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Just Plans 2nd Quarter 2010 Guide to the Markets
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As of June 30, 2010
Guide to the MarketsGuide to the Markets
Barry Mendelson, CFP®925‐988‐0330 x22Barry@JustPlans Etc comBarry@JustPlans‐Etc.com
1
About
Barry Mendelson, CFP®
Investment management and personal finance guru. More than 15 years experience working for leading financial services companies including Charles Schwab AXA Rosenberg Neubergerfor leading financial services companies including Charles Schwab, AXA Rosenberg, Neuberger Berman, and Franklin Templeton. Prior to joining Just Plans Etc. in 2010, was a Vice President in Charles Schwab & Co’s $200 billion investment management division. Certified Financial Planner™ certificate holder since 2008. B.A. in Business Economics & Accounting from U.C. Santa Barbara in 1995Santa Barbara in 1995.
Just Plans Etc.
Founded in 1982 and based in Walnut Creek, California ‐ Just Plants Etc. is a fee‐only wealth management firm and SEC registered investment advisor. Just Plans provides investment management and financial planning services to more than 100 individual, families, and companies As a fiduciary the firm puts the interests of the client above all elsecompanies. As a fiduciary, the firm puts the interests of the client above all else.
2
Agenda
1. Current Market Environment2. Current Economic Environment3. Historical Perspective4. Lessons for the Future
3
Agenda
1. Current Market Environment
4
Returns by Style
1,250
S&P 500 Index2Q 2010 YTD 2010
Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.
Value Blend Growth Value Blend Growth
ge ge
1 050
1,100
1,150
1,200
2Q10: -11.4%
Larg -11.1 -11.4 -11.7
Larg -5.1 -6.7 -7.6
Mid -9.6 -9.9 -10.2 Mid -0.9 -2.1 -3.3
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-101,000
1,050
1 600
S&P 500 Index
2010: -6.7%
Since Market Low (March 2009)Since Market Peak (October 2007)Sm
all
-10.6 -9.9 -9.2
Smal
l
-1.6 -2.0 -2.3
Value Blend Growth Value Blend Growth
1,000
1,200
1,400
1,600
Since 10/9/07 Peak: -29.9% La
rge
-34.2 -29.9 -24.6
Larg
e
64.1 56.6 53.8
Mid -25.2 -24.7 -25.0 Mid 90.9 81.8 73.3
Source: Russell Investment Group, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.
All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represe nts period 10/9/07 6/30/10 illustrating market returns since the most recent S&P 500 Index high on 10/9/07 Since Market Low represents period 3/9/09
Jan-07 Jan-08 Jan-09 Jan-10600
800
Since 3/9/09 Low: +56.6%
Smal
l
-25.2 -25.0 -25.1
Smal
l
85.0 80.9 76.8
– 6/30/10, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 –6/30/10, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. F or all time periods, total return is based on Russell -style indexes with the exception of the large blend category, which is reflected by th e S&P 500 Index. Past performance is not indicative of future returns.
5
Equity Returns
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q10 YTDLarge
GrowthMid
GrowthSmall Value
Small Value
Mid Value
Small Growth
Mid Value
Mid Value
Small Value
Large Growth
Small Value
Mid Growth
Small Growth
Mid Value
38.7% 51.3% 22.8% 14.0% -9.6% 48.5% 23.7% 12.7% 23.5% 11.8% -28.9% 46.3% -9.2% -0.9%.
