The Bear Returns... Then Recedes
It goes without saying that investors have had to put up with a lot of bad news recently. In the last three months markets have absorbed the first-ever downgrade of US debt, the lingering debt crisis turned pandemic in Europe, and sharply increased global recession fears. Equity markets responded by falling to bear market levels (a 20% decline from the peak) in September, followed by sharp gains in October on positive economic reports, strong corporate earnings, and favorable action in the euro-zone to contain the debt crisis to a handful of countries. Clearly, emotion and sentiment are exerting a big influence on prices, and we expect volatility will remain elevated as equity markets continue to wrestle with the uneven economic recovery and rapidly unfolding situation in Europe.
In this issue of Insight, our Chief Investment Officer, Jason Thomas, addresses the crisis in Europe and the potential unfolding period of economic stagnation in some developed economies. While volatile markets are uncomfortable, the current environment has also created some opportunities for smart adjustments to investment portfolios as well as possible financial planning decisions. We'll discuss some changes that Aspiriant is making in the implementation of clients' bond and real estate allocations, and Sandi Bragar explores how this may be a particularly opportune time for parents to assist their children with purchasing a home. Finally, as we approach yearend, we summarize some of the work we're doing on behalf of clients and highlight a few opportunities for minimizing your 2011 tax liability.
As you read through this Insight we invite you reach out to your Aspiriant team to further explore any of these ideas and how they might apply to you and your family.
Chief Executive Officer
No Easy Answers for the Euro Zone
Until recently, the risk of another acute financial crisis similar to the bankruptcy of Lehman Brothers seemed minimal. But the failure of Europe's leaders to aggressively address Greece's financial problems has allowed the strains to spread throughout the euro-zone. European bankers have admitted that a Greek default (or even revaluing Greek bonds at their market prices) might wipe out all of their equity … and then some. Governments once again have to step in to support their banks, including Dexia, a lender that was bailed out three years ago but which is now weighed down by Greek, Spanish and Italian debt. The amount of money parked at the European Central Bank (ECB) has risen to 15-month highs as banks refrain from lending to each other as the result of these concerns.
Leaving the Nest: Helping Your Child Purchase a Home
With housing prices still depressed in many areas across the country and mortgage interest rates at all time lows, clients look to us for advice on how best to help their children purchase a home. The available strategies span a range including outright cash gifts, low-interest rate family loans, co-ownership, and trust arrangements. This article introduces some of the more popular strategies.
Thanks Mom and Pop: Finding Value in the Municipal Bond Market
The primary role of bonds in Aspiriant portfolios is to reduce volatility, but investors should also expect to receive fair compensation for the use of their capital. Bonds can achieve impressive returns, typically during periods of falling interest rates, but we have historically been reluctant to accept the significant interest rate or credit risk needed to generate strong bond returns over time. Instead, we have traditionally minimized risk in the bond component and allocated risk to asset classes such as equities which we expect to offer a higher long-term rate of return. In the last few months, however, we have identified an opportunity in the municipal bond space, which we find compelling enough to somewhat adjust our approach to fixed-income investing for clients who hold fixed-income in taxable accounts.
Can the new gold rush last?
The renewed concerns about the global financial system have put gold into the spotlight recently. Here we review our thoughts on gold and the role gold plays in Aspiriant portfolios.
Changes to the Real Estate Lineup
Last quarter, the Aspiriant Investment Strategy and Research team completed a comprehensive review of our approach to publicly-traded real estate (REITs), which comprise up to 10% of many clients' portfolios. We have divided the global real estate allocation, previously implemented using the RREEF Global Real Estate Fund (RRGIX), into US and non-US allocations, implemented with two different managers. We implemented these changes in clients' portfolios in October.
'Tis the Season: Year-end Tax Planning Strategies
As we approach year-end, we work with clients and their tax and legal advisors to identify and execute tax minimization opportunities. Below we briefly describe a number of the opportunities that are available through the end of the year.
Chief Executive Officer