Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Friday, July 2, 2010

More of the Same Ahead?

With the end of the second quarter, it’s natural to think about what may occur in the market during the third and fourth quarters. The second quarter market results were more than disappointing, with the Dow Jones Industrial Average (DOW) down some 10%. Most all domestic and foreign equity asset classes were down for the year with the exception, perhaps, of real estate funds which gained 5.15%, according to Morningstar®.

Fixed-income funds and municipal bond funds, in general, all had positive returns, with long government bonds leading the way at 15.9 percent for the year. Intermediate-term bond funds generally returned about 5 percent year-to-date while inflation-protected bonds returned around 4 percent.

The driving forces behind these generally poor results are many. First and foremost is the slowly recovering economy with unemployment still high at just under 10 percent. The market “flash crash” coupled with the turmoil in Europe caused by the crisis in Greece, have caused significantly worries for investors.

On top of all that, we have the worries over high government spending, the unknown impacts and cost of the healthcare legislation, and the added complexity of the pending financial regulation legislation. Clearly, the ongoing oil spill crisis in the Gulf of Mexico isn’t helping a major region of the country feel good about its economic future. A projected active hurricane season adds to the worry as the first storm came ashore on Wednesday.

When confidence is low, the markets suffer. There have been some signs of economic recovery, yet the myriad of negative factors noted above has overshadowed the bits of improvement. With unemployment still high, the housing market and consumer spending will likely continue to suffer.

Although we are not economists, we see little evidence that a major turnaround will happen before year-end. We expect continued high market volatility like we have been seeing, with the market up one day and down the next. When things finally do take off, one thing is for certain - you won’t want to be out of the market. For that matter, trying to time any particular asset class has recently proven to be extremely difficult. Who would have though that real estate funds would be winner for the first six months of 2010, or for long-term government bonds to return 15.9 percent, year-to-date.

The best thing you can do is maintain your target asset class allocations and rebalance periodically. By doing that, you will be positioned to take advantage of whatever asset classes go on the upswing next.


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