Insightful Investing

Our Real Estate funds built on a strong 3rd Quarter to finish the year even stronger. Fidelity Real Estate (FRSEX) continued to lead the way to bring home 16.5% for the quarter and 34.15% for the year.

While Small Cap Value funds performed a little better than Small Cap Core funds and International Funds for the year, the order was reversed for the quarter. Our leading funds in these categories were Julius Baer International Equity (BJBIX), Royce Premier (RYPRX), and Third Avenue Small Cap Value (TASCX).

It was a good quarter for all of our bond funds, with Fidelity Capital and Income (FAGIX) and Westcore Flexible Income (WTLTX) both returning over 6% for the quarter, and 10% for the year.

Our January 2005 Mutual Fund Portfolios and Best Fidelity Funds have been updated through December 2004. The investment performance history of our mutual fund portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 1st Quarter 2005

There are several changes to our Recommended Fund List and Model Portfolios this quarter.

We have added a couple of Bond Funds to our recommended list. We have been watching Managers Intermediate Duration (MGIDX) for a while. It continues to be a top performing Short Term Bond Fund, so it you need someplace new to put some of your Bond money, this would be an appropriate investment. In addition, we have replaced the Northern High Yield (NHFIX) fund with the Scudder High Income (MGHVX) for those of you seeking higher yields.

Several funds will not remain on our recommended list in the new year, simply because we have found funds that can do a better job. Jensen (JENSX), Marsico Growth (MGRIX) Northern Large Cap Value (NOLVX), Oakmark I (OAKMX), and Vanguard US Value (VUVLX) were all dropped from our recommended list, not so much that they performed poorly, but more because we now feel there are better choices, To replace these funds, we have added Fidelity Disciplined Equity (FDEQX), Atlas Growth Opportunities (ASGIX), Vanguard Windsor II (VWNFX), and Artisan Mid Cap Value (ARTQX).

In addition to these funds, we have added Alpha Hedge Strategies (ALPHX) to add some diversification to our portfolios. This is one of the few funds offering hedged strategies to the small investor.

While we turned out to be a little early with our cautious outlook last quarter, we really mean it. REDUCE YOUR EQUITY EXPOSURE now. At the very least, DO NOT put any New Money in Stock Mutual Funds until the outlook for the market and the technical indicators gets a little better.

Conservative Asset Allocation January 2005

Insightful Asset Allocation January 2005

The Stock Market responded well to the prospect of four more years of George W. Bush as a strong 4th Quarter rally helped equities finish the year with double-digit returns. Before the elections the S & P 500 had been puttering along near the break-even level for the year, but the results helped the Large Cap Stocks finish the year with a respectable return of 10.9%.

In a tight race, a continued weaker dollar helped International Stocks return 15.3% to edge out the 15% brought home by Real Estate. Small Cap Stocks were not far behind with a 14.1% return for the quarter.

As expected, the Fed continued to slowly raise short term interest rates during the quarter. The measured pace kept Bonds above water as they returned just 1% for the quarter. That turned out to be about the quarterly average in 2004 as Bonds returned 4.3% for the year. High Yield Bonds, on the other hand, returned that much in the 4th quarter helping them to return almost 10% for the year.

The star performer for 2004 was Real Estate, bringing home almost 32% for the year. In fact, over the last 5 years this has been the place to be invested since Real Estate’s annualized return of over 20% would have helped you more than double your money over that time period.

When it comes to equities, Small Cap Value was the place to be, not only for 2004, but since the Turn of the Century. While Large Cap Growth returned slightly less its Large Cap Value counterpart this quarter, you would now have about 7% less money today than you did 5 years ago had you been fully invested in those former high fliers when the first digit in the year changed from a 1 to a 2.

Investment Returns December 2004