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Client Newsletter: July 15, 2014

Benchmark Charts_2nd Quarter 2014

What a stock market!

For clients who follow the stock market, it is hard not to be impressed with the performance over the last 5 years! The DJIA (Dow Jones Industrial Average) peaked on October 11, 2007 at 14,164.53, just a few months shy of 7 years ago. Over the next 15 months, the DJIA dropped 55% to a record low of 6,443.27 on March 6, 2009. It seems like many investors have forgotten those difficult and ugly 15 months when most investor’s wealth dropped significantly.

Since that stock market bottom, the DJIA increased 10,624.99 points or 165% to 17,068.26 (through 7/4/14). This unbelievable past 5 years has pleased, yet surprised most investors, setting 52 new record highs in 2013 and 22 new record highs in 2014! Investor’s wealth has increased very nicely and most people are feeling more comfortable than ever before.

Absolutely the past 5 years have been profitable for stock investors, but what is the expectation going forward?  Certainly there are many varied opinions, with expected future stock prices much higher and much lower.  Consider the following opinions:

According to a 6/30/14 report written by Liz Ann Sonders, Senior Vice President and Chief Investment Strategist, Charles Schwab & Co., “the consensus of market watchers appear to be that a correction is overdue, thanks to a combination of seasonal/election cycle tendencies, the long span since the last correction, and elevated optimistic sentiment- a contrarian indicator.  It has been almost 1,000 days since the last decline of 10% or more.  The current rally of over 78% represents the fifth longest of all times, just behind the period from 1984 to 1987.”

According to a popular metric of market valuation, stocks are becoming more expensive to purchase.  The Shiller PE ratio indicates the S&P 500 is currently trading at over 26 times earnings, whereby the long term average, going back more than 130 years is 16.5.  And, according to David R. Kotok, Chairman and Chief Investment Officer at Cumberland Advisors, the only other time the total valuation of the stock market relative to US GDP (Gross Domestic Product) was higher was at the peak of the most recent tech bubble in the late 1990s.

The Federal Reserve just announced it will close the bond buyback program in October of this year.  Many investors believe the reason the U.S. stock market performed so well is because of the amount of easy money over the past few years added to stimulate the economy. Now that this program will stop, what reactions the market could have are anyone’s guess?

At HFA, we don’t guess at the future direction of the market, and don’t try to time the markets.  We believe in asset allocation and long-term investing.  We continue to watch the markets and suggest clients rebalance portfolios back to their recommended asset allocation strategies.  With lofty stock prices, stock allocations are probably higher than suggested and taking profits and reducing risk has always been one of our core fundamental principles.

Please do not hesitate to contact our office if you are concerned about your portfolio, would like to discuss your asset allocation or adjust your risk levels if appropriate.

New Designation for HFA Employee!

Philip Gagliardi, HFA’s Investment Manager, recently became one of only 350 individuals in the U.S. to earn the Certified Portfolio Manager® designation. This prestigious program is presented by the Academy of Certified Portfolio Managers and completed at Columbia University in New York.

The designation, which was created five years ago, is the first of its kind for portfolio managers. To qualify, Gagliardi successfully fulfilled course studies in advanced concepts of Fundamental Analysis, Option Valuation, Foreign Currency Exchange, Credit Default Swap Strategy and Valuation Analytics. He and other designees explored cutting-edge issues in finance and investing with internationally recognized Columbia professors. The program was developed to meet a missing need among money managers enabling them to achieve the highest level of expertise in all facets in an ever-changing global economy.

We are very proud of Phil’s successful completion of the CPM program and know that his new skills and knowledge will be a valuable asset to our clients.

HFA at the Chester County Food Bank

On June 12th, the HFA staff had the privilege of working at the Chester County Food Bank at its wonderful new location on Pennsylvania Drive in Exton.  Our staff split into two shifts and spent the day in the kitchen helping to process and repackage produce donated to the Food Bank.  We repackaged several different kinds of vegetables including onions, lettuce, beets, celery, and cabbage.

The Chester County Food Bank is a non-profit organization that collects, grows, purchases, processes, stores and distributes food to those who serve the hungry of Chester County, PA. It is the central location for local agencies, including food cupboards, meal sites and social service organizations serving individuals in need. HFA strongly supports the Food Bank and greatly values the service it provides to the Chester County area.

We can Help

One of the most rewarding blessings we share at HFA is client loyalty. When you tell others about your experience with us, it reinforces the gratitude we share. For this, we thank you.

As most of you know, we are conducting a referral campaign to grow the business as we approach HFA’s 10th anniversary in 2015. What you may not be aware of are some interesting statistics. According to the New York Times, 65% of new business comes from referrals. Nielsen reports that 92% of respondents trusted referrals from people they knew and were four times as likely to buy when referred by a friend.

Here is, perhaps, the statistic we found exceptionally important – 83% of consumers are willing to refer after a positive experience. As we continue the story of John and Mary, our referral campaign theme couple, we hope you will become part of that 83% and let your friends and family members know we can help them, too. We look forward to meeting your referrals.

HFA Blog Update

We hope that everyone enjoys our biweekly Blog articles on the HFA website.  At this point, we have sent out 24 articles featuring topics including estate planning, taxes, investing, rebalancing, retirement, social security, and several others.  We have over 450 subscribers to our email distribution and will be happy to add any other friends, family or colleagues you feel would find our Blog articles helpful.  We appreciate you taking the time to read our articles and will continue to provide you with answers to your financial questions.  If there are any other topics of interest you would like us to research or write about, please send them to us!

As always, please do not hesitate to contact our office if there have been any changes within your financial situation.  We look forward to continuing to be of service to you in the future.

Best Regards,

Peter K. Hoover, CFP®