Smart401k Blog

With the holiday season quickly approaching, it may be time to start thinking about your spending plans in this sputtering economy.  Times are tough for most Americans:  unemployment is rising, the stock market has suffered great losses and home values have decreased (obvious, I know). 

I suspect this economic downturn must relate to anticipated holiday spending, so I went out to find some statistics on what the outlook was for this year.  According to an annual survey by the National Retail Federation (Holiday Consumer Intentions and Actions Survey), U.S. consumers plan to spend more on average this year than last at $832.36; this is up 1.9% over last year’s average ($816.69), but it represents the lowest increase since the survey began (2002).  So it appears that there will be some reservations about holiday spending as Americans look for ways to save money. 

Here are a few ideas:

• Gift Exchange -There are many variations of the gift exchange, including Secret Santa and White Elephant. I can say that this is something we are doing on my wife’s side of the family this year instead of the traditional get-everyone-something arrangement. This is going to save us both time and money.

• Shop Online - Research the items you want to buy and compare prices to make sure you are getting the best deal. Also, look for specials and coupons. Some popular websites that may help:

http://www.dealcatcher.com/  - This site is a good source for printable coupons, links to deals and coupon codes.

http://www.mysimon.com/ - This is a comparison shopping site to research the best prices on almost anything.

• Be creative - at the expense of sounding cliché, sometimes the best things in life are free. A great gift doesn’t mean it has to be expensive, so use your imagination and give something that the recipient will really value. As a parent with a young child, I can say that I would appreciate a night of free babysitting more than just about anything right now. Here is a source for some other good cheap/free ideas:

http://familycrafts.about.com/cs/giftgiving/a/120400a.htm

Even if you have additional money to spend this year, it’s still a good idea to shop smart.  You can always put some extra funds toward retirement.  Please post a comment with your plans for this holiday season and include any ideas on other ways to save money.  Happy Holidays!

Kevin Jaegers, Senior Investment Advisor

With the election upon us many of you might be wondering how the stock market might react depending on who’s elected.  So without further ado, here are some interesting statistics on market conditions prior to and after a presidential election.  Currently (and unfortunately) we are going into this election with the DOW down approximately 30% YTD (as of 11/03/08).   

Historically, election years have usually been good for the stock market; the average gain in the last seven months of the year was 7.2%.  Overall, looking at market trends since 1945 the S&P 500 has posted an average gain of 10.7% during the 28 years a Democrat was president vs. 7.6% during the 35 years of GOP residency. While we cannot predict who will win the election or what will happen we can take a look at some historical trends in the market based on party leadership.

There have been 27 Presidential elections since the start of the Dow Jones Industrial Average in 1896.

• The Democrats have won 12 times and the Republicans 15 times with the white house switching parties 10 times
• During election years, the Dow has been down YTD on Election Day only seven times.  Three of the seven times, the incumbent party was defeated.

The two months prior to Election Day the Dow, on average, has increased +1.92%.

• This year the Dow closed 9/2/08 at 11, 516.92 and closed 10/30/2008 at 9,180.69, this is a decrease of -20.28%
• When the current office is held by Republicans, the average is +0.6%
• When the current office is held by Democrats, the average is +3.5%
• When a Republican is elected, the average goes to +2.2%
• When a Democrat is elected, the average goes to +1.5%

In first Year of Elected President’s Term the Dow, on average, has increased +4.85%.

• When the White House stays Republican, the average increase is +8.2%
• When the White House stays Democratic, the average increase is +0.5%
• When the White House changes from Republican to Democratic, the average increase is +13.7%
• When the White House changes from Democratic to Republican, the average goes to being down -4.6%

Whatever the outcome is in the election, it seems as if the historical numbers are in our favor. 

Jessica Slaters, Investment Advisor.

Source: www.stocktradersalmanac.com

Over the weekend I went to my first Missouri (MU) football game.  Prior to the game I had the opportunity to tailgate with a lot of MU fans, the majority of them I didn’t know.  Being a diehard KU (Kansas) fan I expected a lot of razzing and friendly bickering.  Instead, once people found out what I did for a living, football was the last thing people wanted to discuss.  Instead everyone wanted to talk about the market and their retirement accounts.  It seemed everyone I spoke to was unsure if they were properly allocated and if they should be moving their money to cash accounts.  I would explain to them that it’s a tough time to be in the market, and watch our accounts go down, but believed we have to remain committed to our investment strategies (assuming they are based on solid asset allocation strategies).  Historically, the market has rebounded strongly after reaching a trough.  On average it rebounds by approximately 30% within 12 months after finding the market bottom. Within two years of the hitting the market bottom, the S&P 500 average increase is roughly 55%.  These figures really got their attention. 

