Research & Analysis


The US 30 Year Treasury Bond Yield hits the lowest level below 2% since its issuance started in 1977.



The US Federal Reserve lowers interest rates for the first time since the credit crisis of 2008.

2019 YTD Returns July



The best first Quarter for the S&P 500 since 1998. 

2019 Index Returns Q1

Tighten Up: Fed Raises Rates Again

By Liz Ann Sonders


Key Points The Fed raised rates by 25 basis points this week, for the third time this year, which was widely expected. There were only minor changes to the Fed's projections; however the long-run neutral estimate of the fed funds rate did inch up; while the “accommodative” language was eliminated from the Fed's statement. Updated expectations are now that the Fed will hike once more this year, and three times next year, in keeping with an upgraded economic outlook.

The Federal Open Market Committee (FOMC) surprised no one today and raised rates for the third time this year in a unanimous decision. The Fed reaffirmed the expectation that another hike is on the table this year, and three more hikes are likely in 2019, based on the so-called “dots plot.” There were some defections among FOMC members from three to four hikes expected this year, which cemented the likelihood of another rate hike in December. The move brought the federal funds rate to a target range of 2-2.25%. The FOMC's statement contained a reiteration of its upbeat assessment of the U.S. economy, and did not mention concerns about trade potentially halting rates' upward trajectory. Stocks rallied and longer-term bond yields retreated in the immediate aftermath of the announcement. The statement did have a change, which was somewhat expected: dropped was the long-standing description of monetary policy as “accommodative” in reflection of rates having moved closer to the socalled “neutral” level which neither constrains nor boosts the economy. Fed officials repeated their assessment that “risks to the economic outlook appear roughly balanced.” However, during the post-FOMC meeting press conference, Fed Chair Jerome Powell did use the word “accommodative” to describe “overall financial conditions.” The Fed also released new forward-looking projections for the economy. The median forecast continues to show that short-term rates will reach 3.4% in 2020 (no change from June's projections). But the new projections now include a look into 2021, when the Fed expects the fed funds rate to remain at 3.4%. The median long-run neutral estimate did move up slightly, from 2.9% to 3.0%. The Fed also updated its projections for the economy, unemployment and inflation; all seen below. It was the eighth consecutive time the Fed has had to upgrade its projections.

Summary details of rate and economic projections Federal funds rate estimates:

2018 unchanged at 2.4%

2019 unchanged at 3.1%

2020 unchanged at 3.4%

Longer run up to 3.0% from 2.9%

Median GDP growth estimates:

2018 up to 3.1% from 2.8%

2019 up to 2.5% from 2.4%

2020 unchanged at 2.0%

2021 projected at 1.8%

Long-run unchanged at 1.8%

Median unemployment rate estimates:

2018 up to 3.7% from 3.6%

2019 unchanged at 3.5%

2020 unchanged at 3.5%

2021 projected at 3.7%

Long-run unchanged at 4.5%

Median core PCE inflation:

2018 unchanged at 2.1%

2019 unchanged at 2.1%

2020 unchanged at 2.1%

2021 projected at 2.1%

Based on recent GDP figures, the “output gap” (difference between actual and potential growth) has closed, which historically has tended to usher in higher inflation. The unemployment rate (as reported by the Bureau of Labor Statistics) is 3.9%—below the Feds 4.5% estimate of the sustainable level—while the “underemployment” rate has fallen to its lowest level since 1999 (and the number of people working parttime but who want full-time work has fallen to a new cyclical low). Moreover, the spread between the two readings is at the lowest level since 2006. Average hourly earnings (AHE) are picking up; albeit at a continued modest pace of 2.9% year/year—which means wages are just keeping up with inflation. This suggests limited urgency on the part of the Fed at this stage. In addition, the labor force participate rate remains historically low; but is at least partly due to factors outside the Fed's influence sphere, including demographics. During the press conference following the FOMC announcement, many of the questions were about trade/tariffs and when/if the Fed expects to see the impact on actual economic numbers vs. just surveys and corporate commentary. Chairman Powell conceded that the central bank is hearing a “rising chorus” of concern about tariffs specifically, and protectionism more broadly, so this will likely remain a topic to be addressed in future Fed officials' speeches and comments. Surprisingly, there was no attention given to the ongoing shrinking of the Fed's still-behemoth balance sheet. In sum, the decision on rates and the accompanying statement reinforces an upbeat assessment of the economy; but a need to remain vigilant with inflation (and trade risks). The removal of the “accommodative” language is seen as giving the Fed more flexibility both in future actions as well as communications.


