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Just Plans 2nd Quarter 2010 Guide to the Markets

Just Plans 2nd Quarter 2010 Guide to the Markets

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  • 1. As of June 30, 2010 Guide to the Markets Guide to the Markets Barry Mendelson, CFP® 925‐988‐0330 x22 Barry@JustPlans‐Etc.com Barry@JustPlans Etc com 1
  • 2. About Barry Mendelson, CFP® Investment management and personal finance guru.  More than 15 years experience working  for leading financial services companies including Charles Schwab, AXA Rosenberg, Neuberger  for leading financial services companies including Charles Schwab AXA Rosenberg Neuberger Berman, and Franklin Templeton.  Prior to joining Just Plans Etc. in 2010, was a Vice President in  Charles Schwab & Co’s $200 billion investment management division.  Certified Financial  Planner™ certificate holder since 2008.  B.A. in Business Economics & Accounting from U.C.  Santa Barbara in 1995. Santa Barbara in 1995 Just Plans Etc.  Founded in 1982 and based in Walnut Creek, California ‐ Just Plants Etc. is a fee‐only wealth  management firm and SEC registered investment advisor.  Just Plans provides investment  management and financial planning services to more than 100 individual, families, and  companies.  As a fiduciary, the firm puts the interests of the client above all else. companies As a fiduciary the firm puts the interests of the client above all else 2
  • 3. Agenda 1. Current Market Environment 2. Current Economic Environment 3. Historical Perspective 4. Lessons for the Future 3
  • 4. Agenda 1. Current Market Environment 4
  • 5. Returns by Style Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends. 2Q 2010 YTD 2010 S&P 500 Index Value Blend Growth Value Blend Growth 1,250 ge ge Larg Larg 1,200 -11.1 -11.4 -11.7 -5.1 -6.7 -7.6 2Q10: 1,150 -11.4% Mid Mid 1,100 -9.6 -9.9 -10.2 -0.9 -2.1 -3.3 1,050 1 050 2010: -6.7% Small Small 1,000 -10.6 -9.9 -9.2 -1.6 -2.0 -2.3 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Since Market Peak (October 2007) Since Market Low (March 2009) S&P 500 Index Value Blend Growth Value Blend Growth 1,600 1 600 Large Large 1,400 Since 10/9/07 Peak: -34.2 -29.9 -24.6 64.1 56.6 53.8 -29.9% 1,200 Mid Mid 1,000 -25.2 -24.7 -25.0 90.9 81.8 73.3 800 Small Small Since 3/9/09 Low: +56.6% -25.2 -25.0 -25.1 85.0 80.9 76.8 600 Jan-07 Jan-08 Jan-09 Jan-10 Source: Russell Investment Group, Standard & Poor’s, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represe nts period 10/9/07 – 6/30/10 illustrating market returns since the most recent S&P 500 Index high on 10/9/07 Since Market Low represents period 6/30/10, 10/9/07. 3/9/09 – 6/30/10, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. F or all time periods, total return is based on Russell -style indexes with the exception of the large blend category, which is reflected by th e S&P 500 Index. Past performance is not indicative of future returns. 5
