Fun Facts Newsletter | August 2013

Media sound bites, as always, are only telling part of the story.

While radio, TV, newspaper and website headlines are blaring that the Dow Jones Industrial Average, NASDAQ and SP 500 are setting record highs, calendar year 2013 is showing widely dispersed investment returns, in stark contrast to 2012. Quite frankly, 2013 is a more "normal" market in terms of the range of stock and alternative investment returns. Bonds, however, are the big news that isn't reaching the headlines.

Bonds have had a double whammy so far in calendar year 2013. First was some uncertainly in May and June over the Federal Reserve plan for scaling back its massive bond buying program to depress interest rates. Second was the city of Detroit bankruptcy filing that sent a tremor through the municipal bond market. As we have written and said many times before, investing is a contrarian process. In the long run, a slow and gradual increase in interest rates is a good thing because it increases longer term expected returns, but in the short run it depresses prices. So far in 2013, government and corporate bonds are down about 2.3% and municipal, tax exempt bonds are down about 3.5%. These losses are nowhere near the potential losses during stock market downturns, so bonds do provide important diversification against the ever-present risk of a stock market decline.

Turning to stocks, thru July 31, 2013, US Large Company stocks as measured by the S&P 500 have returned 19.62%, US Midcaps have done even better at 21.69% and US Small Caps have rallied an impressive 24.15%, all based on S&P indices. US Value style stocks have been even stronger across the board. International developed market stocks have provided impressive returns in the 9% to 10% range, but international emerging markets are reminding us of their volatility with about an 8% loss so far in 2013. Real estate investment trusts are up a nice 6% in 2013, but not as rewarding as their 17% gain in 2012.

In summary, the MSCI ACWI IMI index that we introduced last month as a global stock market benchmark is up 11.6% year to date July 31, 2013, a very impressive long term return but less than the "headline" news reports. Most importantly and in conclusion, bonds have provided a short term drain on total portfolio returns and broad global stock market indices, while providing solid returns, have lagged U.S.-only stock market benchmarks.

July 26, 2013 marked our firm's official 20 year anniversary. It has been quite a celebration and we thank you for your trust, confidence and loyal support. We promise to continue to do our best for you for many years to come!

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