This past weekend I ran across a great article that all Retirement Plan sponsors should read. It is called: “Ten things DC plan sponsors need to do for '09”. Of course, all of these things should be done every year, but given the recent market fluctuations and economic uncertainty, 2009 will undoubtedly be a challenge for both Plan sponsors and participants. I would expect many more questions than usual from your employees, and they will probably focus on fees, and investment performance. So be prepared.....
26 January 2009
06 January 2009
No Place to Hide -- 2008
The S&P 500 has experienced its’ worst annual loss in history with a decline of 38.2% from the start of the year. Foreign markets, and especially emerging markets, fared even worse. (Note that most Hedge Funds also experienced double-digit losses in 2008). Investors have seen their retirement accounts decimated and are justifiably concerned. Even “balanced” accounts which are typically 60% equities and 40% bonds suffered their worst losses ever with declines in the range of 20% to 30%.
In a bear market for equities, normally bonds and bond-like securities tend to do quite well. Not just longer-term treasury securities, but investment grade corporate, munis, and even REITS (real estate investment trusts). The reason is that interest rates are usually being reduced to combat economic weakness and investment flows to those securities that are paying a higher rate of interest and have a greater perceived safety. Investors with a balanced portfolio then, in theory, can moderate the volatility and losses in their portfolio over any economic cycle. In 2008 this was not the case.
Looking forward the environment will most likely improve but at an uncertain pace. The vast majority of the price declines in stocks, bonds, and real estate are behind us, but a rapid rebound in many of these asset classes is doubtful. However, this does not mean there are not any outstanding opportunities in the current market. Corporate bonds, junk bonds, and municipal bonds all look very attractive at current levels. Stocks also have a wonderful longer-term outlook. The yield on stocks now exceeds the yield in government bonds. Stock earnings, however, could be a bit slow to recover dampening the short-term return on equities. While the year has been difficult and disappointing to many investors it is important to stay with a disciplined approach that recognizes the longer-term time horizons of investing. Let us all wish for a happier 2009.
In a bear market for equities, normally bonds and bond-like securities tend to do quite well. Not just longer-term treasury securities, but investment grade corporate, munis, and even REITS (real estate investment trusts). The reason is that interest rates are usually being reduced to combat economic weakness and investment flows to those securities that are paying a higher rate of interest and have a greater perceived safety. Investors with a balanced portfolio then, in theory, can moderate the volatility and losses in their portfolio over any economic cycle. In 2008 this was not the case.
Looking forward the environment will most likely improve but at an uncertain pace. The vast majority of the price declines in stocks, bonds, and real estate are behind us, but a rapid rebound in many of these asset classes is doubtful. However, this does not mean there are not any outstanding opportunities in the current market. Corporate bonds, junk bonds, and municipal bonds all look very attractive at current levels. Stocks also have a wonderful longer-term outlook. The yield on stocks now exceeds the yield in government bonds. Stock earnings, however, could be a bit slow to recover dampening the short-term return on equities. While the year has been difficult and disappointing to many investors it is important to stay with a disciplined approach that recognizes the longer-term time horizons of investing. Let us all wish for a happier 2009.
05 December 2008
What To Do Now? (or....I'll Just Wait Until Next Year)
For both our retirement plan and individual clients we are getting a lot of the same type of questions: "What should I do now?", and "Can we talk next year...?". Obviously as we get closer to the holidays work can become even more hectic (not to mention that pesky holiday shopping). It is important to remember, though, that the market does not take this time off. Historically, December, and early January, has been a strong month for stocks (the so-called "Santa Claus" rally), so it may not be wise to ignore your portfolio.
After the last few months gut-wrenching losses, many clients have inquired about switching to cash "until this works itself out". Well, I'm not even sure what "this" is, let alone when it will "work itself out". As I've written before, we always recommend sticking to a well-defined investment strategy. Yes, there will be times when it will be challenging, but in the long-run I believe this is the best course of action.
And who knows, maybe Santa Claus will come early this year, and stick around a little longer.... we can all hope, and with solid investment advice you can be well-positioned if it happens.
After the last few months gut-wrenching losses, many clients have inquired about switching to cash "until this works itself out". Well, I'm not even sure what "this" is, let alone when it will "work itself out". As I've written before, we always recommend sticking to a well-defined investment strategy. Yes, there will be times when it will be challenging, but in the long-run I believe this is the best course of action.
And who knows, maybe Santa Claus will come early this year, and stick around a little longer.... we can all hope, and with solid investment advice you can be well-positioned if it happens.
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