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Winners and losers
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Joe Chornyak discusses the European debt crisis and investment fundamentals.
Click on the image below to view the video. 
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The ABCs of finance: tips and tools for raising a smart investor
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By introducing sound financial habits at an early age, you'll give your child a head start on the path to becoming an informed investor. Here are some creative ideas, as well as book and website suggestions, for raising a financially savvy kid.
Lessons for every age
Toddler: Toys that incorporate counting are a great way to introduce mathematical skills. Building blocks, number magnets, interactive musical instruments with songs about numbers, and stuffed animals that aid in counting are all good options for this age group.
Age 5-plus: Board games can make learning about financial matters fun. Try Monopoly, The Game of Life, Billionaire Tycoon, Moneywise Kids, or Pay Day.
Age 8 to preteen: At this stage, children often begin building their own personal income from allowances, gifts, or even small jobs, such as shoveling driveways. Since many kids in this age group are Internet experts, online games can be an effective teaching tool.
Teenage years: Take your teenager to the local bank and help him or her set up personal savings and checking accounts. This will give your child a sense of responsibility and familiarize him or her with different banking transactions. Plus, banks often offer useful resources geared toward young customers.
Off to college: The transition to college typically comes with a whirlwind of credit card offers. Be sure to talk to your child about the pros and cons of using credit. Prepaid credit cards can be a good way to help college students build credit responsibly.
Young adulthood: As your child embarks on a career, remind him or her of the benefits of opening a retirement account early. At this point, you may wish to pass the baton to your financial advisor, who can address any money management questions your son or daughter encounters on the road to financial independence.
Click here to read the entire article and learn about more resources. This article � Commonwealth Financial Network.
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When it comes to income, can you afford another lost decade?
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The following article is provided by The Guardian Insurance & Annuity Company, Inc. (GIAC). Chornyak & Associates is not an affiliate or subsidiary of Guardian.
On December 31, 1997 the Dow Jones Industrial Average (DJIA) closed at 11,497.12 points. On December 31, 2010 the Dow Jones Industrial Average closed at 11,577.51 points. If you are watching the DJIA today, you can see that this widely used index has not gained much since then. Positive growth made one day was quickly erased the next. The financial pundits often call this period of time "The Lost Decade."
Given the demise of the defined benefit pension plan and the need for additional sources of retirement income, people preparing for retirement are experiencing a need to become more self-reliant than ever before. One way to do this is to participate in the investment markets - through a defined contribution plan at work, an IRA and/or other types of investment accounts.
In particular, investors preparing for retirement typically will need the growth potential of stocks (often referred to as "equities"). History shows us that the stock market has helped long-term investors build greater wealth than other types of traditional investments.
Of course, stocks don't just go up; from time to time they also go down. This short-term volatility can be disconcerting to investors, discouraging them from investing or, if they do invest, influencing them to make buy/sell decisions based on emotions rather than sound investment principles. To be a successful equity investor - and benefit from the long-term growth potential of stocks - you need to be the type of person who is comfortable with the uncertainty of short-term volatility and down markets.
Even if you accumulate substantial assets, when you begin withdrawing money from your investment portfolio during retirement, you may encounter further uncertainty, especially if it's during a lost decade. This is because the combination of your withdrawals, investment volatility and inflation can create a risk that your portfolio could run out of money during your retirement instead of lasting all the way through.
You may be wondering:
- Will I need to change my lifestyle during retirement by giving up some of my activities, like going to the movies or playing golf each week?
- What amount will I need each week or each month to cover these activities?
- Am I confident that my retirement assets will be able to support my lifestyle during a prolonged down market?
- Can I create a guaranteed stream of income with some of my assets?
Having a guaranteed source of income may give you the confidence to enjoy retirement the way that it should be enjoyed; doing the things you love without the worry of outliving your money.
