Choppy markets yield rewards

There may not be a better word than “resilient” to describe the investment environment in the first quarter of 2011. Despite continued economic trouble across Europe, revolts and regime changes throughout North Africa and the Middle East, a devastating earthquake, tsunamis and subsequent nuclear disaster in Japan, oil prices remained elevated, and near $4 per gallon gas prices on average, inves­tors in the U.S. financial markets experienced one of the best first quarters in many years.

Predicting the exact outcome of all of these events is, of course, impossible. However, our expectation is that none of these risks will derail the continued gradual improvement to a global economic recovery.

Despite these events during the first quarter of 2011, the resilient global economy plowed ahead, along with rising assets prices and major indices from around the world:

  • Dow Jones Industrial Average +6.41 percent.
  • Standard & Poor’s 500 +5.42 percent.
  • NASDAQ + 4.83 percent.
  • MSCI EAFE +2.67 percent.
  • DJ US Credit Suisse Equity Market Neutral +3.46 percent
  • Barclays Aggregate Bond +0.42 percent.
  • Barclays Municipal Bond +0.51 percent.

To us, the gravity-defying, strong returns felt suspiciously surreal. We do not know how long the resiliency in the financial markets will last. We do know, however, that this type of “risk on” and “risk off” short-term investing style reinforces our long-standing belief that market volatility will continue to come and go. Risk, in common investment terms, is defined as the permanent loss of capital. In today’s market, maintaining the ap­propriate asset allocation and sticking to a long-term investment plan greatly can minimize your exposure to risk.

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