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The U.S. bull market finished the 1990s going strong.
Let’s look at what happened. The major stock indexes all posted double-digit returns for the year. In fact, the Nasdaq set a record for gains in a single year, finishing 1999 up 85.6% with more than half of the annual gain coming after November 3. The Dow Jones Industrial Average also had a strong year ending with a 25.2% gain. The S&P 500 finished the year up 19.5%. And large-cap stocks weren’t the only market segment that showed strong gains. Small-cap stocks, as measured by the Russell 2000 Index, rose 19.5% in 1999. However, 60% of the NYSE stocks were down 10%. In fact, most stocks were down last year. This is a reason for using portfolio managers. Unless you were exposed to technology stocks (in particular, Internet stocks), and energy stocks, you were frustrated. How often did you find yourself listening to your friends brag about their investment in technology stocks? Diversify your portfolio. We focus on companies making money in their business, not the latest fad. That’s why we advocate diversifying your portfolio in equity funds such as our Morningstar-rated Bonnel Growth Fund and the All American Equity Fund. On the earnings front, we believe there are exciting opportunities in technology stocks, energy stocks, precious metals and global markets like Eastern Europe and Asia. Why energy? For the first time in ten years, we have the four largest economies of the world - the United States, Japan, Germany and China - with positive growth. Interestingly enough, they are each net oil importers. Yes, the U.S. economy could slow down with interest rates, but the world is in a growth mode. Further, with Y2K behind us, companies will spend on technology to meet productivity and profit goals, a very positive, constructive and bullish scenario when integrated with the U.S. presidential election cycle. Expect a bull market. For those of you who have been regular readers of our Shareholder Report, you know that our market forecast is based on the U.S. presidential election market cycle theory. This theory holds that the economy fluctuates in fairly regular patterns over the course of each presidential term. The first two years after an election tend to be weak, while years three (pre-election) and four (election) offer strong returns for the stock market. Recent studies conclude that over the past 41years, there has been at least one thing investors have been able to count on: Stocks will rise, often sharply, in the calendar year before a presidential election year. Fred Allvine, a management professor at Georgia Tech, said on BusinessToday.com, “Since 1957, the Standard & Poor’s 500 has risen 10 times out of 10 during the third year of the four-year presidential cycle, through 1996. During that time, only five times each in the first and second year did the S&P show a gain. In the fourth year, the S&P rose nine times out of 10.”(1) So what can we expect as we enter the new year and the fourth year of a presidential election cycle? We believe we’ll see another bull market with one or two healthy corrections. Prepare for volatility and stay the course. Asset allocation will help you successfully navigate stock market volatility. Research studies indicate that over 90% of the returns of a successful portfolio are a function of selecting the right asset allocation – dividing your portfolio among the major asset classes: stocks, bonds, cash and other investments. That means that less than 10% depends on your ability to pick the right funds. To maintain your portfolio for maximum returns, we suggest you diversify through asset allocation in accordance with your investment expectations and avoid over-weighting in highly volatile sectors. For help in allocating your investment dollars, you can use our on-line asset allocation tool at www.usfunds.com. Remember, volatility is a common and expected occurrence in financial markets. Have a plan – Think long term. You need to have a plan. And, of course, don’t try to time the market. As we have discussed, markets are unpredictable, so don’t try to outguess them. The rule of thumb is to invest often and regularly without regard to short-term market fluctuations. That’s why we suggest investors use a dollar-cost ave raging program, such as our ABC Investment Plan® to build a position in a fund and take advantage of the benefits of investing a set amount on a regular basis. Of course, no investment plan can guarantee a profit or protect against loss in a declining market, but the ABC Investment Plan® can help smooth out the effects of market volatility.(2) Three critical success factors for your portfolio: Today’s market has some outstanding opportunities for long-term investors. With this in mind, please remember that following a few sound principles of prudent investing is more important than picking any one stock, bond or fund. Max Out Your 401(k) Contributions If you are nearing retirement, you should know that today’s retirees must realistically plan to live on their retirement savings for 20 to 30 years. What does that mean for you? First, if you are working, you should max out your 401(k) or any other employer-sponsored retirement plan. Take advantage of every dollar your employer matches and every tax advantage offered. Max Out Your IRA Savings Max out your IRAs. Take advantage of the tax benefits offered by traditional, Roth, spousal and Education IRAs. According to Charles Schwab, “For every five years you put off investing, you may need to double your monthly investing amount to achieve the same retirement income.” For a quick analysis of how much you need to save to reach your retirement goals, check out our on-line retirement planning worksheets. Max Out Your Savings Finally, max out your savings. Did you know that for the price of a cup of coffee and a muffin each morning, you could build a substantial nest egg? That’s about $4.00 a day. As the chart shows, you could become a millionaire in 30 years by investing $500 a month. With market fluctuations being the norm rather than the exception, we encourage you to stay the course and focus on your long-term investment goals. As always, our investor representatives are happy to answer any questions you may have about your accounts. |
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This hypothetical example assumes a 10% annual return compounded monthly. Your actual return may be more or less than these amounts.
Sincerely, 
Frank Holmes Chairman and CEO |
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(1) "History suggests 1999 could be up year for stock market," by Thomas Granahan/Dow Jones, BusinessToday.com, November 29, 1999.
(2) You should evaluate your ability to continue in such a program in view of the possibility that you may have to redeem fund shares in periods of declining share prices as well as periods of rising prices. For more information about our family of funds, including charges and ongoing expenses, call 1-800-US-FUNDS or visit us at www.usfunds.com for a free prospectus. Please read the prospectus carefully before investing. |