Equities
Mid Growth
Small Growth
Mid Value
Mid Value
Small Value
Small Value
Small Value
Mid Growth
Large Value
Mid Growth
Large Value
Large Growth
Mid Value
Small Value
17.9% 43.1% 19.2% 2.3% -11.4% 46.0% 22.3% 12.1% 22.2% 11.4% -36.9% 37.2% -9.6% -1.6%
Large Value
Large Growth
Large Value
Large Value
Large Value
Mid Growth
Large Value
Large Value
Mid Value
Small Growth
Large Growth
Small Growth
Mid Growth
Small Growth
15.6% 33.2% 7.0% -5.6% -15.5% 42.7% 16.5% 7.1% 20.2% 7.0% -38.4% 34.5% -10.2% -2.3%
Mid Value
Large Value
Mid Growth
Small Growth
Mid Growth
Mid Value
Mid Growth
Large Growth
Small Growth
Large Value
Mid Value
Mid Value
Small Value
Mid Growth
5.1% 7.4% -11.8% -9.2% -27.4% 38.1% 15.5% 5.3% 13.3% -0.2% -38.4% 34.2% -10.6% -3.3%
Small Mid Large Mid Large Large Small Small Mid Mid Small Small Large LargeSmall Growth
Mid Value
Large Growth
Mid Growth
Large Growth
Large Value
Small Growth
Small Value
Mid Growth
Mid Value
Small Growth
Small Value
Large Value
Large Value
1.2% -0.1% -22.4% -20.2% -27.9% 30.0% 14.3% 4.7% 10.7% -1.4% -38.5% 20.6% -11.1% -5.1%.Small Value
Small Value
Small Growth
Large Growth
Small Growth
Large Growth
Large Growth
Small Growth
Large Growth
Small Value
Mid Growth
Large Value
Large Growth
Large Growth
-6.5% -1.5% -22.4% -20.4% -30.3% 29.8% 6.3% 4.2% 9.1% -9.8% -44.3% 19.7% -11.7% -7.6%Source: FactSet, Russell Investment Group, J.P. Morgan Asset Management.
All data are based on Russell Indexes and represent total return for stated period. Small company stocks may be subject to a hig her degree of market risk than the securities of more established companies because they tend to be more volatile and less liquid. Each style is representat iveof corresponding Russell style index. Past performance is not indicative of future returns. Please see disclosure page at end for index definitions. Data ar e as of 6/30/10.
Large Value = Russell 1000 Value Index Large Growth = Russell 1000 Growth Index Mid Value = Russell Mid Cap Value Index Mid Growth = Russell Mid Cap Growth Index Small Value = Russell 2000 Value Index Small Growth = Russell 2000 Growth Index
6.5% 1.5% 22.4% 20.4% 30.3% 29.8% 6.3% 4.2% 9.1% 9.8% 44.3% 19.7% 11.7% 7.6%
Small Value Russell 2000 Value Index Small Growth Russell 2000 Growth Index
For illustrative purposes only.
6
Deploying Corporate Cash
Corporate Cash as % of Current Assets Theoretical Drag on Earnings from Retained Cash
10%
8%
10%
12%S&P 500 companies – cash and cash equivalents, quarterly Cost of capital vs. return on cash
24
26
1%2%
4%
6%
8%
16
18
20
22
3601,600 $32
S&P 500 Dividends per ShareAcquisition Growth vs. Organic Growth
0%Cost of Capital Cash Return
Monthly deal volume and nonfarm nonfinancial capex Next twelve months dividends per share, USD
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '0914
240
270
300
330
600
800
1,000
1,200
1,400
$20
$24
$28
Capital expenditures M&A activity
150
180
210
0
200
400
600
1998 2000 2002 2004 2006 2008 2010 '96 '98 '00 '02 '04 '06 '08 '10$12
$16
$20
Source: Standard & Poor’s FRB Bloomberg FactSet J P Morgan Securities J P Morgan Asset ManagementSource: Standard & Poor s, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management.
(Top right) for illustrative purposes only, not based on actual data. (Bottom left) M&A activity is monthly number of deals o f any value and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom right) Next twelve months dividends are estimates provi ded by Standard & Poor’s. Data are most recent as of 6/30/10.
7
Fixed Income Sector Returns
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q10 YTDQ
Treas. EMD EMD Corp. TIPS High Yield EMD EMD High Yield TIPS Treas. High Yield Treas. Treas.
10.0% 23.1% 13.7% 10.3% 16.7% 29.0% 11.9% 12.3% 11.8% 11.6% 13.7% 58.2% 4.7% 5.9%Barclays
Agg High Yield Treas. Barclays Agg EMD EMD High Yield Asset
Alloc. EMD Treas. MBS EMD TIPS Corp.
