Protect...Grow...Repeat

Market & Economic Brief

Summer 2010

GLOBAL STOCKS
Stocks generally ended the first half of 2010 under pressure. The S&P 500 was down -7.5% and the MSCI Developed Country index declined -15.8%. Q2 earnings reports are expected to be strong but forward guidance is less certain. Leading companies held up surprisingly well as markets sold off.

WORLD ECONOMY
Leading economic leading indicators produced by ECRI continue to signal a slowdown in the U.S. economy but will need to deteriorate further before signaling another recession.

INFLATION DATA
Broad inflation pressure appears to be contained and interest rates remain very low.

U.S. RESIDENTIAL HOUSING
After a pick-up earlier in the year, home sales appear to have slowed after the expiration of the home buyer credit at the end of April in most U.S. markets.

PLANNING
New conversion rules for ROTH IRA's in 2010 may present a unique planning opportunity.

Potential tax changes in 2011 are reason to review tax strategy in 2010.

Creating Retirement Income

Generating Income
We spend the first part of our life accumulating assets and earning income. When retirement arrives we shift to a strategy designed to generate income from our investments to support our lifestyle. Moving from the accumulation phase to the distribution phase creates additional challenges and may require a change in the way investors manage their portfolios. The most recent bear markets of 2000-2002 & 2007-2009 is a good reminder of just how challenging financing a comfortable retirement can be.

The added complexity created by drawing down on savings raises the stakes for making good financial planning and investment management choices. Once in retirement you cannot count on long-term averages to correct mistakes because you now depend on current returns from your portfolios to support your income distributions. While some investors will shift to conservative investments, the returns they generate may not be sufficient to support the desired lifestyle.

Some key risks to consider when planning your retirement income include:

Longevity Risk - We are living longer healthier lives then previous generations.

Inflation Risk - Long-term our money loses purchasing power.

Asset Allocation Risk - There is a balance to strike between how our investments are allocated and market conditions.

Withdrawal Risk - The amount of money you plan to withdrawal will have a direct impact on how long your money will last.

Health Care Expense Risk - Longer life spans, rising medical cost, a decrease in medical coverage, and possible shortfalls with government programs are likely to pose a significant challenge to retirees.

Our investment services focus on managing risk by lowering volatility and potentially improving compounding. When your money is working effectively, the retirement risks listed above may become less of a concern.