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The Good, The Bad, and The Ugly
For the second month in a row, the Conference
Board reported a
rise in the index of leading
economic indicators (LEI). January's LEI rose an
impressive 0.4% following a 0.2% rise in
December. These follow declines of 1.0% in
October and 0.7% in November. The
recession could ease in the coming months
according to the Board, possibly marking the
beginnings of a recovery even before
the government's stimulus package has had a
chance to kick in. Economists had been expecting
a flat reading for the month.
Of the index's 10 components, five were positive
and five negative.
The positive components included real money
supply, the interest rate spread, index of
consumer expectations, manufacturer's new orders
for non-defense capital goods, and
manufacturer's new orders for consumer godds and
materials.
The negative components
were unemployment insurance claims, building
permits, average weekly manufacturing hours,
stock prices, and the index of supplier
deliveries.
Read the
Full Report.
Misleading Market Comparisons
The recent decline in the Dow Jones Industrial
Average has been trumpeted again and again as a
return to levels last seen in 2002, suggesting
that owners of the 30 Dow stocks would have
realized a zero return over the past six years.
Not so! Such comparisons rely on the price
level only and ignore dividends, which are a
part of a stock's total return. The average
dividend level for the stocks of the Dow is
currently about 4.50% (Dividend
Yield for Dow Jones Ind. Avg. Stocks, Sorted by
Yield ...).
New Webinar Scheduled
We've scheduled another webinar for Tuesday,
March 3. We plan to address current
economic conditions and the outlook going
forward. If you're still wondering how we got
here or what the new government initiatives are
meant to accomplish, be sure to join us. Keep an
eye on your inbox for more details.
Media Matters
Since the middle of last year, Dave has been one
of the expert "hosts" for Boomer-Living's (www.boomer-living.com)
financial planning section. His latest article
is titled "Recession-Proofing
Your Life "
Volunteer Work
Elissa has just been appointed chair of the
grants committee of the Foundation for Financial
Planning, where she has served on the board of
directors since January of 2008. This is
arguably the Foundation's most important
committee as it has sole responsibility for
reviewing grant proposals and making
recommendations to the full board.
Dave, meanwhile, has just been appointed chair
of the Financial Planning Association's Research
Center Team. This team is charged with guiding
FPA's research efforts as well as assessing
research proposals from both academics and
practitioners.
Identity Theft and LifeLock
Just a reminder that we’ve posted an article on
our website ("Guarding
Against Identity Theft") on how to protect
yourself from identity theft and have
also negotiated a discount for you, your family
members and your friends to enroll in the
LifeLock® service.
We've posted a complete description of
the LifeLock system on our website (About
LifeLock®).
Although the many clients who have already taken
advantage of this offer reported that signing up
was easy, you should feel free to contact Marcia
by phone (1-800-772-1887) or email (marcia@yebu.com)
if you have any problems.
Use Promotion Code: YESKEBUIEEMP when you
enroll online, to obtain your discount.
How to Get Help
And don't forget that our updated client page (http://www.yebu.com/portal.htm)
offers a full list of who does what and who you
should contact for help with various issues.
Contact numbers and email links are
available from that page as well.
You can also find staff biographies and pictures
on the website (http://www.yebu.com/staff.htm)
if you're curious.
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What About Gold?
This is a question we've been getting quite a
bit lately, no doubt as a consequence of gold's
strong performance since October. The
shine might soon be lost, however, if history is
any guide. For while gold has been shown to be
more of a "crisis hedge" than an
"inflation-hedge" a research paper just
published by two Stanford economists shows that
the crisis protection is short-lived: those
buying gold one day after a "shock" lose money (Is
Gold a Hedge or a Safe Haven?).
The Times of London weighed in on Wednesday (Don't
be blinded by the allure of gold),
offering five reasons to be cautious:
1) Sentiment can turn against gold as quickly as
it turns in it's favor.
2) Gold has often failed in its role as safe
haven. Gold prices fell last October even as the
global financial system appeared near collapse.
3) Currency fluctuations can wipe out relative
gold returns. Gold rose 42% in pound sterling
last year but only 3% in dollar terms.
4) Gold and oil prices tend to move together,
but gold is recently up while oil is down,
suggesting that gold will fall or oil will rise
(and the trend in oil prices doesn't look
promising).
5) Gold doesn't pay an income.
When Passive is VERY Active
Advisors who reject market timing and similar
approaches to investing (such as technical
market analysis) are often lumped under the
heading of "passive investing" or "buy and
hold," which can make it sound like not much is
going on. The reality is quite different,
as we can attest to here at Yeske Buie, where
we've been a virtual beehive of activity for
many months now.
There are at least four dimensions along
which we strive to ensure the survivability and
success of portfolios:
1) Value strategy at the fund level. Although
the funds that we choose do not try to add value
by picking hot stocks, many of them are
nonetheless very active along other fronts. The
DFA value funds, for example, continually
monitor and reallocate fund holdings in order to
fully capture the benefits of owning value
stocks, which have been shown to offer the
highest returns over the long run.
2) Rebalancing strategy at the portfolio level.
We regularly monitor and rebalance client
portfolios back to their target allocations.
Through this rebalancing process, we capture the
information embedded in market movements so as
to ensure that the portfolio is always tilted
toward those sectors with the highest return
potential. Research has shown that such
disciplined rebalancing can add as much as 0.50%
to annual returns over the long run (Daryanani,
2005, 2007).
3) Controlling taxes. Where appropriate, we
harvest tax losses in client portfolios.
This helps to reduce taxes and thus spending
needs during a downturn, taking some of the
pressure off of depressed portfolios. It
also means that we can pursue the rebalancing
process just described without generating excess
taxable gains.
4) Managing withdrawals. For those who have
current spending needs, we implement our Safe
Withdrawal Rate framework. This is a
series of policies and decision rules that helps
to ensure that portfolio withdrawals are
sustainable over the long run. This framework
has been extensively tested and shown to be a
powerful predictor of success if diligently
applied.
So, while it's true that we may sometimes use
the phrase "stay the course," this does not by
any means translate into "sit on your hands."
Our approach is predicated upon diligently
monitoring portfolios and spending levels and
applying the best research available when
choosing funds, rebalancing asset classes,
harvesting losses, and managing the
sustainability of withdrawals.
Everything we do is evidence-based and grounded
in the best available research. In other
words, an expression of our commitment to
"Creative Strategies - Grounded Wisdom"SM
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