April 2011 Monthly Recap

Posted on May 10th, 2011

Equities- Earnings above all else

Higher commodity prices didn’t stop stellar earnings from pushing stocks up in April. Large company stocks slightly outperformed smaller company stocks. Many question if a shift in performance may begin, as small company valuations appear more expensive than large companies on an forward earnings basis.

Foreign developed stocks leapfrogged U.S. stocks’ performance. Much of that return should be attributed to the drop in the dollar, as it slid 4.8% versus the Euro. In their local currencies, foreign developed country’s stocks only gained about 1.5%. Emerging markets were relatively quiet, owing the majority of their gains to the dollar’s depreciation as well.

Fixed Income – Much ado about nothing

The bond market shrugged off what we would have thought would be major issues. To make Tax Day even more interesting, on April 18 Standard & Poor’s put the U.S. government’s debt on a “watch list” for a possible downgrade from our coveted AAA rating. Should that happen, or as the bond market begins to predict it will happen, lenders would require higher rates to lend to the United States. Equity markets worldwide fell and the Treasury market…was stable. As any experienced investor knows, expectations rule- and the S&P rating did not tell the bond market anything it didn’t already know.

The Fed repeated its mantra that it would keep the discount rate low for an extended period of time, interest rates fell slightly over the month, buoying bonds across most sectors. Municipal bonds benefitted from the overall decrease in interest rates, as well as their continued rebound as investors continue to see positive actions (from a fiscal point of view) taken by states across the nation (i.e. Senate Bill 5 in Ohio, Illinois increasing State income tax by 66%, etc).

Upcoming Event – Lunch & Learn
Have you considered selling your business? 

      In one hour:
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· Business valuation…it’s not magic

Thursday, May 19th | 12:00 PM – 1:15 PM
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401(k) Corner

Retirement Plan- Set it on Automatic

Maintaining a retirement plan for your employees is a lot of work, whether it’s a 401(k), Defined Benefit, or SEP plan.  How can you keep this employee benefit to enhance their future well-being, but maintain sanity and focus on your business?  Make your plan automatic.

1.)    Auto-Enrollment and Auto-Escalation

Inertia is a powerful force.  You know that your average employee is not saving the 10%-15% it will likely take for them to retire.  Perhaps some of them don’t contribute to the plan at all!

Auto To Do: Use Auto-enrollment, Auto-escalation

Convert the tendency to do nothing into a positive.  Knowing that auto-enrollment and escalation would create larger, more cost efficient plans most large companies have added these features since the adoption of the Pension Protection Act.  Smaller companies have been slower to adopt these measures, taking a more “wait and see” approach due to fear of litigation and employer backlash.  Litigation and employer backlash has been virtually non-existent and results have been dramatic.

2.)    Qualified Default Investment Account

You know that most of your employees have no interest in studying and monitoring investments.

Auto To Do: Use a Qualified Default Investment Account (“QDIA”)

While you must be able to justify your choice of QDIAs and perform due diligence, automatically defaulting your employee’s into a QDIA can protect you from lawsuits and give your employees a solid investment option.  Discuss this option with your plan vendor to set it up.

3.)    Auto-Review

Keeping your plan fit involves reviewing it on a timely basis.   As your employee makeup and vendors’ technology and competition change, over time your plan will get antiquated.     If your plan has grown significantly since you have last reviewed it, you almost certainly pay more in fees than you should.

Auto To Do:  Schedule your plan to go to bid every three years. 

Tell your vendors up front that you will be doing it and they will be included- if you have been satisfied in their service.  Use this form to make responses uniform.  Focus on the whole package of services, not just cost.  Make it easy, schedule 3 vendors for 3 back to back, 45 minute meetings.

ERISA requires prudence, and it’s measured in the process you take to handle your plan.  Fortunately, a solid process will make it easier for you to administer as well, taking less of your time and attention during periods when you need to focus on your business.