June 26, 2012
Sean Quoted in CNN's Money Magazine
The Dowling Group's Sean M. Dowling, CFP, EA was quoted in Carla Fried's CNN Money Magazine Article, "Turn Saving into a Habit." Click here for theMoney Magazine article on CNNMoney.com.
Margaret Thatcher's Foresight
While nobody knows what the future holds, one powerful person came pretty close to accurately predicting the problems Europe is having with the euro - a full 17 years before the current crisis began in 2010.
Former British Prime Minister Margaret Thatcher strongly resisted having Britain join the single currency and, instead, pushed the country to keep the pound sterling. Her view prevailed.
Today, the controversial Lady Thatcher is retired from public view, but her take on the common currency of Europe has proved uncannily accurate.
Paraphrasing her 1993 autobiography, a November 18, 2010 article in the Daily Telegraph said Thatcher argued, "The single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would 'devastate their inefficient economies.'"
True to Thatcher's prediction, the euro zone is suffering from the imbalances caused by a currency shared by countries with dramatically different economic, political, and cultural norms.
We monitor the euro zone problems because, in our global society, a breakdown in Europe could spread to the rest of the world. And, once again, euro zone leaders are meeting this week to try and solve their structural problems. But, consider this. In the U.S. we have one country and two major parties. In Europe, 17 countries share the euro and each of those countries have multiple major parties. Knowing how hard it is for Democrats and Republicans to agree, imagine how hard it is to get 17 countries and their respective parties to agree on anything!
Given this difficulty, it's not surprising that the euro crisis has dragged on and on and on. Eventually, though, Europe will have to make some tough decisions - or the market may do it for them.
|Data as of 6/22/12||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor's 500 (Domestic Stocks)||-0.6%||6.2%||5.3%||14.3%||-2.3%||3.0%|
|DJ Global ex US (Foreign Stocks)||0.0||-1.5||-17.6||4.6||-7.4||4.8|
|10-year Treasury Note (Yield Only)||1.7||N/A||3.0||3.7||5.1||4.8|
|Gold (per ounce)||-3.8||-0.6||0.8||19.4||19.1||17.0|
|DJ-UBS Commodity Index||-0.4||-8.8||-19.6||2.0||-5.6||2.6|
|DJ Equity All REIT TR Index||-0.5||10.3||8.7||32.9||1.6||10.0|
Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
Two Types of Risk Tolerance
VOLATILE MARKETS HAVE EXPOSED ONE FLAW in the traditional thinking about how to determine an investor's "risk tolerance." Traditionally, risk tolerance was thought of in terms of a spectrum moving from very conservative at one end to very aggressive at the other. And, risk was defined as how much of a loss an investor could stomach. That makes sense, but it's only one part of the risk tolerance story.
Investors essentially have two types of risk tolerance:
- Financial risk tolerance - which is an investor's financial ability to withstand a decline in their portfolio.
- Emotional risk tolerance - which is an investor's emotional ability to withstand a decline in their portfolio. Source: The Charles Schwab Corporation
Now, here's the key - there could be a very large gap between these two levels. For example, some investors may be able to financially withstand a 30 percent decline in their portfolio without it negatively impacting their ability to meet their long-term goals and objectives. However, some of those same investors may be able to withstand only a 20 percent decline in their portfolio from an emotional standpoint.
The emotional risk tolerance level is effectively your "sleep" level. It's the level where if your portfolio went down any further, it would affect your ability to sleep soundly at night.
But, there's more...
We also have one other factor to consider here and that's your time horizon. If you are 10 years away from needing to tap your investment portfolio, then a decline in your portfolio today should not be a cause for alarm. Why? Because you have 10 years to recoup the decline. Remember, today's stock market prices are only relevant to those who are selling today.
As your advisor, it's important for us to know your financial risk tolerance level and your emotional risk tolerance level. With this knowledge, we do our best to manage your portfolio in such a way that we won't breech either of those levels. After all, we appreciate a good night's sleep, too!
Weekly Focus - How to Sleep Better...
Are you one of the lucky 42 percent of Americans who consider themselves "great sleepers?" If not, try these tips from the National Sleep Foundation:
- Set and stick to a sleep schedule by going to bed and waking up at the same times daily.
- Exercise regularly, but do it in the morning or afternoon.
- Establish a relaxing bedtime routine such as reading a book or listening to music.
- When you go to sleep, make sure your room is dark, quiet, and cool.
- Avoid caffeinated beverages, chocolate, tobacco, or large meals right before bedtime.
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management
Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
- The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
- Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
- The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
- The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
- The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
- This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
- The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
- Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
- Past performance does not guarantee future results.
- You cannot invest directly in an index.
- Consult your financial professional before making any investment decision.
ADV & Investment Objectives:
Please contact The Dowling Group if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Part II of Form ADV and is available for your review upon request.
IRS Circular 230 Disclosure:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.
It's a busy world. Our newsletter helps keep you tuned in to major market events, money-saving opportunities, filing deadlines, and other important information. One email per week and no spam — promise.Subscribe