Stock Market Commentary
For the week of June 9, 2008
The number of U.S. jobs dropped by 49,000 in May, less than analysts expected. The decline increased the unemployment rate to 5.5 percent in May from 5.0 percent in April. Oil prices rose more than $11 a barrel on Friday. For the week, the Dow lost 3.28 percent to end at 12,209.81. The S&P fell 2.76 percent to 1,360.68, and the NASDAQ dropped 1.91 percent to finish the week at 2,474.56.
Keep On Giving – The Committee Encouraging Corporate Philanthropy (CEPC) reported that U.S. companies continued to increase their donations to charity last year. The CEPC is an international forum co-chaired by actor Paul Newman. Despite a weakening economy, the average amount donated by the 155 companies surveyed increased 5.6 percent from 2006 or approximately 1 percent of their respective pre-tax profits.
Business Structure – The first limited liability companies (LLCs) in the U.S. were established in Wyoming in 1977. Many sole proprietors have converted into LLCs because the business owner continues to be taxed as a sole proprietor yet the business becomes a separate legal entity. Please consult with a legal and/or tax professional for details (Source: Limited Liability Advisor, BTN Research).
The Magic of Compound Interest – One dollar growing at 8 percent on a tax-deferred basis will accumulate to $10.06 over 30 years. One dollar growing at 4 percent on a tax-deferred basis will accumulate to $3.24 over 30 years. Thus, achieving a return two times as great will produce a balance more than three times as large over 30 years. This mathematical calculation ignores the ultimate impact of taxes on the account which are due upon withdrawal, is for illustrative purposes only and is not intended to reflect any specific investment or performance. Actual results will fluctuate with market conditions and will vary (Source: BTN Research).
Slow Growth – The growth in the U.S. economy in the first quarter 2008 was 0.9 percent (quarter-over-quarter gain expressed as an annualized total). The Fed’s low-end growth estimate for the entire 2008 calendar year is only 0.3 percent. The last time the U.S. had annualized growth for a calendar year of 0.3 percent or lower was 1991 (Source: Commerce Department, Federal Reserve, BTN Research).
WEEKLY FOCUS – Rebalancing Your Retirement Accounts
The combination of the defined contribution plan, payroll deduction and, thanks to the Pension Protection Act, automatic enrollment makes it easy for workers to put their retirement planning on cruise control. The changing speeds of investment earnings and the life changes that take you in and out of the fast lane, however, mean you need to adjust that cruising speed once in awhile.
The asset allocation for your retirement account came from assessment of your personal situation – your age, marital status, retirement goals – and strategies to protect you from the fluctuations of the market. Being what they are, fluctuations don’t usually balance out – which means you have to periodically rebalance your investments to get them back to the asset allocation that fits your investment strategy.
Sometimes that means tough decisions – like selling part of a position that has become too large a portion of your portfolio, even though it has performed well. Emotional investing decisions can be as detrimental as the out of sight, out of mind approach. We can help you review your individual 401k or other defined contribution account and evaluate how best to bring it back to an appropriate asset allocation.
Rebalancing is a core component of the value we bring to our clients. We can also help you with accounts held away from our firm. All portfolios benefit from regular review to determine if rebalancing or other changes should be made based on investment performance or your personal situation. Call our office for an appointment.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. WMCSAI# 184595