Download Another Year, Another Stock Market Increase

Perspectives
particularly larger companies.
• Overweight Europe and stay the course with
Japan - Poor returns in 2014 increase the odds of
a positive 2015. The European Central Bank should
provide the key catalyst for a strong recovery this
year. Japan continues its long-term recovery and
some currency weakness is already reflected in the
equity prices.
• Underweight emerging markets. Overall,
emerging market equities may lag developed
market equities. Investment opportunities will arise
in individual countries, as sentiment will punish the
“good” along with the “bad.”The “good” will include
the Asian countries while Latin America once again
will make up the “bad” as it is tied to commodity
prices.
What about Bonds? Once again, we say interest rates
are at all-time lows so they can only go up from here.
When interest rates rise, bond prices fall. This has
been our expectation for the last two years and yet it
has not happened.
Still, it is inevitable that bonds, or Fixed Income, are
riskier than stocks in 2015. The interest a bond pays
is nowhere near enough to offset any decrease in its
value. As well, inflation overwhelms bond income at
these levels and so a bond investor is permanently
damaged over time. We have included only shortterm bonds in our portfolios, yet the risk is still there.
It is important for an investor to evaluate his or her
individual situation and consider moving more to
stocks, particularly those that pay dividends. Please
feel free to call me to discuss your personal situation.
Celia Rafalko is a fully independent Registered Investment Advisor who knows the universe
of investments; how they are created and regulated, and their specific advantages and risks.
Celia’s over 20 years of experience include Managing Director/Group Chief Administrative Officer
of Wachovia Securities; Vice President of Market Planning /Communication at State Street in
Boston, MA; Founder of New Alliance Consulting in Moscow, Russia; and a Senior Regional
Sales Manager for IBM. Celia is a graduate of the Securities Industry Institute Executive Training
Program at Wharton Business School, and has executive training with professors from Harvard
Business School, Slown School at MIT, and the University of Virginia.
PA G E 1 O F 2
www.PIF401K.com
What is the Market?
Another Year, Another Stock Market Increase
It is now routine to see new highs in the stock
markets, day in and day out. The last few years have
been among the best in any investor’s lifetime with
double digit increases in each of the last three years.
On average, the S&P 500 Index goes down more
than 5% three times a year. Once a year, on
average, it goes down more than 10%. In recent
years, we have not seen this pattern and have had
no 10% reductions at all. That makes any negative
movement seem much more important than it is.
Keep that in mind as you look at the inevitable ups
and downs in the markets.
In 2014, US markets were strong but the International
markets were not. These economies suffered from
slow growth that restricted stock increases, with
the exception of Japan. Its Central Bank, similar to
our Federal Reserve Bank, continued its dramatic
monetary support and the Japanese market has now
recovered significantly. The strengthening dollar
against the Euro and Yen, however, limited price
increases and muted Japan’s market success.
For 2015, global stocks could see another year of
gains, led by the U.S. and International developed
markets. But volatility, the flux of prices, is also
likely to increase, as the markets adjust to changes
in U.S. monetary policy, lower energy prices, a
stronger US dollar, and moderate Chinese growth.
So what to do in 2015? Here is our strategy:
•Stick with large U.S. stocks - Falling gas prices,
a strong dollar, job growth and wage gains have
already increased excess income for the average
consumer. This will support the U.S. stock market,
FIRST QUARTER 2015
People talk about “The Market”as though it were one
particular thing with a mind of its own, but what
is it? When talking about the stock market, usually
the reference is to the Dow Jones Industrial Average,
commonly called “The Dow”.
Once upon a time, “The Dow”was a proxy for the U.S.
stock market. Since then, the number of companies
and the volume of trading have exploded. “The Dow”
is made up of 30 stocks, all large companies selected
as representative of the economy.
The companies are weighted in the index by their
stock price. So Visa, with a stock price of $255.50
makes up 9.5% of the index. Overall, the top 10 stocks,
out of 30, provide over 50% of the price change.
Today, there are over 5,000 public companies in the
U.S. alone, with over 7 billion shares trading hands
every day. Clearly, a broader measure of the market
makes sense.
The Standard & Poors (S&P) 500 Index is made up of
the 500 largest companies in the U.S. The S&P 500 is
largely considered the best single gauge of large cap
U.S. equities, and represents about 80% of the overall
value of the U.S. stock market.