If you are an individual pursuing a financially secure retirement, a variable annuity can play an important role in your retirement planning - helping you to accumulate assets for retirement when you need it most. A variable annuity is a long-term financial product for retirement purposes that allows you to accumulate tax-deferred savings (during the accumulation period) and then, during the annuity payout period, provides you with the option to start receiving regular payments year after year, for the rest of your life or for a specific period of time.
It should be pointed out that a variable annuity will not give you additional tax benefits if you use it to fund an IRA or qualified retirement plan. Therefore, you should use a variable annuity in such retirement plans only if the insurance benefits (e.g., living benefits, death benefits, income-for-life payouts) merit the annuity's additional cost.
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Determining if this is the right investment for you is a discussion you should have with your trusted advisor who will assess your complete retirement plan to prepare a customized strategy with you that may include the use of a variable annuity.
Variable annuities are long-term investment vehicles that involve certain risks, including possible loss of the principal amount invested. Contract guarantees are backed exclusively by the strength and claims-paying ability of The Guardian Insurance & Annuity Company, Inc. (GIAC). Contract provisions and investment options vary by state.
Variable annuities and their underlying variable investment options are sold by prospectus only. Prospectuses contain important information, including fees and expenses. Please read the prospectus carefully before investing or sending money. You should consider the investment objectives, risks, fees and charges of the investment company carefully before investing. Prospectuses contain this and other important information. Please call 800.221.3253 for the prospectus, which contains this and other important information, or for a fund prospectus. To download a contract or fund prospectus, please visit www.GuardianInvestor.com.
Variable annuities are issued by GIAC, a Delaware corporation, and distributed by Guardian Investor Services LLC (GIS). Both GIAC and GIS are wholly owned subsidiaries of The Guardian Life Insurance Company of America, 7 Hanover Square, New York, NY 10004.
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Homes of the new-tech titans
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Mark Zuckerberg's home in Palo Alto, California is worth $7 million, but from the exterior looks like it could be in Grandview Heights.
Sean Parker disputes his bad boy portrayal by Justin Timberlake in the 2010 film "The Social Network." But the former Facebook president and Napster co-founder is living it up in his new home, a $20 million Greenwich Village townhouse.
Dick Costolo took over as CEO of Twitter last year, about a year after moving to the San Francisco Bay Area from Chicago.
He lives with his family in a roomy five bedroom, 5.5-bath house in Corte Madera, just across the bay from Twitter's San Francisco headquarters.
Click here to view all of the homes of new-tech titans.
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What's happening now
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Some experts are predicting that JC Penney (JCP) will be the most interesting retailer of 2012, with with Ron Johnson, the man who launched Apple's retail stores, as CEO.
McDonald's learned a harsh lesson in social media marketing: When you encourage people to talk about your company, they're not always going to say nice things. Read the shocking Twitter tweets here.
Job seekers may find their hunt a little easier over the next few weeks. Historically, the hiring slowdown that usually creeps into January, becomes an upturn in February and March.
Hybrid cars have gone luxury. See three Lexus models and two Porsches here. Remember Europe on Five Dollars a Day? Now Arthur Frommer lists his 10 favorite travel destinations. Who has ever heard of Yachats, Oregon?
Because of the high cost of U.S. healthcare, medical tourism could save an American patient thousands of dollars on certain procedures as long as the patient is willing to travel to a foreign country where costs are considerably lower.
Netflix's stock dropped 60% during 2011, after a PR nightmare over its attempt to split its service and losing subscribers with a 60% price hike in July. What's behind its recent 20% stock- price spike?
