The April comeback after a 1st quarter retreat brought some relief to investors. Let’s take a look at index returns in the month of April and where the returns are year-to-date as of April 30, 2008. Remember, Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. We rely on index returns as a benchmark to compare our portfolio’s returns. However, even if you bought each security in the index, reinvested all the dividends, and held them the exact length of time as the index return period, you would not be able to achieve those returns because you have to pay transaction costs each time you buy and sell a security. The index reflects only the dividends and price changes of the securities it holds.
April 2008 YTD 4/30/2008
U.S. large stocks 5.1% -4.9%
U.S. small & mid-sized stocks 4.2% -6.1%
Foreign developed country stocks 5.4% -4.0%
Foreign emerging country stocks 8.1% -3.8%
U.S. broad bonds -.2% 2.0%
U.S. municipal bonds 1.5% .3%
We’ll look at the broad equity (stock) and fixed income (bond) markets.
The U.S. Stock Market: The Russell 3000 Index represents approximately 99% of the U.S. stock market. The largest 1,000 stocks make up the Russell 1000 Index. The next 2,000 stocks make up the Russell 2000 Index.
The Russell 1000 Index, large U.S. companies, achieved a positive total return (dividends plus price change) of 5.1% in April. That wasn’t enough to erase the losses in the 1st quarter. Year-to-date April 30 returns still posted a negative 4.9%.
The Russell 2000 Index, small & mid-sized U.S. companies, posted a return of 4.2% in April with a negative 6.1% return year-to-date.
Foreign stock markets did better than their U.S. counterparts. The MSCI EAFE Index, representing developed countries, returned 5.4% in April with a negative YTD return of 4.0%. Countries characterized as emerging economies posted 8.1% return in April but still lost 3.8% YTD.
If you had an allocation to bonds in your portfolio they helped buffer the losses experienced in the U.S. and Foreign stock markets in the 1st quarter.
Bonds
The Lehman Aggregate Bond Index represents the U.S. investment grade bond market. It includes U.S. government bonds, corporate bonds, mortgage pass-through securities, and asset-backed securities. Returns for April were -.2%, achieving a 1.95% return YTD.
For investors in a higher tax bracket who may have municipal bonds in their portfolio the S&P National Municipal Bond Index posted April returns of 1.5% and YTD returns of .3%.
2008 has been a challenge to investors. For those with an allocation between stocks, bonds, and cash that is suited to their risk tolerance and goals, it has been less stressful. If you have found yourself waking up during the night with your heart palpitating wishing it was morning so you could see how the markets are doing, I suggest you revisit your asset allocation because you could be too heavily invested in stocks.
If you want me to talk about how to determine an asset allocation that is right for you in a future blog, let me know. Or, if there is another topic of interest, send a comment to me.
Good investing!