Don't Fear the Yield Curve Reaper


By Liz Ann Sonders

  • The yield curve has been flattening and the 10s-2s spread hit a low of 41 basis points last week, raising concerns.
  • Although ample headlines have warned about imminent threats of an inversion and subsequent recession, history shows long lag times and healthy stock market performance.
  • Large caps could resume their outperformance if yield curve history is any guide.


The spread between the 10-year Treasury and 2-year Treasury yields has narrowed to below 50 basis points, with countless media headlines raising alarm bells and warning about an impending inverted yield curve and possible subsequent recession.

First a primer

The yield curve is a graphical plot of the yields of bonds with different maturities; and the aforementioned “10s-2s” spread is one of the more commonly-tracked. In a normal economic/market environment, the curve is generally upward-sloping as yields on longer-term bonds are typically higher than shorter-term bonds, because the former are higher-risk investments due to their duration.

An inverted yield curve occurs when shorter-term rates are above longer-term rates. This happens when the Fed hikes the fed funds rate to beyond the yield of longer-term Treasury securities; and has been a fairly accurate recession signal historically, albeit with a lag.

Read the Full Article


Feb 1 ,2018

Below is a look at the Callan Periodic Table of Investment Returns which is always a keen  reminder to diversify, rebalance, and never believe anyone who who says they can forcast next years winner(s).

Table of Asset Class Returns (1998-2017)


US Bull Market Chugs Along

Feb 21, 2017

Below is an updated look at historical bull markets for the S&P 500 going back to its inception in 1928.  Remember, the standard definition of a “bull market” is a 20%+ rally that was preceded by a 20%+ decline.  We'll leave the argument over what should or shouldn't be considered a bull market for another day.  Here we're only reporting the numbers.

As shown below, the current bull market that began on March 9th, 2009 has now lasted 2,906 days.  That makes the current bull the second longest on record by 299 days.  The only bull market that lasted longer was the one that ran from December 1987 through March 2000.  Remarkably, the S&P didn't experience a decline of 20% on a closing basis over that entire 4,494-day period.

Another notable stat is that the current bull has now lasted more than 1,000 days longer than the previous bull that ran from July 2002 to October 2007.

In terms of strength, the current bull still ranks third best with a gain of 248.96%.  To move into second place, the gain will need to eclipse the 267% rally seen from June 1949 through August 1956.

In case you're wondering, the shortest bull market on record lasted just 24 days — occurring all inside the month of June 1931.



2nd Longest Bull Market in History

It's official!  With the S&P 500's new all-time closing high today, the current bull market that began on March 9th, 2009 is now the second longest on record.  But as shown in our chart of historical bull markets below, at 2,681 days, the current bull still has a long way to go to make it into first place.  To eclipse the 4,494-day bull market that ran from 12/4/1987 to 3/24/2000, this bull would need to make it past June 28th, 2021 without experiencing a 20%+ decline from a closing high.

The current bull market that has now lasted 2,681 days has seen the S&P 500 rally 215.88%.  While it is the second longest on record, it's still just the 4th strongest on record. 

10% Corrections During the Current Bull Market

By Bespoke Investment Group

The S&P 500 is down more than 10% from its all-time high reached back in May.  In case you're interested, below is a chart of the S&P 500 with prior 10%+ corrections during the bull market highlighted in red.  Remember, the market typically experiences 10% draw-downs much more frequently than it has over the last seven years.  The most recent stretch of 1,326 days without a 10% correction was one of the longest on record!





In this week's Bespoke Report, we published the table below ahead of Monday's six-year anniversary of the S&P 500's 3/9/09 bear market low.  As we noted Friday, the bull market will have to celebrate its sixth birthday retroactively unless a new closing high is made on Monday. The generally accepted measure for a bull market is a rally of at least 20% that was preceded by a decline of at least 20% (based on closing prices).  Using this calculation, below are two tables showing historical bull markets for the S&P 500 going back to 1928.  The table on the left shows bull markets by date (oldest to most recent), while the table on the right shows bull markets by length (from longest to shortest). Looking at the table on the right, the current bull market now ranks 4th in terms of longest bull markets on record.  Since its beginning at the close on March 9th, 2009, the current bull market has lasted 2,184 days (through the 3/2/15 closing high), and the S&P has gained 212.98% over this time period.  The 212.98% gain for this bull market is also the 4th strongest on record. Should the S&P go on to take out its highs from last Monday, the current bull needs to hang on for 61 more days to surpass the third longest bull market on record that ran from 10/3/1974 to 11/28/1980.  

bull markets



Stock Market Outlook: Volatility Creates Pockets of Opportunity

Adventurous investors may find opportunities in out-of-favor energy and basic materials stocks, but the valuation of the overall market still leaves little margin for error.

