Even with the backdrop of many unresolved problems, the financial markets continued strong performance in 2012. Many of the major domestic stock indexes experienced returns in excess of 10% for the year, with the S&P 500 advancing by 16%.
Foreign equity markets also logged impressive returns. Despite continued concerns over the stability of the Euro, the MSCI EAFE Index, consisting primarily of large capitalization international stocks, advanced in the neighborhood of 17%.
With the exception of higher-risk “junk” bonds, performance of the bond market was much more subdued. The highest rated corporate and government bonds, actually declined from a real (inflation adjusted) return standpoint.
As a result of the Federal Reserve pledging to keep interest rates low for an extended period of time, bond investors are likely to continue to helplessly watch as the purchasing power of their investments continue to erode from inflation.
So what does the future hold for investors, now that plummeting off the “fiscal cliff” has been averted?
In general, we believe that tax certainty can be beneficial from both a business and investment standpoint. The recent tax bill has permanently addressed certain components of our tax code (see here for details). That may provide an economic stimulus as individuals and businesses are able to more effectively plan for the future.
Unfortunately, the fiscal cliff negotiations are only one of many financial hurdles that investors will undoubtedly face over the coming decade.
However, it is our hope that all Beacon clients will approach these financial hurdles with the confidence of knowing that they are making informed financial decisions based on their personal needs and circumstances.
We sincerely hope that each of you have a 2013 that is filled with joy and happiness. Happy New Year!