Investing Newsletter October 2004

Our Real Estate funds bounced back strongly in the 3rd Quarter, with Fidelity Real Estate (FRSEX) leading the way with a gain of almost 8.5%. On the other end of the spectrum, we were disappointed with both of the ABN AMRO Funds this quarter, as both of them were down in the 6% range. While this was more than the average fund in their categories, both of these funds were leaders last quarter. This shows that you should always evaluate a fund for longer time periods than just one quarter.

It was a good quarter for all of our bond funds, with Fidelity Capital and Income (FAGIX) and Fidelity Strategic Income (FSICX) with gains of almost 5%.

A list of our Favorite Mutual Funds was updated in July with information through June 2004.

Asset Allocation for 4th Quarter 2004

There are a few changes to our Favorite Mutual Fund List and Model Portfolios this quarter, but at this time of year you should consider your tax situation before buying or selling any funds in your taxable accounts.

We have added a couple of Bond Funds to our favorites list. We have been watching Westcore Plus Bond (WTIBX) for a while. It continues to be a top performing Intermediate Bond Fund, so it you need someplace new to put some of your Bond money, this would be an appropriate place. For Fidelity investors, we have now added Fidelity Strategic Income Fund (FSICX) to our favorites list. Since this fund invests in multiple bond sectors, it should gives the managers the ability to reduce the risks associated with rising interest rates.

Due to the disappointing performance we are dropping ABN AMRO Growth N (CHTIX) and ABM AMRO Mid Cap N (CHTTX) this quarter. Look for some new recommendation by year end.

It should not surprise you that one of our favorite Small Cap Funds is closing to new investors. RS Partners (RSPFX) has been one of our best performers, but if you are not already an account holder, you will no longer be able to invest in this fund. What did surpise us is that Royce Micro Cap (RYOTX) has reopened to new investors. On the Fidelity side of the house, Fidelity Small Cap Independence Fund (FDSCX) popped onto our radar screen after a relatively strong 3rd quarter. While we do not think your have to go out and sell the Fidelity Small Cap Fund (FSLCX) , we do feel that that the Independence Fund will be a better place to invest new money in the future.

We are maintaining our cautious outlook on the market this quarter. To reiterate last quarter’s newsletter, we continue to suggest reduced equity exposure.

Conservative Asset Allocation October 2004

Conservative Asset Allocation October 2004

Insightful Asset Allocation October 2004

Insightful Asset Allocation October 2004

Financial Markets Update October 2004

Tech was wrecked in the third quarter, dropping over 11%. Real Estate, on the other hand, more than made up for a difficult 2nd quarter with a gain of more than 8%. Stocks lost a little ground in the third quarter, with Large Cap dropping 2% and Small Cap losing 3%. The spurt last quarter by Growth stocks did not last long as these stocks gave up almost 5%, while Value stocks held steady with a 1% gain. The weak dollar helped international stocks finish the quarter just about where they started.

As expected, the Fed raised short term interest rates a couple of times during the quarter. What surprised the markets was the fact that the increases were only 0.25% instead of the anticipated 0.50%. So instead of Bonds having a poor quarter, they actually gained 3%. High Yield Bonds picked up an even better 4%.

With the price of Oil hovering near $50 a barrel, Natural Resource funds performed well this quarter. We will be looking into these funds in our future reports.

Over the last 5 years, Real Estate has provided investors with annualized returns approaching 20%. Coming in a distant second with just over 7% returns has been Bonds and Small Cap Stocks. During this difficult time for the stock market, being invested in a money market fund has actually proven to be better than anywhere else besides these three categories.


Investment Returns ending September 2004

Investment Returns September 2004