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This communication is strictly intended for individuals residing in the States of: AL, AR, AZ, CA, CO, CT, FL, GA, IA, IL, IN, KY, LA, MA, ME, MI, MT, NC, NY, OH, PA, SC, TX, VA WI, WV. No offers may be made or accepted from any resident outside these States due to various state requirements and registration requirements regarding investment products and services. Securities and Advisory Services Offered Through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser Fixed - insurance products and services offered by Chornyak & Associates, LTD are separate and unrelated to Commonwealth. This informational e-mail is an advertisement. To opt out of receiving future messages, follow the "Unsubscribe" instructions below. Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor's. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000� Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury's daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS. |
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February 2012
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As we look forward toward 2012, the investment climate will be all about winners and losers. In this month's video I point out that even though there's currently a lot of volatility and uncertainty in Europe, long-term investors will eventually benefit. I believe we'll see investing principles come back to the fundamentals later this year. Click here or on the image at the left to watch. Introducing the spirit of saving and investing to our children while they are young could make a difference in their leading a successful life. Our article on the ABCs of finance for offspring has some good tips to help you in this goal. Don't miss the suggestions for further reading in the continuation of the article on our web site. With a lot of volatility and uncertainty in recent years, the stock market has not shown its typical historical growth rate. However, history has taught us that the market has helped long-term investors build greater wealth than other types of traditional investments. If you are an investor who has an aversion to dealing with short-term downturns, a variable annuity may provide a level of comfort in your retirement. See the article "When it comes to income, can you afford another lost decade?" Are you sometimes curious about how the most successful champions of business choose to spend their private time? This month we take a glimpse into the homes of the leaders of online social engagement technology. Some prefer a modest dwelling while others have splurged, showing how it really pays to be a cyber fanatic. Finally, be sure to scroll down to our "What's happening now?" section for some interesting news about JC Penney, McDonalds, luxury hybrid cars, and more. I welcome your calls or e-mails with any questions you may have on your personal investment planning: 614-888-2121 (or toll free 877-389-2121), e-mail: Sincerely, Joe
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Market Update
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Markets ended 2011 on a strong noteDomestic equity markets were helped by strong gains in the fourth quarter but still ended the year only modestly higher than they were last January. Despite lackluster returns, markets fluctuated widely during the year and tested the resolve of many investors.
Looking across asset classes, there was a considerable dispersion of return this past year. For equity investors, bright spots mostly came from defensive sectors. Utilities posted a total return of 19.73 percent, and consumer staples returned 13.93 percent for the year, according to Morningstar�/S&P data. Conversely, financials had a rough year, losing 17.09 percent on worries over eurozone debt troubles. In general, large-cap stocks tended to outperform small-cap stocks and growth outperformed value.
Surprisingly, the best-performing asset class in 2011 was long-term U.S. Treasuries, which gained almost 30 percent, according to the Barclays Capital U.S. Treasury Long Total Return Index. Real estate investment trusts also returned a respectable 8.48 percent for the year, as represented by the S&P U.S. REIT Index. Gold continued to be a good portfolio diversifier, rising in price from $1,412 per ounce to $1,572 per ounce for the year, according to Bloomberg. On the flipside, international stocks underperformed significantly for the year, especially in the financials sector.
U.S. equities benefited from a strong fourth quarter
Headlines both domestic and abroad drove the majority of market volatility in 2011, creating a risk-on/risk-off environment. When the dust settled, the Dow Jones Industrial Average had posted an 8.38-percent total return for the year, benefiting greatly from a fourth-quarter gain of 12.78 percent. The S&P 500, with dividends reinvested, returned 2.11 percent, as its heavy weighting in financials hurt performance relative to the Dow. The S&P 500's fourth-quarter gain of 11.82 percent managed to push it above breakeven on an annual basis (see chart).
International equities struggled
While domestic stocks benefited from fourth-quarter gains, international stocks were not so fortunate. The MSCI EAFE Index was up a modest 3.33 percent in the fourth quarter, leaving it down 12.14 percent for the year. Riskier emerging markets stocks fell further, as the risk-off trade drove them lower. For the fourth quarter, the MSCI Emerging Markets Index gained 4.08 percent but still lost a price return of 20.41 percent for the year.
Treasuries dominated fixed income markets
It seems that unless they concentrated their portfolio in long-duration Treasuries, investors faced a strong headwind in the fixed income space. The Barclays Capital U.S. Aggregate Bond Index returned 7.84 percent for the year, helped in large part by its Treasury exposure. The riskier Barclays Capital U.S. Corporate High Yield Index performed less well.
