The Markets Generally
Virtually all asset classes enjoyed a second consecutive strong quarter. The S&P 500 Stock Index increased 15.6, following last quarter’s 15.9% rise; the only time since 1926 that it grew more than 15% in two successive quarters was in 1975 (and the only other time it’s happened at all in the same year since 1926 was in two non-consecutive quarters in 1935). Small- and mid-cap stocks, real estate, and international equities performed even better than this large-cap index this past quarter. Commodity investments were generally flat,and the BarCap U.S. Aggregate Bond Index was up 3.7%.
Simple blended benchmark returns (based on only the S&P 500 and BarCap indexes) for the quarter ranged from 7.3% for conservative portfolios, to 9.7% for moderate, to 13.2% for aggressive.
Year-to-date, the S&P 500 Index is now up 19.3%, while the BarCap Bond Index has increased 5.7%.
Your investments are doing very well in this environment. For those who have maintained a consistent investment strategy, your portfolio return through the first nine months is likely higher than during any equivalent period over at least the last ten years.
The markets’ upsurge will end at some point. And the inevitable decline could be sizeable. In fact, long-term investors know that bear markets — typically marked by drops of 20% or more from their highs — occur fairly often (about twice a decade, on average), and that they are bound to encounter quite a number of them over their remaining investing horizons.But the markets always recover. Though it may feel uncomfortable, staying steadfast with a diversified portfolio during these short-term fluctuations is the key to building long-term wealth.
That being said, there are occurrences that defy precedent. The market decline of 4Q08/1Q09 was exceedingly unusual, not just in its severity but in its “contagion”, i.e., the sudden drop in virtually all asset classes at once, which hampered the ability of diversification to work for you. As you know, we have been working on developing reliable methodologies to protect your portfolio against the recurrence of such a rare and extreme event, without compromising its performance in the vastly more common environments. Some of this work is groundbreaking and has attracted the attention of other organizations. In this connection, we have accepted a special invitation to join a similar pioneering effort being undertaken by nine other highly-respected, thought-leading firms in our industry. We will keep you apprised of relevant developments — as respects both our own research and the joint efforts in which we participate — as we bring them to bear on your behalf.
Note: In light of the markets’ substantial recovery to date, we are discontinuing the temporary 25% reduction in our minimum fee that we had in place for the prior three quarters.
Staying steadfast does not mean standing still. An integral part of staying steadfast is rebalancing your portfolio to keep it true to your strategic asset allocation. Done properly, this also causes you to actually benefit from the short-term fluctuations in the individual components of your portfolio, when they do not all move in tandem.
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.