For those of you who live near Provo, Utah, you might be interested in attending one of these lunch seminars.
Attend this free seminar to learn more about what is happening with the economy and stock market.
Recently we have experienced one of the sharpest declines in stock market history. It has taken stocks to their lowest prices in 11 years. During the past 22 years that we have managed investments, we have never seen stocks at such bargain basement valuations.
Most investors are worried about their investments, and we’d like to discuss what is happening, and what you can do moving forward. These are educational workshops.
Each meeting is an hour, and we will serve a light lunch. We plan to host meetings each month. RSVP to Shannon at shannon at paragonwealth.com if you are interested in attending one of these meetings.
Hosted by Paragon Wealth Management, a fee-only (no commission) wealth management firm specializing in investment management for individuals and businesses.
Paragon Wealth Management
3651 N. 100 E., Suite 275
Provo, UT 84604
Wednesday, Feb. 11
Tuesday, March 3
Thursday, March 19
Wednesday, April 8
Written by Kyle Allen, Paragon financial advisor
photo by D’Arcy Norman
This post is a continuation of, “When do I need to take an RMD?” posted on June 25, 2008.
First of all, what is an RMD?
A RMD is a required minimum distribution that is required to be taken from a retirement account beginning at age 70 1/2. (Read, “When do I need to take an RMD?” to learn more.
The required minimum distribution rules apply only to qualified plans such as 401(k)s and traditional IRAs. Roth IRAs play by their own rules.
The RMD is calculated with an IRS table that takes into account your life expectancy and retirement account balances.
This leads us to the title of this post, “Do I need to take an RMD in 2009?”
No, you do not.
As a result of the difficult economy, President Bush signed legislation on December 23, 2008 that suspended RMDs for 2009. The change in required minimum distributions applies only to 2009 distributions.
If you are like millions of Americans and see the opportunity in the market moving up, you may want to hold off on your distributions for 2009. If you don’t need the money, it has historically been a mistake to sell when the market is down.
To learn more, read, “Big IRA Change: Minimum Distributions on Hold” on Forbes.com.
Feel free to leave comments or contact us at 801-375-2500.
Written by Nathan White, chief investment officer
photo by epicharmus
Credit spreads are an indicator of the willingness of investors to own “risky” assets. They measure the difference between the yields on various debts versus U.S. Treasuries.
Spreads widen when investors seek the safety of treasuries and narrow when they feel it is “safe” to come out of the woods. One of the signs of the easing of the credit crisis would be a narrowing of the credit spreads. A variety of spreads have begun to contract off the recent historic highs.
Agency bonds have contracted from around 165 basis points to 86. Investment grade corporate credit is down about 98 basis points and high yields have a contracted 434 basis points. Hopefully this trend can continue and would provide some much needed support for the equity markets.
Written by Nathan White, chief investment officer
photo by Luo Shaoyang
New for this year, I thought it would be insightful to discuss the rationale for some of our holdings in order to give our clients a better view of where we stand. Our trend model has recently turned bullish on China and since its bottom on October 27, 2008. The MSCI China Index has shown good relative strength versus most markets.
The markets could be signaling an economic recovery in China and so we took a position in anticipation of this scenario. China has not been as damaged from the direct effects of the credit crisis and stands to benefit from fiscal and monetary stimulus. The Chinese central bank has been lowering rate and allowing the yuan to weaken.
China’s $586 billion stimulus package includes infrastructure projects, which could have a more beneficial effect in China due to its relatively under developed status than the effect comparative projects would have in developed countries such as the U.S. term, China’s foreign currency reserves and net creditor status give it an advantage over net debtor nations such as the U.S. Debtor nations are being forced into saving while creditor nations have the ability to increase consumption. If the markets enter a recovery phase, we look to China to be one of the leaders to the upside.
Article written for Paragon’s 4th Quarter 2008 Newsletter
by Dave Young, president
photo by john-morgan
Where do we go from here?
It is impossible to know how this market will unfold with absolute certainty. What follows is our opinion based on experience and a study of market history.
So far, the markets have followed the same pattern as previous election years, selling off when the incumbent party loses. The difference this time was the magnitude of the decline.
This year’s decline was the worst ever to precede an election. If the market continues to follow historical election year patterns, 2009 should be a strong year for the market.
