Financial Commentary

 Market Update Video from Commonwealth Financial Network®

I would like to offer you the opportunity to hear thoughts from Brad McMillan, Vice President, Chief Investment Officer at Commonwealth Financial Network®, our broker/dealer. In this video, available at http://www.youtube.com/user/CommonwealthAdv, Mr. McMillan discusses domestic and international equity markets and the state of the U.S. economy, as well as what investors like you may want to consider going forward.

If you have any questions regarding market conditions, please feel free to contact the office at (301) 631-1207

Best regards,

Shabri

 Market Update for the Month Ending January 31, 2012

Presented by Shabri Moore

Off to a great start

January got the year off to a great start. The S&P 500 Index was up 4.48 percent while the Dow Jones Industrial Average climbed 3.55 percent. Clearly, the risk-on trade has returned, as this was the best January market performance since 1997.

The strong market action occurred despite somewhat disappointing corporate earnings results. Although only about one-third of S&P 500 companies have reported, only 59 percent have beaten estimates, which is less than the typical 68 percent to 75 percent. That said, the overall earnings growth rate so far for the fourth quarter has been 7.9 percent, which is up from previous levels, suggesting that companies that are beating estimates are doing so by wider margins. 

Technically, equity markets are showing signs of continued strength. The S&P 500 remains above its 200-day moving average, and the 50-day moving average has just crossed above the 200-day as well, a phenomenon known as the “golden cross.” The next resistance level appears to be around 1,350, suggesting some room for further price appreciation.

International markets performed even better than domestic investments, with the MSCI EAFE Index up 5.33 percent and the MSCI Emerging Markets Index up 11.24 percent for the month. Given the diversity of the markets and economies included in these indices, it is difficult to draw general conclusions, but it does seem that concerns about global growth and European debt issues have eased. Technically, the EAFE remains below its 200-day moving average, but the emerging markets index has recently crossed above, suggesting that investors may have more confidence in the emerging market space. 

Signs of life in the U.S. economy

On the whole, economic data was positive in the first month of the new year. Most notably, the employment situation showed signs of improvement, with the unemployment rate falling to 8.5 percent and strong gains in payrolls. The unusually mild winter weather in the northern states may have accounted for some of this trend, but unemployment has clearly continued to plod downward from its peak of 9.9 percent in December 2009. A rise in personal income and a reduction in initial jobless claims also implied better times for U.S. workers.

The manufacturing sector persisted, rebounding off its third-quarter weakness, according to data from the Institute for Supply Management. Both new orders and production rose at a faster pace than in the previous month, and anecdotal forecasts were upbeat. On the other side of the coin, housing continued to drag on economic prospects, with home prices falling 0.7 percent on a seasonally adjusted basis.

The initial estimate of U.S. gross domestic product (GDP) for the fourth quarter of 2011 was released in mid-January. GDP was estimated at 2.8 percent, annualized, which would be the best since mid-2010. Strong consumer spending on durable goods suggested improving confidence and demand, although a large contribution from inventory purchases could prove more transitory. GDP reports have tended to be revised downward in recent quarters, so, while a recession appears to have been averted, it is unclear whether economic growth was robust or merely marginal in the fourth quarter.

Fixed income dominated by Fed actions

Rates remained at historically low levels in January, supported by the Federal Reserve’s (Fed) announcement that it was committed to keeping rates low through 2014. Treasuries rallied at the end of the month, with 10-year yields ending below 2 percent. Municipal bonds also started the year on a positive note, as investors sought perceived safety at more attractive yields than Treasuries.

A new factor in this space was the release of economic projections by Fed board members and bank presidents. The projections called for only modest growth over the next several years and included a downward adjustment from projections made last November. This was perceived in a positive light by investors, who viewed a more conservative Fed outlook as supportive of continued low interest rates.

Europe—the never-ending story

The European situation continued to evolve in January. Negotiations for the Greek bailout continued, with pressure applied to public agencies to share in the pain by taking a haircut on their positions. The European Central Bank so far has refused to do so, and this remains a key uncertainty in how the issue will be resolved. Either way, it appears that the situation will come to a head in the next several months, as pending refinancing needs may force some sort of decision.  

Some positive news has come from the continued progress of negotiations over standardizing fiscal practices across much of the European Union, which may in turn lead to further German support of the debtor countries. The situation remains uncertain, however, and substantial risks remain.

