Glassman Wealth Services LLC

When investing, we certainly take into consideration economic conditions and the political landscape, however, our Historical Returns Chart reminds us why we maintain a long-term investment perspective. Over the past 15 years, the previous years’ winners may become the next year’s biggest losers. Click on chart to enlarge.

Individual investors continue to move out of stock and stock funds  and are now heavily underweight equities in favor of bonds according to the American Association of Individual Investors.  Allocations to stock and stock funds fell 3.4% to 53.1%, while allocations to bonds and bond funds increased 2.3% to 21.3%. The remaining 1.1% found its way to cash, which currently stands at 25.7% weight.

Growing pessimism is also reflected in recent mutual fund flow data from the Investment Company Institute (ICI).  In the past six months through October, investors pulled $122 billion from equity mutual funds, with nearly all of that coming from domestic equity funds.  Foreign equity funds experienced outflows of “only” $7.5 billion. 

Naturally, money is flowing into the relative safety of cash and fixed income funds.  During the same six-month period, bond funds picked up $61 billion.  Bonds continue to receive favorable treatment from investors, despite the fact they allocated more than $620 billion into bond funds in 2009 and 2010. 

November is proving no different.  Another $12 billion fled equity funds through November 22, while $20 billion found its way into fixed income funds. 

Interestingly, Institutional investors and asset managers gradually became more optimistic and are taking a slightly different tact.  Despite market volatility and headline risks, a Reuter’s poll of US asset managers found the average allocation to equities increased 2.6% to 63.7% in November.  Bond allocations shrank 2.7% to 29.3% during the month. 

They may have cause to be optimistic.  Data from the Stock Trader’s Almanac shows that December is the single best month of the year for the S&P 500 since 1950, and the second best month of the year for the DJIA.  With an average gain of 1.7% for both indices, holiday cheer appears to overtake the markets and encourage a holiday buying spree. 

Only time can tell if this will be another holiday season to celebrate.  Given the typically inaccurate positioning of individual investors and ability of institutional investors to position ahead of rallies, it may be time to bet on black this holiday.  Of course, the lingering crisis in Europe does little to soothe frayed nerves this year, so investors not prepared to endure the volatility should probably watch this one unfold from the sidelines.

 As financial advisors, we look at a broad range of market and economic forces to form our investment decisions. In our monthly economic report, we take a look at the effects these forces have had on markets nationally and globally during the month.  This broader perspective helps us to provide more insightful  financial planning advice to our clients. Click Here for report.

Jessica Ness, Client Advisor and Director of Financial Planning for Glassman Wealth Services recently shared her retirement planning tips with Mark Miller, retirement columnist for Reuters.

“Rebalancing puts an automatic buy-low and sell-high methodology to work because you trim asset classes that have grown in size and you contribute to asset classes that have shrunk.”

Click HERE to read the entire story.

I had a conversation recently with John Waggoner, the personal finance columnist for USA Today where we talked about the assumptions that many people still make about retirement, such as retirees will spend less money in retirement (they don’t), they can safely withdraw 4%-5% each year for living expenses (it depends), and the need to diversify investments and save more (always a good idea.)  To read the entire article, click HERE.