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Conversations - Winter 2001
LWA
NEWS
We
have some new employees to introduce this quarter: Alan
Lo has joined us as a financial planner and tax manager.
He had his own practice in Westfield and is looking forward to expanding
his horizons with us. Alan, his wife and two children, Cassandra and Justin, live
in Westfield. They just returned
from a family vacation in Italy, which they took over the holidays. Jonne
Morris joined our support team this past fall.
She was an administrative assistant at The Far Brook School in Short
Hills, where she lives. Jonne is
married with two daughters. Ashley
attends the University of Michigan and Allison attends Millburn High School. Tony
Mascioli is the newest member of our investment management team.
He comes to us from the Asset Management Group where he was a financial
analyst. Tony is also
pursuing his CFP®, training at Pace University.
He lives in Scotch Plains with his wife, Susan, and his three-year-old
son, Darren. William
Johnson has joined us this month as a planning associate.
William interned with us last summer and graduated from Virginia Tech in
December. We are looking
forward to having him back with us again. Diahann
has been invited to serve on the Schwab
Institutional Advisory Board. This
Board is set up by Schwab to provide ongoing advice and feedback to them
concerning how to structure services for institutional advisors and their
clients. It is a great opportunity
for us to provide input on future planning for improving services that Schwab
currently provides and on potential future services. Diahann
is also writing a regular monthly column for CNBC on their Women’s Investment
Center site. She is scheduled to
appear on CNBC’s Power Lunch with Bill Griffeth at 12:50 in the afternoon on:
1/30, 2/15, and 3/6. We would like to make you aware
of a new confirmation option that the Schwab Alliance website now offers. Once
you have your Schwab accounts web-enabled, you can sign up to receive the “eConfirms”—
fast, paperless official trade confirmations delivered via email. These
eConfirms replace paper trade
confirmations that are typically sent out several days after the trade. To sign up for this service, log
on to the My Accounts section of our website using your Schwab UserID and
Password. Select the “E-mail
Alerts” link on the top banner. First, specify your e-mail address in the
“E-Mail Address and Format” section. Then, click on “All Email Alerts”
and select the “Display” option next to the “Account Activity Alerts” on
the page that comes up. Put a check
mark next to “eConfirms” and click on the Submit button. Should you need help setting up
this feature, call us at (908) 464-0102 and ask for Zuzana. DEALING
WITH A VOLATILE MARKET Our theme for this year
will be dealing with a volatile market. We
felt that this was appropriate considering the behavior of the market over this
past year and will help you understand how your portfolio is prepared to deal
with volatile markets. Let us know if there are
other topics that you would like to hear about. This newsletter is designed to provide information to you, so
let us know what you would like to read. Please
e-mail Zuzana at zuzana@lassuswherley.com
with any topics so that we can include them in upcoming newsletters. WHAT
MAKES UP THE MARKET INDEXES? By Gigi Collins, CFA Most likely you are familiar with the major indexes – the Dow, the
S&P 500 and the NASDAQ – that are discussed in the news media.
But do you really know what makes up each index?
And how does each index relate to your personal portfolio?
First, an index is composed of a predetermined set of stocks or bonds
and is usually constructed to mirror a certain market or asset category.
Indexes are not actively managed and do not have expenses (like a mutual
fund or like investment management fees) which makes their performance hard to
mimic. The Dow The news media makes it sound like the Dow is “the market”; however,
the Dow is only made up of 30 giant, blue chip companies (i.e. GE, Coke, Disney,
etc). So, when the media says,
“the market is down”…they really mean that the 30 stocks in the Dow are
down – not the whole market. The S&P 500 Another major index is the S&P 500 that is a market-value-weighted
index of the top 500 major US companies. This
index is traditionally what most people use to compare their portfolio
performance. But beware, your
portfolio is not composed of just major US stocks! The NASDAQ The NASDAQ has been in the news a lot lately! This index is the composite of stocks traded on the
NASDAQ-AMEX stock exchange. However,
this index is heavily weighted in the technology sector, which explains why it
has been the most volatile of all the indexes.
Historically it has been composed of primarily smaller size companies,
but in recent years many larger companies have chosen to trade on the NASDAQ
Exchange. Other Indexes There are many other indexes that represent other asset categories:
Russell 2000 for small companies; MSCI EAFE for foreign stocks; Lehman
Aggregate Bond for fixed income; etc. Using the Indexes to Compare Performance Now
that you have an understanding of what makes up each index, you are probably
thinking that there is not just one that fits your portfolio but many indexes!
And that is the problem with choosing one index to compare to your
portfolio. You will need to
consider each investment in your portfolio and compare it to the appropriate
index (i.e. the large stock funds to the S&P 500, the small stock funds to
the Russell 2000, and the bond funds to the Lehman Aggregate) while
understanding that expenses and fees are not included in the index and that the
funds are actively managed (meaning the underlying stocks and bonds are ever
changing and may not reflect what the index holds).
The best place to start when looking at the performance of your portfolio
is to review your targeted return that was presented in your financial plan.
This is the rate of return that you need to meet your investment goals.
We provide a model in our cover letter that provides a model return for
comparative purposes only. By Gigi Collins, CFA When you have cash in your account, the money is invested in a money
fund. A money fund is a mutual fund
that invests in short-term debt instruments.
Since most money funds value the price of their shares at a constant
price of $1, 1,000 shares of a money fund are considered a $1,000 investment,
and the dividends on those shares are the return -- or yield -- on that
investment. There are two types of money funds: taxable and tax-free. Taxable fund
yields are closely related to short-term interest rates in the U.S. financial
and money markets. Tax-free fund returns, though, are based on the supply and
demand of government, state and municipal short-term debt obligations, which
provide tax-exempt interest to shareholders.
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