8.7% 2.4% 13.5% 8.4% 12.2% 26.9% 11.1% 3.6% 10.0% 9.0% 8.3% 34.2% 3.8% 5.8%
Corp. TIPS TIPS MBS Treas. TIPS TIPS Muni MBS Barclays Agg
Barclays Agg Corp. Barclays
Agg EMD
8.6% 2.4% 13.2% 8.2% 11.8% 10.6% 6.3% 3.5% 5.2% 7.0% 5.2% 18.7% 3.5% 5.7%
MBS MBS Muni TIPS Barclays Agg
Asset Alloc.
Asset Alloc. TIPS Asset
Alloc. MBS Asset Alloc.
Asset Alloc. Corp. Barclays
Agg7.0% 1.9% 11.7% 7.9% 10.3% 10.0% 6.0% 2.8% 5.1% 6.9% -1.4% 15.8% 3.4% 5.3%
Muni Asset Barclays Asset Corp Corp Corp Treas Muni Asset TIPS Muni Asset Asset Muni Alloc.y
Agg Alloc. Corp. Corp. Corp. Treas. Muni Alloc. TIPS Muni Alloc. Alloc.6.5% 1.6% 11.6% 6.8% 10.1% 8.2% 5.4% 2.8% 4.8% 6.2% -2.4% 12.9% 2.9% 5.0%
Asset Alloc.
Barclays Agg MBS Treas. Asset
Alloc. Muni MBS High Yield Barclays Agg EMD Muni TIPS MBS High Yield
5.3% -0.8% 11.2% 6.7% 10.0% 5.3% 4.7% 2.7% 4.3% 5.2% -2.5% 11.4% 2.9% 4.5%
TIPS Corp. Asset Alloc High Yield Muni Barclays
Agg Muni MBS Corp. Corp. Corp. Barclays Agg Muni MBSAlloc. Agg Agg
3.9% -2.0% 10.2% 5.3% 9.6% 4.1% 4.5% 2.6% 4.3% 4.6% -4.9% 5.9% 2.0% 4.5%
High Yield Muni Corp. Muni MBS MBS Barclays Agg
Barclays Agg Treas. Muni EMD MBS EMD TIPS
1.9% -2.1% 9.1% 5.1% 8.7% 3.1% 4.3% 2.4% 3.1% 3.4% -14.7% 5.9% 1.0% 4.4%
EMD Treas. High Yield EMD High Yield Treas. Treas. Corp. TIPS High Yield High Yield Treas. High Yield Muni
-11.6% -2.6% -5.9% 1.5% -1.4% 2.2% 3.5% 1.7% 0.4% 1.9% -26.2% -3.6% -0.1% 3.3%
Source: Barclays Capital, FactSet, J.P. Morgan Asset Management.
Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and a re represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets In dex; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital Real TIPS.
The “Asset Allocation” portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerg ing Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Balanced portfolio assumes annual rebalancing.g , , p g
Data are as of 6/30/10.
8
Gold Gold
Gold Prices World Gold Production
1,200
1,400
Gold Prices$ / oz
Most recent: $1,244
Year Troy Ounces Total Value
2000 83.3 mm $23.2 bn
2001 83 6 $22 7 b
Gold
Gold, CPI adjusted
800
1,000Jan. 1980:
$850
2001 83.6 mm $22.7 bn
2002 82.0 mm $25.4 bn
2003 81.7 mm $29.7 bn
600
800
2004 77.8 mm $31.9 bn
2005 79.4 mm $35.3 bn
200
400
Most recent: $210
Jan. 1980: $326
2006 76.2 mm $46.0 bn
2007 75.9 mm $52.9 bn
2008 72 7 mm $63 3 bn
'70 '75 '80 '85 '90 '95 '00 '05 '100
Source: (left) EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (right) U.S. Geological Survey, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices divided by the CPI value for th at month. CPI is rebased to 100 at the start of the chart. Total value of world gold production is calculated as troy ounces multiplied by th e average gold spot price for
2008 72.7 mm $63.3 bn
2009 75.6 mm $73.5 bn
rebased to 100 at the start of the chart. Total value of world gold production is calculated as troy ounces multiplied by th e average gold spot price for the respective year.
