D3 Business Update:
We are in tax heaven. Thank you for getting your tax information to us. Our goal is to complete all of our family office client’s taxes by March 30th. This is because all paid tax preparers must efile with the IRS and we need have you sign an authorization form to do so. If you haven’t provided your tax information to us yet or let us know when you will be providing it, please call us.
After our internal assessment, using our new Macro Risk Analytics software, we decided to tweak our asset allocation models. We reduced the income and international allocations and increased the equity income and alternative allocations in our models. We have been executing these changes during February. More information about these changes is later in this letter.
To help us manage our new client work flow, we added more part time staff. Neil LeFort, MBA, JD, CPA has joined our firm. Neil has also has completed DePaul University’s certificate program in Financial Planning. Trudy Bertram is also working part time for us as an Administrative Assistant, covering the hours when Patty is not here.
You should know that D3 Financial Counselors won the 2011 Chamber Choice award for a professional business from the Downers Grove Chamber of Commerce. We are very proud of our contribution to the community. You should also know that we will have a full page feature ad in the March issue of Forbes Magazine.
D3 Investment Outlook:
With all of the democratic revolutions occurring in the Middle East, our decision to reduce international exposure appears appropriate. These events remind us of when the Berlin Wall fell and the U.S.S.R. disintegrated into Russia. Democratic revolutions can have a domino effect just as we have seen in Tunisia, Egypt and Libya (similar to East Germany, Poland, Hungary and Czechoslovakia in the 1980’s). Democracy spreading throughout the world is a good thing, but the time it takes to transition from a dictatorship to a democracy usually has a negative impact on economic activity.
This past week, Adam and I attended an economic presentation by William Strauss, Senior Economist at the Federal Reserve Bank of Chicago. In summary he says all signs point to increased growth in the U.S. Whereas the Blue Chip Economic forecast consensus sees 3.5% growth, he sees 4.0% growth (and even a little stronger in the Midwest). Unfortunately, fourth quarter GDP was revised down last Friday to 2.8% from 3.2%. The largest drag on the number was the decline in state and local government spending.
That is a good segue to the municipal bond market. Last month we talked about the volatility in the muni bond market. The current stalemate going on in Wisconsin and Indiana, appear to be a tipping point regarding state finances. Believe it or not (in conversations with Illinois State Senator Ron Sandack from Downers Grove and Doug Whitley, President of the Illinois Chamber of Commerce), even Illinois is likely to address government spending including pension reform. It is unlikely that collective bargaining rights will be attacked in Illinois like Wisconsin or Indiana because 97% of Illinois’s government workers are already in unions. Regardless, the legislature is likely to write some laws addressing the state’s huge unfunded liabilities. Ultimately this is good for the municipal bond market, but will continue to subject it to headline risk and therefore continued volatility.
D3 Investment Insight and Strategy :
We have been focusing our efforts on rebalancing all clients’ portfolios to our new asset allocation models. The primary rational for the model change was our increased concerns about inflation and the inevitable increase in interest rates that will occur throughout the world. We also have a higher conviction that dividend paying equities will out perform fixed income investments in 2011. We also believe that increasing exposure to the alternative asset class will hedge some of the reduction in international exposure because the emerging markets are so dependent on commodities.
We made these model changes in early February and it looks as if world events are confirming our decisions. As events continue to unfold, we will keep a watchful eye on your investments in our attempt to manage the risks in your portfolios. Please see the attached chart for the changes we made in our asset allocation models. (Also please remember that we customize these models for many of our clients).
After our comprehensive review of all of the mutual funds we use, we have decided to replace a few funds in the Income category and the Large Cap Growth category. We will be making these changes during the next month.
As required by the Securities and Exchange Commission, we are making available to you our form ADV part II. Form ADV part II describes how we do our business. It is always available on our website under the “Our Company” tab.
We are fortunate again to be invited to the Barron’s Winner Circle Conference, for the top independent advisors in the United States. We will share with you any good insights from the conference in our April letter.
As always thank you for your confidence in D3 Financial Counselors.
Donald D. Duncan MBA CFA™ CPA CFP® Adam Glassberg, Financial Planner
Michael Meyers MBA CFP® Patty Shipinski, Office Manager
Neil LeFort MBA J.D. CPA Trudy Bertram, Administrative Assistant