Articles tagged with: diversification

Have a Plan, Not Just a Stock Portfolio

Diversification still matters.  One day this bull market will end.

In the first quarter of 2017, the bull market seemed unstoppable. The Dow Jones Industrial Average soared past 20,000 and closed at all-time highs on 12 consecutive trading days. The Nasdaq Composite gained almost 10% in three months.1

An eight-year-old bull market is rare. This current bull is the second longest since the end of World War II; only the 1990-2000 bull run surpasses it. Since 1945, the average bull market has lasted 57 months.2

Everyone knows this bull market will someday end – but who wants to acknowledge that fact when equities have performed so well?

Overly exuberant investors might want to pay attention to the words of Sam Stovall, a longtime, bullish investment strategist and market analyst. Stovall, who used to work for Standard & Poor’s and now works for the Center for Financial Research and Analysis (CFRA), has seen bull and bear markets come and go. As he recently noted to Fortune, epic bull markets usually end “with a bang and not a whimper. Like an incandescent light bulb, they tend to glow brightest just before they go out.”2

History is riddled with examples. Think of the dot-com bust of 2000, the credit crisis of 2008, and the skyrocketing inflation of 1974. These developments wiped out bull markets; this bull market could potentially end as dramatically as those three did.3

A 20% correction would take the Dow down into the 16,000s. Emotionally, that would feel like a much more significant market drop – after all, the last time the blue chips fell 4,000 points was during the 2007-09 bear market.4

Investors must prepare for the worst, even as they celebrate the best. A stock portfolio is not a retirement plan. A diversified investment mix of equity and fixed-income vehicles, augmented by a strong cash position, is wise in any market climate. Those entering retirement should have realistic assessments of the annual income they can withdraw from their savings and the potential returns from their invested assets.

Now is not the time to be greedy. With the markets near historic peaks, diversification still matters, and it can potentially provide a degree of financial insulation when stocks fall. Many investors are tempted to chase the return right now, but their real mission should be chasing their retirement objectives in line with the strategy defined in their retirement plans. In a sense, this record-setting bull market amounts to a distraction – a distraction worth celebrating, but a distraction, nonetheless.

Mike Moffitt may be reached at Phone# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Stock investing involves risk including loss of principal.

The economic forecasts set forth in this material may not develop as predicted.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – money.cnn.com/2017/03/31/investing/trump-rally-first-quarter-wall-street/index.html [3/31/17]

2 – fortune.com/2017/03/09/stock-market-bull-market-longest/ [3/9/17]

3 – kiplinger.com/article/investing/T052-C008-S002-5-reasons-bull-markets-end.html [4/3/14]

4 – thebalance.com/stock-market-crash-of-2008-3305535 [4/3/17]

Long-Term Investment Truths

Key lessons for retirement savers.

You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others you glean along the way.

First & foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.

You learn how much volatility you can stomach. Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500. Across 1926-2014, the yearly total return for the S&P averaged 10.2%. If you want to be very casual about it, you could simply say that stocks go up about 10% a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 from its mean total return in this time frame, which means that if you add or subtract 20.2 from 10.2, you get the range of the index’s yearly total return that could be expected 67% of the time. So in any given year from 1926-2014, there was a 67% chance that the yearly total return of the S&P might vary from +30.4% to -10.0%. Some investors dislike putting up with that kind of volatility, others more or less embrace it.1

You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.

Should you misgauge your need for liquidity, you can end up selling at the wrong time as a consequence. It hurts to let go of an investment when the expected gain is high and the Price-to-Earnings ratio is low.

You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the market is hot may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.

Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks as well.

The closer you get to retirement, the less risk you will likely want to assume. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked while saying hello to others that you may be buying at the right time.

You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 13% of the portfolio invested in just two Dow components? The investor just likes what those firms stand for, or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on the overall portfolio performance.

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so he or she gets heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor has less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.

You learn to be patient. Even if you prefer a tactical asset allocation strategy over the standard buy-and-hold approach, time teaches you how quickly the markets rebound from downturns and why you should stay invested even through systemic shocks. The pursuit of your long-term financial objectives should not falter – your future and your quality of life may depend on realizing them.

Mike Moffitt may be reached at phone# 641-782-5577 or email: rsmlbyer@mchsi.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and Asset Allocation do not protect against market risk.

Standard deviation is a historical measure of returns relative to the average annual return. A higher number indicates higher overall volatility.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. 

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [6/4/15]

Mid-Life Money Errors

If you are between 40 & 60, beware of these financial blunders & assumptions.

Between the ages of 40 and 60, many people increase their commitment to investing and retirement saving. At the same time, many fall prey to some common money blunders and harbor financial assumptions that may be inaccurate.

These errors and suppositions are worth examining, as you do not want to succumb to them. See if you notice any of these behaviors or assumptions creeping into your financial life.

