The Markets Generally
The domestic stock market continued to be quite volatile, and was down considerably for the quarter — the worst quarterly performance since the end of the last bear market in 3Q02. Over the three months, the S&P 500 Stock Index declined 9.4%*. International equities, for the most part, did worse still. The bond market performed well, with the Lehman Aggregate Bond Index increasing 2.2% — its third consecutive strong quarter as investors continued to seek stability. Among the “alternative” asset classes, commodities turned in another very strong quarter, and domestic real estate broke even, while international real estate did not fare as well.
Relevant blended benchmark returns — against which to compare your own 1Q08 portfolio returns — are all negative, e.g., -1.3% for conservative, -3.6% for moderate, and -7.1% for aggressive portfolios.
Your Portfolio
As you may have noticed during the quarter, your portfolio was, once again, relatively stable, despite the markets’ gyrations. And, unless you are one of a very few special cases (holding a concentrated position in your employer’s stock, for example) your portfolio has outperformed your broad market benchmark — once again, by a substantial margin.
Observations
We acknowledge that a negative return that is much better than the general markets may be small comfort. But remember that, if 200 years of history is any guide, the markets will inevitably rebound. And when they do, you are positioned to ride the markets back up, and preserve much of the cushion you have built.
A closer look at the past quarter may help make this clear. As gold and oil hit historic highs, and finance stocks were especially hard pressed, we trimmed the commodity exposure in every client portfolio where appropriate and added to the finance sector (while much of the rest of the investment community was doing the opposite). This was nothing more than the natural working of our rigorous rebalancing protocol. Your exposure to commodities helped protect your portfolio as equities declined; and by virtue of now having a “right sized” amount in commodities, you will have less drag on your portfolio when equities, and finance stocks in particular, rebound. This is how we have delivered stable yet superior performance over the long term.
A final observation, for those of you feeling depressed about the current state of our economy. The October 14, 1974 cover of Time magazine featured a cartoon of a beleaguered President Ford confronting the triple threats of inflation, recession, and the surging price of oil (sound familiar?). At the time, the Dow was at 650. A year later, it was 820; a year after that, 940. And now, of course, it is over 12,000.
* We use “total return” data to express benchmark returns, which assume the reinvestment of all investment income.
Please remember to contact Brinton Eaton Wealth Advisors if there are any changes in your financial situation or investment objectives, or if you wish to add to or modify our investment management services. A copy of our current written disclosure statement as set forth of Part II of Form ADV continues to remain available for your review upon request. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Brinton Eaton Wealth Advisors.