After a decline this severe it is most important to buy sectors that have historically generated the highest returns during a recovery. It is easier and more predictable to pick those sectors than to guess what politicians are going to do next or how the economy will unfold.
Recessions average 11 months with the shortest being six months and the longest being 16. The current recession has lasted 12 months. The stock market tends to recover three to four months before the recession ends.
Following previous recessions the strongest sectors (in order of strength) were Consumer Discretionary, Information Technology, Financials, Industrials, Materials and Consumer Staples. Emerging markets are also usually very strong performers. The weakest sectors (in order of weakness) were Utilities, Telecomm, Energy and Health Care.
The stock market continuously trains investors to be in the wrong place at the wrong time.
When markets are strong and moving up everyone wants in and aggressively buys. That is often the wrong time to put money into the market. Conversely, when markets are bad and go down, everyone sells, and no one wants in. That is usually a good time to invest. Occasionally, you get market conditions that are horrible (like now) and investors are acting irrationally in extreme panic. At this point in the cycle, investors begin to sell at any price. This is when investors begin effectively “giving away” investments in search of “safety”.
Historically, this point in the market cycle has been a phenomenal time to invest and buy new positions. Moving up from extreme lows is when fortunes have been made after previous bear markets.
I believe investors are positioning themselves in the wrong place at the wrong time once again. As evidence, simply look at the record amount of money that has moved out of stocks and into cash, money markets, bank Cd’s and fixed annuities. At a time when 30-year treasury bonds are paying a record low 2.6 percent yield, in a quest for safety, investors are running as fast as they can to lock in those low yields… at just the wrong time.
We recommend that investors reallocate their portfolios based on opportunities, looking forward, not backwards. Looking backwards and following a “rear-view mirror” investment strategy causes investors to perpetually invest in the wrong place at the wrong time.
We appreciate our relationship with you. We’re looking forward to 2009 and the opportunities that have been created by this year’s extreme sell off. If you have concerns or would like to meet, please call us at (801) 375-2500.
This is the top news in our neck of the woods. After a difficult year, this gives us something to celebrate. Even though BYU is our favorite team, this time we will say, Go UTES!
Taken from ESPN online:
Kevin C. Cox/Getty Images
The Utes trampled Alabama to complete a perfect season. How are they not national champions?
Life of Reilly
Oklahoma and Florida can battle for the BCS. But we’ve already crowned the true national champ.
by Rick Reilly
Some gifts people give are pointless: Styling mousse to Dick Vitale. An all-you-can-eat card to Kate Moss. The BCS Championship given to Oklahoma or Florida.
It means nothing because the BCS has no credibility. Florida? Oklahoma? Who cares? Utah is the national champion.
The End. Roll credits.
Argue with this, please. I beg you. Find me anybody else that went undefeated. Thirteen-and-zero. Beat four ranked teams. Went to the Deep South and seal-clubbed Alabama in the Sugar Bowl. The same Alabama that was ranked No. 1 for five weeks. The same Alabama that went undefeated in the regular season. The same Alabama that Florida beat in order to get INTO the BCS Championship game in the first place.
Yeah, that’s how it is now in the shameful, money-grubbing world of college football. If you’re Florida and you beat Alabama, you get a seat in the title game. If you’re Utah, you get a seat on your sofa.
Hey, remind me: What do they give out for one of those BCS things anyway? It’s been so long since I cared. Something from Sears? This is the sixth year in the past 10 that the title has been in dispute under this cash-grab, fan-dis, monopoly that the BCS has created. Which is why the title game just doesn’t matter anymore. It’s like being named Miss Ogallala. Or Best Amish Electrician.
Just take a look at the teams that think they’re worthy of being called national champs:
USC? Great year. Wonderful. Let’s all go to SkyBar and celebrate. But it lost to Oregon State, a team Utah beat.
Texas? You think beating Ohio State by a nubby three points gets you the title? The Big Ten was 1-6 in bowl games! That’s like pinning David Spade!
Florida and Oklahoma? They lost. Utah never did.
So that’s it. Utah is the national champion. The Utes should probably have two now, actually. They went undefeated in 2004, too, and their coach still thinks they were the best team in the land. Smart fella named Urban Meyer. Coaches Florida now.