Data reflect most recently available as of 6/30/10.
9
Agenda
2. Current Economic Environment
10
Economic Expansions and Recessions
5 yrs125
The Great Depression and Post-War Recessions Length and severity of recession
Great Depression:
Length of Economic Expansions and Recessions
Average Length (months):
Expansions: 43 months
-26.7%
3 yrs
4 yrs
ion
in Y
ears
75
100 26.7% decline in real GDPp
Recessions: 15 months
-3.2% -2.9%-3.8%2 yrs
Leng
th o
f Rec
ess
50
Most Recent Recession: 3.8% decline in real GDP
-0.6%
-2.2%
-1.6%-2.6%
-3.7%
-1.7%-1.4%
-0.3%
0 yrs
1 yrs
1910 1930 1950 1970 1990 20100
25
1900 1912 1921 1933 1949 1961 1980 2001
**
1900 1912 1921 1933 1949 1961 1980 2001
Source: NBER, BEA, J.P. Morgan Asset Management.Bubble size reflects the severity of the recession, which is calculated as the decline in real GDP from the peak quarter to the trough quarter except in the case of the Great Depression, where it is calculated from the peak year (1929) to the trough year (1933), due to a lack of available quarterly data. Data are as of 6/30/10.
Source: NBER, J.P. Morgan Asset Management.
Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). This data can be found at www.nber.org/cycles/ and reflects information through June 2010. *Assumes recession started December 2007 and ended June 2009. Assumes most recent expansion extended through June 2010.
For illustrative purposes only.For illustrative purposes only.
11
Economic Growth & Composition of GDP
$16,000
8%
10%
Real GDP % chg at annual rate
20-yr avg. Latest
Real GDP: 2.6% 2.7%
Components of GDPBillions, USD
2.4% Housing / Construction
$10,000
$12,000
$14,000
4%
6%
8%9.7% Investment ex-housing
20.4% Gov’t Spending
$6,000
$8,000
-2%
0%
2%
71.0% Consumption
$0
$2,000
$4,000
-6%
-4%
2%
-$2,000'92 '94 '96 '98 '00 '02 '04 '06 '08 '10-8%
Source: BEA, J.P. Morgan Asset Management.
Data reflect most recently available as of 6/30/10. GDP values shown in legend are % change vs. prior quarter annualized and reflect revised 1Q10 GDP.
- 3.5% Net Exports
12
Consumer Finances
$70
Personal Savings Rate
8%
10%
12%Annual, % of disposable income
Consumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted
Total Assets: $69 tnYTD 2010:
3.6%
$50
$60
2%
4%
6%
8%
Homes: 27%
Other tangible: 7%
15%$30
$40'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
0%
Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted
Deposits: 11%
Pension funds: 18%Revolving (e.g.: credit cards): 6%
3Q07:14 0%
12%
13%
14%
$10
$20
Total Liabilities: $14 tnOther financial assets: 37%
g ( g )Non-revolving: 12%Other Liabilities: 9%
1Q80: 11.2%
1Q10: 12.5%
14.0%
10%
11%
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10$0
Source: (Left chart) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right charts) BEA, FRB, J.P. Morgan Asset Management.
Mortgages: 73%
Personal savings rate is calculated as personal savings (after -tax income – personal outlays) divided by after -tax income and reflects data through February. Employer and employee contributions to retirement funds are included in after -tax income but not in personal outlays, and thus are implicitly included in personal savings.
Savings rate data are as of May 2010. All other data are as of 1Q10.
13
Federal Finances
-5%
5%
% of GDP, 1940 – 2020*Federal Budget Surplus/Deficit U.S. Proposed Federal Budget Outlays - 2010
-25%
-15%
5%
*Administration’s proposed 2011 budget Entitlements:
Social Security Medicare M di id
Other18%
-35%1940 1950 1960 1970 1980 1990 2000 2010 2020
125%% of GDP, 1940 – 2020*Federal Debt (Accumulated Deficits)
Medicaid39%
Defense (Discretionary)
Non-Defense (Discretionary)
15%
50%
75%
100%
5%
*Administration’s proposed 2011 budget
(Discretionary)23%
0%
25%
1940 1950 1960 1970 1980 1990 2000 2010 2020
Source: St. Louis Fed, BEA, OMB, J.P. Morgan Asset Management.
