Insightful Investing Newsletter January 2006
4th Quarter 2005 Market Recap
After the volatile action of the 3rd quarter, it was not surpising that this year’s 4th quarter was rather quiet as both stocks and bonds were up slightly. While international stocks could not sustain last quarter’s double digit gains, they still topped the equity markets for the second straight quarter by picking up an additional 4% for the year. All other equity categories were up between 1% and 3%. Not much to write about, but at least its enough to keep you ahead of inflation. All categories of equities were up 3% to 5% for the quarter. Bonds continue to tread water by earning investor about 1%. That doesn’t sound like much, but it does indicate yields are at least managing to compensate for the falling values. 
Since the quarter was rather uneventful, let’s go straight to a review of 2005. A rough start to the year did not prevent stocks and bonds from having a positive year. Real Estate and Domestic Equities rebounded strongly in the 2nd quarter, while a strong surge by International stocks in the 3rd quarter propelled them to a 13.5% gain for the year. Mid Cap Stocks were not far behind, picking up 12.7% over the last 12 months. Thats somewhat amazing given the fact that both Large Caps and Small Caps increased just under 5% this year.
In spite of the fact that Growth stocks outperformed Value stocks for the third straight quarter, it wasn’t enough to declare them the winner in 2005, unless of course you are talking about funds rather than indices. It appears that active managers are starting to move from Small Value stocks (0.6%) to Large Growth stocks (3.3%), which just so happens to be reflected in the performance of these funds for the quarter.
Even though Real Estate funds had their third year in a row of double digit returns, this year’s 11.5% seems a little small compared to the last two. In spite of all the gloom and doom talk in the press about the bubble bursting in the housing market, these funds did better than most.
Bonds continue to hold up well, in spite of the continued tightening of interest rates by the Fed. A 2.5% return last year may not seem like much, but considering the difficult environment, that is a good showing. This should serve as another reminder that that a well diversified asset allocation is the best way to stay ahead of the markets.
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