A strong start but continued uncertainty

Although the markets had a strong start to the year, and many of the economic indicators are surprisingly good, uncertainty remains. In the U.S., consumer spending is the biggest item to watch, as the December figures were weaker than expected despite the relatively strong performance overall. Europe remains a risk, too. Nonetheless, the overall signs for the U.S. economy and markets are positive, and, although we can expect volatility to persist, our overall expectation is now cautiously optimistic.

Disclosure:Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners.

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Shabri Moore is a financial advisor practicing at Moore Wealth, Inc. She offers securities and advisory services as a registered investment adviser representative of Commonwealth Financial Network^®, a member firm of FINRA/SIPC and a Registered Investment Adviser. She can be reached at (301) 631-1207 or at Shabri@moorewealthinc.com.

Authored by Brad McMillan, vice president, chief investment officer, at Commonwealth Financial Network.

© 2012 Commonwealth Financial Network^®

Market Update for the Quarter Ending December 31, 2011

Presented by Shabri Moore

Another volatile year for investors

Markets ended 2011 on a strong note, after what had been a volatile year by historical standards. Domestic equity markets were helped by strong gains in the fourth quarter but still ended the year only modestly higher than they were last January. Despite lackluster returns, markets fluctuated widely during the year and tested the resolve of many investors.

Looking across asset classes, there was a considerable dispersion of return this past year. For equity investors, bright spots mostly came from defensive sectors. Utilities posted a total return of 19.73 percent, and consumer staples returned 13.93 percent for the year, according to Morningstar^®/S&P data. Conversely, financials had a rough year, losing 17.09 percent on worries over eurozone debt troubles. In general, large-cap stocks tended to outperform small-cap stocks and growth outperformed value.

Surprisingly, the best-performing asset class in 2011 was long-term U.S. Treasuries, which gained almost 30 percent, according to the Barclays Capital U.S. Treasury Long Total Return Index. Real estate investment trusts also returned a respectable 8.48 percent for the year, as represented by the S&P U.S. REIT Index. Gold continued to be a good portfolio diversifier, rising in price from $1,412 per ounce to $1,572 per ounce for the year, according to Bloomberg. On the flipside, international stocks underperformed significantly for the year, especially in the financials sector.

U.S. equities benefited from a strong fourth quarter

Headlines both domestic and abroad drove the majority of market volatility in 2011, creating a risk-on/risk-off environment. When the dust settled, the Dow Jones Industrial Average had posted an 8.38-percent total return for the year, benefiting greatly from a fourth-quarter gain of 12.78 percent. The S&P 500, with dividends reinvested, returned 2.11 percent, as its heavy weighting in financials hurt performance relative to the Dow. The S&P 500’s fourth-quarter gain of 11.82 percent managed to push it above breakeven on an annual basis (see chart).

Source: Bloomberg

International equities struggled

While domestic stocks benefited from fourth-quarter gains, international stocks were not so fortunate. The MSCI EAFE Index was up a modest 3.33 percent in the fourth quarter, leaving it down 12.14 percent for the year. Riskier emerging markets stocks fell further, as the risk-off trade drove them lower. For the fourth quarter, the MSCI Emerging Markets Index gained 4.08 percent but still lost a price return of 20.41 percent for the year.

Treasuries dominated fixed income markets

It seems that unless they concentrated their portfolio in long-duration Treasuries, investors faced a strong headwind in the fixed income space. The Barclays Capital U.S. Aggregate Bond Index returned 7.84 percent for the year, helped in large part by its Treasury exposure. The riskier Barclays Capital U.S. Corporate High Yield Index performed less well.

Unfortunately, many bond managers fell short of the aggregate index, having come into 2011 with a short-duration, underweight Treasuries bias. Their expectation that rates would rise on inflation and growth proved unfounded. Instead, renewed fears of weak global growth, high debt levels, and intervention by the Federal Reserve (the Fed) caused a rally in long-duration Treasuries.

Municipal bonds also surprised many investors, with strong performance throughout the year. The Barclays Capital Municipal Bond Index gained 10.70 percent in 2011, providing good diversification for tax-sensitive investors.  

Event risk played a role in 2011

Last year, we closed our market update with this statement, “It’s the risks that people aren’t expecting that could cause the strongest market reactions.” Sure enough, markets in 2011 were rocked by numerous unforeseen events. In particular, the Japanese earthquake and unrest in the Middle East come to mind.