Total Projected 2010 Budget Receipts: $2,165 billion Total Projected 2010 Budget Outlays: $3,721 billion Projected Surplus / Deficit: - $1,556 billion
Source: OMB, J.P. Morgan Asset Management., , , g g
Data reflect most recently available as of 6/30/10.
Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Bottom left chart displays federal debt in the hands of the public.
14
Consumer Price Index
15%
CPI and Core CPI50-yr. Avg. Latest
Headline CPI: 4.1% 2.0% Core CPI: 4.1% 0.9%
% chg vs. prior yearCPI Components
Weight in CPI
12-month Change
Food & Bev. 14.8% 0.7%
Housing 42.0% -0.5%
9%
12% Apparel 3.7% -0.6%
Transportation 16.7% 10.7%
Medical Care 6.5% 3.4%
Recreation 6 4% -0 5%
3%
6%
Recreation 6.4% 0.5%
Educ. & Comm. 6.4% 2.2%
Other 3.5% 2.7%
H dli CPI 100 0% 2 0%
0%
Headline CPI 100.0% 2.0%
Less:
Energy 8.6% 14.7%
Food 13.7% 0.7%
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%
Source: BLS, J.P. Morgan Asset Management.
Data reflect most recently available as of 6/30/10. CPI values shown are % change vs. 1 year ago and reflect May 2010 CPI data. CPI component weights are as of Dec. 2009 and 12-month change reflects data through May 2010. Core CPI is defined as CPI excluding food and energy prices.
Core CPI 77.7% 0.9%
15
The Federal Reserve
12
Fed Funds Target Rate and 10-Year Treasury Yields
Grey bars represent Fed tightening cycles
8
10
g g y
6 10-year Treasuries: 2.97%
2
4
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '100
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.
Data are as of 6/30/10.
Fed Funds Target: 0.0% to 0.25%
16
Employment
60012%
Civilian Unemployment Rate Employment - Total Non-farm Payroll Seasonally adjusted Total job gain/loss (thousands)
0
200
400
9%
10%
11%
Jun. 2010: -125K
Most recent: 9.5%
-400
-200
0
7%
8%
-800
-600
4%
5%
6%
50-yr. avg.: 6.0%
J 2009
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10-1,000
'60 '70 '80 '90 '00 '103%
Source: BLS, J.P. Morgan Asset Management.
Data reflect most recently available as of 7/2/10.
Source: BLS, J.P. Morgan Asset Management.
Data reflect most recently available as of 7/2/10.
Jan. 2009: -779K
17
Agenda
3. Historical perspective
18
Monthly: January 1926-December 2009
Growth of Wealth
Monthly: January 1926 December 2009
$8,201Small Cap(CRSP 6‐10 Index)$2,590Large Cap
$10,000
Large Cap (S&P 500 Index)
$85Long‐Term Government
$1,000
$100Bonds Index
$20Treasury Bills$12Inflation (CPI)
$10
$1
$0
1926 1936 1946 1956 1966 1976 1986 1996 2006 2009
CRSP data provided by the Center for Research in Security Prices, University of Chicago. The S&P data are provided by Standard & Poor's Index Services Group. US long‐term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
19
January 1926–December 2009
Stocks vs. the Risk‐Free Rate
April 1999 Daily ReturnsTotal Month of April Return: 3.9%
S&P 500$2,048
During this month, the S&P 500 h d 10 d f i
1 15 30
‐2.24%
had 10 days of negative returns out of 21 trading days.
1999 Monthly ReturnsTotal Annual Return: 21%
21.04%
During this year, the S&P 500 had 5 out of 12 months with negative
J F M A M J J A S O N D
‐0.49%
‐3.11% ‐2.36% ‐3.12% ‐2.74%
5 out of 12 months with negative returns.