Do you think you need to invest with more risk? If you are behind on retirement saving, you may find yourself wishing for a “silver bullet” investment or wishing you could allocate more of your portfolio to today’s hottest sectors or asset classes so you can catch up. This impulse could backfire. The closer you get to retirement age, the fewer years you have to recoup investment losses. As you age, the argument for diversification and dialing down risk in your portfolio gets stronger and stronger. In the long run, the consistency of your retirement saving effort should help your nest egg grow more than any other factor.

Are you only focusing on building wealth rather than protecting it? Many people begin investing in their twenties or thirties with the idea of making money and a tendency to play the market in one direction – up. As taxes lurk and markets suffer occasional downturns, moving from mere investing to an actual strategy is crucial. At this point, you need to play defense as well as offense.

Have you made saving for retirement a secondary priority? It should be a top priority, even if it becomes secondary for a while due to fate or bad luck. Some families put saving for college first, saving for mom and dad’s retirement second. Remember that college students can apply for financial aid, but retirees cannot. Building college savings ahead of your own retirement savings may leave your young adult children well-funded for the near future, but they may end up taking you in later in life if you outlive your money.

Has paying off your home loan taken precedence over paying off other debts? Owning your home free and clear is a great goal, but if that is what being debt-free means to you, you may end up saddled with crippling consumer debt on the way toward that long-term objective. In June 2015, the average American household carried more than $15,000 in credit card debt alone. It is usually better to attack credit card debt first, thereby freeing up money you can use to invest, save for retirement, build a rainy day fund – and yes, pay the mortgage.1

Have you taken a loan from your workplace retirement plan? Hopefully not, for this is a bad idea for several reasons. One, you are drawing down your retirement savings – invested assets that would otherwise have the capability to grow and compound. Two, you will probably repay the loan via deductions from your paycheck, cutting into your take-home pay. Three, you will probably have to repay the full amount within five years – a term that may not be long as you would like. Four, if you are fired or quit the entire loan amount will likely have to be paid back within 90 days. Five, if you cannot pay the entire amount back and you are younger than 59½, the IRS will characterize the unsettled portion of the loan as a premature distribution from a qualified retirement plan – fully taxable income subject to early withdrawal penalties.2

Do you assume that your peak earning years are straight ahead? Conventional wisdom says that your yearly earnings reach a peak sometime in your mid-fifties or late fifties, but this is not always the case. Those who work in physically rigorous occupations may see their earnings plateau after age 50 – or even age 40. In addition, some industries are shrinking and offer middle-aged workers much less job security than other career fields.

Is your emergency fund now too small? It should be growing gradually to suit your household, and your household may need much greater cash reserves today in a crisis than it once did. If you have no real emergency fund, do what you can now to build one so you don’t have to turn to some predatory lender for expensive money.

Insurance could also give your household some financial stability in an emergency. Disability insurance can help you out if you find yourself unable to work. Life insurance – all the way from a simple final expense policy to a permanent policy that builds cash value – offers another form of financial support in trying times. Keep in mind; insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details.

Watch out for these mid-life money errors & assumptions. Some are all too casually made. A review of your investment and retirement savings effort may help you recognize or steer clear of them.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing involves risk including possible loss of principal.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ [6/25/15]

2 – tinyurl.com/oalk4fx [9/14/14]

 

 

Why Well Diversified Portfolios Have Lagged the S&P

Some investors have seen minimal returns compared to the benchmark.

Diversification is essential, yet it comes with trade-offs. Investors are repeatedly urged to allocate portfolio assets across a variety of investment classes. This is fundamental; market shocks and month-to-month volatility may bring big losses to portfolios weighted too heavily in one or two classes.

Just as there is a potential upside to diversification, there is also a potential downside. It can expose a percentage of the portfolio to underperforming sectors of the market. Last year, that kind of exposure affected the returns of some prudent investors.

Sometimes diversification hinders overall performance. The stock market has performed well of late, but very few portfolios have 100% allocation to stocks for sensible reasons. At times investors take a quick glance at stock index performance and forget that their return reflects the performance of multiple market segments. While the S&P 500 rose 11.39% in 2014 (13.69% with dividends), other asset classes saw minor returns or losses last year.1

As an example, Morningstar assessed fixed-income managers for 2014 and found a median return of just 2.35% for domestic high yield strategies. The Barclays U.S. Aggregate Bond Index advanced 5.97% in 2014 (that encompasses coupon payments and capital appreciation), while the Citigroup Non-U.S. World Government Bond index lost 2.68%.1,2

Turning to some very conservative options, the 10-year Treasury had a 2.17% yield on December 31, 2014; at the start of last year, it was yielding 3.00%. As March began, Bankrate found the annual percentage yield for a 1-year CD averaged 0.27% nationally, with the yields on 5-year CDs averaging 0.87%; last year’s average yields were similar.3,4  