Unfortunately, many bond managers fell short of the aggregate index, having come into 2011 with a short-duration, underweight Treasuries bias. Their expectation that rates would rise on inflation and growth proved unfounded. Instead, renewed fears of weak global growth, high debt levels, and intervention by the Federal Reserve (the Fed) caused a rally in long-duration Treasuries.
Municipal bonds also surprised many investors, with strong performance throughout the year. The Barclays Capital Municipal Bond Index gained 10.70 percent in 2011, providing good diversification for tax-sensitive investors.
Event risk played a role in 2011
Last year, we closed our market update with this statement, "It's the risks that people aren't expecting that could cause the strongest market reactions." Sure enough, markets in 2011 were rocked by numerous unforeseen events. In particular, the Japanese earthquake and unrest in the Middle East come to mind.
Here in the U.S., ongoing debate in Washington over the debt ceiling, as well as renewed fears of recession, contributed to a single-day plunge in the Dow of 512 points in August. The subsequent S&P downgrade of U.S. debt saw the Dow trade 635 points lower on its first trading day after the announcement. It also became clear last summer that Europe would fall victim to its own mounting debt problems, which weighed heavily on markets late in the year.
The U.S. Fed announced Operation Twist in September, decreasing yields on the long end of the curve with the goal of supporting the housing sector and ultimately economic growth. Central banks around the world also intervened in currency markets in November, in a concerted effort to provide liquidity and bolster confidence in financial markets. Policy interventions have provided short-term support for markets, but these actions may be less helpful in the long run.
The U.S. economy grinding along, but global growth a concern
While remaining weaker than its long-term trend, U.S. gross domestic product (GDP) still managed to expand in 2011, at an estimated rate of 1.8 percent in real terms. Economic growth appeared to pick up slightly in the second half of the year, as the negative effects of the Japanese earthquake faded.
Home prices continued to fall in 2011. Manufacturing and industrial production growth also slowed but still moved in a positive direction.
The most encouraging development last year was a decrease in the unemployment rate, from 9.4 percent to 8.6 percent, the lowest it has been since the beginning of 2009. Changes in the employment situation tend to lag the overall economy and shouldn't be interpreted as predictive of future economic growth. That said, an increase in the number of working Americans may help boost consumer confidence and spending.
The biggest threat to continued U.S. growth may come from overseas. According to Bloomberg, the consensus among economists is for eurozone GDP to contract 0.2 percent in 2012, as many European countries fall into recession. (If this occurs, austerity measures will likely be to blame.)
Because the U.S. engages in roughly three times as much trade with Europe as it does with Japan, a slowdown in Europe could have a significantly larger direct impact on our domestic economy than did the recent recession in Japan. Despite this concern, consensus expectations are for U.S. GDP to grow 2.1 percent in 2012.
Looking ahead
Looking ahead into 2012, we are bound to see an increased focus on domestic politics with the coming of the presidential election cycle. So far, Republican candidates have focused mainly on attacking one another. This will change in the coming year, and differences between Republicans and Democrats on subjects such as entitlement spending and tax levels will once again come to the forefront. Market participants will watch the debate carefully and may react differently depending on which party controls Congress and the White House after the election.
The European debt situation may soon intensify. Italy needs to refinance approximately €118 billion in bonds in the first quarter, according to some estimates. This may represent more than 20 percent of the nation's estimated funding needs for 2012 through 2014. The bond sales will likely test investor willingness to continue lending to the debt-plagued nation and to European peripherals as well.
A new year
For many investors, finding positive returns was challenging in 2011, while finding volatility was far too easy. Yet this is the start of a new year, and last year's winners and losers may perform differently going forward. Portfolio changes at this time should be more of an adjustment to long-term planning goals rather than an attempt to chase past performance.
Authored by Simon Heslop, CFA�, director of asset management, at Commonwealth Financial Network.
� Commonwealth Financial Network�
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