• Even during periods of positive stock returns, investors may experience substantial volatility.
• Short‐term volatility is a typical characteristic of stock market investing.
The S&P data are provided by Standard & Poor's Index Services Group. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice.
• Long‐term returns are the sum of short‐term volatility.
20
The Importance of Long‐Term Discipline
Annualized Compound Returns (%) 1926-2009 1965-1981 1982-2009Annualized Compound Returns (%) 1926 2009 1965 1981 1982 2009
S&P 500 Index 9.81 6.33 11.17
One-Month US Treasury Bills 3.66 6.66 4.98
The S&P data are provided by Standard & Poor’s Index Services Group. One‐Month US Treasury Bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).For illustrative purposes only. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money.
21
As Measured by the Dow Jones Industrial Average
The Stock Market’s Reaction
As Measured by the Dow Jones Industrial Average
First Trading Session Response Subsequent Market Behavior
Prior Percent One Six One Date Event Day Close Close Change Change Month Months Year
September 11, 2001 World Trade Center towers destroyed 9,605.51 8,920.70 -684.81 -7.13% -3.66% 11.12% -8.71%
January 16, 1991 US launches bombing attack on Iraq 2,508.91 2,623.51 114.60 4.57% 16.97% 18.93% 29.52%
August 2, 1990 Iraq invades Kuwait 2,899.26 2,864.60 -34.66 -1.20% -8.74% -4.67% 4.95%
March 30 1981 President Reagan shot b John Hinckle Jr 994 78 992 16 2 62 0 26% 1 95% 14 33% 16 90%March 30, 1981 President Reagan shot by John Hinckley Jr. 994.78 992.16 -2.62 -0.26% 1.95% -14.33% -16.90%
August 9, 1974 President Nixon resigns 784.89 777.30 -7.59 -0.97% -14.71% -8.87% 5.98%
November 22, 1963 President Kennedy assassinated in Dallas 732.64 711.48 -21.16 -2.89% 6.57% 15.37% 24.99%
October 22, 1962 Cuban missile crisis 568.60 558.06 -10.54 -1.85% 15.55% 27.41% 33.89%
September 24, 1955 President Eisenhower heart attack 487.44 455.55 -31.89 -6.54% 0.04% 12.48% 5.72%September 24, 1955 President Eisenhower heart attack 487.44 455.55 31.89 6.54% 0.04% 12.48% 5.72%
June 25, 1950 North Korea invades South Korea 224.30 213.90 -10.40 -4.64% -4.49% 7.34% 15.13%
December 7, 1941 Japan attacks Pearl Harbor, Hawaii 115.90 112.52 -3.38 -2.92% -0.86% -6.19% 2.88%
Dow Jones data provided by Dow Jones Indexes.Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money.
22
Monthly: January 1926-December 2009
Large Stocks vs. Fixed Income
Rolling Time Periods 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years 30 Years 40 Years
Total Number of Periods 997 973 949 889 829 769 649 529
Number of Periods S&P 500 Index
674 731 723 751 785 769 649 529
Monthly: January 1926 December 2009
75% 76%84%
95%100% 100% 100%
Outperformed One-Month T-Bills
75% 76%68%
Percentage of All Rolling Periods Where S&P 500 Index Outperformed One‐Month T‐Bills
The S&P data are provided by Standard & Poor’s Index Services Group. One‐Month Treasury Bills © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money. Even a long‐term investment approach cannot guarantee a profit. Economic, political, and issuer‐specific events will cause the value of securities and the portfolios that own them to rise or fall Because the value of your investment in a portfolio will fluctuate there is a risk that you will losethe value of securities, and the portfolios that own them, to rise or fall. Because the value of your investment in a portfolio will fluctuate, there is a risk that you will lose money. Indexes are referred to for comparative purposes only and do not represent similar asset classes in terms of components or risk exposure; thus, their returns may vary significantly. The S&P 500 Index measures the performance of large cap US stocks. One‐Month T‐Bills measure the performance of US government‐issued Treasury bills.