Oil’s poor 2014 affected numerous portfolios. Light sweet crude ended 2014 at just $53.27 on the NYMEX, going -45.42% on the year. (In 2008, prices peaked at $147 a barrel). Correspondingly, the Thomson Reuters/CRB Commodities Index, which tracks the 19 most watched commodity futures, dropped 17.9% in 2014 after slips of 5.0% in 2013, 3.4% in 2012 and 8.3% in 2011. At the end of last year, it was at the same level it had been at the end of 2008.5,6

The longstanding MSCI EAFE Index (which measures the overall performance of 21 Morgan Stanley Capital International indices in Europe and the Asia Pacific region) lost 7.35% for 2014. At the end of last year, it had returned an average of 2.34% across 2010-2014. So on the whole, equity indices in the emerging markets and the eurozone have not performed exceptionally well last year or over the past few years.7

All this is worth considering for investors wondering why their highly diversified, cautiously allocated portfolios lagged the main U.S. benchmark. It may also present a decent argument for tactical asset allocation – the intentional, responsive shift of percentages of portfolio assets into the best-performing sectors of the market. Whether an investor favors that kind of dynamic strategy or a buy-and-hold approach with a far-off time horizon in mind, it is inevitable that some portion of portfolio assets will be held in currently lagging or underperforming investment classes. This is one of the trade-offs of diversification. In some years – such as 2014 – being ably diversified may result in less-than-desired returns.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com 

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

*Tactical allocation may involve more frequent buying and selling of assets and will tend to generate higher transaction cost. Investors should consider the tax consequences of moving positions more frequently.

**There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – qz.com/320196/its-over-stocks-beat-bonds/ [1/2/15]

2 – tinyurl.com/oq6cb7w [2/23/15]

3 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2014 [3/3/15]

4 – bankrate.com/funnel/cd-investments/cd-investment-results.aspx?prods=15,19 [3/3/15]

5 – money.cnn.com/data/commodities/ [12/31/14]

6 – nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11387661 [1/17/15]

7 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [12/31/14]

4 Money Blunders That Could Leave You Poorer

A “not-to-do” list

How are your money habits? Are you getting ahead financially, or does it feel like you are running in place?

It may come down to behavior. Some financial behaviors promote wealth creation, while others lead to frustration. Certainly other factors come into play when determining a household’s financial situation, but behavior and attitudes toward money rank pretty high on the list.

How many households are focusing on the fundamentals? Late in 2014, the Denver-based National Endowment for Financial Education (NEFE) surveyed 2,000 adults from the 10 largest U.S. metro areas and found that 64% wanted to make at least one financial resolution for 2015. The top three financial goals for the new year: building retirement savings, setting a budget, and creating a plan to pay off debt.1

All well and good, but the respondents didn’t feel so good about their financial situations. About one-third of them said the quality of their financial life was “worse than they expected it to be.” In fact, 48% told NEFE they were living paycheck-to-paycheck and 63% reported facing a sudden and major expense last year.1

Fate and lackluster wage growth aside, good money habits might help to reduce those percentages in 2015. There are certain habits that tend to improve household finances, and other habits that tend to harm them. As a cautionary note for 2015, here is a “not-to-do” list – a list of key money blunders that could make you much poorer if repeated over time.

Money Blunder #1: Spend every dollar that comes through your hands. Maybe we should ban the phrase “disposable income.” Too many households are disposing of money that they could save or invest. Or, they are spending money that they don’t actually have (through credit cards).

You have to have creature comforts, and you can’t live on pocket change. Even so, you can vow to put aside a certain number of dollars per month to spend on something really important: YOU. That 24-hour sale where everything is 50% off? It probably isn’t a “once in a lifetime” event; for all you know, it may happen again next weekend. It is nothing special compared to your future.

Money Blunder #2: Pay others before you pay yourself. Our economy is consumer-driven and service-oriented. Every day brings us chances to take on additional consumer debt. That works against wealth. How many bills do you pay a month, and how much money is left when you are done? Less debt equals more money to pay yourself with – money that you can save or invest on behalf of your future and your dreams and priorities.

Money Blunder #3: Don’t save anything. Paying yourself first also means building an emergency fund and a strong cash position. With the middle class making very little economic progress in this generation (at least based on wages versus inflation), this may seem hard to accomplish. It may very well be, but it will be even harder to face an unexpected financial burden with minimal cash on hand.

The U.S. personal savings rate has averaged about 5% recently. Not great, but better than the low of 2.6% measured in 2007. Saving 5% of your disposable income may seem like a challenge, but the challenge is relative: the personal savings rate in China is 50%.2

Money Blunder #4: Invest impulsively. Buying what’s hot, chasing the return, investing in what you don’t fully understand – these are all variations of the same bad habit, which is investing emotionally and trying to time the market. The impulse is to “make money,” with too little attention paid to diversification, risk tolerance and other critical factors along the way. Money may be made, but it may not be retained.

