Wednesday, September 28, 2011

Public Awareness Campaign

What is Financial Planning? Who is qualified to provide Financial Planning? The answer varies within our industry. Unfortunately, it varies too much. Jeff's recent newsletter article touched on the requirements of what we believe to be the most important designation for a Financial Planner, the CERTIFIED FINANCIAL PLANNER™ certification. You may have seen the following public awareness commercial put together by the CERTIFIED FINANCIAL PLANNER™ board (that is, if you still watch commercials).

Let us know what you think of the commercial. It seems like the only thing missing is oncoming traffic...

Wednesday, September 21, 2011

Are Market Declines Normal?

There has been a lot of media attention about the decline in the stock market since July. Earlier this year, the S&P 500 peaked at 1363.61 on April 29. The low this year (so far) was on August 8 when the S&P 500 hit 1119.46 resulting in an intra-year decline of 17.9%. Many say this is reminiscent of 2008. Perhaps, it’s really just reminiscent of any other year. Nobody knows for sure.

The average intra-year decline (1980-2010) for the S&P 500 (excluding dividends) is 14.3%. In 1980, for example, the intra-year decline was 17%, but for the year the Index was up 26%. (We are not predicting that the market will be up for the year, just pointing out that intra-year declines are surprisingly common, even in good years.)

Click picture to enlarge.

Equity markets are volatile. The pain of a 10% drop is deeper than the joy of a 10% rise. We must maintain a long-term outlook. For more perspective see last week's blog about Market Behavior. If all else fails, a little humor may help:

Wednesday, September 14, 2011

Market Behavior

Investing in equities can be difficult. We invest for the long-term but live day to day. It always feels different when volatility and uncertainty take over. Anxious? A little perspective may help. Here are a few principles (and charts) to remember:

#1 – You don’t have to “outsmart” markets to be a successful investor. The following chart shows the average return and duration of bear (down) markets and bull (up) markets within Large US Stocks (S&P 500). Investors will always experience both (bear and bull) markets, but, in general, bull markets last longer and are more profound than bear markets. This creates a successful investment experience for the disciplined investor.

(Click the graphs to enlarge)

Further, this trend persists in Small US Stocks (Russell 2000)…

And Foreign Developed Markets (EAFE Index)…

#2 – You have to stay in your “seat” to be a successful investor. Markets move too fast and unpredictably. Unless you have a “crystal ball”, you should stay in your “seat” (invested). The following chart shows that $1,000 invested in Large US Stocks (S&P 500) in 1970 grew to $49,614 by December 31st 2010 (despite multiple bear markets). However, the same $1,000 only grew to $11,889 if monies were out of the market for the 25 best single days.

You would have to time it perfectly wrong to miss the best 25 days (unrealistic we know) but you get the point. Returns often come in quick surges and missing out can be devastating.

Patience and discipline are rewarded...

Tuesday, September 6, 2011


Pathways Advisory Group, Inc.
Michelle Carter, CFP®

Waiting… Patience… Delayed gratification…

These are concepts we discuss quite often in meetings.

Sometimes, you will hear us say we are looking out for the person you will be financially in 10, 20, or 30 years from now. Perhaps there is something exciting you wish to have, do, or buy *right now*, but doing so might jeopardize the security of the “future you”. In these situations, having a conversation is important, weighing the risks and the benefits to come to a conclusion or compromise. And sometimes the compromise is simply waiting.

Most of you practice these concepts daily, as you diligently invest money into your retirement plan. You choose to set aside a portion of your income to use at a later date, giving up something now for future benefits. What is exciting to me is to see this persistence rewarded as I watch many of my retired clients pursuing travel and other goals, or simply enjoying the security they have put in place for themselves.

Our patience can be tested quite strongly when we invest in the market. We watch our investments struggle during down times and wonder if we have the stamina to bypass the gratification that might come from pulling out of the turmoil, in return for the positive investment experience that is there when we take a long-term perspective. This is a difficult test for sure.

Waiting… Patience… Delayed gratification…

These are not just financial lessons. These are life’s lessons. We learned them from our parents or other people in our lives. We teach them to the next generation. And (many times) life teaches these lessons to us.

At the end of this month, my husband and I will finally hold our first child in our arms. Due to unexplained infertility, waiting for this day was a lesson in patience eight years in the making. Never have I grown so much as when I was forced to wait, taught to have patience and found my deepest desire delayed, with no idea how or if it would ever be achieved.

This experience has taught me about life, and I keep those lessons with me in everything I do. I know each and every person has had a similar life event that changed them for the better and taught them something invaluable they will carry with them forever.

Waiting… Patience… Delayed gratification…

The beauty of these concepts is, although they are everywhere and not always welcome, the reward at the end is always sweeter, simply because of the struggle it took to get there. This is true in many areas of life, whether it be health, family, career or, yes… even 401(k)s.

Everywhere in nature we are taught the lessons of patience and waiting. We want things a long time before we get them, and the fact that we wanted them a long time makes them all the more precious when they come. -JFS

I will be out of the office on Maternity Leave beginning sometime in late September and I look forward to returning approximately eight weeks later. David will be here in my absence to handle any urgent client issues, and I am reachable by phone if needed.