  • 6. Equity Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q10 YTD Large Mid Small Small Mid Small Mid Mid Small Large Small Mid Small Mid Growth Growth Value Value Value Growth Value Value Value Growth Value Growth Growth Value 38.7% 51.3% 22.8% 14.0% -9.6% 48.5% 23.7% 12.7% 23.5% 11.8% . -28.9% 46.3% -9.2% -0.9% Mid Small Mid Mid Small Small Small Mid Large Mid Large Large Mid Small Growth Growth Value Value Value Value Value Growth Value Growth Value Growth Value Value 17.9% 43.1% 19.2% 2.3% -11.4% 46.0% 22.3% 12.1% 22.2% 11.4% -36.9% 37.2% -9.6% -1.6% Equities Large Large Large Large Large Mid Large Large Mid Small Large Small Mid Small Value Growth Value Value Value Growth Value Value Value Growth Growth Growth Growth Growth 15.6% 33.2% 7.0% -5.6% -15.5% 42.7% 16.5% 7.1% 20.2% 7.0% -38.4% 34.5% -10.2% -2.3% Mid Large Mid Small Mid Mid Mid Large Small Large Mid Mid Small Mid Value Value Growth Growth Growth Value Growth Growth Growth Value Value Value Value Growth 5.1% 7.4% -11.8% -9.2% -27.4% 38.1% 15.5% 5.3% 13.3% -0.2% -38.4% 34.2% -10.6% -3.3% Small Mid Large Mid Large Large Small Small Mid Mid Small Small Large Large Growth Value Growth Growth Growth Value Growth Value Growth Value Growth Value Value Value 1.2% -0.1% -22.4% -20.2% -27.9% 30.0% 14.3% 4.7% 10.7% -1.4% -38.5% . 20.6% -11.1% -5.1% Small Small Small Large Small Large Large Small Large Small Mid Large Large Large Value Value Growth Growth Growth Growth Growth Growth Growth Value Growth Value Growth Growth -6.5% 6.5% -1.5% 1.5% -22.4% -20.4% -30.3% 29.8% 22.4% 20.4% 30.3% 6.3% 4.2% 9.1% -9.8% 9.8% -44.3% 44.3% 19.7% -11.7% 11.7% -7.6% 7.6% Source: FactSet, Russell Investment Group, J.P. Morgan Asset Management. All data are based on Russell Indexes and represent total return for stated period. Small company stocks may be subject to a hig her degree of market risk than the securities of more established companies because they tend to be more volatile and less liquid. Each style is representat ive of corresponding Russell style index. Past performance is not indicative of future returns. Please see disclosure page at end for index definitions. Data ar e as of 6/30/10. Large Value = Russell 1000 Value Index Large Growth = Russell 1000 Growth Index Mid Value = Russell Mid Cap Value Index Mid Growth = Russell Mid Cap Growth Index Small Value = Russell 2000 Value Index Small Growth = Russell 2000 Growth Index For illustrative purposes only. 6
  • 7. Deploying Corporate Cash Corporate Cash as % of Current Assets Theoretical Drag on Earnings from Retained Cash S&P 500 companies – cash and cash equivalents, quarterly Cost of capital vs. return on cash 12% 26 10% 10% 24 8% 22 6% 20 4% 18 2% 1% 16 0% 14 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 Cost of Capital Cash Return Acquisition Growth vs. Organic Growth S&P 500 Dividends per Share Monthly deal volume and nonfarm nonfinancial capex Next twelve months dividends per share, USD 1,600 360 $32 Capital expenditures M&A activity 1,400 330 $28 1,200 300 1,000 270 $24 800 240 600 $20 210 400 180 $16 200 0 150 $12 1998 2000 2002 2004 2006 2008 2010 '96 '98 '00 '02 '04 '06 '08 '10 Source: Standard & Poor’s FRB Bloomberg, FactSet J P Morgan Securities J P Morgan Asset Management Poor s, FRB, Bloomberg FactSet, J.P. Securities, J.P. Management. (Top right) for illustrative purposes only, not based on actual data. (Bottom left) M&A activity is monthly number of deals o f any value and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom right) Next twelve months dividends are estimates provi ded by Standard & Poor’s. Data are most recent as of 6/30/10. 7
