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Economy Recovering?
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Remember the story of the Tortoise and the Hare? Many investors are clearly anticipating a "hare" like recovery. How else do you explain a more than 50% increase in equity markets since late March and forward earnings expectations for 2010 at more than 30% growth over 2009. However, I believe the real data suggests a more "tortoise" like recovery. GDP growth for the 3Q was 3.5%, which, superficially, is excellent. However, much of the improvement was due to programs such as the "Cash for Clunkers" program which likely only accelerated planned purchases. Consequently, GDP is likely to be weaker in the fourth quarter and into 2010.
I'm concerned that markets have improved more than fundamentals warrant and we'll see a correction in the near future. At the same time, irrational markets can remain irrational longer than rational investors may expect. As a general rule, I favor equity strategies that employ hedging techniques. I view this as a form of downside insurance and gladly pay the "premium" for the protection. The "premium" is the difference between the performance of the strategy and the equity index. I think these strategies are particularly important in this environment. If you don't have access to strategies that hedge consider reducing equity exposure and increasing cash. Again, irrational markets can last longer than expected so a full cash position doesn't make much sense but neither does a full equity position. If markets do correct, a full equity position could be rather unpleasant.
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Do You Know Your Net Worth?
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 If you're like many investors, you have several investments accounts. For example, you have a taxable account, a 401k account, maybe an IRA, an annuity, life insurance. Maybe your spouse works as well and has his/her own accounts, too. And, if you're like many investors, you don't take a close look at all of these accounts on an aggregated basis. Do you know what your net worth? The full value of all of your assets minus your liabilities. Do you know the aggregate asset allocation of your assets? It may surprise to discover you have much more exposure to a style (growth/value) or asset (all in company stock or in your home).
Below is a link to a short survey I would appreciate everyone complete. As an investment advisor, I can aggregate all of your assets and provide advisory services related to asset allocation for all assets including 401k's, annuities, life insurance investments and other investment accounts. An aggregate view of your net worth is invaluable to successful financial management and can be accomplished without requiring you to move anything. This service is included for clients for whom I manage assets and can be billed on an hourly basis for advisory only clients.
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I have published an article on the Financial Advisor Match website and invite everyone to read it. It is on a topic I've visited before regarding Alternative Asset Allocation. Click on this link - Alternative Asset Allocation to read the article. As always, please feel free to forward this Bulletin to anyone you believe will find it useful. And, as always, if there is anything I can do for you, please feel free to contact me.
Sincerely,
John Middleton, CFA, CAIA
Brighton Financial Planning, Inc.
john@brightonfinancial.com
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College Planning
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For those of you with high school juniors and seniors, now is the time to start planning. If you have a Junior, you should be organizing your finances to ensure you're set for 2010. Why? Because your 2010 tax return will be the basis for financial aid decisions for September 2011 incoming Freshmen.
If you have a Senior, you should be organizing your financial information preparing for filing the FAFSA as close to January 1, 2010 as possible. The sooner you file, the better your prospects of receiving aid (obviously other factors, such as your income, are critical). Get your ducks in a row now and make the filing process easier.
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