Q4/2011 Market Review ~ Resolve to be Financially Resolute in
2012
January 20, 2012
Welcome to the Kalorama Wealth Strategies Quarterly Market Review.
These quarterly briefs update the performance of the financial
markets and provide information on investment and financial planning
topics.
Stocks rode a roller coaster back to square one in 2011. As measured
by the bellwether Standard & Poor's 500-stock index, stocks were
virtually unchanged with the S&P 500 off a minuscule 0.04 points to
1,257.60. Including dividends, the S&P 500 rose 2.11%. The ride
peaked in late April with an 8.4% year-to-date gain and troughed in
early October with a 12.6% loss. A rally during the balance of
October was enough to lift U.S. stocks to nearly break-even for the
year. November and December were little changed.
Markets and investors contended with several significant economic
and political issues during 2011: the ongoing European
sovereign-debt crises; uprisings in the Middle East and North
Africa; Japan's earthquake, tsunami, and potential nuclear fallout;
political gridlock in the U.S. over the nation's budget and debt
ceiling, leading the country to the brink of default, and resulting
in an S&P downgrade of the U.S. credit rating to AA+ from AAA; and a
weak global and generally sluggish, but improving, U.S. economy.
Nevertheless, the U.S. was the best house on the worst block when it
came to where investors parked their assets. Although U.S. stocks
didn't move much, international stocks didn't fare as well. Both
international developed and emerging markets indexes tumbled double
digits, giving up nearly 12% to more than 18%.
As investors sought a safe haven from all the uncertainty, U.S.
bonds were the place to be. U.S. Treasury TIPs surged 13.6%,
Municipals swelled 10.7%, while the broader U.S. Aggregate index
advanced 7.8%.
Actions and announcements by the Federal Reserve to push long-term
interest rates lower and stimulate the economy sent treasury yields
and home mortgage rates to record lows. In August, the Fed announced
that it would maintain its near-zero target for short-term interest
rates for two more years. This was followed in September by the
Fed's decision to address "significant downside risks" in economic
outlook by initiating a "maturity extension program," whereby the
Fed would sell $400 billion of short-term portfolio securities to
purchase long-term bonds. At the same time, the Fed said that it
would reinvest proceeds from maturing portfolio securities in
mortgage-backed securities in an attempt to lower mortgage rates and
encourage home buying.
These measures lead the yield on the 10-year Treasury Note to sink
to a record-low 1.70%, while five-year and 30-year Treasuries slid
below 1.0% and 3.0%, respectively. Home mortgage interest rates
dropped to their lowest levels since records have been maintained,
with the rate for 30-year fixed-rate mortgages dropping below 4.0%.
At year-end, the yield on the 10-year Treasury note was 1.88%, down
three and 141 basis points for the quarter and year-to-date,
respectively (the yield as of January 19th was 1.98%).
Below are rates of return for selected market indices for the fourth
quarter of 2011, full-year 2011, and the three, five, and 10-year
compound annual returns as of December 31, 2011.
Resolve to be Financially Resolute in 2012
With
the turn of the new year, there are endless lists of financial
resolutions suggesting that you prepare a budget, get out of debt,
spend less, save more, and invest for retirement. Rather than repeat
the recommendations, below are links to some of the more useful and
interesting resolution lists I came across:
The Washington Post had
both angles covered with its two-part series on how to spend less
and save more:
1. This year, really, save some dough
2. Savings strategies for the new year
Forbes put
together a nice 12-step program covering many financial planning
topics:
12 Financial Resolutions for 2012
So as not to be overwhelmed by lumping all these resolutions into
January, Fidelity Investments provides a month-by-month guide to
getting your finances in order:
12 financial resolutions you can keep
And if you are really ambitious, instead of resolutions, create a
Mission Statement:
Forget Resolutions -- What's Your Mission?
A
study revealed that 80% of those surveyed declare resolutions for
the new year. Unfortunately, 80% of the resolvers fail to stick to
their resolutions. Strive to be in the determined 16% minority.
Please contact Kalorama Wealth Strategies if you would like to
discuss how we can help you keep your financial resolutions. For
more information on our investment advisory and financial planning
services, please see our web site at www.kaloramawealth.com.
Please feel free to forward this email to friends and colleagues who
can benefit from information about investing and financial planning.
If I can be of any assistance to you or anyone you know, please do
not hesitate to contact me.
Sincerely,
David
P.S. - What topics interest you? Please email us at mail@kaloramawealth.com.
