Happy New Year and Welcome to the New Decade! We have just concluded, from a historical standpoint, the worst investment decade in our nation’s history. To close out the decade, we finished with 18 months that can only be described as an absolutely dizzying period. In that time, we witnessed the worst crisis of our financial systems since the Great Depression and then followed it up with the fastest stock market surge in 70 years.
As we met with participants in late 2009 and early 2010, we found that most were still assessing the damage of their accounts. As pleased as we were with the overall performance of the market for 2009, we realize that the market is certainly not back to its high point during October of 2007. We believe the best way to describe the current situation is, "On the mend".
In 2009, the market continued along the downward spiral from 2008. The market hit its bottom on March 9th. From March 9th through December 31st, the S&P 500 Index surged 67.8%. The S&P 500 Index 2009 year to date number was 26.5%, which marked the 2nd best year of the decade (behind 2003), and the 11th best year out of the last 50.
Many participants have asked the same question, “What caused our markets to turn on a dime? How did we climb from the abyss that we were in and end up with a year that was very good overall”? While understanding the events and intricacies of the last few years can be complicated, understanding the rapid surge is not. If 2008 from an investment standpoint could be known as the "year of the banking meltdown", 2009 could easily be known as the year of the "stimulus packages”.
The new administration took office in January 2009 and quickly got to work on the “Great Recession”. A $787 billion stimulus package was passed within days of the inauguration. While most us of have heard all about the stimulus packages, most of us were unaware that the Fed Chief, Ben Bernanke, played a heavy hand in getting 16 other Government agencies to creatively put additional dollars and liquidity into the market.
While the market reaped the benefits of these stimulus packages, the economy has been slower to respond. As we have noted in previous commentaries, the economy typically lags the market by 6-9 months. Unemployment continued to rise and finished the year at over 10% nationally, the highest level in over twenty-five years.
So now we know what happened, and to some extent why, but the question on everyone’s mind is “where are we now headed”? The answer is somewhat difficult and confusing. Historically, the deeper the recession - the stronger the recovery. Unfortunately, we are not anticipating a strong recovery yet because of the situations within the banking and financial industries. Unfortunately, there is no easy or quick fix in those areas. What we see ahead is growth, but we believe this growth will occur at a moderate or sluggish rate.
The good news is that the analysts believe the economy is finally on the verge of producing jobs. The leading indicator that evaluates unemployment has increased for the better the last 7 consecutive times it has been measured. The measurement shows a steady decline in initial unemployment claims, as well as an increase in hiring of temporary workers.
Additionally, while a $787 billion stimulus package was approved, only $220 billion has been released, which means there is an additional $567 billion that could be available during 2010. This should help boost both the market and economy even further.
These two items themselves are NOT enough to lead us forward in a moderate or sluggish manner. For real gain and improvement to the economy, we need the power of consumer spending. For the past two years, consumers have been reluctant to make major purchases such as buying vehicles and/or homes. Consumer and business spending should increase once the unemployment rate is down and banks are actively lending money once again. We can hope for this in 2010 but realistically this will happen sometime in 2011 or 2012.
So what does this news mean to plan participants? For most, the answer is not much. If you have 5+ years before you will begin taking your money from your retirement account, it makes sense to rebalance your portfolios, but do so by not changing the risk factors on your account. For those with less than 5 years until retirement, you should take a slow, long look at your account. If you have stayed the course, you have regained much of your 2008 losses. While never wanting to lock-in a loss, you should create a carefully constructed game plan of what your next move should be and when.
We are, and have always been, available to meet with participants to review and discuss their accounts. If you have ignored your account in recent years because of the market fluctuations, it is time to revisit it. After surviving 2008, where the S&P fell by 37%, and then recovering in 2009, where the S&P grew by 26.5%, your account may look very different. We are encouraging all participants to review their accounts and make sure that their goals are consistent with their age, time horizon, and risk tolerance.
If there is anything that we can do to help you achieve your retirement or investment goals, please do not hesitate to contact us. We appreciate your continued support of and participation in AdviseMe!® and look forward to working with you.