It was very important for them and for you to understand that no one can predict what the future will hold so it’s imperative to have a properly allocated and diversified investment strategy based on your risk tolerance and time until retirement. This doesn’t mean picking all the funds available to you, but rather building a portfolio that includes all the major asset classes (Lg Cap, Sm Cap, etc).  For someone nearing retirement age, they should probably be more conservative, while someone with 20 or 30 years until retirement can stand to continue to invest more aggressively.  

I know it’s tough with how the market is, but now more than ever it is time to have a good game plan and stick to it.  People should approach investing like coaches approach football games.  Coaches set a game plan going into the game and stick to it.  They review hours upon hours of game film and monitor the strengths and weaknesses of their team and opponent and create a strategy that gives them the best chance of success.  During the game, coaches make minor adjustments, but don’t throw their game plan out the window at the first three-and-out or turnover.  It seems people create game plans but then throw them away at the first signs of market turmoil.  If you’re not sure how to come up with a game plan for your retirement or are worried that your game plan doesn’t fit your retirement goals, feel free to contact us to talk through your situation. 

Needless to say, the football analogy connected with a lot of the people I talked to and I had a lot of new friends. Unfortunately for me, they were all MU fans.      

As always, if you have any questions or would like to discuss your account, feel free to call us at, 1-877-627-8401.

Jeff Studebaker, Investment Advisor

This year has been a rather tumultuous year for investors, with the past month being extremely volatile. The Dow Jones Industrial Average is down more than 35% year-to-date as of Oct. 24. I believe fear has been responsible for a significant portion of the market’s return as investors are overly focused on the health of both our financial system and the economy. I like all of the advisors at Smart401k read and learn as much about the market as we can. One of the things that I have noticed has been the steep selloff in the high yield bond market.

For those of you that are not familiar with high yield bonds (aka junk bonds), they are corporate bonds that have been assigned a credit rating below investment grade by Moody’s or Standard & Poor’s (The two main credit rating agencies).  Bonds with a credit rating of BBB or lower from S&P and Baa or lower from Moody’s are considered high-yield bonds.  Because of their lower credit rating, these bonds generally pay a higher yield than investment grade bonds.  (For more information on bonds click here)

Similar to the stock market, the high yield bond market has been plagued by fear.  This fear has resulted in a steep decline, approximately 25% YTD as of Oct. 24^th, in the Merrill Lynch High-Yield Master II Index, a common benchmark for the high yield bond market.  According to Moody’s, the market has priced in a rise in the default rate to almost 20% which would top the record of 15.4% set during the Great Depression in 1933. The uncertainty in the market has also pushed the yield spread over U.S. Treasuries from around 3% a year ago to over 15%.

A number of bond fund managers, including Dan Fuss from Loomis Sayles, have observed the decline as well and see the current market as an investment opportunity. Mr. Fuss recently gave an interview with Morningstar and said that the current bond market is the best buying opportunity he has seen since 1974.

Please note, I am not advocating or a recommending high yield bonds but rather wanted to write about an observation of recent events. Please feel free to contact us if you have any questions regarding high yield bonds or if you have any questions about your account.

Buck Wendel, Investment Advisor

I try to be optomistic in everything I do.  Like when my beloved Chiefs start out 1-4, I remind myself that this is a rebuilding year, and at least they will probably get a good draft pick next year.  Or when I play a really horrible round of golf (worse than usual), I try to focus on how nice the weather is that day.  But in this market, it’s been tough to stay positive - really tough. 

After some thought, I have come up with a few positive things, or at least opportunities, to think about:

• Gas is cheaper. Let’s assume the average family drives 30,000 miles a year. Gas is about $1 less per gallon here in the Midwest. Assuming you average 20 miles/gallon, that’s a savings of $1500 per year.
• Investment opportunities. I believe that we have witnessed some panic selling recently, which may indicate the market is a bit oversold. This should present some good buying opportunities if you have a long-term investing horizon.
• This condition is not permanent. We have been in this downturn about a year. Bear markets on average last 14 months.
• This market is a great learning opportuity. Always be mindful of when you anticipate needing your retirement money. It’s easy to get caught up in being overly-aggressive when the market is doing well, but bull markets are not permanent either. Make sure that you scale back on your risk as you approach that retirement date. Even when times are good, the next bear market may be just around the corner.
• Lifestyle changes - As much as I hate to say it, some Americans became too comfortable living beyond their means. This market has forced many of them to make lifestyle changes that will enable them to be more financially responsible in the future.

If you are interested in reexamining (or establishing) your budget, go to our calculators page (in the Tools and Resources section) and use the link at the bottom to access a free excel budgeting tool.

Remember that during every bear market, most investors feel hopeless and become discouraged with investing; often at just the wrong time.  Things will once again become good in America, so stay positive and enjoy some financial lemonade - I believe better times are ahead.

Kevin Jaegers, Senior Investment Advisor