December 2013 Newsletter to Clients

One of our many duties as your financial advisor can often be depicted in a very familiar saying, “don’t put all your eggs in one basket”. It is our responsibility to make sure that your portfolio is allocated properly to balance both risk and reward. This balance is unique to each individual or family and as your needs continue to evolve, we address and make the necessary changes.

After recently reading Jeremy Seigel’s 3rd quarter economic commentary I thought it would be helpful to share his (and our) views on the markets. He believes long term investors should not fret over when the Federal Reserve will begin tapering (stop purchasing government bonds and mortgage backed securities). His assertion is that the preoccupation with the timing of the tapering is based on “the false belief that the rally we have seen in the equity markets is based on Fed stimulus,” when in actuality stock values have increased because of their earnings and low interest rates.

2013 operating earnings were 10.8% above the 2012 level and reported earnings are estimated at 13.1% above last year’s levels. Clearly company earnings are improving despite the uninspiring 2% gross domestic product (GDP) growth in the US. The S&P 500 is currently trading at 16.7 times this year’s operating earnings and remains below the average of 19 in a typical low interest rate environment such as today. Mr. Siegel goes even further, predicting GDP growth in excess of 3% next year and greater than expected growth in earnings; both of which support higher equity valuations. It is possible Fed tapering could have a “brief negative impact on stocks” but will “not stop the long-term rally in equities.”

The distribution of assets among 3 broad categories – Cash & Equivalents, Income Assets and Growth Assets – is the basis for keeping all of your eggs out of one basket. We analyze each client’s portfolio at a minimum of 4 times a year to make sure the distribution remains appropriate and to accommodate for any changes. Growth Funds have appreciated significantly this year due to the increase in stock prices, which Mr. Siegel predicts will continue to rise. We will adjust your risk/reward exposure to balance these increases.

As the year ends, we think about all we are grateful for. Our relationship with you is one thing we treasure. Thank you for the opportunity to serve you and your continuing confidence. We wish you a holiday season filled with joy and much success in the new year.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.