  • 8. Fixed Income Sector Returns 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q10 Q YTD Treas. EMD EMD Corp. TIPS High Yield EMD EMD High Yield TIPS Treas. High Yield Treas. Treas. 10.0% 23.1% 13.7% 10.3% 16.7% 29.0% 11.9% 12.3% 11.8% 11.6% 13.7% 58.2% 4.7% 5.9% Barclays Barclays Asset High Yield Treas. EMD EMD High Yield EMD Treas. MBS EMD TIPS Corp. Agg Agg Alloc. 8.7% 2.4% 13.5% 8.4% 12.2% 26.9% 11.1% 3.6% 10.0% 9.0% 8.3% 34.2% 3.8% 5.8% Barclays Barclays Barclays Corp. TIPS TIPS MBS Treas. TIPS TIPS Muni MBS Corp. EMD Agg Agg Agg 8.6% 2.4% 13.2% 8.2% 11.8% 10.6% 6.3% 3.5% 5.2% 7.0% 5.2% 18.7% 3.5% 5.7% Barclays Asset Asset Asset Asset Asset Barclays MBS MBS Muni TIPS TIPS MBS Corp. Agg Alloc. Alloc. Alloc. Alloc. Alloc. Agg 7.0% 1.9% 11.7% 7.9% 10.3% 10.0% 6.0% 2.8% 5.1% 6.9% -1.4% 15.8% 3.4% 5.3% Asset Barclays y Asset Asset Asset Asset Muni Corp. Corp Corp. Corp Corp. Corp Treas. Treas Muni TIPS Muni Alloc. Agg Alloc. Alloc. Alloc. Alloc. 6.5% 1.6% 11.6% 6.8% 10.1% 8.2% 5.4% 2.8% 4.8% 6.2% -2.4% 12.9% 2.9% 5.0% Asset Barclays Asset Barclays MBS Treas. Muni MBS High Yield EMD Muni TIPS MBS High Yield Alloc. Agg Alloc. Agg 5.3% -0.8% 11.2% 6.7% 10.0% 5.3% 4.7% 2.7% 4.3% 5.2% -2.5% 11.4% 2.9% 4.5% Asset Barclays Barclays TIPS Corp. High Yield Muni Muni MBS Corp. Corp. Corp. Muni MBS Alloc. Alloc Agg Agg 3.9% -2.0% 10.2% 5.3% 9.6% 4.1% 4.5% 2.6% 4.3% 4.6% -4.9% 5.9% 2.0% 4.5% Barclays Barclays High Yield Muni Corp. Muni MBS MBS Treas. Muni EMD MBS EMD TIPS Agg Agg 1.9% -2.1% 9.1% 5.1% 8.7% 3.1% 4.3% 2.4% 3.1% 3.4% -14.7% 5.9% 1.0% 4.4% EMD Treas. High Yield EMD High Yield Treas. Treas. Corp. TIPS High Yield High Yield Treas. High Yield Muni -11.6% -2.6% -5.9% 1.5% -1.4% 2.2% 3.5% 1.7% 0.4% 1.9% -26.2% -3.6% -0.1% 3.3% Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and a re represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets In dex; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital Real TIPS. The “Asset Allocation” portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerg ing Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Balanced portfolio assumes annual rebalancing. g , , p g Data are as of 6/30/10. 8
  • 9. Gold Gold Gold Prices World Gold Production $ / oz Year Troy Ounces Total Value 1,400 Gold 2000 83.3 mm $23.2 bn Most recent: Gold, CPI adjusted $1,244 1,200 2001 83.6 83 6 mm $22.7 bn $22 7 b 1,000 2002 82.0 mm $25.4 bn Jan. 1980: $850 2003 81.7 mm $29.7 bn 800 2004 77.8 mm $31.9 bn 600 2005 79.4 mm $35.3 bn 400 2006 76.2 mm $46.0 bn Jan. 1980: $326 Most recent: 2007 75.9 mm $52.9 bn $210 200 2008 72.7 72 7 mm $63.3 $63 3 bn 0 '70 '75 '80 '85 '90 '95 '00 '05 '10 2009 75.6 mm $73.5 bn Source: (left) EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (right) U.S. Geological Survey, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices divided by the CPI value for th at month. CPI is rebased to 100 at the start of the chart. Total value of world gold production is calculated as troy ounces multiplied by th e average gold spot price for the respective year. Data reflect most recently available as of 6/30/10. 9
  • 10. Agenda 2. Current Economic Environment 10
  • 11. Economic Expansions and Recessions Length of Economic Expansions and Recessions The Great Depression and Post-War Recessions Length and severity of recession 125 5 yrs Average Length (months): Expansions: 43 months p Great Depression: 26.7% decline in real GDP 100 Recessions: 15 months 4 yrs Length of Recession in Years -26.7% 75 3 yrs Most Recent Recession: 3.8% decline in real GDP 50 2 yrs -3.8% -3.2% -2.9% -2.6%-1.6% 25 1 yrs -0.6% * -1.7% -0.3% * -1.4% -3.7% -2.2% 0 0 yrs 1900 1912 1921 1933 1949 1961 1980 2001 1910 1930 1950 1970 1990 2010 Source: NBER, J.P. Morgan Asset Management. Source: