dow, SP500 and Nasdaq. It was the third consecutive quarterly gain dating back to the September period last year, and the 7th rise in 8 quarters dating back to June 2009. As April will close later this week, equity prices are up another 1.5 to two percent or so. But the first quarter wasn’t all roses and a steady plodding up; the stock market sank 7% into mid-March before recovering that much. Wall Street is ignoring the pain we see on Main Street - for now.
During the quarter, we continued on the theme of resources and sector investing; Agricultural (grains-timber), metals (gold and silver), Internet, health care, and energy themes led our selections. The markets behind these investments did not all continue uninterrupted all three months. Oil and the precious metals sold off on one occasion, and we traded them once or more. Energy (oil, gasoline, and natural gas), Industrials (Cotton), and Coffee are offering up nice returns more so than the average stock index referenced above. Ditto silver which is ahead about 50% this year! Our premise is that the commodities will hold up better or offset the stock market averages in the next down market, so that should offer us some protection relative to the blue chip equities.
You’ve no doubt noticed grocery and gas prices rising, but you have to eat n drive. One idea: you can hedge some of that energy and commodity inflation you’re experiencing by owning exchange-traded funds that invest in gasoline, food, and even cotton, which has doubled since last August. They trade just like stocks on the exchanges from 9:30 am to 4:00 pm daily. Call me for details on how to get started.
We use a fairly simple approach to spread our money around in specific amounts to invest in what’s working, shunning individual stocks which are more volatile and subject to earnings and specific news risk day to day. Beating the USA market indexes mentioned above, the following had and continue to warrant our capital: Country funds such as Brazil, Canada and Australia, natural gas, and computer software. What worked in late 2010 isn’t working now. Some country funds have hit some air pockets, particularly in Asia and the South American bourses.
Often just one or two of your investments in 10 can really make a difference. I offer that observation from Pareto’s principle, stating that 80% of your outcomes will most likely be achieved by 20% of your selections. Vilfredo Pareto was a 19th century Italian economist who created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. Pareto's Principle or Pareto's Law as it is sometimes called can be an effective tool to help you manage your life effectively.
Interest rates are holding rather steady as the slower economic growth and the Federal Reserve are stubborn to raise them during this weak recovery. We do use the Income ETF’s when we hold sizable cash balances not invested in equity ETF’s. These funds pay 3-5% in interest per year, and pay dividends monthly. When we don’t own the bond funds, and sit in cash, our return is almost zero percent. We feel it’s safer to avoid bonds when they are falling in price. This will crimp or lessen your income however.
My next post will focus on income, how to achieve it and various options to consider when you enter retirement.
Until then, be well.
Barry Unterbrink
Chartered Retirement Planning Counselor
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