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.

Managing Risk

At Dightman Capital Group, managing investment risk is one of the most important services we can provide. When you have effective risk management incorporated into a portfolio the ability to generate a higher rate of return may improve. Bottom line, with each percent you increases your long-term rate of return you total asset or income level rises by a significant amount of money.

For example, a $1,000,000 portfolio invested over 20 years that earned a 7% average rate of return is worth:

$3,869,684

A portfolio that averaged a 9% rate of return is worth:

$5,604,410

The Difference:

$1,734,726

It is important to pay attention to the performance of your investments.

A reduction in risk (volatility) can also have a positive effect on the compounding features of a return stream. For example, what common characteristic does the following return series share?

A. +40, -20
B. -10, +30
C. +10, +10

They all have an average rate of return of 10%. But what is the value of a $1,000,000 portfolio at the end of two years for each of the return series? You might be surprised to learn that it is not the same.

A. $1,120,000.00
B. $1,170,000.00
C. $1,210,000.00

Portfolio C earned an extra $90,000. Quite simply, the power of compounding can be reduced by an increase in risk (volatility).

Understanding the benefit with each incremental increase in risk and return, is helpful in determining the amount of money you will have to accomplish your lifetime goals. If you would like to reveiw your risk management stratgy, please call us at 206-652-8300 or send an email to