Stocks

TIPS Concerns

Treasury inflation-protected securities (TIPS) are issued by the U.S. Treasury and are designed to keep pace with CPI increases. The first TIPS were issued in 1997. TIPS comprise two parts: a real return and a CPI adjustment every six months. The “moving part” is the CPI change. The “real return” is a locked-in rate that stays the same until the maturity date. Investors earn a fixed rate of interest on an ever-increasing amount of principal.

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TIPS Concerns

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Grey Divorces

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Client Language

Beating Benchmark

According to Bianco Research, only 17% of more than 4,000 funds that invest in large U.S. stocks beat their benchmark for the 2011 calendar year. In most years, fewer than half do. According to Bianco’s research, the return correlation of U.S. stocks has quadrupled since the mid-1990s.

As recently as 1997, it took 20 stocks to eliminate most of the likelihood of enduring more risk than the market as a whole; today, according to Bianco, it takes 40.

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Share Class Fees

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S&P 500 Returns

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2011 Index Returns

S&P 500 Returns

Anyone who put money into an S&P 500 index fund between late 1998 and early 2001 experienced a cumulative loss, as of January 21, 2012. Adjusted for inflation, the S&P lost 18% from August 2000 to January 2012. According to Yale economist Robert Shiller, this has never happened to the U.S. stock market, even if one were to go back to 1871. Even those who bought on the eve of the 1929 crash experienced a brief gain, in inflation-adjusted terms, in 1937.

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Stock Market Buy Signals

Stock Market Buy Signals

Companies that buy back their own stock reduce their outstanding share count that, in turn, helps to boost earnings per share. Some argue that buybacks are not a good predictor of the stock’s future performance (e.g., executive officers of a company may encourage a buyback because their bonus may be tied to earnings per share). It appears that the best kinds of repurchases are ones that managers opt for simply because they view shares as cheap. 

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S&P 500 Returns

Stock Analysts

According to a Wall Street Journal article (February 2012), historical evidence shows stocks with lots of “buys” from analysts do no better than the broad market, on average. Perhaps this is because analysts give 11 times as many “outperform” or “buy” recommendations than they do “underperform.” New research suggests there may be a way to discern which “buys” are worth heeding.

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NASDAQ Composite Index

NASDAQ Composite Index

As of March 2012, the NASDAQ Composite Index was close to 3,000, a level it first broke through in November 1999. The table below compares the top 10 companies of the composite in 1999 (when the trailing P/E ratio was 78) through the first part of March 2012 (trailing P/E of 23). The index peaked at 5,048.62 on March 10, 2000.

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Mega Cap Stocks

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Stock Analysts

Mega Cap Stocks

The largest stocks are sometimes classified as “megacaps,” companies with a market value of > $100 billion. The S&P 100 Stock Index is comprised of stocks whose average market capitalization is $114 billion (as of March 2012).

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Growth Stocks

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