Second Quarter 2010 Investment Thoughts

Stocks continued their slide in the second quarter, ending the first half of 2010 with losses in all equity asset classes. Small cap stocks did better than their large and mid cap counterparts this quarter (and year to date).  Foreign stock markets experienced similar struggles in the current quarter. Bonds and REIT’s were basically the only asset classes that had positive returns for the quarter and year. It has been a real roller coaster ride so far in 2010.

On the economic front, we continue to face uncertainty in our country. While debt levels are decreasing, we still have too much debt. The aging of our population is also a concern for the longer term growth of the economy (as it is around much of the world). Concerns about increasing income taxes and the cost of recent legislation are also creating a cloudy long term picture. Europe faces a similar situation but much of the developing markets have signs of stronger growth. In spite of this gloomy news, generally economists do not see a double dip recession coming and inflation does not look to be an imminent threat.

So what is an investor to do in times like these? As we have always stressed, having a well diversified portfolio with exposure to various asset classes that are uncorrelated with each other is very important. This should also include asset classes such as commodities, global fixed income and inflation hedges.  It is also critical to keep your time horizon in mind as you look at your investments. If you need to access funds in the next 2-3 years it would be better to keep this amount in liquid investments due to the volatility in the markets we have seen recently. Taxes will also play an increasingly important role in your portfolio and need to be considered carefully. 

As always, let us know if you have any general or specific questions on your personal financial situation.

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