D3 Business Update for Clients:
We’ve met with most clients to review the portfolio performance, relative to the goals in the financial plans. As you know, our long term investment performance goals are to exceed the target rate of return in your financial plan, after our fees. Through proper asset allocation and investment analysis, we have generally been successful (see attached report from Fidelity). We do not have a crystal ball to foresee the future (we wish we did), but we do apply our knowledge and experience to rebalance your exposure to investment risk based upon changing economic and market conditions.
Because our investment activity is so focused on risk management relative to your goals, we are in the process of refining our asset allocation models. We are compartmentalizing risk even further by adding two new asset classes: “Equity Income” and “Equity Risk Pool”. The Equity Income Pool is comprised of funds and REITs that provide consistent cash flow through dividend payments. The Equity Risk Pool is comprised of individual securities. We feel it is important to categorize these two new asset classes because they have more volatility than our Income or Small Cap growth categories.
As a reminder, D3 Financial Counselors is sponsoring our first Annual Referral Celebration Dinner, an evening filled with dinner, dancing, and fun at the Downers Grove Chamber of Commerce Black and White Ball, on Saturday, September 20, 2008. We consider it an honor and privilege to receive your referrals. This event is our way of saying “Thank you” to all of our clients and friends who have referred business to us in 2008. Admission to the Black and White Ball is FREE for anyone who refers business to us between now and September 15, 2008. Our thanks to you!
Our Current Thoughts on the Market:
Since we sent out our last newsletter 6 weeks ago, the price of a barrel of oil seems to have peaked at $147, and has fallen to a trading range between $115 and $120. Supplies of oil and gasoline are rising as Americans have reduced their time on the roads with gasoline above $4 per gallon. However, a strong wave of economic data from both Europe and Japan confirmed that the economic slowdown in the U.S. has spread beyond our borders. This, coupled with the fear of rising inflation worldwide, caused stock markets in both Europe and Asia to fall. However, this new awareness of a global economic slowdown also has caused the prices of commodities to fall, which seems to have stabilized the stock market at its current levels.
As we write this newsletter, stock markets world wide are near their lows for the year, all having fallen 10% or more. The challenge currently is to identify a catalyst that will propel stock markets higher for the remainder of 2008. The housing market is likely to remain weak and unemployment is likely to rise to around 6%. The U.S. economy grew at a 3% rate during the 2nd quarter, helping to balance the stock market optimists with the stock market pessimists. We’re more concerned about the slowdown in growth outside of the U.S., than we are worried about rampant inflation. The catalyst for any market movement (up or down) may be the outcome of the presidential election. The new administration will have multiple opportunities to change the tax laws which could influence everyone’s investment decisions.
Throughout its history, the stock market reflects expectations of future economic growth. Expectations of future economic growth are likely to improve before the economic data confirms the improvement, and can propel the stock market higher. Our challenge is to forecast and anticipate these changes in investors’ expectations and to capitalize on them. Statistically, we increase the odds of doing this with a diversified asset allocation that reflects both the objectives of your financial plan, and your investment risk tolerance. Through diversification we strive to increase return and reduce risk. This is part of the reason we are refining our measurement of market risk with the two new asset classes and new asset allocation models.
As always, give us a call if you have any questions or concerns. Look forward to our client survey next month and THANK YOU for your business.
Donald D. Duncan MBA CPA/PFS CFA™ CFP® Nancy Lencioni & Becky Connery
Peter Marchese MBA CFA™ Adam Glassberg & Jen Steinhaus
Michael Meyers MBA CFP®