Apple is the largest component of the S&P 500, with
about 3% of the Index, followed by Exxon. While the
Dow might be a sentimental favorite, the S&P 500 is
a much better measure of the U.S. market movement
and is the measure we choose to represent the results
of the U.S. market.
10900 Nuckols Rd. 202 Church Street, SE 800.767.8772
Suite 200
Suite 308
[email protected]
Glen Allen, VA 23060 Leesburg, VA 20175
www.PIF401K.com
Perspectives
Model Portfolio Quarterly Performance
As of December 31, 2014
Data Series YTD
3 Months
1 Yr. 3 Yrs.
5 Yrs.
10 Yrs.
Growth
2.12
5.82
13.80
Growth & Income
1.98
5.11
11.69
10.90
9.68
6.79
6.82
Std Dev
Inception
Since Inception Date
Currency
13.01 05/1998
9.96
05/1998
USD
USD
Balanced1.854.779.648.39 6.39 8.30
05/1998USD
Conservative
II1.854.478.327.59 6.07 6.78
05/1998USD
Ultra Conservative1.403.635.585.64 5.53 4.83
05/1998USD
S&P 500 Index
4.93
13.69
20.41
MSCI EAFE Index (gross div.)
-3.53-4.48 11.56
One-Month US Treasury Bills
0.00
0.02
0.03
15.45
7.67
18.90
5.81
4.91
17.0801/1970
0.05
1.42
0.88
01/1926
01/1926
USD
USD
USD
Piedmont Performance Report Disclosures
1. The results portrayed are model results for the period 4/1/07 to present. Results prior to this
date are hypothetical. Piedmont was not managing money prior to 2003. There are limitations
inherent in model results, particularly the fact that such results do not represent actual and
hypothetical trading and that they may not reflect the impact that material economic and
market factors might have had on the adviser’s decision making if the adviser were actually
managing clients’ money. Hypothetical results were obtained by mean of applying a model
retroactively and therefore with the benefit of hindsight. Such returns should not be considered
indicative of the skill of the advisor.
2. The results portrayed are net of investment advisory fees. A fee of 1.0% per annum was used to
calculate the net of fees results. The fee schedule is in Part 2A Form ADV.
3. The results portrayed reflect the reinvestment of dividends and other earnings.
4. The models are compared to the S&P 500, One-Month US Treasury Bill Index and the MSCI
EAFE (gross div.). The S&P 500 index is a non-managed selection of equity securities, which
assumes reinvestment of dividends and has no trading costs, management fees or expenses,
which would reduce the return. The S&P 500 is widely used as a benchmark and is widely
recognized as representative of the broad general market for domestic equities. The MSCI EAFE
Index is recognized as the pre-eminent benchmark in the U.S. to measure international equity
performance. The One-Month Treasury Bill Index is a market value-weighted index of public
obligations of the U.S. Treasury with maturities of one month.
5. For various reasons (tax, personal preference, restrictions, etc.) some clients of the adviser may
have had investment results materially different from the results portrayed in the model. Models
PA G E 2 O F 2
assume no further investment other than initial investment. However, models are typically used
by 401(k) Plans whose participants make contributions into the models on a semi-monthly
basis. Participants who make contributions and/or make withdrawals during the year may have
materially different results than the model.
6. The portfolio models are allocated among a group of mutual funds consisting of equity and fixed
income funds depending on the different economic outcomes in terms of expected return and
expected volatility. The models are globally diversified and are oriented toward small cap and
value equities, but not to the exclusion of large cap and growth stocks. The fixed income or bond
component of the model are largely invested in short term government bonds and Treasury
Inflation Protected Securities. There are five model portfolios: Ultra Conservative, Conservative
II, Balanced, Growth & Income and Growth. The models have 20% equities/ 80% bonds; 40%
equities/ 60% bonds; 50% equities/ 50% bonds; 60% equities/ 40% bonds; and 80% equities/
20% bonds, respectively.
7. The conditions, objectives or investment strategies of the model portfolios did not change
materially during the time period portrayed.
8. Some of the mutual funds used in these model portfolios are currently not being recommended
by the adviser.
9. It is not our intention to indicate that past performance is any indication of future results. As with
any investment, returns will vary and there is a potential to lose money.
10. The volatility/risk column displays the standard deviation of the funds since inception; the
higher the number, the higher risk associated with that fund.
10900 Nuckols Rd. 202 Church Street, SE 800.767.8772
Suite 200
Suite 308
[email protected]
Glen Allen, VA 23060 Leesburg, VA 20175
www.PIF401K.com