January 7, 2008
Dear Clients and Friends:
Remember I had warned you we were overdue for a “Correction”? A Correction is when the stock market drops 10% or more. (A Bear Market is when the market drops 20% or more.) Well, we had our 2007 Correction. It lasted for exactly – one day! Actually, it was even less than that. The market closed at 1 PM Eastern Time on November 26th, down 10% from its high, and the next morning all the indexes started to climb and that was the end of the Correction, at least for 2007. From there the S&P 500*, which is in many ways the best index for the US stock market, ended up for the year. Not much – 3.5% (excluding dividends), but up nevertheless, up for the 5th year in a row.
However, there is not just one stock market. According to the Wall Street Journal, for 7 years smaller companies have outperformed large companies, and for 7 years “value” stocks have outperformed “growth” stocks, yet in 2007 large-growth stocks drove the overall market averages as value and small actually lost money for the year. The experts, relying upon past trends, are predicting that large growth companies will outperform in 2008 and perhaps for several more years, especially those with significant international profits. Yet academic research points to the conclusion that small and value companies will outperform over time, but not all the time, and generally small/value will carry less downside risk. I have been instructed to remind you that past performance is not indicative of future results.
Another pattern upon which these experts are relying is that the stock market has gone up for 11 of the last 12 election years. The exception is worth noting – the Year 2000!
My belief is that the past is a guide to the future, not a predictor. I think 2008 could look more like 2000 than the other 11 out of 12 election years, but then, I could well be wrong. And, I will submit, it does not make any difference. Your investment strategy should be based upon your particular situation with a mind toward the long-term trends. Having done that, we then need to stay patient and disciplined to let the markets “do their thing” and expect that our strategy will deliver successful long-term results.
Developing a plan is one thing, implementing it is another. We have multiple investment strategies available to you. They include:
1. Passive Investments. Academic research has demonstrated that passive management has historically outperformed the majority of actively managed funds.
2. Active Management. We have three different ways to engage in active investment management.
a. Institutional money managers are available, such as the Russell Company, SEI, and other elite private money managers.
b. Commonwealth has developed an outstanding research department with model portfolios available through their Preferred Portfolio Service (PPS) Program.
c. As an investment adviser representative of Commonwealth Financial Network, I am able to develop a customized investment strategy designed to meet your specific goals, needs and concerns.
3. Socially responsible investing. We can offer a wide range of investment managers and strategies for this niche.
4. Alternative investments. Alternative investments should be viewed as “add-ons” and should be used only for diversification purposes to complete an otherwise well-rounded portfolio.
If you are happy with your investment results and current plan, then we should stay the course. If anything I have mentioned here appeals to you, please contact me so we can see if a change in strategy is appropriate for you.
Finally, I would like to review the status of Advanced Wealth Management.
I hope to remain active in the business for at least 20 more years. My health is excellent and I remain physically active. Dorothy and I walked extensively during our Italian trip, I played touch football with college kids on Thanksgiving Day, and Ted and I backpacked into the high Sierras in August. It was also an active and interesting year professionally. In February I gave a two-hour presentation to over 200 Northwest financial planners on “Investing for Income in Retirement,” and spoke to a smaller group in Eugene a few months later. For the second time I was invited to give a speech at a Commonwealth conference and did so in October to a standing-room only crowd. I made the cover of Research Magazine and was quoted in 3 other financial services magazines during the year.
We do have a contingency plan should death or disability strike. Joan is fully licensed and the process is in place for her to step in and run the business if I am not able to do so. The long-range plan is that my oldest son, Ted, will come into the practice. It will take 10 years or so to know if this is the right career path for him, but all indicators are that Advanced Wealth Management will be able to serve you and your children far into the future.
In conclusion, we hope that 2008 delivers to you good health, happiness and prosperity. Thank you again for the opportunity to work with you. We appreciate it greatly.
Robert K. Haley, JD, CFP®, AIF®
*“The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. All Indices are unmanaged and are not available for direct investment by the public.”