Sherri’s Sidebar

1st Quarter March 2012

The Markets

As we have come to expect, the worst performing assets turn around to become some of the best performers and the best performers never seem to stay that way! For example, in 2011, Morningstar Diversified emerging markets like China, India, and Brazil, were -18.55%. For the first quarter of this year so far, they are +14.22%. In 2010, the bond markets as measured by BarCap Long Term US Treasury TR USD were +9.38%. So far this year, they are -5.33%. Generally, it is important to understand two concepts:

  • Distinguish economies from markets
  • Past performance does not predict future performance

Economies vs Markets

A good way to illustrate this is to review 2011. Many clients have said that they are discouraged by the U.S. growth prospects and political system, but recognize that countries like China, India, South Korea and Brazil, etc., have had GDP (Gross Domestic Product) growth that significantly exceeds the U.S. China, for example, had GDP growth last year of almost 8%. Their stock markets, however, were negative. China's Shanghai Composite Index was –18.2% in 2011, India's BSE Sensex, -37.2%, and Brazil's Bovespa, -27.6% (measured in dollars). The U.S. GDP grew a sluggish 2%, yet the markets this year are up significantly, as you can see in the table below.

The reality is that many public companies are global, think Coke, IBM, Proctor and Gamble and Apple. Many of these companies have significant sales and revenue overseas. We recommend considering companies all across the globe because we are more and more globalized as a society and it can enable us to participate in other growth businesses in other countries' economic and tax structures.

Past results do not predict the future

There are many examples of this. In the late 1990's, technology stocks were front and center. In 2005, real estate was booming. We all know the severity of declines, when markets get too hot and bubbles occur. Currently, bonds are getting the headlines, as they should. Going forward, it is not likely that we will experience the high returns on high quality bond portfolios, including treasuries. We generally use that strategy for principal preservation instead and not chase yield. With interest rates at historical lows, cash has been hard to justify in some cases and many are looking for yield in riskier places.

We believe portfolio design and manager selection must consider these concepts.

Financial Market Update* Year-to-date change as of March 30, 2012
S&P 500 Index 12.00%
NASDAQ Composite 18.67%
Russell 2000 12.44%
MSCI EAFE US$ (International) 11.34%
Barclay's Capital (Lehman) US Aggregate 0.30%
Dow Jones Select REIT
(Formerly Known As Wilshire REIT)
*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.
Source: Morningstar

Medicare Surtax

Now that tax season is behind us, we should be aware of what may lie ahead. While taxes aren't the first consideration, they should be part of your overall planning strategy for estate planning and gifting, for capital gains, including business sales and other large asset sales, Roth conversions, charitable gifting and general income tax planning. In 2012, the Bush tax cuts are scheduled to expire. In 2013, a new Medicare surtax of 3.8% of "net investment income" will be applied for those with an AGI exceeding $250,000 for joint tax payers and $200,000 for single filers. For those who have significant investment income, this little discussed new tax, combined with higher potential capital gains and dividend tax rates, could be an unwelcome surprise. A more detailed summary of the current landscape on taxes is attached.

We know tax season is a frustrating time. Delayed 1099's, K-1's, and new cost basis reporting requirements can really challenge us. We work to be as responsive and supportive to you and your tax preparer as possible. I hope our efforts have helped.


This will be a very important election with big implications. Congress's well demonstrated lack of courage to deal with economic issues in the United States causes us great concern. While the markets are currently doing well, we are always cautious and remain vigilant around risk.

Please feel free to call us with any questions you have.


Dow Jones Industrial Average: Covers 30 major NYSE industrial companies. S&P 500: An unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. NASDAQ Composite: An unmanaged index of securities traded on the NASDAQ system. Russell 2000: An unmanaged index of small cap securities which generally involve greater risks. MSCI EAFE: An unmanaged index that is generally considered representative of the international stock market. Barclay’s Capital: The U.S. Aggregate Index covers the USD-denominated, investmentgrade, fixed-rate, taxable bond market of SECregistered securities. Dow Jones Wilshire Real Estate Index: A measurement of equity REITs and real estate operating companies. Diversification and asset allocation does not guarantee a profit nor protect against loss. Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Mgt Group is independent of RJFS. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investments mentioned may not be suitable for all investors. International investing involves additional risks such as currency fluctuations, differing financial and accounting standards, and possible political and economic instability. Also, investing in emerging markets can be riskier than investing in well-established foreign markets.

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