NBER, BEA, J.P. Morgan Asset Management. Data for length of economic expansions and recessions obtained from the National Bubble size reflects the severity of the recession, which is calculated as the decline in real GDP from the peak quarter to the trough quarter except in the case of the Great Bureau of Economic Research (NBER). This data can be found at www.nber.org/cycles/ Depression, where it is calculated from the peak year (1929) to the trough year (1933), and reflects information through June 2010. *Assumes recession started December 2007 due to a lack of available quarterly data. Data are as of 6/30/10. and ended June 2009. Assumes most recent expansion extended through June 2010. For illustrative purposes only. 11
  • 12. Economic Growth & Composition of GDP Real GDP Components of GDP % chg at annual rate Billions, USD 10% 20-yr avg. Latest $16,000 Real GDP: 2.6% 2.7% 2.4% Housing / Construction 8% $14,000 9.7% Investment ex-housing 6% $12,000 20.4% Gov’t Spending 4% $10,000 2% $8,000 0% $6,000 71.0% -2% 2% Consumption $4,000 -4% $2,000 -6% $0 -8% - 3.5% Net Exports '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 -$2,000 Source: BEA, J.P. Morgan Asset Management. Data reflect most recently available as of 6/30/10. GDP values shown in legend are % change vs. prior quarter annualized and reflect revised 1Q10 GDP. 12
  • 13. Consumer Finances Consumer Balance Sheet Personal Savings Rate Trillions of dollars outstanding, not seasonally adjusted Annual, % of disposable income 12% $70 Total Assets: $69 tn 10% YTD 2010: 8% 3.6% $60 Homes: 27% 6% 4% $50 2% Other tangible: 7% 0% Deposits: 11% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 $40 Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted $30 Pension funds: 18% 15% 3Q07: Revolving (e.g.: credit cards): 6% g( g ) 14.0% 14 0% Non-revolving: 12% 14% Other Liabilities: 9% $20 13% Other financial Total Liabilities: $14 tn assets: 37% 12% 1Q80: 1Q10: $10 11.2% 12.5% 11% Mortgages: 73% $0 10% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Source: (Left chart) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right charts) BEA, FRB, J.P. Morgan Asset Management. Personal savings rate is calculated as personal savings (after -tax income – personal outlays) divided by after -tax income and reflects data through February. Employer and employee contributions to retirement funds are included in after -tax income but not in personal outlays, and thus are implicitly included in personal savings. Savings rate data are as of May 2010. All other data are as of 1Q10. 13
  • 14. Federal Finances Federal Budget Surplus/Deficit U.S. Proposed Federal Budget Outlays - 2010 % of GDP, 1940 – 2020* 5% -5% 5% -15% Other *Administration’s proposed 18% Entitlements: 2011 budget -25% Social Security Medicare Medicaid M di id -35% 39% 1940 1950 1960 1970 1980 1990 2000 2010 2020 Non-Defense Federal Debt (Accumulated Deficits) (Discretionary) % of GDP, 1940 – 2020* 15% Defense 125% 5% (Discretionary) *Administration’s proposed 23% 100% 2011 budget 75% 50% 25% Total Projected 2010 Budget Receipts: $2,165 billion Total Projected 2010 Budget Outlays: $3,721 billion 0% 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected Surplus / Deficit: - $1,556 billion Source: St. Louis Fed, BEA, OMB, J.P. Morgan Asset Management. , , , g g Source: OMB, J.P. Morgan Asset Management. Data reflect most recently available as of 6/30/10. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Bottom left chart displays federal debt in the hands of the public. 14
