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| Issue: # 24 | September 2010 |
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Welcome to the September Issue of the Brighton Bulletin!
Financial markets have been unkind in August as virtually every major equity index has been negative for the month, dragging year-to-date performance into negative territory as well. (1) The S&P 500 Index, which is the domestic equity index of which we pay most attention, is down over (3%) for the month and year-to-date(2). Interestingly, the 100 day simple moving average has dropped below the 200 day simple moving average for the first time since the last week of July of 2009. However, that was when markets were rallying and the SMAs were moving up. Now they're moving down. In that context, the last time the 100 day broke under the 200 day was in early December of 2007. I consider this a potential early warning indicator. It is part one of a three part process that indicates a good time to sell a position. First, the early warning - the 100 day falls below the 200 day. Second - the 100 day falls below the 365 day. Third - the 200 day falls below the 365 day. The clear trend in the three step process is weakening momentum for the position. As an example(3):
1) 100 day moving average falls below 200 day moving average - week of December 17, 2007
a. S&P 500 Index value = 1,484.46
2) 100 day moving average falls below 365 day moving average - week of February 25, 2008
a. S&P 500 Index value=1,330.63 (10% decline)
3) 200 day moving average falls below 365 day moving average - week of April 7, 2008
a. S&P 500 Index value=1,332.83
If, big if, an investor had sold at this point and not returned to the equity markets until the 200 day moving average exceeded the 365 day (essentially the three steps above in reverse), they would have sold at 1,332.83 around April 7, 2008 and bought back in at 1,115.10 the week of December 28, 2009 (20 MONTHS LATER). This investor would have avoided the ensuring 50% decline and 80% rebound and would have gained roughly 16%. This isn't a perfect indicator, as an investor who bought back in at 1,115 would still be down 5% since buying back in. It is useful for considering whether the risk of equity exposure is worthwhile (that's a decision that most investors must make for themselves given their unique set of circumstances).
We remain very concerned about the strength of both the U.S. and global economies and are deeply suspicious of overly optimistic earnings forecasts. We believe the threat of a double dip recession (if we have even left the first recession (beginning in December 07) and of the threat of deflation. We have attempted to position portfolios accordingly, maintaining our hedged equity strategies and adding in managed futures and emerging markets bond exposure for those clients not holding this exposure. In weak environments and/or deflationary environments, income is valuable. We welcome the opportunity to meet with anyone interested in discussing our views in greater detail. We'll continue to work hard for you.
(1) - Source - Morningstar Office
(2) - Source - Yahoo Finance
(3) - Source - Yahoo Finance
As always, if there is anything we can do for you, please contact us. Follow us on Facebook, and on our blog, the Brighton Perspective!
Sincerely,
John P. Middleton, CFA, CAIA Brighton Financial Planning |
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Retirement Debt
Once upon a time in America, the rule was "no debt in retirement". Does that still hold true today? As more and more "baby-boomers" approach retirement age, which according to BusinessWeek(1), is 63, many are now wondering if they can retire at all and many continue to carry debt, mostly mortgages, assumed during the real estate boom in the early 2000's. There was a time when a young couple bought a house with a 30 year mortgage and didn't move again until retirement, if at all. Consequently, that 30 year mortgage was retired around the same time the couple retired. Thus, no debt in retirement. Times are changing!
 At the end of 2007, pre-market crisis, the median household in the 55 to 64 age group (considered to be pre-retirement) had total financial assets of just $72,400 (2007 Survey of Consumer Finances - Federal Reserve). Consequently, 55% of households in this age range have mortgages. As they move into retirement, 27% continue to hold a mortgage. The question remains, though, should retirees continue to maintain this mortgage? A recent study (2) attempts to answer this question.
The study, done by Anthony Webb of the Center for Retirement Research at Boston College, notes that the majority of retirees carrying a mortgage do have the financial assets to pay-off that mortgage but apparently choose not to do so. He concludes this is likely not a wise decision - "for most households, there are no risk-free profits to be earned by retaining a mortgage". He further states - "the sole exception to the above rule is the rare case where the household is...so risk tolerant that it wants to play the stock market with borrowed money."
Our view is that most retirees would be better off without debt in retirement. Even if there is no clear economic benefit to doing so, the potential psychological and emotional benefits can be significant. Many retirees carrying debt fail to consider the consequences of a catastrophic illness on their continuing ability to make their mortgage payments as well as to the potential financial burden the mortgage may present to beneficiaries. Of course, not all retirees will have the ability to retire their mortgage, but those that can should. | |
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BFP
Featured in Forbes Magazine!
Brighton Financial Planning was featured in Forbes Magazine this month! The focus of the article was to highlight Financial Managers in NEW JERSEY . They featured us as one of the Financial Experts prepared to get your money on the right track and keep it moving forward!
Please click below to view the article, or see the August 30, 2010 Forbes Magazine Issue
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Disclosures
The views expressed herein represent the opinion(s) of Brighton Financial Professionals as of the date of this posting, and may change at any time without prior notification. |
The links to other websites provides a path to other entities' websites that are not affiliate with BFP. BFP is not responsible for the content or information practices by websites linked to Brighton. Often we provide links to other sites solely as pointers to information or topics that may be of interest to users of our website. Such links do not imply BFP's endorsement of any information or material on any other site and BFP disclaims all liability with regard to your access to and use of such linked websites.
Brighton Financial Planning utilizes information from third party sources. Brighton Financial Planning is not responsible for verifying the accuracy of any information sourced by such third-party information providers.
Any mention of products or securities does not constitute a recommendation, investment, legal or tax advice, as BFP is not holding itself out as providing such advice.
Any mention of securities does not represent an offer or a solicitation of an offer to buy or sell such securities, particularly in those jurisdictions where such solicitation or offer is prohibited by law.
As with all investments, there are inherent risks to investing that may not be able to be mitigate through responsible investing. You should consult with a qualified investment adviser prior to investing. |
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