Lessons from 2010 & a Glimpse into 2011

The sun was shining on investors as 2010 drew to a close. The economy has shown signs of reaccelerating from the summer soft spot, the stock market has made new two-year highs, as measured by the S&P 500 (returning to the level that preceded the September 2008 failure of Lehman Brothers), and the President signed into law a bill that extends all of the Bush tax cuts for two years, cuts payroll taxes, and expands jobless benefits.

The end of 2010 also seemed to be setting the stage for the return of diversification. In 2008 and 2009, most markets moved together as the outlook for all financial assets was tightly linked to the global financial crisis and then to the recovery. During 2010, glimmers of the impending return of diversification became evident as markets began to behave more independently of each other. In May and June, as stocks and commodities asset classes fell, bonds steadily rose in value. And, inversely, in November and December, as stocks and commodities asset classes surged, bonds fell. A key potential benefit of having the investments in your portfolio behave differently is that it should serve to mute volatility, which is especially valuable when taking distributions from a portfolio. The return of the effectiveness of this important investment risk management tool is a welcome gift as investors look toward 2011.

No stormy skies or bright sunshine for 2011, we see a more middle of the road forecast, composed of a mix of clouds and sun. Recent years have seen extremes one way or the other and we see a 2011 that offers investors modest single-digit gains for stocks, low-to-mid single-digit gains for bonds, and an economy in the United States that muddles along at a 2.5 to 3% pace. As always, I encourage you to contact me if you have any questions.
 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.

This research material has been prepared by LPL Financial.

Wishing You a Happy New Year! 

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SmartCEO's EcoCEO Program

Just this past December, Woody was selected into the SmartCEO 2010 EcoCEO Program!  SmartCEO launched its EcoCEO Program two years ago recognizing companies that have introduced environmentally-friendly products & services into their daily routines.  Congratulations Woody!