  • 15. Consumer Price Index CPI and Core CPI CPI Weight in 12-month % chg vs. prior year 50-yr. Avg. Latest Components CPI Change 15% Headline CPI: 4.1% 2.0% Food & Bev. 14.8% 0.7% Core CPI: 4.1% 0.9% Housing 42.0% -0.5% 12% Apparel 3.7% -0.6% Transportation 16.7% 10.7% 9% Medical Care 6.5% 3.4% Recreation 6.4% 6 4% -0 5% 0.5% 6% Educ. & Comm. 6.4% 2.2% Other 3.5% 2.7% 3% Headline H dli CPI 100.0% 100 0% 2.0% 2 0% Less: 0% Energy 8.6% 14.7% Food 13.7% 0.7% -3% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Core CPI 77.7% 0.9% Source: BLS, J.P. Morgan Asset Management. Data reflect most recently available as of 6/30/10. CPI values shown are % change vs. 1 year ago and reflect May 2010 CPI data. CPI component weights are as of Dec. 2009 and 12 -month change reflects data through May 2010. Core CPI is defined as CPI excluding food and energy prices. 15
  • 16. The Federal Reserve Fed Funds Target Rate and 10-Year Treasury Yields 12 Grey bars represent Fed tightening cycles g g y 10 8 6 10-year Treasuries: 2.97% 4 2 Fed Funds Target: 0.0% to 0.25% 0 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. Data are as of 6/30/10. 16
  • 17. Employment Civilian Unemployment Rate Employment - Total Non-farm Payroll Seasonally adjusted Total job gain/loss (thousands) 12% 600 11% 400 Jun. 2010: 10% -125K 200 Most recent: 9.5% 9% 0 8% -200 7% -400 6% -600 5% 50-yr. avg.: 6.0% 4% -800 Jan. 2009 J 2009: -779K 3% -1,000 '60 '70 '80 '90 '00 '10 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Source: BLS, J.P. Morgan Asset Management. Source: BLS, J.P. Morgan Asset Management. Data reflect most recently available as of 7/2/10. Data reflect most recently available as of 7/2/10. 17
  • 18. Agenda 3. Historical perspective 18
  • 19. Growth of Wealth Monthly: January 1926-December 2009 1926 December $10,000 $8,201 Small Cap (CRSP 6‐10 Index) $2,590 Large Cap  Large Cap $1,000 (S&P 500 Index) $85 Long‐Term  $100 Government  Bonds Index $20 Treasury Bills $12 $10 Inflation (CPI) $1 $0 1926 1936 1946 1956 1966 1976 1986 1996 2006 2009 CRSP data provided by the Center for Research in Security Prices, University of Chicago. The S&P data are provided by Standard & Poor's Index Services Group. US long‐term bonds, bills,  inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). 19
  • 20. Stocks vs. the Risk‐Free Rate January 1926–December 2009 April 1999 Daily Returns Total Month of April Return: 3.9% S&P 500 ‐2.24% $2,048 1                                  15                                   30 During this month, the S&P 500  had 10 days of negative returns out  h d 10 d f i of 21 trading days. 1999 Monthly Returns Total Annual Return: 21% 21.04% ‐0.49% ‐3.11% ‐2.36% ‐3.12% ‐2.74% J    F    M    A    M    J    J     A    S    O    N    D During this year, the S&P 500 had  5 out of 12 months with negative  5 out of 12 months with negative returns. • Even during periods of positive stock returns,  investors may experience substantial volatility. • Short‐term volatility is a typical characteristic of stock market investing. • Long‐term returns are the sum of short‐term volatility. The S&P data are provided by Standard & Poor's Index Services Group. Indexes are not available for direct investment. Index performance does not  reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be  20 construed as investment advice.  