Make 2015 the year of good money habits. You may be doing all the right things right now and if so, you may be making financial strides. If you find yourself doing things that are halting your financial progress, remember the old saying: change is good. A change in financial behavior may be rewarding.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com

website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – denverpost.com/smart/ci_27275294/financial-resolutions-2015-four-ways-help-yourself-keep [1/7/15]

2 – tennessean.com/story/money/2014/12/31/tips-getting-financially-fit/21119049/ [12/31/14]

More Irrational Exuberance?

Has unchecked optimism inflated asset values?

“Irrational exuberance.” That phrase – uttered by Federal Reserve Chairman Alan Greenspan in 1996 and reputedly coined by economist Robert Shiller – has become part of the investment lexicon. Now and then, bears reference it – especially when the market turns red-hot.

Late last year, many Wall Street investment strategists thought the S&P 500 would advance about 5.8% in 2014. They were wrong. As 2014 ends, the broad benchmark is poised for another double-digit annual gain. Asked to explain the difference, bearish market analysts might point to irrational exuberance.1

Irrational exuberance – the run-up of asset values due to runaway enthusiasm about an asset class – reared its head catastrophically in 2000 (the tech bubble) and in 2007 (the housing bubble). In the first edition of his book of the very same title (2000), Shiller warned investors that stocks were overvalued. In the second edition of Irrational Exuberance (2005), he cautioned that real estate was overvalued. The fact that he’s trotting out a third edition of the book in 2015 was some people a little spooked. 2,3

Has quantitative easing (QE) bred irrational exuberance once again? As a 2011 Forbes.com headline put it, “Trees Don’t Grow to the Sky – Even with the Fed Behind Them.” You could argue – quite convincingly – that the Fed has propped up the stock market since 2008, and that the great gains of this bull market were primarily a result of QE1, QE2 and QE3.4

No further easing, no further gains, the logic goes (or least not gains resembling those seen in recent years).

As 2014 ends, bears insist that stocks are greatly overvalued. To back up their argument, they point to recent movements in the CAPE (Cyclically Adjusted Price-to-Earnings) or P/E 10 ratio. This closely-watched stock market barometer (created by Shiller and his fellow economist John Campbell) tracks a 10-year average of the S&P Composite’s real (inflation-adjusted) earnings.5,7

(If you’re wondering what the S&P Composite is, it is a historically wide, big-picture window on the U.S. equities market that unites data from the S&P 500 – which has only existed since 1957 – with prior S&P indices.)6

Since 1881, the P/E 10 ratio of the S&P Composite has averaged about 16.5. At the peak of the dot-com bubble in 2000, it hit 44.2. It stumbled to a low of 13.3 when the market bottomed out in March 2009, but it was up at 26.5 as December began, about 60% above its historic mean.5

Why should this concern you? This P/E 10 ratio has only topped the 25 level three times – in 1929, 1999 and 2007.7

But isn’t the market healthy & ready to stand on its own? That’s what the bulls insist, and given the S&P 500’s 2.45% rise for November following the end of QE3, they may be right. Ardent bulls contend that another secular bull market began in March 2009 – history just hasn’t confirmed its secularity yet.8

In fact, Shiller himself recently noted that even though the high P/E 10 ratio is troubling, it has been mostly above 20 since 1994. (Low bond yields may explain some of that.) A numeric gap from 26 to 20 is decidedly less alarming than one from 26 to 16.7

Whatever occurs, remember that stocks don’t always go up. (Home prices don’t always ascend either.) The longer a bull market progresses, the more challenges it overcomes, the greater the chance that this particular reality of equity investing may be lost.* While diversification does not protect against marketing risk or guarantee enhanced overall returns, it may pay to diversify your portfolio across asset classes for this very reason, now and in the future.

Mike Moffitt may be reached at ph# 641-464-2248 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

 *Stock investing involves risk including loss of principal.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   Citations.

1 – blogs.wsj.com/moneybeat/2014/11/23/a-sign-of-health-for-stocks-cautious-2015-forecasts/ [11/23/14]

2 – money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/ [1/13/05]

3 – irrationalexuberance.com/main.html?src=%2F [12/8/14]

4 – forbes.com/sites/etfchannel/2011/01/20/trees-dont-grow-to-the-sky-even-with-fed-behind-them/print/ [1/20/11]

5 – advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php [12/1/14]

6 – advisorperspectives.com/dshort/updates/Validating-the-SP-Composite.php [12/8/14]

7 – tinyurl.com/pwungau [8/18/14]

8 – online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [11/30/14]