Throughout his career, Mark Nevdahl has been dedicated to assisting individuals using a unique “educate before recommending” approach. Mark believes that expert advice and discipline are the foundations of every investment decision. As a Certified Financial Planner...
As the 2006 market year comes to a close, the markets have had a great year. We saw the S&P 500 start the year at 1248, and as of this log entry we are at the1415 level posting a 13.38% return excluding dividends. The NASDAQ Comp ended 2005 at 2205, and as of this log entry we are at the 2410 level posting a 9.52% return for 2006.
Where does Flight 2007 take us? I see the markets performing well during 2007. The outlook is much the way 2006 played out, just slightly lower returns. Let’s look at what supports this market outlook. I see the soft-landing scenario continuing with the US economy, the stabilization of oil prices, strong earnings growth and expansion of price earning ratios when we see the fed lower interest rates mid year and the continuing weakening of the US dollar. What am I keeping an eye on that could change our outlook? Major oil price upturn, the housing market weakening more than expected, earning shortfalls, and a major meltdown of consumer spending and confidence.
The Small-Cap market has outperformed the Large-Cap market for the past seven years. Will that trend continue? I believe it will and it has before. The Small-Cap had a longer period of out performance in the late 70’s early 80’s, so history tells us it is possible. If we see the Fed lower interest rates in the second half of the year as we believe they will, the Small-Cap and Micro-Caps will further add to their ability to out perform the Large Cap market. In the past, they have led the market in times of the Fed’s reduction in interest rates.
The ETF’s with their built-in diversification of individual securities will offer us sector and global positioning of investment assets throughout 2007. The majority of foreign markets out performed the US Markets in 2006, a trend I see continuing.
In the QQQQ arena, research into the 100 companies trading aspect will be of greater importance during 2007. The QQQQ as an ETF had year to date returns as of 12/26/2006 of 9.19% with dividends reinvested on payable date. So, returns lagged that of the S & P 500.
So you got a bonus, now what? Webster’s Dictionary defines a bonus as: something in addition to what is expected or strictly due as; money or an equivalent given in addition to an employee's usual compensation.
Keyword here is addition. It is not a change in compensation structure. Human nature leads to the first thought “spend it”, I deserve it. You do deserve it, but should you spend it? The financial planning side of my brain says no, invest or reduce debts. Let’s look at a couple of things. One, do you have any consumer debt on vehicles, toys, or credit cards (you shouldn’t, but that’s for another time)? Back to that bonus, credit cards or lines of credit should be zeroed. Then debts with APR greater than 6 or 7 % should be paid off. Two, have you exhausted all retirement plan limits i.e.: IRA, ROTH, etc? Save as much as you can tax deferred. Three, invest in your children’s future. College is expensive, so planning and investing early will help your future cash flow. Finally, invest the balance. Remember this is an extra unexpected sum of money. If you hadn’t received it, would you have bought that plasma TV or new car? Then by all means spend it on yourself and invest in your future.
The “Aviator” starts with a data base of companies in each market class which have been screened for strong fundamentals, and then analyzes the trading of these securities from a technical view searching for an excellent opportunity.
The opinions and commentary provided by the advisors in the My Automated Advisor Newsletter are the opinion of those advisors and not of My Automated Advisor.
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