This Periscope is a little more investment-heavy than usual. I briefly review 2011 and summarize the current investment views of one of our key economic and investment analysts, the teams at Litman Gregory. A more in-depth commentary is available, just e-mail your advisor.

After huge volatility, the stock markets mostly ended the calendar year 2011 flat or negative, with any returns largely coming from dividend paying stocks. Smaller and mid-cap stocks closed the year down 4.2% and 1.7%, respectively, despite also posting double-digit fourth-quarter gains. Fear over Europe and slowing growth in China dragged foreign stocks down 11.8%, with China concerns and a flight from risk hitting emerging-markets stocks even harder; they fell 18.8%.
 
High-quality bonds were on the other side of the volatility, with sharp flight-to-safety rallies. Flexible bond and absolute-return-oriented funds provided less of the short-term protection of high-quality bonds. We remain confident that our bond allocations will provide better longer-term returns than the pure high-grade benchmark at still-acceptable risk levels.

Active managers also, as a rule, underperformed passive managers in 2011. Over shorter periods in which investors' decisions about getting in and out of stocks are driven by macro headlines (often referred to as "risk-on, risk-off") there is less consideration for fundamentals of individual stocks. This creates long-term opportunities, but it can be frustrating over shorter periods.

As the media saturates us with political coverage that will only grow over the coming year, we can relate to the grind a politician faces in staying on message for an extended duration. Our message is not positive enough to get us elected to any office, but we hope it will earn us respect for intellectual honesty and well-reasoned decision making amidst an environment that we expect to be a far longer grind than that of a presidential election year.

Next week, we'll look at Europe and then, in the 3rd week of our series, we'll wrap up our thoughts for 2012. If you'd like to skip ahead, and get the entire detailed look, e-mail your advisor! a

You're Invited

Our team would love to see you at our "office warming" party this Friday from 4 - 7.  Come see our new location, listen to live music, and celebrate!  Don't miss the special ribbon cutting ceremony at 6 pm.  To RSVP, call Jane at 303.690.5070 or e-mail Jane@assetsandincome.com