Volatility in the stock market has picked up in the past few months. Concerns about global economic growth, the health of emerging markets, geopolitical tensions, and plunging oil prices have investors on edge.

As of mid-December, the median stock in Morningstar's coverage universe is trading 1% below our fair value estimate. Other measures of market valuation--such as the Shiller P/E and price/trailing peak operating earnings--are still elevated, but less so than last quarter thanks to steady earnings growth and moderating stock prices.

Investors continue to rotate toward defensive sectors such as consumer staples, health care, and utilities, helped in part by the steady decline in long-term interest rates. More cyclical sectors such as basic materials, industrials, and technology are falling out of favor.

Energy has been hit hard over the past few months because of the collapse in oil prices. Brent Crude is now trading below $60/barrel compared with our long-run forecast of $100/barrel, resulting in an abundance of 5-star names in the energy sector.

Oil Price Crash Brings Pain, and Opportunity, for Energy Investors

As of this writing in mid-December, the S&P 500 is trading near all-time highs, but that figure understates the extent of recent volatility. Energy stocks are down by nearly 25% over the past three months, and there are now 37 energy companies carrying Morningstar's 5-star rating. That's compared with just 10 5-star stocks across Morningstar's entire coverage universe when we published our last quarterly outlook. Our broader coverage universe now includes 64 5-stars, with the median stock trading 1% below fair value, by our estimation.

Our contrarian take on energy has a simple explanation: Investors are terrified of the collapse in crude oil prices since June, but our analysts think this is a temporary setback. While we've lowered our near-term oil price expectations in line with the market, our long-run oil price forecast remains $100/barrel for Brent and $90/barrel for West Texas Intermediate (WTI). And the "long run"--all the years beyond the next three--is the primary determinant of our fair value estimates.

To be sure, the speed and extent of the recent plunge in oil prices took us by surprise after more than three years of relatively stable prices in the $100/barrel range. It's all about Economics 101: supply and demand. North America's energy boom has increased supply, augmented by surprisingly strong production out of the Middle East and North Africa despite political turmoil in that region. At the same time, the demand outlook has weakened, with many economies around the world slowing (China) or in borderline recessions (Japan, Brazil, much of Europe).

Morningstar's long-run oil price assumptions are based on the "marginal cost of production"--we believe a Brent price of $100/barrel is necessary to stimulate investment in the highest-cost resources such as ultra-deep-water and oil sands mining. However, investors should keep in mind that marginal cost is a moving target. First, growth in lower-cost sources of supply--especially if combined with slowing demand--can push high-cost resources off the supply curve altogether. If we can meet our oil needs without the highest-cost resources, then they lose their relevance to setting oil prices. Second, oilfield-services pricing is a major determinant of marginal costs. As oil and gas companies cut back on drilling, there may be an excess supply of rigs, equipment, labor, and so on, resulting in lower services pricing and lower marginal costs. At the very least, investors should understand that our $100/barrel forecast involves a high degree of uncertainty, making a margin of safety indispensable for new purchases.

On the plus side, such margins of safety are now widely available in energy, even though we've been ratcheting down our valuations to incorporate lower near-term oil prices. As of mid-December, the median energy stock in our coverage universe was trading 27% below our fair value estimate, making energy the cheapest sector on that measure by far. There are two key factors that should support oil prices over the longer run: Natural decline curves, which reduce global oil supply by 4%-5% per year absent new investment, and the fact that incremental oil and gas resources are in relatively remote, difficult-to-access locations.

Risk and Reward Go Hand in Hand

A theme from the energy sector pervades the rest of the market as well: Undervalued stocks generally come with elevated risk, especially from economic sensitivity and currency exposure. After energy, the next most undervalued sector we cover is basic materials, where the median stock is trading 11% below our fair value estimate as of mid-December.

The basic materials sector has been down over the past three months because of concerns about slowing economic growth in China. It's hard to overstate the importance of China to global commodities demand. For example, China accounts for about half of global steel demand and two thirds of the seaborne iron ore market. We think China's steel consumption has peaked and is set for a steady decline over the next several years as the Chinese economy rebalances toward consumption instead of investment spending. Iron ore prices fell by half thus far in 2014, and we think other commodities such as copper won't be far behind. Given this macroeconomic uncertainty, investors should tread carefully--we would focus on low-cost miners with sustainable competitive advantages.