Here in the U.S., ongoing debate in Washington over the debt ceiling, as well as renewed fears of recession, contributed to a single-day plunge in the Dow of 512 points in August. The subsequent S&P downgrade of U.S. debt saw the Dow trade 635 points lower on its first trading day after the announcement. It also became clear last summer that Europe would fall victim to its own mounting debt problems, which weighed heavily on markets late in the year.

The U.S. Fed announced Operation Twist in September, decreasing yields on the long end of the curve with the goal of supporting the housing sector and ultimately economic growth. Central banks around the world also intervened in currency markets in November, in a concerted effort to provide liquidity and bolster confidence in financial markets. Policy interventions have provided short-term support for markets, but these actions may be less helpful in the long run.

The U.S. economy grinding along, but global growth a concern

While remaining weaker than its long-term trend, U.S. gross domestic product (GDP) still managed to expand in 2011, at an estimated rate of 1.8 percent in real terms. Economic growth appeared to pick up slightly in the second half of the year, as the negative effects of the Japanese earthquake faded.

Home prices continued to fall in 2011. Manufacturing and industrial production growth also slowed but still moved in a positive direction.

The most encouraging development last year was a decrease in the unemployment rate, from 9.4 percent to 8.6 percent, the lowest it has been since the beginning of 2009. Changes in the employment situation tend to lag the overall economy and shouldn’t be interpreted as predictive of future economic growth. That said, an increase in the number of working Americans may help boost consumer confidence and spending.

The biggest threat to continued U.S. growth may come from overseas. According to Bloomberg, the consensus among economists is for eurozone GDP to contract 0.2 percent in 2012, as many European countries fall into recession. (If this occurs, austerity measures will likely be to blame.)

Because the U.S. engages in roughly three times as much trade with Europe as it does with Japan, a slowdown in Europe could have a significantly larger direct impact on our domestic economy than did the recent recession in Japan. Despite this concern, consensus expectations are for U.S. GDP to grow 2.1 percent in 2012.

Looking ahead

Looking ahead into 2012, we are bound to see an increased focus on domestic politics with the coming of the presidential election cycle. So far, Republican candidates have focused mainly on attacking one another. This will change in the coming year, and differences between Republicans and Democrats on subjects such as entitlement spending and tax levels will once again come to the forefront. Market participants will watch the debate carefully and may react differently depending on which party controls Congress and the White House after the election.

The European debt situation may soon intensify. Italy needs to refinance approximately €118 billion in bonds in the first quarter, according to some estimates. This may represent more than 20 percent of the nation’s estimated funding needs for 2012 through 2014. The bond sales will likely test investor willingness to continue lending to the debt-plagued nation and to European peripherals as well.

A new year

For many investors, finding positive returns was challenging in 2011, while finding volatility was far too easy. Yet this is the start of a new year, and last year’s winners and losers may perform differently going forward. Portfolio changes at this time should be more of an adjustment to long-term planning goals rather than an attempt to chase past performance.

Disclosure:Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. Barclays Capital U.S. Treasury Long Total Return Indexincludes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) and U.S. government agencies and instrumentalities, as well as corporate or dollar-denominated foreign debt guaranteed by the U.S. government, with maturities greater than 10 years.The S&P U.S. REIT Index measures the securitized U.S. REIT market, covering approximately 89 percent of the U.S. REIT market capitalization and maintaining a constituency that reflects the market’s overall composition. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners.The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Barclays Capital U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than two years) selected from issues larger than $50 million.

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Shabri Moore is a Certified Financial Planner practicing at Moore Wealth, Inc. She offers securities and advisory services as a registered representative of Commonwealth Financial Network^®, a member firm of FINRA/SIPC and a Registered Investment Adviser. She can be reached at (301) 631-1207 or at shabri@moorewealthinc.com.

Authored by Simon Heslop, CFA^®, director of asset management, at Commonwealth Financial Network.

© 2012 Commonwealth Financial Network^®

Market Update for the Month Ending November 30, 2011

Presented by Shabri G. Moore

Market volatility persists

Sustained market volatility in November confirmed our outlook that large swings in asset prices were likely to continue. Equity markets traded mostly lower during the month, dragged down by concerns over the worsening European debt crisis. Indeed, stocks were set for a historically poor month of performance, but a strong three-day rally at month-end—which saw the Dow Jones Industrial Average gain 7.35percentand the S&P 500 Index rise 7.69percent—reversed the selloff.

