February Commentary

 

Bernie’s Commentary
February 2, 2010
 
 
2010 has begun with some of the market choppiness that we expected in 2009, therefore we thought it would be appropriate to share some thoughts from our recent investor committee meeting. As most of you know, we attend quarterly investor committee meetings to hear different viewpoints from our portfolio strategists, discuss trends in the economic environment, and stay in tune with the constant changes in our industry. This ongoing research and communication helps us design and adjust your portfolio to help you meet your goals.
 
Over the past few quarters, Risk has been rewarded more than Risk Management.This is typical in an up-market. The more defensive “Rowing“ strategies (Tactical Unconstrained and Absolute Return) have recently underperformed relative to the “Sailing” strategies which maintain a certain target equity allocation (Strategic and Tactical Constrained).1 This should come as no surprise as equity prices have been increasing since March 2009. When we see the next correction in the equity markets, we would expect the “Rowing” strategies to outperform as they have more leeway in their allocations and can be considered more defensive.
 
In our discussions with the different portfolio strategists, we evaluate their investment convictions for the short and long-term direction of the markets. We recognize that different strategists may have contrasting opinions which can be largely impacted by their particular style of investing. Please remember that no one can tell you with absolute certainty the near term direction of the markets. Therefore, when constructing portfolios, we are believers that implementing different strategies within an investment portfolio can provide diversification2 and help smooth out the market volatility over time. As your life goals and the economic environment change, we have the ability to make adjustments to portfolios quickly and without additional fees.         
 
As we plan for 2010 and beyond, we believe there is a greater need for financial planning and wealth management. We want to add more value to our relationships by discussing important issues such as the new Roth-IRA conversion rules and the reinstatement of the Required Minimum Distribution after Congress allowed a one year reprieve. These issues may impact your wealth management plan one way or another. As a reminder, we welcome the opportunity to discuss these issues with your CPA or estate attorney to see how certain scenarios impact your individual financial picture. If you are not working with a CPA or estate attorney, we are happy to make an introduction when appropriate.   
 
Lastly, we have terrific news to report at Bernard Wolfe & Associates. We are pleased to announce that both Samantha Fraelich and Brian McGuire passed the  Certified Financial PlannerTM professional exam that they took in November. Upon final certification, they will join Bernie, Brad and Glenn in making our entire investment team CFP® certificants. We believe this puts our firm in a stronger position to provide high end guidance to our existing clients as well as increase our capacity to add new client relationships through your introductions. As always, we appreciate the trust you place in our firm. 
 
 
Best regards,
 
 
Bernard R. “Bernie” Wolfe, CFP®
 
1 A Strategic Asset Allocation approach creates a mix of equities, fixed income, and cash designed to capture broad capital market returns while balancing risk and volatility. The goal of this approach is to put the positive winds of “sailing” markets to work in your portfolio.
 Tactical Constrained Asset Allocation approaches attempt to capture broad market returns while also seeking to take advantage of shorter-term opportunities or mitigate risk through moderate allocation shifts. This approach may also put the positive winds of “sailing” markets to work in your portfolio, but it also creates the potential for the portfolio strategists to add additional value through active, near term allocation decisions.
 Tactical Unconstrained Asset Allocation approaches remove the limits on the extent and frequency of allocation shifts allowing the portfolio strategist to move more aggressively in response to changes in their outlook. This approach can provide flexibility for “rowing” markets when headwinds place a premium on active asset class management
 Absolute Return Asset Allocation strategies are for risk-averse investors comfortable with modest returns in exchange for highly active risk management that may include frequent allocation shifts, non-traditional asset classes and/or alternative strategies. This strategy may be used for attempting to “row” toward your goals regardless of the stock market’s direction.
 
2 Diversification does not protect against the loss of principle due to market fluctuations. It is a method used to help manage investment risk.
 
 
 
 The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by NFP Securities, Inc. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by NFP Securities, Inc. for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Asset allocation does not guarantee against loss of principal.
 

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Bernard R. Wolfe & Associates is an affiliate of NFP Securities Inc. and subsidiary of National Financial Partners Corp., the parent company of NFP Securities, Inc.