Despite recent underperformance relative to the overall market, other cyclical sectors such as technology and industrials continue to trade at premiums to our fair value estimates, reflecting high starting valuations. Defensive sectors--such as consumer staples, health care, utilities, and real estate--are also trading above our fair value estimates, having outperformed over the past quarter. Defensive investors owe much of the recent performance to a persistent decline in long-term interest rates, with the 10-year Treasury yield falling to just above 2%, compared to 3% at the start of the year. The bond market seems to be a lot more pessimistic about the U.S. economic outlook than the Federal Reserve, which continues to hint at short-term rate increases starting in 2015. Pockets of opportunity can still be found in these sectors, but investors need to be as discerning as ever.

Market Still Seems Fully Valued

Turning to the valuation of the overall market, the median stock in Morningstar's coverage universe was trading just below our fair value estimate as of mid-December, with undervalued energy and certain other cyclical stocks offsetting modest overvaluation in more defensive sectors.

With the S&P 500 at 1,973 as of this writing, the Shiller price/earnings ratio--which uses a 10-year average of inflation-adjusted earnings in the denominator--is roughly 25.7. That's down from 26.5 the last time we provided our quarterly outlook, but is still higher than 63% of the monthly readings since 1989. Shiller P/E ratios above 25 have historically been associated with poor subsequent five-year total returns and an elevated risk of a material drawdown, having primarily been witnessed in the lead-up to market crashes (1929, 2000-02, and 2008-09). On the other hand, interest rates remain far below historical norms--if sustained, low interest rates could justify substantially higher P/E ratios than we're used to.

There's no shortage of investors who object to the use of the Shiller P/E as a measure of market valuation. We'll readily admit that this metric is far from perfect--it is slow to incorporate new information; it may penalize earnings for too long following a severe recession; its central tendency can shift dramatically over decades-long stretches; and even under the best of circumstances, variability in the Shiller P/E can predict no more than half of future total returns. But that doesn't mean the measure has no value--we just have to be aware of its limitations.

Another measure of market valuation compares the current level of the S&P 500 with trailing peak operating earnings. This metric stands around 17.0--equal to the trailing-12-month operating P/E since operating earnings are at an all-time high. Since this measure only looks at trailing peak earnings, it isn't skewed by unusually low earnings during past recessions, especially in 2008-09. Even so, at 17.0, this measure has been lower 62% of the time since 1989, conveying a similar message as the Shiller P/E.


Stock Market Outlook: Keep Your Expectations in Check
  • The stock market continues to look fully valued, with the median stock in our coverage universe trading at a 3% premium to our fair value estimate.

  • The S&P 500's Shiller P/E of nearly 26.5--above the 70th percentile relative to the past 25 years--points to poor expected returns and an elevated risk of a material drawdown.

  • Despite bouncing back in September, long-term Treasury yields remain meaningfully below where they started the year. Strong year-to-date returns by defensive sectors including health care, utilities, and real estate investment trusts have left few opportunities in these areas.

  • Faster-growing momentum stocks have also come back into favor after a sell-off earlier this year. We see technology as the most overvalued sector.

  • A few high-quality opportunities remain, but investors must be especially choosy in this environment. We would discourage investors from sacrificing quality in search of a bargain.

Stocks Are Fully Valued, but They Still Beat Bonds or Cash in the Long Run
There are three ways to make money from common stocks: 1) dividends, 2) changes in a stock's price relative to its intrinsic value, and 3) growth in intrinsic value.

The outlook for the first two sources of return doesn't look promising. The S&P 500's dividend yield is right around 2%--typical for the past decade but well below longer-term historical norms. The median stock in our coverage universe is trading at a 3% premium to our fair value estimate, indicating that investors are already fully valuing most stocks. As of this writing, only 10 companies carry  Morningstar's 5-star rating, none of which has a wide moat and only four of which have a narrow moat. Compare that to the worst of the financial crisis in late 2008 and early 2009, when more than 850 stocks earned our 5-star rating.

Our view that the market is fully valued is supported by the Shiller price/earnings ratio, which uses a 10-year average of real (inflation-adjusted) earnings in the denominator. The Shiller P/E stands around 26.5; it has been lower 70% of the time in the past 25 years and 92% of the time in the past 100 years. The Shiller P/E has been this high only three times in history: during the lead-ups to the 1929 market crash, the 2000-02 dot-com crash, and the 2008-09 financial crisis. Historically, Shiller P/E ratios above about 25 have been associated with poor subsequent five-year total returns and an elevated risk of a material drawdown, as can be seen in Exhibit 1.