When the dust settled, the Dow had gained 1.18 percentfor the month; year-to-date, as of November 30, it is up 6.70 percent. The S&P 500 managed to gain back almost all of its earlier losses to finish down a nominal 0.22 percentfor the month. Year-to-date, it is up 1.08 percent.

Global markets and risk assets

The fate of international equities was similar to U.S. stocks throughout much of November, although market movements, in either direction, were amplified. Troubles in Europe took center stage, causing global markets to whipsaw. In particular, the financial sector experienced extreme volatility because of its exposure to European sovereign debt. Despite a month-end rally, the MSCI EAFE was down 4.85 percentfor November, leaving it 11.30-percentlower for the year.

The riskier MSCI Emerging Markets Index lost 6.75percentfor the month, leaving it down 19.37percent for the year. Higher-risk assets in the fixed income space also struggled. The Barclays Capital U.S. Corporate High Yield Index was down 2.74percentin November. Meanwhile, the more conservative Barclays Capital Aggregate Bond Index lost just 0.09 percent.

Concerns over Europe’s debt intensify

Bond yields have risen to unsustainable levels across the continent—particularly in Italy—causing politicians to scramble for a plan to deal with the crisis. The accompanying chart shows how the yield on Italy’s 2-year government bond has spiked. Because Italy’s debt level is in excess of $2 trillion, it is extremely challenging for eurozone leaders to find a solution that won’t harm European banks or slow already anemic economic growth.

The central issue is actually more of a fiscal problem than a monetary problem. This means that it will have to be tackled by politicians and not simply dealt with by the European Central Bank. That said, central bank actions can still have an effect. On the last day of November, we saw coordinated intervention by central banks to inject liquidity into the eurozone. Global markets embraced the move and rallied sharply higher. Here in the U.S., markets saw their biggest up day since March 2009.

The fact that this simple step helped markets so dramatically is of real interest. It seems, at least for now, that investors are content with liquidity, even if the ultimate solvency of sovereign issuers remains in question.

Nevertheless, the longer-term problems still need to be addressed. As the largest European economy, the responsibility appears to have fallen on the shoulders of Germany. While measures such as bolstering the European Financial Stability Facility have helped, getting 17 eurozone countries to agree on anything has been difficult, to say the least. Germany itself is internally divided as to how much assistance it owes to its fellow European nations. Given these headwinds, we expect continued market disruptions to emanate from Europe.

Businesses cautious, mixed signals from consumers

A divergence appears to be developing in the U.S. economy. While businesses are showing signs of caution, consumers seem willing to spend. Black Friday sales rose 6.6 percent over the prior year, to an all-time high. Retail sales data has also been strong, although overall spending was lower than expected in October. Some economists have spoken of “savings fatigue” as a potential explanation for why Americans are spending despite negative headlines. This trend suggests that pent-up demand over the past three years could become a tailwind to U.S. growth going forward.

On the other hand, business management teams still have a vivid memory of 2008. The possibility of a second crisis could be causing them to be more vigilant in the current uncertain environment. Investment in inventories was weaker than expected in the latter half of the third quarter, causing a downward revision to gross domestic product (GDP) estimates from 2.5 percent to 2 percent, annualized. In addition, manufacturing and CEO confidence surveys have both demonstrated that business leaders continue to be conservative in their outlooks.

Setting aside measures of sentiment, the U.S. economy continues to toil along. Housing remains depressed, but manufacturing and the employment situation have shown small signs of improvement. Initial jobless claims have trended lower in recent months, and ISM manufacturing improved in November.

So, while the U.S. economy remains lukewarm, European debt and economic worries are likely to continue to drag on investor confidence. Bloomberg consensus estimates are for GDP to grow just 0.5 percent in the eurozone in 2012. Meanwhile, austerity measures have already pushed some periphery countries into recession; Portugal, for example, has experienced negative growth in every quarter this year.

Year-end housekeeping

With the holiday season upon us, schedules are no doubt stretched thin, and investors may find it difficult to focus on their investments and financial plans. Yet the current environment may present some opportunities for investors to realign their portfolios or even to harvest losses to help ease the tax burden. A little attention now could indeed add value down the road, helping to ensure that portfolios are positioned appropriately to help achieve long-term goals.

