If your investments are under pressure, we can help!
Market & Economic Brief
November 19, 2008
After attempting a rally earlier in the month, U.S. stocks broke recent support levels and established fresh lows. Commodities and World REITs have also found new lows. Many international stock markets are still maintaining previous support levels. Intermediate term U.S. treasuries continue to rally in a flight to quality. The near term bias has again turned negative for stocks.
The weekly leading and monthly coincident indexes we follow continue to weaken, suggesting more trouble ahead for the U.S. economy. Many European countries continue to report deteriorating economic conditions as well. China reported a dip in October retail sales but consumer spending has held up better than many other parts of their economy.
Producer costs fell a record 2.8% in October, led by a huge decline in energy prices. Future inflation indicators we track also continue to decline.
The Nat’l Association of Home Builders fell to its lowest level since 1985 in November. Home prices declined in 4 out of 5 cities during Q3. The FDIC has proposed using $24 bil. of the TARP funds to help stem foreclosures. The leading home price index we track rose slightly for August (the latest data available). Additional increases may signal a bottom in housing prices.
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Managing Risk
At Dightman Capital Group, managing investment risk is one of the most important services we can provide. When you have effective risk management incorporated into a portfolio the ability to generate a higher rate of return may improve. Bottom line, with each percent you increases your long-term rate of return you total asset or income level rises by a significant amount of money.
For example, a $1,000,000 portfolio invested over 20 years that earned a 7% average rate of return is worth:
$3,869,684
A portfolio that averaged a 9% rate of return is worth:
$5,604,410
The Difference:
$1,734,726
It is important to pay attention to the performance of your investments.
A reduction in risk (volatility) can also have a positive effect on the compounding features of a return stream. For example, what common characteristic does the following return series share?
A. +40, -20
B. -10, +30
C. +10, +10
They all have an average rate of return of 10%. But what is the value of a $1,000,000 portfolio at the end of two years for each of the return series? You might be surprised to learn that it is not the same.
A. $1,120,000.00
B. $1,170,000.00
C. $1,210,000.00
Portfolio C earned an extra $90,000. Quite simply, the power of compounding can be reduced by an increase in risk (volatility).
Understanding the benefit with each incremental increase in risk and return, is helpful in determining the amount of money you will have to accomplish your lifetime goals. If you would like to reveiw your risk management stratgy, please call us at 206-652-8300 or send an email to
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