Week of June 25, 2007

The Markets
 
Whether the market is “half full or half empty” may depend on your period of measurement.

Last week’s two percent drop in the stock market, as measured by the S&P 500 index, was not pretty. Lingering concerns over subprime lending woes and rising interest rates were frequently cited as the culprits. However, if we stretch our horizon out to the year-to-date market return, we’re in a comfortable six to seven percent range, as indicated in the chart below. Moving even further out to the trailing one-year period, all three of the major stock indices are up at least 20 percent.

Interestingly, the stock market is made up of a large number of investors, each of whom has a different investment time horizon. To a trader, one day might be a long time to own a stock. To a speculator, a week or a month might be an average holding period. These traders, (we really can’t call them investors) are focused on the short term and to them, what happens in one day or one week is a big deal. That’s not the case with us. As long-term investors, we focus on a longer-term time horizon. With that said, we still monitor what happens in the short-term so we can make an occasional “mid-course change” when we believe the situation warrants it.  

We’re essentially “bi-focal” investors. We keep an eye on the short-term but are fixated on the long term. To us, it’s the best of both “investing” worlds. And that will end our clichés for this week!

Source: Yahoo! Finance, Barrons Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized.  Assumes dividends are not reinvested.

“Plastics.” In the 1967 film The Graduate, that’s the advice a family friend shares with Benjamin as the key to corporate success and a happy life. As the spring’s last bars of “Pomp and Circumstance” fade away, you may be searching for some words of wisdom to offer today’s graduates. The inaugural High School Graduate Survey conducted by Monster, the online recruitment company, provides insights that may help you to target your financial advice.

Monster’s survey illuminates the grads’ motivation and hard work. Two-thirds of those responding already have work experience under their belts. What’s more, three-fourths of students continuing on to college plan to work while they pursue their studies.
For these working eager beavers (oops, there’s another cliché), the Roth IRA is a sure fit—even if they’re in high school. Consider this. If a 15 year-old works bagging groceries at the local grocery store and contributes $1,000 into a Roth IRA each year until age 65, with a 9% return, he would accumulate more than $800,000. That’s not a bad deal considering he would have invested only $50,000.

In what might be wishful thinking, the Monster survey also finds that 80 percent of students preparing for college plan to utilize scholarships. Forty-eight percent will rely on their parents and 46 percent will use their own income as the primary means for tuition bills. Additionally, nearly 75 percent of students plan to rely upon Federal financial aid assistance, while 34 percent will look to private student loans to handle the rapidly increasing cost of higher education.

Is that realistic? In “Trends in student Aid 2006,” the College Board reports that almost two-thirds of full-time students receive grant aid. Additionally, millions of students benefit from federal tax credits and deductions for college tuition.

In the 2005 to 2006 academic year, postsecondary students received a total of $134.8 billion in student aid from federal and state governments, colleges and universities, and other private sources. About 44 percent of this aid was in the form of grants and 51 percent was in the form of Federal government loans. Subsidies awarded through the income tax system and work-study made up the remainder.

However, in each of the federal student aid programs, aid per student was lower in inflation-adjusted dollars this year than earlier in the decade. Both the total amount of Pell Grants awarded and the average Pell Grant per recipient decreased this year from last year.
If you know someone planning to apply for aid, you might suggest they check out a new online tool launched last month by Uncle Sam. Modeled on the government’s official aid application, the Free Application for Federal Student Aid (FAFSA), the newly launched FAFSA4caster estimates a family’s expected contribution to college costs and notes whether they will qualify for the federal Pell Grant program. All you need to get started at www.fafsa4caster.ed.gov is your child’s Social Security number and your own tax and financial information. An updated version of FAFSA4caster, due this fall, will include a feature that estimates how much state and college aid a student might expect to receive.

If “plastics” was the key advice word for 1967, what do you think is the key word for 2007? Let us know.

Weekly Focus -- A Brain Teaser
What is special about this number 854917632? (See the end of the commentary for the answer).

Best regards,

Fredrick J. Livingston, CLU, CFP

Securities offered through LPL Financial, Member NASD/SIPC

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. 

* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

Brain Teaser Answer:  It contains the numbers one to nine, in alphabetical order.