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S&P 500 Index (USD)Daily Returns: January 1 1926 March 31 2010
Bull and Bear Markets
Daily Returns: January 1, 1926-March 31, 2010
303%
Average DurationBull Market: 413 DaysBear Market: 220 Days
Average ReturnBull Market: 58%Bear Market: ‐21%
220%
119% 121%
156%
20%
119%
88%
27%
100%
44%
25%
40%
26%22%
23%
83%
99%
19%26%
53%
91%
121%
26%18%
69%
44%
15%
96%
59% 56%
38%
22%
50%
38%27%
26%21%
48%
78% 73%
16%
37%50%
23%
13%21%
113%
3/31/2010‐20%1%
‐13%
‐85%
‐16%
‐39%‐15%‐10%
‐13%
‐53%
‐13%‐14%‐25%‐11%
‐33%
‐11%
‐26%‐11%‐16%
‐13% ‐11% ‐13%‐21%‐11%
‐27%
‐11%
‐27%
‐10%‐21%
‐32%
‐12%
‐45%
‐13%‐13%
‐15%‐13%
‐10%
‐16%
‐20%‐11%
‐33%
‐10%‐19%
‐11%‐19%
‐12%
‐11%
‐47%
‐14%
‐55%
03/09/2009‐55%
Indices are not available for direct investment; its performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. The S&P data are provided by CRSP (January 1 1926‐August 31 2008) and Bloomberg (September 1 2008‐March 31 2010) Returns include reinvested dividends
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
The S&P data are provided by CRSP (January 1, 1926‐August 31, 2008) and Bloomberg (September 1, 2008‐March 31, 2010). Returns include reinvested dividends. Bull and bear markets are defined in hindsight using cumulative daily returns. A bear market (1) begins with a negative daily return, (2) must achieve a cumulative return less than or equal to ‐10%, and (3) ends at the most negative cumulative return prior to achieving a positive cumulative return. All data points which are not considered part of a bear market are designated as a bull market. Performance data represents past performance and does not predict future performance.
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Mid 1970s and Early 1980s
Recessionary Periods
Recession BeginsNovember 1973
Unemployment Peaks at 9.0%
Recession17 months
November 1973
Recession EndsMarch 1975
May 1975
Unemployment Peaks at 10.8%Recession
Recession BeginsJuly 1981
Nov/Dec 1982Recession17 months
Recession EndsNovember 1982
Recession End AnnouncedJuly 8, 1983
Recession AnnouncedJanuary 6, 1982
Prior to 1979, there were no formal announcements of business cycle turning points.Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. For illustrative purposes only. Past performance is not a guarantee of future results and there is always the risk that an investor will lose money. Source: National Bureau of Economic Research (NBER) for economic expansions and recessions data; the S&P data are provided by Standard & Poor’s Index Services Group; US Bureau of Labor Statistics for unemployment data.
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Early 1990s and Early 2000s
Recessionary Periods
Recession BeginsJuly 1990
Recession AnnouncedApril 25, 1991
Unemployment Peaks at 7.8%June 1992
Recession9 months
Recession End AnnouncedDecember 22, 1992y
Recession EndsMarch 1991
,
R i
Recession BeginsMarch 2001
Unemployment Peaks at 6.3%June 2003
Recession9 months
Recession AnnouncedNovember 26, 2001
Recession EndsNovember 2001 Recession End Announced
July 17, 2003
Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. For illustrative purposes only. Past performance is not a guarantee of future results and there is always the risk that an investor will lose money. Source: National Bureau of Economic Research (NBER) for economic expansions and recessions data; the S&P data are provided by Standard & Poor’s Index Services Group; US Bureau of Labor Statistics for unemployment data.