However, that doesn't mean the market is necessarily headed for a crash, or even that stocks are unattractive as an asset class. First, a moderately overvalued market can still deliver strong total returns for years. For example, the Shiller P/E was at a comparable level in 1996 and 2003. As it turned out, those years were toward the beginning of major speculative bubbles, but the bubbles would inflate for several more years before finally popping.

Second, normal valuation levels can fluctuate significantly over time, and there's no guarantee that the past will be an accurate gauge of the future. For example, in the 100 years through 1988, the median Shiller P/E was 14.1. In the roughly 25 years since, the median has shifted to 23.5--two-thirds higher than in the preceding century. Anyone waiting for the Shiller P/E to revert to its very-long-run historical average would have been kept out of stocks for almost the entirety of the past 25 years! Long-run interest rates remain well below historical norms, which if sustained could justify substantially higher valuation levels than in the past.

Lastly, and perhaps most importantly, we can't forget the third source of returns from stocks: growth in intrinsic value. Fair value is a moving target--as companies grow their earnings, raise their dividends, and realize cash flows, their intrinsic values tend to increase. A reasonable total return is already incorporated in our analysts' fair value estimates when we discount future cash flows. The Shiller P/E should also gradually decline as S&P 500 earnings rise. In other words, it's just a matter of time before intrinsic value catches up to--and soon exceeds--current stock prices. Over a long enough investment time horizon, common stocks are almost certain to outperform bonds and cash, especially considering current interest rates.

Even so, stock investors would be wise to moderate their return expectations. The phenomenal returns of the past five years were driven by the recovery in earnings and P/E multiples from the depths of the financial crisis. Such high returns are not sustainable when starting from current valuation levels; mid- to high-single-digit average annual total returns are more realistic over the long run, with plenty of bumps along the way.

On June 17th the Chicago Board Options Exchange Volatility Index (VIX) which measures volatility in the S&P 500 closed at the lowest level since February 2007. This year high of 21.44 on Feb. 3 compares with a five-year average of 19.7.
The S&P 500 bull market turned 5 in March! Since 10/03/11 the S&P 500 has not had a 10% correction which ranks as the 5th longest stretch in history. In 2013 the Barclay's Aggregate Bond Index suffered its worst year since 1994.
Dirk Hofschire, SVP with Fidelity's Asset Allocation Research discusses the global economic and financial market developments from the fourth quarter and provides an Outlook for 2014.
The Fed finally lets off the gas pedal and begins to taper its historic quantitative easing plan. The Fed began lowering rates in 2008 in response to the worst financial crisis since the great depression.
The Fed shocked the market with their decision to hold off on tapering its record bond buying program of  $85 billion in Treasury bonds and other securities a month. The S&P jumped to a new all time high on the dovish news.
Detroit became the largest city ever to file for protection under Chapter 9 of the U.S. Bankruptcy Code. Read what Vanguard's analysis is on this on this historic event.




Today low-yield environment, combined with a prevailing market and economic outlook that low yields and low growth may persist in the United States for years to come (Davis, Aliaga
and Patterson, 2011), has brought the 4% spending rule for investment portfolios to the forefront of retirement-planning topics. This paper examines the current yield environment for a balanced portfolio, revisits the assumptions of the 4% spending rule of thumb, and discusses cost and risk considerations for todays retirees.
Revisiting the 4% rule.



Should an investor choose individual bonds instead of a bond fund when constructing a portfolio? Debate on this topic has intensified as many bond investors have asked whether they should prepare for an eventual rebound from the current low-yield environment by buying individual bonds. Authors of a new Vanguard research paper contend that the potential benefits of this strategy are often exaggerated. The authors explain that bond mutual funds and their ETF counterparts generally provide a number of advantages over individual bond portfolios. The paper concludes that the vast majority of investors in municipal or taxable bonds are best served by low-cost mutual funds and ETFs.

Individual Bonds vs. Bond Funds



The evidence just gets more compelling for the use of broad based index funds in portfolio construction.The article below in Forbes contends that a portfolio with 10 active funds held for 20 years has only a 3 percent chance of beating a comparable all-index fund portfolio. I assume when you add in all of the mutual funds that had closed over that 20 year period the margin for active funds outperforming index funds becomes even smaller.

