Saturday, January 3, 2015

Being smart with $$ -- 2014 Recap


Dear Clients and friends:
I would like to wish you a happy new year and a prosperous 2015.

The year that we now leave behind us was a positive one in the financial markets. After a huge increase in stock prices in 2013, many feared that 2014 could be a year where we would give back some of those returns. And if you were someone who likes to time the market, you may have sold some or all of your stocks at the beginning of last year.  As it turns out, the overall U.S. stock market returned 10.5% in 2014. Large stocks did better than small stocks and high dividend payers outperformed those that don't pay out much of their income. International stocks, were negative for the year by 7.7%. REIT funds returned over 25% and bonds returned a respectable 2.9%. A model portfolio for a family with school-aged kids returned approximately 7.5% overall.  Results for other portfolios with different risk profiles would vary. 

As briefly mentioned above, timing the market in an attempt to take advantage of a sector that you believe will outperform, can be dangerous. The most experienced stock market investors have a very questionable record in timing the market. Those who reduced their stock positions at the beginning of last year missed the strong performance in stocks. No one can predict how each sector of the financial markets will perform in 2015 and last year's winners may be next year's losers or they may again lead the pack.   Therefore we must continue to maintain the portfolio that is right for our personal circumstances. Maintaining a diversified portfolio prevents the kind of catastrophe that would occur if your portfolio was made up entirely of one market sector and that sector substantially underperformed.

It is useful to periodically rebalance your portfolio such that you make adjustments to maintain your target weights for each sector. Rebalancing is generally recommended every 6 to 12 months except in the case of large market moves where you might want to address this more frequently.  A change in your personal circumstances would be another reason to address your financial plan sooner.

If you are someone who is still saving for a goal, you may note that contribution limits have increased in many savings vehicles for 2015. New limits are shown below:

401(k)                                                $18,000401(k) catch-up                                $6,000IRA and Roth IRA                              $5,500 (unchanged)IRA and Roth IRA catch-up             $1,000 (unchanged)Income limit to contribute to a Roth IRA (married filing jointly)                    $193,000(single)                                              $131,000
I am available by phone or email anytime if you have questions or require assistance so don't hesitate to contact me.  And remember that references are the greatest thank you I can receive if you believe I have helped you.

Warm regards, 
Larry Pike, CFA
Client Priority Financial Advisors LLC 
www.clientpriority.com

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