Disclosure:Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners.The Barclays Capital U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.

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Shabri Moore is a financial advisor practicing at Moore Wealth, Inc. She offers securities and advisory services as a registered investment adviser representative of Commonwealth Financial Network^®, a member firm of FINRA/SIPC and a Registered Investment Adviser. She can be reached at (301) 631-1207 or at Shabri@moorewealthinc.com.

Authored by Simon Heslop, CFA^®, director of asset management, at Commonwealth Financial Network.

© 2011 Commonwealth Financial Network^®

Market Update for the Month Ending October 31, 2011

Presented by Shabri Moore

Markets post record gains
October saw most global markets bounce sharply off annual lows.

• The Dow Jones Industrial Average experienced its best month since October 2002, gaining more than 1,000 points or 9.72 percent.
  • Year-to-date, the Dow is up 5.45 percent.
• The S&P 500 Index gained 10.93 percent in October, its best monthly performance in almost 20 years.
  • It is 1.3 percent higher for the year.
• Investors received some clarity around the European debt situation.
  • Leaders announced a plan to help relieve debt pressures and protect Europe’s banking system.
• Gains in domestic economic output also helped drive markets up.
  • Some speculate that markets may now be overbought, which could cause pressure to sell.
  • One thing is clear: market volatility remains elevated.

International markets up sharply

• The MSCI EAFE Index climbed 9.64 percent, but it is down 6.78 percent year-to-date.
• The riskier MSCI Emerging Markets Index gained 13.08 percent, though it too is down, 13.53 percent, for the year.
  • Gains in the emerging markets index were particularly indicative of a risk-on/risk-off period for markets (see chart).
• October’s risk-on trade was also evident in most other risk asset classes.

Source: Bloomberg

Fixed income continues to anchor portfolios

As recessionary concerns subsided, investors took advantage of attractive price levels and bought back into the high-yield and bank loan sectors.

• The Barclays Capital High Yield Bond Index gained 5.35 percent for the month, though it is still down 2.99 percent for the year.
• Core fixed income, as measured by the Barclays Capital Aggregate Bond Index, gained a modest 0.11 percent for the month.
  • With this index up 6.76 percent year-to-date, the asset class has continued to provide diversification for portfolios and helped reduce portfolio volatility.

Better economic news

Equity market volatility over the past few months had caused many to worry that recession was imminent.

• Instead, the U.S. economy grew at a faster clip in the third quarter of 2011 than it had in the second or first.
• Personal consumption, business investment, and exports helped gross domestic product (GDP) grow at a 2.5-percent annualized rate for the quarter.
• Consumer spending has proven surprisingly resilient.
  • Demand for autos rebounded after slowing in the wake of the Japan earthquake.
  • Retail sales have proven fairly robust.
• Spending has come at the cost of a declining savings rate, which has fallen to an average 3.6 percent of disposable income.
  • Though it helps short-term growth, a declining savings rate would be a worrisome trend over the medium to long term.
• ISM manufacturing numbers have indicated slow expansion, and industrial production continues to grow.
• Housing, on the other hand, is still lagging.
  • Recent data show prices continuing to fall nationwide, albeit slowly.

Greece, austerity, debt, and yet another plan

The European debt situation continues to cause market volatility.

• A proposed resolution was announced at month-end, causing global markets to rally sharply.
  • The plan called for banks to write down Greek debt by 50 percent, a measure that the banks had initially resisted.
  • The European Central Bank pledged €1 trillion ($1.4 trillion) to the European Financial Stability Fund to help stabilize European financial institutions.
• Investors initially reacted very positively, but skepticism quickly returned.
  • Greece’s prime minister proposed a referendum on the plan.
  • The vote may occur in December or January and could cause market jitters in the interim.

Expect volatility to persist

• There is little to suggest that market volatility will subside soon, especially given the political landscape in Europe and the U.S.
  • Until we see more evidence that the economy can stand on its own two feet, markets could continue to fluctuate.
  • Investors would do well to focus on their long-term goals, rather than on the daily newsbeat.

Disclosure:Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners.The Barclays Capital U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.

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Authored by Simon Heslop, CFA^®, director of asset management, at Commonwealth Financial Network.

© 2011 Commonwealth Financial Network^®