Index Fund Buyers are Skilled Investors By Rick Ferri for Forbes



The US economy appears to have turned the corner on its soft patch, although the looming "fiscal cliff" remains an impediment to further improvement.

Rise Up: US Soft Patch Appears to be Ending by Liz Ann Sonders



Joe Davis, head of ISG and Vanguard's chief economist, provides his perspective on the current bond market and the conflicting advice from pundits.

Outlook for bonds: Are the good times about to end?



Interesting contrarian indicator I came accross today on

Great news for bulls! Sell-side strategists are really gloomy

Either the world is really coming to an end, or it a great time to buy stocks.

Sell side strategists are as bearish as they Sell Side Consensus Indicator.

The indicator fell to 43.9 at the end of the lowest its ever been in the 27 years. Given the contrarian nature of this indicator, we are encouraged by Wall Street  lack of optimism and the fact that strategists are recommending that investors significantly underweight equities vs. a traditional long-term average benchmark weighting of 60-65% BofA Merrill strategists wrote in a note Thursday.

-Posted by journalist Tom Bemis on The Tell Blog at



In a quarterly meeting yesterday a client of mine asked me about my prediction for the second half of the year, given it is an election year. Of course he knew that I never prognosticate, and that all of my buy and sell decisions are based upon the discipline of rebalancing to a model portfolio.  Nonetheless, I did come across the following research from Ned Davis Research that I wanted to share.

The second half of election years have been up for the S&P 500 81% of the time since 1928 (17 of 21 cases)! The median maximum rally has been +12%, and the median maximum decline has been -7%. The odds of encountering more than a -15% decline are only 14%. There is also growing support for pushing the fiscal cliff out to March of 2013, thereby allowing more time for an election rally to run.



On Friday June 1, 2012 US Treasury yields hit an all time low on the 10 year and 30 year bonds. We have not seen rates that low since the early 1950s. The highest rates have been were in September of 1981 when both the 10 year and 20 year Treasuries crossed 15%. Below is a Bloomberg article that highlights the event.



"Sell in May and go away" has a nice rhyme to it but it is another investment myth the empirical evidence does not support.

Why 'Sell In May' Doesn't Work  By BERNARD CONDON



A prospective client of mine came across an article in The Wall Steet Journal this morning that he said reminded him alot of what I had spoke about not too long ago.

I quickly pulled the article up and was not surprised to find that it was written by Burton Malkiel. Malkiel wrote a book titled "A Random Walk Down Wall Street" (1973) that was one of the first books I had read on finance. The book is an exellent quick read about the efficiencies of the markets that lead Malkiel to be a strong proponent of index investing.

I agree with the bulk of what is said in the article below.

What Does the Prudent Investor Do Now? At a yield of 2.25%, the 10-year U.S. Treasury is a sure loser. Stocks are a safer choice. 



Interesting comments made by Larry Fink in an interview with Bloomberg. While I do not agree everyone should be in 100% equity I do agree with his thought that bonds are expensive relative to stocks.



Economists have debated for decades what they call the participation puzzle, trying to explain why more people don't take advantage of the higher returns stocks have historically paid on savings. As few as 51 percent of American households own them, a 2009 study by the Federal Reserve found. Individual investors have pulled record cash out of U.S. equity mutual funds in the last five years as shares suffered the worst bear market since the 1930s.



I was shocked to see that Morningstar published the following report on mutual funds. I was not shocked to see the conclusion of the report that low expense ratios are a better predictor of performance than their 5 star rating. 

How Expense Ratios and Star Ratings Predict Success by Russel Kinnel



All was not lost

Investing during the first decade of the millennium was memorable. Events like the dot-com bubble bust, 9/11, Enron, and the Great Recession all left an indelible mark in the minds of investors. With annualized U.S. equity returns near zero from 2000-2009, the media conjured up terms like to describe investing over that period. Investors were left to wonder whether or not participating in the markets could help them reach their financial goals.

The case for diversification 



"The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that happened since before the Civil War."

Say What? In 30-Year Race, Bonds Beat Stocks

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As the risk of renewed U.S. recession continues to rise, you may be wondering whether to adopt a more "defensive" allocation. The authors of a new Vanguard research paper find that the performance of a hypothetical 50% stock/ 50% bond portfolio would have been statistically equivalent in both recessions and expansions since 1926.

The research supports the utility of an investment program focused on a diversified, long-term strategic asset allocation, and should give considerable pause to those who recommend a more tactical or reactive approach to investing.

Recessions & Balanced Portfolio Returns by Joseph Davis, Ph.D.  & Daniel Piquet