By the way, we’re calling our title the “national” championship because it actually includes the whole nation
Article written for Paragon’s 4th Quarter 2008 Newsletter
by Dave Young, president
photo by smile my day
2008 delivered the perfect storm to create one of the most difficult markets in modern history.
A severe credit crisis, overseen by inept incoming and outgoing politicians, coupled with the media that constantly emphasizes the worst possible scenario combined to push the S&P 500 to its worst performance since 1931.
It didn’t matter whether an investor was invested in stocks, corporate bonds, real estate, municipal bonds, energy, commodities or currencies. They all suffered significant losses in 2008. The 38.5% decline in the S&P 500 put the index below the level it was at 10 years ago.
The meltdown wasn’t confined to the U.S. Around the world, 26 of the 32 countries we track recorded their worst losses in history. Likewise, 16 of the 18 global sectors we track also recorded their worst losses ever.
To put this in perspective, consider the following:
–Warren Buffet, considered an icon of wise investing, lost almost half of the market value of his portfolio between the middle of September and the middle of November.
–Bill Miller, one of the only managers to beat the S&P 500 for 15 consecutive calendar years through 2006, was down almost 60 percent year to date through December 3rd.
–Dan Fuss of Loomis Sayles is a renowned bond manager. Bonds are traditionally very conservative and are used to stabilize portfolios. His highly regarded bond fund was down an incredible 28 percent through December 5th. He described this market as a “once in a 50-year” buying opportunity.
–Icon Funds, a value-based mutual fund manager, put a report in December stating that stocks are 60 percent undervalued.
How did we do?
Considering the S&P 500 lost -38.5%, the average U.S. diversified stock fund lost -40%, the NASDAQ lost -41% and the average international stock fund lost -46%, we did relatively well last year. Managed Income, our conservative portfolio, outperformed most bond portfolios except those that are made up of treasuries. Top Flight, our growth portfolio, beat the S&P 500 extending its record of outperformance to eight of the last 11 years.
From an absolute perspective, we didn’t perform as well as we would have liked. Even though we beat most benchmarks we still saw our accounts decline in 2008. Both Managed Income and Top Flight suffered their largest declines since their inceptions in 1998 and 2001.
In my 20 years of investing, last year’s market meltdown was one of the most difficult I have ever encountered. We weren’t able to control downside risk as effectively as we have previously. There were several reasons that we were negatively impacted.
One way we reduce risk is to continuously adjust our equity exposure. When valuations are high we reduce equity exposuree and add cash. When valuations are low we reduce cash and increase equity exposure. As you can see by reviewing our track record, this has historically reduced our downside risk and increased our returns.
The fact that the markets have never reached excessive valuations prior to the 2008 decline made this bear market very difficult to avoid. For example, in the 1987 and 2000 bear markets many market sectors were overvalued which triggered our models to raise cash before those declines occurred. In 2007, with the S&P up only 5.5% on the year, the markets were at fair value. They weren’t overvalued by historical standards. As a result there was no reason for us to move to cash like we normally do.
Another way we reduce risk is to move into sectors of the market which usually perform well during declines. This bear market was brutal because most of the safe havens we moved into for protection, like utilities, health care and bonds got beaten up just like the rest of the market. Unlike previous declines, this time moving into conservative sectors provided very little cushion.
There was nowhere to hide in 2008 for investors.
To be continued…
photo by Wofgang Staudt
It has been a year since we started this blog, Money Managers Live. It has grown significantly since it began. We started it to comment about the stock market each week and write articles about current events, retirement, investing, building wealth, etc. It has been a good year.
Below are some of our most popular posts from 2008.
January 24: Why Investors Should NOT listen to Market Forecasts
February 7: Leave a Legacy by Planning for Retirement
April 15: Seven Steps for Building Wealth- Avoid Unnecessary Debt
May 29: What is Happening with the Stock Market?
June 25: When do I Need to Take an RMD?
July 16: Is the Media Making our Economy and Stock Market Look Worse?
September 22: Don’t Buy Stuff You Cannot Afford (Saturday Night Live video)
October 2: The World Turned Upside Down
October 10: It’s a Wonderful LIfe (movie clip)
November 10: A ‘Tsunami’ Hit the Stock Market- Now What?
November 21: History Repeats?
December 18: What Obama Means for the Stock Market
Feel free to leave comments or questions.