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.

Effective Portfolio Design

Discipline
A fundamental shift is underway in the investment management and financial planning professions with the goal of enhancing Modern Portfolio Theory (MPT), developed in 1959, is hardly modern. This change has led to a more rigorous analysis of projected investment returns, a wider selection of financial instruments, and enhanced investment techniques by portfolio managers.

Investments available today offer an opportunity to customize the asset mix, manage cost and control risk which may improve performance for investors.
New investments have been complemented with an array of readily available tools to track and analyze financial information
Behavior finance has gain credibility and has brought a challenge to the theory that all markets are efficient

MPT is still used widely today and incorporates assumptions that present difficulties in current markets. Normal distributions do not accurately match historical return patterns and the frequencyt of rare events (extreme negative returns) are underestimated. Over long time frames (decades) these limitations have less impact, but within shorter time frames these limitations can be examined and potentially addressed in the construction and/or management of an investment portfolio.

Portfolio Composition
At Dightman Capital Group, we utilize broadly diversified portfolios but offer investors an ability to go beyond a traditional mix of U.S. stocks and bonds in the construction of their portfolio. We also believe in the utility of indexing and many of the investments we recommend are indexed based.

We offer portfolios from conservative to aggressive and shift allocations between asset classes for changing conditions.

Controlling Cost
Investment expenses are assessed in a variety of places: management cost, investment expenses, brokerage commissions, and service fees just to name a few. Keeping cost low in each of these areas means you have more money to grow.

We also pay attention to investment cost in the form of taxes. Taxes can be generated in a taxable investment account at a couple of levels. By using tax-efficient investments, we try to minimized the "shared" tax burden associated with some investments. We also use different tax strategies in an attempt to minimize the tax events generated directly in the portfolio.