  • 21. The Importance of Long‐Term Discipline Annualized Compound Returns (%) 1926 2009 1926-2009 1965 1981 1965-1981 1982 2009 1982-2009 S&P 500 Index 9.81 6.33 11.17 One-Month US Treasury Bills 3.66 6.66 4.98 The S&P data are provided by Standard & Poor’s Index Services Group. One‐Month US Treasury Bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated  work by Roger G. Ibbotson and Rex A. Sinquefield). For illustrative purposes only. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is  not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money.  21
  • 22. The Stock Market’s Reaction As Measured by the Dow Jones Industrial Average First Trading Session Response Subsequent Market Behavior Prior Percent One Six One Date Event Day Close Close Change Change Month Months Year September 11, 2001 World Trade Center towers destroyed 9,605.51 8,920.70 -684.81 -7.13% -3.66% 11.12% -8.71% January 16, 1991 US launches bombing attack on Iraq 2,508.91 2,623.51 114.60 4.57% 16.97% 18.93% 29.52% August 2, 1990 Iraq invades Kuwait 2,899.26 2,864.60 -34.66 -1.20% -8.74% -4.67% 4.95% March 30 1981 30, President Reagan shot by John Hinckley Jr b Hinckle Jr. 994.78 994 78 992.16 992 16 -2.62 2 62 -0.26% 0 26% 1.95% 14 33% 1 95% -14.33% -16.90% 16 90% August 9, 1974 President Nixon resigns 784.89 777.30 -7.59 -0.97% -14.71% -8.87% 5.98% November 22, 1963 President Kennedy assassinated in Dallas 732.64 711.48 -21.16 -2.89% 6.57% 15.37% 24.99% October 22, 1962 Cuban missile crisis 568.60 558.06 -10.54 -1.85% 15.55% 27.41% 33.89% September 24, 1955 President Eisenhower heart attack 487.44 455.55 -31.89 31.89 -6.54% 6.54% 0.04% 12.48% 5.72% June 25, 1950 North Korea invades South Korea 224.30 213.90 -10.40 -4.64% -4.49% 7.34% 15.13% December 7, 1941 Japan attacks Pearl Harbor, Hawaii 115.90 112.52 -3.38 -2.92% -0.86% -6.19% 2.88% Dow Jones data provided by Dow Jones Indexes. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated.  22 There is always the risk that an investor may lose money. 
  • 23. Large Stocks vs. Fixed Income Monthly: January 1926-December 2009 1926 December Rolling Time Periods 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years 30 Years 40 Years Total Number of Periods 997 973 949 889 829 769 649 529 Number of Periods 674 731 723 751 785 769 649 529 S&P 500 Index Outperformed One-Month T-Bills 100% 100% 100% 95% 84% 75% 76% 68% Percentage of All Rolling Periods Where S&P 500 Index Outperformed One‐Month T‐Bills  The S&P data are provided by Standard & Poor’s Index Services Group. One‐Month Treasury Bills © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated  work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the  management of an actual portfolio. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is  always the risk that an investor may lose money. Even a long‐term investment approach cannot guarantee a profit. Economic, political, and issuer‐specific events will cause  the value of securities, and the portfolios that own them, to rise or fall. Because the value of your investment in a portfolio will fluctuate, there is a risk that you will lose  the value of securities and the portfolios that own them to rise or fall Because the value of your investment in a portfolio will fluctuate there is a risk that you will lose money. Indexes are referred to for comparative purposes only and do not represent similar asset classes in terms of components or risk exposure; thus, their returns may vary  significantly. The S&P 500 Index measures the performance of large cap US stocks. One‐Month T‐Bills measure the performance of US government‐issued Treasury bills. 23
