As we approach 2014, we are impressed with the stock market performance of the last 12 months. The bull market that began in March of 2009 has overcome many obstacles, including the recent threat of US military involvement in Syria and a government shutdown in October. Even as old records fall, there may be room for upside in 2014, especially if the US economy continues to gain strength.
The bond market, on the other hand, has struggled with a Federal Reserve policy shift towards a gradual removal of economic stimulus and rising interest rates. Many investors sold bonds this year and those funds may look to find a home in the stock market. This classic performance chasing behavior may push the stock market even higher and market timing efforts often end badly. We continue to stand by the tried and true strategic asset allocations that match up with your age and your appetite for risk.
Cash will likely continue to underperform the rate of inflation through 2015, according to current Fed policy. Despite this reality, the role of cash remains important, especially for those nearing retirement. We continue to recommend robust emergency cash reserves (held at your favorite local bank) for all of our clients. An allocation to cash in investment accounts provides an extra level of safety too, especially as stocks get more and more expensive. A year-end review with your advisor is highly recommended to help you determine the right stock/bond/cash mix for 2014 and the beyond.
As we summarize 2013, a bipartisan budget agreement has passed into law. It falls well short of the comprehensive reform required to shore up long term US budget deficits, but it is a remarkable achievement considering the deeply divided political landscape. The largest municipal bankruptcy in US history (Detroit) should serve as a powerful reminder of what can and does happen when promises are made that have no mathematical chance of delivery.
ASG is in the business of continuous improvement. With this important concept in mind, the Founding Partners will once again attend the annual TD Ameritrade Institutional National Conference held in Orlando on January 29 through February 1. We are eager to work with you in 2014. In the meantime, we wish all of you the best the New Year has to offer.