Market Update

Report by Patrick Rohe

The 2nd quarter of 2011 offered a rollercoaster ride in the stock market that will search uneventful in the background books. April was a robust month for the marketplace, but by mid-June the S&ampP 500 had fallen much more than 7% from its April substantial, erasing the 1st quarter gains and falling back to exactly where it was in December of 2010. In the final two weeks it jumped almost 5%, recouping the initial quarter gains and offering a 6.% return for the year to date, when dividends are incorporated.

Other markets skilled a similar pattern, as the related news was global in nature. Oil rates are up inflation is threatening the developing economies in China, India, and Brazil sovereign debt in Greece and some of the other EU countries is a problem and the US economic recovery stays sluggish. None of these issues are going away, and any hint of developing uncertainty sends markets downward, but any hint of improvement sends markets in a positive direction.

Bonds contributed substantially to portfolio returns in the second quarter, so much more conservative portfolios benefited from holding larger bond allocations. This return, when once again, came from a decline in rates that drove bond charges higher. The quarterly return of two.three% for the broad bond marketplace index (Barclays Capital US Government/Credit Index) was practically equal to its annual yield (interest return). It is worth retaining in mind that the opposite will happen at some point – when rates rise a equivalent amount, bond costs will fall, and the loss in value will wipe out an entire year’s really worth of interest income.

“The Sky is Falling!”… Can we please disregard the noise? “Financial worries drove a plunge in US stocks Friday morning, pointing to a sixth straight weekly decline that would be blue-chip stocks’ longest skid considering that 2002” – (Dow Jones June ten, 2011)

That headline seems practically silly in the context of a quarter that delivered flat returns on blue-chip stocks, but it apparently sells newspapers, and we read a thing similar each and every day the marketplace went down last quarter. Markets are volatile. Enduring volatility is necessary if investors hope to take pleasure in the extended-phrase rewards expected from stock marketplace investment. So…ignore the noise.

Lessons we should learn from Bernie MadoffA new book came out lately entitled The Wizard of Lies, and the writer, Diana Henriques, was interviewed by Morningstar. She helps make a number of intriguing observations such as the truth that Madoff did not consider to exploit people’s greed, as do most Ponzi schemes, promising outsized returns. He as an alternative seduced them with steady returns that exploited their worry of losing cash, offering but yet another reminder that danger and return can not be separated in the actual planet.

She also compares Madoff’s operation to the relative security of a mutual fund when she asks, “…what was he running? He was running a secret, unregistered, unregulated, sort of quasi-hedge fund that developed no prospectuses,” whereas mutual funds have auditors, and third-get together custodians that can confirm the existence of fund assets.

This observation brings some old, but straightforward truths to mind:

1) If it sounds too excellent to be genuine, it almost certainly is

2) If no 1 can genuinely describe why it functions, you ought to not buy it and

3) It is excellent to trust, but verify.

Since the Madoff scandal broke, many investors have been worried about the safety of their investments. The role of a third-party custodian is vital. Rockbridge relies on third-get together custodians, like Charles Schwab and TD Ameritrade, to provide monthly statements to our consumers that verify every single asset and transaction in their accounts. The Madoff fraud relied on clientele accepting verification from a Madoff owned and controlled custodian. Independent verification tends to make the scheme unattainable to replicate. Investment threat can’t be avoided, but the use of an independent custodian is a easy safeguard that ought to give investors confidence that their assets are safe from fraud.

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