D3 Financial Counselors Update:
We are including our new investment advisory contract with this newsletter. As we shared with you previously, because D3 Financial Counselors is changing from a sole proprietorship to a corporation, the SEC requires that clients sign a new contract (in two places) with the corporation. None of the services that we provide to you will change. The new contract is slightly different from the older one, because it was created by a law firm specializing in investment/planning contracts, who was referred to us by Fidelity. The new business will start on January 1, 2008 (the date on the contracts), so please sign and send the contract back to us as soon as possible. We’ll send the signed copy back to you.
We are also in the process of reviewing our asset allocation models for 2008, and are researching the best funds to use to fill up these buckets. For some asset classes, we are finding that some funds, not part of the Fidelity “no transaction fee” network, would be the best investments. These funds have lower expense ratios than similar funds, and their investment objective is more “concentrated” on the asset class we are targeting. In 2008, we plan to start investing in these funds if the annual savings in fund expenses exceeds Fidelity’s $25 commission for purchasing these funds.
Things You Should Know:
The Federal Reserve lowered the overnight interest rate by ¼ of 1% on Tuesday to 4.25%. The markets viewed this as both good news and bad news. By dropping the rate by only 25 bps, instead of a possible 50 bps, the Fed didn’t appear overly concerned about the impact of the housing recession on overall economic growth, which was good news. The bad news is that the Fed remains very concerned about the absence of liquidity and trading in the bond markets.
We continue to believe the direction of the stock market between now and year end will be determined by what corporations say about their business outlook for 2008. As we have said before, the risk of a recession is directly related to how much consumers pull back their spending, and a significant pullback has yet to materialize. We believe consumer spending is directly related to the level of unemployment, which is still very low at 4.7%. If unemployment starts to increase above 5%, the odds of a recession in the U.S. will increase.
At D3, we continue to monitor the economic landscape, looking for conviction. Our greatest conviction is that economic growth rates are likely to slow in the U.S. and Europe, but remain strong for the rest of the world economy, and the recent actions of the Fed will help prevent a recession. We see the best opportunities in the bond markets and small cap stocks early next year.
This time of year is very hectic. We want to encourage everyone to take time to appreciate all of the blessings that they have. As always, thank you for your business, and please continue to think of us when someone you know needs to “Understand the economic consequences of their financial decisions”. Happy Holidays from D3!
Donald D. Duncan MBA CPA/PFS CFA™ CFP® Nancy Lencioni & Becky Connery
Peter Marchese MBA CFA™ Michael Meyers MBA CFP®