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Elizabeth Wilson, MS, CFP, CMFC

The Monarch Report July 30, 2012


The Markets
Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough. --Mario Draghi, European Central Bank (ECB) President Its quite amazing how one sentence from one man can help spark a major rally in stocks, bonds, and the euro currency. Draghis comments last Thursday in London represent a significant ramping up of the ECBs willingness to use its resources to hold the euro together and investors responded enthusiastically. On the day of Draghis comments: The euro and the British pound each gained more than 1 percent against the U.S. dollar. Stocks were positive in nearly all European markets. Italian and Spanish indexes each jumped more than 5 percent. The Spanish 10-year bond yield dropped nearly half a percentage point from the day before and the 10-year Italian bond yield was down a similar amount. The S&P 500 index rallied 1.6 percent.

Sources: The Wall Street Journal; CNBC

Between Draghi in Europe and Fed Chairman Ben Bernanke in the U.S., central bankers seem to be exerting an outsized influence on the markets. Normally, you expect markets to roughly trend with corporate earnings. Speaking of earnings, several high-profile companies including Amazon, Facebook, and Starbucks, fell short on their second quarter earnings numbers released last week, according to CNBC. Overall, earnings for the companies reporting so far this quarter have been a bit on the light side, according to CNBC. While earnings ultimately matter in the long run, todays markets seem focused on the support provided by central banks. And, yes, an up market is an up market regardless of whats propelling it. However, for long-term sustainability, we need the markets to go up based on their earnings growth not artificial stimulus.

903B Murfreesboro Road Franklin, TN 37064 615-614-0070 www.monarchadvisorygroup.com

Data as of 7/27/12 Standard & Poor's 500 (Domestic Stocks) DJ Global ex US (Foreign Stocks) 10-year Treasury Note (Yield Only) Gold (per ounce) DJ-UBS Commodity Index DJ Equity All REIT TR Index

1-Week 1.7% 0.9 1.6 2.7 -1.9 1.0

Y-T-D 10.2% 1.4 N/A 2.8 2.0 17.2

1-Year 7.3% -16.9 3.0 -0.4 -13.1 13.6

3-Year 12.2% 2.3 3.7 19.2 5.1 29.4

5-Year -1.0% -6.6 4.8 19.6 -3.4 4.9

10-Year 4.4% 5.8 4.5 18.2 4.0 11.3

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barrons, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

THE BEST AND THE WORST DAYS IN THE STOCK MARKET tend to occur rather close to each other and that has major implications for how to be a successful investor. While its tempting to try to aggressively time the stock market and be in on the best days and sitting in cash on the worst days, thats not a viable strategy. The chart below shows how just a few days each decade made a profound impact on the performance of the market over that decade.
Annualized Return by Decade Decade 1970s 1.6% 1980s 12.6 1990s 15.3 2000s -2.7 Source: BMO Capital Markets Return Excluding 10 Best Days -2.3% 7.6 11.0 -9.2 Return Excluding 20 Best Days -5.0% 4.6 8.0 -13.2 Return Excluding 30 Best Days -7.2% 2.0 6.0 -16.9 Return Excluding 40 Best Days -9.1% -0.4 3.0 -19.5

For example, during the 1980s, the S&P 500 had an average annualized return of 12.6 percent. However, if you excluded the return of the 40 best days during that decade, then the return would have fallen to a negative 0.4 percent. In other words, just 40 days out of that 10-year period accounted for all of the return for the decade. Wow! Now, you also have to know that missing the 40 worst days during the decade would have a profound positive impact on your performance. But, heres the rub it would take perfect foresight to know in advance when these 40 best and worst days would occur. And, of course, none of us have that. What makes aggressive timing even more difficult is that these best and worst days often happen pretty close to each other. BMO Capital Markets discovered that since 1970, more than 50 percent of the 40 best days occurred within two weeks of one of the 40 worst days! So, imagine this the stock market has one of its worst 40 days for the decade and you are lucky enough to be sitting 100 percent in cash that day. Now, realistically, after a big drop like that, are you going to have the nerve to jump 100 percent right back in? If you didnt, youd miss more than half of the 40 biggest up days since those big up days often occur within two weeks of a big down day. The lesson here is simple. Markets are volatile and the price of long-term return is enduring the pain of periodic declines.

903B Murfreesboro Road Franklin, TN 37064 615-614-0070 www.monarchadvisorygroup.com

Weekly Focus Think About It


The most important thing in the Olympic Games is not winning, but taking part; the essential thing in life is not conquering, but fighting well. --Pierre de Coubertin, founder of the modern Olympic Games Best regards, Your Monarch Team Please like us on Facebook. Simply follow this link and click Like: http://www.facebook.com/pages/Monarch-Advisory-Group/174145579313947?ref=hl P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. Securities offered through LPL Financial, Member FINRA/SIPC.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer. * 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 DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. * Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. * The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

903B Murfreesboro Road Franklin, TN 37064 615-614-0070 www.monarchadvisorygroup.com

* Past performance does not guarantee future results. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision. * To unsubscribe from the Monarch Report, please reply to this e-mail with Unsubscribe in the subject line, or write us at krista.bowen@lpl.com. Sources: http://online.wsj.com/article/SB10000872396390443477104577550710566458228.html? mod=WSJ_hp_LEFTWhatsNewsCollection http://www.cnbc.com/id/48335105/ http://www.cnbc.com/id/48335982 http://research-ca.bmocapitalmarkets.com/documents/F0D72405-29FD-46E1-A8003AC70C262AE0.PDF http://www.psychologytoday.com/blog/here-there-and-everywhere/201207/27-quotes-the-olympics

903B Murfreesboro Road Franklin, TN 37064 615-614-0070 www.monarchadvisorygroup.com

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