  • 24. Bull and Bear Markets S&P 500 Index (USD) Daily Returns: January 1 1926 March 31, 2010 1, 1926-March 31 Average Duration Average Return Bull Market: 413 Days Bull Market: 58% Bear Market: 220 Days Bear Market: ‐21% 303% 220% 156% 119% 121% 113% 100% 99% 96% 88% 91% 83% 78% 73% 69% 59% 56% 53% 50% 50% 27% 48% 44% 40% 44% 23% 38% 38% 26% 37% 27% 26% 26% 26% 23% 22% 22% 21% 21% 3/31/2010 19% 18% 16% 20% 25% 15% 13% 1% ‐20% ‐13% ‐16% ‐13% ‐11% ‐11% ‐11% ‐13% ‐11% ‐10% ‐12% ‐13% ‐15% ‐10% ‐11% ‐10% ‐11% ‐12% ‐13% ‐21% ‐14% ‐21% ‐20% ‐19% ‐19% ‐13% ‐26% ‐16% ‐27% ‐13% ‐13% ‐33% ‐11% ‐32% ‐16% ‐33% ‐11% ‐39% ‐14% ‐27% ‐45% ‐15% ‐47% ‐53% ‐25% ‐55% ‐10% ‐11% ‐85% 03/09/2009 ‐55% 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Indices are not available for direct investment; its performance does not reflect the expenses associated with the management of an actual portfolio.  Past performance is no guarantee of future results.  The S&P data are provided by CRSP (January 1, 1926‐August 31, 2008) and Bloomberg (September 1, 2008‐March 31, 2010). Returns include reinvested dividends.  The S&P data are provided by CRSP (January 1 1926‐August 31 2008) and Bloomberg (September 1 2008‐March 31 2010) Returns include reinvested dividends Bull and bear markets are defined in hindsight using cumulative daily returns. A bear market (1) begins with a negative daily return, (2) must achieve a cumulative return less than or equal to ‐10%, and (3)  ends at the most negative cumulative return prior to achieving a positive cumulative return. All data points which are not considered part of a bear market are designated as a bull market. Performance  data represents past performance and does not predict future performance. 24
  • 25. Recessionary Periods Mid 1970s and Early 1980s Recession 17 months Unemployment  Recession Begins Peaks at 9.0% November 1973 November 1973 May 1975 Recession Ends March 1975 Unemployment  Recession Peaks at 10.8% 17 months Nov/Dec 1982 Recession Begins Recession End Announced July 1981 July 8, 1983 Recession Ends November 1982 Recession Announced January 6, 1982 Prior to 1979, there were no formal announcements of business cycle turning points. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual  portfolio. For illustrative purposes only. Past performance is not a guarantee of future results and there is always the risk that an investor will lose  money. Source: National Bureau of Economic Research (NBER) for economic expansions and recessions data; the S&P data are provided by  25 Standard & Poor’s Index Services Group; US Bureau of Labor Statistics for unemployment data.  
  • 26. Recessionary Periods Early 1990s and Early 2000s Unemployment  Recession Peaks at 7.8% 9 months Recession Announced June 1992 April 25, 1991 Recession Begins Recession End Announced July 1990 y December 22, 1992 , Recession Ends March 1991 Recession R i 9 months Unemployment  Recession Begins Peaks at 6.3% March 2001 Recession Announced June 2003 November 26, 2001 Recession Ends Recession End Announced November 2001 July 17, 2003 Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual  portfolio. For illustrative purposes only. Past performance is not a guarantee of future results and there is always the risk that an investor will lose  money. Source: National Bureau of Economic Research (NBER) for economic expansions and recessions data; the S&P data are provided by  26 Standard & Poor’s Index Services Group; US Bureau of Labor Statistics for unemployment data.  
