Weekly Commentary

Weekly Commentary

Welcome to our weekly commentary. As always, feel free to call our office with any questions or comments that you may have.

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www.ruggiewealth.com
 

Around the Water Cooler

The staff of RWM finally got to meet Noah, the son of Adviser Assistant Kayla Hunt. Noah was born on December 22nd and finally made the trip in to see us. He is a happy, healthy little boy and the apple of his mother’s eye. We look forward to Kayla’s return the second week of March!
 

Portfolio Changes

This week the changes to our Portfolio are affected by the sells listed below.
 

Sells

Goldman Sachs High Yield A (GSHAX). We have decided to pull some risk off the table as we believe the high yield arena has had a significant return over the past year and is more prone to exhibit tendencies similar to the stock market.
 

Fund Highlight

Vanguard GNMA Fund (VFIIX) Consistent management, low fees (.23%), stellar long-term returns and a keen sense of investor interests has made us a buyer of VFIIX since October of 2008. A five star rating by Morning star only reinforces our opinion.

The Vanguard GNMA fund focuses primarily on GNMA pass-through, investing at times 80% of its assets in GNMAs, though it may hold U.S. Treasuries, other government-agency securities, or cash. The managers go with the basics - evaluating Ginnie Mae pass-troughs based on their coupons, maturities and prepayment characteristics, and then buy what looks cheap. They have a buy and hold style which gives the fund some flexibility to wait out unfavorable trading conditions.

The fund managers stay away from the unusual mortgage derivatives or nongovernmental bonds, taking the straight laced approach to bond investing. VFIIX seeks to provide a moderate level of current income, and with a 2:1 up year to down year return; their philosophy seems to be working well. Furthermore, if there were any doubt about the value of this simplistic approach, 2008’s financial crisis can put the naysayers to rest. As many of us know all too well, even modest stakes in areas like non agency residential and commercial mortgages suffered painful price drops. By contrast, this fund was up 7.2% emphasizing its ability to produce stellar long-term returns without making big interest rate bets.

As with any fund, VFIIX does not come without risks. It lacks broad bond market diversification. As interest rates rise, mortgage funds’ interest-rate risk can increase, as the likelihood of refinancing drops and their durations extend. The fund’s manager uses a variety of techniques to limit prepayment risks and has been successful in outperforming its category peers on a consistent basis over many years.

This management team is headed by Vice President Thomas Pappas who took over from longtime manager Paul Kaplan in June 2006. Pappas had worked with Kaplan on this fund since 1994 and has been with the fund's advisor Wellington Asset Management since 1987. He is joined by co-manager Michael Garrett, who started at the fund in 2006.

We continue to like this combination of simplicity, sound judgment, and low fees along with a blemish free regulatory record as part of our income portfolio.

There are risks involved with all investments, thus we encourage you to speak with your financial advisor before making any investment choices
 

The Markets

The U.S. stock market has had several "mini corrections" since the March 9, 2009 low and last week's strong performance has some analysts saying the recent 9% drop in the S&P 500 from its mid-January high may have run its course, according to the Associated Press.

Stocks rose for the second consecutive week and have now recouped about two-thirds of the 9% drop that occurred between January 19 and February 8. Jitters about sovereign debt problems in Europe, central governments "taking away the punch bowl" of easy money, and a surprise rise in the discount rate last week have started to give way to the good news that corporate earnings are still moving up smartly, the manufacturing sector is on the rise, and inflation is subdued, according to Bloomberg.

Interestingly, whether you are bullish or bearish, there is still plenty of data to support either view. However, some of this data is contradictory which makes discerning solid trends a little more difficult. For example, the value of the U.S. dollar rose more than 8% against a basket of six currencies between late November 2009 and February 19, according to www.stockcharts.com. Yet, as the dollar is rising, our government is running trillion dollar deficits and the Federal Reserve continues to proclaim that it will keep interest rates low for an extended period of time--both of which would seem to be bad news for the value of the dollar.

Also, core consumer prices declined in January for the first time since 1982, suggesting inflation is well under control. Despite low inflation, gold closed last week over $1,100 an ounce, which is not far from its all-time record high, according to Barron's and CNBC. Low inflation would seem to be bearish for gold prices, but, so far, gold has ignored our relatively stable prices.

This "new normal" of contradictory relationships makes navigating the financial markets a bit trickier than usual, but we are working hard to meet the challenge for you.

THE RICH ARE GETTING RICHER and the IRS just released some data that drives home that point. Below are some eye-popping tidbits on the top 400 individual tax returns based on largest Adjusted Gross Income, according to the IRS.

1. In 1992, the person ranked 400th on the list had an Adjusted Gross Income of $24.4 million. In 2007, that number rose to $138.8 million.

2. In 1992, the average Adjusted Gross Income for the 400 people on the list was $46.8 million. In 2007, the average rose to $344.8 million.

3. In 1992, the top 400 paid 1.0% of the country's total income taxes. In 2007, they paid 2.1% of the total.

4. In 1992, the average tax rate for the top 400 was 26.4%. In 2007, the average tax rate was 16.6%.

5. During the 16 years between 1992 and 2007, a select group of 3,472 different people made the top 400 list at least once. And, out of those 3,472 people, 72% appeared on the list only once. At the other end, 7 extremely wealthy people made the top 400 list every one of those 16 years!

Do you have any guess as to who those 7 people are that made the top 400 list every year between 1992 and 2007? Inquiring minds want to know, but the IRS is not divulging the names.
 

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

Weekly Focus – Think About It

"A man is rich in proportion to the number of things which he can afford to let alone."
Henry David Thoreau

Best regards,

Thomas H Ruggie, ChFC, CFP

1. The Standard & Poor's 500 (S&P 500) is an unman-aged group of securities considered to be representative of the stock market in general.

2. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

3. The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

4. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

5. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

6. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

7. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

8. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

9. Past performance does not guarantee future results.

10. You cannot invest directly in an index.

11. Consult your financial professional before making any investment decision.

12. To unsubscribe from the Ruggie Wealth Report, please reply to this email with “unsubscribe” in the subject line, or write to us at 2100 Lake Eustis Drive, Tavares, FL 32778.