Greetings!
In the gem world, garnets are known for their illuminating properties, especially relative to their size. In this and every issue, we will bring you information and news about that which touches your financial life.
For starters, here is our complete staff listing. We hope you'll take a few minutes to meet the members of the team who may be new to you by visting the WHO WE ARE page.
Bethesda
Veena A. Kutler, CFA, Principal
Annette F. Simon, CFP, Principal
Andrea M. Denham, Client Service Manager
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2006 Market Review and Looking Ahead
Iraq, Elections Overshadowed by Oil, Housing and Fed
2006 was an eventful and at times tumultuous year. The ongoing difficulties in Iraq and the related shift in power in Washington D.C. were two big stories. More important from an investment standpoint though were the stories on oil prices, the housing market, and Fed policy.
The big question on the housing market was when or if the housing bubble would burst, and what would the fallout be. As of this writing, the housing market has already cooled off considerably, but it’s still too soon to say how much further it might have to go.
Fed policy was a big driver of the markets in 2006. Early in the year, investors were growing concerned about an interest-rate overshoot causing a recession. By summer, the Fed had hiked rates by another 125 basis points, and stocks suffered. Once the Fed announced that it was on hold for future hikes, the market spent the rest of the year bouncing higher. Today, there is growing talk of the possibility of a recession that would lead the Fed to begin cutting rates again. This illustrates the fickle nature of short-term sentiment. In less than six months, the market went from concerns about rising rates damaging the economy, to relief that the rate hikes were over, to fears of a cyclical recession (which would lead to falling rates).
A broad observation about returns in 2006 is that riskier asset classes generally did best. Stocks did well in 2006, with smaller-caps continuing their run of outperformance that began in 1999- 2000. Small-caps were up over 18%. The large-cap S&P 500 index gained over 15%. Value indexes vastly outperformed their growth counterparts across all market caps as has been the case since the market correction began in 2000. Currency and strong local stocks markets helped foreign stocks earn a very healthy 26%. Domestic fixed-income generated very low single digit returns, with negative price returns in some cases offset by positive yields.
Looking ahead
With some indexes reaching record levels, stocks may seem like they should be getting expensive. In fact, according to the experts that we follow, stock valuations have not inflated because earnings have risen strongly along with prices. It’s worth remembering that the new highs reached by some indexes are only now eclipsing levels that were first seen nearly seven years ago. Stocks may actually be fairly or somewhat undervalued, though not enough to justify an overweighting. Fixed income is likely to be more stable.
Learn more about Garnet Groups’s Investment Philosophy.
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Online Fraud
Understanding and Minimizing Your Risks
Online fraud and identity theft have been in the news quite a bit lately raising concerns about the security of brokerage, banking and other accounts that can be accessed via the internet. Here’s are the specific safeguards that T.D. Amertrade and Fidelity have put in place to protect your Garnet-managed accounts:
• Both Fidelity and TD Ameritrade fully insure each of their accounts up to $150 million for fraud.
• On-line movements of money from retirement accounts — 401(k) and IRA accounts, for example — as are not permitted. We must complete and submit a distribution form that must be signed by the client prior to any disbursement or transfer of retirement funds.
• Wire authorizations to outside accounts require a form that must be set up ahead of time with signatures.
Recently TD Ameritrade made the following announcement on their advisor website with regard to concerns raised by advisors on behalf of their clients on this topic:
“We are so confident in our protections and take our responsibility to you and your clients so seriously, that we have the Asset Protection Guarantee in place. It promises that if a client loses cash or securities due to unauthorized activity and we determine it was through no fault of the client, we'll reimburse them for that loss.”
Similarly, Fidelity's website states “As part of our ongoing commitment to our customers, we're proud to offer our Customer Protection Guarantee: We will reimburse your Fidelity account for any losses due to unauthorized activity.”
TDA does ask that clients only use their own computers or other computers that they trust — and not to use public computers to access financially sensitive websites. Fidelity also suggests that you select a number other than your Social Security number as your customer ID.
You may want to check with your individual providers to find out what protections are in place for your 401(k) accounts and other non-Garnet custodied accounts.
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Garnet Group is a Registered Investment Advisor with the Securities and Exchange Commission.
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