  • 27. Historical returns by holding period Range of Stock, Bond, Blended, and Cash Total Returns Stock Bond Blended Annual total returns, 1950 -2009* Annual Avg. 60% Total Return Stocks 10.8% 50% 51% Bonds 6.2% 50/50 Portfolio 9.0% 40% 43% Cash (T -Bills) 2.1% 30% 32% 28% 20% 23% 21% 19% 17% 18% 16% 14% 14% 10% 12% 11% 9% 6% 7% 5% 0% -2% -2% 1% 1% 2% 0.1% 1% 0.5% 1% 0.3% -1% -8% -10% -15% Stocks -20% Bonds 50/50 Portfolio -30% Cash (T -Bills) -37% -40% 1-yr. 1 5-yr. rolling 5 lli 10 -yr. rolling lli 20 -yr. rolling lli Sources: Factset, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management. Asset 20 -yr. cash (T *The -Bill) returns were calculated using 20 -yr. annualized returns from 1953 -2009. 27
  • 28. World Market Capitalization $28.6 Trillion as of December 31, 2009 SCALE Ten Billion One Trillion MSCI Index  Developed Markets  Frontier Markets Affiliation  Emerging Markets In US dollars. Map reflects countries in the MSCI All Country World IMI Index and MSCI Frontier Markets Index. Market cap data is free‐float adjusted. MSCI data copyright MSCI 2009, all rights reserved. Vietnam data provided by MFMI.  Many small nations  not displayed. Totals may not equal 100% due to rounding. For educational purposes; should not be construed as investment advice. 1. An example  28 large cap stock provided for comparison.
  • 29. The economic growth differential World GDP Growth vs U S GDP Growth vs. U.S. 9% World GDP Growth U.S. GDP Growth 6% Difference 3% 0% -3% 1970 1975 1980 1985 1990 1995 2000 2005 2010 Emerging and Developed GDP Growth Emerging Economies 12% Developed Economies 5% -2% -9% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: J.P. Morgan Global Economics Research, IMF, J.P. Morgan Asset Management. Data are as of Apr. 2010 and are provided by the International Monetary Fund. 2010 and 2011 data are estimates as provided by th e IMF Apr Fund IMF. Emerging and Developed Economy GDP growth rates represent quarterly annualized growth and are as of 4Q09. 29
  • 30. Mutual fund flows Fund Flows Billions, USD AUM YTD 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Domestic Equity 3,624 (11) (40) (151) (48) 11 31 111 130 (25) 54 260 World Equity 1,183 25 31 (82) 139 148 105 67 23 (3) (22) 50 Taxable Bond 1,921 1 921 118 306 20 98 45 26 3 39 124 76 (36) Tax-exempt Bond 488 17 69 8 11 15 5 (14) (7) 16 12 (14) Hybrid 648 13 23 (19) 23 7 25 43 32 8 10 (31) Money Market 2,837 (485) (539) 637 654 245 64 (157) (258) (46) 375 159 Net fund flows (monthly) Difference between net flows into stock and bond funds Billions, USD, U.S. and international funds Billions, USD, U.S. and international funds $60 $20 Equity flows $40 Fixed income flows $0 $20 -$20 $0 -$20 -$40 -$40 $40 -$60 -$60 Bond flows exceeded equity flows by $39 billion in May ’10 -$80 -$80 May '07 Nov '07 May '08 Nov '08 May '09 Nov '09 May '10 May '07 Nov '07 May '08 Nov '08 May '09 Nov '09 May '10 Asset Investment Company Institute,, J.P. Morgan Asset Management. Source: p y g g Data include flows through May 2010 and exclude ETFs. International equity flows are inclusive of emerging market, global equ ity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows. 30
  • 31. Agenda 4. Lessons for the Future 31
  • 32. Lessons for the future 1. Define your goals. 2. Create a plan.  3. Put it into action. 4. Stay on track. 32
  • 33. Contact info Barry Mendelson, CFP® 925‐988‐0330 ext. 22 925‐988‐0330 ext 22 Barry@JustPlans‐Etc.com www.JustPlans‐Etc.com 1399 Ygnacio Valley Rd, Suite 24 Walnut Creek, CA 94598 33