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Historical returns by holding period
Range of Stock Bond Blended and Cash Total ReturnsAnnual total returns, 1950 -2009*Range of Stock, Bond, Blended, and Cash Total Returns
Bonds 6.2%Stocks 10.8%
Annual Avg. Total Return
51%50%
60%
50/50 Portfolio 9.0%Bonds 6.2%
Cash (T -Bills) 2.1%43%
32%
28%
30%
40%
6%5%
14%
23%21%
11%
19%16% 17%
9%
18%
12%14%
7%
10%
20%
BondsStocks
-8%
-15%
0.1% -2% -2% 1% 1%-1%
1% 2% 0.5% 1%
5%
0.3%
-20%
-10%
0%
50/50 PortfolioBonds
Cash (T -Bills)-37%
-40%
-30%
1 5 lli 10 lli 20 lli
AssetSources: Factset, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management.
*The 20 -yr. cash (T -Bill) returns were calculated using 20 -yr. annualized returns from 1953 -2009.
1-yr. 5-yr. rolling 10-yr. rolling 20-yr. rolling
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$28.6 Trillion as of December 31, 2009
World Market Capitalization
MSCI Index Affiliation
Developed Markets Frontier Markets Emerging Markets
SCALETen Billion
One Trillion
In US dollars. Map reflects countries in the MSCI All Country World IMI Index and MSCI Frontier Markets Index.Market cap data is free‐float adjusted. MSCI data copyright MSCI 2009, all rights reserved. Vietnam data provided by MFMI. Many small nations not displayed. Totals may not equal 100% due to rounding. For educational purposes; should not be construed as investment advice. 1. An example large cap stock provided for comparison.
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The economic growth differential
World GDP Growth vs U S GDP Growth
U.S. GDP Growth
World GDP Growth
Difference
World GDP Growth vs. U.S. GDP Growth
6%
9%
-3%
0%
3%
Emerging and Developed GDP Growth Emerging Economies
Developed Economies12%
-3%
1970 1975 1980 1985 1990 1995 2000 2005 2010
-2%
5%
Source: J.P. Morgan Global Economics Research, IMF, J.P. Morgan Asset Management.
Data are as of Apr 2010 and are provided by the International Monetary Fund 2010 and 2011 data are estimates as provided by the IMF
-9%2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Data are as of Apr. 2010 and are provided by the International Monetary Fund. 2010 and 2011 data are estimates as provided by the IMF. Emerging and Developed Economy GDP growth rates represent quarterly annualized growth and are as of 4Q09.
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Mutual fund flows
Fund FlowsBillions, USD AUM YTD 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
Domestic Equity 3,624 (11) (40) (151) (48) 11 31 111 130 (25) 54 260World Equity 1,183 25 31 (82) 139 148 105 67 23 (3) (22) 50
Taxable Bond 1 921 118 306 20 98 45 26 3 39 124 76 (36)Taxable Bond 1,921 118 306 20 98 45 26 3 39 124 76 (36)Tax-exempt Bond 488 17 69 8 11 15 5 (14) (7) 16 12 (14)
Hybrid 648 13 23 (19) 23 7 25 43 32 8 10 (31)
Money Market 2,837 (485) (539) 637 654 245 64 (157) (258) (46) 375 159
$0
$20
Difference between net flows into stock and bond fundsNet fund flows (monthly)Billions, USD, U.S. and international fundsBillions, USD, U.S. and international funds
Equity flowsFixed income flows$40
$60
-$40
-$20
-$40
-$20
$0
$20
-$80
-$60
May '07 Nov '07 May '08 Nov '08 May '09 Nov '09 May '10
Source: Investment Company Institute, J.P. Morgan Asset Management.
Bond flows exceeded equity flows by $39 billion in May ’10
Asset
-$80
-$60
$40
May '07 Nov '07 May '08 Nov '08 May '09 Nov '09 May '10
p y , g g
Data include flows through May 2010 and exclude ETFs. International equity flows are inclusive of emerging market, global equ ityand regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows.
Asset
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Agenda
4. Lessons for the Future
31
Lessons for the future
1. Define your goals.2. Create a plan. 3. Put it into action.4. Stay on track.
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Contact info
Barry Mendelson, CFP®925‐988‐0330 ext 22925‐988‐0330 ext. 22Barry@JustPlans‐Etc.comwww.JustPlans‐Etc.com
1399 Ygnacio Valley Rd, Suite 24Walnut Creek, CA 94598
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